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Egypt Unrest Shows Importance of Risk Mitigation in Offshore Strategy

Egypt Unrest Shows Importance of Risk Mitigation in Offshore Strategy

Photo: RamyRaoof/Flickr (Creative Commons License 2.0)

Ann All/IT Business Edge

February 11, 2011

In November when I spoke with Salil Dani, a senior research analyst for Everest Research Institute’s Global Sourcing team, he told me Africa was becoming an increasingly attractive offshore option, thanks to huge advances in connectivity, a deep labor pool and costs some 30 percent lower than more mature regions like Eastern Europe. When I asked about Africa’s biggest challenges, he told me it lagged Asia and other regions in making investments and policy changes to appeal to offshore buyers. He said:

Countries like India and the Philippines have been making major investments since 2002 and 2003, as well as making policy changes, to attract investments in the IT sector. Africa was lagging behind. So they have a lot of catching up to do before any meaningful offshore activity will happen there.

Fast forward three months. Africa’s offshoring future now looks uncertain, thanks to political upheaval in Tunisia, Egypt and other countries.

Service disruptions are not uncommon in offshore locations, even well-established ones. In a just-published Market Vista report about turmoil in North Africa, Everest lists several that occurred around the globe over the past two years: Mexico’s flu pandemic, Thailand’s “red shirt” protests, the ash clouds that blanketed Europe, terrorist attacks in Mumbai, an earthquake in Chile and a typhoon in the Philippines. As Dani told me in our interview, this is why emerging offshore regions are most popular with third-party providers that typically have more robust disaster recovery plans and alternate delivery strategies than individual companies.

(Market Vista subscribers get quarterly reports on offshoring/outsourcing trends; access to a locations database with data on cost, attrition rates and wage inflation for 23 major offshore cities; a bi-monthly Global Location Insights e-newsletter containing emerging perspectives on the locations landscape; supplier capability profiles for more than 200 suppliers; and Breaking Viewpoint e-briefings such as the one on North Africa, providing detailed perspectives on current market developments. You can get more information on Market Vista via this link.)

Companies with a presence in North Africa, and especially Egypt, apparently expect long-term service disruptions to result from the current political instability. As Everest notes, Vodafone has reportedly ceased operations in Egypt for now, an Indian IT services provider has shuttered its facility in Cairo and arranged to transport Indian employees back to India, Microsoft has routed call center services from Egypt to other areas, and HP and Alcatel Lucent have urged employees in Egypt to stay home for now.

According to Everest, this highlights the importance of risk mitigation strategies in offshoring. It certainly reinforces the wisdom of establishing multiple delivery sites and what Everest calls “safe havens” to ensure business continuity. It offers the example of Indian outsourcing giant Infosys, which no doubt will take advantage of its disaster recovery site in Mauritius, complete with a blanket visa agreement with the Mauritian government that allows employees to quickly relocate when necessary.

Other risk mitigation best practices recommended by Everest:

  • While the situation in North Africa escalated quickly and seemingly was tough for outsiders to foresee, companies with offshore operations should perform periodic risk assessments of all sites. Monitoring any early warning signs will help companies determine when to move services, or at least step up plans for a move.
  • Conduct thorough planning exercises. For example, consider “domino effects” that can occur when multiple companies shift services to a particular location, which can create short-term pressure on infrastructure and labor supply.
  • Take a more holistic view of locations. Companies tend to give the most weight to labor supply and cost when selecting offshore locations. As the situation in Egypt illustrates, they must also factor the costs of risk mitigation into their calculations. For instance, what are the costs of establishing redundancies with backup power and transportation?

This article can also be found on ITBusinessEdge.com

Ann All


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