Why small businesses are outsourcing to South Africa

While our cricketing relationship may have soured with the South Africans, our business dealings seem to be rising with Australian companies increasingly looking for alternative cheap employment options other than the Philippines.

“For the past 18 months I have been using South Africans in Cape Town to help me with my business here in Australia,” Peter Wilson, founder of The Shopper Collective, says.

Outsourcing data analytics

“I outsource in the area of data analytics. I work with a data scientist for advanced analytics such as segmentation and a team of highly experienced market research professionals. I also have a team of creative people over there, who are highly experienced in retail and shopper marketing, and who have experience working with some of the world’s biggest brands.”

The Shopper Collective converts shopper research into insights and ultimately shopper action. Wilson’s turnover, which is about $300,000 a year, involves only employing contractors when needed. He employs up to eight  contractors in Australia and almost a dozen in South Africa.

“My business structure works well for me because I employ people on contracts when needed,” Wilson says. “Cost efficiencies are the main main reason we hire people in South Africa. The Australian dollar is still comparatively strong against the ZAR (11:1 ratio), which means I can work with a highly skilled and trusted team at less than what I would pay in Australia.

“The time zone works too. I often brief my associates in South Africa mid to late afternoon, and I have responses in my inbox by the time I wake up the next morning. That gives me the opportunity to be always on, even for my small business.

“Finally, culturally, I am dealing with people who largely have English as a first language, and who share similar lifestyle and sporting interests, as the average Australian. The culture of work is also very similar, which helps immensely when close collaboration is necessary.”

South Africa’s transformation

According to Austrade, South Africa has transformed into a sophisticated manufacturing and service-based economy. The services industry comprises about two-thirds of the country’s GDP, while the mining and agricultural sectors now contribute around 6 per cent to GDP.

“It’s my belief that a lot of the businesses that moved their activity to the Philippines for a significant cost saving are now concerned by their customer dissatisfaction,” Darren Lord, chief executive officer of The Smart Group, says.

“They are now looking for a better option but bringing the work back into Australia isn’t an option because it would double their budget for this operation, which a lot of businesses can’t fund.”

The Smart Group, which is based in Richmond, Melbourne, specialises in sales servicing inbound and outbound contact centre activity across residential and business sales. Its turnover is in ‘the millions of dollars’ and The Smart Group employs more than 100 staff in Australia and  more than 30 employees in South Africa.

“We have moved our sales manager and compliance manager to Durban to operate on the ground and mirror our Australian operation and we have established a purpose-built facility in partnership with Dimension Data in Durban,” Lord says.

“For clients who are currently using other offshore locations but their customers are frustrated with the experience, South Africa provides a more suitable experience to that of Australia but at 45 per cent of the Australian costs,” he says.

Setting up a business in South Africa

Establishing a business in South Africa is relatively easy after the introduction of a new company law, which eliminated the requirement to reserve a company name and simplified the incorporation documents. The new Companies Act 2008 of South Africa requires the Notice of Incorporation and the Memorandum of Incorporation must be lodged at the Companies and Intellectual Property Commission upon registration.

“We now have 34 Australian companies who have invested in South Africa according to the Foreign Direct Investments markets database,” says Dean Hoff, director of South Africa’s Department of Trade and industry.

“Australian companies gain market access to the South African population of approximately 60 million people; favourable labour costs, a gateway into the African continent in terms of corporate headquarters, logistics and experience of doing business on the continent, as well as access to a skilful talent pool.

“There are also common legal and financial frameworks to that of Australia coupled with a range of trade agreements.”

The South African government has established Invest South Africa, which is a division of the Department of Trade and Industry, created as a dedicated public-private sector partnership. It provides investment promotion, facilitation and aftercare to fast-track projects, while also reducing government red tape.

Services include assistance with location scouting, introductions to relevant stakeholders such as other government departments (by way of example the Department of Labour has a list of unemployed people seeking work), introduction to financial institutions, incentive facilitation, as well as visa facilitation.

“Outsourcing to South Africa has resulted in improvements in business performance for numerous Matchboard clients,” Sharon Melamed, founder of Matchboard says.

Matchboard is a business-matching website that specialises in outsourcing services. Through the platform, companies are matched with suitable suppliers, resulting in around $8 million in deals invoiced in 2017. Matchboard takes a success fee, amounting to just under $500,000 last year.

“Benefits include better customer experience because clients can afford to offer 24-hour service seven days a week; lower cost to acquire a new customer; and better service because customers aren’t kept waiting as long, as clients can afford to staff more generously in a lower cost destination such as South Africa,” Melamed says.

“Durban is a centre of excellence for sales and retention work, while Cape Town is traditionally better suited to multilingual – mainly European language – and customer service work.”

Published 2018 | The Sydney Morning Herald by Louis White

South Africa’s Outsourcing Hotspot Trio

In recent times, South Africa has gained prominence as a preferred outsourcing destination while competing with locations such as Ireland, Paraguay, Malaysia and Poland. In the 2015 Tholons Top 100 Outsourcing Destinations report, which ranks cities in terms of outsourcing attractiveness, three South African cities make the cut – Johannesburg (21), Cape Town (57) and Durban (100). The presence of large-service buyers such as ASDA, Amazon, Old Mutual, Carphone, Lufthansa, British Gas and Virgin Mobile, along with global service providers such as Accenture, WNS, Capital, Genpact, CSC and Teleperformance enable SA to establish a robust supply-demand equilibrium.

In fact, a combination of factors such as cost effectiveness, government support, time zone and cultural similarities and the like has helped South Africa project itself as an emerging outsourcing destination. The selection of an outsourcing destination is a crucial decision process in choosing an outsourcing partner. This decision impacts the long-term success of outsourcing partnerships, hence, non-price factors become very important as cost advantage is no longer the most important objective in outsourcing partnerships. Companies are now expecting more value, enhanced performance, better service and innovation from the potential outsourcing destination.

Cost: South Africa’s cost-competitiveness works in its favour. The country offers 40-45% lower cost compared to near-shore locations in the UK (Northern Ireland etc.) and 10-20% lower than locations in Central and Eastern Europe (Czech Republic, Hungary, Romania).

Cultural alignment and accent neutrality: Drawing on its colonial history, South Africa is culturally very similar to western countries, especially on business protocols, institutional design, legal and educational systems etc., talent in service delivery shows a strong cultural connect with clients in the UK and European countries, in terms of communication and comprehension. This capability is particularly relevant and critical when it comes to process improvements. Neutral accent also helps in better communication with the clients

Time zone: South Africa has a strategically favourable time zone. The time difference is two hours (winter) and one hour (summer) with the UK and one hour with continental Europe.

Quality of labour: South Africa has a steady supply of quality labour as a result of its high secondary education enrollment and availability of specialised training services.

Published 2016 | Deloitte

Traditional outsourcing is dead. Long live disruptive outsourcing.

The Deloitte Global Outsourcing Survey 2018

Disruptive outsourcing leaps to the front. Our 2018 survey of more than 500 executives from leading organizations indicates that disruptive outsourcing solutions—led by cloud and automation—are fundamentally transforming traditional outsourcing.

In the past, organizations typically used outsourcing to improve back-office operations through cost reduction and performance improvement. Today, disruptive outsourcing solutions are enabling competitive advantage by accelerating changes within those organizations that have the audacity and skill to leap over the technology chasm; for them, outsourcing can pioneer a northwest passage to top line growth, as well as to a more agile, effective back office. The focus has shifted from traditional work transfer to upfront transformation and automation. Organizations are recognizing that disruptive solutions can revolutionize the way they do business, and that “buying” capabilities in the marketplace is generally faster and more scalable than developing capabilities internally. Emerging solutions incorporating cloud and automation are empowering organizations to work smarter, scale faster, reach new markets, increase productivity and, ultimately, to gain competitive advantage.

As with many initiatives, organizations are finding that delivering competitive advantage through disruptive outsourcing solutions is anything but simple; effort and expertise are needed to address security and cyber risks, changing regulations, organizational resistance, skill gaps, and to help flatten fragmented processes. In this new world, place your bets on the brave and the good, and against the fearful and complacent.

This report emerges from the insights we gathered from our survey participants, who generously shared the lessons they have learned from their outsourcing experiences, coupled with our own insights garnered over many years of experience working with our clients on both outsourcing and emerging technologies. We look forward to discussing your perspective on our report with you.

Published 2018 | Deloitte

A pursuit to create 192,000 jobs by 2030

It is a common misconception that outsourcing leads to job losses and retrenchments. This is quite far-off given that the advantages far outweigh the advantages. The South African outsourcing industry has been identified as a catalyst for socio-economic growth and is set to grow our GDP significantly. With a rising English speaking population, favourable time-zone and weakened currency, South Africa provides a significant cost differential for multinationals seeking favourable offshoring destinations.

Furthermore, South Africa is home to three outsourcing hotspots; Johannesburg, Cape Town and Durban who were voted positions 21, 57 and 100 respectively by the Tholons Top 100 Outsourcing Destinations Report. The factors relating to the country’s competitiveness against Ireland, Paraguay, Malaysia and Poland, include cost-competitiveness, cultural alignment and accent neutrality, risk profile, infrastructure, time-zone and quality of labour.

A country that is able to import foreign jobs onto its shores creates new jobs, however, our opportunity for increasing foreign direct investment (FDI) is lessened when a country speaks ill of outsourcing locally through the #OutsourcingMustFall/ #EndOutsourcing campaign led by various university students.

To this end, Deloitte Business-Process-as-a-Service (BPaaS), Outsourcing for Growth, seeks to engage with government, business and the community at large around our collective contribution to growing the South African economy and increase the countries competitiveness in the global outsourcing landscape.

Published 2016 | Deloitte

Accessing Relevant Talent is New Value Proposition for Impact Sourcing in South Africa | Sherpas in Blue Shirts

Earlier this year, Everest Group and The Rockefeller Foundation partnered on research in support of the Foundation’s Digital Jobs in Africa (DJA) initiative, the goal for which is to demonstrate the value of impact sourcing and promote its adoption in South Africa and beyond.

Impact sourcing is a business process service delivery model that provides employment opportunities to previously unemployed individuals who have not been meaningfully engaged in the formal economy. Generally, the individuals who are employed via impact sourcing belong to economically and/or socially disadvantaged backgrounds, or are differently-abled.

An overview of the impact sourcing market in South Africa in 2016 50 to 55 percent of the ~ 235,000 FTEs in the South Africa BPO market qualify as impact workers. This high share is because there is no, or limited, difference in the profile of impact and traditional workers hired in normal course of operations, meaning that although companies hire impact workers, they do not claim it to be impact sourcing.

Value proposition of impact sourcing in South Africa
As part of the 2016 engagement with The Rockefeller Foundation, our detailed business case included identification of six key elements to the impact sourcing value proposition in South Africa:

Everest Group During our research, companies indicated that impact workers, especially those who have gone through training programs, exhibit better behavioral characteristics. These include higher adherence to timetable, lower absenteeism, higher motivation level, and lower attrition. In fact, as it relates to workforce stability, which is a critical component of the value proposition, the companies indicated almost 50 percent lower attrition among impact workers as compared to traditional workers.

Impact sourcing ecosystem in South Africa
A unique feature about impact sourcing in South Africa is the presence of a robust ecosystem comprised of BPO service providers, buyers, training academies, and government/industry associations. The presence of impact sourcing-focused training academies is a key element of this ecosystem.

These academies, such as Careerbox, Harambee, and Maharishi Institute, help buyers and service providers identify, screen, and train entry-level candidates through job readiness training or learnership programs. The thrust of these programs is on intentional talent development to ensure impact workers are employment ready. These programs include training on technical skills (e.g., computer literacy and language) and soft skills (e.g., adapting to a corporate environment, dealing with stress, and the benefits of stable employment).

In fact, providers including Aegis, CCI, and WNS have established their own in-house learnership programs as part of their intentional focus on impact sourcing.

What has changed since 2014?
Since our last study in 2014, there have been some significant positive developments in the impact sourcing market landscape in South Africa.

Perhaps the most important is the higher level of maturity exhibited by companies in understanding the benefits and challenges associated with impact sourcing, thereby, enhancing intentional adoption. Moreover, there has been a shift in the value proposition toward “accessing relevant talent” rather than just “cost savings.” In the past, companies had expressed concerns related to higher upfront training and the administration cost of impact sourcing programs. But our research established that the total cost of ownership (TCO) for impact sourcing is 3-10 percent lower than that of traditional sourcing. Finally, companies are increasingly adopting impact sourcing for the many different types of value it provides. For example, significantly lower attrition among impact workers not only contributes to improvement of the work culture of the organization, but also translates into better service delivery.

Outlook
As there is an intrinsic link between adoption of impact sourcing in South Africa and the expansion of the BPO market in the country, there are understandably concerns around security risks, the impact of automation technologies, etc. Nevertheless, our study shows that the desire to intentionally adopt impact sourcing in the country has increased, and that the model is expected to grow, albeit gradually.

November 22, 2016 | Everest Group

South Africa’s Booming BPO Industry | Sherpas in Blue Shirts

Countries across the world are currently grappling with and adjusting to macroeconomic and regulatory changes, the slowdown in ITO-BPO industry growth, and increasing concerns about the availability of relevant talent.

Business Process Enabling South Africa (BPESA) – which operates both as a specialist investment promotion agency for BPO, and as a national trade association and networking body for the industry, with a mandate to create jobs in South Africa – recently took a proactive approach to addressing these issues by collaborating with Everest Group to develop South Africa’s value proposition.

The Present South Africa’s IT/BPS sector has grown exponentially over the past five years at a rate of ~22 percent – much higher than the global growth rate. Its value proposition for the industry has been closely linked with traditional English contact center delivery, mainly due to availability of talent with high levels of empathy with the end-customer. This remains its key strength and has evolved to provide a more multi-/omni-channel experience for customers. Concurrently, the rest of the IT-BP industry in the country has also evolved to provide a wide array of services that have spawned from its traditional strengths.
Global Services in South Africa

Take the banking sector, for instance. This has been one of the major areas of domestic growth in South Africa. And international companies are increasingly following suit by creating global delivery teams in the fields of asset management, life insurance, and fund accounting processes to service Australia, the U.K., and the U.S. from South Africa. Similarly, in the legal sector, South Africa has carved a niche for itself for contract drafting and management and document review work.
South Africa’s IT sector is providing some interesting solutions which are akin to digital services being delivered from more mature geographies. More than 60,000 students graduate with IT, engineering, and related degrees every year. This talent pool has proved valuable for major industry players. For example, Amazon developed its AWS cloud platform in Cape Town in 2005, and Accenture recently built its Liquidity Studio – which caters to providing client experience on disruptive technologies such as artificial intelligence, blockchain and cloud – in Johannesburg. Analytics is another function which draws stimulus from the contact center industry. Technology start-ups in this space are developing prediction models/algorithms to determine customer behavior; such sentiment analysis is proving to be valuable for up-selling and renewing contracts with clients.

The Near Future
While South Africa will continue to be one of the primary locations of choice for English contact center delivery, it will also build capabilities in IT and more unique areas. It has already started to do so in the field of Edtech (such as offering gamified training) and providing English-language training to countries across multiple time zones. It is an exciting time for the IT-BP industry, and South Africa is well-positioned to cater to worldwide markets and create a unique proposition in companies’ global services portfolio.

July 5, 2018 | Everest Group

IT Spending in South Africa Will Grow 4.3 Percent in 2018

Cape Town, South Africa, 27 August 2018
Analysts to Discuss the Future of IT and Business at Gartner Symposium/ITxpo 2018, September 17-19 in Cape Town, SA

IT spending in South Africa will total R276.6 billion in 2018, a 4.3 percent increase from 2017, according to Gartner, Inc. All IT segments are on track to achieve growth this year, with systems and servers returning to growth.
“South Africa is playing technology catch-up,” said John-David Lovelock, Vice President and distinguished analyst at Gartner. “After years of neglecting basic data center requirements, the country’s IT leaders are now drawing attention to their data center system spending. Although data center systems remain the smallest spending IT segment in South Africa, this segment’s year-over-year increase is set to be the most profound in 2018.”

South Africa remains behind many of the more technologically mature countries when it comes to IT spending, both as a percentage of revenue and in the purchase of advanced systems, such as those involving artificial intelligence cloud digitalization and collaboration technology. The increase in data server system spending this year stems from requirements to overcome a large corporate technology deficit and to modernize data centers.

The price of communication services, including voice and data services for fixed and mobile delivery, continues to drop, which enables spending to be allocated elsewhere. Spending on communications services in South Africa, which is projected to represent 43 percent of the country’s IT spending, is forecast to be flat throughout the forecast period.

Table 1. IT Spending Forecast, South Africa (Millions of Rand)
  2017 Spending 2017 Growth (%) 2018 Spending 2018 Growth (%) 2019 Spending 2019 Growth (%)
Data Center Systems 7,803 -3.6 8,594 10.1 8,456 -1.6
Software 27,908 12.7 31,396 12.5 35,361 12.6
Devices 39,634 3.0 39,995 0.9 44,196 10.5
IT Services 71,942 8.7 77,672 8.0 83,303 7.2
Communications Services 117,777 0.8 118,929 1.0 119,361 0.4
Overall IT 265,065 4.2 276,586 4.3 290,677 5.1

Source: Gartner (August 2018)

“Digital transformation is happening in South Africa, but the pace and penetration are low,” said Mr. Lovelock. “Newly modernized data centers that can support application software purchases, as well as internally developed systems, will drive advances in digitalization. However, low cloud adoption and underutilization of strategic consulting and implementation services will mean a slow pace digital transformation in South Africa overall.”

South Africa has relatively few organizations whose enterprise adoption profile classifies them as “dynamic.” “By ‘dynamic’ we mean organizations that embrace a higher pace of technological change,” said Mr. Lovelock. With South Africa’s GDP growth projections being around half that of the world’s projected GDP growth, a more measured approach to business and IT change may be warranted for the majority of the country’s organizations. “However, it’s the dynamic organizations that are, on average, gaining greater revenue returns than their non-dynamic industry peers,” added Mr. Lovelock. “Dynamic organizations are investing more in cloud, digitalization and collaboration technology, and these investments are reducing cost, improving efficiency and opening up new business possibilities. They should set an example for many other South African companies that are looking to outperform the country’s economy and their peers.”

Gartner’s IT spending forecast methodology relies heavily on rigorous analysis of sales by thousands of vendors across the entire range of IT products and services. Gartner uses primary research techniques, complemented by secondary research sources, to build a comprehensive database of market size data, on which it bases its forecasts.

Gartner’s quarterly IT spending forecasts offer a unique perspective on IT spending across hardware, software, IT services and telecommunications segments. They help Gartner clients understand market opportunities and challenges.

Deloitte’s 2016 Global Outsourcing Survey

Background:
  • Survey completed January 2016
  • Composed of 70+ questions covering entirety of outsourcing lifecycle and market trends
 
Key findings:
  1. Invest additional time during the initial stages of the outsourcing relationship to ensure value is achieved throughout the process
  2. Value is being achieved through the impact of innovation, ease of relationship management, and improved strategic flexibility, not just cost savings
  3. Invest in transition, governance and vendor management capabilities to ensure realization of benefits within and beyond the terms of contract
  4. Outsourcing is expected to see growth across all functions surveyed, particularly IT, Finance, and HR
  5. Outsourcing is becoming more important in enabling M&A deals Background and key findings

Accelerating South Africa’s economic transformation

Two decades ago, South Africa defied expectations by transforming itself into an inclusive democracy. Now it’s time to take the next leap forward.

Most people do not realize that the General Electric Company first came to South Africa in 1898—it was among our first offices overseas. For a brief period, and as part of the global effort to end apartheid, we left the country. Today, GE has a very strong team in South Africa—we have built lasting partnerships with the government, the private sector, and universities to help build local skills and technical and managerial capabilities and support economic growth. I am happy to say that we expect to be part of the country’s growth and development for a long time to come. It is without a doubt one of the most exciting places in the world for GE, with its abundant resources, vibrant culture, and most of all, a talented, entrepreneurial population. All of this was vividly on display as South Africa hosted the 2010 World Cup. The images and atmosphere reverberated well beyond South Africa and helped to bring about a shift in the image of Africa globally. Today, Africa is viewed as a region with an exciting future and is becoming a key destination for investment.

Much has been accomplished in South Africa since the end of apartheid and the beginning of democracy 20 years ago. Despite a history of racial inequality and civil protests, South Africa defied most expectations by negotiating a peaceful transition to full democracy and by setting the foundations for an inclusive society. Under the stewardship of Nelson Mandela, the first democratically elected president, South Africa’s leaders came together to achieve this momentous goal, which many had doubted was possible. We can celebrate two decades of democracy thanks to the vision and wisdom of South Africa’s leadership.

A crucial factor in reducing historical inequalities and building a more inclusive economy has been the significant progress made in providing fundamental services to a much wider population. These services include access to primary and secondary education, expansion of primary healthcare, and provision of electricity and water. Just as important, South Africa’s constitution has become an exemplar of inclusive governance with its clear emphasis on the socioeconomic advancement of all South Africans. This strong governing framework, as well as the establishment of institutions like the nation’s much-admired judiciary, has played a key role in creating a business climate conducive to the growth and expansion of multinational companies like GE.

Creating the right jobs
Despite a challenging history of inequality and exclusion, South Africa has maintained robust economic growth and has begun to reshape its economy to meet the needs of its growing and young population in the 21st century. Over the 2002–12 period, South Africa’s economy grew by about 3.6 percent per year,1 while per capita incomes increased by about 2.2 percent per year. But the structure of growth has remained largely reliant on commodity exports and mining, leaving the country vulnerable to external forces. South Africa’s leaders in government and the business community recognize that current growth patterns are not up to meeting the challenges of the future. South Africa needs growth that generates the kind of investment and technology transfer that will lead to long-term increases in economic development and the creation of higher-paying jobs—changes that will enable people to transform their lives.

South African leaders are well aware of this challenge and have done the math; with roughly a doubling of per capita income growth, South Africa could achieve per capita income similar to that of Portugal or Poland in only 17 years. South Africans have set out their own vision for the next 20 years, in a way that is compelling and comprehensive. It calls for accelerating progress, building a more inclusive society, deepening democracy, and translating political emancipation into economic well-being for all.
It is possible to achieve that vision, though the challenge in doing so is not to be underestimated. Between 1950 and the end of the 20th century, only 13 economies worldwide grew at an average rate of 7 percent a year or more. Countries that have succeeded have had strong and stable macroeconomic policies. Stable macro-environments have underpinned reforms in resource allocation, pricing, and labor policies that have enabled productivity increases and new, more productive firms to enter and produce for either domestic or export markets.
No single recipe for success
Countries that have succeeded have had strong political leadership that made transformative strategic choices, and they have communicated their goals to the public in a way that was credible and gave them license to put through difficult reforms. And both single-party and multiparty countries have succeeded. In short, there is no single recipe for success. Sustained investments in infrastructure, health, and education have been key ingredients of success, enabling the labor force to increase productivity and compete on a global scale. Policies and reforms were not dogmatic—adjustments were made to get results.

At the same time, the 21st century brings new challenges, including the impact of global warming and climate change, changes in relative prices of commodities and manufactured goods, a rising youth bulge in developing countries, and uncertainties in global governance. Moreover, the acceleration of technological change—the meshing of the digital and the physical world—is having a profound impact on design and production techniques, requiring the workforce to be more creative and entrepreneurial.5 This will put added pressure on South Africa to invest in people to help them develop the knowledge, skills, and ability to both use and ultimately create innovations in power growth. One of the darkest legacies of the apartheid era was the government’s unwillingness to provide equitable educational opportunities for the country’s majority population; it is a reversal of this reality, already well under way, that will arguably have the greatest impact on the nation’s future economic competitiveness.

Achieving the vision
I have no doubt that the vision set out by South Africans is achievable, and GE is committed to supporting South Africa as it continues to transform its society, build inclusiveness, and improve the lives of all its people.

It’s easy to give advice, but I often like to think about how I would address problems if I had that responsibility, because leadership and change are difficult. So let me suggest what I would do if I were responsible for South Africa’s economy and had to get growth and employment moving faster.

First, invest in infrastructure, and in particular energy and transportation. Without it, investors will hold back, and productivity, technology transfer, and trade will all be choked. We are already seeing some of the detrimental effects of the recent recurring power shortages. The steps taken so far, such as the wind program, have helped to encourage the private sector to create partnerships to address the problem. I would extend the model further and look to the private sector to bring the project expertise and capital necessary to increase generation, while looking at ways to foster investment in transmission and grid expansion to increase reliability and access to power for all South Africans.

In transportation, South Africa is already reaping benefits from investment in rail-freight services. GE is pleased to be one of the leading contributors to increases in efficiency of operations at Transnet as well as an investor in locomotive assembly through our joint-venture relationship with Transnet Engineering (TE), a $50 million investment by GE. This is a good example of the way a company like GE can support South Africa in achieving its goals. By supporting TE with more than 150,000 hours of skills training and management development for its 400-plus employees, and by working closely with GE Transportation manufacturing facilities in the United States, the time needed to assemble locomotives has more than halved. Quality has improved at the same time. TE is now a leading supplier of locomotives domestically and is expanding with exports to Mozambique and with opportunities in Angola, Botswana, and Namibia. Moreover, as TE grows, we see employment growing to more than 1,000 jobs in the next five to seven years and localization of more of its operations to South Africa, resulting in significant opportunities for local suppliers as well as services across Africa.

Second, I would work to improve the business environment, especially for small and medium-size enterprises (SMEs) that can integrate into local and global supply chains. As an example, for each job that GE hires directly, we create multiple jobs for outside suppliers, many of which are SMEs. SMEs as a whole are abundant job generators and help foster a climate for entrepreneurs to grow and prosper. To succeed, they need to have an environment that provides them with market opportunity and with support to achieve the necessary quality, volume, and reliability to meet the needs of global supply chains.

GE is investing $20 million in a supplier development vehicle (SDV) to develop South African black-owned-and-operated SMEs. Our goal is to contribute directly to the creation of sustainable local suppliers that create jobs through production of cost-competitive products. We will work with the SDV to identify sourcing opportunities across GE technology and will also work with it so that it can grow to become a qualified supplier for GE. By providing offtake for its products and services, GE can be an engine for SME growth.

Third, improving education is critical. South Africa needs to educate the next generation of engineers, scientists, and technologists if it is to thrive in the future. This will require a creative and comprehensive approach, especially given the rapid development of technology and the growth of the industrial Internet. GE integrates training for its entire technical staff, and we want to have world-class technicians coming out of South Africa. Government should focus more resources on creating a broad path for young South Africans to graduate from university while also expanding opportunities for those interested in technical and vocational occupations. GE is supporting development of skills in critical areas through a number of initiatives. We are investing about $60 million to support a customer-innovation center (CIC) that will serve as a technology hub for the region—bringing together about 125 engineers to work on innovation and solutions for customers. The CIC will deliver value through three pillars: innovation around regional challenges, learning and development, and customer engagement that awakens new solutions. We have partnerships with institutions in South Africa to support math and science initiatives to encourage learners to follow careers in aviation and to develop aerospace industrialization. We will continue to find opportunities to support South Africa in developing the competencies needed for the 21st-century industrial age.

I believe that South Africa will continue to be one of the leaders of Africa’s growth and development over the next 20 years. All the ingredients are there. The successful transition from apartheid to an inclusive democracy shows the capacity to move forward methodically, patiently, and pragmatically to achieve difficult—indeed, some said impossible—goals. The infrastructure base is the best in the region and can quickly be improved with the right mix of policy and reforms to promote investment by the private sector. Gains in healthcare and education can set the stage for greater gains in the future, though they must be expanded quickly. And, like others, GE is ready to invest more in the country, given the right opportunities.

There are headwinds, too—the commodity boom that fueled growth over the past decade is not going to power growth in the future. This puts greater pressure on the country’s leaders to diversify the sources of growth. And young South Africans are increasingly anxious about whether they will reap any benefits from the post-1994 democratic dividend, most tangibly in the form of employment in the formal economy. If their aspirations are not met, then there are obvious implications for social stability.

South Africa has no shortage of challenges, but its people have already proved their resilience, creativity, and ability to envision a better future. The country has surmounted tremendous obstacles, and I have no doubt that South Africa’s political leaders and citizenry will yet again rise to the challenge. GE is in South Africa for the long term, and we look forward to being a part of its history as it enters a new era.

Published 2015 | McKinsey & Company – Jeff Immelt