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South Africa's struggle with FREEDOM

South Africa's struggle with FREEDOM

Noticed a few South Africans in the IT channel lately? You might also have noticed a steady flow of South African money finding its way into local companies. As this international trickle threatens to become a river, the South African IT channel is desperate to retain its valuable IT skills. ARN editor Mark Jones followed the money trail back to the Rugby crazy country to investigate the state of its IT channel and compare notes with back home.

South African IT operates in an environment where the first and third Worlds collide at the traffic lights - literally! BMWs, Mercedes and Audis driven by the country's affluent white community sit with windows up and doors locked as self-employed black South Africans wander between the lanes offering everything from papers and drinks to coat-hangers and packs of plastic bags.

Popular international perception would have it that countless tales of violence, carjackings, murders and bribery in Government ranks deem this an unhealthy place to run a business.

This is a country where barbed wire, boom gates and security guards are not only permanent landscape fixtures, but necessary insurance policies against a society in which around 40 per cent of the population is unemployed.

It's a perception that some channel executives admit is harming South Africa's ability to be a global player.

Carl Mostert, chief operating officer of networking integration and connectivity integrator Spescom, is up front about the fact that international attitudes towards doing business in South Africa must change.

"It's not good. It has to do with this [third-world] continent of Africa," he explains.

Spescom has dodged the issue by branding its homegrown knowledge management software products with US or UK labels from its offices in the respective countries.

Mostert explains that despite South African's ability to innovate in areas such as GSM technology and software development, it will always do better in world markets with a US label.

Spescom's experience highlights the issues facing other local channel players and vendors.

Most agree the South African IT channel is in a state of flux, caught somewhere between solution-focused, value-added selling, falling margins and the gradual uptake of the Internet. In many respects, this business environment is similar to Australia's, but with one important distinction.

The country is struggling to come to terms with the implications of its recently granted freedom to once again be an international player. IT companies, once restricted by international sanctions, now have the whole world at their feet.

But at the core of the problem is a nagging feeling that not enough is being done to speed up the long hard road to economic stability. Some also claim the Government is not doing enough to allow local companies to move offshore.

While the Government is trying to hold back the offshore listings of companies like Dimension Data and network integration business PQ Networks, a division of Comparex subsidiary PQ Africa, others have caught the wave.

In 1999, supply chain giant Siltek launched its Australasian subsidiary Siltek Asia Pacific, while Johannesburg Stock Exchange-listed IT holding company Datatec launched its Logical brand and acquired Anite Networks in the process. It also owns the local arm of Westcon, a giant international specialist networking distributor.

In addition, Comparex-owned IT giant Dimension Data maintains a 66 per cent shareholding in Com Tech Communications.

Peter Dixon, director of PQ Networks, said the increasingly common practice of "offshore hedging" has resulted in South African companies seeking listings in the markets of stable economies to protect their shareholders from domestic market volatility. "Dimension Data needs it if they want to be an international services company," Dixon said of his main competitor.

PQ Networks, by comparison, is seeking to acquire other IT companies to build its portfolio, he said. The company is seeking to expand its successful networking integration business despite the fact Comparex sold its European networking business to Dimension Data.

Meanwhile, Siltek is an example of a company that continues to make sure it has growing offshore interests. Colin Flatau, managing director of Siltek Distribution Dynamics (SDD), said his business unit contributes to over 50 per cent of Siltek's revenues with 2 billion rand ($500 million), using the reach of up to 6000 resellers on its books, 4000 of which are active. Interestingly, just 10 per cent of SDD's business is conducted locally.

"With the market opening up we have seen progressive companies set their targets on being global players," he explained.

Staffing challenges

But behind the global financial push lies a domestic concern that threatens distributors, resellers and vendors. Retaining IT staff has become such an issue that it poses one of the greatest threats to the ongoing viability of the South African channel.

Flatau puts it quite succinctly. "You're never going to keep the IT guys for a long period of time."

Industry estimates vary, with one executive suggesting between 200 and 250 IT professionals leave South Africa every month to seek their fortunes in the UK, Australia, NZ, Canada or the US.

A January online salary survey of 2068 IT professionals by BMI-TechKnowledge Group (IDC South Africa's IT research arm), gives a clearer picture. Twenty four per cent of respondents are "very likely" to leave South Africa within two years and 25 per cent are "somewhat likely".

Meanwhile, 17 per cent are "unlikely", 14 per cent "very unlikely" and 19 per cent undecided. One per cent did not answer.

Some quick maths indicates that almost half of the industry therefore plans to leave the country within two years.

"Certainly skills retention is a big thing," Spescom's Mostert said. "You need a healthy environment and create challenges in their work."

For example share options, training programs, and healthy salaries are all tactics used to attempt to stem the flow.

Even Microsoft South Africa has had its share of problems on this front. Maureen van Jaarsveldt, director of Microsoft's small and medium enterprise group, admitted that a year ago the company lost the most number of people to other Microsoft subsidiaries than it had ever done in its local history. The experience forced Microsoft SA to review its HR policies and introduce new incentives.

While she says the situation has since improved, Microsoft still faces the same hiring issues confronting other South African IT companies. "On average it takes five months to fill a position."

Terry Kelly, managing director of Westcon, agrees that the channel is battling against a huge exodus of skills. When asked if there was any hope people would return, his opinion was simply "no".

However, Westcon is attempting to meet the challenge head-on with an ambitious program of training people from the ground up. PDI's, otherwise known as previously disadvantaged individuals (and typically black Africans), are introduced into the company through its warehouse.

Once new staff have proved themselves there and worked through the ranks, within six to 12 months they have the option of coming in as an entry-level technical or customer support employee.

"If we can get 50 per cent of people into the technical or sales stream I'd be happy," Kelly said.

The vision is to keep new staff on this program for at least three years, moving them as far up either stream as possible, Kelly added. "We've got to grow our own staff. We can't attract people from the UK or Australia."

And while the PDI scheme seems like a great demonstration of social consciousness, Kelly said the industry faces a harsh business reality. "If you don't do it, you're in trouble."

While "grow your own" schemes seem like a viable option for some, it's also tempting for vendors to steal from their channel partners.

Cisco South Africa's channel sales manager, Steve Midgley, claims the company will not poach staff from its partners.

In fact, he says the company is investing in channel training programs instead. "I struggle less to find technical people than I do sales," he said.

But another solution local vendors throw at the problem, asserts Mark Jones, senior sales manager at IT services and integration outfit CCH, is to import skills from Europe and the US.

Vendors are now keen to make their South African channels work as a gateway into the rest of Africa, but simply dumping international staff into the country has problems of its own.

"The European environment does not understand Africa - it's a totally different way of doing business," Jones said.

In addition to the high cost of running a local operation, cultural influences have created a sales environment that is totally different.

"For instance, when you walk into a room many African people will not greet you, they will look down and that's often a sign of respect," Jones said. "This can make you feel like you've lost the deal, but it's not always the case. Some under-paid and under-educated IT professionals have created an environment where bribery goes a long way.

"For example, we were in a presentation in one African country when we all sat round the table they were all very blasé about the fact that they wanted us to uplift the pricing," Jones explained. "It was very important that each person in the room effectively gets a 10 per cent cut of the deal. We had to walk away from that business."

But all is not lost for the SA channel, according to Wikus Engelbrecht, senior manager of IT consulting company Brainware. On the job exodus front, because most of his departing friends and colleagues return to South Africa once they have completed their overseas stint.

"I do believe we provide a stable environment," he asserted.

In fact, the channel is ripe to benefit from the current climate by taking advantage of outsourcing opportunities. With 200 consultants and just 15 full-time staff, Brainware is developing niche services skills for hire.

"We would rather see ourselves as an extension of the client, rather than a supplier of IT services," he said.

The future

CCH's Jones concurs. "Government institutions have no IT staff retention - it's shocking. Clients cannot afford to retain IT staff any more."

BMI-T's channel research also supports the sentiments. In 1999 over 50 per cent intended to outsource specific activities, over 20 per cent intended to outsource operations and support functions and over 15 per cent would outsource everything. Just under 10 per cent decided to keep it all in house.

So amidst this state of flux, what does the future hold? Microsoft's van Jaarsveldt believes the Internet will have a significant impact on the economy. "I get really excited when you hear about a 75-year-old man who is driving the Internet services strategy of a business in Cape Town," she said of a recent local report.

Resellers are also becoming more Internet savvy as time progresses, she said.

BMI-T agrees. "The Web-centric lifestyle has begun and this is one of the largest contributors to growth," states a September report of last year on the South African IT market.

But arguably the biggest business driver about to hit South Africa is the impending deregulation of the telecommunications industry. The incumbent monopoly carrier, Telkom, is scheduled to release its stranglehold on the industry between 2002 and 2003. And the channel can't wait.

"Deregulation is going to have a major impact on the SA economy," asserts Spescom's Mostert.

New carriers will pave the way for new WAP technologies and allow suppliers of converged voice and data networks like Spescom to take off.

CCH's Jones is upbeat about the economy as a whole, arguing January was a strong month for the local exchange.

"My personal belief is economy wise we are the strongest we have ever been," he said. "Yes it is a converging second world, first world economy, but at the end of the day South Africa has never been in a better position with such things as low mortgage and interest rates."

He does agree, though, that the constant threat of violence and crime will continue to be an international issue until it is resolved. But for the channel to grow in such an environment, a healthy attitude to the business is all that's needed.

"Obviously the violence in South Africa is extremely high and a deterrent for people. However, it's something we as a country have learnt to live with," he explained.

"From a South African perspective, the idea [in business] is to be versatile and change very quickly according to clients' needs. To be a good channel partner you have to be a trusted advisor."

South African IT operates in an environment where the first and third Worlds collide at the traffic lights - literally! BMWs, Mercedes and Audis driven by the country's affluent white community sit with windows up and doors locked as self-employed black South Africans wander between the lanes offering everything from papers and drinks to coat-hangers and packs of plastic bags.

Popular international perception would have it that countless tales of violence, carjackings, murders and bribery in Government ranks deem this an unhealthy place to run a business.

This is a country where barbed wire, boom gates and security guards are not only permanent landscape fixtures, but necessary insurance policies against a society in which around 40 per cent of the population is unemployed.

It's a perception that some channel executives admit is harming South Africa's ability to be a global player.

Carl Mostert, chief operating officer of networking integration and connectivity integrator Spescom, is up front about the fact that international attitudes towards doing business in South Africa must change.

"It's not good. It has to do with this [third-world] continent of Africa," he explains.

Spescom has dodged the issue by branding its homegrown knowledge management software products with US or UK labels from its offices in the respective countries.

Mostert explains that despite South African's ability to innovate in areas such as GSM technology and software development, it will always do better in world markets with a US label.

Spescom's experience highlights the issues facing other local channel players and vendors.

Most agree the South African IT channel is in a state of flux, caught somewhere between solution-focused, value-added selling, falling margins and the gradual uptake of the Internet. In many respects, this business environment is similar to Australia's, but with one important distinction.

The country is struggling to come to terms with the implications of its recently granted freedom to once again be an international player. IT companies, once restricted by international sanctions, now have the whole world at their feet.

But at the core of the problem is a nagging feeling that not enough is being done to speed up the long hard road to economic stability. Some also claim the Government is not doing enough to allow local companies to move offshore.

While the Government is trying to hold back the offshore listings of companies like Dimension Data and network integration business PQ Networks, a division of Comparex subsidiary PQ Africa, others have caught the wave.

In 1999, supply chain giant Siltek launched its Australasian subsidiary Siltek Asia Pacific, while Johannesburg Stock Exchange-listed IT holding company Datatec launched its Logical brand and acquired Anite Networks in the process. It also owns the local arm of Westcon, a giant international specialist networking distributor.

In addition, IT giant Dimension Data maintains a 66 per cent shareholding in Com Tech Communications.

Peter Dixon, director of PQ Networks, said the increasingly common practice of "offshore hedging" has resulted in South African companies seeking listings in the markets of stable economies to protect their shareholders from domestic market volatility. "Dimension Data needs it if they want to be an international services company," Dixon said of his main competitor.

PQ Networks, by comparison, is seeking to acquire other IT companies to build its portfolio, he said. The company is seeking to expand its successful networking integration business despite the fact Comparex sold its European networking business to Dimension Data.

Meanwhile, Siltek is an example of a company that continues to make sure it has growing offshore interests. Colin Flatau, managing director of Siltek Distribution Dynamics (SDD), said his business unit contributes to over 50 per cent of Siltek's revenues with 2 billion rand ($500 million), using the reach of up to 6000 resellers on its books, 4000 of which are active. Interestingly, just 10 per cent of SDD's business is conducted locally.

"With the market opening up we have seen progressive companies set their targets on being global players," he explained.

Staffing challenges

But behind the global financial push lies a domestic concern that threatens distributors, resellers and vendors. Retaining IT staff has become such an issue that it poses one of the greatest threats to the ongoing viability of the South African channel.

Flatau puts it quite succinctly. "You're never going to keep the IT guys for a long period of time."

Industry estimates vary, with one executive suggesting between 200 and 250 IT professionals leave South Africa every month to seek their fortunes in the UK, Australia, NZ, Canada or the US.

A January online salary survey of 2068 IT professionals by BMI-TechKnowledge Group (IDC South Africa's IT research arm), gives a clearer picture. Twenty four per cent of respondents are "very likely" to leave South Africa within two years and 25 per cent are "somewhat likely".

Meanwhile, 17 per cent are "unlikely", 14 per cent "very unlikely" and 19 per cent undecided. One per cent did not answer.

Some quick maths indicates that almost half of the industry therefore plans to leave the country within two years.

"Certainly skills retention is a big thing," Spescom's Mostert said. "You need a healthy environment and create challenges in their work."

For example share options, training programs, and healthy salaries are all tactics used to attempt to stem the flow.

Even Microsoft South Africa has had its share of problems on this front. Maureen van Jaarsveldt, director of Microsoft's small and medium enterprise group, admitted that a year ago the company lost the most number of people to other Microsoft subsidiaries than it had ever done in its local history. The experience forced Microsoft SA to review its HR policies and introduce new incentives.

While she says the situation has since improved, Microsoft still faces the same hiring issues confronting other South African IT companies. "On average it takes five months to fill a position."

Terry Kelly, managing director of Westcon, agrees that the channel is battling against a huge exodus of skills. When asked if there was any hope people would return, his opinion was simply "no".

However, Westcon is attempting to meet the challenge head-on with an ambitious program of training people from the ground up. PDI's, otherwise known as previously disadvantaged individuals (and typically black Africans), are introduced into the company through its warehouse.

Once new staff have proved themselves there and worked through the ranks, within six to 12 months they have the option of coming in as an entry-level technical or customer support employee.

"If we can get 50 per cent of people into the technical or sales stream I'd be happy," Kelly said.

The vision is to keep new staff on this program for at least three years, moving them as far up either stream as possible, Kelly added. "We've got to grow our own staff. We can't attract people from the UK or Australia."

And while the PDI scheme seems like a great demonstration of social consciousness, Kelly said the industry faces a harsh business reality. "If you don't do it, you're in trouble."

While "grow your own" schemes seem like a viable option for some, it's also tempting for vendors to steal from their channel partners.

Cisco South Africa's channel sales manager, Steve Midgley, claims the company will not poach staff from its partners.

In fact, he says the company is investing in channel training programs instead. "I struggle less to find technical people than I do sales," he said.

But another solution local vendors throw at the problem, asserts Mark Jones, senior sales manager at IT services and integration outfit CCH, is to import skills from Europe and the US.

Vendors are now keen to make their South African channels work as a gateway into the rest of Africa, but simply dumping international staff into the country has problems of its own.

"The European environment does not understand Africa - it's a totally different way of doing business," Jones said.

In addition to the high cost of running a local operation, cultural influences have created a sales environment that is totally different.

"For instance, when you walk into a room many African people will not greet you, they will look down and that's often a sign of respect," Jones said. "This can make you feel like you've lost the deal, but it's not always the case. Some under-paid and under-educated IT professionals have created an environment where bribery goes a long way.

"For example, we were in a presentation in one African country when we all sat round the table they were all very blasé about the fact that they wanted us to uplift the pricing," Jones explained. "It was very important that each person in the room effectively gets a 10 per cent cut of the deal. We had to walk away from that business."

But all is not lost for the SA channel, according to Wikus Engelbrecht, senior manager of IT consulting company Brainware. On the job exodus front, because most of his departing friends and colleagues return to South Africa once they have completed their overseas stint.

"I do believe we provide a stable environment," he asserted.

In fact, the channel is ripe to benefit from the current climate by taking advantage of outsourcing opportunities. With 200 consultants and just 15 full-time staff, Brainware is developing niche services skills for hire.

"We would rather see ourselves as an extension of the client, rather than a supplier of IT services," he said.

The future

CCH's Jones concurs. "Government institutions have no IT staff retention - it's shocking. Clients cannot afford to retain IT staff any more."

BMI-T's channel research also supports the sentiments. In 1999 over 50 per cent intended to outsource specific activities, over 20 per cent intended to outsource operations and support functions and over 15 per cent would outsource everything. Just under 10 per cent decided to keep it all in house.

So amidst this state of flux, what does the future hold? Microsoft's van Jaarsveldt believes the Internet will have a significant impact on the economy. "I get really excited when you hear about a 75-year-old man who is driving the Internet services strategy of a business in Cape Town," she said of a recent local report.

Resellers are also becoming more Internet savvy as time progresses, she said.

BMI-T agrees. "The Web-centric lifestyle has begun and this is one of the largest contributors to growth," states a September report of last year on the South African IT market.

But arguably the biggest business driver about to hit South Africa is the impending deregulation of the telecommunications industry. The incumbent monopoly carrier, Telkom, is scheduled to release its stranglehold on the industry between 2002 and 2003. And the channel can't wait.

"Deregulation is going to have a major impact on the SA economy," asserts Spescom's Mostert.

New carriers will pave the way for new WAP technologies and allow suppliers of converged voice and data networks like Spescom to take off.

CCH's Jones is upbeat about the economy as a whole, arguing January was a strong month for the local exchange.

"My personal belief is economy wise we are the strongest we have ever been," he said. "Yes it is a converging second world, first world economy, but at the end of the day South Africa has never been in a better position with such things as low mortgage and interest rates."

He does agree, though, that the constant threat of violence and crime will continue to be an international issue until it is resolved. But for the channel to grow in such an environment, a healthy attitude to the business is all that's needed.

"Obviously the violence in South Africa is extremely high and a deterrent for people. However, it's something we as a country have learnt to live with," he explained.

"From a South African perspective, the idea [in business] is to be versatile and change very quickly according to clients' needs. To be a good channel partner you have to be a trusted advisor."

Breakout story: Silicon Valley II?

The hub of South Africa's IT industry lies in the undulating hills between Johannesburg and Pretoria in the province of Gauteng.

Some local IT execs jokingly refer to the area as their version of Silicon Valley - they even have the choked highways to prove it.

Escalating violence in city centres, coupled with the need for cheap land to accommodate growing companies, has encouraged IT resellers, distributors and vendors to congregate in sprawling business parks in an area known as Midrand.

But according to Carl Mostert, COO of integration company Spescom, calling the area South Africa's Silicon Valley is going a bit too far. "It's typical of the clustering that's in the US," he said. Mostert says the migration of IT and pharmaceutical companies to the area has been "moderately successful".

"South Africa has a lot to learn when it comes to doing these things," he says of building the right business environment.

Unlike US companies, South African IT companies are not used to strategic partnering with each other, despite their close physical proximity.

The problem is a legacy of the old days when international sanctions bred fierce local competition. "Our isolation has been a problem," he said.

"Now we are competing in the global marketplace we have to work together."

Snapshot of South Africa's IT market

* Total market value in 1999: 28.7 billion rand ($7.2 billion)

* Predicted market growth p.a. 1999 - 2002: 17 per cent

* Estimated number of channel companies: 6000 plus

* Average annual IT salary: 207, 913 rand ($52,000)

* South Africa's overall unemployment rate (est.): 40 per cent

Source: BMI-T IDC South Africa, 1999


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