More South African businesses favour outsourcing than the global average, according to research from the Grant Thornton International Business Report (IBR).
The survey highlights that almost half (48%) of all local companies surveyed outsource back-office services (or plan to), while only 40% of companies globally, and 37% of the BRIC countries, choose to outsource.
While the cost savings and process efficiencies outsourcing can provide are widely recognised globally, many business leaders are worried about losing control of a key process by outsourcing.
Of the local businesses that outsource, or plan to do so, 73% outsource IT and 64% tax services. By contrast, only 46% of businesses that outsource globally let other companies manage their IT services, while the global percentage for tax services is 49%.
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12 500 businesses per year across 45 economies.
This particular IBR survey which focuses on outsourcing draws data from interviews conducted in September 2013 with more than 3 300 CEOs, MDs, chairmen or other senior executives from all industry sectors around the world. The survey sample in South Africa saw data drawn from 150 respondents.
“Historically, many professional services like tax, secretarial and bookkeeping services have been outsourced in this country,” says Jason Glass, partner and head of outsourcing at Grant Thornton Cape. “In more recent times, outsourcing has become more common in other areas, including IT and advisory services such as internal audit and financial directorships. It is also common for local businesses to outsource their payrolls.”
Among those businesses which currently (or plan to) outsource back office services, 57% globally cited improving efficiencies, marginally ahead of reducing cost (55%), as the key drivers. In South Africa, the figures are 74% and 71%. And of those global businesses with no plans to outsource, a requirement to find cost savings (41%) or process efficiencies (33%) are the main reasons that would encourage them to possibly re-consider it.
“Outsourcing is cost-effective in South Africa, particularly for smaller companies that cannot afford certain in-house skills,” says Glass.
Only 3% of local businesses who outsource back-office services do so to another country, while the vast majority (82%) would not consider this.
Glass warns that there will be some new operational, financial and legal implications for businesses that actively outsource a large proportion of their operations to third party service providers, particularly some critical business activities once the new Protection of Personal Information Act (POPI) comes into effect. These concerns will affect the outsource service providers too.
“In terms of POPI companies will need to keep in mind that they are entirely accountable for the protection of individuals’ and legal entities’ personal information which has been collected by them and transferred to third parties for processing and/or storage – regardless of whether this information is in electronic or hard copy form,” says Glass.
According to the IBR survey, when South African businesses that do not currently outsource were asked what the main obstacles were to outsourcing, the majority (71%) cited unwillingness to lose control of a key process. Globally, 44% of businesses were unwilling to lose control of a key process.
“It is a popular misconception that outsourcing a process means a business loses control, whereas in fact, outsourcing can actually help businesses to focus on strategy and not get bogged down in compliance issues,” he says.
Other obstacles cited by South African executives as well as by global business owners, were the high cost of implementation, having to lay off existing staff and a belief that is was too complex or risky to contract services.
Glass continues: “Businesses in South Africa recognise the value that outsourcing can offer to their organisations in terms of driving efficiencies and reducing costs. And in emerging markets generally it is noticeable that businesses are looking to tap into skills and expertise offered by outsourcing providers that might not necessarily be as readily available locally.
“Outsourcing is worthy of serious consideration. Leaders of high-growth businesses can quickly find their inbox filling up with administrative issues; whereas outsourcing can help them manage their workload and focus on priorities, boosting productivity and results, providing them with a competitive edge.”
He says that professional services firms are becoming much more important in the day-to-day running of clients’ businesses, particularly small to medium size companies. Outsourcing currently accounts for 6% of Grant Thornton’s global revenues. \