Crisis in Egypt: political risk back on the outsourcing agenda

February 8, 2011  |  Mark Hillary
IBA Group

The crisis in Egypt continues as economists and political analysts attempt to predict where the air of revolution sweeping across North Africa and the Middle East will continue to next.

But, in the past month major analysts, such as Gartner and AT Kearney, have published reports naming Egypt as one of their most recommended offshoring destinations. AT Kearney even placed Egypt as the fourth most attractive location anywhere on earth. How could they have got it so wrong?

That’s a little unfair to the analysts. They have judged Egypt and other countries on fundamental measures such as population, education, and infrastructure. On all those measures Egypt should rank highly. But does the failure of the analysts to predict a wave of civil unrest demonstrate that many commentators in the offshoring industry are ranking political risk as a less important measure than others?

Even the darling of the offshoring community, India, has had a tough time over political risk. It is only a few years since a million troops lined the India-Pakistan border and the talk was of possible tactical nuclear strikes.

India has moved beyond those fears, but the question might be asked whether there has been any fundamental change in their relationship with Pakistan. Could another conflict blow up as quickly again?

Back in Egypt, questions will be asked about how major telephone operators could find their service switched off overnight by a despotic government. And if a government with such absolute control can switch off all telephone and Internet services overnight then surely the same could happen in many of Egypt’s neighboring countries. Many of those countries are also appealing to the international community for outsourcing contracts. But how safe does it feel now we have seen what can happen?

If political risk is back on the agenda as a key issue in offshoring then working within the European Union will be the safest option for European companies. Other than keeping everything in-house, there can’t be a safer approach to offshoring than working with neighbors who respect the same laws, the same separation of the state from private sector enterprise, and the same respect for democratic representation.

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