The effects of outsourcing on rural communities and business performance in the selected areas of the South African forestry industry.

Abstract

The objectives of the study were to examine the socio-economic impact of outsourcing on forest-dependent communities, to evaluate the current outsourcing management system in Mondi Forests, and to assess the financial impact (costs savings) of outsourcing on Mondi Forests: Natal Region in KwaZulu-Natal. Participatory Rural Appraisal exercises were used to assess the socio-economic impact of outsourcing on forest-dependent communities. A questionnaire was then used on a sample of Mondi Forests personnel to evaluate the current outsourcing management system in Mondi Forests. Finally, cash-flow trends were used to assess the financial impact (costs savings) of outsourcing on Mondi Forests, Natal Region. Activities that have been outsourced include transport, harvesting operations, silviculture operations, security services, mechanical services, training, payroll services and information systems. Results show that outsourcing has impacted negatively on the livelihoods of some of the forest-dependent communities sampled. The negative impacts are mainly associated with a reduction in hygiene services offered to these communities and an increase in unemployment in some of these villages. Forest-dependent communities perceive outsourcing as the cause of poor relationship between the rural communities, forest companies and contractors as well as being the cause of high unemployment rates. Mondi Forests' personnel perceive that outsourcing goes beyond costs savings to include redirecting scarce resources toward core business activities. Lower morale and insecurity among forest staff members and negative views of the forestry companies by rural communities, unions and government departments were perceived as the disadvantages of outsourcing. Uncertainty with regards to employment continuity and social problems (e.g. increased forest fires, poor relationship with local communities) were perceived as outsourcing risks. Results show that Mondi Forests has implemented a number of strategies in order to reduce some of these risks and disadvantages by giving preference to their ex-employees when offering contracts, by providing start-up capital to emerging black contractors, and by initiating community development programmes in order to uplift the standard of living of the forest-dependent communities. Mondi Forests' personnel suggested that forest management. accounting, conservation management, and human resources are the best candidates for future outsourcing, since most other forest organizations in the world are already outsourcing them successfully. Most of these activities are still kept in-house in Mondi Forests. Results also show that outsourcing can be used with other rationalization methods to save costs. This is because costs savings in Mondi Forests: Natal Region, since 1998 to 2001 were .not only due to outsourcing, but also to some other management decisions such as reduced fertilizer and pesticides use. The total costs savings were R14.5 million from 1998 to 2001. Results support the need to strengthen the current rural development programmes in Mondi Forests, and to the establish Community Liaison Forums to improve communication with rural communities and to start community development programmes. A contractor upliftment programme was also recommended for developing the emerging black contractors. Lastly, company/contractor agreements must be reviewed in order to ensure that social responsibility aspects are appropriately managed. Outsourcing relationships need to consider the economic, environmental and social effects in order to be sustainable.