These two regions have not yet seen significant development of outsourcing nations, although two countries on the African continent are attempting tofoster domestic industries. Egypt made a big promotional splash at Outsource World 2004 in London,but doubters will remain for some time. The industry there will be plaguedby political difficulties in the Middle East, and a likely unwillingness by U.S.corporations to become heavily involved there. Also because of a generaldearth of outsourcing activity in the rest of the region, even Egypt’s bestefforts to present itself as a worthy center will be a hard sell.The country appeared on AT Kearney’s 2005 ranking of global servicesdestinations at number 12, the highest appearance by a nation from theMiddle East or Africa. The survey cited the advantages of emerging Middle Eastern locations as ‘‘very low compensation costs, a segment ofhighly educated technical workers, and historical exposure to English andother European languages.’’Egypt is making a greater push for BPO and call-center work thanITO, and sees itself more as a nearshore destination for Europe than as apotential market for North American clients. One of its biggest challenges,especially in developing ITO, is its small college output: at 250,000 totalgraduates per year, the country has less talent entering the market each yearthan China has new computer science graduates.
Israel has become one of the Middle East’s few successful technology centers, developing both a domestic software industry and an increasing outsourcing presence despite a limited population and regular bouts of political instability and violence. Comprehensive connections with international markets, especially in the United States and Europe, along with capabilities in English and European languages, and shared business hours with Central and Eastern Europe, have set the scene for the rise of outsourcing in this country. Electronic Data Systems (EDS), one of the world’s largest IT services companies, has operated in Israel since 1995 and employs approximately 900 people there.34 The Israeli government has incentivized companies to bring their business to Israel by offering a US$200-per-month subsidy for each worker employed by a foreign entity.35 Wages and costs in Israel remain higher than other outsourcing destinations, such as China and India, but still realize savings compared to the United States or major European markets. Along with limitations on the amount of IT talent that can be produced annually by a nation with a geographic area and population as small as Israel’s, the country’s relations with its neighbors will have a major impact on the future of any outsourcing there. From terrorist attacks to military conflicts such as the summer of 2006’s clash with Hezbollah militants in Lebanon, new investment in Israel’s outsourcing services industry will hinge on maintaining some semblance of peace, because there are too many other choices available that can deliver similar quality and cost advantages without the threat of violence.
One thing about South Africa is certain: it is not a nearshore market for any country, although it does share time zones and working hours with largeparts of Europe. That said, its historical involvement with Europe, although at times detrimental to its domestic political situation, means a multilingualworkforce that could bring foreign IT investment as the country continuesto develop after decades of isolation.South Africa is at present focusedmore on BPO and call-center outsourcingthan ITO, with Dutch-speaking markets a primary target,36 althoughthe country can also offer significant proficiency in English and German.Just under 1,000 call centers are expected in the country by 2008, accordingto one prediction, with 70 percent of existing centers serving U.K. clients.
Having made their name in outsourcing first as low-cost manufacturing centers, some Asian countries are now making the transition to higher-value, IT and knowledge process outsourcing. Indeed, the world’s top two outsourcing nations are also the region’s population centers: China and India. Although significant outsourcing services are available in North Asian countries like Japan and Korea, we have excluded them here because they offer little if any cost benefits, and are more likely to receive contracts for specialized work. Also, they are major offshorers themselves, with some of the world’s best nearshore talent at their doorstep. For the purposes of thisdiscussion we are also including Australia and New Zealand.
Australia seems an easy choice for outsourcing. Essentially a North American or European nation plunked down in the Southern Hemisphere, Australia is a major regional IT center. Although Australia’s economy has seen strong growth in recent years, and its currency has appreciated significantly over that same period, the Australian dollar’s approximately 25 percent differential with the U.S. dollar can still offer savings and high-quality talent to clients in North America and Europe. Ultimately though, Australia is considered a high-end outsourcing center and will not be chosen on the basis of cost benefits. Tier-one players including Accenture, Capgemini, CSC, and IBM Global Services, to name just a few, all maintain a significant presence in Australia. Many of these global companies benefit not only from Australian labor for international products, but also attract work from domestic firms outsourcing locally, including the federal government and the governments of various Australian states. Major Indian outsourcers are tapping into this domestic market, including Satyam Computer Services and Wipro, withtheir revenues growing 50 to 60 percent annually. The total Australian outsourcing services market is now valued at US$100 million per year,40demonstrating significant room for further growth.The greatest threat to Australian outsourcing is ultimately that as othermarkets mature, it will be subject to price pressure. Australian businessesand even the Australian government have engaged in offshore outsourcing,and as a high-end center, could face increasing competition from lower-costareas in Asia.
Malaysian government investment in a modern IT infrastructure during the 1990s helped this Southeast Asian nation to a position of prominence in IT outsourcing. In 2005, AT Kearney’s Global Services Index ranked Malaysia third overall, trailing only India and China,41 countries many times its size. It has vigilantly promoted its IT capabilities and attracted multinational IT companies through coordinated efforts including the construction of the Multimedia Super Corridor, which includes the science park/town of Cyberjaya. This area, which stretches from parts of the capital, Kuala Lumpur, to Kuala Lumpur International Airport, includes tax incentives, transport infrastructure, and communications infrastructure to encourage multinationals to establish a significant presence there.42 Cyberjaya residents include Hewlett-Packard, DHL, and captive global processing centers owned by Standard Chartered Bank and HSBC.43 The country has enjoyed particular success servicing the finance and energy industries.44 Malaysia currently produces approximately 40,000 new ‘‘knowledge workers’’ per year, with a goal of 60,000 by 2008.45 Outsourcing Malaysia, the country’s promotional body, is an active participant in overseas lobbying and trade shows. As an example for smaller nations wishing to create an outsourcing industry for themselves, Malaysia is a superbexample, limited only by population and land area.
New Zealand offers outsourcers the advantages of using Australian staff, but with a cost advantage of about 15 percent over their neighbors. Native English-speaking and sharing a common culture with Canada, the United States, and the United Kingdom, New Zealand is hamstrung by its small population and its remoteness. Still, major outsourcers including EDS and Unisys maintain operations here to take advantage of the country’s solid,albeit limited, resources.
The Philippines is an outsourcing up-and-comer, with a largely Englishspeaking population of 77 million, about 10 percent ofwhom work overseas. As an outsourcing destination, the Philippines ranked fourth overall in the AT Kearny Global Services survey 2005.46 The call-center industry is the nation’s fastest-growing and is now valued at US$1.7 billion annually, and is a serious competitor for similar English-language services from India.47 Despite its prominence among outsourcing destinations, the Philippines has not been able to move up the value chain in knowledge process outsourcing (KPO) or ITO. Despite its reasonably large population (compared to Malaysia’s 24 million people), only 400,000 total college graduates enter the workforce each year, a very small percentage.48 Management and project experience are lacking,49 and the country is simply not viewed as an IT hub or major IT market, as one of Asia’s poorer nations. Although a series of terrorist attacks in both Manila and on the southern island of Mindanao have sparked somewhat exaggerated fears of unrest, a failed coup d’etat in 200650 did nothing to dispel fears of political instability exacerbating a lagging economy surrounded by other Asian success stories. For basic, English-language–based services, the Philippines can offer significant cost benefits. However, for more value-added services, it will be some time before this archipelago nation can challenge the Asiangiants.
A first-world city-state at the end of the Malay Peninsula, Singapore’s five million people serve as a technological benchmark for the rest of Southeast Asia, and also for other parts of the region. Few other Asian countries or territories can rival its development, and its commitment to high technology is obvious anywhere on the island. Singapore is a high-end services destination, with an English-speaking (English is an official language, and the language of business and instruction in Singapore), highly educated workforce. Through various development programs and under the guidance of the government’s Infocomm Development Authority (IDA), technology is integrated into the lives of Singaporeans from a young age, making them among the most technologically aware inthe world.
Aside from speaking English, Singaporeans have Bahasa Malaysia as their other official language. With more than 80 percent of the population of Chinese descent, Mandarin Chinese and a variety of dialects, including Teochiu, Hokkien, and Cantonese, are spoken in homes throughout the country and used to establish connections in various parts of China. Singapore is also home to a significant Indian population, giving it rare cultural and historical ties to both of Asia’s technology powerhouses. Because of its diverse Asian roots, Singaporean firms are often the recipients of localization work for other markets in the region. Singapore is as much an outsourcer as it is an outsourcing destination. Ranked fifth in the 2005 AT Kearney Global Services list,51 it sends significant work over the border to neighboring Malaysia, the Philippines, and China, where Singaporean companies have joint-ventured with Chinese entities to build and operate software parks. Outsourcing in Singapore is limited by two obvious factors: population, which currently stands at about five million, and cost. Singapore is considered one of the most expensive IT services markets in Asia, but is utilized for high-end work, localization, and products aimed at regional customers.
If one medium-sized Asian nation is outsourcing’s next star, that country is Vietnam. Some 30 years after the Vietnam War ended with a Communist victory, it seems that capitalism has returned and is making up for lost time. Foreign visitors to Ho Chi Minh City (formerly Saigon) who spent time in China during its early boom years report that Vietnam is now reaching thesame pace of development. Some key outsourcing ingredients are already in place. Vietnam’s population of approximately 80 million gives it a sufficient pool from which to draw, especially as more are given access to higher education. Although still in its early stages, the country’s infrastructure has improved rapidly over the past five years, from Internet access (although it is monitored and occasionally restricted by the government) to roads and modern airports. Vietnam has been used as a game development center for game software companies including Microsoft, Electronic Arts, and Atari.52 On the hardware side, Intel invested US$1 billion in a new chip plant in the country in 2006, complete with a visit from outgoing Intel CEO Dr. Craig Barrett.53 It is still early for KPO and ITO in Vietnam, with 2005 software and IT exports totaling only US$70 million.54 However, Vietnam’s historic ties to both the United States and France, fueled in part by ethnic Vietnamese populations in those countries, could help to re-establish commercial links there. Language skills could be an issue, but Vietnam’s ethnic Chinese population could potentially drive expansion of nearshoring from China. Cost benefits in China continue to be competitive, but should they begin to veer upward, Vietnam could offer Chinese outsourcers a fresh and available source of talent. Although it would be unable to compete in terms of sheer numbers or experience with China and India, Vietnam could develop along the lines of Malaysia to compete among the world’s top ten outsourcing destinations. It is one towatch.
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