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The Nearshoring Boom-Myth or Reality?

Outsourcing and shared services model has been popular amongst the developed nations since 1989. Owing to the various benefits such as reduced costs, lower work burden and cheap labour availability abroad, outsourcing has gained credibility across the globe. Global IT outsourcing market was valued at USD 527 B in 2021 and is expected to reach USD 682 B by 2027, registering a CAGR of 4.13%, during the period of 2022-2027. Over the years, outsourcing has evolved in the way businesses are conducted and now nearshoring is gaining prominence.

Nearshoring refers to outsourcing or subcontracting a part of or entire business to a nearby country. This involves doing business with a third part vendor mainly to cut costs, difficulty in hiring the right talent in home country, to save time and ease communication. Owing to closer proximity, nearshoring offers better products and services and enhanced supply chain operations, increased inventory and quality control and improved customer services .

ICT industry in the Middle East

Middle East is becoming a popular destination for outsourcing as the location and accessibility of the country is very strategic to the European and the UK. The pandemic has forced the region to shift its vision from an oil exporting economy to a knowledge-based economy. The region’s priority is to increase the contribution of the digital economy in the national economy, promote smart infrastructure, and enhance the digital readiness of the government to ensure business continuity. The region’s digital economy sector is focusing on creating a financial cooperation and freelance economy, digital markets, sharing economy, digital content economy, and information and data economy.

The ICT market in the Middle East is expected to reach USD 95 B by 2025 from USD 84 B in 2020, growing at a CAGR of 2.4%. 5G, classrooms of the future, eGovernance, next-generation healthcare, smart cities, smart mobility,  nd smart tourism are key focus areas for governments and enterprises. Technology wise, 5G, AI, IoT, Cybersecurity, Gaming and eSport are expected to have greater growth prospects in the region. Also, the technology market for AR/VR, blockchain, industrial robots and 3D printing is expected to boom in the coming years.

Further, cloud computing adoption has risen within the region, and according to IDC, the total cloud spending by public and private entities is expected to reach USD 2.5 B by 2025. VR and AR markets are forecasted to contribute USD 4 B to the economy by 2030. IT services is emerging as the fastest growing segment in the region followed by the IT software segment. Software and Web Developers, Programmers, and Testers are the most sought-after jobs in the region.

Nearshoring in the Middle East

The Middle East is expected to be a preferred destination for nearshoring. It is building on the desired capabilities of robust IT infrastructure to complement the nearshoring business. Nearshoring in the region is expected to reduce risks associated with strict regulations while shortening lead time to market with increased capacity.

Key reasons for the Middle East gaining prominence for nearshoring are:

  • Easily accessible: The Middle East is easily accessible from all the directions and has short flights to and from these countries. This allows one to visit the outsourced team and have real-time collaboration quickly and efficiently. Middle East’s strategic location enables it to work in similar time zones with the European and UK counterparts. Simultaneous working eases remote team collaboration and enables efficient communication. It further becomes easy to plan meetings and collaborate on tasks.
  • Reduced costs: Wages are some of the highest expenses that companies must deal with and that is why nearshoring is preferred. The Middle East average salary for a developer or any ICT specialist is lower as compared to western European countries, UK, and the US
  • Ease of doing business: UAE leads in the Middle East and Arab region in World Bank’s East of Doing Business
    ranking 2020. It ranks 16th in the global ranking of 190 countries. UAE is making the starting of a business less expensive by reducing the fees for business incorporation, ease of paying taxes and making trading across borders easier by reducing the time to export by fully digitizing certificates of origin. Further, Saudi Arabia is the most improved economy in Doing Business 2020. The Kingdom’s “Vision 2030” plan for long-term development encompasses a variety of legal and structural reforms.
  • Talent pool: Middle East is known for its superior higher education in technology and mathematics and has a huge talent pool of ICT professionals. Further, the people are fluent in speaking English, making it easy to do business.

Owing to the various benefits offered by UAE, Saudi Arabia, Qatar, the Middle East becomes an attractive destination for investment. The creation of Dubai Outsource City (the only business community in the Middle East dedicated to Outsourced Shared Services) has attracted many outsourcing players to bring their operations to the region. The region has over 50 outsourcing providers, offers ease of doing business, has a diverse pool of ICT experts and has government friendly investment options, making it a viable destination to nearshore

Way forward with Xebia

Xebia in the Middle East offers nearshoring capabilities to nearby countries. It has capabilities across a wide range of services such as AI, ML, Cloud Computing, and Data Analytics allowing one to optimize costs. It helps customers design and build low code software platforms and applications and covers a broad spectrum of software requirements including software development, digital assurance, testing, or security. It further provides a one-stop shop for full stack digital transformation covering platform engineering and continuous delivery, cyber security, product management and quality improvement solutions and services.

References

https://www2.deloitte.com/xe/en/pages/technology/articles/outsourcing-shared-services-2019-2023.html

https://www.middleeastbusiness.org/2021/10/14/how-outsourcing-data-centre-operations-can-drive-the-growth-of-middle-eastcompanies

https://www.helpnetsecurity.com/2021/07/07/middle-east-ict-market-2025/

https://gulfnews.com/business/uae-leads-middle-east-in-ease-of-doing-business-ranking-1.67354573

https://www.mordorintelligence.com/industry-reports/it-outsourcing-market

https://www.tahawultech.com/news/gartner-forecasts-middle-east-and-north-africa-it-spending-to-grow-2-6-in-2022/

https://www.computerweekly.com/opinion/A-new-nearshoring-game-is-emerging

https://tms-outsource.com/blog/posts/nearshoring/

https://qubit-labs.com/nearshore-outsourcing-use/

https://enterpriseleague.com/blog/nearshoring/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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