Creating Regional Advantage: The Emergence of IT-Enabled Services in Nairobi and Cape Town

Since the early-to-mid 2000's, South Africa's Western Cape and Kenya's capital city Nairobi have been attracting flows of trade and investments in information technology-enabled services (ITES). The flows are small but significant and growing, with multinational companies like Amazon, Google, IBM, and others locating and developing market niches in these regions. Why have these regions managed to attract IT-enabled services investments, given their regional economic challenges and marginality with respect to the global services economy? I employed a qualitative case study methodology involving 120 semi-structured interviews, secondary data, and participant-observation in both Kenya and South Africa to investigate each context and make broader claims about how regions create regional advantage in global IT-enabled services.

Nairobi’s initial attempts to create a BPO sector failed because the region could not compete with other global locations on cost, labor, and service delivery. I argue that two categories of individuals emerged to support the development of Nairobi’s nascent BPO market: bureaucrats from the developmental state and members of the international community (as well as local capital) focused on promoting social enterprise and pro-poor entrepreneurship. Though both groups of individuals have resulted in trade and investment opportunities and support job creation, members of the developmental state portray Kenya as an emerging economic and technological hub while individuals involved in social enterprise efforts focus on marginality, highlighting images of poverty. The conflict in developmental strategies and imagery has potential implications for investor sentiment about Kenya's value proposition, the quantity of specific trade and investment opportunities, and the potential for IT-enabled services to address the needs of the poor.

Historical legacies and institutions have contributed to what makes Cape Town preferred and what makes investors averse to the region. Starting with Cape Town's advantages, its history of European settlement has created a community of English and Afrikaans speakers who have linguistic capabilities, legal institutions, and historic transnational ties useful for doing business in Anglophone (UK, USA, and Australia) and Benelux (Belgium, Netherlands, and Luxembourg) markets. However, these institutions that created advantage are in part responsible for what limits the growth of the sector. Along with European colonization and immigration came systems of apartheid that perpetuated inequitable access to economic and educational opportunities and resulted in a shortage of highly-skilled labor. These shortages drive the costs of labor upward, making the region less competitive on wages with respect to India and the Philippines.

Based on a comparative analysis of Nairobi and Cape Town, I argue that development can lead to IT-enabled services and that IT-enabled services can also lead back to development. The idea of development, by a number of individuals from different regional, organizational, and institutional contexts, is the impetus and the origin for the region's emerging services sector. However, as the region seeks to deepen and expand services, it leads to a coordinated set of actions to boost services that can be considered developmental whereby impediments in the local political economy are removed. I make a contribution to the literature on cluster genesis by arguing that the concept of the Schumpeterian entrepreneur theorized in such literature must be broadened to include other “developmentalist individuals” (i.e., public sector bureaucrats, members of the diaspora, social entrepreneurs, and individuals from international development agencies), esp. where the regional economies are undeveloped for the purposes of supporting and nurturing a technology-based cluster. The less developed a regional economy, the broader the notion of “entrepreneur” one must consider for the purposes of cluster formation.