The objective of this dissertation was Identify the reasons behind the recent trend in IT services offshoring, to examine the main drivers that influence offshore outsourcing of IT projects and to evaluate potential competitive advantage that could Morocco take from this phenomenon. Multiple case studies have been analysed for the purpose to gain more insight into this practice.
Offshoring of IT projects is becoming an established way of conducting business. The reduction of IT expenses is probably the most attractive benefit from IT services outsourcing. Consequently, the reasons why companies relocate their internal IT services to low wage countries are often cost driven (Yordon, 2004).
European firms are continuing to look for ways and means of producing their software and software related products cheaply in low-cost countries, which are invariably developing countries. The cost advantage of foreign service providers primarily results from the lower labour costs in their countries. Firms in my case studies have also indicated that locating their work to Morocco has been driven by cost savings. They have so far achieved the anticipated cost efficiencies and identified other cost components that could have made offshoring in other lower wage countries more expensive. They also insisted that cost cannot and must not be considered in isolation by any company intending to engage in offshore activities and that looking for quick savings will be disappointing for companies who may ignore the necessary high start up costs.
The access to specialized knowledge and IT know-how also plays an important role when deciding on a particular offshoring arrangement. With its large and qualified talent pool of French and Spanish speakers, Morocco could establish itself as the destination of choice for francophone and Spanish-speaking offshoring. In addition, the interviewed firms pointed out quality as a major factor in the implementation of balanced and tested communication flows between the onshore and offshore teams and to gain credibility with their clients. Thus, successful offshore projects are those where the company knows how to measure quality and productivity. ISO-9000, Six-Sigma and SEI-CMM standards certifications are commonly used in the offshoring practice to control of the adherence to quality.
Furthermore, as this offshoring phenomenon has matured we are witnessing segmentation in the marketplace; a particular prominent range of offshore outsourcing is Nearshoring. Countries and companies that view themselves as nearshore position themselves as offering some of the benefits of offshoring, namely cost reduction, while mitigating other difficulties, especially those imposed by distance. In fact, nearshore and farshore are seen as contrasts: A farshore location is a very distant destination, represents many hours to travel, many time zones away, and is seen to represent a very different culture; while a nearshore destination is associated with relatively easy travel, similar time zones, and closeness in culture and/or language. Many studies on global software development have documented that distance introduces difficulties (Hinds and Kiesler, 2002; Carmel and Tjia, 2005). There are many reasons for these difficulties including communication, control and supervision, coordination, creating social bonds, and building trust. Based on all this evidence, we argue that distance still matters.
With both geographical and cultural proximity to Europe, Morocco is well positioned to secure a large share of the Francophone and Spanish-speaking offshoring market. It has emerged as a strong player in the rapidly evolving offshoring industry, competing successfully with India and other low-wage destinations in creating value. The kingdom has therefore devised an aggressive action plan based on three pillars: state-of-the-art infrastructure and services, skilled human resources, and an attractive fiscal scheme (Oxford Business Group, 2006).
In fact, Morocco’s need for new industrial growth is urgent. Competitors with lower costs and better access to natural resources are eroding the country’s share of the global market for food processing and textiles, which together currently represent more than half of its industrial GDP and almost three-quarters of its exports. Without a proactive industrial-development policy, Morocco’s employment levels will stagnate, its trade deficit will increase, and its economy will grow at less than half the expected rate (Taoufiki et al., 2005). Morocco is hence putting offshoring as one of the key element of the national emergency plan owing to the considerable potentials and immediate benefits for the national economy. The country’s offshoring strategy aims at strengthening its attractiveness by establishing an environment conducive to this activity, with a goal of boosting investment and job creation. The programme forecasts that the offshore strategy could create some 91,000 direct jobs and contribute around MAD 15 billion (£1.1 billion) to GDP by 2013 (ibid).
Therefore, Morocco is creating dedicated zones in four of the main cities, with infrastructure up to the best standards of quality and cost as well as tailor-made services. In December 2005, the king launched the construction of the Casablanca Near Shore Park, a business area dedicated to offshore outsourcing services. The government hopes it will yield revenues of £370 million and create some 30,000 offshoring jobs, and about as many indirect jobs (Morocco Times, 2006). The next step will be the launch of Rabat Technopolis, which will target in priority new technology-related offshore services, due to the presence in the capital of the country’s largest engineering schools. The objective here is to create 12,000 to 15,000 jobs. The project is based on four concepts:
research and development; a centre for software and design development; an offshoring zone; and a media park. Next in line are TangierShore and MarrakechShore (ibid). The kingdom is also developing a training strategy to ensure a proportion is well-suited to BPO jobs, with the additional objective to train up to 25,000 recruits by 2009 and by 100,000 by 2015.
Overall, Morocco has made great strides in developing an attractive environment for offshore services, and engaged in a long-term strategy aimed at ensuring the sound development of the sector. It now has to regulate the sector effectively to consolidate its mounting reputation, and keep looking for options to further enhance the industry. Morocco could develop knowledge process outsourcing (KPO) activities, which generate far more added value. This was evidenced in January 2006 when European banking leader BNP Paribas announced it was stepping up its presence in Morocco by investing some £5.8 million over the 2005-2009 period to develop two local subsidiaries in charge of software development for the group. This move will create some 370 jobs (MAP, 2006). Insurance company AXA also aims to double its operating profit as part of the goals it has set for 2012, by moving 1,500 jobs to Morocco as part of its previously announced strategy for 2012 (BusinessWeek, 2006). Another example of value-added activity is the establishment of design agencies such as Teuchos in the aeronautics sector, and Matra Engineering in the automotive sector (Morocco times, 2006).
One thing that remains certain is that offshoring will continue to thrive and that Morocco has much potential to be a leader in offshoring thanks to its proximity to Europe.