News Analysis

Egypt unrest could harm developing world offshore reputations

Political change can take years, but IT offshore reputations can be seriously damaged within hours when political insurrection hits the world news.

The violence on the streets of Cairo might be seen as the inevitable consequence of a mass call for democracy, but it could also have a lasting effect on the Egyptian economy.

Egypt has been building its reputation as a destination for western businesses to receive offshore services. The current turmoil could undo a lot of good work.

Vodafone, which has a callcentre in Egypt, has been a proponent of the country's advantages in the past. It had to move some callcentre work from Cairo to the UK amid the street violence. The company said this was necessary to allow staff to comply with curfews.

This did not cause disruption to Vodafone's service, according to a spokeswoman, but this type of challenge could damage Egypt's good reputation as an offshore location and send a warning to businesess considering their offshore choices.

Indian IT service provider Wipro repatriated its Indian staff in Egypt amid the violence, but said its operations continued.

"Our expatriate employees have come back (to India )," said the company. "With the curfew in Egypt continuing, we are urging our local employees to leave the office early to ensure their safety. The BCP processes are also in place wherever required. We hope the situation is resolved soon so that business can continue peacefully."

According to a London School of Economics (LSE) report, published in April 2009, the North African state has a lot to offer. In its Beyond BRIC report, which looked at offshore service destinations outside the usual suspects of Brazil, Russia, India and China, the LSE ranked Egypt highly.

The 2009 survey found:

  • Egypt was the most attractive non-BRIC country based on costs
  • It has 330,000 graduates a year across multiple disciplines, with about 31,000 of them in technology, science or engineering
  • Egypt has an advantage in that foreign languages tend to be spoken with very little or no accent
  • Egypt has call centres offering technical support for many Western European and US companies, such as Microsoft, Oracle, Orange, Alcatel and Vodafone.

In the LSE report Denise D'ella, Vodafone, a director at Vodafone, was quoted as saying. "Egyptians are very empathetic people this helps very much because in a service-based industry you either want to do the job well and you want to help the customer or you don't. This is a behaviour you cannot teach people - you either have it or you don't."

Vodafone shifted work from a call centre in Cairo following the violence.

Professor Leslie Wilcocks at the LSE said Egypt showed promise as an outsourcing destination and was progressing on certain parameters the college was concerned about.

"The present political unrest points to lessons both for those responsible for the Egyptian economy in the next few years and also for clients of offshore outsourcing," he adds.

He says Egyptian business leaders and politicians must do all they can to alleviate the risks of the economy and the progress made in education, infrastructure investment and marketing. He says this is not easy if the groups that own those areas at the moment are replaced. "I think the outsourcing market will be looking for clear signs that this is happening at high and operational levels if confidence is to be regained."

He adds that it gives two clear lessons to companies using offshore models.

"[They should] see an offshore location as part of a larger portfolio of locations/options in order to mitigate risk, and business continuity planning is absolutely key."

"Both these are part of any global sourcing strategy so if client organisations have been suffering then they did not address these fundamental management prerequisites well enough. In Egypt's case there was always a question mark about the succession plan and post-Mubarak."

Robert Morgan, director at sourcing broker Burnt-Oak Partners, believes political stability has not been considered enough by businesses signing offshore contracts.

He says the Egyptian trouble is particularly damaging for companies that offshore call centre work because it is a front line service.

"Workloads can be shifted around if one centre has problems ,but the problem with countries such as Egypt is there are not that many developed offshore centres, unlike India where there are lots."

Peter Brudenall, Outsourcing lawyer at UK law firm Lawrence Graham, says most contracts have clause in them, known as Force Majeure, which kicks in when a major event happens which means a contract cannot be fulfilled. Political problems might fall into this and it means neither the supplier or customer is liable.

He says Egypt's outsourcing sector has a huge challenge overcoming the problems caused by the turmoil.

He said the Indian government reacted quickly when the Satyam fraud scandal threatened the reputation of its outsourcing sector and the terrorist attacks in Mumbai were an event and not an ongoing problem.

"India reacted quickly to deal with the Satryam scandal and the Mumbai terrorist attack was over quickly with just a risk of further attacks," added Brudenall. "The problems in Egypt are completely different."

"Egypt is a fledgling outsourcing destination and it cannot afford problems because there is a lot of choice."

The political unrest in Egypt provides important lessons for businesses choosing to offshore parts of their businesses. The unimaginable must be imagined when contracts are drawn up.


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