Poised to scale-up the Sourcing Industry Value Chain · The sourcing industry is evolving from a...

Poised to scale-up the

Sourcing Industry

Value Chain

Egypt’s recipe for success

May 4, 2015


Poised to Scale-up the Sourcing Industry Value Chain:

Egypt’s recipe for success

The landscape of Sourcing (IT-BPM-KPO) is rapidly changing and new service

delivery locations are emerging. Countries in Africa, Latin America & Caribbean

(LAC) have been very active in cornering a big part of the growing opportunity.

Because of the rapid changes in the business environment of these regions, it

can be challenging to keep abreast of developments and appreciate their

advantages as a service delivery destination. This paper, focuses on Egypt an IT-

BPM-KPO destination and its evolution to address the high-value IT and KPO

markets.

India, Philippines and a host of other developing nations have benefited

significantly from the sourcing industry. Many African countries have followed

suit and are in the process of building their own capabilities. The continent of

Africa is emerging as a key destination due to multiple factors such as, ready

availability of skilled talent, lower costs, vastly improved connectivity &

proximity to key markets, multi-lingual skills, political stability and government

support. A stable business environment coupled with increasing infrastructure

investments is also fuelling the growth in this sector. Many African countries are

now not only beginning to position themselves very strongly as outsourcing

destinations but also moving up the value chain and finding newer niches to

differentiate themselves.

This paper based on research and survey responses from selected Service

Providers, analyzes key elements that are important for growth of IT-BPM-KPO

sourcing from Egypt. This paper reveals how revolutionary changes are being

undertaken in the IT-BPM-KPO sector and Egypt’s position to harness

opportunities created by the new digital revolution. The paper also highlights

Egypt’s strength’s as a preferred sourcing destination and developments

underway to further enhance the ecosystem.


Contents

1 Trends in Global IT & BPM Industry ....................................................................................................... 4

2 Egypt: A confluence of Asia and Europe in Africa .................................................................................. 6

3 Current Sourcing Landscape in Egypt ..................................................................................................... 9

a) Economic and political Environment in Egypt & credit ratings ........................................................ 9

b) Egypt Economic Development Conference (EEDC) ......................................................................... 10

c) Service Providers Landscape ........................................................................................................... 12

d) Key Destinations in Egypt ................................................................................................................ 13

4 Egypt: Scaling the Sourcing Value Chain .............................................................................................. 16

a) Defining the Sourcing Value Chain .................................................................................................. 16

b) Egypt capitalizing on opportunities created by the digital revolution and beyond ....................... 18

c) Position of Strength: High-value Delivery Location ........................................................................ 20

i. High Quality Employable and Scalable Human Resource ............................................................... 21

ii. Access to high growth, future market ............................................................................................ 22

iii. Living and Business Environment.................................................................................................... 25

iv. Reliable and quality Infrastructure ................................................................................................. 26

5 Conclusion ............................................................................................................................................ 28

Glossary ................................................................................................................................................ 29


Source: Avasant Trends 2015

Source: Avasant Trends 2015

1 Trends in Global IT & BPM Industry The “Digital Revolution” is

expected to drive many of the

anticipated global sourcing trends

which will cut across industries

and have a profound effect on

how businesses evolve and

transform their operating models.

Strong growth in the sourcing

market is visible. Large deals are

being signed and many more are

in the pipeline from Utility, BFSI,

Retail, Healthcare and Public

Sector. The digital age is breaking

traditional technology barriers

and transforming service delivery

through highly globalized and innovative business models. The impact of these trends can be seen across

industries, albeit to varying levels, as depicted below:

Cross Industry

Trend:

Impact Matrix


Key trends and dynamics in the market, highlighted above are expected to have a profound impact on

Egypt’s strategic plans of repositioning and differentiating the country as a center for higher value

services, in addition to enhancing Egypt’s competitiveness in the Business Process Management industry.

Business goes Digital

Digital Revolution has provided new avenues and is transforming the way businesses and economies look

at technology. Unlike with previous paradigm shifts, the Digital Revolution driven by SMAC (Social Media,

Mobility and Analytics & Cloud) has matured, and impacting the traditional service delivery landscape.

This provides an opportunity for Egypt to leap frog and position itself as a leader in Digital Services.

Globalization X

Globalization X is a visible dynamics in the market wherein buyers of services procure globally from

locations not just by assessing cost, quality and scalability factors, they also look at access to new markets.

Egypt’s uniqueness in terms of talent pool, scalability and geographical location positions as a gateway to

the African & Middle Eastern market and attract investments.

Transformation in Business Process Management (BPM)

The sourcing industry is evolving from a task oriented BPM services model to a platform-centric and

outcome-linked BPM (Business Process Management) model. Analytics and knowledge based services are

taking center stage in such transformations. The service delivery business model is becoming non-linear,

providing opportunities for countries with lower scalability but niche capabilities like Egypt when

compared to large locations like India.

Tier-II & III Destinations

Last decade saw the emergence of new geographies and cities competing to become viable delivery

destinations, driven by pressure on available talent pool and infrastructure in Tier-I cities. Buyers of

services want to minimize the risk of delivery by creating a network of service delivery centers across the

globe, allowing better access to untapped resource pool, providing a hedge against inflation and providing

protection from geographical and political risk. Egypt with its location, talent base and proactive

government support and policies has a significant advantage to capitalize on this trend.

Industry Consolidation

Significant consolidation is visible in the industry through Mergers & Acquisitions (M&A). This is leading

to need for optimizing IT infrastructure and optimally relocating them in geographies, which maximizes

economic benefit and drives business value. Egypt with its investments in IT & Telecom infrastructure has

a head-start to take advantage of this dynamism.

Nearshore goes Mainstream by being Niche

Over the last few years there is a visible preference among buyers of sourcing services to have nearshore

delivery centers for selected niche business processes, to enable collaboration and communication in

similar time-zone. After being in the shadows of matured offshore locations, Nearshore locations have

now become relevant for select services.

Impact Sourcing

Corporate Social Responsibility has become a de-facto standard for most organizations. Impact Sourcing

is an approach which provides employment in BPM sector to high potential disadvantaged youth across

the world and more prominently in Africa, Asia and Latin America. Impact Sourcing enables fulfilment of


CSR objectives and also has a very compelling business case for corporates looking for locations and

service providers which have a well-defined policy to support such initiatives and are implementing it.

Egypt has the potential to effectively leverage this trend.

Traditional sourcing services are expected to become automated and increasingly commoditized,

however high-value services will continue to be in demand, by leveraging knowledge workers. Egypt has

the right ingredients to become significant player in the high-value service delivery segment. Egypt has

multiple value propositions, which once positioned effectively, with right branding and messaging can

help to successfully transition from traditional provider of sourcing services to the “niche - new age – high

value” services, which are increasingly in demand.

2 Egypt: A confluence of Asia and Europe in Africa

Geographically, Egypt is strategically placed at the epicenter of Asia, Europe and Africa. This provides a

unique advantage to the country in delivering value as a sourcing destination.

From the cost perspective, Egypt is only marginally above India and this provides a huge advantage by

having both multilingual skills and cultural compatibility with Europe & Middle East. Egypt can not only

provide services in European languages like German, French, Spanish, Italian and Portuguese along with

English but unlike Latin America, deliver it within the same time-zone. The significant cost advantage and

multilingual talent pool that Egypt provides when compared to Eastern Europe and other countries in

Africa like Morocco and South Africa, is a strong driver making Egypt a leading service delivery destination

in the region. Egypt not only serves the regional market and Europe but also has been providing services

to destinations such as United States and Canada via some of the large service providers.

Source: Avasant Research


Source: Avasant Research 2015

Egypt’s value in multilingual operations like contact center and technical support is unparalleled.

Possessing a significant edge over other countries not only due to their ability to support over six European

languages but also at costs lower than others. Egypt costs are 30% lower than Morocco and over 40%

lower cost compared to Eastern Europe making Egypt the destination of choice for multilingual processes.

Egypt is uniquely positioned to take advantage of being the hub for Middle East & Africa as a service

delivery location for business services driven further with availability of scalable, skilled and highly

employable workforce. By virtue of its location, Egypt has easy access to high growth markets in Nigeria,

Ghana, Kenya, Morocco and the Middle Eastern countries like United Arab Emirates, Saudi Arabia and

Turkey. This region comprises some of the fastest growing economies in the world, especially from the

perspective of ICT spends. Africa has made significant investments into infrastructure development

thereby improving its telecommunication backbone, e-Governance programs and mobile penetration for

citizen services. The projected high growth rates in African economies, proximity to Europe and unique

skill offering, provides Egypt an unparalleled advantage. Large English speaking population and technical

qualifications, also makes Egypt a strong sourcing destination for traditional buyer destinations such as

United States and Canada.

Evolution of IT, BPM and KPO Industry in Egypt

Egypt’s IT, BPM & KPO industry took off in the early 2000’s when the government opened up its economy.

Since then Egypt has become home to some of the largest IT BPM and KPO firms and has helped foster

local organizations and entrepreneurs.

With a humble start in early 2000’s,

Egypt’s IT, BPM & KPO exports had

reached US$1.1 billion in 2011 and

further grew to US$1.5 billion in 2014,

creating over 90,000 direct

employment in the sector. It is

expected that the industry would

touch about US$2.5 billion in exports

by 2020 creating about 161,000 jobs.

The growth in the IT, BPM & KPO

industry was fueled by few unique

advantages that Egypt as a region

* Multilingual Operations, Source: Avasant Research 2015


supports with strong government initiative in this direction. As per a report in India Today (March 25,

2013 issue), India had lost around 40,000 jobs in the BPM sector to Egypt over a five year span (2008-

2013).

Beginning with English language Contact Centers, developing into multilingual processes and expanding

service delivery capabilities to IT services like Product Development and R&D; Egypt has matured over the

years from being a mere low cost destination to a go to location for niche services.

During the period 1985-1995, a government-private sector partnership had a remarkable impact on the

build-up of Egypt’s information technology infrastructure. During that period, various projects and centers

were established by the government, public and private sector organizations targeting socioeconomic

development. In 1999, ICT was identified as a priority sector by the Government and a new ministry was

established namely the Ministry of Communications and Information Technology (MCIT), leading to

investments and infrastructure build-up in the sector. The ICT industry has taken massive steps since then

on different aspects such as human resource development, ICT infrastructure modernization and

promulgating market friendly legislations to develop the sector. Egypt’s information society initiative (EISI)

was launched in 2001 to provide a broad perspective on the strategic plan for information and

communication technology diffusion in Egypt. The industry was further boosted in 2004 with the

establishment of the Information Technology Industry Development Agency (ITIDA), a governmental

entity, paving the way for the diffusion of e-business services and supporting an export-oriented IT sector.

The Technology Innovation and Entrepreneurship Center (TIEC), an affiliate of ITIDA was launched in

September 2010 to promote innovation in the ICT sector. An undergraduate training program EDU-Egypt

which aims at bridging the gap between the skills of the Egyptian youth and the ever-growing need of

competence in the work force was kick started in 2007. In 2008, the number of ICT companies (domestic

and export oriented) exceeded 1,750 going up from just over 300 companies in 1999.

By 2014, Egypt had matured to a destination of choice for niche services and delivery hub for the region.

Number of export oriented companies in the ICT sector (IT-BPM-KPO & Telecom services) stood at 177

employing 45,000 people leading to EGP 11.2 billion in exports. The local IT industry employed over 66,000

in 2014.


* Estimated; Source: World Bank, 2015

3 Current Sourcing Landscape in Egypt

a) Economic and political Environment in Egypt & credit ratings The economy had been achieving a strong 7% plus growth before the financial meltdown in 2008-09. Like some of the other emerging economies, the financial crisis in US had less than severe impact on the Egyptian economy. The recent political instability did take its toll on Egypt’s growth. However, the economy has now started to bounce back after a series of economic reforms introduced by the new government in 2014. The International Monetary Fund (IMF) in a recent assessment of the economy of Egypt (on February 2015) struck a positive tone saying: “Following four years of political uncertainty and economic slowdown, Egypt has chosen a path of adjustment and reform which, if followed resolutely, will lead to economic stability and growth”. The upward trend in the real GDP growth rate is a result of the economic reform program by the government to increase growth, create jobs, and contain fiscal and external deficits.

Credit Ratings and International Financial Institutions Perspective

S&P Moody’s Fitch Trading Economies

Egypt B- Stable B3 Stable B Stable 24 Stable

Source: World Bank, 2015


Moody’s

Egypt’s recent efforts aimed at reviving its economy are beginning to pay dividends after Moody's

upgraded the country’s credit rating in April 2015. The ratings agency said Egypt’s improving economy

and its government’s ongoing commitment to fiscal reforms are among the reasons for its decision to

raise the country’s rating to B3 with a stable outlook. The ratings agency now expects Egypt’s gross

domestic product to recover from last year’s 2.2% to 4.5% in 2015, and then to rise to between 5% and

6% in the next four years. The GDP outlook is largely in line with earlier declarations by Egyptian officials.

Fitch

Fitch Ratings upgraded Egypt’s credit rating one rank to “B” with a “stable” outlook. Fitch recently

commented, “The debt level should go down, after several years of deterioration. At the end of 2014, the

debt stood at 90.5% of GDP. It is set to drop to 85.8% of GDP by the end of the fiscal year (FY) 2015-2016.

Economic growth is accelerating, and year-on-year growth reached 6.8% in the third quarter of 2014, the

highest since 2008, up from 3.7 % in the second quarter of 2014”. Fitch predicts that the annual GDP

growth should hit 4.7% in 2016, up from 2.1% in 2013. “Political stability has improved under President

(Abdel Fattah Al-Sisi)”, Fitch added.

Standard and Poor’s

Standard and Poor’s rating on Egypt was kept unchanged at “B-” with a stable outlook, which is equivalent

to Fitch’s rating on Egypt, but one notch higher than Moody’s Investors Service. The rating agency said

that the country’s political landscape has begun to stabilize and that the security situation is improving.

International financial institutions renewed interest in Egypt was also a strong contributing factor to the

upgraded ratings and institutions including the

EBRD, World Bank, EIB, AfDB and IFC have

again started funding projects in Egypt. The

World Bank has a US$5.5 billion portfolio in

Egypt covering 27 projects, and the World

Bank’s Multilateral Investment Guarantee

Agency (MIGA) advised potential investors in

Egypt to ‘take a calculated risk and move in

now’. MasterCard’s consumer confidence in

Egypt rose from 54% in 2013 to 78% in 2014.

In September 2014, the Egyptian government

succeeded in raising over US$8.5 billion, in less

than two weeks, from the local market,

demonstrating the people’s confidence in their

economy and leadership to build the new Suez

Canal. Though the unemployment rate is

creeping up, it can be seen as a potential

opportunity for the IT-BPM sector as it can

keep costs in check.

b) Egypt Economic Development Conference (EEDC) Egypt Economic Development Conference (EEDC) was held on March 13-15, 2015. The 3-day event

headed by President Abdel Fatah El Sisi drew about 2,000 delegates, as well as 30 heads of state and

Source: Business Insider.com.au


senior executives of multinational companies. The conference exceeded economic expectations – by

achieving over US$60 billion in signed investment contracts and other contributions. Senior

representatives of the United States, France, Germany, Britain, the Gulf States, China, Russia and many

other nations showed their support of Egypt’s medium term development strategy, and their business

representatives are eager to get involved in the outlined investment projects. Some of the key outcomes

of the EEDC were:

1. Investment deals worth US$36.5 billion were signed, in addition to US$18.6 billion for

Engineering, Procurement and Construction (EPC). Contracts and loans from international

financial institutions aggregated US$5.2 billion. Egypt also signed Memorandums of

Understanding (MOUs) for potential deals worth US$92 billion at the conference, according to

Ministry of Investments.

2. Egypt's Gulf allies Saudi Arabia (US$4 billion), the United Arab Emirates (US$4 billion), Kuwait

(US$4 billion) and Oman (US$0.5 billion) pledged an additional US$12.5 billion in grants and

investments.

Some of the key Economic and Legal Reforms that led to the investments include:

1. Overhauled tax system which included introducing dividend and capital gains taxes, increasing

taxes on higher income brackets and revamping the country’s property tax framework.

2. Egypt also slashed spending on energy subsidies by nearly a quarter in its 2014-15 budget, this

reflected on government’s fiscal prudence.

3. Reformed Investment Laws which aim to reduce government inefficiencies, enhance investor

protection, and provide targeted incentives. The new law also provides a one-stop shop that

allows investors to obtain approvals and permits in certain sectors from a single window operated

by the General Authority for Investment and Free Zone.

The EEDC was very important for the ICT sector specifically and MCIT played a significant part in the

success of the event. MCIT and International Telecommunication Union (ITU) agreed to enhance

cooperation between them. The Minister of MCIT also met with various IT and Telecom firms such as

Orange, MasterCard, Microsoft and Vodafone to encourage them to enhance their investments in the

country.

Confirmation of Egypt’s potential and improved business climate is visible from various perspectives. Vodafone for example has announced a US$1.3 billion investment into Egypt to enhance their network over the next three year period. AT Kearney’s Global Services Location Index has ranked Egypt at the 10 ahead of other competitors from the region, including United Arab Emirates at 19; also surpassing Poland & Romania’s ranks. Egypt has been ranked as the region's industry leader, and has scored well

over the years due to solid fundamentals including favorable costs, good universities, and proximity to

Europe. The government has also invested heavily in developing the industry through targeted efforts. AT Kearney also commented, “We expect Egypt to return as one of the leading locations for both IT and BPO service”.


c) Service Providers Landscape There are a number of domestic and international IT-BPM service providers who are already operating in

Egypt. They provide a range of services such as Contact Center, Infrastructure Management, Technical

Support, Application Development & Maintenance services, etc. Following are a few select service

providers having significant operations in Egypt:

Source: Avasant Research and ITIDA


d) Key Destinations in Egypt Blessed by the Nile, the Egyptian civilization historically concentrated around the river and the great delta.

Three of the four business destinations of Cairo, Alexandria and al-Mansura are located in the delta

formed by the river while Asyut is located upriver. The Suez also makes Egypt an extremely attractive

logistics hub in the region. Majority of Egypt’s population is distributed around the delta and along the

river. This creates a desirable aggregation of talent pool around the capital and prime business destination

Source: Avasant Research and ITIDA



* Graduate population from the

mentioned universities

of Cairo. Graduates and experienced professionals from across these cities freely move around this region

and the resistance to migration is low, resulting in favorable talent pool availability landscape.

At present, most of the international global service delivery centers are located around Cairo and a few in

Alexandria. However, al-Mansura and Asyut are promising cities with required infrastructure and available

talent pool, making them extremely attractive Tier-II destinations.

Population Top Universities Graduate Output*

Total Egypt 88.5 million 260,000 – 290,000 Cairo ~10 million American University in Cairo, German University

in Cairo, Cairo University, Ain Shams University, Helwan University, Higher Technological Institute, British University, French University

165,000 – 185,000

Alexandria ~4.5 million Alexandria University, Arab Academy for Science and Technology and Maritime Transport, Université Senghor, Alexandria Institute of Technology (AIT), Pharos University in Alexandria

37,000 – 40,000

Asyut ~0.5 million Assiut University 20,000 – 25,000 al-Mansura ~0.5 million University of Mansoura 35,000 – 40,000

Proposed ICT Parks

Special Economic Zones, technology parks and

Free Trade Zones attract investments across

the world due to their favorable business

climate. Egypt has two major IT & BPM parks in

Cairo: Smart Village and Maadi Park, which

together has the capacity to house around

100,000 employees to deliver sourcing

services. Similar infrastructure developments

in other cities such as Alexandria is also under

way.

Egypt as a part of its strategic initiative

continues to invest in new technology parks.

Around EGP 20.5 billion has already been budgeted for the initiative. The new technology

parks are expected to provide the necessary catalyst for new investments in technology to flow into the

country. In addition to this, there are various other private business parks and building in Egypt.

Source: MCIT Egypt

http://en.wikipedia.org/wiki/Ain_Shams_University


IBM Egypt Samuel J. Palmisano, IBM chairman, President and CEO, commented; "I am optimistic about Egypt’s future because of the way it is nurturing its talent, its human resources and its technical potential. These initiatives mark IBM’s commitment to strengthening that process of growth and opportunity, and extending the long and highly successful partnerships we have enjoyed in Egypt." An agreement for training and human resources development Services Science, Management & Engineering (SSME) was signed in 2008, to introduce SSME into the Egyptian curriculum. SSME is a new academic discipline designed to develop the skills required in an increasingly services based global economy among university graduates. "We are proud to be part of your past, and we are excited to be part of Egypt's future, and it was important to be here at this moment in time." "Egypt continues to be an important market for IBM and we are very pleased to see the return of economic growth" said Ms. Virginia M. (Ginni) Rometty Chairman, President and Chief Executive Officer, IBM

Source: MCIT Egypt


4 Egypt: Scaling the Sourcing Value Chain

a) Defining the Sourcing Value Chain The growth in the IT& BPM sourcing industry over the last decade has attracted the attention of many

countries. The sourcing industry has the potential to be a significant engine for economic growth. The

growing competition between countries and service providers across regions has prompted them to

constantly innovate and differentiate their service offering by leveraging higher value services and

climbing up the service delivery value chain. This strategy is enabling service providers to improve their

profitability and ROI. For example, over last many years, service providers have been moving out of

commoditized services like voice based contact centers and instead investing in delivering higher value

services like Marketing & Investment Analytics, Legal Process Outsourcing (LPO) etc. As a country becomes

recognized for its higher value services there is a potential risk of some of the lower end work drying up

from international buyers. However, this is a strategy worth adopting as the downside risks are

manageable through enhancing domestic demand. The emerging digital economy also provides an

opportunity to develop an effective strategy to address various high end services that will be in demand,

through various market entry points as illustrated below:



Most companies that evolved over time with growth in the sourcing industry made their entry with

traditional IT infrastructure support and application maintenance services in IT domain and with data

entry and document management service in BPM domain. As organizations build capabilities and develop

deeper understanding of client environments they gradually move up the value chain by mining existing

clients. IT products based organizations has a slightly different approach and entered the value chain

offering products as against services. Moving up the value chain requires deeper understanding of the

industry domain and access to skilled manpower resource to be able to undertake more complex tasks. It

is important that the optimal market entry point is selected after analyzing intrinsic strengths.

SQS – Software Quality Systems

“Location advantages for the ICT sector include low energy and wage costs and the geographic location with access to markets in Europe, Africa, and Asia. The close proximity to Europe is a key factor, because the difference in time between Central Europe and Egypt is only one hour – a clear advantage over countries in the Far East. The North African country also has a stable economy and a well-developed IT infrastructure, thereby making it an attractive offshoring location.” As a company with a strong presence in Germany, it is important that SQS maintains language ties with business partners in Germany. Axel Bartram, Managing Partner SQS Germany points out that Egypt’s multilingual workforce is another benefit in the country, as the language accessibility aids communication and productivity. “In Egypt there are a large number of well-educated high school and university graduates who speak German. Cairo has a German university that graduates some 500 students each year. They are fluent in German and can often express themselves well in other European languages. This makes them ideal candidates for jobs involving SQS customers from German-speaking regions and for working closely with colleagues at the Homeshore Test Centre in Görlitz.”



b) Egypt capitalizing on opportunities created by the digital revolution and beyond The digital revolution is not only changing the way organizations are doing business but also spawning

new delivery models in the sourcing industry. The figure below highlights some of the key opportunities

being created in both the IT,BPM and KPO sector.

These opportunities call for innovation by Service Providers and Global Development Centers (GDCs) to

address them and maximize value delivery to their clients. It also requires effective branding and

marketing of their services to a new target audience in their client’s organization.

Beyond the disruptive technology changes, verticalization or focus on services for select industry verticals

is throwing up opportunities. Retail, Healthcare, Media and Education sectors that are showing significant

traction for industry specific tailored solutions for IT, KPO and BPM services.

Select service providers operating in Egypt have successfully been able to spot few of these opportunities

and are investing in delivering these innovative services.


Engineering Services, Investment Banking with Regional Banking, Product Development, R&D, Cloud

based services, Mobility are some of the key high-value services where Egypt has created a niche. Some

of the other areas which offer opportunities are in Product Development specially for mobile applications,

Testing services for cloud based applications, tailored solutions for Healthcare, education & Retail sectors

and R&D. Egypt’s skilled and multilingual workforce also creates and unique opportunity to provide high

level multilingual technical support to clients with global operations.

High Value Market and Service Providers




c) Position of Strength: High-value Delivery Location Egypt, unlike most other

delivery destinations has

multiple factors that make it

attractive for organizations

planning their next service

delivery footprint expansion.

Nine out of the top-25

fastest growing economies

are in Africa. Most

economists predict Africa to

be the next growth

continent after Asia. Along

with Africa, Egypt also has

excellent business relations

with the rest of Middle East.

Nature of business and

cultural compatibility makes

Egypt an extremely

favorable hub for the region

providing access to Middle

East & Africa.

Multilingual countries have

been extremely successful in

delivering high value

services from their country.

Egypt has a niche here with

the ability to offer language

capability like Morocco,

Costa Rica, Mexico and

Poland but at about half the

cost. In comparison to

Morocco, Costa Rica and Poland the scale of talent availability in Egypt is significantly higher, providing an

unparalleled advantage.

Additionally, the traditional location assessment indicators leveraged by many Analyst firms also suggest

a clear advantage that Egypt possesses as a delivery destination. However, the framework does not

provide a mechanism to differentiate a location from the angle of quality and value of services the service

providers operating in the location provide. It is important for Egypt to highlight this differentiation. Egypt

must showcase its growing maturity of the sector, ability to provide customer services and technical

support in multiple languages and proven capability to take on high end IT and Engineering services, to

distance itself from its competition.



i. High Quality Employable and Scalable Human Resource Egypt offers a steady stream of skilled

graduates which companies can tap

into to offer their IT-BPM-KPO

services. Around 480,000 students

graduate from Egypt’s public and

private universities annually, which

makes the country one of the largest

sources of skilled talent pool in the

world. At a regional level, Egypt offers

the second largest talent pool, after

Poland, for IT-BPM-KPO sourcing

services in the EMEA region. This

positions the country as a prime

location to source talent for nearshore

services in Europe Middle East and

Africa.

Egypt graduate pool have expertise in

various disciplines with the potential to

deliver a range of IT-BPM-KPO services including high end services. The pool comprises of nearly 245,000

students from various disciplines like Commerce & Business Administration, Arts, Languages, Education,

etc., available for deployment in BPM-KPO sector with minimal additional training. Similarly, more than

60,000 students from specialized disciplines like Information Technology & Systems, Computer Science,

Electronics & Communications, Electrical, etc. are available to provide IT specific services. The following

charts illustrate the availability of discipline wise graduate pool for deployment in the sector:

Training Institutes and Programs Availability of qualified personnel for middle management roles is a common challenge in most emerging

delivery destinations. To deal with this challenge, the Information Technology Industry Development

Agency (ITIDA) has launched a Middle Management program which provides world class Middle

Management tracks for IT-BPM-KPO. The services of International training providers are leveraged for the

specific purpose of this program. Some of the objectives of the program are:

56,276

65,280

70,908

78,786

81,037

141,815

186,835

461,459

479,355

568,382

967,938

2,104,702

3,652,277

6,302,850

Jordan

Tunisia

Morocco

Czech Republic

Hungary

Romania

Malaysia

Philippines

Egypt

Poland

Brazil

Russia

India

China

Annual University Graduates

Source: MCIT, ITIDA, Avasant Research

Source: MCIT, ITIDA


˃ Provide IT-BPM-KPO companies in Egypt access to cost effective, high quality and industry relevant management training programs.

˃ Bridge the gap between available and required managerial talent, and to support industry growth in the short and mid-term.

˃ Development of middle-management talent pool by up-skilling current workforce. ˃ Access to world class content and delivery methodologies by leading global providers.

Ministry of Communications and Information Technology (MCIT) has partnered with a number of leading

IT-BPM-KPO training institutes in Egypt to enhance the quality of skills in the country. These institutes

provide specialized software development

programs to fresh graduates, entrepreneurship

development programs, training courses on

Software Testing, IT Service Management, etc.

Some of the key government affiliated training

institutes which offer these services are:

Information Technology Institute (ITI), Software

Engineering Competence Center (SECC),

National Telecommunication Institute (NTI),

eLearning Competence Center (ELCC). Besides

there are a number of private training institutes

in the country which offer technical and

professional skill development training in Egypt.

Some of the prominent private training

institutes are: Orascom Training & Technology, YAT Learning Solutions, AMIDEAST, American University

in Cairo (AUC), British Council and Education for Employment (EFE).

ii. Access to high growth, future market The ICT sector in Egypt has continued to grow at a steady rate in the last decade despite the challenges

faced by Egyptian economy after the global financial crisis and the January 2011 Revolution. For example,

the ICT contribution to GDP in Egypt has grown from EGP 52.34 billion in 2012-13 to EGP 58.3 billion in

2013-14 and EGP 65.9 billion in 2014-15. The Egyptian government has taken a number of steps to drive

the growth of ICT in the country. The Ministry of Communications and Information Technology (MCIT)

launched Egypt’s ICT 2020 Strategy recently, which lays the roadmap for ICT development in Egypt. The

strategy focuses on three key objectives: the transformation of Egypt into a Digital Society, the

development of the ICT industry and the establishment of Egypt as a global digital hub. The 2020

strategy supports the development of the ICT sector both regionally and internationally.

Domestic Market 2015 is expected to be a positive year for the Egyptian economy as the currency stabilizes and investment

returns to the country. Various sectors within the economy are poised for growth and transformation

which would not be possible without IT-BPM-KPO intervention. The logistics and supply chain industry is

expected to kick off in a big way in Egypt with the New Suez Canal Project. Cloud and mobile based IT

solutions for logistics and supply chain industry could potentially be a large market. Automotive sector is

another booming sector and grew by over 50% in 2014 and is expected to grow by 12-16% in 2015.

Innovations and growth in the Auto sector will create a significant demand for high-end IT solutions and

Valeo

Relying upon the abundant and sustainable pool of talented, technologically skilled, and multilingual university graduates of Egypt, Valeo employed 440 newly graduated Egyptian engineers till March, 2012. The French automotive supplier chalked up 69% increase as 260 was the number of employees before January, 2011. Valeo’s Egyptian premises will be the company’s main branch for R&D and innovation in automotive software, namely; Valeo Inter-Branch Automotive Software (VIAS). You may read more about Valeo’s continued growth in Egypt.

http://www.valeoservice.com/html/egypt/en/


design service. Egypt is also becoming an attractive market for e-commerce companies because of

consumer interest and the costs of doing business being significantly low. Arab Advisors, a research &

consulting firm, provided data stating that about 22.4% of Egyptians have used e-commerce to pay bills

online or buy products. According to the data, electronics are the most commonly purchased items

followed by software, airline tickets and subscriptions. E-commerce and M-Commerce will become key

demand areas for IT-BPM-KPO services in the short term. The government will also become a key source

of ICT demand in Egypt. Various initiatives such as the Commercial Registry automation, the rollout and

automation of notarization offices in Egypt and the local manufacturing of tablets and smart phones for

educational purposes etc. in the governmental services (“G2C services”) will create demand for innovative

ICT tools, solutions and services for the private sector firms in Egypt domestically.

Sample List of Potential Domestic Companies

Regional Market The Middle East and Africa's ICT spending is set to pass US$270 billion in 2015, with the region's IT market

growing at close to 9%, the second-fastest of any global region, according to research firm IDC. IDC

predicts strong growth in Smart Cities, telecommunication and digital services, and IT security

investments. Being in the forefront of IT-BPM-KPO exports in the region, Egypt is well poised to service

this growing market which includes its own domestic market.

Internet penetration and e-payment rates are relatively low in the Middle East and Egypt’s regional

market. However, online shopping has shown remarkable growth due to increasing credit card

penetration and high percentage of youth population. With the internet penetration of over 35% and over

30 million online shoppers, the e-commerce grew by 45% in 2013 and continues to grow in the MENA

region.



E-Commerce Growth by Region

The International Data Corporation (IDC) has launched a new strategic program with Egypt's Information

Technology Industry Development Agency (ITIDA) called 'Africa Together' which aims to assist Egyptian

ICT firms penetrate high-growth markets in Africa through joint partnership and market development

efforts. The top 5 initiatives for enterprises in the EMEA region stated below will create large opportunities

for Egypt based service providers in the regional market:

˃ Consolidation/Virtualization ˃ Investment in Cloud Services ˃ Collaboration tools ˃ Business Analytics ˃ Security and Risk Management

Some of the country specific opportunities in the regional market are:

1. Jordan: ICT infrastructure, Digital Content generation, Software Development amongst

others. Jordan is emerging as a competitive location to Egypt with over 84,000 people already

employed in the IT-BPM-KPO industry with a contribution of about 12% to the GDP. There are

about 500 ICT companies already present in Jordan.

2. Kingdom of Saudi Arabia: Saudi Arabia is estimated to have about 15.9% of the world’s proven

oil reserves and is the single largest economy in the Middle East and North Africa. There are

various opportunities in the oil and gas sector and e-government.

Source: Payfort, 2015


3. United Arab Emirates: Cyber Security and bringing E-Governance at par with developed

economies are key areas of opportunity along with various multinational companies having

regional offices based out of UAE. Some of the key opportunities exist in the BFSI, Oil and Gas,

Construction and Transportation industries.

4. Sultanate of Oman: e-Government opportunities

5. Qatar: e-learning and e-Education are key government focus areas in Qatar. Online public

services (e-Government), E-commerce and Aviation are key areas which Egyptian firms can

explore

iii. Living and Business Environment The cost of living in Egypt is low compared to

most other prominent delivery destinations.

According to ExpatArrivals, an organization

offering information on global travel destinations,

the cost of living in Cairo is 70% lower than in

London, 62% lower than in Washington DC, and

about the same as Mumbai, India. Also, out of 780

of the world’s major cities Cairo ranks as the 693rd

least expensive. The following chart compares the

consumer price index of Egypt with other

competing destinations in the world.

Business Environment Egypt is strategically located as a hub between Europe, Africa, Asia, and the US. Egypt

has both geographic and time-zone proximity to act as a near-shore location serving

the EMEA region. It takes 3-5 hours to travel to major Middle Eastern and European

cities from Egypt. Besides, the government of Egypt offers several incentives for

companies operating in the country. The incentives are provided with a view to

develop Egypt as a leading destination for investors from across the world.

ITIDA provides end-to-end business & financial support to investors seeking to enhance their global offerings in IT-BPM-KPO services and expand their business in Egypt. ITIDA offers the following support to companies:

˃ ITIDA provides investment incentives customized for each business vertical ranging from BPM to KPO, with higher value KPO attracting highest incentive package.

˃ Incentives by ITIDA are distributed across a set of following items: > Training and Talent development > International Telecom cost/VOIP License > Facilitate access to office spaces at a competitive lease cost in Technology Parks (subject

to availability)

˃ ITIDA also offers investor assistance by means of: > Supporting requests for information and due diligence visits > Setting up assistance and liaison with General Authority for Investment & Free Zones (GAFI),

Egypt; facilitate incorporation, work permits, customs clearance and technical approvals. > Providing strong connections with local industry and ecosystem.


The MCIT 2020 Strategy of Egypt establishes a complete ecosystem for innovation and entrepreneurship. It provides a framework for developing a critical mass of innovation driven entrepreneurial startups to act as a driver for high level value jobs creation, attracting FDI, finding innovative solutions to Egypt’s socio economic problems and contributing to the economic value added in Egypt. Some of the major programs planned by MCIT for Innovation and Entrepreneurship in Egypt are:

˃ Capacity Building through Education and Training ˃ Developing Innovation Clusters ˃ Establishing and Growing Angel and VC Funding. ˃ Establishing Outreach and Partnership Programs. ˃ Promoting Social Innovation and Entrepreneurship. ˃ Developing Innovation and IPR Management Systems in SMEs

iv. Reliable and quality Infrastructure In pursuit to make Egypt a leading delivery destination, the country is steadily investing in developing quality infrastructure and improving internet connectivity and communications network. The mobile penetration in the country is high, at around 110% (Jan, 2015). The three major mobile telecom operators servicing Egypt are: Mobinil, Vodafone and Etisalat. The internet penetration of Egypt is at 58.19% (Jan, 2015) and is found to be growing steadily in the last few years. The major internet service providers operating in the country are TE Data, Vodafone, Mobinil, etc.

Egypt has a Special Economic zone (SEZONE) located in the Suez Governorate in the Sokhna area and

adjacent to the Sokhna Port near the southern entrance to the Suez Canal. It is fast becoming a new

industrial hub for Egypt and the gateway of choice for Egyptian trade to and from Asia and the Middle

East. The SEZONE offers some competitive

incentives such as:

˃ 10% unified income tax in the SEZONE (versus 20% outside of SEZONE) applicable on the profit of the capital companies and on income of natural persons and on revenues derived from land and non-residential buildings

˃ 5% income tax. (versus 10% - 20% outside the SEZONE )

˃ Lowest cost production center in the Middle East-North Africa in many sectors

Egypt is a major submarine landing hub in

Africa because of its geographic location between Red Sea and Mediterranean. It has a combined capacity

exceeding 60 Tbps. Egypt is also the second largest country in the world with 18 maritime cables crossing

160 thousand kilometers. This has provided Egypt a secure international connectivity and optimum

capacity to meet the current and medium term needs. Submarine cables passing through in Egypt are

illustrated in the table below -

Orange Business Services “Infrastructure developments in electricity, telecommunications and the rise of high-tech business parks were also key factors affecting our decision to invest in Egypt,” said Radwan (Orange Business Services country Vice President of Customer Services and Operations). “The Egyptian telecommunications infrastructure is engineered to provide substantial services and to absorb the rapidly growing ICT industry. With its current infrastructure, and the large number of international and regional fiber optic cables that pass through Egypt, the country has international and national links, and reliable connectivity to the rest of the world. In this way, Egypt has excellent components for Orange Business Services to manage its global technical support center from Cairo.


5 Conclusion Through effective branding, marketing and communication of Egypt’s unique value proposition, Egypt has

the potential to effectively navigate the emerging market dynamics and create a leadership position in

select IT-BPM-KPO service niches. The country has been able to strike a critical balance between

international and local service delivery organizations, competing and cooperating in a viable and vibrant

business environment.

Engineering Services, Investment Banking with Regional Banking, Product Development, R&D, Cloud

based services, Mobility are some of the key high-value services which Egypt has already been able to

carve out a niche. The ability to target multiple markets - Europe with advantage of time zone and

language compatibility, Middle East due the business and cultural affinity and Africa with the region

providing a potential US$5 billion services market. India caters to 70% of the estimated US$17-20 billion

demand for high value services. Egypt has the potential to carve out a piece of the pie for itself by playing

to its advantages and strengths.

The digital transformation of traditional services has provided an opportunity for Egypt to realign its

strategies and services to meet the new age demands. As per our research, at present, out of the 90,000

jobs the industry caters to, it is estimated that over 6% are deployed to deliver high-value digital services.

With plans to grow the sector to 160,000 jobs by 2020 and by catering to higher value added services, the

industry revenue is expected to climb north of US$2.5 billion. With the right ingredients in place and

proper branding & marketing of its value proposition, the Egyptian IT-BPM-KPO services industry is

expected to scale new heights in the near future.


Glossary

˃ BFSI: Banking, Financial Services & Insurance

˃ CRM: Customer Relationship Management

˃ CSR: Corporate Social Responsibility

˃ EEDC: Egypt Economic Development Conference

˃ EGP: Egyptian Pound

˃ EISI: Egypt’s Information Society Initiative

˃ EMEA: Europe, Middle East & Africa

˃ EPC: Engineering, Procurement and Construction

˃ ER&D: Engineering Research & Development

˃ ERM: Enterprise Resource Management

˃ ERP: Enterprise Resource Planning

˃ FY: Financial Year (Egypt: 1 July- 30 June)

˃ GDC: Global Development Centers

˃ GDP: Gross Domestic Product

˃ HRM: Human Resource Management

˃ ICT: Information and Communications Technology

˃ IMF: International Monetary Fund

˃ ITIDA: Information Technology Industry Development Agency

˃ ITO-BPM-KPO: Information Technology Outsourcing – Business Process Management- Knowledge

Process Outsourcing

˃ ITU: International Telecommunication Union

˃ LAC: Latin America & Caribbean

˃ LPO: Legal Process Outsourcing

˃ MCIT: Ministry of Communications and Information Technology

˃ MENA: Middle East & North Africa

˃ MIGA: Multilateral Investment Guarantee Agency (World Bank Agency)

˃ R&D: Research & Development

˃ RPA: Robotic Process Automation

˃ SaaS: Software as a Service

˃ SEZONE: Special Economic Zone

˃ SQM: Square Meters

˃ SSME: Services Science, Management & Engineering

˃ Tbps: Terabytes per second

˃ UAE: United Arab Emirates


About Avasant

Headquartered in Los Angeles, California; Avasant is a leading

management consulting, research, and events firm servicing global

clients across the public, private, and non-profit sectors. Our talented

team of consultants, lawyers and technologists average over 20 years

of industry-honed experience and have conducted 1,000+

engagements in over 40 countries worldwide. Avasant drives customer

value through the use of our proprietary consulting and advisory

methods, which have been refined over decades of ‘real-world’

transaction and engagement experience. The combination of our

world-class resources allows Avasant to yield superior business

outcomes in three primary domains: Strategic Sourcing, Technology

Optimization and Globalization Consulting.

1960 E. Grand Avenue. | Suite 1050 | Los Angeles | California 90245 | USA

310-643-3030 (Telephone)

310-643-3033 (Fax)

[email protected] (Email)

Authors

Dr. Pradeep K. Mukherji is President and Managing Partner at Avasant. For more

information on the sourcing advisory, consulting or research, email him at

[email protected]

Shobhit Patnaik, Managing Consultant, [email protected]

Saugata Sengupta, Consultant, [email protected]

Aravindan Ingersol, Analyst, [email protected]

mailto:[email protected]





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