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Pandora’s Box: The Egyptian Software Outsourcing Industry Today – Risks & Trends

Posted by archworx on April 8, 2007

The Egyptian Software Outsourcing Industry is a relatively young industry. It is a very dynamic, growing, and changing industry. I believe that this year is going to mark a watershed period in the outsourcing industry across the world, and especially in Egypt. There are many tidal waves that are coming our way, and we’d better be prepared for them, otherwise brace yourself and take a deep breath, we may be about to sink.

The purpose behind these series of articles is to expose some of these upcoming risks and then open up the discussion for proposed mitigations or solutions.

 Some of these risks are very critical and we can’t afford to stand back and observe – we must be actively leading the market, on the forefront, trying out new innovative ways of survival.

Let’s start by looking at some of the changes in the world market one by one. This post will focus on local talent.

Competition: Attract and Retain me or die.

The wonderful thing about software is that you don’t need to be very resource-rich in order to participate in the revolution. All you need is some ingenuity and you can get very promising results. There are several garage-based developers who have toppled many industry giants in the world of software.

 This is the same reason why you get a lot of noise being made in places like Egypt, India and the Ukraine in the software field, where other industries cannot pick up momentum.

 This is an advantageous situation for many; in these countries Software Enterprises get a chance to thrive and compete on a global scale delivering surprisingly high quality software with minimal cost. Export your services, and you get international clients who are happy with your quality and thrilled at your cost model.

 This has created a multi-billion dollar software industry which has accelerated rapidly in many parts of the world; both in terms of adoption of the outsourcing model as well as establishing new outsourcing workshops.

Recently the competition around the world has become enormous, and it is now more and more a question of how you differentiate yourself.

With that introduction out of the way, it is time to recognize the real champion behing this multi-billion dollar revolution. The Software Developer. The Human Capital, Your core talent. Regardless of what they do exactly, if they write the code, test it, deploy it, support it, “infrastructure-it”, architect it, etc. This is the most important asset of any of these competing  companies.

Your building facilities are next to worthless, your computing hardware loses value faster than you can spell “depreciate”. The one most important factor is us. You are the driver of this revolution.

 Employers know this, and that is why there is always a tugging exercise happening behind the scenes to compete for resources – to compete for us. Employers are always battling to attract more resources, and to keep them by offering the highest possible package they can afford without compromising their cost model.

Competing for the Bottom Line

It is elementary that the reason why we may or may not be competitive is a factor of the quality of the software we deliver, and its price. This year in Egypt, our biggest threats are coming in the area of elevated packages that are being raised so high that they are going to blow the ceiling and threaten our cost model.

 Don’t get me wrong; I’m not advocating that we get under paid by any stretch – I am just voicing a loud concern about our long term sustainability.

 It has always been the case that IT services offered in a non-IT firm can sometimes get better compensated as distinguished and valuable inputs to the machinery required to operate in their specific market vertical. For example the telco market is sometimes able to better compensate IT individuals than a software firm because of many reasons – including the fact that they have much larger margins, and the fact that the bulk of their cost is not derived from these IT people – i.e. they can afford  to better compensate them without damaging their bottom line; their business model.

Say Hello

At the end of this first post, I will just conclude by asking people to welcome the new risks we are facing – the first step we need to do is to get acquainted with them, say hi, and then go back home and think about our next move.

This year we are welcoming a cash-rich telco operator in the market that is causing noticable waves in salary structures across the country.

As if that was not enough, there are strong rumours of two gigantic Indian Software companies that are setting up shop in Egypt with promised contract valued at several million dollars. The Huge Indian companies bring processes and operating models that are proven to work and will give them a significant advantage relative to local companies who don’t have similar experience.

This means more demand for your software person, with pretty much the same supply!

 So is that our risk I hear you ask?

No.

Our risk is not merely that the salary structures are rising, and our hourly rates will follow them. Our risk is that this is going to happen so quickly that our deliverable quality will never be able to rise high enough to catch up with it. This is what is going to threaten your long term sustainability, and your pay check next year.

 Unless, we are aware of these risks and act accordingly…

See you next post.

2 Responses to “Pandora’s Box: The Egyptian Software Outsourcing Industry Today – Risks & Trends”

  1. But what’s the solution,
    You can’t actually expect that developers not go for better paying positions just to preserve the cost-benefit of the Egyptian Outsourcing Industry…especially with the increasing cost of living in a society like the Egyptian one, this assumption is just unrealistic. Companies should start thinking of more innovative ways of breeding and retaining talent or else risk losing their most important assets.

  2. archworx said

    Good Point Ahmed, of course you are right – you can’t expect developers to forego better pays to save the cost-benefit. It’s not their problem.

    But that still doesn’t make the problem disappear. This series of articles is meant to be an eye-opener for strategic and visionary leaders in these organizations that this is a problem, and that the tidal wave is coming, and that we need to be ready for it, one way or the other.

    –mkaram

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