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South African Companies Opt for IT leasing to Keep Capex Spending Low and Increase Bottom Lines

Birender Singh

Birender Singh

With Covid and the necessity of work from home for employees, most companies in South Africa, which is a $435 billion economy, have realized that IT solutions that were a mere backend requirement have become a dire need now.

A research paper published by McKinsey in 2017 showed that, despite digital technology becoming a daily necessity for citizens, industries were less than 40% digitized on average. The lag was mainly because of traditional industries.

Many large corporations in South Africa belonging to mining, chemical, and retail industries are just beginning their digital journeys, while banking, high tech, and telecommunications are way ahead.

How is the leadership reacting?

The challenge for CFOs and CIOs is to cater to increased demand for digital transformation within their companies to increase efficiencies and competitiveness and keep costs low. Digital transformation means immediate investment in advanced technology and modernizing the legacy-IT systems, including software, hardware, and network, which improves operational efficiencies and increases customer engagement. Earlier, this was done by spending crucial CAPEX or taking expensive loans from banks. This was a big challenge for companies as owning digital assets meant maintaining hardware, updating software regularly, and hiring a team to manage digital requirements.

Since digital solutions become obsolete within two to three years, companies have had to overhaul their entire IT equipment and software periodically and spend crucial funds. The challenge is taking care of all these requirements, keeping the costs low, and maintaining efficiencies. This has led many companies to look for newer financing models that offload the need to own digital assets, keep pace with IT innovations and outsource IT requirements by entering into agreements with firms that provide IT leasing solutions exclusively.

The leasing option allows CFOs and CIOs of South African companies to access immediate advanced IT solutions from a range of vendors at an affordable cost. It also ensures that CXOs can align strategic growth plans with cost-effective, innovative, and flexible IT investments. Thus, the leasing process directly enables swift digital transformation through immediate, affordable access to the right advanced technology from IT vendors.

The advantages are many as companies need not make upfront payments, thus conserving capital, and make long-term plans as the expenditure towards the lease stays constant for some time. The firms also need not worry about regular updates as far as software and hardware are concerned as the lease provider takes care of these requirements.

The horizon shows many opportunities

Some IT solutions vendors also offer cost-effective lease agreements depending on the contract’s longevity. If it is short term, the costs are higher, and if it is long term, then they are lower. Even with the short-term agreements, the companies are set to gain as the costs will be much lower than owning and maintaining digital assets, preserving their capital, and increasing the bottom line.

IT vendors promise regular upgrades to software and hardware, refurbish equipment once every two or three years, and dispose of them in an environmentally responsible manner once their utility is over.

So, with the new process that seems to benefit all parties, digital transformation in South Africa is set to proliferate in the coming years.