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2 December 2005| Member Edition

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Research in Brief

Morocco's offshoring advantage

The country is in a position to become the destination of choice for French-speaking companies.
Mourad Taoufiki, Amine Tazi-Riffi, and Jonathan Ttrault
2005 Number 4

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In an integrated global economy, a country is fortunate if it can find a comparative advantage in an

industry where major positions have not yet been taken. Morocco, within eyeshot of the European Union
across the Strait of Gibraltar, has identified an opportunity to become an offshoring center for Europe's
French- and Spanish-speaking companies. Our study shows that, from 2003 to 2018, business process
offshoring in Morocco could add 0.3 percent annually to its GDP growth, reduce its international trade
deficit by around 35 percent, and create a total of some 100,000 new jobs.1
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 (Exhibit 1). Without a proactive industrial-development policy, we reckon that Morocco's
employment levels will stagnate, its trade deficit will increase, and its economy will grow at less than
half the expected rate (Exhibit 2).

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To identify the most promising growth opportunities, we analyzed the competitiveness and global
market share of Morocco's industries and benchmarked them against the competitiveness and market
share of a selection of 11 developed and developing countries.2 We also studied the impact of
globalization on the value chain of each sector. After simulating the impact of potential industry
strategies on Morocco's economy, we found that business process and IT offshoring represented the
single biggest opportunityan estimated DH30 billion (2.7 billion), or around 8 percent of GDP in
2003.
Morocco's appeal includes wages for white-collar workers that are half those in France, a relatively high
proportion of university graduates, and many citizens who speak French, the second language in the
central region of the country. Furthermore, the cost and quality of its already respectable
telecommunications infrastructure are set to improve further with the expected entry of Spain's
Telefnica as a second fixed-line operator. The country's nascent offshoring sector, with an estimated
current turnover of 85 million, includes some 50 mostly small providers that will employ a total of
about 10,000 people by the end of 2005. Still, Morocco has captured almost half of the fledgling market
for call centers serving French-speaking companies. In addition, Telefnica has established a captive call
center in northern Morocco, where Spanish is the second language.

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Business process offshoring has yet to take off in any significant way among companies in Europe's
francophone countries (Belgium, France, Luxembourg, and Switzerland) and in Spain. The main
obstacles are labor laws, the political pressure against moving jobs abroad, and the fact that most
existing offshoring vendors are predominantly English speakers. As these countries recognize that
business process offshoring is vital to remaining competitive, however, we expect their market for it to
grow to about 9 billion in the next ten years.
Morocco should establish itself as the destination of choice, primarily for francophone offshoring. To
achieve rapid progress, it should focus its efforts on 10 to 12 niches within selected business processes
(accounting and finance and human resources, for example) and IT functions. Morocco is in a strong
position: compared with competitors such as Mauritius, Senegal, and Tunisia, it is geographically closer
to France, has a larger and more qualified talent pool, and boasts a better telecommunications
infrastructure. When measured against Eastern European countries, Morocco can point to lower labor
costs and, naturally, a larger pool of French speakers.
In order to create an attractive business environment for multinational companies, Morocco is launching
a few special development zones, or "nearshore centers," which will offer tax breaks, less cumbersome
administrative procedures, more flexible labor rules, and world-class infrastructure and services.
Attracting four or five multinationals to these zones at an early stage will be a key component of the
initiative's success. The country could target major IT firms seeking a place to locate francophone IT
offshoring centers, for example, or large companies setting up captive business process units. Such early
deals would serve as reference cases for later entrants.
About the Authors

Mourad Taoufiki is a consultant in McKinsey's Casablanca office, Amine Tazi-Riffi is a principal in

the Geneva office, and Jonathan Ttrault is a consultant in the Montral office.
Notes

1The

study, undertaken on behalf of Morocco's Ministry of Industry and Commerce, highlighted ways
the country could modernize traditional export sectors, promote opportunities in new ones (such as
offshoring), and tackle the structural barriers to its economic growth.
2The

countries were benchmarked on 104 factors in 12 major categories: labor, capital, energy, natural
resources, IT and telecommunications, logistics, customs and trade, taxes and tax incentives, the
existence of special economic zones, utilities, business climate, and the size of the economy.
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