Middle East Violence Deters Outsourcers

Middle East Violence Deters Outsourcers

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Companies are less likely to outsource IT jobs to Middle Eastern countries embroiled in sectarian or political violence, a point underscored by President Obama during his Tuesday address to the United Nations General Assembly. His remarks came two weeks after four Americans including Ambassador Christopher Stevens, were slain in Libya, amid anti-American violence that swept the Muslim world.

“Attacking an Embassy won’t create a single job,” said President Obama.

In fact, violence such as the Embassy attack and the wave of anti-American protests in Egypt, Yemen, Libya, Lebanon, Tunisia and other Muslim countries add to the instability in the region since the Arab Spring began in December 2010. That instability can become a vicious circle making foreign investors shy away from creating jobs in the countries that desperately need them.

Before the Arab Spring, Egypt and Morocco were getting a fair amount of attention among outsourcers and their customers. In Egypt, an educated labor force is available at an attractive price and European companies like the country’s relative proximity. Morocco’s French-speaking population is seen as a good fit for French companies looking to outsource. The demonstrations, protests and violence “have greatly impacted them,” Atul Vashistha, chairman of the Neo Group, an outsourcing advisory company, told CIO Journal.

“When you see there’s going to be disruptions to operations, and you can’t travel easily back and forth, you’re not going to do business there,” he said. Vashistha’s company runs a real-time global supply risk monitoring service for companies that want to monitor, predict and manage risks in locations where they outsource their business. He started it last year after he saw that country monitoring was done by specialized services mostly once a quarter, with a big report every year. But the world is changing very quickly. “In emerging markets and less developed markets, it needs to be a real-time monitoring service,” he said.

Companies are still outsourcing in Egypt, but they tend to be more cautious. In 2011, Egypt’s outsourcing industry reached $1.1 billion in revenue and the country would like to get to $10 billion by 2020, according to the Information Technology Industry Development Agency, an Egyptian government entity. Employment in Egypt’s outsourcing industry increased by 10% in 2011 with Motorola expanding its presence in Cairo.

Still, some companies that may have gone to Egypt or Morocco are now looking at Mauritius, the tiny island nation off the southeast coast of Africa, or to South Africa, said Vashistha. “Mauritius is a small country, but it’s the most stable democratic country in Africa,” he said. Kenya is also focused on this market, and Vashistha says if it can prove that it is mature enough, it will be another location that will benefit from instability elsewhere.

Some companies are looking at the United Arab Emirates as an attractive alternative to countries that have faced the most sectarian and political turmoil. “Dubai is cheaper than it used to be because of its own economic issues,” said Vashistha, adding that he’s seen increasing activity there. Jordan, which has actively courted the outsourcing market for years, has suffered the “halo effect” from the Arab Spring, with companies fearing that violence would spread to that country.

Foreign investors and outsourcers will look at countries with the most disruptions and assign a high level of risk. Said Vashistha, “You won’t get much business activity until you see prolonged signs of stability.”

Published by CIO – Journal

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