BPO Industry – Sri Lanka

As defined by investopedia, a BPO or a Business Process Outsourcing is “a method of subcontracting various business-related operations to a third party”

The outsourcing concept was initially applied to the manufacturing industry. However, outsourcing is now applicable to the outsourcing of services as well.

What is a BPO?

Breaking the Myths of BPOs

Not every BPO is a call center, and call centers do not recruit graduates to answer phone calls. There are number of BPOs involve with Knowledge Process Outsourcing work.

1970s – Computer companies outsourced their payroll processing to a company in another state and not overseas

1989 – Outsourcing a business strategy started

1990’s – Since companies began to focus on cost saving measures, they started outsourcing functions necessary to run a company

Recent years: Companies form strategic partnerships with 3rd parties

History of Outsourcing

Offshoring: Business done in another country

Near-Shoring: Taking the outsourced work to a nearby country

On-shoring: Outsourcing within the same country – domestic outsourcing

Models of Outsourcing

Educated work force:◦ High literacy rate of 92%- The talent pool for specific skills:

E.g: Largest pool of UK qualified accountants outside of UK. 50,00 new accountants are produced per annumSri Lanka’s 40,000 IT/ITES strong workforce is growing at a rate of 30% per annum50% of the students who have completed their higher education are qualified in technical and business disciplinesSri Lanka produces 30,000 graduates per annum, many of whom have international exposure

Sri Lanka enjoys a low attrition rate compared to other offshore destinations, at 6.6%

Why Sri Lanka?

Lower labour costE.g: A salary for a software engineer in Sri Lanka is USD 300-650 while an employer in the US is required to pay approximately 6555 USD per month

It is a norm in Sri Lanka for the youth to the workforce soon after completing their G.C.E Advanced Level examination. Majority of the students follow short diploma’s and certification programs which allows them to gain entrance to the workforce early. The work- study approach allows people to work and study at the same time which results in low entry level wages compared to the traditional practices of hiring graduates without compromising on competence

Investor friendly policies with booming economy – Tax concessions, BOI. Tax holidays vary from 5-12 years. A concessionary rate of income tax of 15% (up to a maximum of 20 years) is also extended after the tax holiday period.

Why Sri Lanka?(cont)

The government declared 2009 as the Year of English and IT in order to make IT and BPO its number one export by 2012

Time Advantage – Centrally located to West & East Sri Lankans are highly productive, creative and highly skilled

in adapting in to different environments No restrictions have been imposed on repatriation of

earnings The neutral accent of Sri Lankans when conversing in English English is the primary language which is used by the

business community

Why Sri Lanka?(cont)

As per SLASSCOM (Sri Lanka Association of Software and Service Companies) which is he governing body for IT/BPM Industry in Sri Lanka the vision of the Sri Lankan Government for the IT/BPO industry is stated below:

The vision of the Sri Lankan Government is for the ITO/BPO industry is to become the top revenue earner for the country by 2016, with a target of US$1bn in export revenue and direct employment to increase to 100,000 and indirect to 150,000. Today, more than 300 IT and BPO companies have operations in Sri Lanka with more than 60,000 people earning more than US$400 million in exports.

Vision of the Sri Lankan Govenment

Sri Lanka is Clearly emerging as a Global IT/ BPO Sourcing Destination

BPOs in Sri Lanka

The ICT/BPO industry posted revenues of US$ 310 million in 2010/2011 becoming Sri Lanka’s 6th largest export earner.

Exports from this sector rose by 47% from US$ 210 million in 2009/2010

In 2013, export revenue from this sector reached to an estimated $ 719Mn, employing 80,000 with 220 firms engaged in it.

The IT and BPO export revenue grew 182% from $ 213 million in 2007 to $ 600 million in 2013 to be among the top five export industries in Sri Lanka.

Contribution to the Economy

Employment opportunities grew from 33,000 in 2007 to an estimated 67,000 employees in 2013 which is a 100% growth and the number of companies in the industry grew from 170 in 2007 to over 300 in 2013

Earnings from this sector is expected to reach 1Billion US$ in 2015

IT/BPO industry is expected to be the leading foreign exchange earner by 2022”

Contribution to the Economy (cont)

The Value Proposition For IT/BPO Industry

Annual Wages Around the World

IBM Global Location Trends Report 2010Sri Lanka is another Asian country that has succeeded in positioning itself as an alternative to India.

Global Services Destinations Compendium 2010 Sri Lankan’s geographical location, infrastructural facilities, direct access to the Indian market, high quality standards of the workforce, open economy andvarious free trade agreements make it an attractive outsourcing destination.

ATKearney report“Thanks to the proximity to India, similar costs and talent profile, lower levelsof wage attrition, superior business environment and infrastructure, manycompanies are viewing Sri Lanka as a natural complement to their operations in India – allowing expansion in a less overheated environment while diversifying

country risk.

World View

Stiff competition from countries such as India, China, Philippines The negative perception that were built over the years due to

the war Threat from new entrants such as Vietnam and Cambodia. Obscurity of the country as an IT/BPO destination The talent shortage where demand is greater than the supply Cumbersome documentation and procedural activities Although Sri Lankan labour is cheaper as compared to European

countries it is not cost competitive as India The high electricity tariff in Sri Lanka The IT/BPO/KPO Industry is not categorized as an Industry for

electricity tariff purposes in Sri Lanka

Challenges Faced

A shift from the general purpose rates for electricity to industrial tariff rates is required for the IT and BPO industry

Exempt this industry exempt it from the telecommunications levy.

The removal of the 15% tax on lease value for all foreign owned entities.

Retain the middle management and experts to maintain the development of the industry

Recommendations from SLASSCOM