Go Back
Program Chair, James H. Hines
2001 Atlanta, Gearyia USA, 19° Intemational Conference of Systems Dynamics Society
Please find enclosed the paper with the title
A System Dynamics Model for Developing the Software Industry:
The Case of Egypt
Prepared by,
Ahmed Tayia, Khaled Wahba
Ahmed Tayia, MBA Khaled Wahba, PhD
Commercial Attaché Assistant Professor
Egyptian Foreign Trade Services Systems & Biomedical Engineering
Cairo, Egypt Department
Mohile +2010 1278800 Cairo Univesity, Giza, Egypt.
Ta. =: 42025856082 Ta. = : 42025720995 / 573.0627
Fax = : 4202 471800 Fex — : 4202 739-1380
Ennil_: ahmed tayia@hotmail.com Exnail_: khaled wehbe@riti.org
‘We wouldhighly appreciate to include this paperin Atlanta 2001 19" Intemational conference of system.
dynamics society that will be hdd in July 2327, 2001, at Emory Hotel and Conference Center;
Kindly send all comespondence to both authors.
A System Dynamics Model for Developing the Software Industry:
The Case of Egypt
Ahmed Tayia
Commercial Attaché Egyptian Foreign Trade Service
Khaled Wahba
Assistant Professor, Systems & Biomedical Engineering Department, Cairo University
ABSTRACT
Studies have been conducted on the means of the development of the software industry. Most
of them used traditional approaches that examine systems by taking each component of the
system apart and analyze it separately and then formulate a general conclusion for the
system as whole. These approaches, though its benefit, is not enough for complex systems
such as the software industry because of the interlinks and overlapping among the
components of the system System Dynamics modeling offers the tools needed to draw more
accurate study needed by such complex industry.
The main objective of the study is to develop a System Dynamics model of the Egyptian
Software Industry and apply this model to generate time responses that may help the
provision of holistic approach encompassing the myriad of variables & issues. The developed
dynamic model will provide clues for leveraging and identifying potential problens.
The methodology adopted in this Study is based upon building a System Dynamics (SD)
model for the Egyptian software industry using the classical software for System Dynamics
ing "STELLA". The study based mainly on the sources of information; include official
international and local statistics, international periodicals, previous studies conducted by
very well recognized institutions, as well as conducting interviews with various key figures
related to software industry.
The study showed that software industry has high potential in Egypt, though software
diffusion in Egypt is lower than that in developed countries. The study found that this lagging
is primarily due to unbalanced distribution of qualified human resources, weak Internet
infrastructure, lack of some business skill experiences especially in the global markets, and
the weakness of financial support. The study emphasized that the current focus and interest of
the Egyptian leadership in developing the software industry must continue at this stage to
give it the required initial boost for growth Additionally, certain strategies such as
reconfiguring the educational system developing programs to stop the industry brain drain,
establishing an export development organization, and growing the local market potential.
New tools such as offshore business development centers, software development parks are
essential. It also concludes that long term impacts of strategies used should be considered, as
some successful strategies in the short term may lead in the long term to deterioration of
industry and finally its collapse.
Keyword: System Dynamics, Software Development, Simulation and Modeling, Devdoping
Countries, Information Technology, Offshore Business Development.
Parti: Egyptian Software Industry: Market Overview
10verview
Computes, infomation tecmology, the Intense, and infemaiond neéwoks ae increesingly
being substituted for traditional, labor intensive processes (Senn 1996, 15). Basically, all
these technologies fall into one caegoy cdled " Infomation ad’ Conmiicdions
Technology (ICT) ". The besic ICT technologies ae miciodectronics, hariware, platforms,
software and tdecommumications. Software technology acs as enabling “glue' technology
between hardware platforms, telecommumications, networks and the human usas of ICT. The
imovaiion rdio in softwae hes aways ben lowe than tht of hadwae ad
tdecommumications systams (Bozzetti 1999, 1). This has encouaged many emaging ad
developing economies to put the global and local devdoprent of the software indisty a a
strategic option India is the most prominent example of success with incisty size of (65
hillin $) (Nasscom 2000). Egypt has joined the dub, as the Egyptim govemment has
recently considered the software industy as a one of the strategic industies for Egypt to
equalize the current huge trade deficit
2Major Factors Influencing the Development of the ICT Market in Egypt
The liberalization of the economy, the cevdopmett of pivde sctos ad gata
fiivelization have resulted in high growth in the ICT market The Egyptian adninistation is
the major player with computaizatio oonbads of pic fims govenmet bodies ad
schools. ICT needs have been increesing in the national economy. The private sector hes a
growing potential in banking and finance (with the privatization of the financial sector which
will have positive consequences for the IT marked), textiles and oil with the devdoprent of
accounting software packages and desktop publishing. In the long tam, the touist inshy,
the country’s primary source of revemue (33 hillion US$ in the fiscal year 199997), will
have a positive influence on the Egyptian Infomation Technology Market (EITM). Egypt hes
become a regional leader in software production in the Middle Fast (a high popattion is
exported to Gulf counties).
The Egyptian govemment is sill very active in dealing with IT poblers and wants to play a
dominant role in the Middle East It has created a number of bodies to develop the sector for
example, IDSC (Information and Decision Support Center) wes s& up to devdop a leg
framework to support the computeiization of public bodies in Egypt and devdop a loc
software industry IDSC, now attached to the Prime Minister's Cabinet It plays an important
role in new legal texts (duty tights and copigh) add leds suppot to equipment pojects
(school computerization, etc.). Its role is to assist the different ministries by offeing technical
assistance and software devdopment according to their needs. In the educational sector the
yaoject to equip 6.000 public schools fiom 1998 to 2000 will bing about heavy investments
on hardware. Among its effort to encourage investrent, particiarly in the fidd of IT, the
govemment hes lamched a Technology Devdopment pogram offeing highly abeactive
incentive packages to national and foreign investors.
In the tdecommunications fidd 1998 hes seen the beginning of the privatization process of
the public operator and the liberalization of mobile tdephony with the creation of two privale
operators: the law no. 19/1998 promulgated on March 1998 hes comporatised Telecom Egypt
and partial privatization (20%) has been announced. It is expected that to patially flow
stocks for Egypt Telecom by the end of this year 2000. The govemment has also decided to
allow a private company to install and opade the public payphone networs-the first time
the private sector will be allowed to offer tdeoom savioes in compdition with the national
operator (EITO 1999, 308).
3 Egyptian IT Market (EITM) Trends by Major Products/Software/Service Categories
Valued a US$ 452 million in 1998, Egyp’s market for IT dome bes the capacity to more
than tiple in the next five yeas as the popiation gows and govemmert pivaiizes industial
firms. Hardware represents 66%, software 12% and services 22% of the IT market In Egypt
the computer market has expaiienced phenomenal growth and is inceesing amuadlly (26-
28% for hardware and 18-20 % for software) even if it remains of limited size.
Egypt imports nearly all of its computer equipment as local production and it is confined to
personal computer (PC) assambly only. In 1997, aound 90,000 PCs wee sold in Egypt of
which 5,000 were assembled locally, and the market is lagely dominated by American firms.
By upgrading the nation’s telephone network, the use of modems for intercomecting systems
hes increased. Egypt has made advances in data commumication and TLC equipment The
market for mainframes hes reached mauumity with small contribution, 40 mainfrares installed
in which the fimms ae dready equipped and they keep the same supplier On other side the
market for minicomputes involves insurance and banking while the workstation maket is
limited to the defense and engineering sectors.
Hardware demand is influenced by the public secor which repesais 20% of nation
consumption before finance and industy: the govenment bes initiated a progam to epip
schools and the administation with PCs, which accounts for more than 30% of local demand.
SMEs in comparison account for less than 10% of the national demand.
The softwae and savicss make is etimeied at US$ 152 nillio, of which 55% is
devdoped locally, and has an annual goowh of aound 20 % = Egypt bes a leeing le in
software publishing for the Arab word: 80% of software exports go to the Arab Gulf add
especially to Saudi Arabia As for hardware, the adninistation is the fist oonsmer of
software with a quarter of the marke; oil, banking; health and tourism sectors present the
most interesting opportunities Promising software markets exist equally in office autoretion
The Egyptian govemment pessed a law on intelectual propaty in 1994, which ensured that
computer software wes afforded specific protection, and the cstoms duty on softwae
imports has been reduced from 30 % to 5% (EITO 1999, 308-309).
3.1 Egyptian Software Market Major Categories
Imported Software cunently accounts for 55 % of software market revenues. Remaining sales
are comprised of locally developed software (19%), tailored software (16%) and Arahization
(10%) (see table 1 and table 2).
Table 1: Egypt IT Market Segmentation -- (IDC 1996
Breakdown of IT Revenues Market Share %, (1996 ) Amount in million US$
Hardware & Peripheral [) 222
Software 2B 108
Sexvioes QD 56
Networks 5 24
Table 2: Software Market Segmentation - (IDC 1996
Breakdown of Software Market Market Share %, (1996) Amount in million US$
Imported Packages 55 36
Locally Devdoped 19 12.5
Contracts 16 10.5
Arebization 10 65
4 General Description of the Egyptian Software Industry
The Egyptian software industry is highly diverse and reflects neatly all of the company types
found in moe neire makes Thee is a definite vitdlity in the softwae companies
interviewed for this research. Estimates of the number of staff employed in the industry today
(inside Egypt) are in the range of 5,000 (This estimeie includes manages, programmers and
aoject managers actively involved in the devdopment and ddivay of systems to locd ad
intemetional markets (Harvard 1999, 7). It excludes supporting IT staff present in industry
and govemment organizations.)
¢ 2,000in multinational fins suchas IBM, Orade, NCR
* 2,000 in Egyptian software and IT fimms (aveage of 10 enployess with avund 130
finns in totd).
* 1,000 in supporting fis providing taining and consulting to the sector
While these mmbas ae not impessive if oompaed with othe oombis wth moe
developed software industries, they do however provide a founcetion from which to sat a
sevious devdopment of the industry. It is also estimate that somewhere between seven to nine
thousand technology professionals are supporting corporate and govanment IT opaations in
various roles (Harvard 1998, 7).
4.1 Size of Market
Harvard Computing Group estimates the size of the software sector at aound $50 Million in
1998. This is consistent with estimates from the Egyptian software Associdion (ESA),
multinational companies such as NCR and ICL peg the market a hit lower & $40 million The
most common figure cited for the size of the oveall infonvation technology market in Egypt
is $300 Million (for comparison, the IT market in Isad and Sadi Arabia is appoxineidy
$1.2 Billion for each county).
4.2 Number of Firms
Thee ae appoximdely 120 companies involved in poducng softwae in Egypt Fins
range from 1 to 5 peson; start ups to rdalivdy mene firs with mor thn 50 to 150
enployees. The majority of companies ae located infand aound Cairo, or Alexandria Some
new software companies will be fomed in the new industrial areas of 10° of Ramadan and
6° of October cities (Harvard 1999, 11).
43 Trends and Growth
The expectation for growth in the domestic marketplace for IT products and savices is
expected to be in the 35% range. This represents very soft demand in the local market for
services and products. Most of the demand is also at the high end of the marketplace, where
mit-national finns ae providing most of the savices. If this derand remains soft, without
any Simulation from ether goverment or industy, thee are few reasons why leading and
emaging companies should invest time trying to devdop the domestic marketplace (Harvard
1999, 10).
5 Competitive analysis: Indian Experiences
The compditive environment is important to consider while fomniating operations strategies
and objectives for the software industry. Therefore it is necessary to study the experience of
other nations in this industy to obtain a view of some important methodologies that ae
applied by these counties and that need to be smilaly posed or modified in oer to
sucosed in establishing this industy. India an example of a devdoping mation alying
industry driven approach with more focus on software savices and establishment of SDPs is
discussed.
5.1 Highlights on the Indian Experience
India with a population of nearly one billion hes become one of the giant global players in the
software industry in less than ten years. The Indian software industry hes grown from US$
150 millim in 1988 to US$ 39 hilion in 1998-99 whee the nation’s compditive advantage
in the software business has been oosteffectiveness, world-dass quality, high rdiability, and
vajid ddivay and dl of which is poweed by sae-ofthe-at technologies The Indian
Software production can be characterized as taking an industy-driven approach rather than
being a govemment-driven process controlled industry. This is evident in the existence of a
strong National Association of Software and Service Companies (NASSCOM) that is
considered the apex body of computer software and services industry in India.
5.2 Domestic Software Market
In 1998-99, the domestic software incisty wes valued a Rs 495 billion (US $ 1.25 billion)
not induding the inhouse devdopment of software by enc-usas. This reflects a CA.G.R. of
46.05%, which has been steadily improving in the last few years. The growth rate in domestic
software market wes 41.02% in the year 1998.99. The domestic software market is expected
to gow to Rs 73 billion in 1999-2000. With the tigorous enforcement of Copyright laws and
increased govemmment spending on IT, it is expected that in the coming yeas, the domestic
market for software can even register more than 50% anmel gowth raes. Also, the
govemment has implerented zao import duty on software It is expected that by the year
2008, revenues of Indian domestic software market would eqel revemes fiom Indias
software and services exports, touching US $ 35 hillion by the year 2008.
5.3 Software Export Industry
The Indian softwae export industy hes exhibited vey impressive gowh rates with a
CA.G.R. over the past five years as high as 60.71%. Software and savices grew
from Rs. 030 hillion in 1985 to a total of US $ 2650 nillion (Rs 1094 hillion) in 1998-99
and it is expected that during 1999-2000, software exports will reach Rs. 167 billion The
software industy in India expects to reach an export leva of US $ 63 hillion by year 2000-
Ol and US $ 95 billion by the year 2001-02.
2 [Ei Domestic Sales USS Billioi
15 | Export Sales US$ Billion
1995-96 1996-97 1997-98 1998-99 1999-2000
Figure 1: Indian Software Industry Revenues (NASSCOM 2000)
5.4 Break-Up of Software Activity
Following is a bree<up of software activity of both the domestic and export segments in the
year 1998-99, This further demonstrates that Packages ae sill a a low pacentage
professional savices “OnSite Savices’ are a high parentage of exports and Projects ae
more or less equally balanced in terms of percentage of domestic and exports markets.
Table 1: Breals Up of Software Activity for the Indian Industry (1998-99) (NASSCOM 2000)
Projects 356 285% 1,009 36.50%
Professional Services 63 5% 1,220 44.15%
Products & Packages 604 45% 218 790%
Traning 58 45% 47 172%
‘Support and Maintenance 51 4% 117 425%
LT Enabled Sawvices 119 9.5% 151 548%
Total {1,250 100% 2,763 100%
5.5 Global Markets for Indian Software Exports
USA is India’s main recipient of software exports at almost 61% followed by Europe at 23%.
The six OECD counties (USA, Japan, UK, Gemmany, France and Italy) together have
almost 71% of the market share of the worldwide software market India’s exports to these
counties are also almost 79% of its total software exports.
Indian Software Export
Destination (1998 - 99)
a Reis of the world
45%
South East
Asie
4%
© North America 61%
USAA Canada
@ Japan
3 West Anis ‘Australia &
as © Europe 23% New Zealand 2%
Figure 2: Export Markets for the Indian Software Industry (NASSCOM 2000)
5.6 Human Resources Analysis
India hes the second lagest assembly of Englishspeaking scientific professions in the
woud today after the US. It also has almost 41 million technical workers graduale from over
1,832 education institutioss and polytecdmics, which tan mor thn 67,78 oonpier
software professionals every year (NASSCOM 2000).
The muimber of software professions employed hes inceased to 250,000 in 19989
compared to 200,000 in the preceding year with amost 6% of whom ae in softwae
devdoprent and opadiions, 3% in domain expatise devdopment 11% in makeing ad
radionship devdopment, 15% in diett sippot and 4% in other atiivities The oveal
median age of the software professionals wes about 26.2 yeas. In 1999, 7% of software
jpofessionals in software companies are men and 18% are women.
5.7 General Analysis of the Indian Experience
When analyzing the Indian export revenues highlighted above and ther distibutim, it is
noticed that exports to date have been dominated by export of software services, in the fom
of custom software work rather than export of software products in the form of packages
(only 7.9%). This is mainly because of the high entry banies to the package market versus
software savices. Additionally, Indian fimms ae not suffidently familiar with the fordign
package marlets they seek to penetrate and distance from those market also makes it hard to
keep up with changing needs and standards.
In regard to the destinations wher the Indian software exports are heading, it is reelized that
India heavily depends on the US market as a major recipient of its software exports (61%).
Not only is this because the US is the world’s largest software market but also due to the fact
that many Indian businesses have links through family membas or friends whoo ae US
residents. Further many of the Indian software devdopas ae US trained and thus more US
oriented and finally because immigration ules and residence pamits ae much eesier in the
States than in many other devdoped counties making it easier for Indian onsite software
services.
Part 2: The Egyptian Software Model: Formulation
The modd, that is devdoped in this study, is based on the data as well as the infometion and
the assumptions of the Industry Researches, that reoently conducted in the Egyptian software
market (Harvard 1999; USAID 1999) and adopted by the govemment and industry leades,
and besed also on the data collected through interviews with key persons in the industry. The
man assumptions of the modd comaning gowh in th domestic ad interaiod
Marketplace are:
* The targeted domestic Market growth is 35% over the next 5 years,
© The targeted Intemational Marketplace growth is 200 % over the next 5 years, and
¢ The time fran of the modd is 10 yeas.
6.1 Purpose of the Model
The objectives of the modd are:
* To daify knowledge and undestanding of the cment stucure of the Egyptian
Software industry,
° To identify the foroes that have limited the growth of the industry, and
© — To discover policies that will improve the industry growth.
6.2 Model Boundary
Each system has a dosed boundary, within which the behavior of interest is generated. The
modd Boundary contains all components that are necessary for building the modd. The main
components of the Egyptian software industry are:
Human Resauces struciure,
Customer chain structure,
Market Penetration structure,
Time dlocation stuctue,
Salaries Structure,
Service delivery operations structure, and
Financial operations strucuure.
Their logical linkages can been seen in figure 2.
Human resources
Time allocation S77
Time allocation
Customer Chain X77
Customer Chain
Service Delivary N77
Service Delivary
Figure 2: A Schematic Diagram for the Model
Market PenetratiOn7
Market
Penetration
Financial Sector \/7
Financial Sector
6.3 Macro Assessment for Growth of Egyptian Software Industry
To have a Clear image of the targeted growth of the industry, and also to be able to extend the scope
of the study, over the next 10 yeas and not only 5 yeas, a sme mod will be fomided to
detenvine the devdopment of the market size based on assumptions of 35% domestic growth rae
and 200% intemational growth for the marketplace (see also figure 3):
Local Software Market:
Local Growth Rate
Total Size
Global Software Marketplace
Intmational Growth Rate
Figure 3: Macro Model for the Industry Growth
Figure 4: The Industry Growth Model Behavior
As seen in figure 4, the modd behavior shows, besed on the assumptions adopted by the Egyptian
govenment, the local market size will reach US$ 225 Million in 5 yeas and US$ 1 Billi in 10
years. In the same time, the total industry size will reech in 10 yeas the US$ 300 Billi, which is
not realistic. For that reason and to validate the modd, modified figures for the vate for next
10 years will be applied as seen in figure 5.
~~
£0}02] >} 1) HS} CO] DO) 1
Gowth Rate
200%
200%
200%
200%
200%
100%
6%
40%
30%
20%
|
i=)
Figure 5: The Behavior of the model after adjusting the international market growth rate.
The modd suggests by using the adjusted gowh rae th lod mete sze wil reh
appoximaidy US$ 1 Billion and thet intemation marketplace of realy US$ 85 Billion These
figures may seam very high but compared of other successful cases such as India sound achievable.
For Exanple Indian software industy grew from US$ 10 million to US$ 37 Billion The Expat
part represents US$ 2.2 Billion of the total, in 1998 and it is tayeted to reach an export amount of
OS 2 Bion 1 2008 (NASSCOM2000.
In the following sections, the structure of the complde moda will be explored.
6.3.1 Human Resources Structure
ee Umer Domine aoe Melba Ginoc Le ait ae A small portion
of the incisty is poviding multimedia products. Arehization software is sill the apg Mtocid
companies. In this paper the tailored IT services software sector will be considered as the ngjor
source of development of the industy, not only because of its curent relative lage share of the
industry, but also because of its highly potential growth, globelly and locally.
Table 3 illustrates the potential staff requirements based on the targeted expansion in the market
Place at 35% for domestic and 200% for export (Harvard 1999, 26). From the dala listed in the
table it is obvious that Egypt has a serious shortage in senior slaff, amdlysts, Project and product
as well as Sales and marketing. Also, the market demand for enty-levd pograammes
is bdow the supply. From this profile it is obvious that increasing market share becomes a function
of being able to fill these position.
V]
Employment Need Number = %of Total € of Annual | Devand
required Required reese —-_ Shortfall Met
Project Managers 116 6 50 25 66 43%
Product Managers 29 15 15 075 14 51%
Middle Management 145 75 100 5 45 %
Senior Programmers 377 20 200 10 177 5%
Entry-Level 87” 46 1500 7 + 172%
Programmers
Business Analyst & 58 3 20 1 35 W%
Consultant
Marketing Management 58 3 2 1.25 23 B%
Sales Managers & Staff 222 iW) 100 5 12 B%
Total 1885 100 2010 100 = =
Fsurplus
In gener, there is no close link between Academic establishments and the industry. Some colleges
have developed courses specifically to create graduates, who have capability to meet the needs, but
most of themare post-graduate institutes such as the Infonnetion Technology Institute (ITT) and the
Regional Infomation Technology institute (RITD).
6.3.2. Human Resources System Formulation
Figure 6 shows the structure of the Human Resource System The levels of the system are the major
human resources skills and expertise needed be the software industry. Three main processes exist in
the stucuure of the software industy, and in every industry. The Fist is the eny to the industy.
The Second is the promotion to a higher position Third is leaving the Egyptian Software incisty
either to work in another industry inside Egypt, Specially related incisties such as Conpuier
hardware or medical equipment or to work in software fidd but abroad Based on the findings of
the other studies and the interviews made with the industry key persons the following characteristics
of the incsty:
* — Most of the companies spend in average one year of further taining and coaching of
graduates before they become productive staff (Training Period).
¢ Theenty-levd programmer needs from 4 to 6 years to aoquire the skills qualifying to bea
senior programmer (Time to prom to Snr. Prgnr.).
¢ A senior programmer needs, in average, of two years of experience before working as a
business analyst (Time to prom to Bus Anlst).
¢ — Sales staff should have at least 2 years of experience as programmers before working in sales
(Time to pronn to Sales stf).
* — Inaverage after two Y ears of working in sales, the one is usually promoted to sales
Tmaregerent (Time to promp to Sales Mgnt).
¢ — After at least two years of working in sales management, the sales manager can be promoted
to marketing management (Time to promo to Mkt Mgnt).
¢ — Business analysts and marketing manager usually spent 3 years in their position before being
promoted to middle management (Time to promo to Mdl Mgnt).
¢ Theenty-levd programmer needs from 4 to 6 years to acquire the skills qualifying to be and
atraining on management to be promoted to Project or product management (Time to pron
to proj orprod management).
¢ — Project and product managers usually spent 4 years in their positions, before being promoted
to middle managerent (Time to promo to Mdl Mgnt).
¢ Middle managers usually spent 4 years in their positions, before being promoted to Top
management (Time to pronn to Top Mgnt).
¢ ‘Huren:esources are dllocated, mainly after getting the besic programming experience, to
the different categories mainly according to the periods mentioned to acquire the necessary
skills for the new position, Time to promp, and the needs of the companies, Targeted fraction.
Most of the people interviewed reported that thee is a high leaving rae fiom the industy among
the senior positions. The ratios of people leave the industry, leave Fraction, reach 50% among
senior programmers, Business analysis, sales management and staff, Marketing management and
yoject and product management They related that to two reasons. First is that senior staff leave to
other counties, especially Arab counties, work in software there for higher retums. Seoond is that
as the software beoome a major devent in all high tech incisties thee is a tend in thee
businesses, mainly high tech reailas, of reciting from the software slaff. They deliver them
telativdy higher sakries than those of software industry, to benefit from their Software experience
mainly in sales and customer support.
to promo to prod mgr
Product managers
PDM Promofo Mal Mgmt
Total
‘Tayeted Prod Mgrs Fraction ree L4
Oran
PDM leave frac ex £5
Project Managers
Timeto PDM to Mal Mgmt
yo Pry Mor OMA M
"Tine trom to Pj
SS PMleave
Prgms Fraction Thmeto promo to Snr Prgmr
ByMlewefize ‘Timeto PJM Promo to Mdl Mgmt
Fresh graduates O Business Analysts & Consultants Middle Mangement}
Promo to Top My
Timeto AS Promo to Md Mitt tt9 promo to Top Mint.
Timo to MM promo to Mal Mgmt
SS leave Fraction Salesleave fra Wid Leewe Bia
Figure 6: Human Resources Structure
6.4 Time allocation Structure
The purpose of this sector to translate the expaiewe diffeence betwen sao, eather in
Jogrammming or sdles into difference of productivity in tams of standards hous. Some important
assumptions for this particular structure include.
¢ The meesuring units of productivity is "standard hour"
¢ Enby-Led pogammeas ae ony othid a poddive a sxior pogames (18
Standard hour).
¢ — Sales managers are double as productive as sales staff (2 standard hours).
¢ Marketing managers are tipling as productive as sales staff (3 standard hours).
6.5 Salaries Strudure
This sector subsystem draws an image of the average sdlaties for the different levds of experience
and skills in the software industry. In general, almost dll of the industy key persons reported that
the sdary levds in the software industry, while inaeesing is sill wel bdow the levds found in the
other high tech industries in Egypt Average salaries used in the moda ae oollected and reviewed
enty levd programmer stopped the sdlary rise wave, which domirele in the middle of 90sAlso the
limitation for industy size did the save for senior staff. The majority considered the led of
salaries almost constant.
Ave Potential production SR
Business Analysts & Consultants
Sales stuff ye Potential production SS
Total MM Time
Avr ELP Salary
Avr PDM Salary product managers AvFMM Salary fiddle Mangement — Avr MktM S
Entry Level programmers Middle Mangement Total PM Tit —~F oduct managers
Saar agai "AVrBAC Salary Business Analysts & Consultants "AvrPJM Salary Project Managers
Avr SM Salary
Total BAC S Soe
‘AvrSP Salary
Enby Level programmers
Avr SS Salary
Figure 7: Time Allocation and Salary Structure
6.6 Customer Chain Structure
Figue 8 shows the structure for the customer main chain. This structure is organized to reflect how
the software businessmen think about customer and the policies that they ae cmenily applying.
The customer chain model reflect the different states of custome fiom being a potential ostomer
then initiating contacts with him, then in case of sucoess in contacts becoming active customer The
customer can either move forward or drop out at any stage in the chain.
80% of the sample interviewed reported that they give the utmost to customer maintenance then the
customers those ae curently in contact then at last comes initiating contacts with new astomes.
Responses about the average sales per customer varied very much between US$ 10,000 and US$
150,000 annually. 75% of the population interviewed responded that, in case of having a astomer
of size of US$ 100,000 either still in contact or already contracted, One working day of one sdes
man weakly is the minimum manpower for winning or keeping thet osiomer The sample reported
through the different stages of the customer chain, the drop ration is between 60% and 40%, and
unanimously related this to the shortage of the qualified sales and marketing force.
‘The assumptions, based on the previous findings, of customer chain structure of figure 6.4 indude
¢ By multiplying the minimum required time for ech astomer eather just potential or active
‘we get the total required time for customers (Min M & S Time to AC, Min Time to BCC, Min S
& MTine to BO).
¢ The total marketing and sdes available (Total marketing & sales time) computed from the
time dllocation section.
¢ The Marketing & Sales time is allocated to each category according to each category weight
relative to the other categories.
¢ The ratio betwen the achal time dlocaed for each category and the required ae
by the adequacy converters (Adequacy of M & S Time to AC, Adequacy of M & S
Time to BCC, and Adequacy of M & S Time to PC).
¢ The drop out of customers in each stage is considered b be a function in the adequacy of M
&S time available for this stage (Potential Yidd, Buying hit rate, and Becoming Inactive).
. pasion Lead iscennihen doerrament foihe:deproubacsosend ty willatetacded. Teer
‘Told MaetingSSdes Time
Figure 8: Customer Chain Structure
6.7 Market Penetration Structure
Figure 9 shows a simple mode repesanition of the acceptance prooss both in lod and
intemational markets. As Software and Infonmation Technology in general are new comes to both
the Egyptian business Socidy and to the intemationl market we didnt find too much difference
between the local and intemetional penetration process Despite the difference the Egyptian
software industry needs to establish a new product in both local and intemetional markets, Software
locally and Egyptian software globally.
In The Local Market, Three Parameters mainly affect the spread of Egyptian software Product The
first is the perceived performance by the early adapters. The acceptance level will be affected vhen
the eatly adopters perceived the performance of the Egyptian software product satisfying. The levd
of acceptance will increase as the paceived pefonvance increase. The second is the taditional
tools of promotiona marketing The last one is incease mmber of the mmber of adopas.
Acoceptance is enhanced when informetion on the new technology is not oly exouaging bt
Plentifil enough to break down natal resistance The acceptance levd will have a positive effect
on the productivity of the Saks Force.
The Egyptian software businessmen presence in the Intemational Market is still very weak. Though
the intemational exposure needs to use strategies different from those used in the local market, The
ywoducers still rely on the same three parameters of the local market though they have lower effect
in the global aena Most of the people interview, based on pest experiences, saw that the
intemational market presence is very costly and of low rem. The use of Intemet as a real business
tod is still negligible Most of the businesses have only a brochue-type of Intemet homepage. They
ray on exhibitions and business tips as tools of promotion Thee is no physical presence in the
intemational markets, as the business size can not supporta permanent presence.
The satisfaction leva in any market is determined mainly by two parameters. Acceptance lev of
the product in the market is one factor As the gap between the local and intemational business
communities is dashing We assumed that the genel accepiance leve that spread among the
customers, targeted and active, in both markets would be almost the same. This Acceptance levd is
detenvined by both local and intemetiond acceptance weighted acooding to the infemationa
exposure leva. The second parameter is the dday time in ddiveing the savice The higher the
Dday Time the lower the satisfaction levd. Delay Time is determined by savice ddivey process,
which will be explored in the next section.
2) Malet Parsition AT)
L inant Capacity
QO Oo BDC Cot inane’ ponoiion ()
pat aching BDC effectwaghtig Fedor Pompipta Sia
PeforeneHies Pronotiond Makin
Dday ratio
Figure 9: Market Penetration
6.8 Service Delivery Structure
Like the product production process, the savice delivery structure (figure 9) integrates several
smaller structures into operational depiction. The main stages of the software savioes ddivay ae
system amlysis: System design; individual Moctie reviewing; defective modules reworking fina
individual modules testing, Prototype production and testing final system deivay. The stucure
shows the overlapping between the different stages of the service production parocesses.
As the assessment of the cument size of software market is US$ 50 million, We assumed that the
curent mumber of active astomer is 5000 astomer wih aveage aml puctesss of US$
100,000. The savice ddivey, and in tum market size rae is detained be ether derand fiom
custome or available human resources in the industry. The ddivey rade in all stages is limited by
the minimum of those two parameers, Services Backlog or available working time.
Posing the question of time requirement for different stages of a project of a rem of US$ 100,000,
the following average rates for such a project were achieved:
The average Analysis Time = 150 standard Analysis hours.
The average Design Time = 150 standard Design hours.
The average Coding Time = 1500 standard Programming hours.
The average Reviewing Time =400 standard Programming hours.
The average Reworking Time =600 standard Programming hours.
The average Testing Time = 1000 standard Testing hours.
From the responses regarding allocetion of the available programming time, based on the available
human resouves, the following averages were reached:
* Available analysis and design would be divided equally between the two activities.
¢ Avdlale pogaming time wold be dlocdied a following: Coding a rewoking
activities would be deliver the greater portion of available programming time, each of them is
chosen to receive 35% of total available pogamming time Th ohe wo aiivitis,
reviewing and testing, is said to take each in average 15% of the total programming time
Another point that wes emphasized in the inteviews is that the composition of the pogranming
staff affect aggressively not only on the productivity as tackled before but also on the defect rate in
work. The higher the junior ratio the higher the defect rate. That wes represented in the moda
through a table giving the aveage defect rae, acoording the business people for the diffeent
composition of the programming staff.
Systems to be designed
Total Review time Avail
Te Time
Total Coding Time Avail
Total Reworking Time Avail
Discovering Defected Prototype
Defect Rate
Finished Projects Discovered Defected prototypes rate
Figure 10: Service Delivery Structure
69 Financial Operations Structure
The financial structure (see figure 11) shows the major sources of capital inflows to and outflow
from the industry. The first is the intemal resource, which is the revenue. The other two are extemal
investment and aedit As indicated in the industy alysis that the software industry is heavily
dependent on privale capital. Many firms stat using family or friends money. Venture capital is still
untapped source. Financing through credit is sill weak owing to the low paception of banking
sector to the software value. Salaries, Marketing, Facilities, and taxes represent the major cash
outflows.
Figure 11: Financial Sector Structure
Part 3: The Egyptian Software Model: Results & Analysis
7.1 Human Resources System Behavior
The behavior of the system may seams suprising because of the rigorous efforts that have ben
started on developing training programs since neatly 5 years. Though the govemment and private
sector continually establish institutions for taining on the diffeent skills needed by the inckety,
figures 12a, 12b, 12c show the simuldtion of the schedule of the human resource growth over the
next 20 years. The system shows a typical asymptotic growth schedule. Over the first 5 yeas,
though the growth, the aveage rate of growth in senior postions, in programming, in marketing
and sales, and in management, is still well below the required number. The curve also shows also a
pasistency in the oveproduction in Enby leva programmers. The growth trend worsens as dediine
more dung the next 5 years. During the last 10 yeas, The situation deeiiorde as the size of
different categories of human resources stabilized a positions maintaining the gap in seniors in
programming, in marketing and sales, and in management, and the overcapacity in Entry-Levd
programmes. Table 4 summarizes the simiated betwvior of the system in ocontast with the
required growth
Table 4: Average Annual Increase in Software Human Resources.
Employment Need Ana Current Av. Am. Ay. Am. Av. Am.
Number Am. Increase Increase Increase
required Increase (1 Syeas) (5- 10 years) (10-20)
22
Product Managers 29 15 10 4 05
Middle Management 145 100 6 37 17
Senior Programmers 377 200 106 40 5
Entry-Level Programmers 70) 1500 1800 20 100
Bus. Analyst & Consultant 58 20 35 22 3
Marketing Management 58 2 15 11 2
Sales Managers & Staff Ke?) 100 1B 70 9
Total 1885 2010 2273 456 1385
Figure 12c: Management Development Trend
7.2. Market System Behavior
The behavior resulted from the modal for the devdopment of the marketplace of the Egyptian
software, though frustrating but not suprising in the light of the human resoucss gowh
trend. As shown in Figues 13a 13b, 13c, The mmber of ative astomer will oontime
growing but in much wel lower rae than tageted The total sales size will reach acooding
to the mods, only about US$ 350 nillio.
Figure 13a indicates that the main source of growth is rdated to the tise in sds and projects
with ament customer as ther dependence on IT and oonfidence in the Egyptian software
idiability increases. Market efforts to alfract new customes are limited by the shortage in
marketing & sales force This has been reflected obviously in the vay low rae of new
customers sales growth, which is nearly around US$ 1 nillion
Figure 13b emphasizes the fact that the size of sales is a fumction in the sdes efforts and time
exerted with customer The increese in the sales & Marketing Time dedicated to customer
reflected in the adequacy indicator, has been reflected by a tise of sdles specially by the
active, repealed, customers. This also an indicator that keeping ament astomer is more
profitable than attracting new customers.
The osdillaion in sdes, though the continuots tise in sdiisfaction levd shown in figue 13c,
can be explained by two factors. The first is the decline in demand by repeated customer as
they devdop the main IT infrestructwe The second the weak growth of newcustomer base
for the Egyptian software industry
7.3 Service Delivery System Behavior
The behavior of the moda explains the low levd of sdes gowh As the stages of the
software production have a sequential nate, the delay on its early stages will limit the speed
of the whole process The limitation of Human Resources for systems analysis & Design
yirocesses represents a botileneck for savice ddiveay process (Figure 14a). This not only
limits the growth of sales and increases the delay time but also affects negetivdy on the
satisfaction level of customers. The dedine in satisfaction levd leads to a more dedine in the
sds growth.
Another impact of the shortage in the senior staff appears in the case of the ratio between
Enty-Levd and Senior programmes. The imbalance, owing to the high ratio of Enty-Levd
Programmers, results in a high defect ratio. This high defect ratio causes another crowding
point in the rewiting and testing stages (Figure 14b). This another case of the dday that
expected to persist the software production process.
7.4 Financial System Behavior
Figure 4 gives an dam thet the softwae industy is not able to support gowh without
extemal sources of funding. Intamal revenue, while increesing is sill not enough to suppot
extensions needed to the industy for gowh The incisty can not ootine dying om
personal and family capital as the sole or even nyjor source of investrent capital. As a
result of the poor sources of finance of to the software industry, the low net income of the
industry would persist and negatively affect the salaries and performance.
Figure 15: Financial Performance Trend
Part 4: The Egyptian Software Model: Analysis & Recommendations
Through the chapter we will ty to eqdore the modd moe cesply in two stages Fist we will
explore the imbelances in the system through @ ovedl amlyss a a pimay amlysis thn a
deeper analysis exploring the details of the system Second we will ty to discover the suitable
policy options, to teat imbalances discovered fiom the pimary and detailed alysis, and examine
their effect on the system. Three system dynamics tools will be used as needed:
* System Dynamics Principles
¢ Systems Archetypes: will be used when the subsystem behavior, or structure, reflect one of
the wal-known archetypes.
* Causal loops or LevebRate Loops will be used ditemetivdy in alysis and redesign as
needed.
The aralysis of the modd will be given in two equivalent fons - text and equations. Those readers
who ae not familiar with algebraic notations may wish to ignore the equations Those readers who
are conversant with equation teminology will find the equation fom more precise than text.
8.1 Primary Analysis
Looking at the schematic diagram of the system (Figure 4), it is easily to recognize that thee is no
feedback to the human resources sector from the other parts of the system These reflects the
existence of two imbalances:
¢ The absere of a tight link between the Academic esablistment ad
Duting the evduation infeviews, a seoond round of infeviews with the
evading the results of the incisty mode, it wes oonfimed that most of the
organizations do not have feedback mechanism from the market to adjust their courses
or cumticulum according to the industry needs.
¢ The absence of a feedback mechanism from the industry size reves and the mm
resources allocation. Most of the People interviewed agreed on this. Moreover, ther
responses revealed important phenomena, the cuent gap between the available mimbas
of senior staff and Enty-levd programmes meke it more profitable for companies, in the
short run, to tain employ high number of them instead of recuiting a senior This made
sdaries, in the softwae employment market to be demand driven, ie deéemined by
companies. This enticed the companies to fix the salaries at low levd in comparison with
industy reums. This is a velid policy for the ament size of industy but it cn mt
support the targeted growth.
8.2 Detailed Analysis
8.2.1 Human Resources System
The different subsystems of the human resources sector (figure 12a 12b, 12c) share the Asympiotic
growth behavior. Figure 16a shows the generic structure of the loops of the human resources sector.
This is a typical a first order negative feedback structure (a goalseeking system) with two negative
feedback loops.
Inflow Time constant
Staff outflow2 *e
Figure 16a: Human Resources Generic Structure
Stock(t) =Stock(t- dt) +dt(Inflow) * dt + ¢ Outflow1) * +di(- OutFlow2)*dt (1)
INIT Stock =A constant (2)
Goal for the stock =INIT Stock + Inflow (3)
Inflow =predecessor stock outflow * (Inflow fraction / Inflow Time constant) (4)
Outflow1 =adjustment gap * ((1-Loss Factor)/Time constant) (5)
Outflow2 = adjustment gap * Loss Factor
Adjustment gap = (goal for the stock) - Stock
Tt is easy to identify the goa-gap structure in this modd. The goal is the upper limit any stock can
reach; this could be determined exactly by the sum of the initial value of the stock and the linear
input to the stock, ie Staff inflow + Initial value of staff stock (Eq 3). The pace of accumulation of
the stock is detenmined by three flows (Eq. 1):
¢ — Staff inflow (positive effect).
¢ — Staff outflow! (negative effect).
° — Staff outflow2 (negative effect).
The policy objectives for improvement of the human resources system behavior should be.
¢ — Raising the value of the goal (Staff number limit) of the system stocks.
¢ — Increesing the pace of the growth of the stock (staff growth).
For achieving the first goal, it obvious that the recommended action should acess the stock
inflow, as the stock initial value can not be changed (Eq. 3). Two options ae available to increase
the staff inflow (Eq 4): loweing the time constant and inceesing the vdue the oonett of
predecessor stock.
The first option is loweting the time constant The time constant hee is the time nected for
promotion to the position from the previous one The suggested policy is to shorten the promotion
time among the different categories of the software human resources (for ex. from entylevd to
senior programme). The optimum way to do this is devdop tailored training plan to the nest of
€
the senior position (setior programmes, sdes and marketing management). The taining courses
delivered should satisfy the domestic and intemetiona perspectives of the industry. Applying this
Policy option soldy is not enough, as it will case a limited increese the staff inflow by the value of
the predecessor stock.
As the human resources system exhibit a "limits to grow, or success" archetype (The limit to the
system is the ama mmber of the graduates), increasing the value of the predecessor sods
require increase in the number of graduates. Most of the studies refuse this option owing to excess
number of entylevd programmes in the maket This agument will mot be vdid in cae of
applying the first policy option Lowering the time oonstatt will increese the outflow fiom the
Enty-levd programmes, leading to gattelly dop th ama aomidion in this sock This wil
allow increesing the number of graduates without fear of more EnbyLevd programmer cowding
in the market.
For achieving the second goal, increasing the pace of the growth, two actions should be taken:
* — Loweiing the pace of outflow.
¢ Increasing the pace of the inflow.
We have two genetic outflows in the loops of the systam Lowering the pace of outflow 1 is not a
vdid option as it is at the same time the inflow to the successor slock The reminder option is
lowezing the outflow 2, leave outflow. The cment high leave rate is a result of the fact that the
Egyptian software human resources of software industries represent with other HiTech Industries
HRs ore pool feed dl the high-tech industries in Egypt and the Arab counties.
Using the language of System Dynamics ahetypes, This means that The HiTech industies in the
Arab counties exhibit "Tragedy of the Common" acheype as the Egyptian human resouce
representing the common pool of this systam This needs to introduce a feedback from comparator
with average sdaties in other compditor industries to adjust salaries according to it This action is
supposed to give a higher control over the leave rate.
Other HiTech
[ind s Activ py Oar Ole
Human Resource Gain per
Limit Ind. Activity
set
Software Industry [9 Gains for
‘a ‘Activity Software Industry
Figure 16b; Tragedy of the Common
¢ Introducing a positive feedback loop to the inflow to the sysem is the optimum wey to
change the curent asymptotic inflow, as it is outflow of a stock exhibiting asympintic growth,
into S-shape inflow (remember Sshape = exponential + asymptotic flows). This goes in line
with the requirement revealed from the study to have a feedback from the industy to the
education institutions Having feedback from the industy wil dlow oonsidaing the lewe
rate effect on the Staff stock and adapting itself to compensate this loss. Linking the industry
to the educaion institutios will dso impove the ewironment to eablish a good R&D
System in Egypt
Figures 17 and 18 show the modified structures of the Human Resources system and calaties
systems respectivdy. Their behaviors are shown in Figuresl9a, 19b, 19c show its new behavior
tend.
ELP Leave frac
ELP Salary Comp
‘Taryeted Sales Stf Fraction
SS leave Fraction
Pry to Prod My
‘Taryeted Prod Mgrs Fraction
PDM Promofo Mdl Mgmt
Time to PDM to Mdl Mgmt
to Mal Mgnt
PJM fal Comp
BJM leave frac
‘Time to PJM Promo to Mdl Mgmt
Business Analysts & Consultants Middle Mangement]
BA leave frac
Time to AS Promo to Mal M|
Sales Mgmt, Marketi
a
‘Time to pro! a iMgmt — Time to promo to Mkt Mg}
SMSalComp 5 MIM Leave Frac
‘M leave 3
MKTM Sal Comp
‘Timo to MM promo to Mdl Mgmt
Figure 17: Modified Human Resources
yt
rior eae Business Analysts & Consultants AvrP]MSday Poject Mamas t
pogranmess | (
: Out SMA
SpSday Com Ouisde SP : Outside PIM Sal*(
SY side nACSA — om
( . PJM Sal Comp a
( Total SPS MACSIOmp THIBACS Tota SGMSdaxy
Aw SP Sday 2 z
\ ~~
Enry Leve proganmess otal MMS SSi Cap
ae Tod PMS ia ee sa OnisideSS Sd
: MM Sa Corp : Tova $8 '
ELF 5 PP \
Ot ELPS pySsalay Comp PRMSalComp KTMSalSomp AvrSS Salary
ay farketing Mgmt Sales stuff
AwELPSlay Outside PDM Sa Av MM Salary d) AvrMiiMs }
Outside ELP Sdary Outside MM Sal
AvrPDM Salary Product managers Middle Mangement 4. e MKTM Sal
Figure 18: Modified Salaries Structure
8.2.2 Customer Chain Structure
One important note, that the oscilldion in the Customer chain ad the adequacy parame is
reflection of the efforts exetted by the system to keep the balance between the changes in the
numbers in the different levels of the customer chain and between the marketing & Sales force. This
called" Balancing loops with Delay’. The oscillation is a characteristic of the system.
i an ie
Marketing & Sales
force
Customer Chain
Delay
Figure 20: Balancing Loons with Dday
The main improvement could be done to the system is, in conbast with the common mental moda,
to lengthen the cyde, i.e. Delay. Increasing the delay in the system has two aclvantages:
* — Lowaing the bandwidth of oscilldion
¢ — Higher ability to detect changes and to react to them.
The best way to avoid sudden changes in sdles is by minimizing the dp in the ament asiomer
bese. It can be deduced from the behavior of the customer main chain (Fig. 14a) that a large portion
of the increase in sales can be traced to fonmer customers who rem. This happened naturally due
to improvement in sevice delivery and customer sevice, so what would the case if regular contacts
organized with those inactive astomas. Cetanly this would incese th mmbe of ative
customers for lesser cost than aliracting new astomas. Putting a zao lost astomer as quality
objective and establishing a penvanent system working on teectivding lot asiomer is a vay
pofitatle policy.
Figures 22 shows the modified astomas chain and figwe 23 shows the new bewwior
Examindions made to the system poved that, though the lager portion of the impoveret is
dated to the modifications made to the human resources structure, this moiification hes a positive
effect on the number of active customers through reactivation of idle customers. The fluctuations in
the behavior ae nonvel result of the tial made by the incisty system to maintan th shability
between the customer growth and the available human resourves.
8.2.3 Global Perspective & ECommerce
The size of the intemational marketplace of the Egyptian software rdative to the local sales, 1 to 10,
shows that the local and Gulf market is still the favorite place to work for the Egyptian software
entrepreneurs. Interviews confirmed these results) Most of the people related that to failed
expainents, the higher pofitahility of the local marke, and the obstacles to export Using the
language of the System Dynamics this behavior called "Suocess to the successful " Archetype The
suocess of the local market is a result of dedicating higher resources to it This has entiodd
companies to devote more resources the loca market This has led to diminishing the resources
devoted to the intemational marke, and as a rest loweing the pobsbility to sucess in it
Literanre suggests reallocation of the resources avong the two loops acooding to the ral
potential. Comparing the size and growth raes ad available opportimities the inferationl market
should receive higher pionity.
‘Success on Gulf & ‘Success on
local Market international market
(GM) aM
Allocation to
(GLM instead
of a
Resources to Gulf &
local Market
A Resources to
“Al
international market
Figure 21: Success to the Suocessful
Most studies and people infaviewed put ECommerce as the main stategic diver for the
devdopment of exportbesed software industy. To achieve this, Three :dated policy options
recommended by the suidies devdoped for the softwae indisty: Impoving th Intemt
Infrastructure, Developing Offshore Software Business Devdopment Centers in the major markets;
and Establishing Software Development Parks.
8.2.3.1 Internet Infrastructure Improvement
The first and major technology infrastructure change would be impoverens in th nem
Infrastructure. Speed and availability of the Infemet represents a significant obstacle to fubre
offshore development plans of the software industry.
The poblen of the Infemet in Egypt comprises two classes of defidency with the quantity and
quality of the Intemet access (Harvard 1999, 21):
* Connections from Egyptian Intemet Service Provider to the Intemet.
* Connections from software companies (subscribers) to Egyptian Intemet Services Providers.
The solution to the first problem aspect is dear but the major obstacles are financial constraints. As
it is ciitical that the total bandwidth connecting Egypt to the Intemet be increased to support higher
speed access within the county, it is a must tht govenment gatelly upgrades the Intemt
Bandwidth of Egypt
Two ngjor policy options ae available to improve the subscriber access to the Egyptian Infemet
Savice Providas (Harvard 1999, 21-25). The first is based on using witdess links to provide
greater bandwidth without the requirement to lay new cables. The second recommended Scenario is
built on different foundation In this scenario, this IDSC/RITSEC backbone, or that of a privaiized
company, is deployed throughout the Caio metopolita, whee most softwae companies ae
besed, and eventually throughout the rest of the country.
The tend is towards rdying on the first option, specially, Upon lamching the Egyptian Satellite
"Nile 102" in 12 September 2000. Figure 24 compares the financial impact of the two scenarios on
the Software industry.
It is obvious that, on the long nm, The "Backbone extension" scenario is advantageous than sdéellite
Scenario. The financial advantageous of that soamario revolve around flexibility and oost saving it
comprise:
¢ The subscriber in this scenario can get better paformance at lower oost by having shat
connection the extended backbone instead of bearing the satelite connection establishment
cost.
¢ The switching among ISPs in the sdedlite scenaio, is considaable as it requires a new
dedicated link to the new ISP.
This has been reflected, in the modd, on the cost that will be beard by the industry for the Intemet
Capecity extension. Though the two Scenarios wouldnt show a diffeence in the first period but
owing the high ruming ooss, taking int oonsidaations a ratio of transfer among ISPs of 20%,
show deterioration in the financial position in the Satellite Scenario.
‘Tofel MaketingSSeles Time
Figure 22: A modified Customer Chain Structure.
Figure 23; Modified customer chain structure behavior
Figure 24: Financial implications of the Intemet infrastructure Scenarios
8.2.3.2 Offshore Business Development Centers
One area of ciitical importance for the Egyptian software industry is to devdop local presemce in
the overseas markets. Egypt will not be able to devdop am effective software industry if the only
Stee dan tien Gs the 2 errant te tll gry ote cama © te CE ak
diets from time to tme A progam for binging Egyptian companies to the United States and
Europe though establishing Joint Offshore Software Business Devdopment centers (OBDCs).
These centers will provide for the companies: marketing and direct sales support; Business analysis
and design, operations support; project support; Technology support The entire person interview
agreed on the importance of these centers. Those of them who have intemational expatience, mainly
in the Gulf area report that local presence doubles its overall productivity in that county
It is obvious the Egyptian software industry will spread its presence in USA and Europe grthally.
This needs to prioritize the locations to hold SBDCs. In the United States, the prmery locations for
centers recommended by studies include:
‘The Northeast Conidor (Boston, New Y ark).
Mid- Atlantic (Washington).
Southeast (Atlanta).
Mid West.
West (Dallas, Austin).
West Coast (San Francisoo, Los Angeles).
The Northeast would make the most sense as it offers the largest ovedap in business operations
hous (Usually 7 hours difference). Pemitting an ealy stat to contact dung nomel hous in
Egypt Also thee is a major shortage of skilled IT labor amenily in the Northeast, and a market
that continues to grow to show very high demand of staff (Harvard 1999, 97).
For the aim of protitize the location of SBDCs in Europe we prepared a study a locations priority
list in Europe The study resulted in the following pionity list:
8.2.3.3 Software Development Parks
The Software Devdopment Parks and programs have been successfully implerented in Idan
India and Isad. The modal recommended for Egypt should (Harvard 1999, 81-85):
¢ Impove the poduoivity of the patidpating companies though facility ad infscure
impoverent
¢ Impove knoweke ad enpoye poddiviy by ponting onmmction ad
collaboration.
° Impove th sdes ad makeing fincions of inksty, by poviding word das suppot
sexvioes.
Locations of the parks, to be successful should be based on the following ciiteria:
Proximity to the aixports.
Proximity to mejorigh
Proximity to major software educational institution.
Proximity to affordable accommodations for graduates.
Availability of economic facilities.
Access to modem telecommumicetion infrastructure.
The modification of the time dlocation stucure and market penetration sructe ae shown in
figwe 25 and 26, 1espectivdy. The behavior of the modified modds ae shown in figures 2730.
They show the impact of the enhancements recommended on the revenue of the industy. It is
A ee Tt ee oe tee Ee
simulation It rather means thet we raising the caling of gowh to realy US$ 15 hilim
Service Capabilit
a fraction sige
Intemet Capacity
Serviceimprovment
i
Tntetnet Capacity increase
Pa ™@
OBDC Productivity effect ae
effeq
Percieved rel performance Building Offshore Busi
Buildi .
pet wei Prom? romofional Marketing
BDC Cost Satisfaction level]
DE flgct wei Factor Delay
Active Customers
BDC Effect exposure
AC Effect
A
SDPs Productivity effect
‘acceptance
Local A PBuilding SDPs
Increeesing local acceptance SDP Building rate SDP unit cost
SDP Cost
Figure 25: Modified Market Penetration Structure
Ey Led pogannas
Middle Margaret
Tine
Tod
Tod PM Pod
SdesMont
Ave il roduian SM
Mateirg Mgt
VE. id production MM
Figure 26: Modified Time Allocation Structure
Figure 27: Eamed behavior before Global Adaptation
Figure 29: Effect of OBDCs on Eamed Revenue (after Intemet Enh.)
7500000000.00
Figure 30: Final Behavior of Revenue after introduction of BDCs
300000000000.00
Figure 31b; Financial Sector Performance (Credit + Sdlf-financing)
Figure 31c: A Modified Financial System
8.2.4 Financial System
Figure 31a suggests that the Egyptian software indusby is not able to sdf-finame its fibre
extensions proposed in the previous sections. This will lead to deetioration in the financial position
of its companies and finally to its collapse.
The second option, which is the tend now, is to rdy on cedit Hgure 31b shows thet the fubre
impact of bonowing is worse than previous scenario. If the industry continues in the ament tend it
wil exhibt the acheype known as "Organizational addidion'. As the induisty revee
deteriorate in the future owing to the heavy debt-epaying load, it will resort to more bonowing to
beableto sustain. Finally the industry will collapse.
Creating a portfolio indudes a combimtion of souces Venue capita; Credit Govenmeat
support; and Industry revenues are the safest future expansion-financing source Figures 31cd show
on of these investment portfolios and the financial position in case of implementing it
From above, a modified model has been constructed to overcome the imbalance (see section 81)
resulted from the absence of tight feedback link from the system to the human resource stucuure
(see figure 32).
‘Figure 31d: Financial Sector Performance (Invest 50% +Credit 25% +sdf fin. 25%)
Figure 32: Schematic Diagram for the enhanced Model
Part 5: Conclusion
Software Industry has high potential in Egypt, though Software diffusion in Egypt is lower than in
Devedoped Counties ones. This lagging is Primarily due to unbelarced distibution of qualified
human Resources, weak Intemet infrastructure, lack of some business skill experiences especially in
the global markets, and the weakness of financial support The ament foo and interest of the
Egyptian leadership in devdoping the softwae indisty must oontine a this stage to give it the
required initia boost for gowth Additiorlly, catain strategies siold be adpied add
implerented in paalld:
Enhancing of the education system fiom both paspedives quality ad quantity by
devedoping talored taining plan to the reek of the saior postim (sHior pogammes,
sdes and marketing management). The training courses delivered should satisfy the domestic
and intemational perspectives of the industry.
Increasing the number of graduates In condition that the previous stdegy is adopted, or this
‘Will lead to more unbelanced distribution in market
Linking the salaries according to the revenves to the indisty and adjusting in compaison
with other Hi-Tech Industries in Egypt and abroad.
inking the industry to the education institutions will impove the exviromment to establish a
good R&D System in Egypt
Targeting the intemational market in the software services segment should be addressed as a
strategic priority.
E-Commerce is the main driver for the devdoping of exportbesed software industry. To
achieve this, Three rdated policy options recommended by the studies devdoped for the
software industy: Impoving the Intemet Infrastuchne Devdoping Offshore Softwae
i Devdopment Centers in the major markets; and Establishing Software Devdopment
Parks.
Two major policy options ae available to improve the subsaiber access to the Egyptin
Intemet Savice Providers (Harvard, 1999). The first is based on using wirdess links to
provide greater bandwidth without the requirement to lay new cables The soon
recommended Scenatio is built on different foundation In this soemmio, this IDSC/RITSEC
backbone, or that of a privatized company, is deployed thoughout the Cao metopolitan,
where most software companies are based, and eventually throughout the rest of the country.
The second scenario is more cost-effective on the long mn.
Egyptian software industry should devdop local presence in the overseas markets. A program
for binging Egyptian companies to the United States and Europe though establishing Joint
Software Business Development centers (SBDCs).
The Software Devdopment Parks and programs have ben sucosssfilly implemented in
Irdand, India and Isrd. The Egyptian mode should adapt to the local conditions of the
Egypiian Environment
Setting up an IT regulatory authority similar to the TRA and under one umbrella.
¢ Setting up an export organization to coordinate the efforts exeted to promote the Egyptian
Software exports.
* Creating a portfolio indudes a combination of sources Venture capital; Credit; Govenment
support; and Industry revenues is the safest future expansion financing source
The Commitment of Govemment and Private Sector in the implementation of these stategies al
Policies is necessary in the industry s& up phese to exhibit an imege of commitment and day a
message of national policy direction toward the sucoess of the Egyptian software industry.
Suggested Future Enhancements to the Model
This modal represents only a base to Sart a project for building a more comprehensive modd for
« A suggested structure for Offshore Business Development Centers (OBDCS).
¢ A suggested structure for Software Development Parks (SDPs).
* Thetargeted Intemational Markets.
* TheLocal Market
¢ — Softwareredlated E-Commerce practices.
Responsible Party
Importance
Plan Subject Area
Intemet improvement
Enhancing Egypt Intemet Connection.
G &I(BOT)
Backbone Extension
G &I (BOT)
‘Human Resource Development
Salaries & Incentives Restructure
Establishment of Professional Training
Centers
2001-2002
Education System Changes
Educational Institution Enhancement
Increesing the Annual Number of fresh
graduates
Software Business Development Centers
Software Development Parks
Gradual Establishment in USA & Europe
( Average of 10 Companies with the
support of the Govemment can establish
one center)
« Devedoping Studies for determining
the suitable locations and components.
* Govemment Led plan for the
establishment.
I&G
20022005
20022005
Effective Software Export Organization
* — Unifying the existent competent
bodies software industry.
¢ — Coordination with the export
govemmental bodies
* — Creating reference Databese for the
indisty
« — Business Mission & Conferences and
alliances
G&l
2001-2002
Govemments Purchasing
KK
2001-2005
¢ Credit Facilitation
¢ Ventura Capital
2001-2008
IPRs
2001-2002
Taxes
References
Albin, S, 1996. Genetic Structures: First Order Negative Feedback System Dynamics in Education
Project, ed. System Dynamics Group, Sloan School of Management, (D-4474-2). Cambridge. MIT.
Albin, S, 1997. Buildmg a System Dynamics Modd: Conveptiedizdion System Dynanics in
Education Projec, ed System Dynamics Group Sloan School of Mangere, (D-4597).
Cambridge: MIT.
Albin, S, and M Choudhai. 1996. Generic Stuctes: First Order Positive Feedback System
Dynamics in Education Project, ed System Dynamics Group, Sloan School of Maragement, (D-
44741). Cambridge: MIT.
Andeson V., and L. Johnson 1997. What ae Systers?, 1* ed Cambridge Pegasus
Communicaiions
Andersson, V. 1997. Systems Thinking besics. ® ed. Cambridge: Pegasus Communications.
Ashford, A. 1995. Unexpected Behavior in HighesOrder Positive Feedback Loops. System
Dynamics in Education Project ed System Dynamics Group, Sloan School of Management, (D-
4455-1). Cambridge: MIT.
Bozeti, M. 1999. The technological evolutio of ICT ad Standads Euopen Infometion
Technology Observatory 99, ed. EITO. Frankfurt: EITO.
Brée@ova L. 1997. Generic Structures: Oveshoot and Collapse System Dynamics in Education
Project, ed. System Dynamics Group, Sloan School of Management, ( D-4480). Cambridge: MIT.
BSA. 1998. Software Piracy in the Middle East. Business Software Alliance. http:/Awww.bsa.org.
Choudhai, M. , and L. Breiaova 1996. An introduction to sensitivity amlysis. System Dynamics
in Education Project, ed System Dynamics Goup, Sloan School of Maragerent (D-4532).
Cambridge: MIT.
Ching C. 1994 Genaiic Stucures in Oscillating Systems I. System Dynamics in Education
Project, ed. System Dynamics Group, Sloan School of Management, (D-4426-1). Cambridge: MIT.
CIA 2000. The Word Fect book Counby Listing Cental Inieligawe Ageny; USA.
/hwww.odc.
ESA 1999, Genel outline for projects to devdop the software industry. Cairo: Egyptian Software
Association.
HITO 1999. Anmel Report for ICT Market in EU. Frankfurt European Infonmation Technology
Observatory.
Forrester, Jay W. 1961. Industrial Dynamics. 2“ ed. Cambridge: MIT Press.
Forester, Jay W. 1969. Urban Dynamics. 1° ed. Cambridge: Productivity Press.
Foneser Jay W. 1973, Wotld Dynamics, 2“ ed, Portland: Wright Allen Press.
Foneste, Jay W. 1971. Countezintuitive behavior of social systems. Technology Review, Vol. 73,
no 3. Cambridge: MIT Press .
Foneste; Jay W. 1992. System Dynamics and LeamesCentered Leaming. System Dynamics in
Education Project ed System Dynamics Group Sloan School of Margera, (D-4337).
Cambridge: MIT.
Forest; Jay W. 1994 System Dynavic, System Thinking and Soft OR System Dymanics
Review, Vol. 10. Camiaidge: MIT.
Gick, M, ad T. Duhon 19% Genaiic stucures: Sshaped gowth I System Dynamics in
Education Project ed System Dynamics Group Sloan Schod of Mangere, (D-4432).
Cambridge: MIT.
Goodman, M. 1974. Study Notes in Systems Dynamics. 1% ed. Cambridge: Wright-Allen Press.
Graham, A. K,, and L. Alfdd 1976. Genetic modds for computer besed case studies, 27 ed
Cambridge: MIT Press.
Harvard Computing Group 1999 . Sector Assessment of the Egyptian Software Industry. Cairo:
EA.
Harvard Computing Group 1999. A devdopment Plan for the Egyptian Software Industry. Cairo:
EA.
IDC 1999, Intemational Data Corporation Annual Report. Geneva: IDC.
IPR. 1997. Global Software Piracy Report A study conducted by Intemaiowl Paming add
Research Corporation for Business Software Alliance and Software Publishers Association.
ITC. 1998 Infonmation Technology Services: A handbook for exportas from devdoping countries.
Geneva: Intemational Trade Center UNCTAD/WTO.
Kauffman, D. 1980. Systems 1: An introduction to Systems Thinking, 1* ed Minneapolis: S. A.
Carton Publisher
Kim D. 1992 Systems Archetypes Diagnosing systemic issues and designing high levewe
Intervention, Toolbox Reprint Cambridge: Pegasus Communications.
Martin, A. L. 1996. Expoing SShaped Growth System Dynamics in Educdion Project ed
System Dynamics Group, Sloan School of Management, (D-4476). Cambridge: MIT.
Martin, A. L. 1997. Beginner Modeling Exercises, System Dynamics in Education Piojed, ed
System Dynamics Group, Sloan School of Management, (D-4357-6). Cambridge: MIT .
Martin, A. L. 1997. The First Step. System Dynamics in Education Project, ed. System Dynamics
Group, Sloan School of Management, (D-4694). Cambridge: MIT.
Meadows, D. 1973. Beyond The Limit. 2“ ed. Cambridge: MIT Press.
Meadows, D. 1991. System Dynamics Meds The Press In The Global Citizm Repint
Weshington DC: Isand Press.
Mednik S., and T. AbdebHamid 1990, The Hlusive Silver Lining: How fail to lean fiom Softwae
Devedopment Failures. Sloan Management Review, Fall. Cambridge: MIT.
MIT 2000. Massachusetts Institute of Technology. hitp,/Awwwmitedu.
Msefe; K. 1995. Economic Supdy and Devand System Dynamics in Education Project, ed
System Dynamics Group, Sloan School of Management, ( D-4345). Cambridge. MIT.
Msefeg K, and M Choudhai 19% Eoonomic Supdy ad Deva System Dyranics in
Education Project, ed System Dynamics Group, Sloan School of Management ( D-4555).
Cambridge: MIT.
NASSCOM. 2000. Indias Netioml Associdion of Softwae and Savioss Compas.
‘hitp//www.nesscom.org.
National Software Directorate. 1997. Ireland as an Offshore Software Location. hitp:/Awwwasdie.
NVCA. 2000. The Venture Capital Industy: An Overview. National Venture Capital Association.
“/ANWWOWCa.
OComor, J. 1997. The at of Systems Thinking: Essential skills for creativity and poblen solving.
1 ed Califomia: Thorson.
Price Waterhouse. 1998. The Contribution of the Packaged Software Industy to the European
Economies. May 1998.
Pyramid Research 2000. Communications Market in Egypt Middle East Communications Market
Report, March 2000, 30-34.
Randers, J. 1980. Elements of the System Dynamics Method. f* ed. Portland: Productivity Press.
Richarcson, George P. 1986 Problers with Cara Loop Diagams System Dynamics in
Education Project, ed System Dynamics Group Sloan School of Mangere, (D-3312).
Cambridge: MIT.
Richacson, George P. 1991.Systems Dynamics: Simulation for Policy analysis from a feedback
pespective. In Qualitative simulation modding and amdlysis, ed Fishwick P. A. ad Lukes PA.
New York: SpingerVadag.
Richardson, George P. 1996. Modding for Management I: Simulation in support of Systems
Thinking, 1% ed. Brookfidd: Datmouth
Richardson, George P. 1996. Modding for Managerent I: Simulation in support of Systems
Thinking 1* ed. Brookfidd: Dartmouth
Ricimond, B. 1993 Systems Thinking: Critic Thinking Skills for 1990s and Beyond Systems
Dynamics Review , Spring. Cambridge: MIT.
Robats, N, @& al. 1983 Introduction to Computer Simulation A System Dynamics Apaoach 24
edi Portland: Productivity Press.
Ruth, M. 1997. Modding Dynamic Economic Systems. fed. Boston: Springer:
Sem, J. 1996. Capitalizing on dectonic Commerce The ile of Intemet in the dectonic market
Information Systems Management, ed. EITO, no. 13. Frankfurt: EITO.
SRI Intemational. 1995. Achieving Egyptian Export Growth. Report prepared for the Ministy of
Economy and Foreign Trade. Cairo: MoE&FT.
SDEP 1992. Road Map. System Dynamics in Education Project. Cambridge: MIT.
SDEP 1998, Road Map 2. System Dynamics in Education Project Cambridge: MIT.
SDEP 1992. Road Map 3, System Dynamics in Education Project Cambridge: MIT.
SDEP 1998, Road Map 4. System Dynamics in Education Project Cambridge: MIT.
SDEP 1997. Road Map 5. System Dynamics in Education Project Cambridge: MIT.
SDEP 1998, Road Map 6. System Dynamics in Education Project Cambridge: MIT.
SDEP 1997. Road Map 7. System Dynamics in Education Project Cambridge: MIT.
SDEP 1997. Road Map 8 System Dynamics in Educetion Project. Cambridge: MIT.
SDEP 1997. Road Map 9, System Dynamics in Education Project Cambridge: MIT.
USAID 1998. Information Technology in Egypt. Cairo: American Chamber of Commerce.
Sterman, J. 1991. A skeptics Guide to Computer Modes. System Dynamics in Education Project,
ed. System Dynamics Group, Sloan School of Management (D-4101-1). Cambridge: MIT.
Whelan, J. 1994 System Dynamics; Modeling Exercises. System Dynamics in Education Project
ed. System Dynamics Group, Sloan School of Management (D-4442). Cambridge: MIT.
Whdan, J, and M Choudhai. 1994 Building Fish Banks Mode and Renewable Resouce
Dedeion. System Dynamics in Education Project ed System Dynamics Group, Sloan School of
Management, (D-4448). Cambridge. MIT.
CC BY-NC-SA 4.0