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Professional outsourcing can drive import-replacement manufacturing in South Africa

A roundtable discussion on ‘Outsourcing for Growth’ hosted by Deloitte South Africa posited the potential that a new range of manufacturing industries be created in South Africa, should outsourcing become implemented in a mature manner that enabled the business practice to fulfil its full capability.

The roundtable discussed the role of outsourcing within South Africa’s public and private sector procurement systems, and the potential for Chief Procurement Officers (CPOs) to collaborate across the nation to significantly drive up the country’s paltry 24% of procurement that is sourced locally, whilst 60% of the world’s outsourcing is managed from India serving 78 countries.

This factor was highlighted as the elephant in the room: that outsourcing was seen in a negative light in South Africa, because CPOs had not taken the business practice to a greater level of maturity where collaboration among them could identify potential areas of import replacement manufacturing, by means of aggregating their common procurement requirements to assist in the establishment of an outsourced manufacturing capacity to meet those requirements.

Addressing the discussion group, Lerato Sithole, Deloitte head of Supply Chain Management, explained that Business Process Outsourcing (BPO) could be a key enabler of much needed growth and job creation in South Africa, but first needed to become “professionalised and move up the value chain as a strategic tool” for business growth.

She said that outsourcing had come to the fore during the recent #FeesMustFall demonstrations, revealing that there were common misunderstandings relating to outsourcing, where it was commonly seen as a destroyer of low-skill jobs rather than its real global potential to create large numbers of high value-add jobs, as seen in India, which had cornered 60% of the global US$180 billion industry, with the high-end jobs being worth US$300.

The panel consisted of Mahendra Dedasaniya, an associate director in Supply Chain Management; Venkatesan Giridhar, Vice President for Finance & Commercial at AngloGold Ashanti; and Kamogelo Mampane, CEO of TK Global Experts and CEO of the State-Owned Enterprise Procurement Forum.

One presenter, Andre Coetzee, Managing Director of CIPS (Chartered Institute of Procurement and Supply Africa), attributed the lack of maturity in outsourcing in South Africa to poor skills and lack of professional standards in the country. He said CIPS was working towards a scenario where procurement practitioners were licensed within a self-governing organisation.

He said that several African countries were starting to professionalise procurement practitioners and implement global standards in procurement. In the absence of such standards, he said, the efforts of many companies to train and develop their staff “were ineffective.”

Dedasaniya said that perceptions were central to the ultimate success of outsourcing, and South Africa had an image issue in this regard. In India, “the Monster of Outsourcing”, the concept had never been regarded as a low value-adding activity, and the basis of the industry had for decades been one of looking to deliver maximum benefits to beneficiary countries, driving every layer of maturity – from the common call centre to BPO to knowledge-based ‘as a service’ facilities.

In fact, he said, South Africa had many competitive advantages over India, but was each year eroding its advantage through above-average salary increases. Nonetheless, Johannesburg was ranked as the 21st best BPO destination in the world and the best city in Africa.

Giridhar said that he had been in a position where he rather motivated insourcing of functions at his employer and warned that a decision by a company to outsource a function must have a sound business case, and not be based on a general assumption that ‘companies should focus on their core activity’. This may be true, he said, and yet outsourcing a specific business activity may still not be viable. “Such a decision has to be not only a financial one, but one that secured the interests of all stakeholders.”

Mampane noted that South Africa’s SOE’s had combined procurement of about R500 billion, and far more could be done to use this spend to create new, home-grown manufacturing industries. He attributed this weakness primarily to a skills scarcity, noting that in many organisations the CPO was an individual who “had not made it in some other post and was ‘dumped’ into procurement”.

Given the overarching prerogative in South Africa to create jobs, this was a waste, and Dedasaniya said that the aggregate spend controlled by CPOs means they are the gate keepers and value creators of new, import-substitution industries, trade exchange and professionalising balanced win-win contracts. “Procurement is no longer just about buying, and outsourcing can be the vehicle to achieve growth. With the new Enterprise and Supplier Development regulations under the DTI’s Codes of Good Practice, we now have the tools to coordinate and implement this,” he said.

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