Software production capabilities are growing in every African nation, with an increasing number of formal industries developing. One of the major reasons for its potential is the fact that software production is the best entry point for South Africa – and Africa – into the global IT marketplace, both on the African continent and worldwide.
This is the opinion of Eric van Heerden, business development manager at UCS Software Manufacturing (UCSSM), the retail domain-specialised software factory within the UCS Group.
According to the World Bank (1993) business computer software has become the lifeblood of any business, industry, or government. The development of a local software industry, therefore, can lead to many positive business opportunities – and is also necessary if African countries are to adapt software technology to suit particular local or international needs.
Research conducted by the University of Pennysylvania (African Studies Centre) reveals that “software production is nowadays an industry, essential for the growth of the economies of the developing countries; and the launching of programmes to promote strong indigenous software industries is a priority task".
The report from the university further states that for many African countries and software firms, the export-orientated strategy seems highly attractive. Many African countries look to India as proof that software exports can be hugely successful for developing countries.
UCCSM’s Van Heerden says that India’s software and services exports are estimated to have grown 32% to $31,3-billion in 2006-7. Citing a report from the Press Trust of India – which quoted the Indian information technology department – he says that during 2006-7 electronics and IT exports grew by 35% over the previous fiscal year.
Meanwhile, in its forecast, IT association Nasscom has stated that India’s revenues from software and services will reach the $50-billion mark by 2007-8.
“Software is one of the best ways for South Africa – and Africa as a whole – to compete globally in the overall ICT global market,” says van Heerden. “It must be remembered, for example, that compared to hardware production, software production has much lower entry barriers because it is less capital-intensive, more labour-intensive, with a lower rate of obsolescence. It has far fewer economies of scale. With software development being labour intensive it works in our favour as labour in Africa, including in South Africa, is still relatively low – although rising.”
Van Heerden says that least 25% of UCS Software Manufacturing’s revenue for the 2008 financial year will come from offshore software sales, with the company saying that the international retail software market is currently in a bullish phase, presenting many opportunities for winning retail software deals.
“Since launching our Assemble-to-Order (A2O) software solution offering in October 2006, we have signed two large accounts and made great strides towards exporting A2O.”
In addition, the company recently clinched a R40-million outsourced product development deal with ARgility, a software company owning the ActiveRetail and Dolphin retail software suites. Argility landed some keymark contracts in the UK and their channel partner Arnel had just completed a roll-out of its retail software at 36 branches in the UK for furniture retail group, The Pier.
He adds that while there are “certainly software export opportunities” there are only really a handful of local software companies making a significant impact in the offshore markets, including the UK, US and the Middle East. “We are probably the only one that focuses on the retail industry that is having any noticeable level of success,” says van Heerden.
“We are also now facing increasing competition from new ERP entrants into the retail in-store software domain within developing countries overseas. While we have not lost any contracts to them locally, they have a far stronger hold on clients overseas as many clients are using their back-office solutions.
“However, when it comes to large – mostly listed – retail companies who are operating in mature markets, such as the UK and the USA, a process of due diligence is typically followed when acquiring new software. This going through a rigorous due diligence process that will ultimately see them choose the retail software solution that they feel is best suited to them. They traditionally developed their core systems in-house and are less likely to simply opt for packaged solutions. This is where we have the edge, with our assemble-to-order (A2O) software solution.
"The top level, listed companies, operating in mature markets, generally prefer to have some kind of say over their IT destiny. Packaged solutions – even if offered by their preferred vendors – are not necessarily what they want nor does it provide the agility to change so often required by these enterprises.”
Interestingly, says van Heerden, when the rand strengthens, South African manufacturing companies often complain that the exchange rate makes exporting difficult.
“The strong rand does not affect us that much. Manufacturers generally have dollar-based input costs, especially when it comes to certain machinery. Our cost, however, is always based in rands, although we sell based on the value of the dollar, Pound or Euro.
“I believe there is potential for a lot more exporting of outsourced software development. Yes, it is a tough market. We face many challenges from some big conglomerates who have moved into the retail software domain – and who already have a strong foothold with many big companies due to them supplying them with back office solutions – but we do believe that smart local companies, with the right methodologies and good software, can make an impact.”
However, Van Heerden says one of the continent’s biggest stumbling blocks is a lack of skills – or a lower-level of skills than other global competitors.
“We are not seeing enough IT graduates emerging from South Africa and Africa. We need more so that we can elevate the level of skills and thereby improve the level of our export software competency. If we don’t we will only see a handful of companies here and there in the various countries in Africa enjoying a modicum of success.”