Egypt ranked among top global offshoring destinations

While U.S. remains top user of outsourced services and India and China are still top providers, study sees big shifts in outsourcing landscape

Were you to propose to your boss that Egypt would be a mighty fine destination for outsourcing IT work, you'd likely get a forced chuckle or a reprimand. The country is, after all, suffering major disruptive political upheaval, and Egyptian authorities have demonstrated they're not afraid to cut access to the Internet, a critical business backbone.

Thus, Egypt's high ranking at No. 4 among top offshoring destinations on A.T. Kearney's study Global Services Location Index may come as something of a surprise to the casual observer. The study, released just today, analyzes and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centers, and back-office support.

In reality, Egypt's placement may be defensible, according to experts in the field, and the fact remains there are inherent risks in sending work overseas, such as the type of PR nightmares Apple has suffered for its business relationship with Foxconn. Those risks are among the trade-offs for enjoying lower wages and looser regulations overseas.

Notably, Egypt's high ranking on the list may be the biggest surprise in light of current events, but it's not the only one. According to A.T. Kearney, "An increasingly complex global economic environment has led to major changes in the ranking of the most attractive offshoring destinations."

Also of note: Companies are reportedly seeing declining savings from IT offshoring.

The more things change ...
India, China, and Malaysia continue to sit pretty in the top three spots, as they have since A.T. Kearney started compiling the report in 2003. However, the Baltic States, the United Kingdom, Mexico, and the United Arab Emirates have risen in the ranks, thanks at least in part to currency devaluation.

Broken down by region, Asia dominates the index, with India in the No. 1 spot, China at No. 2, Malaysia ranked third, Indonesia slotted seventh, Vietnam resting comfortably in eighth, and the Phillipines languishing in ninth.

In the Middle East and North Africa, Egypt is the regional leader and holds the No. 4 spot on worldwide. The United Arab Emirates climbed to 15th overall, with Dubai serving as a regional services hub.

Europe gains ground amid financial turmoil
Though hard hit by the global financial crisis, some European countries have climbed up the list: Estonia is ranked at No. 11, Latvia holds the 12 spot, and Lithuania rests at 14. A.T. Kearney attributes this feat to the countries engaging in internal devaluation, cutting wages and expenditures to enable highly competitive cost structures.

Further, the United Kingdom has gained traction as an offshoring destination. Thanks to a sharp drop in wages, the country has risen from the 31st spot in 2009 to No. 16.

United States: Biggest user of outsourced services
The United States does hold a top spot in A.T. Kearney's study, though not one that might appeal to the average American worker: The United States is the top customer for outsourcing services, accounting for 63 percent of global IT spending. On the other hand, the U.S. Tier II locations (areas of the country that have a lower relative income level) are ranked 18th as outsourcing destinations, thanks to a combination of talent and accessibility.

Canada, meanwhile, has fallen in ranking to 39th place, unable to maintain its cost advantage over rivals. America's southern neighbor Mexico, on the other hand, is the No. 6 ranked offshoring destination worldwide on the index, thanks to a sharp drop in wages, its close proximity to the United States, and a well-developed talent pool. Among the top outsourcing destinations in Mexico is Guadalajara, also known as Mexico's Silicon Valley. General Electric, IBM, Intel, Hitachi, Hewlett-Packard, Siemens, Flextronics, and Solectron have national headquarters or major development centers in the city, according to A.T. Kearney.

Further south, Chile is ranked at 10th place, down from 8th, which Brazil maintained its No. 12 spot. 

The A.T. Kearney Global Services Index, 2001, can be viewed in its entirety at the A.T. Kearney website.

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