Egypt's crisis: The sticky topic of political risk with outsourcing is firmly back on the table
Like everyone else, I’ve been glued to the news the past few days trying to comprehend the enormity of the Egyptian crisis and the possible repercussions across the global sourcing industry.

Without dragging us into a political debate, what’s alarming is the dependence global sourcing has on the Internet and political stability. When the first response of the government, in times of political crisis, is to shut down the Web, this has a massive impact on the nation’s global sourcing infrastructure to support global businesses. While China clearly has the capability to regulate its Internet, you have to ask the question whether smaller, less affluent nations have that level of sophistication.

This is a major concern for businesses when they invest in critical support services in the region. While top-tier providers, such as IBM, Verizon and TCS rely on Egyptian resources, largely for call center work and software support and development, it’s hazardous when the government shuts off the Internet and all hell is breaking loose. What really concerns HfS is the unpredictability of problems like this surfacing, that can seriously impact the security and availability of key support services in areas such as IT services, finance and accounting, payroll, customer services etc.

Egypt, as an example, has proven capable as a good quality resource location for the Middle East, Africa and European regions in areas such as IT, BPO and call center services, and has invested significantly in promoting its capabilities worldwide. For example, Egypt’s Information Technology Industry Development Agency, ITIDA (website currently down) had planned to have a delegation at the forthcoming NASSCOM conference in India, and has invested heavily with McKinsey to support and help develop its capabilities. The country has invested millions to promote its sourcing capabilities - and now, that investment is looking under threat.

The rampant, viral proliferation of social media is clearly fueling unrest in many nations that have high unemployment and undercurrents of dissatisfaction among their younger people. If situations, such as what is currently happening in Egypt, proliferate to other countries with sourcing support services, the first reaction of governments now seems to be to “shut off the Internet”. You have to question how this impacts ITO / BPO services that are hugely reliant on a robust Internet to succeed - not to mention a stable political environment. The Egypt situation is a serious blow to many of the developing nations seeking to take their share of global services, which have potentially questionable political stability.

Advice to organizations with globally-dispersed support operations

1) Ensure your service provider has proven rapid response strategies to cater for unexpected political and geographical risk. In the case of Egypt, this could entail transitioning services to emergency back up units in locations that can service EMEA countries, such as Jordan, Israel, Dubai, or even Poland, Hungary, Czech Republic, Romania or Bulgaria.

2) Ensure you know exactly how and where your provider backs up all your critical data and protects it in the event of a government coup.

3) Ensure you have financial provisions to compensate for business impact as a result of unforeseen political and geographical risk. Ensure these provisions are clearly structured, with appropriate metrics to compensate for business downtime and associated lost revenues.

4) Invest in a political risk analysis of countries where critical business and IT processes are being supported. Compare the risks of occurrences, such as the Egypt situation, with the cost-savings and business benefits of using these locations. Saving 30% from your bottom line will be moot, if you can’t run your business properly for long periods of time!

The bottom-line

What is clear, is that Twitter, Facebook etc. are rapidly inspiring large numbers of people in nations with high unemployment to protest, where they feel their governments don’t “listen” strongly enough to their grievances, and aren’t pushing political reform at the same pace as economic reform. There is real fear now that the uprisings in Iran, Tunisia and now Egypt will continue to exacerbate in other nations, and this is going to have consequential ramifications on global sourcing decisions. Surely, this puts those nations with more mature political systems in a much stronger position to develop their services delivery industries. And in today’s post-recession global environment, this also includes onshore/nearshore/rural shore locations in countries such as the US, UK and Ireland, which have become more attractive in terms of labor costs.