Sustaining success

The risks come in many guises. Some are easy to predict: a lack of infrastructure, weak administration and low skills. In many cases, market institutions have still to be built, a private sector has to be developed and the constitution of the State is “work in progress” as they make their way from authoritarian rule to more open societies.  It is the less obvious institutional weaknesses, administrative malaise and inter-sectoral fractiousness that is most difficult to predict, measure and manage.

South Africa is an unusual emerging economy. It shows many of the marks of its authoritarian past under apartheid and some of the administrative weaknesses, skills deficits and infrastructure weaknesses found in many developing countries. The impact of HIV/AIDS and crime are particularly acute. What distinguishes South Africa from many emerging economies is an internationally admired constitution, crafted as part of a process of reconciliation at the end of apartheid and installed under the leadership of Nelson Mandela; a robust market economy; and a substantial business sector with world-class companies in many sectors.

Considering its divided past, there has also been an unusual commitment across interest groups to working together to capitalise on the country’s opportunities and overcome the constraints it faces as an emerging economy.

A number of South African institutions have been developed to facilitate that process. One of the most substantial of these is the Business Trust. Established in 1999, it combines the resources of business and government in areas of common interest to accelerate the achievement of national objectives. Its core funding is drawn from voluntary donations made by South Africa’s leading corporations which amount to well in access of R1bn over the last seven years.

It is governed by a board appointed by the companies that fund the organisation and by the President of South Africa. The organisation has eight cabinet ministers on its board and the heads of most major companies. Its work focuses on encouraging the development of priority growth sectors, developing skills and infrastructure and combating poverty.  Its strategy is set on a five-year cycle by
the leaders of business and government and it operates through a series of partnerships structured between the corporate sector and government departments responsible for work in its chosen areas of operation.

The business partners bring business acumen and understanding of markets and a sense of the risk calculations that investors will make. Government brings public sector acumen and understanding of administrative processes and a focus on meeting the country’s development needs. Together they are able to create the conditions for investment, growth and development that emerging economies need.

Building the BPO Sector
An example of this partnership approach can be found in the way in which the Business Trust, the South African Department of Trade and Industry and BPeSA, the industry association for the Business Process Outsourcing sector, have worked together to build an enabling environment, attract and retain investment, and enhance the impact of that investment on South Africa’s development objectives. Through this partnership much has been achieved: A coherent strategy and market intelligence base has been developed by working with some of the world’s leading companies in this area, including McKinsey’s, Deloittes and the Everest Research Institute.

A government assistance and support programme has been created that offers competitive incentives to new investors.

An employer-led training programme has been developed which makes young work entrants work-ready in a manner that new investors to the country have described as world-beating.

Agreements have been struck to lower telecommunications costs. Support has been provided to enable investors to establish their operations in South Africa. 

Over the last year, sixteen new investments with a value of about R1bn have been procured and some of the world’s leading BPO companies including TeleTech and Teleperformance have moved part of their operations to South Africa.

Financial Services Sector
The country is particularly strong in the financial services sector which makes up about 45 percent of the global sourcing.  The current size of financial services off-shored is in the region of $10bn and there is an addressable opportunity here that is 25 times that size.

South Africa’s standing in the financial services sector is world-class. It is backed by a sound regulatory and legal framework and has a large number of domestic and foreign institutions providing a full range of services from commercial, retail and merchant banking to mortgage lending, insurance and investment.

While the recent financial crisis may have immediate consequences for financial service companies’ off∞shoring plans, South Africa was somewhat cushioned from the full blast of the crisis and in the medium term, companies will look to off-shoring to manage cost pressures. The medium-to-long-term growth outlook for off-shore financial services in South Africa is thus robust. It offers a 50-60 percent cost advantage over international destinations for investors and the quality and sophistication of work done in South Africa compares with major source markets around the world.

A recent study by the Everest Research Institute underscored the potential of South Africa in this sector. An investor ROI (return on investment) assessment tool was also created.  The full results of the study and the investment tool can be located at www.btrust.org.za.

Lessons Learnt
The work in Business Process Outsourcing is but one example of how the business community and the South African government are working together to make South Africa a favourable location for investment, an emerging economy of choice and a country that distinguishes itself by demonstrating that different interest groups can work together in the interests of the country as a whole. 

The Business Trust experience in building these partnerships points to ways in which emerging economies can benefit from such cooperative approaches.

The context has a significant influence on what is possible. South Africa’s shift to democracy in 1994 made the cooperative approach embodied in the Business Trust possible. It required a democratic government, confident in its position that saw the value of incorporating business in the national project of growth and development. It also required a business community in a well-established market economy that understood that its ultimate success would be as dependent on the growth of South Africa as an emerging economy and on the building of an inclusive society as on the internal operations of the firm. A second lesson was that working in partnerships requires a capacity for “business unusual” – an ability to work outside the established frames of reference to achieve more together than can be achieved independently. This is demonstrated by the willingness of some 150 private companies to pool their resources through the Business Trust and work in partnerships with the South African government to bring about the type of changes described above for  the BPO sector.

The third lesson was that effective partnership requires individuals with the ability to lead and to accept personal responsibility for the partnership’s objectives rather than merely promoting their own institutional interests. The Minister of Trade and Industry who serves as a board member of the Business Trust and leads the BPO sector Partnership Committee and the head of South Africa’s Standard Bank, helped to lead the process in the BPO sector.

A fourth lesson was that partnerships require the ability to develop a language
of principled partnership building rather than that of positional bargaining so common in negotiations. While itis often easier to win a victory for one side rather than hammer out ways of working together, the results of such cooperation provide for sustained success.

A fifth lesson was that all of this produces tensions that have to be managed by making creative tradeoffs. The South African experience is that without the tension there would be little forward movement and without the trade-off the relationships would collapse.