CAIRO. NOV.5th 2008. CALL CENTRE. The UK section of the Vodafone International call centre in 6th October City, on the outskirts of Cairo. Stephen Lock  /  The National. FOR BUSINESS. *** Local Caption ***  SL-callcentre-007.jpgbz06no-callcentre.jpg
The UK section of the Vodafone International call centre on the outskirts of Cairo illustrates a shift in how corporations are handling their outsourcing contracts.

Outsourcing's new wave



India is the clear winner in the first wave of the outsourcing boom, so much so that the country is almost synonymous with the industry. It controls more than half of a global market that is estimated to be worth more than US$60 billion (Dh220.38bn). But the world of outsourcing is changing, and researchers at the London School of Economics (LSE) say that while India remains at the top of the heap, scores of smaller nations are emerging to potentially take the lead in the next wave.

Of the hundreds of emerging markets around the world, it has been Brazil, Russia, India and China (BRIC) that have captured the bulk of the attention of investors and outsourcers, thanks to their large populations and booming domestic economies. But in the Beyond BRIC report, commissioned by Egypt's IT Industry Development Association, outsourcing experts at the LSE say smaller nations such as Romania, Vietnam, Morocco and, not surprisingly, Egypt, will be the next to capitalise on an outsourcing industry that is rapidly changing.

From its origins as an opportunity to cut the cost of repetitious, labour-intensive work such as office administration and customer service, outsourcing is moving towards an all-purpose business services market, where everything from software development to business planning and product design are candidates to be sent abroad. And as the market becomes more complex, more valuable and more customised to specific needs, researchers predict new outsourcing hubs will emerge, specialised in niche services and capitalising on not only geographic and economic advantages, but also on cultural and historic factors.

The fracturing of the market is also good news for the small players. Although the total outsourcing industry is growing, the size and duration of individual contracts is shrinking, suggesting that companies are sending more work to a larger array of vendors. This trend, known as multi-sourcing, creates more opportunities for new destinations and vendors to enter the market. Most interestingly, a new focus on geographic closeness is emerging, as the true costs of sending important work halfway across the world become apparent. Researchers at LSE have spoken to analysts who believe that when all costs are taken into account, it is often cheaper for a US firm to send its work to Canada than to India.

With geographic closeness often comes cultural and linguistic compatibility, more synchronised time zones and lower travel expenses for those overseeing the outsourcing process. The trend points to more inter-regional outsourcing. North American firms are sending more contracts to Mexico and Brazil, while western European companies are looking to central and eastern Europe, and North Africa. Egypt, which straddles both the geographic and cultural boundaries of both the Middle East and the Mediterranean, is predicted to become one of the outsourcing world's rising stars, largely because of this. Morocco's technology and outsourcing industry is pushing its linguistic abilities, helping it connect to both the Arabic and French-speaking worlds.

While outsourcing to somewhere nearby makes sense, outsourcing everywhere is seen by the LSE researchers as the smartest option. Low-value work that can be done at any time of the day and requiring little oversight can be sent anywhere in the world, while the more important processes, requiring more collaboration, should be sent somewhere culturally and geographically closer. Even more important work can be outsourced within a country.

In 2005, the Dutch bank ABN-AMRO signed such a deal with Tata Consultancy Services (TCS), one of the heavyweights of the Indian outsourcing industry. As part of the deal, some work went fully offshore, to Tata facilities in India and Brazil. Some went "near-shore," to Budapest and Luxembourg, while a third category of work remained onshore, but was sent to a Tata office in the Netherlands. This strategy, known as "best-shoring," is a common practice at Hewlett-Packard (HP), the US technology company, which is the joint-venture partner of Abu Dhabi's Injazat Data Systems. HP carves up its projects and sends them to locations with specialties. Some work might be carried out in Abu Dhabi, some in Ireland and some more in Mexico, depending on what needs to be done, and at what price.

It is also common at global companies outside the outsourcing industry. These businesses are looking to outsource work to their own offices in other countries rather than to third-party vendors. This trend has led to Egypt's booming telecommunications market, the fastest-growing in the Middle East and Africa over the past two years, creating one of the country's best outsourcing success stories. The country's two largest mobile operators have both turned local customer support operations into international service providers for their parent companies. Vodafone Egypt, a subsidiary of the UK-based Vodafone Group, now employs hundreds of staff to handle customer enquiries from Vodafone operations in the UK, Australia and New Zealand. Orange, the French telecoms company that is a joint-venture partner in Egypt's Mobinil network, employs more than 1,000 people in a project management and services office in Cairo, supporting Orange businesses in Europe and around the world.

Turning the local success of multinational companies into an opportunity for outsourcing should be at the top of the priority list for governments and industry groups trying to develop an outsourcing industry in smaller nations, the LSE report said. The rise of a new generation of smaller, more specialised, outsourcing destinations is likely to be a comple-ment not a competitor, to India's outsourcing industry. The country's biggest outsourcer, TCS, is opening service centres in Egypt, Morocco and other rising locations. Increasing salaries, skills shortages and the sheer volume of new contracts means that even India now needs a little help from overseas to get all that work done. tgara@thenational.ae

Company Profile

Company name: Cargoz
Date started: January 2022
Founders: Premlal Pullisserry and Lijo Antony
Based: Dubai
Number of staff: 30
Investment stage: Seed


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