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1
Sri Lanka’s IT/ BPO and Knowledge Services Industry
Dr. Arul SivagananathanMD – Hayleys PLC’s
IT/BPO & Shared Services Sector25th October 2013
2
Overview
� About the Industry
� Where is Sri Lanka today in the World outsourcing map?
� State of the Sri Lankan IT/ BPO industry
� Future focus
� Positioning Sri Lanka
� Building the brand
� SLASSCOM Initiatives
� Rural BPO and IT
� Way Forward
2
3
Customer Market segmentation in BPO
Source: NASSCOM Strategic Review
Americas:
America accounts for more
than 63% of the global spend
on IT/BPO
Europe, Middle-East & Africa (EMEA):
EMEA accounts for approx 19%
of the global spend on IT/BPO
Asia Pacific:
• APAC region accounts for
more than 17.6% of the
global spend on IT/BPO
• It is estimated APAC to be fastest growing market
with 15-20% growth in the coming years
Overall Global IT/BPO market was USD 500 Billion in 2011
4
Why do Global Companies Off-Shore?
• Cost-savings between 40% to 50%
• Fixed to variable cost
• Increased ability to focus on core competencies
• Shared Services – Create CoE (24 x 7)
• Unlock constrains to changes
• Improved efficiency and higher service levels
• Quality improvements with Six sigma & FMEA
• Re-engineer processes and streamline methodology
3
5
Where is Sri Lanka today in the World’s Outsourcing
landscape ?
6
Sri Lanka - Strengths
• Educated work force
• Talent pool for specific skills: eg largest pool of UK qualified accountants outside of UK, pool of IT graduates
• High literacy rate (>93%)
• Investor friendly policies with booming economy – Tax concessions, BOI
• Time Advantage – Centrally Located to West & East
• Beautiful Island with booming tourist industry
4
7
• Political Risk – Regular Policy Changes
• Infrastructure – lack of intelligent buildings / roads / transport
• High Telco, Utility cost
• Lack of skills outside of Greater Colombo (IT savvy, English)
• Government policies on labour law (Poya days, Female night shifts, Number holidays in Sri Lanka)
• Mindset change to embrace it as a career
Change of mind-set required for Global Services
Sri Lanka - Weaknesses
8
Where were we 5 years ago?
Sri Lanka
Philippines
Sri Lanka
China
& today?
Vietnam
5
9
What need’s more work…
• Building the ‘Sri Lanka brand’ within the target segments –move from pre conflict level marketing investment to something suitable
• Focused investment promotion (moving beyond tax incentives)
• Enabling environment (telecom, infrastructure)
• Right Talent - Accelerating capacity development while ensuring quality
• Catalyst policies to help the growth of the industry
• Government championship
SLASSCOM(Sri Lanka Association of Software and Service Companies)
6
11
Member Companies
Board of Directors
General Council
Corporate Office
Advisory Board
SLASSCOM Structure
12 member Board of Directors
including Chairman, two Vice
Presidents from BPO and IT
sectors
Advisory panel
consisting of eminent
professionals from the
industry
21 member
General Council
elected every year
Team of five with full time
Executive Director
12
$1b
Marketing
Policy
Quality
Capacity -BPO
Capacity-IT
Entrepreneurship
grow demand
Driving Strategy - Forums
7
13
Sri Lanka is clearly emerging as a Global IT/ BPO Sourcing Destination
Sri Lanka is another Asian country that has
succeeded in positioning itself as an
alternative to India. - IBM Global Location Trends Report 2010
Ranked among the Top 25 in the AT Kearney Global Services Location
Index (GSLI) in 2011Ranked number 5 in financial attractiveness, ahead of India, China and all of CEE
Gartner's 30 Leading Locations for Offshore Services (2010-2011).
Included among the Top 10 in Asia pacific.
12th in the top ranking destinations in IBM Global Location Trends Report
Ranked among the top 10 emerging global destinations by Global
Services Magazine.
Sri Lankan’s geographical location, infrastructural facilities,
direct access to the Indian market, high quality standards of the
workforce, open economy and various free trade agreements
make it an attractive outsourcing destination. – Global Services Destinations Compendium 2010
14
State of the Industry
8
15
VISION of SLASSCOM
“by 2016, IT/BPO Industry to become 1 Billion USD in
Export Revenue and create 100,000 Jobs ”
2009 2010 2011 2012 2013 2014 2015
210
310
387
525
605
750
946
IT/BPO Export Revenue in mill USD
Actual Estimated
Source: ICT Export Value Survey (Aug 2011- PWC publication)
16
Industry made great strides over the last 5 years in revenue, employment and growth in industry
Growth in new ventures starting100% 182%Growth in
workforceGrowth in revenue
Global growth in brand reputation
Government endorsement and support
• Top 25 in the AT Kearney Global Services Location Index
•Gartner's 30 Leading Locations for Offshore Services
• 12th in the top ranking destinations in IBM Global Location Trends Report
• Traction in Australia, UK, FAO, Product Engineering
• Attractive corporate Tax holiday• Lower PAYE tax – only industry• President's backing - Knowledge Hub/Year of English & IT, Set up of Ministry of IT
• 300m allocation in 2013 budget• Significant impact from ICTA ICBP• EDB and BOI alignment
Rapidly growing startup eco system
9
17
Where should we set our sights for the next wave of growth?
2022 Moonshots (Vision 2022)
• $5b Revenue
• 200,000 Jobs
• 1000 Startups
18
Building the Brand
10
19
Country Reports
• AT Kearney Sri Lanka Country Benchmarking Report commissioned by ICTA
• ICT Export Value Survey 2010 -Published by EDB. Comprehensive view on the IT and ITES Export market (Aug 2011)
20
Select clients of Sri Lankan firms
Select MNCs operating in Sri Lanka
Unknown to most global observers, a significant knowledge services industry has been developing in Sri Lanka
Key Insights
• Over 300 IT, BPO and KPO companies employ more than 60,000 Sri Lankans and generate more than $400 million in exports in 2011
• Companies in Sri Lankaprovide sophisticated accounting services and financial analytics to their customers, as well as offshore legal services, medical diagnostics, and architectural drawings
• Sri Lankan companies export services to a wide variety of clients across regions
11
21
In terms of costs, Sri Lanka’s average wages are in line with South Asia, making it one of the world’s lowest-cost destinations
Annual Average Wages, US$
Source: Economist Intelligence Unit 2011, A.T. Kearney analysis
1,012
1,272
1,440
1,524
1,584
1,620
2,772
4,716
4,860
6,708
7,641
UK 32,769
Mauritius
Malaysia
UAE
China
Egypt
India
Sri Lanka
Philippines
Bangladesh
Pakistan
Vietnam
Average wages
• Average wages indicate overall wage pressure in an economy, regardless of industry conditions
• Sri Lanka compares closely to the other South Asian and South East Asian countries, making it one of the lowest-cost options for remote service delivery
• The only countries that report significantly lower average wages are Vietnam, where incomes are rising fast, and Pakistan, where security concerns limit attractiveness
Financial Attractiveness
22
For typical positions in the knowledge services sector, Sri Lanka offers amongst the lowest wages in the benchmark countries
Annual IT Programmer compensation cost, US$
Note: All wages are annual and fully loaded. Fully loaded compensation includes benefits, taxes, and bonus.
Source: Mercer HR Consulting 2011, Watson Towers 2011, A.T. Kearney analysis
11,291Vietnam
11,371Philippines
India 10,170
Sri Lanka 8,996
Pakistan 8,683
Bangladesh 7,800
UK 44,297
UAE 40,504
Mauritius 33,704
China 23,576
Malaysia 16,868
Egypt 13,894
Annual BPO Analyst compensation cost, US$
3,574
4,104
4,200
4,653
5,374
5,451
5,913
9,121
UK 28,679
UAE 17,895
Mauritius 14,145
Malaysia 10,398
China
Egypt
India
Pakistan
Philippines
Bangladesh
Sri Lanka
Vietnam
Professional Compensation
• Sri Lanka offers remarkably low costs, considering the value offered
• According to international salary surveys, compensation costs for sample IT positions are 10% lower than India and 20% lower for BPO functions
• In addition to low costs, companies consistently report low attrition
• Attrition rates in Sri Lanka tend to be just under 20%, whereas rates in India and the Philippines typically range from 20-25% in IT to 30-35% in BPO
Financial Attractiveness
12
23
Office space is available and relatively affordable, and new developments are underway
Office rent, class A office space in major business hub, US$/m2
Source: CB Richard Ellis 2011, A.T. Kearney analysis
192
227
252
262
316
343
368
440
459
472
918
978
India
China
Pakistan
Vietnam
Egypt
UK
Malaysia
Philippines
Bangladesh
Sri Lanka
Mauritius
UAE
Real Estate
• Companies in Colombo do not report office space to be a problem
• Several BPO companies are housed in class A facilities downtown as opposed to in suburban campuses
• In addition, class B real estate in Colombo is easier to come by and of better quality than in many emerging market capitals
• Private actors have created dedicated IT/BPO industry parks - not yet at capacity
Financial Attractiveness
24
Literacy and secondary enrollment rates are on a par with developed countries
Note: Gross enrolment ratios measure total enrolment as a percentage of the total population corresponding to the relevant age group
Source: UNESCO 2011, A.T. Kearney analysis.
Secondary Enrollment Rate, % Adult Literacy Rate, %
UAE 98%
70%
Vietnam 70%
Malaysia
33%
Bangladesh 44%
India 59%
Pakistan
China 76%
Egypt 81%
Philippines 82%
Mauritius 89%
Sri Lanka 90%
UK 96% Philippines 95%
UK 99%
93%
Pakistan 55%
Bangladesh 56%
India 62%
Egypt 66%
Mauritius 88%
UAE 90%
Sri Lanka 91%
Malaysia 92%
Vietnam 93%
China
Enrollment rates
• With free primary and secondary education and an extensive university system, Sri Lanka has had a very strong education system for decades
• Sri Lanka’s literacy rate is the highest in South Asia, positioning it to train a large number of high-quality personnel
People Skills & Availability
13
25
Executives rank Sri Lanka’s tertiary education among the best in Asia
Quality of Management Schools
6.0
5.0
4.9
4.7
4.7
4.4
4.3
4.1
4.0
3.9
3.3
3.0Egypt
Vietnam
Bangladesh
Pakistan
Mauritius
China
Philippines
UAE
Sri Lanka
India
Malaysia
UK 5.0
4.9
4.7
4.7
4.5
4.2
4.2
4.1
3.6
3.3
3.1
2.4Egypt
Philippines
Bangladesh
Pakistan
Mauritius
Sri Lanka
UK
India
China
Malaysia
UAE
Vietnam
Quality of Math & Science Schools
Source: World Economic Forum Global Competitiveness Report 2011-2012, A.T. Kearney analysis
Education quality
• Sri Lanka’s management schools are ranked among the best in Asia; their math and science programs also rank highly
• Sri Lanka currently has 23 accredited universities, more than 25 private institutes offer diplomas in IT
• Foreign universities are partnering with local institutions to offer degree programs, and some are setting up their own campuses in Sri Lanka
People Skills & Availability
26
Sri Lanka has cultivated distinctive capabilities in particular technical and professional services
Source: Chartered Institute of Management Accountants 2011, A.T. Kearney analysis
12,466
5,729
3,080
3,036
2,520
2,446
2,310
1,959
1,252Poland
Ireland
Zambia
Pakistan
China
India
Malaysia
South Africa
Sri Lanka
UK 45,280
Top Ten CIMA Student PopulationsProfessionals
• To compete with large countries, Sri Lanka needs to focus on growing competitive talent in specific areas
• Already Sri Lanka boasts more people with UK-recognized accounting qualifications than any country outside the UK
• Given a similar emphasis on other professional qualifications (in medicine, law, engineering, architecture, etc.), the country has the potential to develop distinctive remote services offerings in these areas also
• The IT industry has also developed distinctive capabilities in a number of niches such as open source, cloud apps and mobile technologies
People Skills & Availability
14
27
Sri Lanka’s business environment is considered superior to other low-cost emerging markets
Ease of Doing Business, Rank
Source: World Bank Doing Business 2012, A.T. Kearney analysis
7
18
23
33
89
91
98
105
110
122
132
136
UK
Malaysia
Philippines
India
Bangladesh
Egypt
Pakistan
Vietnam
China
Sri Lanka
UAE
Mauritius
Regulations
• The World Bank Doing Business Report measures the costs to firms of business regulations in 183 countries
• Sri Lanka improved 11 points in the Doing Business rankings between 2011 and 2012 and ranks higher than all other lower cost countries in the region
• A three-decade legacy of pro-business and pro-investment policy has resulted in the lowest regulatory burden on the subcontinent
2.6
China
3.7Sri Lanka
Vietnam 2.7
Egypt 3.0
India 3.0
Bangladesh 3.0
UK 3.1
Pakistan 3.2
Mauritius 3.6
Philippines
UAE 4.4
Malaysia
3.9
4.4
Regulatory Burden
Business Environment
28
Sri Lanka also offers superior infrastructure to most other low-cost countries
Overall Infrastructure Quality Score
Source: World Economic Forum Global Competitiveness Report 2011-2012, A.T. Kearney analysis
6.3
5.7
5.6
4.7
4.6
4.2
3.9
3.8
3.5
3.4
3.1
2.8Bangladesh
Vietnam
Philippines
Pakistan
India
Egypt
China
Mauritius
Sri Lanka
UK
Malaysia
UAE
Infrastructure
• Overall infrastructure quality, including transportation and utilities, surpasses that of South Asian and almost all Southeast Asian competitors
• This is a welcome difference to other locations, often plagued by inefficient infrastructure
• Colombo’s Bandaranaike International Airport has more flights to India than any other country
• In terms of ICT infrastructure, Sri Lanka alsoscores better than most regional competitors
Business Environment
15
29
The Digital Divide – Low ICT Adoption/ Literacy
Percentage of computer owned households by Sector
and Province – 2004, 2006/7 and 2009
Source: Computer Literacy Survey – 2009 by Department of Census and Statistics
Household computer ownership
(percentage) – 2009
Internet and e-mail using household population
(percentage) 5-69 years aged by sector and province - 2009
Where can we go in the next 10 years?
The road ahead..
16
Colombo
Uduvil
Vavuniya
Jaffna
Vakarai & Oddusudan
Batticaloa & Kalmunai
Akkaraipatu
ONTIME BPO
Mavalachiya
Foundation of
Goodness
Seenigama
32
■ Sri Lanka is in many ways a hidden gem for outsourcing. It is uniquely positioned to offer companies skilled talent and a strong business environment at competitive costs
■ With a population of 20 million, Sri Lanka does not offer the size advantages of countries such as China, India, and the Philippines. However, recognizing its small scale, companies in Sri Lanka focus on higher-value niche products across industries
■ With continued efforts to expand the talent base, reduce red tape, improve infrastructure, and establish new knowledge cities around the country, Sri Lanka is expected to become a major player in the IT, BPO, and knowledge services industry in the next few years
■ Sri Lanka already offers global companies unique advantages as a location for delivery of sophisticated knowledge services. It is likely that the industry will exceed its own ambitious target to generate more than $1 billion in revenues by 2016 and put Sri Lanka firmly on the global services map
■ Sri Lanka IT/BPO industry to become $5 billion industry by 2022 and the vision to become the number one industry with 1000 startups.
In Summary