Very interesting article. :idea:
Source: Wharton School of the University of Pennsylvania
The island of Mauritius is famous as a place for tourists to get away from work, rather than as a place bustling with business activity.
But this tiny nation, located in the Indian Ocean, has big plans to become yet another center of business process outsourcing (BPO), the emerging practice in which companies farm out tasks such as call center operations and accounting.
Mauritius is turning a complex colonial legacy to its advantage; its population speaks both French and English. The country also benefits from its location along a fiber-optic cable that links South Africa to India and Malaysia. With a strong government push to attract technology-related businesses--including initial steps to build a high-tech city--Mauritius aims to rake in $1 billion of BPO revenue and create as many as 20,000 jobs in the sector by 2008.
It's not clear, though, that the island's BPO industry can become that large. A population of just 1.2 million people means that the number of skilled workers available to take customer calls or process invoices is limited. Akshaya Bhargava, CEO of India-based BPO company Progeon, suggests that a country would need a population of at least 6 million for him to consider opening a facility there. Mauritius is a "very small country," Bhargava says. "You're never going to get the number of people you need."
Even so, Mauritius leaders are targeting a promising field. BPO services--also known as IT-enabled services--provided from lower-cost areas such as India and China, are becoming attractive to corporations in the United States and Europe. Market research firm Giga Information Group estimates that India's business process outsourcing will grow by at least 65 percent this year.
According to Giga, India's BPO sales were $1.5 billion in 2001. Indian trade group Nasscom has forecast that India's revenue from IT-enabled services will rise to $16.9 billion by 2008, capturing more than 10 percent of the global IT-enabled services market. The trade group also predicts that employment in India's BPO industry could reach 1.1 million by 2008. Aside from India, countries including the Philippines, Sri Lanka and Jamaica also are striving to become back-offices to the more-developed world.
Giga Information Group estimates that India's business process outsourcing will grow by at least 65 percent this year.
Mauritius is trying hard to lure tech companies, as well as tourists, these days. The government has declared it wants to make Mauritius a "cyberisland," with information and communications technology becoming the "fifth pillar" of the economy, along with tourism, manufacturing, agriculture and financial services.
To develop the technology sector--which includes BPO companies and traditional IT companies such as software and e-commerce outfits--Mauritius has joined forces with nearby India. India is offering its experience in the technology field and has established a $100 million line of credit for its island neighbor. The private Development Bank of Mauritius also has created a venture capital fund focused on technology-sector projects.
In the past year, Mauritius has taken other steps to nurture the tech sector.
"The crown jewel of these efforts has been the decision to set up the first cybercity of Mauritius," Deelchand Jeeha, the country's minister of IT and telecommunications, said in a recent speech. He was referring to a 150-acre project in the city of Ebene slated to include a 12-story office building with up to 300,000 square feet of IT work space, 50 acres designated for big IT companies to set up their own offices, a training center, a hotel and residential housing.
Plans also call for its cybercity to have a broadband network--a key requirement of BPO companies whose processing or call center work depends on high-speed Internet connectivity. The foundation stone for the Ebene's cybercity was laid last year, and the government envisions two other state-of-the-art business parks in the future. In April, the government opened a 5,000-square-foot business incubator for information and communications technology companies. Fledgling Mauritian companies in fields such as software development and medical transcription are using the facility to try to launch their businesses.
Mauritius has created an attractive set of financial incentives for IT and BPO companies. Export-focused technology companies are able to import equipment without any customs duty or sales tax. Those companies pay a corporate tax of just 15 percent and are able to freely repatriate profits, dividends and capital. What's more, the government offers export-oriented tech companies 50 percent relief on personal income taxes for two expatriate staff members. Even before that perk, the country's personal income tax is rather light: 15 percent for the first $936 and 25 percent on the remainder.
If those incentives weren't enough, BPOs may qualify for a "tax holiday" until 2008--meaning they don't have to pay any Mauritius taxes. The country "has an extremely friendly tax regime," says Jacques Putzeys, who directed the Mauritius Financial Services Promotion Agency from May 2002 until February 2003 and now serves as president of a BPO company operating in the country.
Apart from pro-BPO tax policies, Mauritius advocates can point to a democratic government and sound infrastructure. The island's telecommunications system got a major boost last year, when Mauritius linked up with the South Africa Far East (SAFE) fiber-optic cable. That underwater cable system, in turn, ties into another high-bandwidth cable network that connects South Africa to Europe.
"A major advantage of SAFE is that it provides an uninterrupted and secure connection to the Internet even during cyclones that sweep the Indian Ocean between November and April," Putzeys says. "Mauritius sometimes has to put away its antenna dishes during the period of cyclones, which cuts it off from the rest of the world."
Still, the country's telecommunications system has room to improve, by the government's own admission. In a speech last September, Jeeha said investors and local companies complain of overly high telephone call rates and Internet connectivity fees charged by the country's incumbent telecommunications operator, Mauritius Telecom. Relief, though, is on the way, Jeeha said. The telecom sector will be liberalized at the beginning of next year. "We expect new entrants to come on this market to promote competition and offer a wider choice of quality services to the public and the business community," Jeeha said.
Another feather in the country's cap when it comes to BPO is a population that speaks both French and English--making the work force an attractive one for companies seeking to serve European clients. The linguistic richness is a quirk of the island's history.
Long unknown and uninhabited, Mauritius was settled by the Dutch in 1598, taken over by the French from 1715 to 1810, and then ruled by the British from 1810 to 1968. With African slaves taken to the island under the French, and Indian indentured workers brought over during British rule, the population of Mauritius is now composed of people of European, African, Indian and Chinese origins.
Mauritius labor is relatively cheap. According to Putzeys, accountants, lawyers and other professionals in the country make $800 to $1,700 a month; computer operators earn $300 per month.
Mauritius also boasts a high literacy rate--85 percent, which is much higher than its neighbor India. But in 2000, just 2.2 percent of the island's population held a post-secondary education degree, and training in technology-related work is lacking. "We do not have the critical mass of IT-qualified people necessary to support development in the (information and communications technology) industry," Jeeha noted in an interview last September. "We are trying to catch up."
According to Ravi Aron, a Wharton professor of operations and information, the country has a flexible labor policy. The government allows companies to bring in highly skilled workers that the economy needs, confident in the belief that this will not only create income in the economy but also bring gains to the country’s citizens by jump-starting businesses that would otherwise take many years to get under way using domestic workers alone.
Mauritius labor is relatively cheap, and the country has a high literacy rate.
To do so, Mauritius is asking for help from India. Some Indian training institutions are operating in Mauritius and India-based IT services company Satyam Computer Services has entered a partnership with educational organizations to offer a series of training courses. One of Satyam's partners is the University of Technology, which was launched by Mauritius in 2000 and offers degrees in fields such as software engineering and business information systems.
So far, Mauritius has managed to attract a handful of BPO outfits. According to the government's Financial Services Promotion Agency, local BPO operators include IT services and consulting firm Accenture, U.K.-based human resources services firm Ceridian Centrefile, and Cendris, a Dutch company that offers services including information management and marketing advice.
Aside from BPO companies, Mauritius has succeeded in landing some IT business. Most notably, India-based IT services company Infosys has set up a disaster recovery center in Mauritius to prepare for contingencies such as political unrest or natural disasters. In an unusual arrangement, the Mauritius government has promised to grant visas to 1,500 Infosys employees who could travel from India to the island on short notice. Infosys' Mauritius center--complete with network connections, workstations and telecommunications facilities--is now rented. But, in about three years it will be moved to Infosys' own 25-acre site, a campus that also will house a development center to serve international clients. The company plans to invest about $25 million in the project over three years.
"Infosys was looking for a place with good infrastructure, lower costs and availability of advance work permits to set up a disaster recovery center, and Mauritius fit the bill," the company notes in a statement. "Mauritius is an ideal location for Infosys also because of its close ties with India (and) good flight connectivity with many Indian cities."
But Progeon, Infosys' BPO arm, hasn't been won over by Mauritius. A disaster recovery center can't just be a set of similar computers and Internet access, Progeon's Bhargava says, because his BPO service may involve a customized data link with a client.
"For me, disaster recovery is not so easy," he says, and then there's the Mauritius' small population to consider. Progeon is headquarted and has a facility in Bangalore, India, and is setting up a second facility in the Indian city of Pune. The next location for the company, Bhargava says, will be somewhere in Eastern Europe. That's partly due to Bhargava's desire to give clients a sense of comfort, which can come from having outsourced back-office operations closer to home.
Another BPO leader who sees limits to the industry in Mauritius is Atul Vashistha, CEO of U.S.-based offshore outsourcing advisory firm NeoIT. The lack of potential workers in Mauritius means that the country's BPO operations are likely to be regional in scale, rather than worldwide, says Vashistha, whose firm helps arrange offshore IT and BPO outsourcing deals. "You're not going to see Hilton put a call center in Mauritius," he says.
Aron, however, adds that Mauritius should be seen as an extended business environment that could emerge as a gateway to the Indian Ocean countries. "As the volume of business transferred to India accelerates, so will the need for a dedicated center that can provide business continuity and controlled redundancy," he says. "The key is that critical volumes are building up in India. As the region grows, so will Mauritius--though with a slight time lag. The country's location is ideal for this purpose."
Still, the island has made it onto the radar screen of IT and BPO companies. India-based IT services company Wipro, which provides BPO services through its Wipro Spectramind unit, is considering Mauritius along with other areas such as Vietnam, The Philippines and Eastern Europe for possible expansion, notes Sridhar Ramasubbu, Wipro general manager for finance and investor relations. "We are watching all those places very closely," he says.
To NeoIT's Vashistha, Mauritius does have its competitive advantages. One is the solid telecommunications infrastructure offered by the fiber-optic cable running through the country. Another is the same thing that lures tourists to Mauritius--it's a tropical island. "It is one of the most beautiful areas of the world," Vashistha says. "I would love to have an office there."