Brief The Sri Lanka FAO growth roundtable 2012 held on 2 August 2012 was organised by CIMA and SLASSCOM to identify constraints to the growth of FAO operations in Sri Lanka and facilitate discussion of possible methods of overcoming these constraints, as well as to discuss how best opportunities arising in the industry can be capitalised on. This report provides an overview of the discussions that took place and the key action points derived from them.
Introduction Sri Lanka s FAO industry is well positioned for growth, offering companies skilled talent and a strong business environment (i.e.: low country risk, high infrastructure quality compared to neighbouring countries, and regulatory compliance) at competitive costs. However, it has not fulfilled its potential, falling short of the results achieved by other destinations such as Malaysia and Egypt, which entered the outsourcing market at a later stage. The FAO industry in Sri Lanka currently faces several internal and external threats detailed in this report, but is in a position to benefit from the opportunities stemming from the growth of the industry across the globe if these challenges are addressed, and has the potential to reach US$ 2 billion in revenue in the next few years. Methodology Findings and recommendations in this report are based on the presentations made and discussions held by industry leaders at The Sri Lanka FAO growth roundtable 2012.
Key findings Industry Growth Prospects The Compound Annual Growth Rate (CAGR) of 10-15% will create a global offshore services market with an estimated size of between 256 and 268 billion USD by 2017, of which 120 to 124 billion would be generated by BPO services. This creates significant opportunities for the industry in Sri Lanka, as well as threats from new outsourcing destinations entering an attractive market. Strengths of the Sri Lankan Business Process Outsourcing industry Skilled and knowledgeable talent pool Highest number of CIMA accounting professionals next to UK IT literacy Good knowledge of English and knowledge of other languages due to tourism Good business environment Superior infrastructure to most other low cost countries High information security Macroeconomic indicators show overall stability and business confidence Competitive costs comparable even to Tier II cities in India. Comparison is from before the depreciation of the rupee, making costs even lower. Real estate rates lower than benchmark countries in AT Kearney s report, except Mauritius Average wages in the same range as India, Bangladesh and Philippines Less attrition than other countries in the industry Time advantage One of the lowest-risk emerging markets in terms of personal safety, contrary to image. Government involvement in the industry Introduction of English to the curriculum Increasing IT literacy outside Colombo Engagement in building domestic market size through e- government push Generous incentives offered to investors
Areas to address Branding and marketing Low awareness amongst potential clients due to lack of proper branding and promotions of Sri Lankan BPO and FAO industries. Sri Lanka has not been branded as an outsourcing destination unlike Philippines and India. Sri Lanka still has an image as a high risk country, due to the war, with not enough being done to re-position the country now that the conflict has ended. BPO as a career within the country is still not popular, and requires more promotion and awareness-building. Capacity The talent pool is small compared to competitors such as India and China, and with increasing demand, there will be talent shortages. Large numbers of secondary graduates not admitted into tertiary education due to lack of capacity in the university system Talent drain through immigration of skilled labour (This is very high in respect of CIMA professionals migrating to countries such as Australia) Infrastructure incapable of handling large numbers and fast growth -Tholons Point of scale resistance assessment positions Sri Lanka at a head count of 1,490, compared with India s 14,800 and 4,400 in Philippines Costs International leased line and electricity costs are the highest among the benchmark countries. Standard electricity rates are almost 20% higher than India Highly structured regulatory and bureaucratic environment Lagging in terms of ease of transaction, for services such as visa services, BOI approvals. Complex tax administration systems Consumer piracy Consumer piracy in Sri Lanka is a concern as it is in most South Asian countries Systems Adoption of IT systems that are compatible with those used in other countries. Currently, ERP systems need to be customised for use in the industry. Certification International certifications CMMI, COPC and ISO are often used by customers as a measure of quality and overall skill levels. These are required.
Opportunities Escalating need for smart applications on specific emerging platforms to drive differentiation Cost remains an integral consideration for investors, especially with more restricted discretionary spending patterns Investors look for locations and providers which can provide flexibility in terms of changing client demands, scale of operations, cost structures, etc. Customer requirement for innovation and bundled IT, language and BPO services Threats New countries entering the global market intent on capitalising on growth potential of the industry Existing competitors leveraging on their reputation and brand Emergence of Tier II and III locations globally Protectionism lowering encouragement of offshore activities by governments attempting to retain jobs within their countries Cost may cease to be a differentiator Recommendations Focus on higher-value niche products across industries and on obtaining mid-sized deals Branding and promotion of Sri Lanka as an BPO/ FAO destination Private / Public partnership to promote the industry within the country as well as externally, and to increase the number of employable resource people. Further infrastructure improvement Simplification of visa and immigration policies Streamlining and modernisation of the regulatory environment (particularly labour laws and tax administration) Reforms in the telecom & electricity sectors to reduce cost and improve supply Government and industry need to take proactive measures to establish knowledge services hubs in areas outside Western Province Talent development Investment in universities and other educational bodies to produce qualified students possessing skills suited to industry requirements, to increase employability Vocational training - government should create high-volume programs to support the BPO industry which will need a large number of suitable talent supply Beyond English, Sri Lanka should also leverage language skills built up in the tourism industry, such as French, German, Italian, Chinese, Japanese, and Korean Government should work with industry to create more teaching capacity, particularly for IT skills Soft skills universities, finishing schools must work to improve graduate English language and soft skills such as customer service Establish knowledge services hubs in areas outside Western Province development of Tier II cities Government and industry to increase certification levels for the industry in order to quickly improve quality and the sector s international image. Certification grants could be used for this, as in Egypt. Increase flexibility and bundle IT and BPO services IP enforcement in order to reduce consumer piracy
Conclusion Sri Lanka s position and growth has thus far been mainly due to its image as a low-cost destination. However, this is not sustainable long term and it is recommended that Sri Lanka position itself as a high-value BPO service provider catering to small to medium sized projects. Increasing awareness on Sri Lanka being one of the lowest-risk emerging markets in terms of personal safety, and on eradication of civil conflict needs to be prioritised when branding the nation. Infrastructure - while currently cost-effective needs to be developed to the point of being a differentiating factor. The talent pool needs to be expanded, because as demand grows, so will attrition, creating talent shortages which can be addressed by public-private sector partnership. BPO-specific training programmes will increase the number of employable resources. To facilitate the growth of the industry and encourage players to establish themselves in Sri Lanka, more government-sponsored reforms are required, such as streamlining of the taxation system and encouragement of certification for the BPO industry. Steps also need to be taken to develop and promote a Sri Lankan outsourcing brand, in order to support the bids of local players for BPO projects. If these measures are successfully implemented, Sri Lanka s revenue from BPO functions could reach US$2 billion by 2015.
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