Egypt’s revolutionary impact

THE recently toppled Egyptian government always used to point to its young, tech-savvy population as one of the main reasons to outsource to the country.

Quite how tech-savvy young Egyptians are was showcased during the revolution that ended president Hosni Mubarak’s 30-year rule in February 2011, as protesters used social networking sites to coordinate and broadcast their demonstrations.

Those companies that had been attracted by Egypt’s outsourcing sector found themselves in a difficult situation following the demonstrations, not least because of the government’s initial reaction to block access to the Internet.

Microsoft and Vodafone, both tenants at Cairo’s Smart Village technology park, were forced to redirect work out of the country, while Indian offshore providers Wipro and Infosys evacuated non-Egyptian workers from its facilities there.

What will hopefully prove to be a great event for the Egyptian people was a troubling one for the global outsourcing industry.

A number of developing countries have followed India’s example of pursuing economic growth through IT outsourcing, and Egypt’s was one of the best-executed campaigns.

Many now feel, however, that Egypt’s example will discourage Western businesses from investing in what they may perceive to be unstable nations. The political stability of a possible outsourcing destination was always a consideration, but this could make businesses more risk averse.

That could be a good thing for local or ‘nearshore’ IT services companies, many of which have become more cost effective as a result of recent currency fluctuations. Businesses might now feel that sourcing IT services closer to home is a safer bet.

But the globalisation of IT work has benefited countries such as India, and it is an opportunity that might now be harder for other emerging economies to capitalise on.

The events in Egypt will have made organisations more cautious about where they send outsourcing work, says Ovum analyst Peter Ryan

There remains little doubt that even the most laid-back of outsourcing clients will now start exercising more due diligence on offshoring work. Egypt had long been seen as one of the safest of offshore / nearshore havens in a global delivery atmosphere racked with uncertainty, but now that goodwill has all but evaporated.

Going forward, look for site selection and political and economic analysis to have more weight in offshoring decisions, and don’t be surprised if the Egyptian events lead to at least some firms opting for the more stable (albeit more costly) onshore option

Companies’ concerns may work in favour of developed countries’ IT services providers, says HorsesforSources’ Phil Fersht

There is real fear now that the uprisings in Iran, Tunisia and now Egypt will continue to exacerbate in other nations, and this is going to have consequential ramifications on global sourcing decisions.

This puts those nations with more mature political systems in a much stronger position to develop their services delivery industries. And in today’s post-recession global environment, this also includes onshore and nearshore locations in countries such as the US, the UK and Ireland, which have become more attractive in terms of labour costs.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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