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An Initiative for The Egyptian Economy   Apr. 2011Egypt As a Global Offshoring DestinationBy:        Mohamed Ibrahim
Highlights Objectives: i) promote Egypt as one of the top global offshoring destinations for the  services sector, ii) ex...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Objectives and Scope of The InitiativeWhat is Offshoring? Offshoring is a company’s location                             ...
Objectives and Scope of The InitiativeServices Offshoring The service sector in developed countries supplies most jobs an...
Objectives and Scope of The InitiativeObjectives Craft an integrated strategy that positions our country as a distinguish...
Objectives and Scope of The InitiativeScope The scope of offshored services within this initiative cuts across multiple i...
Objectives and Scope of The InitiativeHow Egypt Will Benefit Create             more              job      Unemployment R...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Analysis of The Global Offshoring MarketMarket Size Mckinsey Global Institute (MGI) estimated the potential global market...
Analysis of The Global Offshoring MarketGlobal Supply and Demand In a sample study of 28 countries, MGI found that offsho...
Analysis of The Global Offshoring MarketGlobal Supply and Demand MGI estimated that offshore employment demand reached ar...
Analysis of The Global Offshoring MarketGlobal Market Inefficiencies Companies hiring offshore frequently follow each oth...
Analysis of The Global Offshoring MarketComparative Advantages of Different Regions                                       ...
Analysis of The Global Offshoring MarketEgypt’s Opportunity Big offshore destinations, like India, are experience escalat...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Egypt’s Talent PoolPotential Supply of Suitable Talents 12.6% of Egypt’s workforce has a university degree or higher. Thi...
Egypt’s Talent PoolPotential Supply of Suitable Talents According to an ILO survey, the level of               Distributi...
Egypt’s Talent PoolSkills Base Development Program This program is a core component of the initiative and it aims to equi...
Egypt’s Talent PoolAdmission Criteria Admission criteria is a crucial element for the success of the initiative as it sho...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Proposed ApproachTargeting of Offshored Services Targeting of services to offer will                                     ...
Proposed ApproachTargeting of Offshored Services Support jobs are entry level jobs and may not require a college degree (...
Proposed ApproachMode of Operation Location decision:     •   Depending on the success of the initiative in creating offs...
Proposed ApproachEvolution Path Our offshored services can evolve -at lowest incremental investments- with regard to:    ...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Needed Roles and ResourcesRole of The Government The government has to warrant the  success of this initiative by effecti...
Needed Roles and ResourcesRole of Universities and Large Enterprises Universities must play a fundamental role by providi...
Needed Roles and ResourcesYouth Centers and IT Clubs There exist 263 IT clubs in youth centers distributed across the 29 ...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Critical Success Factors Effective governance and coordination    •   As this initiative comprises a multitude of complex...
Contents 1   Objectives and Scope of The Initiative 2   Analysis of The Global Offshoring Market 3   Egypt’s Talent Pool 4...
Lessons Form Other CountriesBarbados and Jamaica Case Studies ILO conducted two case studies for offshored data services ...
BiographyMohamed Ibrahim Education     •   Candidate for Doctorate of Business Administration, AASTMT, 2011     •   Maste...
One day, we were a great nation, and once more we will be.. God willing
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  1. 1. An Initiative for The Egyptian Economy Apr. 2011Egypt As a Global Offshoring DestinationBy: Mohamed Ibrahim
  2. 2. Highlights Objectives: i) promote Egypt as one of the top global offshoring destinations for the services sector, ii) expand the talent pool of qualified young professionals, iii) stimulate the global demand for offshoring jobs to Egypt, and iv) establish an industry association that supports emerging local offshoring service providers Benefits: reduce unemployment rates, improve living standards of wider segments of youth, and raise the taxable income for the government, while decreasing the deficit in the balance of trade Approach: target and prioritize services to be offered, based on our potential supply, global offshoring competition and demand conditions, and the investments we may need to undertake. Then decide on the operating mode (location decision and service delivery method) and consider the possible evolution path Resources: voluntary endeavors will avail much of the needed resources in terms of time offered by academicians and professionals (theoretical and on-job training), and material supplied by large enterprises (office equipment and shared infrastructure). This is crucial to creating a viable cost advantage of our offshored services Critical to Success: effective coordination between the government, universities, and large enterprises, enforcement of the Intellectual Property Rights (IPR) law, improvement of the business environment, and incentives policies
  3. 3. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  4. 4. Objectives and Scope of The InitiativeWhat is Offshoring? Offshoring is a company’s location Focus of the initiative decision that refers to performing some activities in another country outside the market where it sells its goods/services Outsource Outsourcing is a company’s control decision that refers to buying some Onshore Offshore activities from a third party supplier Outsourcing Outsourcing The focus of this initiative is on offshore Control outsourcing (the upper right quadrant of the matrix) Captive offshoring is excluded as it Shared Captive requires higher commitments and Services Offshoring Captive investments of the foreign companies that may currently perceive Egypt as riskier for this mode of entry Onshore Offshore Location Source: adapted from OECD
  5. 5. Objectives and Scope of The InitiativeServices Offshoring The service sector in developed countries supplies most jobs and the bulk of many countries positive trade balances Offshoring of services to emerging markets has been growing at a very fast rate of 30% annually over the past decade This increased its share of the global services trade from 3% to 10%, making it a significant subcomponent of services trade Share of Employment by Economic Sector Source: International Labor Organization
  6. 6. Objectives and Scope of The InitiativeObjectives Craft an integrated strategy that positions our country as a distinguished global offshoring destination for the services sector Develop the talent pool of the higher education graduates necessary to prepare Egypt to tap into the opportunity of the global offshoring market Establish an industry association that orchestrates the implementation of our offshoring strategy, markets Egypt’s offerings externally to stimulate global demand, and provides information and expertise to emerging local offshoring service providers Reduce government bureaucracy and improve and enforce the legislations protecting intellectual property rights Encourage universities, large enterprises, and other civic organizations to take their roles in expanding the talent base and providing the necessary facilities to support the initiative
  7. 7. Objectives and Scope of The InitiativeScope The scope of offshored services within this initiative cuts across multiple industries, for example: banking, insurance, pharmaceuticals, software, auto, healthcare, and retail It eventually includes all office-based occupations that can be done remotely, for example: • Application development/maintenance • Programming • Web design • Graphics design • Contact center • Analytics • Accounting • Payroll administration • Claims processing • Book keeping • Data entry Prioritization of offshored jobs will be needed depending on many factors including the quality and scale of our supply, global competition and demand conditions, and the needed investments (for more details, please refer to the section: Proposed Approach)
  8. 8. Objectives and Scope of The InitiativeHow Egypt Will Benefit Create more job Unemployment Rates by Educational opportunities, especially for the young Attainment and Sex, 2009 university graduates, who suffer from high rates of unemployment Leverage the earning capacity of wider segments of youth, and accordingly enhance their living standard Increase Egypt’s export of services, and accordingly help decreasing the deficit in the balance of trade Diversify our portfolio of economic activities, and accordingly boost the stability of the economy Raise the taxable income for the government, and accordingly improve its tax revenues Source: CAPMAS
  9. 9. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  10. 10. Analysis of The Global Offshoring MarketMarket Size Mckinsey Global Institute (MGI) estimated the potential global market of services offshoring to be $300 billion. The captured portion of addressable market in 2010 was 35% However, offshoring continued to grow at 30% annually over the past decade, as the pace of offshoring adoption accelerated in all industries Degree of Offshoring Adoption in Different Sectors Source: Mckinsey Global Institute
  11. 11. Analysis of The Global Offshoring MarketGlobal Supply and Demand In a sample study of 28 countries, MGI found that offshore talent potential (university graduates with up to 7 years of experience) in low-wage countries is double the high-wage countries potential, and that India and China dominate low-wage labor supply Three factors, however, reduce the potential talent supply in low-wage nations: • 13% only of the potential talent supply in low-wage nations is suitable to work for multinational companies (due to lack of necessary language skills, low quality of the educational system, lack of cultural fit, and attitude towards teamwork and flexible working hours) • Dispersion of the labor forces out of major cities • Competition for talent from non-offshoring companies University Educated Young Professionals, 2003 %, (Thousand) Source: Mckinsey Global Institute
  12. 12. Analysis of The Global Offshoring MarketGlobal Supply and Demand MGI estimated that offshore employment demand reached around 4.1 million jobs in 2008, representing 1%of total nonagricultural employment in the developed countries Factors that encourage companies to resource labor globally include continuous pressure for cost reduction, existing global scope, and desire for access to attractive markets Factors that inhibit companies from resourcing labor globally include operational, structural and regulatory barriers, and management attitudes Offshore Employment in Eight Sectors, 2008 (Thousand) Source: Mckinsey Global Institute
  13. 13. Analysis of The Global Offshoring MarketGlobal Market Inefficiencies Companies hiring offshore frequently follow each other to cities or locations that already have a track record in providing offshore talent The resulting “agglomeration“ of companies in popular locations may lead to concentrated demand, and labor supply becomes constrained, which in turn leads to higher local wages and higher levels of attrition This is already starting to erode the competitive edge of Indian cities like Hyderabad and Bangalore, where the salaries of IT engineers and project managers inflated annually by 13% and 23% respectively If agglomeration makes conditions in a chosen offshore location deteriorate, a company may not be able to relocate quickly to a better place due to its initial capital outlay to set up an offshore enterprise. This causes "stickiness“ of the company to that location Offshored activities require different levels of investment in physical and human capital, making some "stickier" than others Companies that use vendors to provide offshore services (offshore outsourcing) generally have fewer sunk costs in any location. Consequently, it is easier for them to switch locations
  14. 14. Analysis of The Global Offshoring MarketComparative Advantages of Different Regions Southeast Eastern South Inida China Egypt Asia Europe America Cost + + + + Quality of labor + + + Offshore vendor landscape + + Market potential + + + + Risk profile + + + + Business environment + + + Quality of infrastructure + + + + + Concentration of research + + + universities Language proficiency + + + + Cultural fit + + Source: adapted from Mckinsey Global Institute, CB Richard Ellis
  15. 15. Analysis of The Global Offshoring MarketEgypt’s Opportunity Big offshore destinations, like India, are experience escalating wages and attrition rates, due to agglomeration effects Some services are less dominated by the big players, and hence have more fragmented markets, which makes them easier for us to compete for Egypt, currently, has comparative advantages with regard to cost (labor and non-labor), quality of ICT infrastructure, and the availability of multilingual talent pool with good accent And, if we improve the quality of labor and its cultural fit to the multinational environment, we will improve Egypt’s competitiveness in this arena This improvement calls for an inevitable, long-term course of action to change the educational system But, we still need a short to medium-term action to achieve a quick win. One option is a condensed skills development program for the higher education graduates To further boost our cost advantage, this program will be entirely a voluntary endeavor, jointly carried out by the government, universities, and large enterprises Combining efficient labor skills development with effective targeting of offshored services, and creative offerings, we can create an opportunity for Egypt to develop a reasonable footprint in the global offshoring market
  16. 16. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  17. 17. Egypt’s Talent PoolPotential Supply of Suitable Talents 12.6% of Egypt’s workforce has a university degree or higher. This is 5% above the average ratio in low-wage countries There exists a strong preference for education that prepares for administrative careers: • 64% of students are enrolled in social studies (Commerce, Law, Arts and Education) • 18% of students are enrolled in Engineering, Medicine, Pharmacy and Science • 15% of students are enrolled in applied sciences The highest unemployment rates are in commerce (34.7%), followed by arts and archeology (about 15.3% for each), then agriculture and law (14.5% for each), other fields of specialization (10%), social work (7.3%), and finally engineering (3.8%) Private universities, to a large extent, duplicate public university curricula with no qualitative addition, often using the same pool of teaching staff and attracting students with lower entry grades Private universities focus mainly on engineering, medicine, management and media, but they do not contribute to the improvement of the quality of graduates that are demanded by the labor market
  18. 18. Egypt’s Talent PoolPotential Supply of Suitable Talents According to an ILO survey, the level of Distribution of Young Workers’ Skills satisfaction of employers with their young recruits is generally fair (66%) However, 41% of employers criticized the low ability of young graduates to apply knowledge learned The same low ranking is given to the practical training provided to young applicants at school (48% of employers) The education and training system visibly fails to produce skills that are required to perform jobs 13% only of recruits have a very good overall preparedness, which is interestingly the same result as MGI international study Source: Egypt Human Development Report, 2010
  19. 19. Egypt’s Talent PoolSkills Base Development Program This program is a core component of the initiative and it aims to equip the university graduates with the necessary hard skills and soft skills in order to become suitable candidates for offshoring jobs The program is condensed (around 600 hours / 5-6 months) and consists of two tracks: • Hard skills track, which is job dependent, and consists of: • theoretical training part (e.g. computer programming languages for programmer job candidates) • on-the-job training part • Soft skills track, which is generic to all types of jobs and includes training on: • language • interpersonal skills • cross-cultural communication • time management • Decision making This program is essentially a voluntary endeavor that is carried out by universities and large enterprises, and coordinated with the government in the form of Public-Private Partnership
  20. 20. Egypt’s Talent PoolAdmission Criteria Admission criteria is a crucial element for the success of the initiative as it should help carefully identify and select those candidates who will be able to: • Commit to and successfully complete the skills development program • Work effectively in offshored jobs and fit and adapt easily to different environments Important criteria include: • Academic credentials • Personal discipline and drive for achievement • Willingness to work on shift basis • Willingness to relocate within the country
  21. 21. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  22. 22. Proposed ApproachTargeting of Offshored Services Targeting of services to offer will Circle size represents relative global market size depend on the scale of our suitable High priority opportunity labor supply, global competition, market size, and the needed investments Engineer Designer/Developer Suitable supply refers to workforce that High is both competent to work in a global environment and available for hiring Generalist (after the skills development program) Global Competition Based on the relative positions of different job categories in the right side matrix, high priority may be allotted to support, generalist, and accounting jobs Second priority then goes to designer and engineer jobs Analyst Finance / Support Accountant Finally comes the analyst jobs. Despite Low the low competition, its global market size is very small, which inhibits the buildup of scale economies Low High Our Potential Suitable Labor Supply
  23. 23. Proposed ApproachTargeting of Offshored Services Support jobs are entry level jobs and may not require a college degree (e.g. data entry and book keeping) Generalist jobs require a university degree (e.g. G&A, contact center, payroll administration, and claims processing) Finance and accounting jobs require a relevant university degree and training Designer or developer jobs require a university degree (preferably a technical degree) and a specialized training (e.g. web design, graphics design, and programming) Engineer jobs require an engineering degree and a specialized training (e.g. IT and application development and maintenance) Analyst jobs require a specialized technical university degree and strong analytical skills (e.g. marketing research and R&D) Considering huge startup investments that it requires, contact centers might be removed from the first priority targeted jobs However, some innovative solutions can work: JetBlue Airways 800 reservation agents work from home, their computers connected to the airlines servers; they stay connected to customers via voice-over-IP phones
  24. 24. Proposed ApproachMode of Operation Location decision: • Depending on the success of the initiative in creating offshored jobs, we may adopt a hub and spoke approach to building a network of offshoring centers • Hubs will be located in tier-1 cities (i.e. Cairo and Alexandria) and will focus on administrative, back office, and HR activities, beside providing access to the largest talent pools in the country • Spokes will be located in promising tier-2 cities/regions (e.g. Delta and Canal) and will provide access to the fragmented talent pools in these regions• Delivery method: • Two service delivery methods can be adopted, depending on the sophistication of client’s offshoring practices, and on our own capabilities: staff augmentation and managed services • Staff augmentation: clients manage staff members directly, as if they were their own employees, and pay for each staff member a supplier adds to complete a contract • Managed services: suppliers agree to deliver a specified capability or functionality with a desired level of service for a fixed fee • The second method requires a higher level of trust, as clients cede more control to suppliers
  25. 25. Proposed ApproachEvolution Path Our offshored services can evolve -at lowest incremental investments- with regard to: • Job complexity: from back office jobs like contact center, accounting, and claims processing to the more complex functions like solution/application development • Geography: from regional markets like Europe and Middle East (near-shore) to the global market back-office processing higher value-added services functions with little such as new product decision making involved development, based on in key tasks creative talent and advanced development enviornments Solution Centers Global Service Process Centers Centers customer solutions based on extending knowledge and experience
  26. 26. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  27. 27. Needed Roles and ResourcesRole of The Government The government has to warrant the success of this initiative by effecting strong liaison between: Ministry of Higher • Ministry of Higher Education Education • Institute of National Planning Institute of • National Council for Youth Large National Enterprises Planning • Observatory for Education, Training, and Employment (IDSC) Offshoring • Universities Industry • Large enterprises Association This liaison can be better realized if an National industry association for the services Universities Council for Youth offshoring is established This association will also market Observatory for Education, Egypt’s offerings externally to stimulate Training & global demand, and provide information Employment and expertise to emerging local offshoring service providers
  28. 28. Needed Roles and ResourcesRole of Universities and Large Enterprises Universities must play a fundamental role by providing the needed curricular support in the form of: • Training needs analyses • Curricula and studying material development • Training delivery • Assessment of the trainees Large enterprises must also play a crucial role by providing the necessary practical and logistic support in the form of: • Selection of suitable candidates • On-Job-Training • Office equipment (e.g. computers, software) • Infrastructure and other facilities As mentioned earlier, these roles have to be voluntary, in order to keep our overall costs at a minimum, and accordingly boost our cost advantage further We will also need to capitalize on successful experiences and relational networks of local companies that have record in offering offshoring services, like Xceed
  29. 29. Needed Roles and ResourcesYouth Centers and IT Clubs There exist 263 IT clubs in youth centers distributed across the 29 governorates. These already established facilities can be utilized as small regional offshoring centers The best governorates for this are those with both sizeable pool of unemployed university graduates, and a reasonable number of IT clubs Alexandria, Asyout, Gharbia, Kafr El-Shaeikh, Menoufia, Port Said, Qena, Sharkia and Suhag are suitable governorates that we can utilize their IT clubs for our initiative Distribution of Unemployed University Graduates and IT Clubs Source: CAPMAS, Egypt’s Youth Portal
  30. 30. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  31. 31. Critical Success Factors Effective governance and coordination • As this initiative comprises a multitude of complex and inter-dependent activities that will be carried out by many entities Enforcement of Intellectual Property Rights (IPR) law • Sectors where R&D is critical need effective laws to protect their IP and make them confident of moving their services to Egypt Improvement of the business environment • Reduction of bureaucracy and simplification of doing business are essential requirements to enhance Egypt’s competitiveness in the global marketplace Incentives policies • Policy makers can develop policies that encourage large enterprises to participate into the initiative, for example, through better tax treatment
  32. 32. Contents 1 Objectives and Scope of The Initiative 2 Analysis of The Global Offshoring Market 3 Egypt’s Talent Pool 4 Proposed Approach 5 Needed Roles and Resources 6 Critical Success Factors 7 Lessons Form Other Countries
  33. 33. Lessons Form Other CountriesBarbados and Jamaica Case Studies ILO conducted two case studies for offshored data services in Barbados and Jamaica and had useful conclusions from which we may extract important learned lesson Low wages and low-skill jobs cannot by themselves make developing countries globally competitive in the rapidly changing offshore data services sector Very low wages and poor working conditions tend to undermine the stability of the workforce and contribute to high labor turnover and negative impact on productivity Access to new technology and trade relations have a greater impact on global competitiveness than cheap labor Adaptation to technological change is encouraged through the introduction of educational programs mainly targeted at youth. Barbados has established "INFO TECH 2000" while Jamaica has launched "EDUTECH 2000" and "Jamaica 2000" Occupational Safety and Health (OSH) training and adequate ergonomic equipment are necessary to reduce occupational injuries and maintain high productivity. There is a high cost to "flying fingers" operating at sustained speeds above 10,000 keystrokes an hour
  34. 34. BiographyMohamed Ibrahim Education • Candidate for Doctorate of Business Administration, AASTMT, 2011 • Masters of International Business Administration, ESLSCA, 2007 • BSc of Telecommunication & Electronics Engineering, Ain Shams University, 1997 Certifications • Six Sigma Black Belt, ASQ, 2011 • Project Management Professional, PMI, 2010 Professional experience • Around fourteen years of managerial and technical experience in the telecommunications industry • Currently, holding the position of network strategy and PMO senior manager, Kuwait telecommunications company (VIVA) Academic experience • Part-time lecturer at Misr International University, spring 2010
  35. 35. One day, we were a great nation, and once more we will be.. God willing
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