A baseline sector analysis of the Business Process Outsourcing industry of Sri Lanka

1

A baseline sector analysis of the

Business Process Outsourcing

industry of Sri Lanka

Harsha de Silva,Sriganesh Lokanathan, Dilshani Samaraweera

27 September, 2006

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Agenda

• Overview of BPO sector• Obstacles to growth and operations• Growth plans• Conclusions

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Overview of BPO sector

• Composition• Investment• BPO entry and reasons• Services• Export markets• Employment• Skill requirements

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Composition of Sri Lanka’s BPO industry

• Equal proportion of captive & non-captive operators (48%) • While majority are offshore, value of total offshore investment is

low = USD 4.3 million (out of USD 13.2 million)• 86% have BOI status

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BPO Investments with BOI status

Type of BPO investment In millions (USD)

BOI investments 11.8

Non -BOI investments 1.4

Total investment in the sector 13.2

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Offshore/ Onshore Investments

Type of BPO investment In millions (USD)

Offshore investments 4.3

Onshore investments 7.8

BPOs that are both onshore and offshore

1.1

Total investment in the sector 13.2

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BPO entry by year

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Reasons for locating in Sri Lanka

71%67%

48%

38%

29%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Low er labourcost

Low eroperatinol cost

Tax incentives Time / distanceadvantage

Duty exemptionon capital

goods

Culturalsimilarity

Reasons

% o

f co

mp

anie

s

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Operating costs of BPOs

Labour44%

Other26%

Telecom22%

Electricity8%

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Government incentives used by BPOs

• Tax incentives is the third most frequently cited reason for locating in Sri Lanka

86%

21%14%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Tax holidays Duty free imports Status of BOI VAT exemption

Government incentives

% o

f co

mp

anie

s

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Most popular services

• Accounting = 43% of the companies• Call centre services = 19% • Medical insurance processing = 14% • Non-captives offer more services than

captives (avg. of 3.5 vs. 1.4)

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BPO service offerings

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Main export markets

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Employment

• Total employment (21 BPOs) = 3,700• 50% have up to 62 workers • Avg. workforce at offshore BPOs = 265 • Avg. workforce at onshore BPOs = 78 • Avg. workforce at captive BPOs = 228 • Avg. workforce at non-captive = 134

• The average monthly salary of a BPO worker = USD 270 (inclusive of bonuses and commissions.)

• 95% provide training

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Age distribution amongst BPO workers (excluding largest BPO)

59%

8%

30%

3% 18-24 years

25-35 years

36-45 years

45+ years

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BPO employees by educational qualification (excluding largest BPO)

Post grads2%

Professional qualif. holders

13%

Other3%

O/L holders7%

A/L holders51%

Diploma holders

9%

Graduates15%

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Workforce composition of the largest BPO

• The largest BPO reported a workforce of 1,700• Degree holders = 25% • Advanced Level qualified = 75%

70%

20%

10% % 18-24 Years

%25-35 Years

%36-45 Years

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Turnover in 3, 6 and 12 months (includes largest BPO)

• Avg. 1-year turnover = 6%

• Avg. 6-month turnover = 4%

• Avg. 3-month turnover = 3%

5%

1%

6%

2%

10%

4%

0

2

4

6

8

10

12

Captive BPOs Noncaptive BPOs

Type of BPO

Av

era

ge

tu

rno

ve

r

3 month turnover

6 month turnover

1 year turnover

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Skill requirements – Primary Skills

• Spoken language proficiency in English considered an important requirement by 95%

• Written proficiency in English considered important by 66%

19%

5%

57%

19%

Accountingknow ledge

Technical know ledge

Language/ speech/communi.

Other

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Satisfaction on availability & quality of personnel

43%

38%

19%

24%

38%38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Not satisf ied Neutral Satisf ied

Level of satisfaction

% o

f co

mp

anie

sAvailability

Quality

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Obstacles to growth and operations

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Leading obstacles

67%

57%

48%

0%

10%

20%

30%

40%

50%

60%

70%

Civil/political instability Mass Transport Services Telecommunications

% o

f co

mp

anie

s

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Operational stability

• Civil/political instability is the leading threat to operations and growth – 67%

• Further more:• 67% expressed concerns about the state of law and

order. • 57% expressed concerns about maintaining Sri Lanka’s

image abroad.• 33% of the companies do not think that interpretations

of regulations applicable to BPOs are consistent and predictable

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Regulations

• Taxes are not considered an obstacle but tax administration is seen as an obstacle by 38%

• Labour regulation are considered a difficulty by 38%

• Customs/trade regulations are seen as obstacles by 10% but 67% do not think they pose a problem

• Environmental regulations are not considered problematic

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Regulations

67%71%

67%

10%

38%

10%

38%29%

19%

29%24%

24%43%

57%

38%33%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Tax rates Taxadministration

Customs andtrade

regulations

Laborregulations

Businesslicensing and

operatingpermits

Environmentalregulations

Regulations

% o

f c

om

pa

nie

s

Obstacle

NeutralNot an obstacle

Not mentioned

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Delays due to regulations/procedures

• All of the companies that experienced start up delays are BOI companies

% of BPOs that experienced delays

29%

Reported delays (in days) 21, 60, 90, 99, 210, 240

Reasons for delays •Regulation payments•Company incorporation and BOI procedures•Registration procedures•Formalities

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Public/Mass transport system

• Mass transport is the second most frequently cited obstacle to growth and operations• 57% said mass transport is an obstacle• 38% said transport infrastructure (roads) is an obstacle

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Telecommunications facilities

38%33%

29%

71%

14%14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Unreliable Neutral Reliable

Reliability

% o

f co

mp

anie

s

Leased lines

Telephone

Reliability of leased lines and telephones

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Types of Internet access used by BPOs

Type of connection

Bandwidth (Kbps) % of companies

ADSL 256 - 2048 24%

Shared leased line 256 -4096 19%

Dedicated leased line

45 - 2560 67%

VSAT 72 - 512 10%

Other Not mentioned 5%

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Growth plans

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Expansion plans

• 95% plan to increase employment

• Employment growth of 30% in 2006-7

• 76% stated expansion plans out of which:

• Physical exp. = 50%• Market expansion = 13%• New partnerships = 6%

75%77%

23% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Offshore Onshore

BPO companiesCompanies that are both offshore and onshore are included under offshore

% o

f co

mp

anie

s

Plan to expand

Do not plan toexpand

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Conclusions

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Primary requirements for BPO sector growth

• Capacity expansion• English• Telecommunications (+land)• Mass transport• Feasibility of setting up a dedicated BPO zone with

enhanced transport and telecommunications infrastructure should be considered.

• Facilitation of entry & operations• No specific regulatory changes• facilitation mechanisms - investment entry & operations

• Marketing and promotions

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