Egypt Crisis - will it change outsourcing landscape in the region?

A weeks-long unrest in Egypt has became a real crisis, which already been named by some as “the worst disaster since Iran’s revolution”. One of the country’s main industries - tourism has already felt consequences of this crisis as tourists planned their holidays in Egypt from around the world have been advised not to enter the country because of unrest and tense situation.

Direct competitors of Egypt's Red Sea coastline such as Turkey, Spain and others are getting benefits of busy beaches and flows of tourists as last have turned their back after several weeks of anti-government protests that forced president Hosni Mubarak to flee the country.

What about Outsourcing?

Some acclaimed experts already expressed their cautions with regards to perspectives of Egyptian outsourcing industry unless the situation stabilize soon. For the last several years Egypt’s outsourcing services industry demonstrated dynamic growth getting fame as a hotspot for global outsourcing.

In 2009, Egypt for the first time has joined joined Gartner's alphabetically-ranked annual list spelling out the world's top 30 leading locations for outsourcing services. One of the main treats of such a progress has been named Egypt’s government extensive support and liberalization of tax regime for ICT. Egypt received enormous support from the government, particularly in the ICT industry with a reported $2 billion investment in its telecommunications infrastructure.

This crisis might be a heavy blow to Egypt perception at the international outsourcing arena as despite its robust progress and high rankings, the country has a number of weaknesses among which most notorious - negative business perception.

An LSE Outsourcing Unit in its study “Beyond BRIC” noted that Egypt still suffers from a negative perception and a belief that it is a country regularly targeted by terrorists and government disputes.

From the history one might notice what role perception plays in such industry as IT outsourcing. As a perfect example India’s terrorist events and corruption scandals in 2008 which have irreversibly changed risk/rewards calculations in the whole outsourcing industry pushing India in its own outsourcing crisis.

Alignment of forces in the EMEA region

Egypt has been considered for years as a bridge between Europe, Middle East and Africa. The country has been competing with Morocco and East Europe for European clients, mainly from UK, France and Spain and was looking to expand its reach to Benelux market (Netherlands, Belgium and Luxembourg). The country has been positioning itself as a nearshore destination to Europe, following the growing nearshoring trend in the region and jumping on the bandwagon of Central and Eastern European cluster.

In its report “2009: The Year of Outsourcing Dangerously” the Black Book of Outsourcing included Egypt in the list of safe locations for operating with low downstream risk leaded by Central and Eastern Europe and Latin America, while the entire Africa region was recommended to be avoided.

However, the current crisis and its possible developments can have a detrimental effect on country’s outsourcing gains of past years. As in response to precarious conditions conservative and consensus-driven Europeans might not include Egypt in the list of preferable outsourcing destinations keeping short-sighted nearshore precedency.

Moreover, other emerging outsourcing hotspots such as Serbia, Romania, Ukraine and Belarus are on the track to grow their positions as leading locations for offshore/nearshore services placing a significant emphasis on IT and business process services providing a vehicle to their economic growth.

For Egypt there is everything still to play for and - we hope - its government will not forget lessons learned previously reacting in good faith and on reasonable grounds so to prevent disaster that will be remembered by next generations.

Nearshore Study. What defines the nearshore zone?

The aim of this paper is to analyze the changes occurred in IT outsourcing industry,
point out to the current and future trends and clarify belonging criteria of the co-called nearshore zone.

Quote from the study

"However, not only has the number of known nearshore sites have grown significantly over the last years, but the amount of advertising and promotion on behalf of country developers has skyrocketed.

From exotic to socially downtrodden areas, business dealmakers from around the globe compete for a slice of the billions dollar nearshore pie."

  • Shift in Delivery Preferences
  • Popular Trend
  • What defines the nearshore zone

Shift in Delivery Preferences

Nearshoring, often referred as Nearshore Outsourcing took a wild ride during last years. The global political, economical, social and security changes during last years have a substantial impact on outsourcing industry at the international level.

The realities of an unsafe world have fully overrun into outsourcing decisions. The challenging component of outsourcing governance has shifted to mitigating downstream risk by determining the best location choice for their organizational processes.

As the savings gap between India and other world locations sunk to less than ten percent the value proposition is now more tempered more by potential threats. Increased focus on vulnerability management as well as geographical proximity has made for a shift in delivery preferences towards nearshore and sameshore options.

The survey made by Black Book Research in 2009 indicates that Central and Eastern Europe along with Latin America are viewed as significantly less dangerous outsourcing locations for US and EU respectively that all major hubs of India and being marked as the top destinations for operating with lowest downstream risks in 2009-2010. According to research having centers nearshore and sameshore will be a major client priority during next years.

Nearshoring - The Growing Trend

This shift in delivery preferences allowed many destinations under the so-called
Nearshoring umbrella to profit from their geographical advantages in their specific
clusters based in North America, Europe and Asia.

However, not only has the number of known nearshore sites have grown significantly over the last years, but the amount of advertising and promotion on behalf of country developers has skyrocketed.

From exotic to socially downtrodden areas, business dealmakers from around the globe compete for a slice of the billions dollar nearshore pie.

While there are some proven nearshoring destinations such as Canada, Central and
Eastern Europe and Latin America that according to analysts represent a viable
alternative to offshore options for US and West European countries there are many
other locations that seems to follow the trend and claim to be nearshore locations as
well. So, what criteria can be used to define location as a nearshore?

What defines the nearshore zone?

Definitions vary as to what qualifies as a nearshore location. Duncan Aitchison
international managing director of TPI, does not get hung up on semantics, but claims that moving across a close country border without crossing an ocean is a good way to define a nearshore contract. But how close?

Tony Virdi, partner at outsourcing advisory firm Atos Consulting puts it at anywhere
within three and a half hours' flying time, meaning Canada, most European and Latin America destinations qualify. However, flight from New York to Mexico takes more than 5 hours, should it still be considered as a Nearshore?

In truth, nearshoring locations should sit along a spectrum of potential outsourcing sites. At one end sit the far offshore locations such as India and China, separated by both cultural and geographic distances while from other side will be onshore locations such as Ireland and some US cities.

Geographical factor however is not only one determining "nearshority" as there are
many other important aspects such as linguistic and cultural ties, common history,
similarity of education, directness of communication and visa relations.

All this factors should be carefully considered in order to determine the best location fit for an organization prior to start a comprehensive assessment of locations infrastructure, intellectual property and business protection, laws, regulations and labor potential.