Cape Town seeks to emulate India’s high-end outsourcing push

Cape Town wants to break into a global outsourcing industry dominated by India, but it will require overcoming a vast gap in scale and cost competitiveness.

Officials and industry groups in South Africa’s second-largest city are pushing to develop global capability centres, hubs that multinational companies use to outsource high-value functions such as building systems for making trades and managing risk, and other sophisticated processes.

CapeBPO, an industry lobby group funded by the city administration, will present a plan to the municipal cabinet in two months to try and emulate India’s success by establishing hubs to support global companies, chief executive officer Clayton Williams said in an interview.

The city’s pitch to overseas companies: diversify beyond India, which is home to more than 1 700 such centres, including ones operated by Goldman Sachs Group, aircraft-engine maker Rolls-Royce Holdings Plc and lingerie brand Victoria’s Secret & Co. At stake is a share of a market expected to reach $413 billion by 2030, with India currently accounting for more than a quarter, according to EY research.

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While South Africa has some of Africa’s most advanced financial, accounting and legal industries, it would still need to scale up rapidly and match India’s cost competitiveness.

“It requires some systemic changes,” Mohith Mohan, chief executive officer and founder of Bengaluru-based MOAR Advisory, which has been hired by CapeBPO to help with a feasibility study and potential framework. “Whether it’s with regard to education, government policies, infrastructure, those have to be enacted for the project to be a success, he said.

Already, a number of business process outsourcing jobs have shifted to Cape Town from global hubs in India and the Philippines as top companies sought to spread operations across more geographies since the coronavirus pandemic.

The industry employs more than 95 500 people in the Western Cape, where Cape Town is located, nearly 70% of which serve clients in countries like the US and UK, CapeBPO said on its website.

“We now are presented with an opportunity to transition some of that volume and services from Bangalore to Cape Town,” Williams said, referring to the old name for Bengaluru. “What’s in it for India? The reality is they’re saturated, they’re concentrated and to represent a more long-term strategy, they need trade partners across the world that can help deliver services.”

The business process outsourcing industry generates annual foreign direct investment in excess of R24 billion, rivalling that of the tourism sector, Williams said. Cape Town, with its iconic Table Mountain, seascapes and vineyards, is regularly named by international tourism publications as one of the world’s best destinations.

South Africa has other draws. A timezone, which overlaps with Europe, the English-language proficiency of its residents, infrastructure and incentives from the national government, Williams said.

As part of the plan, CapeBPO will petition Cape Town authorities to allow the development of sprawling Bengaluru-style tech parks on the periphery of the metro, home to 4.8 million, bringing job opportunities closer to where people live, Williams said. If CapeBPO’s strategy is approved by the city, will is likely to start by year-end with the aim of attracting investors within 24 months, he said.

“If in five years’ time we haven’t built a global capability centre referenceable capability with some form of scale, we would have failed,” Williams said.

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