Offshoring and outsourcing are inherently risky, and companies need to draw up detailed macro and operational risk mitigation plans. Professor Leslie Willcocks looks at how the risk associated with offshoring locations is calculated, and on the opposite page considers how Egypt fares in a global context.
Risk is assessed at country level in the following areas:
Security: risks to personal security and property from fraud, crime and terrorism.
Disruptive events: risk of labour uprising, political unrest, natural disasters.
Regulatory risks: stability, fairness, efficiency of legal framework.
Macroeconomic risks: cost inflation, currency fluctuation and capital freedom.
Intellectual property risk: strength of data and IP protection regime.
Overview
With the exception of Belarus, CEE countries, in particular those within the European Union, are considered more secure to live in and visit than countries in the Middle East and Africa, Asia and some parts of the Americas. The Czech Republic is considered one of the most stable post-Communist states.
CEE countries have less history of natural disasters than countries in Asia and Americas (e.g. flooding in Prague in 2002 caused minor damage compared to the devastation caused in Thailand by the Indian Ocean earthquake and tsunamis in 2004). Many of the major risk factors are unpredictable, however, non-BRIC (Brazil, Russia, India and China) countries establishing strong legal, educational and economic structures are more attractive to business, and attract new investment, collaboration and development.
Country profile: Egypt
Egypt’s image has been damaged as a result of the rare terrorist attacks on the resorts of Dahab in April 2006 and Sharm al-Sheikh in July 2005. The public perception still remains that Egypt is unsafe, which obviously affects the choice of business destinations.
The Egyptian government is trying to reverse this perception by enforcing security measures. In practice, the recent survey of 448 outsourcing users by Black Book Research rated Cairo as the world’s 10th safest outsourcing city in 2008. Cairo was preceded by Singapore, Dublin, Santiago, Krakow/Warsaw, Toronto, Prague/Brno, Budapest, Monterrey and Beijing.
When it came to the most dangerous outsourcing locations, the survey listed Jerusalem, Mumbai and Rio de Janeiro/Sao Paolo as the top three. This survey was conducted a month before the Mumbai bombings.[i]
Inflation
Inflation in Egypt is seen as a major risk for the economic stability of the country and to its ability to continue to attract external investment. This inevitably severely impacts businesses where they are forced to raise salaries to help meet costs of living. Inflation has risen to 20 per cent in the past year and the government itself has been hit by the need to raise salaries and to cut tax benefits and corporate tax relief to do this.[ii]
Copyright and piracy
While the level of software piracy in Egypt is dropping, due to the government bringing in anti-piracy laws and laws to protect intellectual property (IPR) and copyright, there are severe problems in many other non-BRIC countries. In Venezuela, Vietnam and China, for example, the software piracy rate is above 80 per cent; in Thailand, Tunisia and Russia it is between 70 per cent and 80 per cent.[iii]
The lowest, at 39 per cent, is in the Czech Republic.[iv] While Vietnam is perceived as a stable and secure environment, it is also recording extensive illegal copying and a culture of software piracy. In CEE, Poland and Romania are known for software piracy and the lack of IPR protection. Many governments, including Romania, Costa Rica and the Philippines, are taking steps to strengthen and enforce IPR protection and copyright laws. In Poland, however, this is not a current high priority for the government.
Politics
In terms of political instability, Thailand currently is facing the most severe pressures and is seen as an unsafe destination for business investments until its political status is resolved. According to the Global Competitive Index for 2008/09, Egypt ranks 81st (out of 134 countries assessed) down four places from 2007.[v] Despite some improvements, macroeconomic instability remains a major challenge for the government, as mirrored in the 125th rank the country obtains on this assessment.
High government debt, double-digit inflation and a high – although decreasing – budget deficit continue to weaken the macroeconomic environment, despite improving fiscal management. In addition, labour market efficiency is poor in international comparison.
Education
Egypt has made progress in fostering technological readiness. To benefit further from internationally available technology, Egypt needs to upgrade its educational institutions, which continue to receive a weak assessment in this particular study.[vi] Business Monitor (2008) puts the issue another way: although levels of education are relatively high, there is a considerable mismatch between the skills taught in schools and those required by most employers.[vii] The EduEgypt programme has been put in place to help address this gap, but it is in its early stages.
[i] Financial Week December 11th, 2008.
[ii] FT Special Report Egypt, December 17th 2008.
[iii] The piracy rate is calculated as the total number of units of pirated software deployed in 2007 divided by the total units of software installed.
[v] Porter and Schwab (2008), Global Competitiveness Report 2008-9, World Economic Forum.
[vi] Porter and Schwab (2008) op. cit.
[vii] Business Monitor (2008)
Please Login or Register for free to view to the full article.
|
