Egypt unrest threatens status as rising outsourcing star

Egypt was dubbed an up-and-coming outsourcing destination by industry watchers in late 2010. But this week's dramatic political unrest puts that reputation at risk -- and serves as a warning to IT to plan for the geopolitical risks that can flare in offshore outsourcing locales.

What happens if the country you outsource to suddenly goes dark?

Early adopters of Egyptian IT and business process services are finding out today. Egypt's government reportedly blocked all Internet and cell phone service overnight Thursday as anti-government protests continued in the North African nation.

This political unrest and network shutdown come just three months after Egypt's information technology minister announced that the country wanted to boost its annual outsourcing industry revenues from slightly more than $1 billion to $10 billion by 2020, by investing $15 million to bolster local IT businesses and intellectual property protection.

Egypt's concerted effort to brand itself as an offshore IT services alternative appeared to be working: Many outsourcing analysts have [recently been calling] the country of 80 million a credible outsourcing option, particularly for European companies in a similar time zone.

[Where are today's riskiest outsourcing locales? See's "Offshoring: The 25 Most Dangerous Cities for Outsourcing in 2010."]

The European Outsourcing Association named Egypt its 2010 outsourcing destination of the year. "Egypt is a rising destination and well suited to support multinational corporations for their Africa and even Middle East operations," said Atul Vashistha, CEO of offshoring consultacy NeoAdvisory. "We see capabilities in both call centers and IT."

Among the services industry companies with significant operations in Egypt are HSBC which has a global service center to support its Middle East Operations, Alcatel-Lucent which sources technical support for its Africa, Middle East, and South Asia locations, Indian outsourcer Wipro which operates a local IT service center, and IBM which operates a nanotechnology center.

Timing Will Matter

The turbulence could have an impact on the country's reputation as an outsourcing destination if its lasts beyond the weekend, says Anand Ramesh, global sourcing research director for outsourcing consultancy Everest Group. "Given that Egypt is an emerging geography, it heightens concern around risk, as opposed to more established location like India or the Philippines. The degree of sensitively to risk in emerging market is much higher," Ramesh explains.

"If it dies down over the weekend and quickly stabilizes, many will view this as a one-off event," Ramesh says. "If it persists beyond that, it would raise concerns much more significantly."

Others are less optimistic about Egypt's ability to recover from the damage to its reputation. "The rolling wave of social and political pressures that has now hit Egypt will take them off the list of rational choice for an offshore location when compared with established locations such as India or emerging locations such as Uruguay," says Ben Trowbridge, CEO of outsourcing consultancy Alsbridge.

Most offshore outsourcing hot spots carry some degree of geopolitical or location-specific risk, such as the 2008 terror attacks in India and the current narco-violence in Mexico.

Yet many offshoring customers do a poor job of monitoring IT service supply risks on an ongoing basis, says Vashistha. "We recommend ongoing monitoring of country, city and supplier risks."

"The concern [over geopolitical risk] has started to increase in last two years or so," Ramesh says. "The terror attacks in India were a big wake-up call especially for organizations with a large offshore headcount."

Steps to Ensure Continuity Now

For those companies with operations in Egypt, the biggest challenge is ensuring service continuity over the next few days. "We're heading into weekend so the impact may be less severe because demand would naturally die down," Ramesh says. "It's important to have robust disaster recovery and business continuity planning -- not just the documents, but knowledge of how to execute against it, at what point to pull what trigger."

Some steps for affected customers to take in the short term include:

1. Ensure the safety of all employees in the country.

2. Prepare for work stoppages. Related labor strikes could last as long as a week, says Vashistha. In addition, the government could impose curfews or other restrictions on movement. "Most companies have some sort of network back-up, whether it's a second line or satellite so that's not a dramatic concern," Ramesh says. "In the services industry, the biggest concern is can you get people to get in center to do the work."

3. Move, or prepare to move, mission critical work to an alternate location temporarily.

4. Review disaster recovery and business continuity plans and begin to take the appropriate recovery steps outlined.

5. Update future plans with lessons learned. Once the situation has stabilized, put processes in place to regularly track geopolitical risks of all offshoring locations and stress-test disaster recovery and business continuity plans.

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