Ministry of Communications and Information Technology
21 August 2007
Middle East Beckons as Outsourcing Hot Spot

Source: Wall Street Journal

CAIRO, Egypt -- As rising wages and attrition rates in India spur some international companies to seek new locales for outsourcing operations, Southeast Asia, Eastern Europe and Latin America have all been competing to become new offshore hubs.

Now, the Middle East and North Africa are elbowing into the race to host remote sales staff, service centers, tech support and the like, thanks to a favorable time zone, a multilingual work force and an oil-fueled investment and expansion spree. Companies also are attracted by some efforts by some governments there to diversify and liberalize their economies, as well as the prospect of tapping into the growing local market.

The offshore industry faces challenges in the Mideast, which is better known for political instability and ingrained bureaucracy than customer support. But underscoring the region's promise, some of the biggest outsourcing companies operating in India -- the industry's undisputed powerhouse -- are establishing outposts there.

Satyam Computer Services Ltd. is hiring 300 people for a new center in Cairo that will handle clients in Saudi Arabia and the Arab world. Earlier this year, Wipro Ltd. set up an outsourcing joint venture in Saudi Arabia and recently announced plans to enter Egypt. Tata Consultancy Services Ltd. says it will soon start offering services from Morocco to French-speaking European clients.

Indian companies pulled in nearly $1 billion of outsourcing revenue from the region in the fiscal year ending March 2007, up from $600 million the year before, according to India's National Association of Software and Service Companies, a trade group.

"There is a lot of money flowing in the region, and it doesn't make sense to not make best use of it," says Virender Aggarwal, Satyam's director and senior vice president for Asia-Pacific, Middle East, India and Africa.

Much of the Middle East offers the same appeal other outsourcing hot spots have: cheap, skilled labor. But companies are finding other advantages, including a time zone that roughly straddles the world's three biggest economies -- North America, Europe and Asia. The region's geographic proximity to Europe and a multilingual labor force also help. And with business booming in much of the Mideast, there is more demand for Arabic speakers.
In recent years, Egypt, Jordan and the United Arab Emirates have all broken into the top 20 most-attractive offshoring destinations, according to an index published by consultancy A.T. Kearney Inc. Tunisia, Morocco, Israel and Turkey made the top 50 in this year's list.

"The Middle East region is going to be, I think, the next big destination," says Simon Bell, an A.T. Kearney principal, who has worked with the Egyptian government recently on ways to draw in more offshore work.

Despite growing interest, Mideast countries are still small players, dwarfed by India and China and lagging behind hot spots such as Malaysia, Brazil and the Philippines. There are also some big obstacles to boosting growth. First among them: the perception that political instability or conflict in places such as Iraq, Lebanon and Israel makes the region a risky place. And while structural changes have cut red tape in places such as Morocco, efforts to ease bureaucracy elsewhere have lagged behind the rest of the world.

Talent pools in many Middle Eastern countries are relatively small, too. Egypt, the Arab world's most populous country, pumps out about 250,000 university graduates a year. But many of them need additional training to boost foreign-language and other skills before multinationals will consider them. Amid a wave of expansion, local information-technology workers are starting to see more job offers from regional companies. That could put upward pressure on wages and attrition rates.

Satyam's Mr. Aggarwal says wages in Egypt, especially among the more-experienced employees, may be slightly higher than in India. But with businesses expanding in the Middle East, hiring Egyptians still can be cost-effective. Cairo has long been the region's cultural capital, and its export of movies and soap operas, makes the Egyptian dialect familiar across the Arab-speaking world.

Language is also a big plus in French-speaking parts of Arab North Africa. In Tunisia, Paris-based call-center operator Teleperformance SA employs more than 3,500 people catering to its Francophone market. The company is looking to hire for a contact center in Cairo that can serve U.S. and European multinationals.

New outsourcing jobs are a big boon for a region struggling with high unemployment and a bulging birth rate, and some countries have been recruiting the industry. The Egyptian government is offering to pay 80% of training costs for new employees, and officials are offering cheap rates for voice and data links to major U.S. and European cities.

Dubai, in the UAE, is promoting an "outsource zone," one of several zones aiming to attract specific industries. While wages in the UAE are relatively high, officials highlight its advanced high-tech infrastructure and large talent pool, including educated Southeast Asian and Arab-speaking expatriates.

An outsourcing joint venture between Electronic Data Systems Corp. of Plano, Texas, and another UAE emirate, Abu Dhabi, is pouring $100 million into a new center aimed at Mideast customers. EDS recently started hiring in Morocco to service its European clients. It already has 450 employees in Egypt.

"We see the importance of this region both in itself as a market and as a center from which to service other businesses," says Charles Cox, EDS's regional vice president for Middle East and Africa.
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