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Outsource magazine: thought-leadership and outsourcing strategy | May 27, 2017

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Sri Lanka as an offshore destination: realising the potential

Sri Lanka as an offshore destination: realising the potential
Outsource Magazine

Traditionally Sri Lanka’s export income was earned through tea (the world-famous Ceylon Tea), rubber and coconut until apparel and tourism became big earners. With the end of the 25-year war, tourism seems set to be a bigger foreign currency earner than ever before. However the country is yet to realise its full potential in the hospitality industry. With many new hotels coming up in the island, the service sector is beginning to boom. Another potential high-value export earner is the IT/BPO sector. It is currently the fifth-largest revenue earner for the country and the largest value-added service earner. Even though the global offshore outsourcing industry is continuing to grow at double digits, Sri Lanka has only managed to capture around 0.1 per cent of this huge business potential. The IT/ BPO sector earned around $600 million in 2012.

Outsourcing means different things to different people in the country. Some see it as a path to an exciting career while others see it as a new phenomenon and a golden business opportunity to kickstart a new avenue. AT Kearney’s Global Services Location Index placed Sri Lanka as 21st on the list of offshoring destinations, ahead of Jordon, Poland and Romania. Chances are that Sri Lanka will not be able to make it to the top but it can definitely be one of the top-ten offshore outsourcing destinations in years to come.

Sri Lanka continues to concentrate its branding as a ‘Knowledge Island’. The country has several multinational companies servicing global customers. There are tax benefits for investors and PAYE tax benefits capped at 16 per cent for BPO employees (probably the lowest in the world). This is to encourage potential employees to join the industry as well as keep the pricing low as possible for potential bids. Currently there are over 30,000 employed in the industry and the target is to reach 80,000 by 2016. This will help towards solving the current unemployment issue in the country. It will also create a new generation of youth who enjoy working for global multinationals whilst being based out of Sri Lanka.

Sri Lanka has the highest number of UK-qualified accountants outside of the UK. This niche skill has attracted much FAO, KPO and analytics work from across the globe, from insurance companies to investment banks. Many top investment banks from the US and UK have set up their portfolio and analytics arms in Sri Lanka to benefit from this unique advantage. Some world-leading airline flight entertainment systems were built in Sri Lanka. Large stock exchanges across the Europe use software built by Sri Lankan companies. As a niche player in the outsourcing market, the country has been providing services to Fortune 500 companies and FTSE 100 companies even during the thick of the war. Hence it is well-poised to take off now that the war has ended and investments are pouring in.

One of the challenges that country does face is that there are no tier-two cities outside Colombo to cater for the volume of staff required in the IT/BPO sector. The gap in infrastructure, telco services and English-speaking employable youth outside Colombo in the big cities such as Kandy, Galle and Jaffna is huge. Due to these reasons, most of the current providers of outsourced services tend to be based in and around Colombo. Hence, growing this industry beyond Colombo is a priority. It is a situation that needs to be prioritised by the government – and already there are steps being taken in the right direction. Special incentives are being given to companies which start businesses outside Colombo. In addition, cities such as Hambantota are being equipped with IT parks to cater to such business requirements.

Some of the world’s leading apparel brands are manufactured in Sri Lanka. The success of this is due to the apparel industries going to second-tier cities and putting the factories in nearby locations to attract and train skills so that the employees never have to leave their homes. The success of outsourcing in Sri Lanka would be to do the same with investments in technology, telecommunication and set up high-tech infrastructure centres to attract skilled graduates who may not be able to pay the high costs in the capital. The current industry attrition is around 20 per cent; the resource cost is definitely 20 per cent lower than neighbouring India and 40 per cent lower than the Philippines. Sri Lanka has a literacy rate of around 93 per cent which is one of the highest rates in the region.

SWOT analysis of Sri Lanka as an offshore destination:

Strengths

  • English speaking population in Colombo
  • Availability of specific talent pool (eg largest pool of CIMA accountants outside of the UK)
  • High literacy rate
  • Investor friendly policies (tax concessions/ BOI support)
  • Timezone advantage
  • International brands already established
  • Low labour cost for highly educated workforce
Weaknesses

  • Lack of English language skills outside Colombo
  • Middle and senior management brain drain
  • Infrastructure (lack of intelligent buildings, developing road and transport systems)
  • High bandwidth and electricity cost (subsidised for IT/BPO companies)
Opportunities

  • End of the civil war
  • Benefits to other industries (vehicle hires, catering services, IT hardware and software providers
  • Brand Sri Lanka as a niche knowledge hub in IT/BPO
  • Use the large Sri Lankan expat community to attract work
Threats

  • India and Philippines already have a large market share
  • China and Brazil emerging as strong low-cost players with English-language skills
  • USA onshore operations scaling up at low cost

Sri Lanka is already well-known for its sandy beaches and its ancient cultural heritage. Sri Lankans are a hard-working people and they have the natural flair of being service-oriented With offshore outsourcing, Sri Lanka has plenty to offer in terms of untapped potential and is truly the pearl of the Indian ocean waiting to be discovered.


Arul SivagananathanAbout the Author

Dr. Arul Sivagananathan is currently the Managing Director of Hayleys BPO and Shared Service Sector (a large conglomerate in Sri Lanka). He is in the General Management Council of Hayleys Group and was a pioneer is setting up BPO operations in Sri Lanka. He is a regular contributor of business articles and is an expert on BPO start-ups. He is also a member of the Excellence in Leadership advisory panel of CIMA-UK and a board member of CIMA Sri Lanka and SLASSCOM Sri Lanka. He is a qualified Civil Engineer with an MBA from Cranfield University (UK), Fellow of the Chartered Institute of Management Accountants FCMA (UK) and PhD (USA).

Image: joyfull / Shutterstock.com

Comments

  1. jason

    Sri lanka should encourage private technological parks as in india,These technological parks located in tier 2 cities will certainly help Sri lankan IT industry.

  2. Really glad Sri Lanka is finally realizing it potential to be an outsourcing destination. I think we should appreciated the effort made by SLASSCOM ( http://slasscom.lk/ ) to get the recognition Sri Lanka deserve.
    Sri Lanka companies are just starting to realize the potential of outsourcing and more important that they can compete by providing a service above the rest. Companies like EFutures ( http://www.efuturesworld.com/ ) are aggressively pursuing this by opening new offices in US and UK. The future looks very bright indeed.

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