A Conversation with Alexander Erwin, South Africa’s Minister of Trade & Industry

The South African government sees outsourcing as a growth opportunity - particularly in the area of financial services. The country's primary challenge is being able to compete with the likes of India, Ireland, China, and other outsourcing hubs. Alexander Erwin, South Africa's minister of trade and industry, recently spent time in New York City to educate outsourcing providers on the South African market. I (WS&T Editor-in-Chief Kerry Massaro) recently sat down with him at the Waldorf Astoria to discuss why financial-services firms should think of South Africa when they think of outsourcing.

Wall Street & Technology: How did South Africa come to focus on attracting outsourcing business? What companies have set up shop there?

Alexander Erwin: I think the starting point, which is quite important, is the way in which South Africa is becoming a hot spot. The structural changes in the economy since 1994 are very, very considerable as the economy is diversifying rapidly into value-added production and exporting. We export a very wide range of products and, as that happened, some of our bigger companies - in particular IT companies, such as Dimension Data and also some big insurance companies and banks - began to expand their activities into the U.K., the U.S. and parts of Europe.

What they then quickly saw was the business-processing costs in South Africa were much, much lower and as efficient as anything they were seeing in these economies. So they started moving a lot back and as they did that, smaller companies, mainly out on the U.K., and then Lufthansa and the airlines, saw the capacity in South Africa and began putting call centers in two or three years ago.

What we also saw was growing capacity in business processing. The big finance houses began coming to South Africa and they realized this was a big opportunity.

WS&T: I understand call centers are a big area of focus. How large is the market and how does South Africa stack up to competitive countries?

Erwin: In terms of call centers, we have approximately 500 in South Africa already. In terms of number of seats there, we'd be much bigger than Ireland. The bulk of the call centers would be in the range of 50 seats or so. We also have a number of big ones that are about 1,000 seats.

WS&T: What about business-process outsourcing? What types of business processes are being outsourced to South Africa?

Erwin: The main area is processing operations in South Africa. Financial-services processing predominantly ranges from processing of financial transactions in the insurance industry to the asset-management industry - from all of these areas to a number of reengineering contracts, etc.

We would reengineer the business process and then handle the outsource.

More recently, we are beginning to see some of the U.K. outsourcers coming in and those from the U.S., such as Computer Sciences Corporation.

We are in discussion with other outsourcing companies. For example, Avaya has quite a big operation in South Africa. There are also a number of negotiations underway with other U.S. companies. It's coming on the radar screen quite actively.

WS&T: What are the advantages?

Erwin: The advantages: The overall package costs are very competitive. However, we wouldn't compete straight on cost with India. Other advantages include the overall reliability of the telecommunications infrastructure and the reliability and cost of the energy. The telecom infrastructure is very modern and very competitive. Fiber circuits would be available in all the major cities. We have good links with cable and bandwidth with Asia, Europe, Africa, and good satellite link ups as well. The basic infrastructure is very good.

WS&T: You're saying the package can compete with India and Ireland, but price alone cannot?

Erwin: As a package, we certainly compete with Ireland. We would offer slightly different service to India. As a matter of fact, many of the South African companies would be partnering with Indian companies to offer these services. So South Africa-based Dimension Data and India-based TaTa have an alliance. We see our links with India as complementary. South Africa tends to handle the higher value transaction processing with financial services being fairly critical.

Johannesburg is the largest city for outsourcing, but we have sites in several smaller towns as well. We're projecting that by 2005, we'll have 600 or more call centers, and we will probably be ahead of projection.

WS&T: Would you say call centers are your main focus?

Erwin: I think call centers are going to do very well because of our versatility, dialect and language. We are able to handle the dialect and the accent in South Africa is very compatible with English. We have many youngsters who are fluent in English. The training time for call centers - to make sure that if you are servicing Europe or America your accent doesn't confuse - is very short. So there is no question that call centers would be very big. The bulk now would be more in business processing in the financial sector.

WS&T: Can you be more specific with what type of business processing. Is there more demand for one type of processing over another?

Erwin: If you look at financial services, it could be asset management, insurance policy or credit-card transactions. For IT itself, it can be processing operations for IT, manipulating programs, writing programs ... anything you can think of, really.

WS&T: Would you handle pure development as well?

Erwin: A lot of the companies, such as CSC, that are there now and Avaya, both would do many applications for financial services. We have a very extensive automatic-teller system. When we come here, we think it is a bloody desert because you can't find a place to put your card. The card-based system is extensively used in South Africa. Electronic banking is very active in South Africa, we're really good at (handling the development for) that.

WS&T: Do you have any U.S. brokerage firms or asset-management firms that are outsourcing?

Erwin: A few companies include Sykes, on call centers, and the Georgia Pension Fund. I can't remember all of them off hand, but we are beginning to see that in the business-processing area.

WS&T: When you talk about processing, are you talking about clearing and settling of trades as well?

Erwin: Certainly, for the South African institutions operating here, we are doing that. Also, there are some negotiations in the U.K. and U.S. that would move some of the processing of trades, verifications, etc., to South Africa.

WS&T: You mentioned your relationship with TaTa, is that for development?

Erwin: Sometimes joint bidding, sometimes joint-program development. The partnership usually takes the form of partnering in apportioning the work. A large number of people and programming is done in India and integration and other project management is done in South Africa.

WS&T: Can you talk about the strengths and weaknesses of the tech workforce?

Erwin: In terms of programming, we have top-level management - so very strong. In terms of high-level skills, we are pushing that hard. We have to do more training. We are adjusting the curricula, working with the technical colleges and universities to get them to catch up.

WS&T: But you wouldn't say you're on par with India?

Erwin: Not in terms of pure numbers, we can't match them. However, as far as programming languages, we are very well versed - COBOL, visual basic, C++, etc.

WS&T: What made CSC decide to set up shop in South Africa as opposed to China or India?

Erwin: I think it was the timeline. They are trying to run a 24-hour operation and they had a gap. South Africa is between India and the U.S. They have 500 seats already. It's going well.

WS&T: What would it cost to come in and set up a call center there of approximately 50 seats?

Erwin: You'll have to ask CSC their price. What they did was go in and engineer a situation for themselves and negotiate with the telecommunications structure, which they say is very competitive. But a very rough guide would be about $3-4 above India. But the product is not exactly comparable, so we don't try to compete with India on price. But we can certainly compete with the U.S. and U.K.