The most populous Arab country is flexing its outsourcing muscles thanks to a combination of linguistic capability and sheer determination… So how far can Egypt go?
It’s been a great year for Egypt’s outsourcing and service delivery space. Rarely has the country been too far away from the limelight or off the radar of industry professionals; a robust marketing and PR effort has ensured regular attention has been paid to this emerging hot spot at key events, culminating in a well-received triumph as “Offshoring Destination of the Year” at the inaugural European Outsourcing Association Awards in Belgium this summer (following on from 2008’s success as Outsourcing Destination of the Year at the NOA’s own awards).
“Egypt stood out for its multilingual capabilities and developments made to its infrastructure,” said Chairman of the National Outsourcing Association Martyn Hart, presenting the EOA award. “It has proven itself to be both a strong player for European outsourcers and a gateway to the Middle East and Africa.”
Then, in advance of the NOA’s Sourcing Summit in November, much was made of a report by Everest Group featuring a study commissioned by an Egyptian development agency which highlighted both the current scale of the European outsourcing market and the extent to which Egypt might be able to penetrate it over the next few years.
“From our research, Egypt demonstrated a number of strengths to serve Europe including its ability to provide multi-lingual skills at competitive costs, and also offers a gateway to the Middle East for European investors,” said Eric Simonson, Managing Partner at the Everest Group.
Such attention will, of course, be music to the ears of the Egyptian authorities and business community which is setting great store by (and, as this year’s marketing efforts demonstrate, investing heavily in) the country’s ability to compete at the highest level in the outsourcing space – in particular within the voice-based process arena. In March, the Egyptian communications minister announced that he expected outsourcing to produce revenues of over a billion dollars for his country this year, rising to $2 billion by 2013 and a whopping $10 billion by the end of the decade. For a country which, while one of Africa’s stronger economies, enjoys a per capita GDP of only $5,900, such income is of course more than welcome.
Egypt has been very good thus far at playing up its strengths. Foremost amongst these, when it comes to voice-based activity, is the country’s strong historical connections with several major languages. As the most populous country in the Arab world it’s unsurprising that its Arabic resources are vast – and with plenty of other locations hungrily eyeing up the growing Middle Eastern service delivery market, the Egyptians are hoping that this gives them a very valuable head-start.
However, it’s with European languages – particularly English and French – that the Egyptians are making great inroads already (capitalising on the country’s relatively Europe-friendly timezone – two hours ahead of GMT). The country’s relationship with the UK and France dates back centuries, with both countries having occupied Egypt at various times (the British military left only in 1954); as a result Egyptians’ command of those languages in particular is considered by many to be the strongest in the Arab world. Cultural and historical links of varying degrees of importance also exist with Italy, Germany and Turkey – thoughts of increased access to the German economy in particular is apt to get mouths watering in the tech parks in and around Cairo. Moreover, the Egyptians pride themselves in their ability to converse in foreign languages without a pronounced accent – something which has frequently been used to trumpet perceived advantages over established voice-provision locations which might not boast the same degree of fluency.
The Egyptian outsourcing campaign is not, however, confined to voice-based processes. Each year over 60,000 Egyptians graduate in accountancy and associated subjects, and the authorities are looking to leverage the country’s growing expertise in building and running contact centres to establish it as a major finance and accounting BPO delivery location as well. Heavyweight government incentives – including subsidised training costs and a remarkable price-matching commitment for telecoms expenses (whereby the state will make up the difference between Egyptian telecommunications costs and the lowest costs globally for equivalent services) display the authorities’ determination to capitalise as fully as possible upon what they see as a golden opportunity – and one that must be seized now before other Middle Eastern and African competitors get in on the act.
It’s not just outsourcing providers, of course, who are taking up the Egyptian gauntlet: a myriad of buy-side companies have set up captive centres in Cairo or the emerging hot spot of Alexandria. Cairo’s Smart City development in particular now hosts names as significant as Microsoft, Oracle, and Vodafone. The government has set a target of over 100,000 professionals eventually to be working within Egypt’s ICT industry.
Such ambitions are laudable. At present, of course, compared with the likes of India and the Philippines Egypt is not yet anywhere near first-division status in terms of scale; only a couple of truly major operations are currently active (including facilities run by Xceed, running one of the Middle East’s largest contact centres outside Cairo; and Stream Global, a Boston, US-based outfit that expects to ramp up its Egyptian operations to a level of around 5,000 FTEs over the next few years). It is also up against some stiff competition in the form of both established players and putative contenders such as South Africa (which is itself aggressively targeting the UK market for both voice- and non-voice-based services).
One area, however, where Egypt’s proposition is compelling indeed is cost. While comparative assessments in this area are known to produce a wide variety of results, one 2009 survey by the London School of Economics placed Egypt right at the top of the rankings in the area of delivery costs, including start-up, infrastructure and labour expenses. (Indeed the LSE report found Egypt an extremely attractive proposition overall: “Egypt has scored highest on market potential of all the countries [surveyed]… This potential is only now becoming available and analysts and businesses see this as a real opportunity to expand markets and develop new services based on the strong educational and linguistic skills of the population.”)
The aforementioned government incentives of course assist with keeping costs down, but are not the whole story: the fact is that labour remains extremely affordable (and can be expected to do so for some time considering the abundance of potential talent competing for comparatively few positions).
Egypt is, of course, not without its risks. The Middle East generally is hardly the least volatile region on Earth, and although Egypt has signed a series of peace accords with Israel the Palestinian question remains something of an open wound in relations between the two countries. Domestic terrorism is also an issue: although major attacks have declined in recent years no-one is under any illusion that the problem has been resolved. The political landscape is, too, rather murky, with the questions of the campaign for increased democracy and the succession to long-term president Hosni Mubarak looming ever more ominously. While the current administration is proving extremely sympathetic to the interests of the outsourcing and ITES space there is no guarantee that future governments will feel the same.
However, every potential sourcing delivery location has its problems – as the LSE study points out “some other countries, in particular India, have had more terrorism in the past, and more recently. While this hit the economy temporarily, it did not stop companies outsourcing to India” – and at the moment at least Egypt appears to be on top of most of its own. It is also, as noted earlier, on something of a roll when it comes to expanding its occupation of the outsourcing space despite what problems it does face; the question going forward is whether it can now capitalise on its achievements thus far to move into the outsourcing big-time.
Some 99 per cent of Egypt’s population is crammed into only 5.5 per cent of its land area.