It is about time the government moves beyond branding Lebanon as just a tourism destination to promoting the country as a business hub for high value-added services, both established and startup entrepreneurs have long complained.
A few weeks ago, the Investment Development Authority of Lebanon did just that, bucking the trend of near-paralysis in almost every state institution since the resignation of the government in March.
IDAL, a state-affiliated organization, participated for the first time in the International Outsourcing Forum held on Oct. 3 in France, where it promoted Lebanon as an outsourcing destination for multinational companies.
Accompanying a delegation from IDAL, two Lebanese companies had the opportunity to present their service offerings through customized business-to-business meetings with international companies such as Altcatel Lucent, British Petroleum, DHL Express, General Electric and Llyods among others.
IDAL had initially approached 50 Lebanese firms that offer a broad range of outsourcing services to participate in the forum. Twenty-five expressed interest and participated in a workshop organized by IDAL and chaired by its president, Nabil Itani.
Two companies eventually participated in the forum as the remaining shied away either because of logistical obstacles or the travel expenses and forum fees, which organizers reduced by 50 percent for Lebanese participants upon IDAL’s request.
“Our objective was to position Lebanon on the global map as a potential center for high value-added services. Though our efforts might take time before they materialize, the initiative is a first that needs follow up in a consistent manner,” IDAL Project Manager Leila Sawaya El Khoury, who participated at the forum, told The Daily Star.
More than 200 Lebanese companies employing more than 5,000 individuals currently offer outsourcing services that fall under three main subsectors: call centers, business process outsourcing services (BPO), and information technology outsourcing, according to an IDAL study.
The majority of these firms offer IT solutions and employ 4,143 individuals while 13 operate as call centers providing 854 jobs.
However, despite their competitiveness in terms of a highly skilled Lebanese labor force – a top consideration for outsourcing destinations – few have been able to successfully attract multinational clients.
While some Lebanese companies have a solid track in offering consultancy and outsourcing services to multinational firms including Samsung, Toshiba and Nestle, the majority still rely on either local clients or small foreign corporations.
Majid Khoury, who participated in the International Outsourcing Forum as CEO of SmartSource, a Lebanese consultancy and outsourcing services firm, told The Daily Star that it was too early to assess the positive impact of Lebanon’s participation in the forum.
However, Khoury, whose company is establishing a new call center in Beirut, adds that more important than signing clients is to position Lebanon as an outsourcing destination on the global map.
Khoury said Lebanon should to be able to attract big corporate clients that were currently outsourcing activities to Eastern European countries if the government persevered in advertising the country as a business rather than tourism destination.
While labor cost is a main variable in outsourcing decisions, the allocation of increased importance to quality considerations in terms of the labor pool over the past years has seen multinational firms pick Eastern European countries over Asian nations such as India as their outsourcing destinations.
“Lebanon may not be as cheap as global outsourcing giants like India and the Philippines but given its high skilled labor it should be compared at the level of productivity with Eastern European countries where the labor cost is significantly higher,” Khoury said.
According to IDAL, Lebanon’s average labor cost stands at $9.60 per hour compared to around $13.20 per hour in the Czech Republic for instance.
Khoury said that in addition to its lower labor cost, Lebanon’s workforce had another advantage over peers in Eastern European countries.
“For instance, Canadian firms usually outsource their services to companies that employ individuals who can speak both English and French, and this is rare to find in Eastern European countries besides Romania, whereas Lebanese firms offer such a service,” Khoury said.
Samer Hanna, who also participated in the International Outsourcing Forum as CEO of Capital Outsourcing, a Lebanese BPO and ITO company, said his attendance was an opportunity to see how both countries and foreign companies market themselves as a good choice for outsourcing activities.
“We didn’t go to sign clients, but it was rather a more informative participation as IDAL took the opportunity to portray Lebanon as a good destination for outsourcing activities,” said Hanna, whose company of 60 employees – mainly engineers – serves local clients and businesses based in Gulf countries.
Despite its qualified labor force, Lebanon needs to improve its infrastructure and business environment, the other two key elements that affect the decision of companies in their analysis and country choices, Hanna said.
Decision-makers in the outsourcing industry base their choices on rankings such as AT Kearny or the World Bank Location Readiness Index, experts say.
According to the World Bank’s 2013 Business Index, Lebanon’s ranking improved to the 111th place globally from 115th place a year ago.
Among the implemented reforms, the report said Lebanon succeeded in streamlining the business registration process, resulting in tremendous time reduction and also made it easier to pay taxes by introducing an electronic payment system.
But despite this improvement, businesses still complain about red tape, the lack of regulatory reforms and most importantly corruption.
Topping the list of complaints, according to a government source, is the high import cost of tech equipment required for ITO operations.
In a copy of a complaint email obtained by The Daily Star, the founder of an IT firm in Lebanon lamented that shipping tech equipment to Lebanon cost him four times more than shipping them to either the U.S. or EU countries.
In his email, the IT company founder lists a 10 percent TVA on the parts and the shipment, in addition to a delivery fee by the courier in Lebanon as well as clearance fees plus TVA at the airport.
The source says Lebanon should channel its efforts into improving regulatory and infrastructure related indicators since not much can be done to alleviate the security concerns that are the major reason behind multinational companies shying away from Lebanon.
The industry also needs Lebanon to introduce ITO-focused university programs and training to allow for a transition from entry-level call center tasks into more technical and IT focused skills, the source added.
“This will strengthen Lebanon’s positioning as a provider of high quality provider of back office operations, especially for accounting and finance, sales and marketing, technical support, transaction processing and customer care.”
Besides choosing Lebanon as their outsourcing destination, some firms have even considered establishing research and shared service centers in Beirut but were deterred by the deteriorating security situation.
“We were about to secure a deal with a large multinational firm to establish a shared service revenue center in Beirut but they backed away at the last minute because a bombing took place,” the source said.
The Daily Star