offshore sourcing global trends and opportunities for north african countries r. gianfranchi, c....

Offshore sourcing

Global Trends and Opportunities for North African Countries

R. Gianfranchi, C. Rossotto, Y. Burtin, Global Information and Communication Technology Department, The World Bank

November 2005- Lessons From Tunis

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Contents

Understanding and measuring Offshoring

The MENA Region Reforms needed to attract Offshoring Technology Investments in MENA


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Origins of Offshore sourcing

1: TechnologyMobile telephonyInternetCustomer Relationship Mgm (CRM)Portable computing

2: Business innovations Just-in-time inventory managementSupply chain integrationCustomer-supplier partnerships

3. Skilled Workforce Availability Young, unemployed, multilingual, skilled

4. Free-trade AgreementsWTO -> GATT, GATS, TRIPS, trademark, patent, and (IPR) protection.

Allow outsourcing to offshore operational units or purchasing from foreign third-party suppliers.

Remote provision of Financial, Customer care, Accounting, Administrative services


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What is Offshoring?

Businesses and Governments face a sourcing decision.

Should we: Produce our services internally ? Source them domestically (outsourcing) ? Source them offshore (subsidiary or captive offshoring)?


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Offshoring Benefits/ Costs

Reduced Production Costs Inputs Labor Taxes

Access to Skills Labor Market Flexibility Access to New

Markets Business Strategy

Risks for offshoring firm: Reduced control of

production, quality Change in cost structure Change in commercial image Political/ business climate risk

Risks for recipient country: Reliance on foreign economic

performance Dependence on foreign firm’s

business cycle


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Global Offshoring Markets


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Major Offshoring Trends

Move to off-shore is accelerating due to market saturation Prime driver is not cost, rather search of specialized skills Evolution: end-to-end outsourcing and spin-off of non-core

function; Regulatory changes/ challenges

Offshored Operations Typical Functions Outlook

Information technology Operations

application development, programming, testing, and network support

initial focus for most early adopters and remains the most common function outsourced off-shore

Contact functions call centers, customer support, telemarketing and salessecond in popularity and are expected to be the next major

focus, particularly through call centers

Business Operations

finance and accounting, data processing and administration, operations and project management

trail the others, but significant growth is expected in this area as well, conditional on workforce skills' upgrade

Manufacturing Operationsapparel and textiles, toys, woodworks, consumer

electronics and microelectronics, automotive

largely diffused thanks to low production costs (even after factoring in the logisitc and tariff costs) and priviledged access to emerging market


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MENA Profile

8 MENA countries, 183M people 50 M between age 15-35 Average GDP/cap US$ 4,896 (lower than

China on a PPP basis) 50/50 Francophone/Anglophone Good education systems; strong technical

education; highly literate (60% secondary enrollment)

Most ranked among 60 in engineering talent worldwide


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Offshoring importance for MENA Region

Improving Trade Balance & Diversification• The region’s share in world trade declined from 9.6% in 1981 to 3.2%

by 2002. • Non-oil exports dropped to only 2.1 % in 2002, from 4.2% in 1981.• FDI flows to the Arab region dropped from almost US$3 Bln (2002) to

US$2 Bln in (2003).

Increasing Growth and Employment• The combined Arab (GDP) of US$604 billion is modest. • 1990’s growth was 1.3% compared with 4% average for all

developing countries

Enhancing Technological Transfer Servicing Untapped Domestic Markets


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To attract global Offshoring MENA needs to…

1. Identify Specific Segment Where the country has better resources, then

create an enabling environment for it

2. Regulate & Reform IT Infrastructure, Workforce competitiveness,

Labor markets, Business environment

3. Legislate & Regulate Intellectual property, IT legislation, cybercrime

4. Promote The country’s competitive assets


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REGULATE AND REFORM-> ICT Infrastructure

Liberalization Algeria Morocco Tunisia Egypt

Fixed telephony Yes (2004)

Yes (2004)

No No

Mobile telephony Yes (2001)

Yes (1999)

Yes (2002)

Yes (1998)

Number of mobile operators

3 2 2 2

Leased lines No No No Partial

Data and VAS No No No Yes

ISPs Yes Yes Yes Yes

Number of ISPs (Operational)

30 3 13 11

VSAT Yes Yes Yes Yes

Number of VSAT operators

3 3 2 2

Connectivity of our 4-countries' sample

0

10

20

30

40

50

60

70

Algeria Egypt Morocco Tunisia

Den

sitie

s

0

200

400

600

800

1000

1200

1400

Ban

dwid

th (M

bps) Household

Cellular

Internet

Int. Bandwidth

Competition has increased in the sector since 2000. Mostly cellular, VSAT and ISPs. Internet user density was the fastest growing between 2000 (1.6%) and ‘05 (6.7%)


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REGULATE AND REFORM-> IT Infrastructure

•The region needs to upgrade its IT links. • Missing Backbone connectivity and Arab IP interconnection.• After 1990’s ->lack of following expansion and upgrade plans.• East Asian loop capacity 3,800gbps vs Saudi’s 10gbps.


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REGULATE AND REFORM-> Workforce competitiveness

Facilitate employment searches: Constitution of HR datababses Candidates pre-selection agencies Favorable labor contracts (apprenticeship) Review social contribution schemes

Enhance multilinguism Subsidize otherwise unavailable training

Address weak Marketing, IT, Management, and Customer Support skills.


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REGULATE AND REFORM-> Labor Market

Remove explicit or implicit guarantees of employment (minimum wage legislation and layoff restrictions)

Reduce restrictions on layoffs in the formal sector, severance payments, facilitate hiring and firing redundant workers

Algeria Egypt Morocco Tunisia

Unemployment rate 25.4% 11.0% 11.3% 13.8%

Minimum wage (US$) 105 81 180 147

Legal weekly work duration (hours) 38 35 48 48


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REGULATE AND REFORM-> Business Environment

Streamline and informatize administrative procedures through one-stop-shop agencies (Egypt)

Reduce capital requirements for starting a business (Tunisia).

Cut the fees for registering commercial property (Egypt).

and facilitate access to industrial land (Algeria)

Reduce bureaucracy and red tape (Morocco).

Facilitate hiring, firing, closing a business (Egypt, Algeria)

Business climate is a challenge in all four North African countries. Tunisia, Morocco, Algeria and Egypt ranked 58, 102, 128 and 141 out of 155 countries surveyed in terms of Ease of Doing Business.


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LEGISLATE & REGULATE-> ICT Legislation

Adopt specific ICT legislation strengthening the country’s international competitiveness: Protect Copyrights, facilitate

data transmission Enact, enforce E-commerce

legislation (e-signature, e-payment systems)

Regulate internet service providers and information technology, defending customers from computer misuse and cybercrime


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PROMOTE ->

Actively promote the country as an offshoring location Attending world business summitsExpressing commitment to reform to

international business leaders and approach business partners looking for offshoring destinations


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Israel33%

Turkey8%

Others2%

Jordan3%

Egypt3%

Lebanon7%

Cyprus3%

Algeria13%

Tunisia7%

Morocco21%

Electronic Parts8%

Medical supplies5%

Biotechnologies5%

Electronics & Medical Equipm4%

Commercial, Financial, Consulting Services

14%

Others6%

Software & Informatics20%

Telecom Operators & ISPs38%

ANIMA-MIPO Survey (01/03-03/05)

137 investment projects identified through local Investment Promotion Agencies 72% of projects belong to Telecoms, Informatics and Services Sectors Source: ANIMA, Mediterranean Investment Project Observatory, 2005

offshore sourcing global trends and opportunities for north african countries r. gianfranchi, c....

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