Optical/IP Networks

More Offshoring: Africa's Opex Oasis

The outsourcing wave continues. And, while India may be the location du jour for overseas outsourcing (see Juniper Goes Indian and Headcount: Offshoring, Dude!), it's far from the only location to provide cheap and capable labor.

German vendor Siemens Information and Communications Networks Inc. is considering shifting its DSL modem manufacturing operations to China in a move that could see the loss of up to 600 jobs in Baden-Württemberg.

And London-based billing and mediation software firm Intec Systems Inc. has turned south rather than east in its efforts to control operational expenditures. The OSS firm has located its R&D and customer support team in Cape Town, where it employs about 130 of its 650 total staff.

Why South Africa? Intec's founders originated there, so Intec has always had at least a minimal presence in the country. But the company has grown through acquisitions in the past year (see Intec Acquires Ericsson's Settler and Intec Snaps Up Digiquant) and the company "had to consolidate somewhere," says Intec spokesman Andrew Rodaway. Besides, "you get more bangs for your bucks" in Cape Town than in Western Europe, he adds.

In fact, it sounds like a great place for any European vendor to locate overseas facilities. "It's in roughly the same time zone as most of Europe, and the quality of staff is very good -- equivalent to Western Europe or the U.S. And you can deploy twice as many people for the same money -- the cost of living is much lower in South Africa."

Given that the average worker in the U.S. or Western Europe costs about $100,000 to employ each year, that means Intec is saving $50,000 per head by having the R&D team in Cape Town, or a cool $6.5 million per year.

That's a significant amount for a company that posted £50.7 million ($93.6 million) in revenues and an operating loss of £1.9 million ($3.5 million) in its latest full financial year (see Intec Boosts Pre-Tax Profit). "Intec has always been a financially conservative company. I still see telecom companies today spending far more money than they are bringing in, and that always ends in tears," says Rodaway.

The South African location makes sense for Intec in a number of ways, says OSS Observer analyst Mark Basham. "The South African telecom sector has much in common with Europe and will have many of the same skills. The incumbent carrier Telkom uses much the same systems as BT, for example. And of course it's cheaper."

But Basham says he has had experience working with overseas outsourcing in a previous job, and says managing such a remote operation is fraught with difficulties, even if it's in the same time zone. "You have to be very prescriptive about the work that needs to be done. The staff may be very capable and productive, but they need to be monitored very closely to make sure the end product is exactly what was required," says the OSS analyst.

— Ray Le Maistre, International Editor, Boardwatch

Sign In