Egypt's crisis: The sticky topic of political risk with outsourcing is firmly back on the table
Like everyone else, I’ve been glued to the news the past few days trying to comprehend the enormity of the Egyptian crisis and the possible repercussions across the global sourcing industry.
Without dragging us into a political debate, what’s alarming is the dependence global sourcing has on the Internet and political stability. When the first response of the government, in times of political crisis, is to shut down the Web, this has a massive impact on the nation’s global sourcing infrastructure to support global businesses. While China clearly has the capability to regulate its Internet, you have to ask the question whether smaller, less affluent nations have that level of sophistication.
This is a major concern for businesses when they invest in critical support services in the region. While top-tier providers, such as IBM, Verizon and TCS rely on Egyptian resources, largely for call center work and software support and development, it’s hazardous when the government shuts off the Internet and all hell is breaking loose. What really concerns HfS is the unpredictability of problems like this surfacing, that can seriously impact the security and availability of key support services in areas such as IT services, finance and accounting, payroll, customer services etc.
Egypt, as an example, has proven capable as a good quality resource location for the Middle East, Africa and European regions in areas such as IT, BPO and call center services, and has invested significantly in promoting its capabilities worldwide. For example, Egypt’s Information Technology Industry Development Agency, ITIDA (website currently down) had planned to have a delegation at the forthcoming NASSCOM conference in India, and has invested heavily with McKinsey to support and help develop its capabilities. The country has invested millions to promote its sourcing capabilities – and now, that investment is looking under threat.
The rampant, viral proliferation of social media is clearly fueling unrest in many nations that have high unemployment and undercurrents of dissatisfaction among their younger people. If situations, such as what is currently happening in Egypt, proliferate to other countries with sourcing support services, the first reaction of governments now seems to be to “shut off the Internet”. You have to question how this impacts ITO / BPO services that are hugely reliant on a robust Internet to succeed – not to mention a stable political environment. The Egypt situation is a serious blow to many of the developing nations seeking to take their share of global services, which have potentially questionable political stability.
Advice to organizations with globally-dispersed support operations
1) Ensure your service provider has proven rapid response strategies to cater for unexpected political and geographical risk. In the case of Egypt, this could entail transitioning services to emergency back up units in locations that can service EMEA countries, such as Jordan, Israel, Dubai, or even Poland, Hungary, Czech Republic, Romania or Bulgaria.
2) Ensure you know exactly how and where your provider backs up all your critical data and protects it in the event of a government coup.
3) Ensure you have financial provisions to compensate for business impact as a result of unforeseen political and geographical risk. Ensure these provisions are clearly structured, with appropriate metrics to compensate for business downtime and associated lost revenues.
4) Invest in a political risk analysis of countries where critical business and IT processes are being supported. Compare the risks of occurrences, such as the Egypt situation, with the cost-savings and business benefits of using these locations. Saving 30% from your bottom line will be moot, if you can’t run your business properly for long periods of time!
The bottom-line
What is clear, is that Twitter, Facebook etc. are rapidly inspiring large numbers of people in nations with high unemployment to protest, where they feel their governments don’t “listen” strongly enough to their grievances, and aren’t pushing political reform at the same pace as economic reform. There is real fear now that the uprisings in Iran, Tunisia and now Egypt will continue to exacerbate in other nations, and this is going to have consequential ramifications on global sourcing decisions. Surely, this puts those nations with more mature political systems in a much stronger position to develop their services delivery industries. And in today’s post-recession global environment, this also includes onshore/nearshore/rural shore locations in countries such as the US, UK and Ireland, which have become more attractive in terms of labor costs.
Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, Social Networking, Sourcing Best Practises, Sourcing Locations
Phil,
An excellent synopsis of the impact of the Egyptian crisis. The sheer pace of change that social media is bringing about, is clearly having an unprecedented impact on society and business. It’s clearer than ever that nations, such as Egypt, have to work harder than ever to convince the world they can provide a safe, stable environment to support international businesses. The global spotlight is now on them, and the challenge is really tough!
Stephen
Good perspective. Developing countries such as Egypt looking to attract global business must look beyond cheap labor and telecommunications infrastructure, if they really want to be as successful as India, Philippines etc. They must be able to prove to the world that situations like this simply won’t happen. South Africa took years to develop confidence from the rest of the world. Now many middle-eastern nations have a similar challenge. Alarm bells are ringing, and this situation will reverberate for some time to come,
Alan Hayward
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For balanced and very well-informed coverage of geopolitical risks and mitigation strategies, I use http://www.stratfor.com/ as recommended to me by a colleague quite senior in the CIA. I use their premium/paid service, but even their free resources are remarkable.
Just as all travel is adventure travel, so is all global sourcing. And I doubt very much that most global sourcing, whether via 3rd parties or captives, provide adequately, in their business case and in their SLAs, for the probabilities and cost of same in situations like this. Airlifting your team and their families out of harm’s way, airlifting basic supplies to those who can’t get them, protecting company facilities when all normal functions of government break down and/or security services go rogue, protecting your data with needed replication without creating undesireable latency, and the list goes on. Whether it’s popular uprisings in Egypt or all of Europe coming to a standstill because of volcanic ash, we have learned how VERY fragile is our highly interconnected, highly technology-dependent world, and global sourcing is just one of the areas for which risk assessment and mitigation must get greater attention.
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Very real and can happen anywhere. DR and BC planning must be robust and should take these types also into account. Obviously cost of putting such a plan in place impacts engagement pricing, QoS and customer satisfaction.
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I found that one of the transitioning suggestions (pt. 1) was to Israel… while a solid delivery market isn’t it a bit iffy that an Arab nation would interact on an enterprise with Israel? Not to say that it wouldn’t be great but when human opinions/attitudes run crazy they often opt for non-socially competitive regions.
What this whole situation really underscores is the lack of preparedness that we live in globally. Egypt considered to be one of the safe havens exploded almost overnight and on the heals of Tanzania. Even with exhaustive global monitoring powder kegs can turn into kittens, and kittens into explosive outcomes that will have ramification for a long time to come.
It pleases me to see that contingency plans are a part of the proposed solution (we called it a retrosourcing plan). You would think that it would be an obvious but we often think of smooth sailing and not the obstacles that challenge the journey.
It calls for an independent Internet architecture. The service provider should have connectivity independent of the country’s social internet network.
A similar situation happened in an Asian country which wanted to surgically strike at some terrorist camps operating across its borders after a terrorist outrage on its financial capital.
The GPS signals were shut off from the region pre empting the air raid strike.
@Jerry – most the firms currently using Egyptian resources are global organizations. If they are in need of contingent Arabic speakers, Israel is one option and has some great software development skills, but I do agree there could be the occasional “issue”, depending on the buyer organization… Jordan is a real alternative, with a strong track record of excellent skilled multilingual graduates.
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In addition to Jordan as an option you have Bahrain. This small island country has made great progress towards democratic rule and has an admirable business environment in the region. The workforce is good as well. There is a growing number of options in the Middle East other than just Egypt.
We do wish the Egyptians all the best and hope they get through this crisis in better shape than before.
@Phil… yes you are correct on both accounts (language & Jordan). I am just pointing out that a pair play on sourcing suppliers requires the consideration of interplay with other countries. We can talk about retrosourcing, internet non-dependencies and a number of other mechanics related issues. When it gets down to buying & deployment decisions it isn’t a pragmatic exercise but one that takes into serious account the interwoven fabric of the relationship between all parties.
One thing that is quite interesting is the Egypt centers are prized not for their arabic aptitude but in their command of secondary languages. The Egypt destination is utilized for near-shore proximity for the EC, labor arbitrage, and up to now a growing educated talent pool.
Alternative options for egypt are very few in the region which can give the similar scalability, cost advantages and political stability. The clients and their vendors need to monitor geopolitical and macro economic situations of the locations and regions..when tunisia took to streets and the president fled the country the contagion was fast affecting egypt, shoud have rung alarm bells for the players actively outsourcing to the region and taken the measures. but most of the players dont have political assessment capabilities and cant read the political analysis indepth and repucrsions of the sociopolitical incendents.
Its hightime that all large vendors and players outsourcing to the host of locations should monitor geopolitical and macroeconomic situaltions continously to avoid and minimize the loss and damage.
the players should look at turkey, eastern europe, namibia, south africa instead of north africa which are ruled by authoritative dictators who dont have more political capital at their disposal.
Phil,
Effects of social media and the resultant increased communication between and amongst people is bound to bring about changes to the way individual’ attention is requested for certain causes of public interest and their responses, etc. If anything at all, social media has clearly shown the way as to how momentum can be created and furthered. Be it, the recent revelation in Egypt or buzz around wikileaks saga globally, causes, campaign on political news story headlines in south asia region, etc.
Such exceptional large-scale outbreaks cannot be predicted much in advance. If anything, one can allocate a probability for such an event to occur. Sourcing destinations in emerging economies may be categoriesed based on the extent and nature of their national HRD, local governance effectiveness, respect to rule-of-law and legal frameworks. And analysing trends of popular social media platforms can help in deciphering to some little extent the pent up feelings and pulse of general public. It is important in a highly collaborative age to not just consider Governments and authorities to dictate terms but lend an ear to all that is occupying the mindspace of general public over a period of time. There lies a good business opportunity too!
While BCP and DRP plays a critical role, there is also a significant need to consistently focus on government relations and (external) stakeholder relations to be in a position to pre-empt and guage the local and national pulse for such exceptional events. If anything, this can merely help in BCP, data protection and timely switch to alternative development base. Coming to the case of Egypt, it is not only a destination where major services players exist from around the world, but there is a rising entrepreneurial segment in small and sole-proprietor enterprises. The virtual office, freelance concepts have been gaining popularity in addition to bigges like IBM, TCS, Infosys, etc. So, there is much at stake for smaller and individual service providers as well.
Some loud thinking while having a power lunch on the desk… 🙂
Have a good one!
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Phil,
It is interesting to notice that a large part of the internet communication from China to America and Europe is via cables there pass through the same Earthquake Zone and it is via cables there is controlled by Taiwanese telecommunication companies.
In 2010, 2009 and 2006 were there examples of earthquakes near Taiwan there severely managed to damage those cables. The result was major disruption to internet communication from the US / Europe to China.
It is also interesting to consider if Taiwan due to these cables have the technical capacity to shutdown international communication to China in case of a Chinese-Taiwanese conflict.
Gustav
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The best insurance against large scale geo political risk is “Democracy” . All major geo political events first in Eastern Europe and now in middle east is the phenomenon of letting out of pressure of iron fist governance with less or no political freedom and hence diverse strands merging against actual/perceived enemy for all the ills like unemployment , inflation etc .. in case of Egypt .. it is the regime that has ruled for 30 years . In democracy , the problems of inflation , mismanagement may be exacerbated , however people give vent through open protests and through the power of ballot across local council , state and national bodies thereby giving a perceived sense on collective power and a say in the destiny . Hence despotic and societies devoid of political , economic and social freedom are more vulnerable than societies which have functional democracies .
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Phil, et al: this is NOT an Eqypt or Middle East issue. The USA government has always had the authority to shutdown the internet in the US, and, in fact, I believe Joe Liebermann is working on legislation that updates that authority. The goal is to protect our infrastructure from cyber-terrorism. I am not going to get into political posturing, but I (personally applaud our government’s actions to protect us from any form of terrorism (I support TSA, I support the Patriot act, etc.). I also know my views are not shared by everyone and I respect that.
Everyone needs to have contingency plans for the internet being blocked, EVEN in the good ole USA. However, Phil’s article raises some interesting issues that we (in the IT industry) have “allowed” to raise their ugly heads. We have allowed business to become completely dependent on the PUBLIC internet. Doing business over the internet is only one facet. We all use the internet to do our work (mainly thru VPN?) Our external providers use the internet to support us. What will the next China clampdown do to Chinese outsourcing providers? Similar issue: what if India and Pakistan go crazy and Pakistan sets off a nuke in Mumbai? To some people, the internet is a core ingredient to Cloud Computing. Gartner predicts that 20% of the Fortune 1000 will move to the Cloud within 5 years. Then what happens when cyber-terrorists force our government to shutdown the internet for a few days or weeks?
No, this is not an Egyptian issue. Maybe the Egyptian situation will open our eyes to some of the potential risks and cause us to all do some better “strategic” planning.
We are living in the society without any security, privacy or safety. Why the days becoming such painful ones. Everyone has to think.
To make your home a place of peace recite this prayer directly received from Sri Mahavatar Babaji.
“Babaji, bless me, love me, protect me, guide me forever and forever.”
This prayer is a wonderful one. Any child, youth, pregnant, unmarried people, old aged ones, anyone can recite this prayer by gazing at heart or point in between eye brows, any number of hours daily to improve positive attitudes and to get right guidance at the right time. This prayer is a trust worthy one.
Those who are unmarried instead of adopting immoral ways or invovling in illicit relations, directly pray to God to show your spiritual life companion from the depth of your heart. The God will show your spiritual life companion. Spiritual magnetism attracts spiritual life companion. This is the time to spread ethical values across the globe.
Pray for the welfare of all human beings across the globe. I am praying to God to bless, guide, protect and love all. So that you will become real universal being, your heart will be filled with divine love rather than human love.
Perhaps the old saying “don’t put all your eggs in one basket” should be applied not only to investment strategies but also to outsourcing strategies. Outsourcing solely to one nation is dangerous. Having a diversified outsourcing strategy/implementation (i.e. multiple nations, regions, and continents) helps mitigate the damage when a particular nation collapses or flips off their internet switch.
[…] 4. A very interesting piece on Horses for Sources on whether the crisis might threaten global outsourcing. […]