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Is the Egypt Crisis an Opening for Kenya’s Nascent Outsourcing Industry? Print E-mail
Friday, 11 February 2011
Outsourcing expert Bobby Varanasi, CEO of Matryzel Consulting, offers some insights on the likely impact of Egypt’s political crisis on its outsourcing sector, and whether this creates any openings for sub-Saharan Africa’s aspiring outsourcing destinations.

Buffering Against the Crisis: Strategic Industry and Long-Term Commitments  

Egypt's positioning in the past two to three years with respect to its differentiation has paid off significantly, resulting in over 30,000 jobs in the country, especially in areas like Cairo and 26th of October City where their key technology park is located. These jobs are basically created by multi-national companies (MNCs) like HSBC, Orange, IBM, Teleperformance, Microsoft and a large local player Xceed. But there are also smaller players like Raya and others. All these firms, in particular the MNCs, have selected Egypt as the base location for their MENA operations, which is part of a wider global services supply chain. This helps to ensure that commitments are long-term.

The Egyptian government has provided significant policy direction, incentives and training support through the Information Technology Industry Development Agency (ITIDA), and spearheaded a lot of proactive measures aimed at creating employment. The latter has been a crucial concern, especially given that over 40% of the population is below the age of 35. 26th of October City is being built with a fervor rarely seen in such challenging countries, and that is unparalleled in the MENA region. This has been a very positive development so far, and will continue to be so regardless of current conditions.

Initial causes for concern surrounding suspension of the internet, banking systems, stock markets etc are valid industry concerns. However, for this particular industry, given that telecommunications services are dedicated to the players and providers under ITIDA, operations have continued with no major interruptions per se. Therefore I do not expect clients to be inconvenienced significantly with either services or access.

ICT sector development has been, and continues to be, a key thrust for Egypt, given the economy’s inordinate dependence on old industries in the primary and secondary sectors like oil and gas, the Suez canal, and cotton and fruit production. Job creation in these industries has not kept pace with population growth, resulting in real unemployment (including those who have stopped looking for jobs) of around 27% to 32%, which is alarming given the sensitive region Egypt is a part of. I do not anticipate the government - whether under Mubarak or any successor – being able to make any structural changes rapidly.

The Egyptian government and its population will probably continue to look at the ICT sector with positive expectations: after all, this very sector helped the people amass millions in Tahrir Square via Facebook and SMS, so they are not going to let go of this flexibility easily. Perhaps only the government could curtail ICT access, which I think is unlikely to happen. Too much of its industry is at stake for such harsh decisions.

Risk Factors: Business Continuity and Perceptions
There must have been temporary disruptions in operations of the BPO industry, esp. with staff movements, given that most folks who work in 26th of October City do not live in that city just yet - the residential areas are being constructed with the same energetic drive as the remainder of the city -, but reside in Cairo. It is usually a one-hour commute from Cairo to their workplace in 26th of October City, which must have been affected by disruptions. Of course I assume that companies would have fallen back on their business continuity plans. For example, Orange's Egypt operations have Malaysia and Singapore as their business continuity sites; Microsoft's has India; HSBC has India, Malaysia and the Philippines; Xceed has Morocco; Teleperformance has Costa Rica, Prague and Jamaica. Hence work would have have continued with slight interruptions at these sites, which are business continuity sites for each other as well.

What will happen, and has most likely already begun, is a comprehensive review of business continuity plans, considered a geo-political factor in the context of location selections.

Perceptions will be the key thing to watch out in the coming weeks, and it is difficult to anticipate how the current crisis will play out, not the least because it is still unresolved. Clients exploring MENA operations, whether for their own centers or for co-operations with services providers like Xceed, Raya and others, will perhaps worry enough to postpone current in-progress-plans or adopt a wait-and-watch policy.

So far, there have been no significant industry responses, nor any from bloggers or advisors. The industry is doing the obvious: follow the story closely and watch for specific experiences. What caused industry to stand up in concern was suspension of the internet. However, not many realized initially that outsourcing organisations in Egypt use dedicated IPLCs whose services continued unabated and unrestricted. Internet suspension was more a ploy aimed at disabling communication amongst individuals in the streets, not corporations within the nation.

I do not see this tarnishing Egypt's reputation per se. Access to over 40m young people who speak English, French, Spanish, German and who are cheaper labor is too much of an opportunity to pass by. This geo-political crisis will resolve eventually itself, but its repercussions, though not major, will undoubtedly continue to be debated by the industry for some time to come. Therefore, for Egypt, current pursuits with new clients will take a back seat, putting ITIDA under pressure. ITIDA's responses should be watched closely, and so far, they have not made any statements, but I understand that they will continue to participate in global industry events.

Since most MNCs are committed to Egypt and the region in general, they will continue to operate within their confined environments. Whether they will expand more within Egypt is an incorrect question. That's because locational expansions are strategic decisions pursued within the context of expanding their services supply chains, and not about just leveraging one location at the expense of the other.

Perspectives: A Chance for Kenya and Sub-Saharan Africa?
Any attempt to leverage on the Egypt crisis will not succeed, not the least because after the post-election violence in early 2008, Kenya will struggle to claim geopolitical stability. In fact, even despite the massive network coverage of its own crisis, it has had limited impact on FDI into core sectors and the local industry – which will also be the case with Egypt. Egypt will have issues attracting new investments at least for a while before the industry bounces back and looks beyond the current crisis. This has also been the case with Kenya, and I would wager that Egypt will bounce back faster than Kenya has, simply because Egypt is considered a proven sourcing destination, while Kenya is still an emerging aspirant.

And to try to bank on Egypt’s crisis it is also fundamentally a short-sighted argument: Clients will want to see more than arguments based on the absence of a crisis. Kenya needs to be able talk from a point of strength, and this lies in government commitment and industry responsiveness. This means that Kenya will have to talk a different language: that of being the key gateway to Sub-Saharan Africa, and not just another cheap location for cheap, commoditised services.

Kenya's sporadic buzz is still perceived as not serious enough and it is important that the industry get its act together. What I said two years ago still applies: Industry leads market conversations. Given that this very structure is not in existence as a concerted single entity, the only other option would be for the Kenya ICT Board (KICTB) to take the lead, and they are still finding their feet in this industry as well. Going after partnerships with South Africa is unlikely to succeed since both countries compete for the very same business! What needs to happen is the following:
  • The industry needs to focus on going global, but first has to clean up its act, expand services on offer beyond call centers, create a single representative body, and focus on enhancing capabilities internally and benchmarking them globally.
  • KICTB should focus on FDI and invite MNCs to leverage the country, thereby helping create jobs and visibility within for the larger unemployed youth to perceive outsourcing as an industry that offers careers. In the absence of MNCs, the marketplace will remain reluctant to trust Kenya as a compelling destination.

Both have to happen concurrently, with consistency and a long-term perspective. Currently there is too much rhetoric and too little progress to show. The euphoria of the fibre-optic cable has come and gone. And the industry needs a champion. That cannot be the World Bank, and cannot be the government alone. The industry has to first and foremost ask itself a few hard questions how it compares globally, and then involve the government in implementing concerted actions.



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