Situation in Egypt Risky for Telecoms and ISPs

On January 27^th amid rising unrest in Egypt, officials from President Hosni Mubarak’s government contacted telecom and Internet service providers throughout the country and ordered them to shut down public service. In an unprecedented move, a country of 80 million people was plunged into a digital darkness.

While the lack of phone service and Internet access posed a communications challenge for the country’s citizens, the government’s actions reverberated throughout the international business community, and in particular the call center industry.

As Peter Ryan, analyst at market research firm Datamonitor wrote in a recent brief on the Egypt situation, "Many in the outsourcing community are pondering the demise of what appeared to be the next big thing location-wise in offshore services delivery…the largest question remains whether this once-waking outsourcing giant can recover."

How Quickly Things Change

Egypt is home to nearly 6,000 outsourced contact center agents, according to recent market research from Datamonitor. In the past few years, the country has marketed itself as the next big hub for offshore outsourcing, and only three months ago, the nation’s information technology minister announced plans to grow the size of the Egyptian BPO industry ten-fold by 2020. Companies like IBM, HP, Yahoo, and Vodafone have expanded call center operations in Cairo, while multinational outsourcers have also set up shop in the country in the past 12-18 months.

During the opening of one of these large outsourced service centers last year, a government agency was cited in saying, "As a recognized top outsourcing destination, businesses are attracted to Egypt because of its central location and its economic and political stability." Just ten months after this statement was made, the entire Egyptian BPO sector is on the verge of collapse, leaving the clients that offshored work there wondering how things could go so wrong, so fast.

Save Now, Pay Later

When it comes to offshore outsourcing, many executives make the mistake of evaluating a location or delivery model solely on the basis of cost. In Egypt’s case, corporations saw a large, untapped labor market and an educated bilingual workforce that could be accessed on the cheap. With average call center wages that Datamonitor estimates at $3.50 per hour and total outsourced costs of approximately $15 per hour, many companies did the simple math and concluded "it costs less to send the work to Egypt than to keep it in the United States."

What didn’t factor into the financial spreadsheets and the cost/benefit analysis were the intangible or qualitative aspects of doing business offshore. How do you account for a country being ranked 98^th in Transparency’s Corruption Perceptions Index or 64^th for overall country risk? How do you budget for the risk that internet and phone service may be interrupted nationwide? The reality is that whether the offshore price is $15 per hour or $1 per hour, leaving your customers with no one on the end of the line will cost your business much more.

It’s Not Just Egypt

Many people in the outsourcing community were shocked that recent call center investments in Egypt could be wiped out literally overnight. However, it is a story that has been often repeated in other offshore locations, and the risks are not just economic or political. In the past decade, Latin America has been plagued by drug violence and instability, India has been rocked by bombings, the Philippines has been deluged by typhoons, Caribbean centers have been impacted by hurricanes, Mexico has been hit with avian flu pandemics, and Asian locations have been crippled with the SARS outbreak. Regardless of where an offshore site is located, history shows that unforeseen risks and perils can rapidly negate any labor arbitrage savings.

Sources: Transparency International, Euromoney

As the shutdown of the call center sector in Egypt shows, offshore expansion can be an extremely risky proposition. A 2010 Frost & Sullivan research survey indicated that 40% of companies would never migrate their call center work offshore, while nearly half of respondents viewed at-home as a viable replacement for offshore. These figures are sure to rise following the Egypt flare-up, and in the end, both companies and their callers will benefit.