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Political unrest stymies Egypt's outsourcing credentials (updated)

Political unrest stymies Egypt's outsourcing credentials (updated)

Country retains value, but beware the stability rhetoric

Egypt may have climbed two places in the latest AT Kearney Global Outsourcing Location Index, but recent political unrest may have lowered the country’s position as a leading outsourcing destination, according to analysts.

The country ranked number four in the index, up from sixth ranking in 2009

Despite this, lead analyst at Ovum, Peter Ryan, said the unrest is putting the country’s outsourcing credentials at risk.

“Ovum believes that Egypt's outsourcing space retains value in the form of a sizeable talent pool with significant education and language skills,” he said. “This, along with generous financial incentives, has been the backbone of the country's growth in services.”

Read CIO Australia’s outsourcing series.

The virtual state of martial law imposed by the Mubarak government, however, impacts the ability of outsourcers to service their clients and counters the pro-business message of openness which has typically encouraged foreign investment, he said.

“It is clear that the expression 'business as usual' has no practical application for outsourcing work currently slated for Egypt. Communications within, to, and from the country have been minimal, and staff are under government curfews restricting movements to and from work. These constraints are giving outsourcers on the ground a significant amount of pain from the strain of fulfilling tactical processes and ensuring that adequate labour and technology backups are in place.”

In recent years, several large global players have established themselves in Egypt, such as Sutherland Global Services, Xceed and Raya. Microsoft has already begun to move some of its work out of Egypt.

Will outsourcing in Egypt recover?

Ryan said effective damage control among prospective and existing investors will be difficult for any future administration, and convincing many outside investors of ongoing Egyptian stability will be a tough task. Investors will be wary of rhetoric touting a country's political and economic stability in order to secure BPO and IT service investment.

“Following recent border violence in Mexico and the 2009 terror attacks in Mumbai, the events in Egypt are certain to make outsourcers and their clients much more risk-averse than any time in recent memory, and are likely to push many companies to choose the more secure, albeit costlier, option of keeping third-party work onshore,” Ryan said.

According to respondents to Ovum's 2010 CRM outsourcing Business Trends survey, this sentiment is already present among Western enterprises. About two-thirds indicated no offshoring plans, and regardless of location, the Egyptian unrest will reduce the bar for enterprise risk tolerance for offshore delivery, according to the analyst.

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