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Research in Brief      17




         Morocco’s
         offshoring advantage
         Mourad Taoufiki, Amine Tazi-Riffi, and
         Jonathan Tétrault                                                                                   Serge Bloch




         The country is in a position to become the destination of choice for
         French-speaking companies.

       In an integrated global economy, a                                around 35 percent, and create a total of
       country is fortunate if it can find a com-                        some 100,000 new jobs.1
       parative advantage in an industry where
       major positions have not yet been taken.                          Morocco’s need for new industrial growth
       Morocco, within eyeshot of the European                           is urgent. Competitors with lower costs
       Union across the Strait of Gibraltar, has                         and better access to natural resources are
       identified an opportunity to become an                            eroding the country’s share of the global
       offshoring center for Europe’s French- and                        market for food processing and textiles,
�������Spanish-speaking companies. Our study                             which together currently represent more
�����������that, from 2003 to 2018, business
       shows                                                             than half of its industrial GDP and almost
�������������� offshoring in Morocco could
       process                                                           three-quarters of its exports (Exhibit 1).
       add 0.3 percent annually to its GDP growth,
���������������������������������������������������                      Without a proactive industrial-development
���������������������������������� deficit by
       reduce its international trade                                    policy, we reckon that Morocco’s employ-
                                                                         ment levels will stagnate, its trade deficit
 ���������                                                               will increase, and its economy will grow at
                                                                         less than half the expected rate (Exhibit 2,
 ����������������������������������
                                                                         on the next page).
 ������������������������������������������������������
                                                                         To identify the most promising growth
                                                                         opportunities, we analyzed the competitive-
              ������ �����                   ��������         �����      ness and global market share of Morocco’s
                     ��������                �������          ��������   industries and benchmarked them against
               ������      ��                  ��                �       the competitiveness and market share of
                                         �
  �������������������       �                   �         �     ��       a selection of 11 developed and developing
    �����������������      ��
                                               ��                �       countries.2 We also studied the impact
    ������������������     ��                                            of globalization on the value chain of each
                                                                ��       sector. After simulating the impact of
      �����������������    ��                  ��
                                                                         potential industry strategies on Morocco’s
                                                                         economy, we found that business process
     ������������������
                           ��                                   ��       and IT offshoring represented the single
          �����������                          ��
                                                                         biggest opportunity—an estimated DH30
                          ���            ����������           �������    billion (€2.7 billion), or around 8 percent
                                                                         of GDP in 2003.
 ��
  ����������������������������������������������������������
 � ������������������������������������������������
 ������������������
                                                                         Morocco’s appeal includes wages for
 ������������������������������������������������                        white-collar workers that are half those in
 ���������������������������������         �
                                                                         France, a relatively high proportion of
  �����������������������������������������
                                                                         university graduates, and many citizens
�������
18
     ����������� Quarterly 2005 Number 4
      The McKinsey
     ��������������
     ���������������������������������������������������


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      ����������                      ����������      ����������               ����������   ����������

                            ����        ���


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                 ����       ����        ���                            �����    ���
       ����                                                   �����
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      ����      �����       �����                     ����    �����    �����                                               ����
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      �����������������
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     who speak French, the second language                               obstacles are labor laws, the political
     in the central region of the country.                               pressure against moving jobs abroad,
     Furthermore, the cost and quality of its                            and the fact that most existing offshoring
     already respectable telecommunications                              vendors are predominantly English
     infrastructure are set to improve further                           speakers. As these countries recognize
     with the expected entry of Spain’s                                  that business process offshoring is
     Telefónica as a second fixed-line operator.                         vital to remaining competitive, however,
     The country’s nascent offshoring sector,                            we expect their market for it to grow
     with an estimated current turnover of                               to about €9 billion in the next ten years.
     €85 million, includes some 50 mostly small
     providers that will employ a total of about                         Morocco should establish itself as the
     10,000 people by the end of 2005. Still,                            destination of choice, primarily for
     Morocco has captured almost half of the                             francophone offshoring. To achieve rapid
     fledgling market for call centers serving                           progress, it should focus its efforts on
     French-speaking companies. In addition,                             10 to 12 niches within selected business
     Telefónica has established a captive call                           processes (accounting and finance and
     center in northern Morocco, where Spanish                           human resources, for example) and IT
     is the second language.                                             functions. Morocco is in a strong position:
                                                                         compared with competitors such as
     Business process offshoring has yet to                              Mauritius, Senegal, and Tunisia, it is
     take off in any significant way among                               geographically closer to France, has a larger
     companies in Europe’s francophone                                   and more qualified talent pool, and boasts
     countries (Belgium, France, Luxembourg,                             a better telecommunications infrastructure.
     and Switzerland) and in Spain. The main                             When measured against Eastern European
Research in Brief      19




countries, Morocco can point to lower          Mourad Taoufiki is a consultant in McKinsey’s
labor costs and, naturally, a larger pool of   Casablanca office, Amine Tazi-Riffi is a
                                               principal in the Geneva office, and Jonathan
French speakers.
                                               Tétrault is a consultant in the Montréal office.
                                               Copyright © 2005 McKinsey & Company.
In order to create an attractive business      All rights reserved.
environment for multinational companies,
Morocco is launching a few special             1
                                                 The study, undertaken on behalf of Morocco’s
development zones, or “nearshore centers,”       Ministry of Industry and Commerce, highlighted
                                                 ways the country could modernize traditional
which will offer tax breaks, less cumber-        export sectors, promote opportunities in new
some administrative procedures, more             ones (such as offshoring), and tackle the structural
flexible labor rules, and world-class infra-     barriers to its economic growth.
                                               2
                                                 The countries were benchmarked on 104 factors in
structure and services. Attracting four          12 major categories: labor, capital, energy, natural
or five multinationals to these zones at an      resources, IT and telecommunications, logistics,
early stage will be a key component of           customs and trade, taxes and tax incentives, the
                                                 existence of special economic zones, utilities,
the initiative’s success. The country could      business climate, and the size of the economy.
target major IT firms seeking a place to
locate francophone IT offshoring centers,
for example, or large companies setting
up captive business process units. Such
early deals would serve as reference cases
for later entrants.

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Moroccos offshoring_advantage

  • 1. Research in Brief 17 Morocco’s offshoring advantage Mourad Taoufiki, Amine Tazi-Riffi, and Jonathan Tétrault Serge Bloch The country is in a position to become the destination of choice for French-speaking companies. In an integrated global economy, a around 35 percent, and create a total of country is fortunate if it can find a com- some 100,000 new jobs.1 parative advantage in an industry where major positions have not yet been taken. Morocco’s need for new industrial growth Morocco, within eyeshot of the European is urgent. Competitors with lower costs Union across the Strait of Gibraltar, has and better access to natural resources are identified an opportunity to become an eroding the country’s share of the global offshoring center for Europe’s French- and market for food processing and textiles, �������Spanish-speaking companies. Our study which together currently represent more �����������that, from 2003 to 2018, business shows than half of its industrial GDP and almost �������������� offshoring in Morocco could process three-quarters of its exports (Exhibit 1). add 0.3 percent annually to its GDP growth, ��������������������������������������������������� Without a proactive industrial-development ���������������������������������� deficit by reduce its international trade policy, we reckon that Morocco’s employ- ment levels will stagnate, its trade deficit ��������� will increase, and its economy will grow at less than half the expected rate (Exhibit 2, ���������������������������������� on the next page). ������������������������������������������������������ To identify the most promising growth opportunities, we analyzed the competitive- ������ ����� �������� ����� ness and global market share of Morocco’s �������� ������� �������� industries and benchmarked them against ������ �� �� � the competitiveness and market share of � ������������������� � � � �� a selection of 11 developed and developing ����������������� �� �� � countries.2 We also studied the impact ������������������ �� of globalization on the value chain of each �� sector. After simulating the impact of ����������������� �� �� potential industry strategies on Morocco’s economy, we found that business process ������������������ �� �� and IT offshoring represented the single ����������� �� biggest opportunity—an estimated DH30 ��� ���������� ������� billion (€2.7 billion), or around 8 percent of GDP in 2003. �� ���������������������������������������������������������� � ������������������������������������������������ ������������������ Morocco’s appeal includes wages for ������������������������������������������������ white-collar workers that are half those in ��������������������������������� � France, a relatively high proportion of ����������������������������������������� university graduates, and many citizens
  • 2. ������� 18 ����������� Quarterly 2005 Number 4 The McKinsey �������������� ��������������������������������������������������� ��������� ���������������������� ����������������������������������������� ��������������������������������������� ������������� ������� ��������������������� ������� �������������� ���������� ���������� ���������� ���������� ���������� ���� ��� ���� ���� ��� ���� ���� ��� ���� ���� ��� ����� ��� ���� ����� ��� ���� ����� ����� ���� ����� ����� ���� ����� ����� ���� ���� ���� ���� ���� ����������������� ����������������������������� ����������� who speak French, the second language obstacles are labor laws, the political in the central region of the country. pressure against moving jobs abroad, Furthermore, the cost and quality of its and the fact that most existing offshoring already respectable telecommunications vendors are predominantly English infrastructure are set to improve further speakers. As these countries recognize with the expected entry of Spain’s that business process offshoring is Telefónica as a second fixed-line operator. vital to remaining competitive, however, The country’s nascent offshoring sector, we expect their market for it to grow with an estimated current turnover of to about €9 billion in the next ten years. €85 million, includes some 50 mostly small providers that will employ a total of about Morocco should establish itself as the 10,000 people by the end of 2005. Still, destination of choice, primarily for Morocco has captured almost half of the francophone offshoring. To achieve rapid fledgling market for call centers serving progress, it should focus its efforts on French-speaking companies. In addition, 10 to 12 niches within selected business Telefónica has established a captive call processes (accounting and finance and center in northern Morocco, where Spanish human resources, for example) and IT is the second language. functions. Morocco is in a strong position: compared with competitors such as Business process offshoring has yet to Mauritius, Senegal, and Tunisia, it is take off in any significant way among geographically closer to France, has a larger companies in Europe’s francophone and more qualified talent pool, and boasts countries (Belgium, France, Luxembourg, a better telecommunications infrastructure. and Switzerland) and in Spain. The main When measured against Eastern European
  • 3. Research in Brief 19 countries, Morocco can point to lower Mourad Taoufiki is a consultant in McKinsey’s labor costs and, naturally, a larger pool of Casablanca office, Amine Tazi-Riffi is a principal in the Geneva office, and Jonathan French speakers. Tétrault is a consultant in the Montréal office. Copyright © 2005 McKinsey & Company. In order to create an attractive business All rights reserved. environment for multinational companies, Morocco is launching a few special 1 The study, undertaken on behalf of Morocco’s development zones, or “nearshore centers,” Ministry of Industry and Commerce, highlighted ways the country could modernize traditional which will offer tax breaks, less cumber- export sectors, promote opportunities in new some administrative procedures, more ones (such as offshoring), and tackle the structural flexible labor rules, and world-class infra- barriers to its economic growth. 2 The countries were benchmarked on 104 factors in structure and services. Attracting four 12 major categories: labor, capital, energy, natural or five multinationals to these zones at an resources, IT and telecommunications, logistics, early stage will be a key component of customs and trade, taxes and tax incentives, the existence of special economic zones, utilities, the initiative’s success. The country could business climate, and the size of the economy. target major IT firms seeking a place to locate francophone IT offshoring centers, for example, or large companies setting up captive business process units. Such early deals would serve as reference cases for later entrants.