Middle East off-shoring industry enters a new era

The Middle East is becoming the new hub for the off-shoring industry. While traditional off shoring countries such as those in Asia and Africa are still strong, Eastern European countries are suffering setbacks according to a study by an international management consultancy.

According to AT Kearney’s Global Services Location Index (GSLI) which ranks countries based on their off-shoring activities, both India and the Philippines are still the top off-shoring destinations.

However, Hungary, Poland and the Czech Republic, who traditionally catered to Western Europe, have all seen a fall in their off-shoring activities due to a rise in costs.

On the other hand the Middle East and South East Asia seem to be flourishing due to growth in the IT industry and sustainable opportunities for business in the region.

Other factors such as close proximity to Europe, a large well educated population, and low costs is the reason the region has become such a significant off-shoring destination.

“Due to their low cost and growth of the IT industry, Middle Eastern and South Asian countries are making big gains in this sector,” Dan Starta, partner with management consulting company, AT Kearney Middle East told Alrroya.com.

“IT Services is one of the fastest growing sectors in the Middle East with an historical compound growth rate of over 25 per cent.”

However, Starta said countries needed to continually renew their infrastructure, innovation and capabilities due to strong competition from a mature sector.

Middle East Ratings

The UAE which has recently become a significant player in the IT industry thanks to Dubai Internet City has now entered the index in 29th place.

In 9th place is Jordan which has high IT capabilities and houses many international outsourcing companies.

Egypt is now in sixth place, moving up six places from 2005. This is due to the presence of major IT companies such as IBM and EDS and the expansion plans of Wipro and Infosys.

Countries such as Morocco (ranked 30) and Tunisia (ranked 17) have long been destinations for French off-shoring due to their language capabilities and the Moroccan Government’s strong support of the sector.

Dell has two contact centres in Casablanca for both its French and Spanish speakers. The country also makes up half of the francophone market with 25,000 jobs according to the report.

Growth factors

Starta added that another factor which has led to the Middle East’s growth includes low labour costs, being pegged to the weak dollar, strong and sustainable business opportunities in the Arab countries and government and private sector focus on building capabilities and attracting multi-national investment.

The financial crisis also means companies are taking many cost cutting steps.“With the global financial crisis, cost pressures have forced companies to consider even great off-shoring to lower cost locations,” said Starta.

“However, companies must also be watchful of home country political pressures against off-shoring due to rising unemployment and national growth slowdowns.”

India and Asia

India is expected to sustain its number one position. Although the industry has been mired by the Satyam accounting scandal and the 2008 Mumbai attacks it will still be the leader for years to come predicts the report.

Malaysia (ranked third) has also held its strong position due to its safe environment, reasonably priced high quality human capital, strong performance, and government support.

In second place is China which although has a large well educated workforce and low cost labour is still limited to the Asia pacific off-shoring industry. Hindering factors such as language, a manufacturing focused economy and intellectual property protection have held china back from becoming a global off-shoring destination but still remains high in the index rankings.

The Philippines which makes up 15 per cent of the global market is ranked seven, and houses many contact centres, which cater to the US market. The country is also moving to non-voice BPO (business process outsourcing) services.

Eastern Europe

The Czech Republic which is now ranked 32 in the index, dropped significantly from its fourth place back in 2004, as have Hungary and Poland. The decline in their rankings is due to wage inflation which has held back their competiveness in BPO.

Russia has also lost its appeal when it comes to off-shoring due to an increase in costs and political volatility recently seen.

On the other hand, Bulgaria (ranked 13) and Romania (ranked 19) are still in the top half of the index. Due to them being part of the European union but with lower costs made them hold on to their positions and did not see the fall other Eastern European countries did.

Other European countries which made great advances in the GSLI are Lithuania which entered the index at 21.