An Assessment of IT Enabled Services in Bangladesh: A Comparative Study

AN ASSESSMENT OF IT ENABLED SERVICES IN BANGLADESH: A COMPARATIVE STUDY
1

An Assessment of IT Enabled Services in Bangladesh:
A Comparative Study

Mohammad Masud Hossain Khan

December 2012

Civil Service College, Dhaka

A dissertation submitted for the degree of
Master of Public Affairs in International Economic Relations of
Dhaka University


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The best companies outsource to win, not to shrink. They outsource to innovate faster.

- Thomas L. Friedman, The World is Flat (2005)


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Abstract

Information Technology and IT Enabled Services are widely utilized business pheno-
menon all over the world. Gartner reports, by 2015 the size of the worlds IT spending will be
US$ 2,493 billion. Bangladesh has the potential of tremendous growth in this sector which is
yet to be achieved. The main reasons behind are lacking of infrastructure, country-wide
access to internet having sufficient bandwidth within reasonable price, pool of skilled human
resources, favourable policy support and incentives, appropriate legal framework, access to
finance, foreign direct investment and political turmoil in the country. India having similar
educational facilities and cultural background has become the number one outsourcing coun-
try of the world called as the back office of the world. NASSCOM reports in FY2011 they
earned US$ 88.1 billion contributing 6.4% to the GDP having a CAGR of 24% for the last
decade while the size of Bangladeshs IT-ITES industry is only US$ 300 million according to
a World Bank report. Only from ITES sector India earned US$ 14.7 billion in 2009-10 while
Bangladesh earned US$ 13.85 million from the sector in 2008-09. The gap of earning reve-
nues between the countries from the sector is huge even though Bangladesh has tremendous
potential. Provided that the weaknesses are addressed, Bangladesh IT-ITES industry would
catch up the global players.

This report tried to assess the current status of ITES sector in Bangladesh comparing
it with the successful neighbouring country in the sector i.e. India. The report is mainly based
on secondary data collected from published papers, reports and websites of different reputed
organisations. Detail information of Bangladesh ITES industry has been taken from a BASIS
survey of the ITES sector commissioned by International Trade Centre conducted in 2009.
Latest data on Bangladesh IT-ITES sector is not that available. But I have tried to collect as
much recent information on the subject as possible.


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Table of Contents
Abstract ......................................................................................................................................3
List of Tables ..............................................................................................................................7
List of Figures ............................................................................................................................9
Lists of Abbreviations .............................................................................................................. 11
Glossary ....................................................................................................................................13
Acknowledgements ..................................................................................................................18
Dedication ................................................................................................................................19
Introduction ..............................................................................................................................20
Scope of the Study ................................................................................................................21
Executive Summary .................................................................................................................22
Methodology ............................................................................................................................29
Global Status of IT-ITES Industry ...........................................................................................31
Global Market Size ...............................................................................................................31
State of Global outsourcing ..................................................................................................33
Wide Competition .................................................................................................................34
Status of IT-ITES Industry in Bangladesh ...............................................................................36
IT Industry of Bangladesh: Size, Composition and Market .................................................36
Emergence and Growth of ITES Industry ............................................................................39
Types of Enterprises .............................................................................................................40
Investment.............................................................................................................................41
Employment Scenario ...........................................................................................................43
Yearly Average Employment Generation..............................................................................44
Employees Education ..........................................................................................................46
Exports .................................................................................................................................46
Exporting Capacity ..............................................................................................................50
Exporting Strength ...............................................................................................................53

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Weaknesses ...........................................................................................................................54
Overall Strengths ..................................................................................................................57
Rank of Weaknesses ..............................................................................................................57
Status of Compliance ............................................................................................................58
Export Market Rank .............................................................................................................59
Growth Potential ..................................................................................................................60
Export Earnings ...................................................................................................................61
Company size by exports: ................................................................................................63
Barriers to Exports ...............................................................................................................63
Access to finance:.............................................................................................................63
Internet: ............................................................................................................................64
Market access: ..................................................................................................................65
Human resource: ..............................................................................................................66
Quality control: ................................................................................................................67
Infrastructure: ...................................................................................................................67
Law and order: .................................................................................................................68
Government policy: ..........................................................................................................69
Uneven competition: ........................................................................................................69
Political situation: .............................................................................................................70
Status of Indian IT-ITES Industry ............................................................................................72
Indian IT-ITES Sector ...........................................................................................................72
Industry Segments and Size ..................................................................................................74
Performance of IT Services Firms in India (2000-10) .........................................................75
Export and Domestic Market ...............................................................................................76
Key Revenue Sources ............................................................................................................79
Global Offshore IT-ITES Market Potential ..........................................................................81
Indian IT-ITES Export Markets ............................................................................................82

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Exports vs. Domestic Markets ..............................................................................................83
India The Most Preferred ITES-BPO Destination ............................................................84
Number of Countries of Indias Services Export ..................................................................84
Country-wise Value of Exports in 2009-10 ..........................................................................87
IT Enabled Services (ITES) ..................................................................................................89
Manpower Requirements ......................................................................................................92
Competitiveness of Indian IT-ITES Industry ........................................................................93
Global Services Location Index ...........................................................................................94
Direct Contribution to the Indian Economy .........................................................................96
Indirect Contribution to the Indian Economy ......................................................................97
Indian BPO Players: Stepping on the Driving Seat .............................................................99
India is Leading ..................................................................................................................100
Talent Retention in the IT-ITES Industry ............................................................................102
Overall Business Performance of India .............................................................................103
Advantages of Indian IT-ITES Industry .................................................................................106
Outlook of Outsourcing .......................................................................................................... 117
Three Phases of Outsourcing ............................................................................................. 117
Assessment of Locations for IT-ITES Industry ................................................................... 119
Recommendations ..................................................................................................................121
Recommendations to the Government ...............................................................................121
Recommendations to the Industry ......................................................................................125
Conclusion ..............................................................................................................................127
Future Scope of Work .........................................................................................................127
Bibliography ...........................................................................................................................128


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List of Tables
TABLE 1: IT SPENDING BY SECTOR, WORLDWIDE, 2008-2015 ............................................................................... 32
TABLE 2: GLOBAL IT-ITES MARKET (US$ BILLIONS) ............................................................................................ 33
TABLE 3: DISTRIBUTION OF COMPANIES BY DISTRICT FOR CENSUS ....................................................................... 37
TABLE 4: SAMPLE DISTRIBUTION OF BASIS ITES SURVEY, 2009 .......................................................................... 38
TABLE 5: PATTERN OF ITES SERVICES IN BANGLADESH ........................................................................................ 39
TABLE 6: DISTRIBUTION OF COMPANIES BY ORIGIN FOR VARIOUS SLABS OF INVESTMENT.................................... 41
TABLE 7: DISTRIBUTION OF COMPANIES BY SEGMENT FOR VARIOUS SLABS OF INVESTMENT ................................ 42
TABLE 8: EMPLOYMENT GENERATION IN ITES SECTOR ......................................................................................... 44
TABLE 9: AVERAGE NUMBER OF EMPLOYMENT OF NEW PRODUCTION STAFF EACH YEAR .................................... 45
TABLE 10: EDUCATIONAL BACKGROUND OF HUMAN RESOURCE ........................................................................... 46
TABLE 11: VALUE OF SOFTWARE AND ITES EXPORTS FROM BANGLADESH (MILLION US$) .................................. 48
TABLE 12: STRENGTH OF ITES COMPANIES IN THE EXPORT MARKET.................................................................... 54
TABLE 13: WEAKNESS BY AREAS OF SERVICES ...................................................................................................... 56
TABLE 14: STRENGTHS OF ITES PROVIDERS OF BANGLADESH .............................................................................. 57
TABLE 15: AVERAGE RANK OF WEAKNESSES ......................................................................................................... 58
TABLE 16: INSTITUTE HAVING COMPLIANCE OR STANDARDIZATION ..................................................................... 59
TABLE 17: EXPORT MARKET RANK ........................................................................................................................ 60
TABLE 18: PERCENTAGE OF GROWTH POTENTIAL (PERCEPTION OF THE CURRENT PLAYERS) ................................. 61
TABLE 19: AVERAGE EXPORT EARNINGS BY VARIOUS SEGMENTS OF ITES IN USD, FY: 2008-09.......................... 62
TABLE 20: DISTRIBUTION OF COMPANIES BY EXPORT SIZE (%) ............................................................................. 63
TABLE 21: NATURE OF BARRIER: ACCESS TO FINANCE .......................................................................................... 64
TABLE 22: NATURE OF BARRIER: INTERNET ..................................................................................................................... 65
TABLE 23: NATURE OF BARRIER: MARKET ACCESS ............................................................................................... 66
TABLE 24: NATURE OF BARRIER: HUMAN RESOURCE ............................................................................................ 67
TABLE 25: NATURE OF BARRIER: QUALITY CONTROL ........................................................................................... 67
TABLE 26: NATURE OF BARRIER: INFRASTRUCTURE .............................................................................................. 68
TABLE 27: NATURE OF BARRIER: LAW AND ORDER ............................................................................................... 68
TABLE 28: NATURE OF BARRIER: GOVERNMENT POLICY ....................................................................................... 69
TABLE 29: NATURE OF BARRIER: UNEVEN COMPETITION ...................................................................................... 70
TABLE 30: NATURE OF BARRIER: POLITICAL SITUATION ........................................................................................ 71
TABLE 31: REGION-WISE EXPORT OF COMPUTER SOFTWARE/SERVICES EXPORTS (2009-10 VS. 2008-09) ............. 86
TABLE 32: MAJOR COUNTRIES FOR COMPUTER SOFTWARE/ SERVICES EXPORTS (2009-10) .................................. 88
TABLE 33: INDIA IT-ITES INDUSTRY SIZE (2007-12) ............................................................................................. 90
TABLE 34: INDIAN IT-ITES EXPORTS FORECAST 2006-2020 ................................................................................. 91
TABLE 35: MANPOWER REQUIREMENTS FOR IT-ITES INDUSTRY EXPORTS IN INDIA (MILLIONS) ........................... 92
TABLE 36: PROJECTED HUMAN RESOURCE REQUIREMENT IN THE IT AND ITES SECTOR (IN MILLIONS) ................ 93
TABLE 37: OUTSOURCING 1.0 TO OUTSOURCING 3.0 ........................................................................................... 118

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TABLE 38: FRAMEWORKS FOR ASSESSMENT OF LOCATIONS FOR IT SERVICES AND ITES .................................... 120


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List of Figures
FIGURE 1: GLOBAL OPPORTUNITIES FOR IT SERVICES AND ITES (US$ BILLIONS) ................................................ 31
FIGURE 2: GROWTH OF GLOBAL OUTSOURCING MARKET ..................................................................................... 33
FIGURE 3: GLOBAL IT SERVICES MARKET ............................................................................................................. 34
FIGURE 4: GLOBAL ITES MARKET ........................................................................................................................ 35
FIGURE 5: BANGLADESH SOFTWARE AND ITES INDUSTRY .................................................................................... 36
FIGURE 6: ENTERPRISE SIZE DISTRIBUTION (REVENUE AND EMPLOYEE SIZE) ...................................................... 37
FIGURE 7: GROWTH OF ITES IN BANGLADESH (PERCENT OF COMPANIES) ............................................................ 40
FIGURE 8: DISTRIBUTION OF ITES COMPANIES BY TYPE ....................................................................................... 41
FIGURE 9: ESTIMATE OF INVESTMENT BY ITES SEGMENTS (BDT MILLION) ......................................................... 43
FIGURE 10: SCALE OF IT-ITES MARKET IN BANGLADESH (US$ 300M) ................................................................. 47
FIGURE 11: EXPORT VALUE OF SOFTWARE AND ITES FROM BANGLADESH ............................................................................. 48
FIGURE 12: TOP EXPORT DESTINATIONS OF BASIS MEMBER COMPANIES ............................................................. 49
FIGURE 13: EXPORTS BASKET OF BANGLADESH ITES COMPANIES ........................................................................ 50
FIGURE 14: EXPORT REVENUE OF ITES (IN BDT) ................................................................................................. 51
FIGURE 15: EXPORT REVENUE IN PERCENTAGE VIS--VIS OWNERSHIP ................................................................. 52
FIGURE 16: AVERAGE INCOME OF DIFFERENT TYPES OF COMPANIES BY ORIGIN (US$) ......................................... 53
FIGURE 17: AVERAGE SCORES FOR WEAKNESS OF ITES COMPANIES .................................................................... 55
FIGURE 18: HIGHLIGHTS OF INDIAN IT-ITES SECTOR IN FY2012 .......................................................................... 73
FIGURE 19: REVENUE CONTRIBUTION BY MAIN COMPONENTS (US$ BILLIONS) .................................................... 74
FIGURE 20: REVENUE SHARE BY MAIN COMPONENTS (2009-10) .......................................................................... 75
FIGURE 21: REVENUES AND GROWTH OF THE IT SECTOR IN INDIA, 2000-10 ......................................................... 76
FIGURE 22: COMPONENT-WISE CONTRIBUTION EXPORT REVENUES (US$ BILLIONS) .......................................... 77
FIGURE 23: COMPONENT-WISE CONTRIBUTION DOMESTIC REVENUES (US$ BILLIONS) ......................................................... 77
FIGURE 24: EXPORT REVENUE CONTRIBUTION (2009-10) ................................................................................................ 78
FIGURE 25: DOMESTIC REVENUE CONTRIBUTION (2009-10) ................................................................................. 79
FIGURE 26: EXPORT CONTRIBUTION BY KEY SOURCES (2009-10) ......................................................................... 80
FIGURE 27: DOMESTIC CONTRIBUTION BY KEY SOURCES (2009-10) ..................................................................... 81
FIGURE 28: GEOGRAPHY-WISE EXPORT REVENUE SPLIT (2009-10) .................................................................................... 82
FIGURE 29: SHARE OF THE INDIAN ITES SECTOR IN THE GLOBAL ITES MARKET ..................................................................... 83
FIGURE 30: MARKET SHARE: EXPORTS VS. DOMESTIC (%) .................................................................................... 83
FIGURE 31: GROWTH IN NUMBER OF COUNTRIES FOR INDIA'S COMPUTER SOFTWARE/SERVICES EXPORT ............ 85
FIGURE 32: MAJOR DESTINATIONS OF EXPORTS FOR COMPUTER SOFTWARE/SERVICES DURING 2009-10 ............. 85
FIGURE 33: GROWTH IN EXPORTS OF IT ENABLED SERVICES (2005-06 TO 2009-10) ............................................. 89
FIGURE 34: INDIAS ADDRESSABLE BPO MARKET OPPORTUNITY BY VERTICALS IN 2012 ..................................... 91
FIGURE 35: INDIAS COMPETITIVE ADVANTAGE VIS--VIS OTHER NATIONS ............................................................ 94
FIGURE 36: GLOBAL SERVICES LOCATION INDEX 2011 .......................................................................................... 95
FIGURE 37: SOCIO-ECONOMIC CONTRIBUTION OF THE INDIAN IT-ITES INDUSTRY AN OVERVIEW ...................... 97

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FIGURE 38: CLIMBING UP THE INNOVATION LADDER ........................................................................................... 100
FIGURE 39: CHALLENGES OF ITES-BPO INDUSTRY ............................................................................................ 102
FIGURE 40: TALENT RETENTION MEASURES TAKEN BY IT-ITES PROVIDERS ...................................................... 103
FIGURE 41: INDIA - OVERALL PERFORMANCE ...................................................................................................... 104
FIGURE 42 INDIAS COMPETITIVE ADVANTAGE ............................................................................................................... 106
FIGURE 43 EVOLUTION OF INDIAN IT- ITES INDUSTRY .................................................................................................... 111
FIGURE 44: INDIAN DOMESTIC IT-ITES MARKET ........................................................................................................... 113


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Lists of Abbreviations
A2I Access to Information
BASIS Bangladesh Association of Software & Information Services
BCC Bangladesh Computer Council
BDOSN Bangladesh Open Source Network
BPO Business Process Outsourcing
BTRC Bangladesh Telecom Regulatory Commission
CAGR Combined Aggregate Growth Rate
CIA Central Intelligence Agency
CII Confederation of Indian Industry
CMM Capability Maturity Model
CRISIL Credit Rating Information Services of India Limited
DIT Department of Information Technology, Ministry of Communications and
Information Technology, India
D.Net Development Research Network
EEF Equity and Entrepreneurship Fund
EPB Export Promotion Bureau
ESC Electronics and Computer Software Export Promotion Council, India
FDI Foreign Direct Investment
FY Fiscal Year
GDS Graphic Design Services
GDP Gross Domestic Product
GSLI Global Services Location Index
HRO Human Resource Outsourcing
IBEF India Brand Equity Foundation
ICT Information and Communication Technology
IDC International Data Corporation
IGNOU Indira Gandhi National Open University

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IISD International Institute for Sustainable Development
IMaCS ICRA Management Consulting Services Limited
IMD International Institute for Management Development
IT Information Technology
ITC International Trade Centre
ITES Information Technology Enabled Services
KPO Knowledge Process Outsourcing
MOICT Ministry of Information & Communication Technology
NSDC National Skill Development Corporation
NASSCOM National Association for Software and Services Company
OECD Organisation for Economic Co-operation and Development
PIO Persons of Indian Origin
SEI Software Engineering Institute
SIPA Silicon Indian Professional Association
STPI Software Technology Parks of India
TCS Tata Consultancy Services
TiE The Indus Entrepreneur
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
WTO World Trade Organisation


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Glossary

A.T. Kearney:
It is a renowned management consulting firm providing strategic insights to practical
needs of project implementation and other real world needs to address their challenges to
achieve immediate and long-term business objectives. They have intensive expertise across
range of industries world-wide.

BASIS:
Bangladesh Association of Software & Information Services is the national trade body
of the software and IT Enabled Services companies of Bangladesh established in 1997. It has
now 532 member companies as of 20
th
June 2012. They represent and promote the sector tar-
geting to reach its optimum level. They also help the government in formulating necessary
policies for the sector. They also commission projects to build human resources, infrastruc-
ture and supporting marketing activities, organizing trade fairs and participating in interna-
tional trade fairs. The government of Bangladesh and international development partners pro-
vide supports to the local IT-ITES industry through BASIS.

BASIS takes up programmes and activities on -
domestic market development;
international market development;
capacity building of the member companies;
member service development and delivery;
advocacy; and
corporate social responsibility.

BDOSN:
Bangladesh Open Source Network (BdOSN) is a not-for-profit initiative of Bangla-
desh Fundamental Research Institute (BdFRI) established in 2005. The organization was
formed to promote open source software and contents in Bangladesh.


14

CII:
The Confederation of Indian Industry is a non-profit organization managed and led by
industry people, works to develop and maintain environment favaourable to industrial growth
in India through advisory and consultative initiatives having taken both the government and
the industry into confidence. It is a 112 years old business association having more than
7,000 member organisations from the broad spectrum of industries from around 362 national
and regional country-wide business associations. It has 64 offices in India and 8 overseas and
has 271 partner organizations in 100 countries.

CRISIL:
CRISIL is an internationally renowned company providing research, ratings, risks and
policy advisory services to its large customer base globally. It has offices at different loca-
tions of the world including several in India. They serve large banks and corporations across
wide range of areas. Its main shareholder is Standard and Poors, the worlds most important
credit rating agency.

D.Net:
Development Research Network has been working in Bangladesh since 2001 to reach
the benefits of Information and Communication Technology to the common mass. They are
working to promote access to information and knowledge for all and alleviating poverty us-
ing ICT based innovative models.

Deloitte:
Deloitte Touche Tohmatsu Limited (DTTL) is a UK based network of management
consulting firm providing audit, consulting, financial advisory, risk management and tax ser-
vices to its clients. It has tens of thousands of professionals working under the brand name of
Deloitte having registered in different countries world-wide as separate legal entities and re-
sponsible for their activities.

EPB:
Export Promotion Bureau, a semi-autonomous national agency works under the Min-
istry of Commerce, Bangladesh to promote exports from the country. They collaborate with
the private sectors to achieve targets of exports and help participate in international trade
fairs.

15

ESC:
Electronics and Computer Software Export Promotion Council is Indias largest elec-
tronics and IT business facilitation organization. It started its journey from 1989 with an ex-
port performance of US$ 200 million and has achieved electronics and software exports of
US$ 65 billion in 2010-11 having membership of 2,200 exporters to date. It helps foreign
companies finding business linkages and match making with reliable partners in India. It
works to accelerate exports from India.

Evalueserve:
It is a knowledge process consulting firm helping enhance productivity and capabili-
ties to give a competitive edge in the market to its clients. It has knowledge centres over the
continents in Chile, China, India and Romania.

Everest:
Everest Group is a reputed global services consulting firm working across the six
continents and broad spectrum of industries. They help improve performance of their clients
optimizing their services counseling organizations facing complex challenges of next genera-
tion global services.

Gartner:
Gartner is a leading IT research and advisory company in the world based in Stam-
ford, Connecticut, USA operating since 1979. They provide technology-related insights to its
12,000 client organizations in 85 countries world-wide helping in decision making.

Hewitt:
Hewitt was founded in 1940 and worked until October 2010 when it merged with Aon
Corporation and renamed Aon Hewitt, a subsidiary of Aon Group becoming the consulting
arm of the group. Datamonitor, a global business analyst, ranked Aon Hewitt number one in
its 2010 survey of 800 HR Outsourcing (HRO) customers around the world.

IDC:
International Data Corporation, is a leading service provider of market intelligence,
advisory services, and events of IT, telecommunication and consumer technology markets. It

16

helps make decisions on technology procurement and business strategy to IT professionals,
business executives, and the investment community. It provides local, regional and global
expertise on industry trends, opportunities and technology in more than 110 countries of the
world. It has been providing strategic insights to its clients achieving their key business ob-
jectives for more than 48 years.

IISD:
International Institute for Sustainable Development is registered as a charitable organ-
ization in Canada and working for sustainable development enhancing policy recommenda-
tions on international trade and investment, economic policy, climate change and natural re-
sources management.

IMaCS:
IMaCS is India based development and management consulting firm. It has been pro-
viding consulting services for more than 15 years across several countries and sectors. It has
served over 30 countries and completed 950 consulting assignments so far.

IMD:
IMD is a Switzerland based business school. It collaborates with organizations, teams
and individuals to provide solutions to business issues, build capacity and prepare for future
challenges having partnership with leading international companies.

ITC:
International Trade Centre is UNCTAD affiliated and World Trade Organization and
United Nations mandated body formed in 1964 and based in Switzerland. It works to promote
exports from developing countries through capacity building and marketing strategy support-
ing the private sector, trade bodies or institutions and policymakers.

KPMG:
KPMG, a worldwide network of professional services firms, is global leader provid-
ing audit, tax and advisory services to business entities in 145 countries worldwide having
123,000 professionals in its network.


17

McKinsey:
McKinsey & Company is a management consulting firm advising businesses, gov-
ernments, and institutions across the private, public and social sectors world-wide to build
internal support, finding solutions to real issues and formulate realistic recommendations.

NASSCOM:
NASSCOM is the association of IT-BPO industry of India established in 1988. It has
1,200 members. Its member companies account for 95 per cent of revenues generated from
the industry. It has been contributing to the development of Indian IT industry.

NSDC:
The National Skill Development Corporation (NSDC) is a public private partnership
initiative in India. It works to promote skill development programmes and initiatives in India
catalyzing establishment of large, quality profitable vocational institutions providing funds
and other assistance such as quality assurance, information systems and training of trainers
directly or with partnerships. It has target to train and/or develop skills of 500 million people
by 2022. It focuses on the underprivileged sections of the society, backward regions of the
country to move the people out of poverty and also on the informal sector of the economy.

Tholons:
Tholons is a strategic advisory firm for global outsourcing and investments. It devel-
ops globalization strategies, executes outsourcing strategies and monitors outcomes of out-
sourcing to meet its clients business objectives.

18

Acknowledgements

This research report is the product of the course of Masters in Public Affairs specialis-
ing in International Economic Relations offered by Civil Service College, Dhaka, which is
affiliated to Dhaka University. I am grateful to the authority, Principal, faculty members, offi-
cials and staff for helping me throughout the course for providing me the opportunity in con-
ducting this research, the support and encouragement in pursuing the degree and completing
this study.

I must thank BASIS where I worked and coordinated a survey of ITES sector of Ban-
gladesh. That survey encouraged me to take up this subject for research. I thank D.Net and
BDOSN for conducting ITES survey for BASIS and ITC for commissioning the survey.
Without their support it would not have possible to find primary data regarding Bangladesh
ITES sector.

I want to extend my special thanks to the adviser of this study, Professor Yusuf M. Is-
lam who was generous enough to support me throughout my work on this research.


19

Dedication

I am dedicating this research report to my departed father late M Nurul Islam
Khan who always inspired me to be an independent, honest, well educated and knowled-
geable social being.


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Introduction

Adam Smith propagated the idea of outsourcing in his 'competitive advantage' theory
in The Wealth of Nations in 1776. Over the years, the meaning of the term 'outsourcing' has
undergone a sea-change. Information technology has become the backbone of businesses
worldwide, 'outsourcing' is the process through which one company hands over part of its
work to another company, making it responsible for the design and implementation of certain
business process under the requirements and specifications of the outsourcing company.

IT Enabled Services (ITES), a component of IT services industry, defined as all the
services that can be provided remotely through cables, phones and computers, has the poten-
tial to change the face of an economy provided that it has necessary human re-sources, infra-
structure and marketing strategy. IT enabled services have been outsourced since more than a
decade from the developed countries to the developing countries. ITES sector grew along
with IT services industry.

NASSCOM, Indian IT business association, estimated that by 2012 the value of glob-
al IT market would stand at US$ 3,391 billion in which ITES sector would secure US$ 2,198
billion. In 2011, India earned US$ 88.1 billion for it IT-ITES industry while the size of the
industry in Bangladesh is estimated by BASIS, IT-ITES business association of Bangladesh,
as US$ 250 million. It is obvious that considering the available talent pool of human re-
sources and other similarities with India Bangladesh is still far away from them in terms of its
potential.

I have become interested in the subject when I coordinated a survey in 2009 to find
out the status of IT Enabled Services sector in Bangladesh for Bangladesh Association of
Software & Information Services (BASIS) while I was working there.

I want to delineate on the current status of IT-ITES industry in Bangladesh focusing
on the potential of ITES sector in the country. India is considered the back office of the de-
veloped world. Having the same geographical and cultural proximity Bangladesh has the ca-
pability to secure a substantial pie from the global cake of IT-ITES market.


21

The question here is why Bangladesh has not been able to achieve its potential in
ITES sector considering its capability and demand of the services in the world market when
other countries like India and Philippines having similar environment achieved the status of
the back office of the world.

Scope of the Study

The focus of the study is to weigh up the status of Information Technology Enabled
Services sector of Bangladesh though, as relevant, information about overall Information
Technology industry of the country comes in often. Detail information of Bangladesh ITES
industry has been collected from a donor funded survey of the sector in 2009 under the aus-
pices of BASIS, the trade body representing the industry in Bangladesh. It may be mentioned
here that the author was the coordinator of the survey in his capacity as a BASIS official dur-
ing his stint at BASIS. The survey under BASIS supervision conducted it in 10 major cities
of the country.

To make the reader understand the present status of the industry, market size of the
industry world over has been described. A comparison has been made with the respective in-
dustry status of India to find out the prospects and potentials of the sector in Bangladesh. A
list of recommendations has been suggested in the study.

Efforts have been invested to gather authentic and recent data while the goal was to
set down the gaps between the potentials and present status of the industry, not the authentici-
ty of every piece of data. As regards the aspects of the industry, the way of measuring the
services, business and pricing models and mode of payments are not addressed in this study.
Knowledge Process Outsourcing, the high end services of Business Process Outsourcing is
not treated here distinctly or rather ignored since it is not yet initiated in Bangladesh though
India has already treaded the path. The aspect of skills required and maintained in Bangla-
desh ITES sector is touched upon but not discussed in depth.


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Executive Summary

IT Enabled Services is a money-making business if you have that talent, required in-
frastructure and marketing network. Bangladesh has not yet achieved anything significant
from this sector even though it has sufficient talent pool and easily trainable youth while there
is outrageous growth and demand for the services world-wide.

The study has been taken up to find out the potential and prospects of the industry to-
wards contributing to the economy of Bangladesh and generating substantial employment. It
necessitated learning the trend of the industry world-wide and a comparative study with other
successful countries in this sector to understand the potential and prospect of IT Enabled Ser-
vices industry in Bangladesh. I chose only Indian IT-ITES industry for the comparative study
since India is one of the most successful countries in outsourcing IT-ITES and it has similari-
ties with Bangladesh in respect of culture and education.

Data sources of this report are mainly secondary though data of the survey conducted
by BASIS may be considered primary. The author himself was involved in conducting the
survey as the Coordinator of the survey during his tenure at BASIS. Unavailability of authen-
tic recent data was a difficulty in preparing this report. There is no separate data available on
the ITES sector in Bangladesh other than found from BASIS Survey in 2009. As it was ob-
served that even the Export Promotion Bureau of the Ministry of Commerce of Bangladesh
do not keep separate data for the sector. It says that this sector is yet to receive due impor-
tance from the government.

In the first section of this paper, I have tried to describe world-wide trend of IT-ITES
business. In the second and most important section, I tried to describe and analyse informa-
tion regarding IT-ITES business in Bangladesh. This paper focuses on ITES but because of
relevance many issues and information related to IT comes in. The data related to Bangladesh
ITES industry were mostly taken from a survey conducted by Bangladesh Association of
Software & Information Services (BASIS) in 2009. In the next section, I addressed the status
of Indian IT-ITES industry in brief. Then I compared Bangladesh ITES industry with that of
India in the next section. In the last section, I proposed a few recommendations for the im-
provement of the ITES sector in Bangladesh.

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McKinsey, in an estimate published in 2008, says that the value of global IT and ITES
is $475 billion from which less than 15% was exploited in 2007. So there is a huge market of
IT-ITES industry still untapped globally. According to IDC, NASSCOM and KPMG, global
market size of IT-ITES industry was US$ 1,184 billion and it will stand at US$ 3,391 billion.
Gartner in its December 2011 report says that worldwide IT spending, excluding telecom ser-
vices but including computing hardware, was US$ 1,823 billion and it will reach US$ 2,493
billion in 2015. And global outsourcing market reached US$ 106 billion in 2010 from US$ 51
in 2005.

According to NASSCOM-Everest, 2008 report, India secured top position in acquir-
ing global ITES market having 37% share followed by Canada (27%) and Philippines (15%).
India also gained the top position of IT services market by securing 54% of the global market
share followed by Canada having 29% of the global market.

The size of Bangladesh IT-ITES market is US$ 300 million according to a recent
World Bank report and about 30,000 professionals work in the industry as BASIS published
in 2011. There are about 800 BASIS member companies working in IT-ITES sector while
BASIS ITES Survey found 1,934 ITES companies in 10 major cities of Bangladesh. Most of
the companies are very small in size. BASIS ITES Survey 2009 focused only on six segments
of ITES namely, BPO, Data entry, Call centre, GDS, Multimedia & 3D, Service Bureau
which are the main ITES businesses in Bangladesh until now. Though the first Bangladesh
ITES company was established in 1956, the modern phenomenon of ITES industry grew in
this country in the 1990s. Investment in Bangladesh ITES sector is a meager US$ 3.88 bil-
lion. Total exports revenue from IT-ITES sector of the country was US$ 56.57 million in the
first ten months of FY 2011-12 while the sector earned US$ 45.31 million in FY 2010-11
from exports. (EPB) According to BASIS ITES Survey 2009, ITES sector of the country
earned US$ 13.85 million from exports in FY 2008-09. It may be assumed that about 200 IT-
ITES companies have exports portfolio in Bangladesh since 160 BASIS member companies
export IT-ITES services mostly to North America, Europe, Australia, East Asia and the Mid-
dle East.

Major strengths of Bangladesh ITES industry are creativity, quality control and com-
pliance while the major weaknesses of the sector are internet cost, followed by infrastructure
and cost of business as the key informants of the sector believe.

24

Access to finance, internet, market access, human resource, quality control, infrastruc-
ture, law and order, government policy, uneven competition and political situation, are the
major hindrances to ITES exports from Bangladesh identified by the industry people. Finan-
cial institutions do not have products matching the business of this sector; internet is slow and
costly; industry players do not have that capability yet to enter into international market; the
industry lack skilled human resources; they cannot provide quality services for whatever rea-
sons; there is lack of sufficient infrastructure needed for the sector especially power and high
bandwidth internet; existing laws of the land are not commensurate with the industry; gov-
ernment policies are not that favourable to the business of the sector; there is uneven compe-
tition among the players of the sector since most of them are competing for a pie from the
domestic market not having the capacity to enter into international market; lastly, the image
of the country as a business destination is yet to be uplifted owing to political instability.

On the other hand, Indian IT-ITES sector generated 2.5 million jobs and earned US$
88.1 billion in FY 2011. The sector in India has been growing with a CAGR of 24% for the
last ten years. It contributed 5.6% to the GDP of India in FY 2010.

According to an OECD study, annual growth of Indian IT services industry, which in-
cludes software and ITES, which had been growing at a double digit rates yearly, was slowed
down to 6% in 2010 due to global recession though total revenue was increased to US$ 64
billion.

In 2009-10, Indian IT-ITES industry earned US$ 73.1 billion combining domestic and
exports revenues including US$ 9.4 billion from hardware and US$ 14.7 billion from IT
Enabled Services. It is noted here that hardware segment earned US$ 9 billion from domestic
market and US$ 0.4 billion from exports and ITES earned US$ 2.3 billion from the domestic
market and US$ 12.4 billion from exports.

It is observed that hardware sales in the domestic market of India is still higher i.e.
US$ 9 billion in FY 2009-10. So it may be conferred that India has not yet reached its opti-
mum in IT-ITES sector.

Financial Institutions, Telecom, Manufacturing and Retail industries are the principal
revenue sources of Indian IT-ITES industry contributing 41%, 20%, 16% and 9% respectively

25

to its total exports. As regards the domestic market, Financial Institutions, Telecom, Manufac-
turing and Retail industries are contributing 41%, 20%, 19% and 6% respectively. These top
four sectors i.e. Financial Institutions, Telecom, Manufacturing and Retail contribute 86% to
the total IT-ITES revenues of India considering both the exports and domestic market.

US, UK and Continental Europe are the major markets of Indian IT-ITES industry
contributing 61%, 18% and 12% respectively to the export revenues of the sector.

According to a study of Evalueserve, a global specialist in knowledge processes, In-
dian IT-ITES industry has captured 45% of the global IT-ITES market in 2010 increased from
36% in 2003. More than 60% of the industrys revenue comes from exports. (NASSCOM)

In 2009-10 India exported IT-ITES services to 154 countries of the world which also
proves the industrys robustness.

A NASSCOM McKinsey report forecasts that Indian IT-ITES industry exports would
reach US$ 328.9 billion with a CAGR of 20.7% by 2019-20 from US$ 23.6 billion in 2005-
06.
OECD, in a report published in 2009, projected that by 2020 India will be ahead of its
competitors e.g. Philippines, Mexico, Israel, Ireland, Indonesia, Turkey, Brazil and Malaysia
in terms of quantity and quality of people required in the IT-ITES sector though these newly
emerged competitors have thrown challenges to the Indian industry.

India achieved the top position according to the assessment of A.T. Kearneys Global
Services Location Index (GSLI) in terms of its financial attractiveness, business environment,
skills and people availability.

Indian IT-ITES sector has been emerged as the major driver of growth within the ser-
vices industry contributing directly to its economy. A few indicators of the industrys contri-
bution are:
i) Contribution to GDP (6.4% in FY 2011)
ii) Exports revenue (US$ 50.1 billion in 2009-10)
iii) Projected employment of 3.7 million by 2012


26

The development of Indian IT-ITES sector has indirect positive impacts on its econ-
omy. Following indicators are examples of indirect contribution to the economy.
i) Further employment generation
ii) Enhancing growth of other sectors of Indian economy
iii) Balanced regional development

Indian IT-ITES industry has been able to achieve capability of performing complex
and critical business processes starting from low end back office and call centre business
within a decade. Huge investment of the Indian IT giants like TCS and Infosys in infrastruc-
ture development and training to build human resources was one of the important reasons be-
hind its success story.

Major challenges faced by Indian ITES-BPO industry are infrastructure, talent short-
age, data security and attrition.

As per IMD World Competitiveness Yearbook 2012, rated by IMD, a Swiss business
school, India is ranked 35, down from 32 in 2011, in the club of 59 most competitive econo-
mies of the world. (IMD, 2012)

The phenomenon of outsourcing has been transitioning from Outsourcing 1.0 to Out-
sourcing 3.0. The parameters of outsourcing are: Responsible Business Climate; Smart Phi-
lanthropy; Talent; Standards and Compliance; Supply Chains; Innovation; and Communica-
tions.

Locational attractiveness and e-readiness are wide acknowledged issues for outsourc-
ing. A few renowned consulting firms like A.T. Kearney, Gartner, Hewitts International and
McKinsey formulated benchmarking frameworks based on criteria like available employable
skills, especially IT skills, competitive cost of business, necessary infrastructure for IT-ITES
industry, and business friendly environment.

The main driver behind Indias success in the industry was huge investment by the IT
giants like TCS and Infosys. They invested a lot on infrastructure and training to secure stable
position in the global market. They have been able to prove their worth and became the back

27

office of large global corporate houses. They are on track to reach the target of earning US$
329 billion per year by 2020 according to a NASSCOM McKinsey estimate.

India has gained the number one position in the A.T. Kearneys Global Services Lo-
cation Index and achieved the 32
nd
position among 59 most competitive economies in the
world.

Bangladesh is yet to get its foot hold in the global market of IT-ITES. Bangladesh has
neither been able to secure a position in the top 40 outsourcing countries of the world rated
by A.T. Kearnys Global Service Location Index, nor one among the most competitive econ-
omies in the world measured by IMD. But the good news is Gartner for the first time in-
cluded Bangladesh in top 30 off shore destinations in its December 2011 report mentioning
two important weaknesses one is infrastructure and the other is proficiency in English.
Bangladesh fared worst with a rating of poor in the report.

It needs to put emphasis on development of infrastructure and human resource devel-
opment along with other incentives as provided to other sectors. The Hi Tech Park that is un-
der construction at Kaliakoir, Gazipur should be ready at the earliest. Community of Bangla-
deshi diaspora should be encouraged to invest in the local IT-ITES industry. The employees
poor level of proficiency in English is another barrier to our IT-ITES sector. So, proper atten-
tion to acquire English as a second language by our students and employees is necessary.

Bangladesh government has formulated and adopted an ICT Policy and also declared
a vision of Digital Bangladesh by 2021. But it lacks in terms of implementation. There is
tremendous gap in FDI in IT-ITES sector of Bangladesh. The government and business asso-
ciations combined should work to attract FDI to the ICT industry of the country.

Courses on different ITES segments like graphic design, CAD etc. along with English
Language may be introduced in the technical training institutes. ITES industry needs skilled
people but not necessarily many highly qualified employees like software companies. It is
observed that due to lack of infrastructural facility and low proficiency in English Call Centre
business could not make headway in Bangladesh. Collaboration between the industry and the
academia is also necessary for building human resources as per industry needs.


28

Focus should be given to provide electricity and internet facilities to the small towns
at least up to the sub-district level of the country to help spread IT-ITES industry to the
length and breadth of the country and reduce youth unemployment.

Banks and financial institutions should be made understood about the nature of IT-
ITES business and encouraged to offer products commensurate with the industry to meet its
financing needs. Government also may try to provide incentives in procuring local services
and solutions within the purview of WTO provisions.

Due importance should be given to compliance issues to make footprints in the global
market. It is observed that the industry people are yet to give appropriate importance to the
issue. The industry associations may initiate to make the industry people understand and rea-
lise its importance in the world market.


29

Methodology

Information Technology including IT Enabled Services is a billion dollar services in-
dustry world-wide. With appropriate infrastructure and skilled human resources any nation
may gain a substantial chunk from the whole pie of the global industry. India and The Philip-
pines have been successful marking their indelible foot prints in the global arena of the out-
sourcing IT-ITES using their capability intelligently. The objective of this work is to find an-
swer to the question, Why Bangladesh having similar economic, cultural, educational and
political background failed to tread the world stage of IT-ITES industry?

As a student of International Economic Relations and professional of IT industry in
Bangladesh, I was interested to investigate the issue, assess the status of the industry in Ban-
gladesh, compare it with Indian IT-ITES industry and find the way out from being decrepit.

I tried to describe here the world-wide market size of the industry, status of the sector
in Bangladesh and India, finding the wide gaps between the two countries in terms gains from
the sector, identifying the differing issues, comparing the status of the selected issues between
the two neighbouring countries, finding out the reasons of Indias tremendous success in the
industry which may enlighten interested people gaining in-depth insights about the future
course to be taken to uplift the sector to the global stage.

The sources of data used here are mainly secondary taken from reliable sources. I
gave importance to pick information from reputed organizations where available to make the
study trustworthy to the readers. The focus of the study is on Information Technology
Enabled Services but you would find it overlapping with the closely linked IT industry as a
whole. Though I have been careful throughout my research to pick only authentic information
for the analysis, main objective of the study is to provide a picture of the industry in Bangla-
desh and India in light of the world-wide demand for the services. You would find slight vari-
ations in different data sources but that would not harm the purpose of the study.

As regards Bangladesh IT-ITES industry, there are not enough reliable sources of re-
cent data. Not many studies have been conducted on the sector in recent times in my know-
ledge. I have depended mainly on BASIS ITES Survey 2009 for detail information of the sec-

30

tor. But I have incorporated as recent data as possible, where available, on revenues earned
from the sector in both the discussed countries. I have used data from Export Promotion Bu-
reau of the Ministry of Commerce, Bangladesh for the exports earning from the sector as a
whole, no differentiation is made their for ITES. It has been most difficult to collect reliable
data on revenue earnings from the domestic IT-ITES market.

I tried to find out the reasons behind Indias success story in it IT-ITES sector and
look into Bangladesh on the respective points to find the possible ways to succeed in the in-
dustry though every story is different and everything cannot be replicated while it may not
ensure same results following the same path.

At the end, I have tried to formulate some recommendations for the government and
the industry people but I hope the readers would be able to develop their own recommenda-
tions getting insights from the information and analyses described in the report. I would be
happy if this report would be helpful for further research on the subject and the development
of IT-ITES sector of Bangladesh.

31

Global Status of IT-ITES Industry

Global Market Size

McKinsey estimates the value of annual global market for IT and ITES is $475 billion
(McKinsey Global Institute 2008) from which less than 15% i.e. about $65 billion was ex-
ploited in 2007. (Norbhu, Kharbanda, Kuek, Takagaki, & Hoffman-Kiess, 2009)

Figure 1: Global Opportunities for IT Services and ITES (US$ Billions)

So it is obvious that a large share of the market is still untapped and there is a great
opportunity for the capable countries.


32

Table 1: IT Spending by Sector, Worldwide, 2008-2015

Source: Gartner (December 2011)

According to Gartners 2011 report, global IT spending would reach $3,798 in 2012 and
$4,377 by 2015 having a CAGR of 5% and according to NASSCOM, global IT-ITES market would
reach US$ 3,391 in 2012.


33

Table 2: Global IT-ITES market (US$ billions)
2002 2003 2006 2009 2012
IT* 392 441 625 864 1,193
ITeS# 792 1,838 1,213 1,633 2,198
Total 1,184 1,322 1,838 2,497 3,391
Source: IDC, NASSCOM, KPMG

* IT Services refer Systems Integration and Information Systems Consulting, application de-
velopment and support as well as IT training services.

# IT-enabled services comprise support for human resources, payment processing, finance,
customer care, administration and content development (including high end design and de-
velopment work).

State of Global outsourcing

In 2010, global outsourcing market reached US$ 106 billion having 16% of CAGR
since 2005 though the growth was slowed down a bit due to the recession in the western
countries and especially in the USA. Gartner predicted that global IT outsourcing spending
would have reached $315.8 billion in 2011 having 7.7% growth from the previous year.

Figure 2: Growth of Global Outsourcing Market
(The market size is in billion US$)

Source: NASSCOM, Everest Research

Wide Competition
A global competition, ranging through Asia, Europe, North and Latin Americas, is
going on for the attractive market of IT Services and ITES businesses as the following pair of
charts delineate. Largest chunk of the services has been captu
Figure
Source: Tholons 2006

According to a report of Tholons,
investments, India and Canada are the major shareholders of global IT services market
capturing 54% and 29% of market share respectively while
8% of the market share, China 3%, Central & Eastern Europe
2%.
29%
1%
8%
3% 2%
34
charts delineate. Largest chunk of the services has been captured by India alone.

Figure 3: Global IT Services Market
According to a report of Tholons, a strategic advisory firm for global outsourcing and
India and Canada are the major shareholders of global IT services market
capturing 54% and 29% of market share respectively while Ireland has been able to secure
8% of the market share, China 3%, Central & Eastern Europe 3%, Philippines 1% and
3%
54%
2%
China
India
Canada
Philippines
Ireland
Central & Eastern Europe
Others

a strategic advisory firm for global outsourcing and
India and Canada are the major shareholders of global IT services market
Ireland has been able to secure
3%, Philippines 1% and others

Figure
Source: NASSCOM-Everest 2008

As per 2008 NASSCOM
ITES market also. It has been able to secure 37% share of the global ITES market followed
by Canada having 27% and Philippines 15%
each has been able to achieve 5% o
and others got 5% of the share.

From both the above two pie charts we observe that India is the largest market for
both IT Services and ITES in 2006 and 2008 respectively followed by Canada. The
Philippines has been able to secure a good chunk from the pie of global ITES market.

27%
15%
5%
4%
5%
35
Figure 4: Global ITES Market
Everest 2008
As per 2008 NASSCOM-Everest report, India is the highest achiever in the global
It has been able to secure 37% share of the global ITES market followed
and Philippines 15% of the share. Among others, Ireland and Mexico
each has been able to achieve 5% of the market share while Central & Eastern Europe 4%
the above two pie charts we observe that India is the largest market for
5%
2%
37%
5%
Mexico
China
India
Canada
Philippines
Ireland
Others

India is the highest achiever in the global
It has been able to secure 37% share of the global ITES market followed
Ireland and Mexico
f the market share while Central & Eastern Europe 4%
the above two pie charts we observe that India is the largest market for

36

Status of IT-ITES Industry in Bangladesh

IT Industry of Bangladesh: Size, Composition and Market

According to BASIS survey, more than 800 registered software and ITES (IT Enabled
Service) companies are operating in Bangladesh. Few hundred more unregistered small and
home-based software and IT ventures are working for local and international markets. The
survey report says that ITES sector is earning more revenue (56%) than software (44%).
(BASIS, 2011)

Figure 5: Bangladesh Software and ITES Industry

The size of the industry is estimated to be around BDT 1,800 crore (US$ 250 million).
Approximately 30,000 professionals, including IT and other graduates, are employed in the
sector. IT industry is one of the main quality employment providing sectors for the educated
mass of the country having average salary is BDT 15,000. (BASIS 2011)


37

Figure 6: Enterprise Size Distribution (Revenue and Employee Size)

According to BASIS survey, most of the companies (64.1%) employed 10 to 50
people. A major portion of the enterprises i.e. 43.1% earn between BDT 100,000 to
5,000,000 per year individually.

Table 3: Distribution of Companies by District for Census
Sl. District Number %
01. Bogra 58 3.0
02. Chittagong 234 12.1
03. Comilla 130 6.7
04. Dhaka 996 51.5
05. Gazipur 170 8.8
06. Jessore 31 1.6
07. Khulna 64 3.3
08. Narayanganj 28 1.4
09. Rajshahi 106 5.5
10. Sylhet 117 6.0
Total 1,934 100
(Raihan & Billah, 2009)


38

A survey was conducted by Bangladesh Association of Software & Information
Services (BASIS) at the end of 2009, both in census and sample method, on IT Enabled
Services enterprises in ten selected cities of the country mentioned in the table above. It
shows the distribution of ITES companies in the specified cities. The census survey found
1,934 ITES ventures in the areas. Major portion of the companies i.e. 51.5% are situated in
Dhaka counting 996 followed by Chittagong having 234 or 12.1% ITES companies.

Table 4: Sample Distribution of BASIS ITES Survey, 2009
BPO
Data
entry
Call
centre
GDS
Multimedia
& 3D
Service
bureau
Total
Dhaka 308 43 36 131 42 80 458
Chittagong 23 2 1 5 5 8 28
Comilla 10 0 0 6 1 0 15
Sylhet 32 1 0 5 5 3 35
Khulna 5 6 0 6 12 1 12
Jessore 0 11 1 2 0 0 14
Bogra 14 2 0 12 0 0 15
Rajshahi 6 4 1 3 3 1 15
Narayanganj 5 0 1 2 0 0 6
Gazipur 3 0 0 0 0 1 3
Total 406 69 40 172 68 94 601

BASIS selected 601 companies from all the companies found from census survey in
2009 to have an in-depth study on those to find out detail status and trend of the industry in
Bangladesh. For the intensive study BASIS used structured questionnaire and debriefing of
key informants from the sector.


39

Table 5: Pattern of ITES Services in Bangladesh
Segment Number Percent (%)
BPO 691 36.6
Data entry 335 17.7
Call centre 46 2.4
GDS 731 38.7
Multimedia & 3D 888 47.0
Service Bureau 736 39.0

The table reflects that most of the companies surveyed work on Multimedia and 3D
(47%) followed by Service Bureau (39%), Graphic Design Services (38.7%) and BPO
(36.6%) whereas only a little portion of the enterprises work on Call Centre (2.4%) not
conforming to widespread expectations.

Emergence and Growth of ITES Industry

The first ITES company in Bangladesh, Haroon Engineering Ltd., was established in
1956. ITES as a sector emerged in early 1990s. In the last decade ITES industry grew very
fast. Two-thirds of the total companies in the industry emerged in this period. Number of
enterprises expanded considerably in 2007 and 2008 according to the survey.


40

Figure 7: Growth of ITES in Bangladesh (Percent of Companies)


Reduced cost of internet bandwidth might have helped in the growth of the sector.
Comparatively old companies have been able to gather substantial experience to cope with
new market demands, technology and regulations.

Types of Enterprises

Most of the ITES companies (76.2%) are proprietorship which suggests that the
industry is in its nascent stage but it is growing. BASIS Survey 2009 found that 16.2%
companies are private limited, 7.3% partnership and 0.3% public limited companies.


Figure 8: Distribution of ITES Companies by Type

Investment

According to BASIS ITES Survey 2009,
ITES industry of Bangladesh in which BDT 3.21 billion has been invested by the local
companies; BDT 137.24 million by foreign companies and BDT
invested by joint venture companies
Table 6: Distribution of Companies by Origin for Various Slabs of Investment
Investment Slab Local
<BDT 100,000
2.4
BDT 100,001-500,000
17.
BDT 500,001-1,000,000
14.
BDT 1,000,001-
2,000,000
18.
BDT 2,000,001-
5,000,000
17.
BDT 5,000,001-
10,000,000
8.4
More than 10,000,000 13.
Total 91.2
41
: Distribution of ITES Companies by Type
to BASIS ITES Survey 2009, BDT 3.88 billion has been invested in the
in which BDT 3.21 billion has been invested by the local
BDT 137.24 million by foreign companies and BDT 531.43 million has been
enture companies.
: Distribution of Companies by Origin for Various Slabs of Investment
(%) International (%) Joint venture (%)
4 0.0 0.2
17.5 0.2 0.2
14.4 0.5 0.3
18.3 0.2 0.5
17.1 1.0 0.3
4 0.5 1.0
13.2 0.5 3.3
91.2 2.9 5.9
Partnership
Private Limited
Proprietorship
Public Limited

BDT 3.88 billion has been invested in the
in which BDT 3.21 billion has been invested by the local
531.43 million has been
: Distribution of Companies by Origin for Various Slabs of Investment
Total (%)
2.6
17.9
15.2
19
18.4
9.9
17
100
Private Limited
Proprietorship
Public Limited

42

There is a lack of foreign direct investment (FDI) in the ITES sector of Bangladesh as
the table 6 shows. Only 0.5% of the total ITES companies with 100% foreign fund invested
more than BDT 10 million and 3.3% of the surveyed companies which are joint venture ITES
enterprises invested above BDT 10 million.

Table 7: Distribution of Companies by Segment for Various Slabs of Investment
BPO
Data
Entry
Call
Centre GDS
Multimedia
& 3D
Service
Bureau Total
<BDT 100,000 1.27 10.77 2.70 3.57 6.06 1.11 2.57
BDT 100,001 500,000 13.16 29.23 0.00 20.85 25.76 9.89 17.81
BDT 500001 1,000,000 14.94 16.92 10.81 22.02 15.15 9.89 15.41
BDT 1,000,001 2,000,000 21.01 12.31 18.92 20.83 9.09 18.68 19.35
BDT 2,000,001 5,000,000 19.75 10.77 13.51 16.07 15.15 15.38 18.32
BDT 5,000,001 10,000,001 10.63 4.62 16.22 7.14 7.58 8.79 9.76
More than 10,000,001 19.24 15.38 37.84 9.52 21.21 36.26 16.78
100 100 100 100 100 100 100
Total 67.64 11.13 6.34 28.77 11.3 15.58 100

Highest investment in the ITES sector has been received by BPO companies,
followed by graphic design services whereas lowest investment has been received by the call
centres.

43

Figure 9: Estimate of Investment by ITES Segments (BDT Million)


BASIS Survey also found out that the highest amount of investment has been made
into Business Process Outsourcing (BPO) investing BDT 1.91 billion, followed by Service
Bureau BDT 639 million, Graphic Design Services BDT 515.55 million, Multimedia & 3D
Animation BDT 304.30 million, Call Centre BDT 286.05 million, and Data Entry BDT
223.08 million.

Employment Scenario

BASIS survey found that total 25,420 employments have been created in ITES sector
until 2009 [Table 8]. Local companies generated 21,241 employments, joint venture
companies 3,226 and foreign companies only 953 jobs. Although local companies are the
highest job creator in the ITES sub-sector, the average size of employees in local companies
is only 11. Average size of employees in joint venture companies is the biggest with 87
employees while it is 56 for foreign companies.


44

Table 8: Employment Generation in ITES Sector
BPO
Data
Entry
Call
Centre
GDS
Multi-
media
Service
Bureau
Total
Average
employee
per
company
Local 8,465 6,010 873 1,479 1,534 2,880 21,241 11
International 440 10 29 239 15 220 953 56
Joint Venture 1,227 395 437 368 239 560 3,226 87
Total 10,132 6,415 1,339 2,086 1,788 3,660 25,420 13

BPO enterprises, highest job creator of the ITES sector employed 10,132 persons,
Data Entry 7,415, Service Bureau 3,660 and Graphic Design Services 2,086 persons.

Yearly Average Employment Generation

In average, yearly highest employment has been generated by Service Bureau sub-
sector employing 35 people followed by Multimedia & 3D employing 31 staff. Graphic
Design Services segment employed the lowest i.e. 9 persons in average.


45

Table 9: Average Number of Employment of New Production Staff Each Year
Segment Origin Total
BPO
Local 13
International 8
Joint venture 14
Average 13
Data entry
Local 19
International 13
Joint venture 49
Average 22
Call centre
Local 13
International 6
Joint venture 11
Average 13
GDS
Local 8
International 9
Joint venture 11
Average 9
Multimedia & 3D
Local 30
International 3
Joint venture 41
Average 31
Service bureau
Local 37
International 12
Joint venture 15
Average 35


46

Employees Education

Majority of the employees in the sector is high school graduate but there are about
17% bachelors and more than 8% master degree holders. Only 1.7% employees have B.Sc.
Engineering degree. Though the sector may not need lots of highly qualified engineers but
still for the development of the sector to its potential and be able to compete in the world
market, it needs to increase the number of engineers.

Table 10: Educational Background of Human Resource
Academic Qualification Share (%)
Master Degree 8.3
Bachelor Degree 16.9
Higher Secondary Certificate 31.5
Secondary School Certificate 19.6
B.Sc. Engineering 1.7
Diploma Engineering 3.3
Others 18.7
Total 100

Exports

The trend of ICT services exports of Bangladesh says that the sector is still in its in-
fancy in comparison to our neighbouring country like India. It is too ambitious to compare
with India since it is a huge economy having large number of educated and skilled young
population. But we should consider Indias progress in the IT-ITES sector to evaluate Ban-
gladeshs present position in the sector and what needs to be done to achieve its potential.


Figure 10: Scale of IT
Source: The World Bank, 2009

IT-ITES sector of Bangladesh is still reeling much below half a billion dollar
300 million business combining hardware, software and ITES according to the World Bank
Report on ICT, 2009 as we see in the pie chart
FY2009-10 in an estimate. (PwCL
sector in Bangladesh i.e. US$ 30 million.

29%
10%
47
: Scale of IT-ITES Market in Bangladesh (US$ 300m)
Source: The World Bank, 2009
sector of Bangladesh is still reeling much below half a billion dollar
business combining hardware, software and ITES according to the World Bank
Report on ICT, 2009 as we see in the pie chart above, whereas India gained $73.1 billion
(PwCL-CII, 2011) The share of ITES is seen only 10% of the total
i.e. US$ 30 million.
61%
Hardware/Network Service
Software
ITES

sector of Bangladesh is still reeling much below half a billion dollar i.e. US$
business combining hardware, software and ITES according to the World Bank
whereas India gained $73.1 billion in
The share of ITES is seen only 10% of the total
Hardware/Network Service

Figure 11: Export Value of Software and ITES from Bangladesh
Source: EPB and Bangladesh Bank

Exports of IT and Information Technology Enabled Services from Bangladesh have
been growing well since the beginning of the new millennium in 2000. There was a slow
down only in 2006-07 and 2007
due to political upheaval and undemocratic governance in Bangladesh.

Table 11: Value of Software and ITES Exports from Bangladesh (Million US$)
Fiscal
year
2001-
02
2002-
03
2003-
04
2004
Export
value
2.8 4.2 7.19 12.68
Source: EPB and Bangladesh Bank

In FY2011-12, Bangladesh earned
Enabled Services, which is meager
services, how much India, our neighbouring country
tive unemployed educated mass.
many university graduates or graduate engineers
grounds may be easily trained and employed in the
2.8
4.2
7.19
12.68
0
10
20
30
40
50
60
70
80
2001-02 2002-03 2003-04 2004
IT-ITES Exports (US$ millions)
48
: Export Value of Software and ITES from Bangladesh
been growing well since the beginning of the new millennium in 2000. There was a slow
07 and 2007-08 may be because of deficiency in investors confidence
due to political upheaval and undemocratic governance in Bangladesh.
: Value of Software and ITES Exports from Bangladesh (Million US$)
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
12.68 27.01 26.08 24.09 32.91 35.36
12, Bangladesh earned US$ 70.81 million exporting software and IT
meager if it is compared with the world market demand for the
India, our neighbouring country, exports and our easily trainable
It is to be noted that IT Enabled Services sector do not need
or graduate engineers. Less educated and people from other bac
grounds may be easily trained and employed in the ITES industry.
12.68
27.01
26.08
24.09
32.91
35.36
45.31
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010
ITES Exports (US$ millions)
IT-ITES Exports (US$ millions)

been growing well since the beginning of the new millennium in 2000. There was a slow-
ency in investors confidence
: Value of Software and ITES Exports from Bangladesh (Million US$)
2010-
11
2011-
12
45.31 70.81
million exporting software and IT
with the world market demand for the
easily trainable prospec-
sector do not need
people from other back-
45.31
70.81
2010-11 2011-12

49

Figure 12: Top Export Destinations of BASIS Member Companies

Most of the IT-ITES companies of the country are members of BASIS. According to
BASIS, more than 160 companies from its membership have export portfolios to their credit
and about one-third of those are 100% export oriented. The above graph shows that like other
sectors of Bangladesh, IT-ITES companies also have North America as their principal desti-
nation of exports followed by Europe and Australia. Japan and the Middle East are growing
markets for the countrys IT-ITES industry. Language is a barrier to these prospective mar-
kets.


Figure 13: Exports Basket of Bangladesh ITES companies

Exporting Capacity

BASIS ITES Survey 2009 reveals that
export their services abroad, the rest are doing business in the domestic market. Foreign
(88.73%) and joint venture companies (70.04%) companies mostly meet foreign demands.
Only 17 companies exclusively serve forei
have access to foreign market. Most of the ITES companies here that serve only domestic
demand may use their expertise for meeting foreign market demands in the coming days.

The ITES companies having exporting
USA (35%), followed by Europe (27%), East Asia (21%), and Middle East (12%). There are
a few potential markets having little share at the moment are Africa (3%) and Latin America
(2%).

Latin America
2%
East Asia
21%
50
: Exports Basket of Bangladesh ITES companies
BASIS ITES Survey 2009 reveals that only 164 companies (8.48%) out of 1,934
Only 17 companies exclusively serve foreign markets while only 7.13% of the companies
The ITES companies having exporting portfolios have major share of their baskets to
USA
35%
Africa
3%
Europe
27%
Latin America
Middle East
12%

only 164 companies (8.48%) out of 1,934
gn markets while only 7.13% of the companies
portfolios have major share of their baskets to

51

Figure 14: Export Revenue of ITES (in BDT)


BASIS ITES Survey 2009 found that the total estimated earnings from ITES export is
US$ 13.85 million. BPO and Service Bureau, two major segments of the ITES sector of the
country, have been able to gain US$ 5.45 million and US$ 5.41 million respectively while
Graphic Design Services could able to secure US$ 1.10 million. [Figure 14]


Figure 15: Export Revenue in Percentage

From total export basket of the countrys ITES sector, local companies have been able
to capture 45% share which equals to US$ 6.20 million, followed by joint venture companies
gaining 39% share having US$ 5.48 million and the foreign companies achieved 16% share
earning US$ 2.17 million.

Joint venture
39%
52
: Export Revenue in Percentage vis--vis Ownership
Local
45%
International
16%


53

Figure 16: Average Income of Different Types of Companies by Origin (US$)


Average income of the ITES exporting companies from Bangladesh was US$ 84,439
as per BASIS Survey 2009. Joint venture companies performed the best earning in average
US$ 365,328 while international companies could earn US$ 83,394 and the local enterprises
exported US$ 46,268.

Exporting Strength

As per BASIS ITES Survey, key informants of the sector opine that creativity, quality
control and compliance are major strengths of the industry. Low standard deviation says that
their opinions are consistent. In a 10-point scale, creativity has received the highest points
(8.16), followed by quality control (8.15) and compliance (7.86). Market access has got the
lowest point (6.71), followed by infrastructure (6.85).


54

Table 12: Strength of ITES Companies in the Export Market
Strength Score on a 10-point scale Std. Deviation
Creativity 8.16 1.86
Quality Control 8.15 1.38
Compliance 7.86 1.81
HR 7.37 1.93
Domain Knowledge 7.37 2.47
Internet Cost 7.13 2.64
Geographic Location 7.04 2.11
Infrastructure 6.85 2.33
Market Access 6.71 2.86

Observing the strengths, we may hope that the industry has bright prospect even
though it has yet to be able to contribute substantially to the national economy. To achieve the
sectors potential we should work on enhancing the strengths of market access and
infrastructure.

Weaknesses

According to the industry people, major weaknesses of Bangladesh ITES industry are
internet cost, followed by infrastructure and business cost. In a 10-point score, internet cost
received 7.04, infrastructure 7 and business cost 6.95 points. Among other considerable
weaknesses, market access, geographic location, domain knowledge, human resource and
compliance are important. Quality control and creativity are not serious weaknesses as have
been found. [Figure 17]

To the Business people of BPO and Service Bureau, market access is the most
important barrier whereas for others internet is the most severe hindrance. We may conclude
that industry players confidence is high since the scores for weakness is lower than the
scores for strength.


55

Figure 17: Average Scores for Weakness of ITES Companies


One of the major hindrances to the business i.e. internet can be addressed by the
government initiative lowering the price of bandwidth. To make the presence of local ITES
companies felt in the global market, special programmes may be taken jointly by the industry
and the government. Commercial Attachs of Bangladesh High Commissions around the
world may play substantial role in this regard.

Internet cost
Infrastructure
Cost
Market access
Geographic location
Domain knowledge
HR
Compliance
QC
Creativity
0
5
10
7.04
7
6.95
6.9
6.09
5.71
5.57
5.35
4.95
4.82

56

Table 13: Weakness by Areas of Services
Weakness
Finance &
accounting
Human
resource
Business
process
Information
technology
Legal
process
Document
process
Knowledge
process
Contact/
call
centre
CRM
services
Sales and
marketing
Multimedia
& graphics
design
All
Market
access
39 29 35 52 3 14 17 10 24 30 27 75
Market
access
rank
(average)
6.83 6.74 6.89 6.72 4.67 6.67 7.11 5.82 6.42 6.31 6.68 6.9
HR 24 16 20 33 2 11 14 10 14 20 22 47
HR rank
(average)
5.44 5.41 5.35 5.71 4.5 4.42 4.93 5.45 5 5.52 5.54 5.6
QC 9 5 11 11 0 4 5 5 5 5 5 18
QC rank
(average)
4.67 5.2 5.08 5.08 0 4.8 5 4.83 3.8 4.17 5 5
Com-
pliance
10 2 7 13 0 4 4 3 4 2 3 15
Com-
pliance
rank
(average)
5.4 3.5 4.56 5.64 0 4.8 4.8 5 3.5 4.5 4.4 5.4
Infrastruc-
ture
35 18 33 47 3 10 11 8 15 27 23 68
Infrastruc-
ture rank
(average)
7.25 7.17 7.03 7.33 7.33 5.91 5.67 5 6.87 6.79 7.13 7
Internet 33 22 28 48 2 16 16 11 14 22 32 75
Internet
rank
(average)
7.28 7 7.18 6.81 8.5 7.25 6.88 7.2 6.38 7.43 7.69 7
Geograph-
ic location
20 14 15 22 1 8 9 3 13 14 15 33
Geograph-
ic location
rank
(average)
6.53 6.25 5.88 6.36 5 6.22 5.2 5.25 6.23 6.2 6.24 6.1
Domain
know-
ledge
9 7 8 15 0 4 6 2 6 3 5 17
Domain
know-
ledge
rank
(average)
5 5.88 6 6 0 6.4 6.13 4.33 4.17 4.83 6 5.7
Creativity 5 2 4 6 0 2 3 1 3 2 3 8
Creativity
rank
(average)
4.6 3.5 5.33 5.14 0 4.67 6 2.5 2.33 3.67 4.4 4.8
Cost 17 14 20 29 0 8 11 6 6 14 16 39
Cost rank
(average)
6.47 7.85 7.2 7.07 0 6.89 6.64 7.43 5.17 6.71 7.47 7


57

Overall Strengths

The industry people, considering the overall strengths of the ITES sector of the
country including companies doing business in the local market, identified creativity, Quality
Control and human Resources are foremost strengths. The reasons, for low confidence levels
in important areas like cost advantage and domain knowledge, need further research. BPO
and Service Bureau components consider geographic location as the most important strength
while Data Entry houses think access to internet and Call Centres regard cost advantage.

Table 14: Strengths of ITES providers of Bangladesh
[10 is the most important and 1 is the least important]
Strength BPO
Data
entry
Call
centre
GDS
Multimedia
& 3D
Service
bureau
Weighted
score
Weighted
overall
rank
Market access
(Average Rank)
6 6 3 8 6 6 3.91 6
HR
(Average Rank)
3 3 2 3 3 4 6.02 3
QC
(Average Rank)
2 1 1 2 4 2 8.02 2
Compliance
(Average Rank)
9 9 6 9 7 8 2.53 8
Infrastructure
(Average Rank)
7 7 4 7 6 7 3.71 7
Internet
(Average Rank)
8 10 9 6 9 9 2.2 9
Geographic location
(Average Rank)
10 8 8 5 8 10 2.2 9
Domain knowledge
(Average Rank)
5 4 7 4 5 5 4.25 5
Creativity
(Average Rank)
1 2 5 1 1 1 9.21 1
Cost
(Average Rank)
4 5 10 4 2 3 4.81 4

Rank of Weaknesses

It is observed from BASIS ITES Survey, 2009, considering both the average and
weighted scores, internet, infrastructure and market access have severe weaknesses for
reaching to its optimum level and capturing an achievable pie from the exporting markets.


58

Graphic Design Services and Multimedia companies mentioned creativity is the
severest weakness while Service Bureau enterprises named both creativity and domain
knowledge as the severest weaknesses to the growth of the industry. It is to be noted that
scores for strengths are higher than the scores for weaknesses, which indicates that the
industry players are more confident about their strengths than they apprehend about their
weaknesses.

Table 15: Average Rank of Weaknesses
[10 is the most important and 1 is the least important]
Weakness BPO
Data
entry
Call
centre
GDS
Multi-
media
& 3D
Service
bureau
Weighted
overall
rank
Aver-
age
score
Weighted
score
Market access
(Average Rank)
1 2 2 2 2 1 2 6.89 6.39
HR
(Average Rank)
3 4 3 4 4 4 4 5.57 3.45
QC
(Average Rank)
6 5 4 8 7 8 9 4.95 1.56
Compliance
(Average Rank)
5 5 6 1 8 7 8 5.35 2.42
Infrastructure
(Average Rank)
2 2 4 3 3 2 3 7 5.54
Internet
(Average Rank)
2 1 1 1 1 3 1 7.04 8
Geographic location
(Average Rank)
4 3 6 6 6 5 7 6.09 2.77
Domain knowledge
(Average Rank)
5 6 7 7 8 9 10 6.95 1.52
Creativity
(Average Rank)
2 2 8 9 9 9 5 7.8 3.22
Cost
(Average Rank)
4 4 5 5 5 6 6 6.49 3.21

Status of Compliance

The status of compliance in the ITES industry of the country is terrible as it is found
from BASIS ITES Survey 2009. In average only 8.85% ITES enterprises are practising
compliance and standardization. Data shows that joint venture companies are practising more
(17.14%) than the local and even international ITES companies working in Bangladesh. The
highest percentage of companies practising compliance and standardization are international

59

Data Entry and Service Bureau companies and joint venture Service Bureau enterprises i.e.
25%.

Table 16: Institute Having Compliance or Standardization

Local (%) International (%) Joint Venture (%) Total (%)
BPO 6.42 10 17.86 7.39
Data Entry 6.56 25 14.29 8.70
Call Centre 6.45 00 00 5.00
GDS 7.98 16.67 20 9.30
Multimedia & 3D 12.90 00 16.67 13.24
Service Bureau 12.35 25 25 14.89
Total 7.90 14.29 17.14 8.85

It is astonishing to observe that international call centres and multimedia companies
along with the joint venture call centres in Bangladesh are not practising compliance and
standardization. It may be concluded that these enterprises are completely focusing their
businesses in the local market.

It seems that most of the ITES companies in Bangladesh are yet to give importance
and/or too young to initiate practising compliance and securing internationally accredited
standardization. Lack of inroads into the international market and focusing on the local
market may be other causes for not following compliance and standardization. It may be
mentioned here that 48.3% of the total ITES companies from the major ten cities of the
country started operation between 2006 and 2009.

Export Market Rank

To enter into exporting markets creativity of the local ITES enterprises must be
enhanced substantially. It is the largest barrier for all ITES enterprises of the country
intending to enter into the world market.


60

Table 17: Export Market Rank
Weakness BPO
Data
Entry
Call
Centre
GDS
Multi-
media
& 3D
Service
Bureau
Total
Market access
(Average Rank)
53
(6.58)
13
(5.57)
8
(5.80)
19
(6.66)
17
(6.88)
31
(6.87)
75
(6.89)
HR (Average
Rank)
32
(5.51)
7
(4.12)
7
(4.87)
13
(5.53)
14
(5.66)
17
(4.76)
47
(5.57)
QC (Average
Rank)
10
(4.83)
5
(4.50)
6
(5.00)
5
(5.33)
4
(4.00)
7
(4.57)
18
(4.95)
Compliance
(Average Rank)
12
(5.53)
5
(7.00)
3
(5.00)
2
(5.66)
3
(4.75)
10
(5.50)
15
(5.35)
Infrastructure
(Average Rank)
50
(7.15)
13
(6.07)
6
(4.29)
16
(6.29)
15
(7.06)
26
(6.81)
68
(7.00)
Internet
(Average Rank)
50
(7.02)
16
(7.06)
12
(7.09)
24
(6.80)
19
(7.77)
23
(6.81)
75
(7.04)
Geographic loca-
tion (Average
Rank)
28
(6.07)
8
(6.10)
3
(4.00)
11
(6.18)
6
(6.43)
13
(6.31)
33
(6.09)
Domain know-
ledge (Average
Rank)
12
(6.96)
2
(6.75)
2
(7.60)
7
(6.75)
3
(6.72)
6
(6.23)
17
(6.95)
Creativity
(Average Rank)
5
(8.12)
1
(8.00)
1
(8.00)
3
(6.66)
2
(8.50)
6
(8.00)
8
(7.80)
Cost (Average
Rank)
28
(6.49)
7
(5.87)
4
(5.70)
12
(6.37)
10
(6.41)
12
(6.12)
39
(6.49)

Growth Potential

In average local ITES companies think that the sector would grow by more than 150%
while joint venture enterprises consider it would be more than 100% but the international
companies believe it would grow only by about 50%.

This is a good sign for the countrys ITES industry that the local enterprises are found
more confident about the growth prospect of the sector. Local call centres think that it will
grow by more than 300% while others hope to grow by more than 100% except the BPO
businesses who do not expect to grow by more than 100%.


61

Overall, it seems that the industry is in a high hope of growth potential which is very
good symptom for the economy and the employment situation of the country. What is most
needed is the governments patronization and policy support along with good marketing
strategy and implementation by the industry having all the stakeholders on board.

Table 18: Percentage of Growth Potential (Perception of the current players)
Segment Growth (%)
Local
BPO 73.53
Data Entry 152.46
Call Centre 316.13
GDS 106.13
Multimedia 140.32
Service Bureau 118.52
Average 151.18
International
BPO 40
Data Entry 75
Call Centre 100
GDS 0
Multimedia 50
Service Bureau 50
Average 52.5
Joint Venture
BPO 92.86
Data Entry 100
Call Centre 114.29
GDS 120
Multimedia 166.67
Service Bureau 108.33
Average 117.02

Export Earnings

In FY 2008-09, ITES industry of the country earned USD 13.85 million from which
$5.44m was shared by BPO, $6.41m by Service Bureau and $1.10m by Graphic Design
Services while Data Entry, Call Centre and Multimedia achieved less than $1m.

62

Table 19: Average Export Earnings by various Segments of ITES in USD, FY: 2008-09
Seg-
ment
Origin
<
2
5
0
0
0

2
5
,
0
0
1
-
5
0
,
0
0
0

U
S
$

5
0
,
0
0
1

1
0
0
,
0
0
0

U
S
$

1
0
0
,
0
0
1

2
0
0
,
0
0
0

U
S
$

M
o
r
e

t
h
a
n

a

m
i
l
l
i
o
n

U
S
$

2
0
0
,
0
0
1

3
0
0
,
0
0
0

U
S

$

3
0
0
,
0
0
1

5
0
0
,
0
0
0

U
S
$

5
0
0
,
0
0
1

1

m
i
l
l
i
o
n

Total
BPO Local 250,000 264,000 600,004 240,000 1,200,000 0 0 0 2,554,004
International 20,000 0 60,000 0 1,200,000 0 0 0 1,280,000

Joint
Venture
30,000 22,000 180,001 240,000 2,400,000 0 0 0 2,872,001
Sub-total 300,000 286,000 780,005 480,000 3,600,000 0 0 0 5,446,005
Data
Entry
Local 50,000 44,000 300,002 120,000 0 0 0 0 514,002
International 30,000 0 0 0 0 0 0 0 30,000

Joint
Venture
0 22,000 0 0 0 0 0 0 22,000
Sub-total 80,000 66,000 300,002 120,000 0 0 0 0 566,002
Call
Centre
Local 70,000 22,000 120,001 0 0 200,000 0 0 412,001
International 10,000 0 0 0 0 0 0 0 10,000

Joint
Venture
10,000 22,000 120,001 0 0 0 0 0 152,001
Sub-total 90,000 44,000 240,002 0 0 200,000 0 0 574,002
GDS Local 120,000 110,000 240,002 0 0 200,000 0 0 670,002
International 10,000 0 0 0 0 0 0 0 10,000

Joint
Venture
30,000 44,000 60,000 0 0 0 320,000 0 454,001
Sub-total 150,000 132,000 300,002 0 0 200,000 320,000 0 1,102,002
Multi-
media
Local 90,000 88,000 60,000 240,000 0 0 0 0 478,000
International 20,000 0 0 0 0 0 0 0 20,000

Joint
Venture
20,000 0 120,001 120,000 0 0 0 0 260,001
Sub-total 120,000 88,000 180,001 360,000 0 0 0 0 748,001
Service
Bureau
Local 140,000 132,000 300,002 120,000 1,200,000 200,000 0 600,000 2,692,002
International 10,000 0 0 0 1,200,000 0 0 0 1,210,000

Joint
Venture
10,000 0 180,001 120,000 2,400,000 0 0 0 2,710,001
Sub-total 160,000 132,000 480,003 240,000 3,600,000 200,000 0 600,000 5,412,004
Grand Total 900,000 748,000 2,280,015 1,200,000 7,200,000 600,000 320,000 600,000 13,848,016

It is obvious from the data that the industry has to go a long way to achieve its
potential and to catch up with the existing global players.


63

Company size by exports:

The ITES sector is still in its nascent stage in Bangladesh. We may observe from the
table below that most of the exporting companies (50.5%) could not cross US$ 25,000 yet;
18.4% enterprises have been able to exceed US$ 50,000 while only 2.9% companies have the
capability to surpass US$ 1 million.

Table 20: Distribution of Companies by Export Size (%)
US$
BPO
(%)
Data
Entry
(%)
Call
Centre
(%)
GDS
(%)
Multi-
media &
3D (%)
Service
Bureau
(%)
Com-
bined
(%)
< 25,000 29.1 7.8 8.7 14.6 11.7 15.5 50.5
25,001-50,000 12.6 2.9 1.9 5.8 3.9 5.8 17.5
50,001 100,000 12.6 4.9 3.9 4.9 2.9 7.8 18.4
100,001 200,000 3.9 1 0 0 2.9 1.9 5.8
200,001 300,000 0 0 1 1 0 1 2.9
300,001 500,000 0 0 0 1 0 0 1
500,001 1 million 0 0 0 0 0 1 1
More than a million 2.9 0 0 0 0 2.9 2.9
Total 61.2 16.5 15.5 27.2 21.4 35.9 100

Barriers to Exports

Access to finance:
Access to finance is an important barrier to growth and exports for the ITES industry
in Bangladesh. About 60% of the responding companies replied that they face difficulty in
approaching banks while many others said working capital and lack of bank support are
significant barriers to their businesses. It is interesting to note that the industry people do not
think that bank interest rate is a significant barrier to them, while other business sectors are

64

crying to reduce bank interest rate, which means they need business capital desperately. The
perception of the industry people is that the local banks do not understand their nature of
business and they do not have products matching with the sector. IT industry is a knowledge
based industry, so it does not have that much tangible assets on which the banks give more
importance to sanction loans.

Table 21: Nature of Barrier: Access to Finance
Common thoughts to barriers
Number of
respondents
%
High interest rate 4 3.3
Lack of bank support 10 8.2
Difficulty in approaching bank 72 59
Capital shortage 6 4.9
Working capital 15 12.3
Lack of investment facility 3 2.5
Revenue collection problem 1 0.8
No comment 11 9
Total 122 100

Internet:
Low speed and high cost are identified as the major problem relating to internet
connectivity by the industry insiders while too much interruption is considered as another
significant problem.

Along with addressing the issues concerned, it is necessary to establish alternate
backbone and availability to internet connection from anywhere in the country for spreading
the growth of the industry and generating employments for the youth coming into job markets
every year.


65

Table 22: Nature of Barrier: Internet
Barriers
Number of
respondents
%
Low speed 54 49.5
Absence of fiber optic cable connectivity 4 3.7
High cost 29 26.6
Too much interruption 11 10.1
Lack of alternate backbone 7 6.4
Lack of internet availability everywhere 1 0.9
No comment 3 2.8
Total 109 100

Market access:
The industry people have so many different opinions regarding market access that it
seems they are still wondering about how to access market. They need a vision and strategy
in this regard. They may share the issue with their peers from other successful countries and
be enlightened how they crossed the hurdles.

Here about 25% respondents mentioned that they face difficulty in reaching target
customers while significant responses are competitive business environment (11%) and
lack of quality customer (10%) to market access.


66

Table 23: Nature of Barrier: Market Access
Comment
Number of
respondents
%
Difficult to access market 4 5.56
Unfavorable business environment 3 4.17
Difficult to reach target customers 17 23.61
Lack of IT awareness 4 5.56
Lack of generalized business policy implementation 3 4.17
Competitive business environment 8 11.11
Lack of quality customer 7 9.72
Lack of knowledge to enter into international market 5 6.94
High cost 2 2.77
Uneven competition 4 5.56
Lack of opportunity to enter market 2 2.77
Low market demand 4 5.56
Unstable market environment 4 5.56
Lack of quality personnel 3 4.17
No comment 2 2.77
Total 72 100

Human resource:
More than 75% respondents said that lack skilled manpower is a problem for the
growth of the industry while others expressed divided opinions.

So lack skilled manpower is a significant problem indeed and it needs to be
addressed sooner than later to achieve the growth potential expected by the industry leaders.
Vocational training institutes around the country run by the government and private institutes
may initiate incorporating training on different ITES skills in their curriculum. It will both
help the industry and employment generation.


67

Table 24: Nature of Barrier: Human Resource

Number of
respondents
%
Lack of skilled manpower 47 75.8
Lack of quality management 4 6.5
Lack of strict HR Law 2 3.2
Lack of skilled IT personnel 5 8.0
High turnover rate 4 6.5
Total 62 100

Quality control:
About 75% of the respondents replied that they cannot provide quality services
because of low pricing in the market. That suggests the customers are not aware about the
benefits of quality IT services to their businesses. So it needs to have effective marketing
strategy to raise awareness of the prospective customers in the market.

Table 25: Nature of Barrier: Quality Control

Number of
respondents
%
Low quality work due to low salary package 3 15.8
Uneven competition lowers the quality 1 5.3
High quality depends on quality customer 1 5.3
Low pricing lowers the service quality 14 73.6
Total 19 100

Infrastructure:
As regards to infrastructure, lack of proper infrastructure and electricity are the
principal hindrances to the growth of the industry according to the industry people. The
problems would be reduced to a tolerable level if the government would successfully
implement its plan of generating power and launch the Technology Park at Kaliakoir,

68

Gazipur. But still there would be lacking of facilities at other constituents of the country.

Table 26: Nature of Barrier: Infrastructure

Number of
respondents
%
Electricity problem 38 38
Lack of good quality hardware 1 1
Lack of good communication means 5 5
Expensive infrastructure 3 3
Lack of proper infrastructure 45 45
Lack of government concern 3 3
Lack of internet service quality 3 3
Machinery problem 1 1
Absence of IT park 1 1
Total 100 100

Law and order:
A major portion of the respondents think that the laws of the land are not appropriate
and the existing laws are not supportive to the requirements of the ITES sector. The
government should take initiative to formulate laws consistent to the IT businesses that can
address their concerns and interests along with the IT users and clients.

Table 27: Nature of Barrier: Law and Order

Number of
respondents
%
Strict laws 3 15.8
Existing laws do not support ITES business 7 36.8
Improper laws 8 42.1
Unstable law and order 1 05.3
Total 19 100

69

Government policy:
A substantial number of respondents think that the government policies are not
favourable to the ITES industry and the public as well. And a good number of them are not
happy with the system of taxation. Licensing policy of the internet is also cumbersome
according to 10.5% respondents.

Policies consistent with the IT businesses have to be formulated which can also serve
the interest of the citizenry. Implementation of the policies should also devoid of complexity.
Licensing policy for internet services should be made easy for making the services available
to the people outside the capital city.

Table 28: Nature of Barrier: Government Policy

Number of
respondents
%
Not favourable to ITES 18 18.9
No standard policy for this sector 7 07.4
No fixed law for this sector 6 06.3
Excessive tax problem 15 15.8
Export import problem due to payment 5 05.3
Govt. is not active in changing the policy 9 09.5
Licensing policy for internet 10 10.5
Lack of dynamic policy 9 09.5
Govt. policy is not suitable for the public 16 16.8
Total 95 100

Uneven competition:
A major portion of the respondents (34%) think that the market is competitive. Other
thoughts on the issue are uneven competition (19%) and monopoly business (10%). It
means there are too many players in this market or the prospective users are yet to be ready to
use IT services because of their lack of knowledge or awareness about the services. The latter
is more realistic in the sense that about 2,000 ITES companies for the vast population

70

residing in the major cities of the country, if not the whole country, is meager considering the
survey was conducted only in the 10 major cities.

To address the issues concerned again needs an effective marketing strategy to aware
the populace regarding the benefits and easy access to IT services. And to break the
monopoly, capacity of the players should be enhances so that they are able to provide quality
services in competitive price.

Table 29: Nature of Barrier: Uneven Competition

Number of
respondents
%
Lack of cooperation among organization 2 04.26
Competitive market 16 34.04
Lack of knowledge among the competitors 2 04.26
Monopoly of business 5 10.63
Foreign companies receive more opportunity 1 02.13
No systematic competition 4 08.51
Less opportunity in the international market 1 02.13
Unstable market 4 08.51
Uneven competition 9 19.15
No policy for rating and monitoring business 3 06.38
Total 47 100

Political situation:
More than 50% respondents consider political interference is a major hindrance
towards the growth potential of ITES in the country while a considerable number of people
think that political unrest is one of the important barriers to the business.

The comments are applicable not only to the ITES but also for other businesses along
with the overall development agenda of Bangladesh. The people as well as the development
partners are also concerned about the confrontational politics of the country. But it is the

71

reality of the present day Bangladesh and we have to cope with it until good days come here
or good sense gathers dust in the hearts of this least developed countrys politicians.

Table 30: Nature of Barrier: Political Situation
Number %
Favoritism 3 05.88
Country-wide strike (Hortal) 8 15.69
Negative political interference 26 50.98
Political unrest 14 27.45
Total 51 100


72

Status of Indian IT-ITES Industry

Cost-Cutting in New York, but a Boom in India
- New York Times headline (August 11, 2008)

Indian IT-ITES Sector

Indian IT-ITES sector is expected to reach a milestone crossing US$ 100 billion in
revenues in FY2012 contributing 7.5% to the GDP. Revenues from IT software and services,
excluding hardware, would be US$ 88 billion. Earning from exports would be US$ 69 billion
and US$ 32 billion is expected to be earned from the domestic market. Exports revenue from
the sector, including hardware, is expected to grow by more than 16 per cent and the domestic
revenue, including hardware, is set to grow by more than 9 per cent. Revenues from software
and services, excluding hardware, account for about 87 per cent of the total revenues from the
sector posting US$ 87.6 billion in FY2012 growing 14.9% over the previous year. The share
of BPO i.e. ITES accounts for about 23% of the software and services exports. (NASSCOM,
2012)

Indian IT-ITES industry achieved a phenomenal growth in the last one and half
decade when it earned US$ 1.8 billion in FY1997-98 contributing 1.2% to the GDP reaching
US$ 100 billion in FY2011-12 contributing 7.5% to the GDP. NASSCOM expects that the
industry would reach to earn revenues of US$ 225 billion by 2020. The sectors share of total
Indian exports reached to 25% in FY 2012 from 4% in FY1998. (NASSCOM, 2012)

The sector has been proved to be a huge employment generator for the Indian youth.
It has provided direct employment to 2.8 million people and indirect employment to 8.9
million people adding 230,000 new employments in FY2012. (NASSCOM, 2012)

Domestic market of IT-BPO in India witnessed substantial growth owing to
consumers enhanced IT maturity, overall economic growth, organizational growth, increased
technology adoption by the government, and emerging new delivery platforms. The industry
worked on the core themes selected for the next decade Diversification, Innovation and

73

Inclusion. (NASSCOM, 2012)

A few important strategies that Indian IT-ITES industry followed to be successful are:
adopting emerging technologies, customer centric services, searching for and focusing on
new markets, and taking up new business models. (NASSCOM, 2012)
India has been able to increase its market share of the global sourcing industry to 58
per cent in 2011 from 51 per cent in 2009. (NASSCOM, 2012)

Figure 18: Highlights of Indian IT-ITES Sector in FY2012

Indian IT-ITES industry has been growing with a compounded annual growth rate
(CAGR) of over 24% for the last ten years. It has become a key growth engine for the Indian
economy contributing about 5.6% to the countrys GDP in FY 2010 and providing
employment to about 2.3 million people from about 0.5 million in 2001. It is one of the
largest wealth generation sectors of the country. As per NASSCOM, a trade association of
Indian Information Technology (IT) and Business Process Outsourcing (BPO) industry, it is
estimated that IT-ITES sector would create jobs for 10 million people directly and 20 million
indirectly. About 85% of the revenues of ITES-BPO come from exporting. (PwCL-CII, 2011)


Even after having phenomenal success
bumpy rides ahead of them as Mr. Som Mittal, President of NASSCOM says
viders have understood that the capabilities that made them leaders in the past may not be
enough to ensure future success. We are witnessing a shift wherein companies are rethinking
existing capabilities, developing new ones, strengthening th
suppliers, downstream sales channels and extending relations with customers and other go
market partners.He calls for the industry to
Services, The global sourcing industry
trends of demographics, economics, rapidly changing technological infrastructure, connected
consumers and rise of emerging economies.

Industry Segments and Size
The Industry is classified into
1. IT services
2. IT enabled services (ITES
3. Software products and engineering
4. Hardware

Figure 19: Revenue Contribution by Main Components (US$ billions)
Source: NASSCOM

0 20
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
13.5
17.8
22.6
30.1
34.1
36.2
5.2
7.2
8.7
3.8
5.3
5.7
5 Year CAGR 21.8% 23.1% 27.5% 10.5%
74
Even after having phenomenal success, the leaders of Indian IT-ITES industry
as Mr. Som Mittal, President of NASSCOM says,
existing capabilities, developing new ones, strengthening their relationships with upstream
suppliers, downstream sales channels and extending relations with customers and other go
He calls for the industry to transform for keeping up the edge of Indian IT
The global sourcing industry has changed fundamentally, driven by global meg
consumers and rise of emerging economies. (Mittal, 2012)
d into the following four segments:
IT enabled services (ITES - BPO)
Software products and engineering services
: Revenue Contribution by Main Components (US$ billions)
40 60 80
11.5
13.6
14.7
8.2
10.5
12.3
12.8
7.1
8.5
10.8
9.4
9.4
IT Services
ITES-BPO
Software Products and
Engineering Services
Hardware
21.8% 23.1% 27.5% 10.5% Total
73.1
69.4
62.9
48.0
37.4
28.2
ITES industry see
Service pro-
eir relationships with upstream
suppliers, downstream sales channels and extending relations with customers and other go-to-
the edge of Indian IT
has changed fundamentally, driven by global mega-
: Revenue Contribution by Main Components (US$ billions)

IT Services

All the four segments combined earned revenues of US$ 73.1 billion in 2009
US$ 69.4 billion in 2008-09 growing by 5.3%. IT services generated about 50% of the indu
try revenues. It grew by a CAGR of 21.8% from $13.5 billion in
2009-10. Revenues from ITES reached US$ 14.7 billion in 2009
2004-05 having a CAGR of 23%.

Figure 20: Revenue Share by Main Components (2009
Source: NASSCOM

According to NASSCOM,
four components of the sector sharing
by ITES contributing 20% and software products and engineering services 17% while
from hardware is 13%.

Performance of IT Services Firms in India

During recent worldwide recession
grow when firms were about to benefit from outsourcing trimming down their costs.
IT services sector benefitted from this development
from other offshore locations like Brazil, China and the Philippines

20%
17%
13%
75
All the four segments combined earned revenues of US$ 73.1 billion in 2009
09 growing by 5.3%. IT services generated about 50% of the indu
try revenues. It grew by a CAGR of 21.8% from $13.5 billion in 2004-05 to $36.2 billion in
10. Revenues from ITES reached US$ 14.7 billion in 2009-10 from US$ 5.2 billion in
05 having a CAGR of 23%. (Figure 19)
: Revenue Share by Main Components (2009-10)
According to NASSCOM, IT Services is at the top of revenue earnings among all the
sharing 50% of the revenues earned by the industry followed
by ITES contributing 20% and software products and engineering services 17% while
irms in India (2000-10)
During recent worldwide recession, demand for IT and BPO services
grow when firms were about to benefit from outsourcing trimming down their costs.
IT services sector benefitted from this development though there was increasing competition
from other offshore locations like Brazil, China and the Philippines.
50%
IT Services
ITES-BPO
Engineering services
Hardware
All the four segments combined earned revenues of US$ 73.1 billion in 2009-10 from
09 growing by 5.3%. IT services generated about 50% of the indus-
05 to $36.2 billion in
10 from US$ 5.2 billion in

IT Services is at the top of revenue earnings among all the
of the revenues earned by the industry followed
by ITES contributing 20% and software products and engineering services 17% while earning
services continued to
grow when firms were about to benefit from outsourcing trimming down their costs. Indian
though there was increasing competition

76

Figure 21: Revenues and Growth of the IT Sector in India, 2000-10
US$ millions (left scale), year-on-year percentage change (right scale)

Source: OECD 2010

Indian IT services industry, including ITES and software, grew at two-digit rates year-
ly since late 1990s but it slowed down to one digit i.e. 6% in 2010. Revenues from the indus-
try grew at 27% in average between 2000 and 2010 and reached almost US$ 64 billion in
March 2010. (Vickery & Bhattacharya, 2010)

Export and Domestic Market

In 2009-10 Indian IT-ITES industry earned US$ 50.1 billion from exports which was
more than 68% of total revenues from the sector. (Figure 22) In the last five years the export
revenues from the industry grew at a CAGR of 22.4%. (PwCL-CII, 2011)


Figure 22: Component-wise Contribution
Source: NASSCOM

Owing to its increased IT spending in the last few years, India has become one of the
fastest growing IT markets in Asia Pacific. Reve
have also increased substantially. It reached to US$ 23 billion in 2009
in 2004-05 at a CAGR of 18.1%

Figure 23: Component-wise Contribution
Source: NASSCOM
0.0
10.0
20.0
30.0
40.0
50.0
60.0
10.0
13.3
17.1
4.6
6.3
7.6
3.1
4.0
6.6
0.5
0.6
0.5
0.0
5.0
10.0
15.0
20.0
25.0
3.5
4.5
5.5
0.6
0.9
1.1
0.7
1.3
1.6 5.2
6.5
8.0
77
wise Contribution Export Revenues (US$ billions)
fastest growing IT markets in Asia Pacific. Revenues from Indian domestic IT-
have also increased substantially. It reached to US$ 23 billion in 2009-10 from US$ 1
while it was US$ 21.9 billion in 2008-09. (PwCL
wise Contribution Domestic Revenues (US$ billions)
17.1
22.2
25.8
27.3
7.6
9.9
11.7
12.4
6.6
8.3
9.6
10.0
0.5
0.5
0.4
0.4
Hardware
ITES-BPO
IT Services
5.5
7.9
8.3
8.9
1.1
1.6
1.9
2.3
1.6
2.2
2.7
2.8
8.0
10.3
9.0
9.0
Hardware
ITES-BPO
IT Services
Export Revenues (US$ billions)

-ITES market
10 from US$ 10 billion
(PwCL-CII, 2011)
Domestic Revenues (US$ billions)


IT services segment contributes 54% to the export revenues
exports of IT services grew from about US$ 10 billion in
2009-10 at a CAGR of 22.2%. (PwCL

Figure 24: Export Revenue Contribution (2009
Source: NASSCOM

Regarding component-wise exports revenue earning of
is also at the top contributing 54% to the total industry exports followed by ITES
tributing 25% while Software Products and Engineering services contributes 20% and Har
ware earns 1% of the total IT exports.

IT-ITES companies are driving towards higher value services like business analytics,
knowledge process outsourcing (KPO) including legal services etc.

Indian IT-ITES companies focused on the domestic
global economy resulting in better growth in FY 2009
ment have been relatively better in FY 2009

25%
20%
78
IT services segment contributes 54% to the export revenues of India. Revenues
IT services grew from about US$ 10 billion in 2004-05 to US$ 27.3 billion in
(PwCL-CII, 2011)
: Export Revenue Contribution (2009-10)
wise exports revenue earning of Indian IT industry,
is also at the top contributing 54% to the total industry exports followed by ITES
tributing 25% while Software Products and Engineering services contributes 20% and Har
ware earns 1% of the total IT exports.
S companies are driving towards higher value services like business analytics,
knowledge process outsourcing (KPO) including legal services etc.
S companies focused on the domestic market after the slowdown in the
better growth in FY 2009-10. Domestic revenues from the se
ment have been relatively better in FY 2009-10 i.e. post recession. (Figure 23)

54%
1%
IT Services
ITES-BPO
Hardware
Revenues from
05 to US$ 27.3 billion in

IT industry, IT Services
is also at the top contributing 54% to the total industry exports followed by ITES-BPO con-
tributing 25% while Software Products and Engineering services contributes 20% and Hard-
S companies are driving towards higher value services like business analytics,
after the slowdown in the
Domestic revenues from the seg-

Figure 25: Domestic Revenue Contribution (2009
Source: NASSCOM

According to NASSCOM, each of IT Services and Hardware segments are contribu
ing 39% revenues from the Indian
Services earned 12% and ITES-PBO earned 10% of the revenues in 2009

Hardware accounts for the larg
(Figure 25). High spending in hardware indicates that the Indian users have not yet reached to
its optimum in IT adoption. However, in the last couple of years revenues from hardware e
ther declined or remained static. On the other hand, IT services segment grew by about 5% in
2008-09 and 7.2% in 2009-10. Revenues from ITES grew by 21% in 2009
19% in 2008-09.

Though the share of hardware in domestic market of India dropped to 39% in
from 49% in 2005-06, it is still leading the market while the share of IT services segment i
creased to 39% in 2009-10 from 34% in 2005

Key Revenue Sources
Banking, financial services and
total IT-ITES exports in terms of
26).
12%
39%
79
: Domestic Revenue Contribution (2009-10)
NASSCOM, each of IT Services and Hardware segments are contribu
Indian domestic market while Software Products and Engineering
PBO earned 10% of the revenues in 2009-10.
Hardware accounts for the largest share i.e. 39% in FY 2009-10 of the total revenues
its optimum in IT adoption. However, in the last couple of years revenues from hardware e
remained static. On the other hand, IT services segment grew by about 5% in
10. Revenues from ITES grew by 21% in 2009-10 while it was
share of hardware in domestic market of India dropped to 39% in
it is still leading the market while the share of IT services segment i
10 from 34% in 2005-06. (PwCL-CII, 2011)
Banking, financial services and insurance industries are contributing to 41
in terms of sourcing industries contributing to IT consumption (
39%
10%
IT Services
ITES-BPO
Hardware

NASSCOM, each of IT Services and Hardware segments are contribut-
while Software Products and Engineering
10 of the total revenues
its optimum in IT adoption. However, in the last couple of years revenues from hardware ei-
remained static. On the other hand, IT services segment grew by about 5% in
10 while it was
share of hardware in domestic market of India dropped to 39% in 2009-10
it is still leading the market while the share of IT services segment in-
1% of Indias
contributing to IT consumption (Figure

The second largest IT consumer, the Telecom industry, is contributing to about 20%
of Indias IT-ITES exports in 2009
vertical in terms of IT consumptio
three sectors together account for 7
are shared by Retail 9%, Media 2%, Construction & Utilities 3%, Healthcare 4%, Airlines
and Transportation 3% and others 2%.

Figure 26: Export Contribution by Key Sources (2009
Source: NASSCOM

As regards the domestic market
domestic market as well having a share of 41% followed by Telecom and manufacturing ve
ticals with a share of 20% and 19% respectively (refer figure 27).
BFSI, Telecom and Manufacturing, altogether account for around 80% of total IT spending in
the Indian market. (PwCL-CII, 2011)

20%
16%
9%
2%
3%
4% 3% 2%
80
exports in 2009-10. Manufacturing industry has become the third largest
vertical in terms of IT consumption contributing 16% to Indian IT-ITES exports. The top
three sectors together account for 77% of total IT-ITES exports. The rest of the contributions
re shared by Retail 9%, Media 2%, Construction & Utilities 3%, Healthcare 4%, Airlines
and Transportation 3% and others 2%. (PwCL-CII, 2011)
: Export Contribution by Key Sources (2009-10)
domestic market of India, BFSI vertical is the top contributor to the
domestic market as well having a share of 41% followed by Telecom and manufacturing ve
ticals with a share of 20% and 19% respectively (refer figure 27). These three big sectors i.e.
CII, 2011)
41%
20%
2%
BFSI
Telecom
Manufacturing
Retail
Media
Construction & Utilities
Healthcare
Airlines and
Transportation
Others
10. Manufacturing industry has become the third largest
ITES exports. The top
of the contributions
re shared by Retail 9%, Media 2%, Construction & Utilities 3%, Healthcare 4%, Airlines

contributor to the
domestic market as well having a share of 41% followed by Telecom and manufacturing ver-
These three big sectors i.e.
Construction & Utilities

Figure 27: Domestic Contribution by Key
Source: NASSCOM
In the domestic IT-ITES
contributing 41%, Telecom 20%, Manufacturing 16%, Retail 9% and others 2%
revenues earned by the sector from the

Global Offshore IT-ITES Market Potential

India has been able to capture a major share of global offshore IT
65% of the world IT offshore market
only secured less than 2.5% of the global IT spend.

It indicates clearly that there is enough headroom for growth of Indian IT
ports. If she could maintain current rate of growth
global market, IT-ITES exports from India would reach US$ 86 billion by 2012
of its growth could be maintained Indian IT
2020 as it is projected in Table 34 of this report

23%
18%
10%
81
: Domestic Contribution by Key Sources (2009-10)
ITES market of India, Business and Financial Institution
contributing 41%, Telecom 20%, Manufacturing 16%, Retail 9% and others 2%
revenues earned by the sector from the local market.
ITES Market Potential
India has been able to capture a major share of global offshore IT-ITES market i.e.
market and 46% of ITES market. Yet, Indian IT-
only secured less than 2.5% of the global IT spend.
It indicates clearly that there is enough headroom for growth of Indian IT
If she could maintain current rate of growth i.e. about 20% sustaining its share of the
ITES exports from India would reach US$ 86 billion by 2012
of its growth could be maintained Indian IT-ITES exports would reach US$ 330 billion by
in Table 34 of this report. (DIT)
47%
10%
2%
BFSI
Telecom
Manufacturing
Retail
Others

Business and Financial Institution is
contributing 41%, Telecom 20%, Manufacturing 16%, Retail 9% and others 2% to the total
ITES market i.e.
-ITES exports
It indicates clearly that there is enough headroom for growth of Indian IT-ITES ex-
its share of the
ITES exports from India would reach US$ 86 billion by 2012. If the pace
ITES exports would reach US$ 330 billion by
Manufacturing

Indian IT-ITES Export Markets

More than 61% of export revenues
making it Indias largest market (figure
industry is UK earning 18% of its export revenues
ing for 12% of its export revenues
nesses to other locations like Asia Pacific, Australia, Middle East, etc.

Figure 28: Geography
Source: Crisil

According to the data of 2009
i.e. 61%, of Indian IT-ITES industry
Europe 12%, Asia Pacific 7% and the rest of world is contributing 2%
revenues of India.

The robustness of Indian ITES industry is proved by the increased share of its global
market from 36% to 45% in 2010 in seven years time while the share of the global market for
other countries decreased from 64% to 55% in the same period. (Figure 29)

18%
12%
7%
82
arkets
More than 61% of export revenues of Indian IT-ITES sector generates from the US
s largest market (figure 28). The second largest market of Indian IT
18% of its export revenues followed by Continental Europe accoun
ing for 12% of its export revenues. Indian IT-ITES companies are also expanding their bus
nesses to other locations like Asia Pacific, Australia, Middle East, etc. (PwCL-CII, 2011)
: Geography-wise Export Revenue Split (2009-10)
According to the data of 2009-10, Crisil reports that the highest amount of revenues
ITES industry comes from the US followed by UK 18%, Continental
Europe 12%, Asia Pacific 7% and the rest of world is contributing 2% to the IT
from 36% to 45% in 2010 in seven years time while the share of the global market for
other countries decreased from 64% to 55% in the same period. (Figure 29)
61%
7%
2%
US
UK
Continental Europe
Asia Pacific
Rest of the World
generates from the US
ond largest market of Indian IT-ITES
followed by Continental Europe account-
ITES companies are also expanding their busi-
CII, 2011)

Crisil reports that the highest amount of revenues,
US followed by UK 18%, Continental
to the IT-ITES export
from 36% to 45% in 2010 in seven years time while the share of the global market for
Continental Europe
Rest of the World

83

Figure 29: Share of the Indian ITES Sector in the Global ITES Market

Source: Evalueserve Analysis

Exports vs. Domestic Markets

It is clearly evident that Indian IT industry is mainly export driven from the fact that it
has achieved its growth doing business in the global market. More than 60% of the industry
revenues come from exports market and it has been maintained over the decade. (OIBPC,
2008)

Figure 30: Market Share: Exports vs. Domestic (%)


84

India The Most Preferred ITES-BPO Destination

A few reasons, why India has gained the status of the most preferred ITES destina-
tion, are pointed below.
Two million students graduate each year
122,000 Engineers every year
English speaking and IT savvy
Cost reduction up to 50%
Wage Differential
Lower Infrastructure Costs
Favourable time lag: 12 hours with US & 5 hours with Europe
Overnight turnarounds possible
Resources with experience of industrial, financial and legal systems similar to the
west
Strong domestic IT services industry to support IT led BPO
Largest SEI CMM companies worldwide

Number of Countries of Indias Services Export

The number of countries Indian computer software/services industry is exporting their
services is an evidence that India is the most preferred destination of ITES/PBO outsourcing
for most of the countries of the world. In 2009-10 India exported computer software/services
to 154 countries. On an average it has been exporting computer software/services to 145
countries for seven years between 2002-03 and 2009-10. (Figure 31) (ESC, 2009-10)


85

Figure 31: Growth in Number of Countries for India's Computer Software/Services Export

Source: Statistical Year Book 2009-10

According to Indian Statistical Year Book 2009-10, North America is the largest mar-
ket of Indian computer software / services sector contributing 56.54% of the total revenue
earned from the industrys exports followed by Europe contributing 32.45% combining EU
and non-EU countries. So, about 90% of the total export revenues of the sector in 2009-10
came from North American and European countries. (ESC, 2009-10)
Figure 32: Major Destinations of Exports for Computer Software/Services during 2009-10


86

India exported computer software/services valued Rs. 136,800 crore (US$ 28,836.42
million) to North America in 2009-10 which was 56.54% of the total exports of the sector
increasing from Rs. 133,100.62 crore (US$ 28,941.21 million) in the previous year contribut-
ing 58.42% of the total exports from the sector. The value of export to Europe (EU countries)
was Rs. 75,800 crore (US$ 15,978.08 million) which was 31.33% of the total exports from
the sector and it was Rs. 69,489.37 crore (US$ 15,109.67 million) i.e. 30.50% of the total ex-
ports from the sector. So, North America and Europe constitutes about 88% of exports of the
sector. Other destinations were Far East, Middle East, Australia, Non-EU, Africa and Latin
American countries. (ESC, 2009-10)

Table 31: Region-wise Export of Computer Software/Services Exports (2009-10 vs. 2008-09)



87

The growth of exports to North America was slowed down due to recession in this pe-
riod. But it is observed that the growth of exports to Latin America grew by 533.74% though
the value is not that significant compared to North America and EU.

The total export value of Indian software/services industry in 2009-10 was Rs.
241,950 crore (US$ 51001 million) and in 2008-09 it was Rs. 227,834 crore (US$ 49540 mil-
lion) according to Indian Statistical Year Book 2009-10.

Country-wise Value of Exports in 2009-10

In the year of 2009-10, USA remains the prime destination of Indias soft-
ware/services exports. It accounts for more than 55% of Indias total export of computer
software/services. Export of software/services to USA in 2009-10 was estimated as Rs.
133,093 crore (US$ 28 billion). The value of exports to the UK was Rs. 29,294 crore (US$
6.17 billion) which is 12.11 % of the total exports. Export to the Netherlands was Rs. 19,267
crore (US$ 4.06 billion) which is 7.96% of the total exports in 2009-10. (ESC, 2009-10)


88

Table 32: Major Countries for Computer Software/ Services Exports (2009-10)


Exports to the top three countries i.e. USA, UK and the Netherlands constitute 75% of
the total software/services exports from India in 2009-10. Other important countries of ex-
ports are Hungary, Singapore, Germany, Australia, Canada, France and Finland. (ESC, 2009-
10)

89

Figure 33: Growth in Exports of IT Enabled Services (2005-06 to 2009-10)


Exports of Indian ITES-BPO grew by 8.5% in 2009-10 (5.24 percent in US$ terms)
from 2008-09. In terms of value, export of ITES/BPO was estimated as Rs. 68,400 crore
(US$ 14418 million) increased from Rs. 63,006 crore (US$ 13700 million) in 2008-09.

IT Enabled Services (ITES)

In a decade between 1998 and 2008 Indian IT-ITES industrys contribution to the
countrys gross domestic product grew from 1.2% to 5.5%. It is estimated that the net value
added by this sector to the economy is 3.3% - 3.9% for FY 2008.

In aggregate revenue, the Indian IT-ITES sector, including hardware, grew by 33% in
FY 2008 to reach US$ 64 billion. IT-ITES sector grew by 31% in 2008 from the previous
year contributing US$ 12.5 billion increasing from US$ 9.5 billion in one year. Export of In-
dian ITES-BPO grew from US$ 8.4 billion in FY 2007 to US$ 10.9 billion in FY 2008 while

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revenues from the domestic market increased to US$ 1.6 billion in FY 2008 from US$ 1.1
billion in FY 2007. IT-ITES sector of India generated 700,000 employments in FY 2008 in-
creasing from 553,000 in FY 2007. (ILO, 2012)

Table 33: India IT-ITES Industry Size (2007-12)
(Value in Indian Rs. Crore)
2007 2008 2009 2010 2011 2012 CAGR
07-12
Domestic IT-ITES
Market
90,014 110,177 133,110 158,053 182,991 209,698 18.4%
IT-ITES Exports
Revenue
156,594 186,142 218,107 250,087 284,666 320,278 15.4%
Indian IT-ITES
Industry size
246,609 296,319 351,207 408,139 467,657 529,976 16.5%
Source: India Law Offices Indian Information Technology Sector2012

To become a US$ 132 billion industry Indian IT-ITES market is estimated to grow at
the rate of more than 16.5%; with a CAGR of about 18.4% the domestic market alone is es-
timated to exceed US$ 50 billion. (Table 33)


Figure 34: Indias Addressable BPO Market Opportunity by Verticals in 2012
Source: Understanding BPO, ITeS and Related Sectors

According to the forecast
BPO market opportunity of India
Insurance, 8% from Manufacture, 6% f
and Tourism, 3% from Retail Business and
Markets will be the major contributor
2010)

Table 34: Indian IT
US$ Billion 2005-06 2006-07
IT-ITES Exports 23.6 29.8

US$ Billion 2013-14 2014-15
IT-ITES Exports 124.9 150.0
Source: NASSCOM McKinsey Report 2005; Consensus Estimates

A NASSCOM McKinsey report forecasts
would earn US$ 329 billion with a CAGR of 20%

Insurance
Manufacturing
8%
Telecom
6%
Technology
5%
Retail
3%
Travel
5%
91
Indias Addressable BPO Market Opportunity by Verticals in 2012
(220-280 US$ Billions)
ITeS and Related Sectors, IGNOU, July 2010
the forecast of a 2010 IGNOU report, 52% of the addressable ITES
of India will come from Banking and Capital Markets,
Insurance, 8% from Manufacture, 6% from Telecom, 5% from Technology, 5% from
usiness and 11% from other areas. So, Banking and Capital
contributors to Indian ITES-BPO businesses by 2012.
: Indian IT-ITES Exports Forecast 2006-2020
07 2007-08 2008-09 2009-10 2010-11 2011-12
37.6 47.5 60.0 72.1 86.6
15 2015-16 2016-17 2017-18 2018-19 2019-20
175.5 205.3 240.2 281.1 328.9
Source: NASSCOM McKinsey Report 2005; Consensus Estimates
A NASSCOM McKinsey report forecasts, by 2020 Indian IT-ITES industry
with a CAGR of 20%.
Banking and
Capital Markets
52%
Insurance
10%
Others
11%
Indias Addressable BPO Market Opportunity by Verticals in 2012

addressable ITES-
come from Banking and Capital Markets, 10% from
rom Telecom, 5% from Technology, 5% from Travel
Banking and Capital
by 2012. (IGNOU,
12 2012-13
104.0
20 CAGR
FY2006-20
20.7%
industry exports

92

Manpower Requirements

According to a NASSCOM-McKinsey report, Manpower Profile of India, IT export
services and IT Enabled Services of India will need 3.7 million people by 2012 increasing
from 0.27 million in 2002.

Table 35: Manpower Requirements for IT-ITES Industry Exports in India (millions)
2002 2003 2006 2009 2012
IT Export Services
Consulting, Integration, Installation 0.01 0.02 0.03 0.09 0.27
IT Development 0.07 0.08 0.08 0.08 0.11
Outsourced IT Support 0.09 0.11 0.17 0.28 0.53
Training and Education 0.00 0.00 0.00 0.02 0.06
Total 0.17 0.21 0.28 0.47 0.97
IT Enabled Services
Customer Care 0.03 0.05 0.15 0.42 1.03
Finance 0.02 0.03 0.05 0.09 0.21
Human Resource 0.00 0.00 0.02 0.15 0.69
Payment Services 0.00 0.01 0.05 0.14 0.45
Administration 0.02 0.03 0.05 0.15 0.15
Content Development 0.03 0.04 0.07 0.09 0.20
Total 0.10 0.16 0.39 1.04 2.73
Source: ITD. NASSCOM-McKinsey, Manpower Profile of India, KPMG, 2003

National Skill Development Corporation of India in one of its recent report projected
that Indian IT and ITES industry would need to employ 7.5 million people by 2022. They es-
timated the projections in pursuant to the industrys productivity and growth potential. A de-
tail map of their projections is provided in the following table. (NSDC)


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Table 36: Projected Human Resource Requirement in the IT and ITES Sector (in millions)
FY08 FY22 Incremental
Pessimistic
Exports 1.7 4.9 3.2
IT Exports 0.9 2.0 1.1
ITES Exports 0.8 2.9 2.2
Domestic 0.5 1.1 0.6
Total 2.2 6.0 3.8

Likely
Exports 1.7 6.0 4.3
Total 2.2 7.5 5.3

Optimistic
Exports 1.7 8.6 6.9
Total 2.2 10.7 8.5
Source: IMaCS analysis

The likely increase of manpower requirement in the sector would be 5.3 million by
2022 from the employment record of 2008.

Competitiveness of Indian IT-ITES Industry

OECD, in one of its reports, projected that India will be at the top of any other coun-
try of the world by 2020 in terms of number of workforce, efficiency of the employees in re-
spect of productivity, quality, cost and English language proficiency. (Vickery &
Bhattacharya, 2010)


Figure 35: Indias competitive advantage vis
Source: OECD, 2009

Note: Bangladesh, Pakistan and Vietnam are not shown due to lack of reliable data
service employees.

India is ahead of Philippines, Israel, Ireland
fective and English proficient workforce as shown i
competitors like Philippines, Mexico, Indonesia, Brazil, Malaysia, Israel and Ireland
ing the quantity of people needed
tors in recent years is seen as a key challenge

Global Services Location Index

A.T. Kearney, a reputed global strategic management consulting firm, has come up
with an index called A.T. Kearney Global Services Location Index (GSLI).
try is called location. This index is the outcome of evaluating each location on
three parameters.

i) Financial attractiveness
ii) Skills and people availability
iii) Business environment
94
: Indias competitive advantage vis--vis other nations

Pakistan and Vietnam are not shown due to lack of reliable data on productivity and cost of
India is ahead of Philippines, Israel, Ireland and Mexico in terms of quality, cost e
fective and English proficient workforce as shown in the figure above. It is also ahead of its
s, Mexico, Indonesia, Brazil, Malaysia, Israel and Ireland
the quantity of people needed for its IT-ITES sector. But the emergence of these compet
is seen as a key challenge to Indian IT-ITES industrys competitiveness.

reputed global strategic management consulting firm, has come up
Kearney Global Services Location Index (GSLI). Outsourced cou
This index is the outcome of evaluating each location on

on productivity and cost of
and Mexico in terms of quality, cost ef-
It is also ahead of its
s, Mexico, Indonesia, Brazil, Malaysia, Israel and Ireland supply-
But the emergence of these competi-
ITES industrys competitiveness.
reputed global strategic management consulting firm, has come up
Outsourced coun-
This index is the outcome of evaluating each location on the following

95

Figure 36: Global Services Location Index 2011

Source: A.T. Kearney Global Services Location Index, 2011
Note: The weight distribution for the three categories is 40:30:30. Financial attractiveness is rated on a scale of
0 to 4, and the categories for people skills and availability, and business environment are on a scale of 0 to 3.

Number one position of A.T. Kearney Global Services Location Index 2011 was
achieved by India. The second and third positions have been secured by China and Malaysia
respectively. All the top three achievers have been able to retain the same positions since the

96

inception of the index in by A.T. Kearney, a global consulting firm, in 2003. Abundance of
talent pool and cost advantages gave them edge over other competitors. (A.T. Kearney, 2011)

It is an acknowledged fact that the Asian sub-continent is established to be the best
option to outsourcing from the rest of the world and within Asia, India stands high. The ut-
most advantage Asia has over the rest of the world is its absolute number or a huge young
workforce.

Recently, a lot of concentration is given on two important aspects to improve BPO
business. Those are: a) People and b) Process.

Tholons, a renowned consultancy firm, ranked worlds top 100 cities as outsourcing
destinations for 2012. Thirteen Indian cities have been placed in the top 100 outsourcing ci-
ties. Bangalore has secured the top position. Four Indian cities have been placed in the top
five outsourcing cities of the world. These four cities are: Bangalore, Mumbai, Delhi (NCR)
and Chennai.

Direct Contribution to the Indian Economy

The present developing role of IT-ITES industry in Indias economy is well accepted.
This sector has proved itself to be the principal driver of growth within the services industry,
which in turn forces several economic pointers of growth in India.

A few important indicators of direct contribution to the Indian economy are:
Increasing share of Indias GDP: The industrys contribution to the countrys GDP
has been reached to 5.2% in FY 2007 from 1.2% in FY 1998.
Enhanced foreign exchange reserve of the country: In FY 2008 exports of the sec-
tor grew by 36% and stood at approximately US$ 40 billion.
Job creation: By the end of FY 2008, the sector was expected to employ 2 million
people growing at a CAGR of 26% in the previous decade making helped to wear the
hat of largest employer in the private sector of India. (NASSCOM - Deloitte, 2008)


97

Figure 37: Socio-economic Contribution of the Indian IT-ITES Industry an Overview

Source: NASSCOM-Deloitte Study, 2008

Indirect Contribution to the Indian Economy

The development of the IT-ITES industry and its ensuing contribution to the econom-
ic expansion has had some wider impacts, which in several cases have had a rub off effect
and set standards for other sectors of the economy while polishing the image of India in the
global market.

Source: NASSCOM-Deloitte Study, 2008

98

Further employment generation: Additional 4 jobs were created for each 1 job gen-
erated in the sector. It is a significant outcome for the society at large when 75% of
the people working in these additionally created jobs are SSC/HSC or less qualified.

Enhancing growth of other sectors of Indian economy: Indian IT-ITES industry,
apart from contributing to the growing income of its direct stakeholders, has had a
multiplier effect on other sectors of the economy with an output multiplier of almost 2
through its non-wage operating expenses, capital expenditure and consumption spend-
ing by its employees.

A study shows, in FY 2006, additional output of US$ 15.5 billion was generated in re-
turn for spending US$ 15.85 billion in the domestic economy. (NASSCOM - Deloitte,
2008)

Balanced regional development: The IT industry of India is expanding their enter-
prises to Tier II/III cities (relatively smaller cities) of the country which helps the sec-
tor improving the supply of talent pool and developing social and physical infrastruc-
tures by themselves or by urging the government in addition to generating revenue
and employment.

As an example, Bhubaneswar, a Tier III city of India, has been made the following
progress as a result of expanding IT-ITES sector.

1. Software exports In FY 2010-11, software exports from Orissa reached
grew by 15% compared to the previous year. The IT units, registered with the
Software Technological Parks of India (STPI), earned Rs. 1,377 crore in FY
2010-11 from Rs. 1,198 crore in FY 2009-10. Export of software from the
state is expected to cross Rs. 2,000 in 2013-14. (Source: www.business-
standard.com)

2. Increased IT-ITES units Registered and exporting units of software firms
are increasing at a steady rate of CAGR 118% and 170%. Many large compa-
nies like Infosys, Tata Consultancy Services (TCS), Satyam and Wipro are al-
so setting up new units and expanding the existing ones.

99

3. Generating employment Now there is a shortfall of IT professionals by
about 63,000 which were higher than demand until 2004. Demand of IT pro-
fessionals there is estimated to reach 430,000 by 2011-12 while the indirect
employment would reach 1,720,000.

4. Education New institutes are building and expanding the capacity of the
existing ones in the state. Both the government and private sector are estab-
lishing new educational institutions like IIT Kharagpur.

5. Infrastructure and other facilities IT parks and suburbs are growing in
line with the expansion of IT-ITES units by the big players of Indian IT indus-
try. Other necessary facilities for the new entrants in the city of Bhubaneswar
like roads, housing and entertainment facilities are also being constructed.
(NASSCOM - Deloitte, 2008)

Indian BPO Players: Stepping on the Driving Seat

Indian IT-ITES industry has been emerged as the global hub experiencing through a
highly accelerated learning curve. The industry started as low end back office and call centre
business which has become a strategic partner of the global players carrying out complex and
critical business processes reflecting on the enhancing quality standards and in-house skills.


100

Figure 38: Climbing up the Innovation Ladder

(IBEF, 2009)

The principal reason for this unparalleled growth goes to the emergence of IT giants
like Infosys and TCS in the global arena. They have invested a lot in infrastructure and train-
ing of personnel to attain global standards, shown extraordinary abilities to develop smart and
sustainable global delivery model and kept pace with the high learning opportunities to be
emerged as the global hub of IT-ITES services. The abundance of large talent pool is also an
important plus point for India along with tax incentive and other government policy supports.

India is Leading

NASSCOM-McKinsey in one of its reports found five important advantages on which
Indias position as the global offshore IT-BPO industries is based. The five advantages are as
follows:

101

i) Talent abundance: Indias share of talent pool among 28 low-cost locations is
28 per cent.
ii) Several IT centres in the country that has helped developing urban infrastruc-
tures.
iii) Securing leadership in respect of cost and quality in offshore service centres
through operational excellence.
iv) Creating favourable business environment initiating encouraging policy inter-
ventions like reforms in the telecom sector.
v) Developing high end skill base and efficient infrastructure as a result of sus-
tainable growth of IT industry in the domestic market. (NASSCOM-
McKinsey, 2005)

Around 250 companies out of 500 Fortune 500 companies are clients of Indian IT-
ITES sector. So they are yet to serve for the rest of Fortune 500 companies. Yearly revenues
earned from Indian IT-ITES sector is still about 2% of yearly global IT spending. It says
there is still huge untapped market world-wide.

102

Figure 39: Challenges of ITES-BPO Industry

Source: Understanding BPO, ITeS and Related Sectors, IGNOU, July 2010

Infrastructure, Talent shortage, data security and attrition are the major challenges
faced by Indian ITES-BPO industry. (IGNOU, 2010)

Talent Retention in the IT-ITES Industry

PricewaterhouseCoopers, in one of its survey report, delineated talent retention meas-
ures taken by the IT-ITES industry. They found that the IT-ITES service providers mostly fo-
cus on professional training and development, competitive rewards and employee empower-
ment to retain talents in the industry. (PwCL-CII, 2011)


Figure 40: Talent Retention Measures Taken by IT
Source: PwC-CII IT/ITeS Survey

Overall Business Performance of

IMD, a leading business school in Switzerland
terms of competitiveness, economic performance
and infrastructure. (IMD, 2012)

0%
Training and development
Competitive rewards
Employee empowerment
Performance recognition
Improving leadership skills
Fun at work
Promoting work-life balance
Flexible work hours
Facilities at office premises
Performance feedback programs
Global career opportunities
Higher study opportunities
103
: Talent Retention Measures Taken by IT-ITES Providers
of India
a leading business school in Switzerland, evaluated Indias performance in
terms of competitiveness, economic performance, government efficiency, business efficiency,
0% 10% 20% 30% 40% 50%
58%
46%
42%
27%
27%
19%
19%
19%
15%
15%
8%
4%

, evaluated Indias performance in
government efficiency, business efficiency,
60%

104

Figure 41: India - Overall Performance


105

India has been placed at 32 among 59 most competitive economies of the world in the
overall ranking of IMD World Competitiveness Yearbook 2011, losing one step from 31 in
the previous year.

According to the Government - Business Efficiency Gap, 2011, measured by IMD, for
the first time India is placed at the 29
th
at government efficiency and 22
nd
at business efficien-
cy among the 59 most competitive economies. The government of India lags behind from
business by 7 steps in terms of efficiency.

IMD Prof. Stephane Garelli says, In a new world of state capitalism, government
efficiency will become a key determinant to competitiveness.


106

Advantages of Indian IT-ITES Industry

India is a vast country having huge economy compared to Bangladesh. Its not that
easy for Bangladesh to be equal to Indian economy at least in the near future as we observe
and compare economic progresses of the two neighbouring countries so far. As regards the
IT-ITES sectors, India started its journey at least a decade ago before Bangladesh. Abundance
of skilled human resources, cost advantage, favourable government policies, efforts of Indian
diaspora, required infrastructure and stable democracy all played key roles in building the IT-
ITES story successful in India.

Figure 42 Indias Competitive Advantage

(Sarawgi, 2012)


107

Issues that made India advantageous in the IT-ITES sector:

Cost Advantage:
India was chosen as preferred destination of outsourcing IT-ITES services due to
abundance of human resources skilled in English Language and Information Technology
which was beneficial to the outsourcing companies cutting operational cost and/or making
profits. By outsourcing to India companies are enjoying 50-60 percent of cost reduction.
(D'Souza, 2011)

Bangladesh could not attract considerable attention from the outsourcers even though
it could offer cheap workforce and low cost services due to the plague of inefficiency in
English Language and the trend of learning Information Technology started much later than
India apart from other issues like political instability and image of the country. The cost of
outsourcing services in Bangladesh is 40% lower than that of India and the Philippines.
(Quader, 2012) In the latest Gartners Report, Bangladesh has been placed among the top 30
outsourcing destination countries for the first time but they mentioned weak English
Language proficiency as one of the two major barriers to achieve Bangladeshs potentials.

Human Resource:
Vast pool of skilled human resource is a grand advantage for Indian IT-ITES industry.
No single country can provide so huge skilled workforce having proficiency in English. And
because of this advantage India has been able to sustain its achievement in the sector despite
stiff competition from the Philippines, Vietnam, and other Asian countries. Companies
realized that outsourcing is not just cost arbitrage, so they are zeroing in on India for
enhancing the productivity of businesses along with efficiency. There are seats for 1.5 million
students in the engineering colleges of India according to the National Association of
Software and Services Companies, a trade group and 2.3 million IT graduates are employed
in the sector now while the number is growing every year. The outturn of technical graduates
and post graduates reached to over 700,000 in India in FY11. (Nandakumar & Sabharwal,
2011) Education system of India gives strong importance on teaching mathematics and
science which helped building the large pool of science and engineering graduates.

Seven million people in Bangladesh can speak English as a second language and it
produces about 185,000 graduates per year among whom more than 14,500 possess graduate

108

and post-graduate degree in IT according to a recent newspaper report. (Quader, 2012)
Quality of education and proficiency in English are under question marks. But yes, there has
been exponential growth of IT graduates in the country in the last one and half decades. It is
marching very fast but still it is yet to be significant enough towards achieving the potential.

So it is obvious that Bangladesh is far behind in terms of the available technical
human resources required for the industry which is a major reason of Indias advancement in
the sector. Alignment of human skills with the industry needs is also very important to
enhance the capacity of the industry. The example of Mexico may be followed in this regard.
Mexico established MexicoFIRST, a new organization in 2008, as a partnership between the
Asociacin Mexicana de la Industria de Tecnologas de Informacin, (AMITI) and the
Asociacin Nacional de Instituciones de Educacin en Tecnologas de la Informacin
[ANIEI]. ProSoft, a government agency tasked with promoting the IT services and ITES
industries, facilitated and supported the creation of this entity. MexicoFIRST will closely
interface with the industry on the one hand and Mexican universities on the other to identify
the training needs of the industry and to facilitate training programs at the universities to meet
the needs.

Role of Diaspora:
The Indian Diaspora, especially IT professionals working in the US played crucial
roles since 1970s establishing IT industry in India even though they faced regulatory hurdles
from the Government of India at the beginning. A few attempts of investments by the PIOs
(Persons of Indian Origin) in the 1970s and early 1980s were abandoned due to bureaucratic
obstacles and limited capabilities of the Indian business partners. In this context, their role
was limited to mentoring early Indian software development companies. In the early 1980s a
few Indian IT companies moved to Silicon Valley to secure some low-end software
development work but unfortunately they could not meet the standards of the US companies.

In the 1990s, many Indian professionals migrated to the US in the 1960s were able to
become entrepreneurs or senior executives who started to coalesce and formed associations
like TiE and SIPA (Silicon Indian Professional Association). TiE (The Indus Entrepreneur)
was designed to mentor Indian expatriate IT professionals. Some of the expatriate Indian IT
professionals started their own IT companies back in India, some invested in nascent IT
companies and many of them convinced their employers to hire Indian professionals which

109

helped the Indian Diaspora stronger as a result Indian IT professionals constituted about 24
percent of the total Silicon Valley professionals by 1999. Well placed executives of large US
corporations like IBM, GE and American Express from the Indian Diaspora influenced their
respective management to invest or outsource to India in the same decade. Some young
Indian IT professionals from the US moved to India to work for US operations in India like
IBM India Research Laboratory which started its Indian operation in 1998 and they helped
train Indian IT professionals also.

Ministry of Science and Technology, India formed a high level committee on the
Indian Diaspora in 2000 to facilitate interaction and cooperation between them and the nation
back home. The government also commenced a number of bilateral programmes e.g. The
Transfer of Knowhow Through Expatriate Nationals (TOKTEN) following the concept of
United Nations Development Program (UNDP). Through these programmes India has been
able to minimize the impact of brain drain also. (Mathur, 2006)

Bangladesh has also realized the importance of securing the confidence of its
Diaspora for the development of the country including its IT industry. A few conferences and
programmes already been organized for the purpose in the last few years. BASIS, the
representative of Bangladeshs private sector IT companies has already built a database of the
NRBs and it is still open to sign up for them in their portal. Unfortunately, Bangladesh has
started it late like many other things.

Infrastructure:
India established Software Technology Parks of India (STPI) as an autonomous
society under Ministry of Communication and Information Technology. STPIs have been set
up across the country in 53 locations of India. STPIs help promote development and export of
software and IT enabled services, provide statutory services, data communication services
including value added services, creating conducive environment for the micro, small and
medium entrepreneurs and other facilities. The units of STPIs exported software and IT
enabled services valued Rs. 215,264 crore in FY 2010-11. (Wikipedia)

In the telecom front India invested Rs. 337,683 crore in 2010-11 i.e. an increase of
17.73 % from the previous year. (Telecom Regulatory Authority of India, 2011) The number
of telephone subscriptions reached 846.32 million, growing by 36.22% whereas the

110

teledensity in the country posted to 70.89 per cent as of March 2011. India is connected to
international telecommunication systems by fourteen submarine cables, nine satellite earth
stations and nine gateway exchanges. By December 2011 internet subscribers in India stood
at 22.39 million. In order to raise the download speed of internet services to international
standard, Indian government has proposed to invest $13 billion connecting all cities, towns
and villages having a population of more than 500. The network is supposed to manage up to
10Mbit/s in 63 metropolitan cities and 4 Mbit/s in other 352 cities. (Wikipedia)

On the other hand, Bangladesh has only one ICT Incubator, one Technology Park and
one Hi Tech Park so far. The number of internet users in Bangladesh is 5.5 million having
3.5% penetration rate according to an IMF Report. (Internet World Stats) It is connected to
international communication by one fiber-optic submarine cable i.e. SEA-ME-WE-4 (South
East Asia-Middle East-Western Europe-4) and recently secured an alternative backbone by
way of terrestrial connectivity. Land line telephone subscription in the country is still 1%
having 1.6 million subscribers while mobile phone penetration increased to 85 million in
2011 having more than 50% penetration while the number of internet users in the country is
617,300 as of 2009. According to the assessment of CIA Fact Book Telephone System of
Bangladesh is still inadequate for a modern country.

Power outage is common phenomenon in the country which is a key infrastructural
facility for growing IT-ITES sector. The country has installed capacity of producing 6,685
MW as of June 2011 while maximum generation was 4,699 MW until June 2011 against the
demand of 4,833 MW as of May 2011 which is projected to be increased to 5,696 MW by
2015. Average load shedding was 656 MW in May 2011. So far only 49 percent population of
the country has access to electricity. (Rahman, 2011)

Cost-advantage in the Tier II Cities:
There are a large number of tier II cities in India and the existence of the cities helps
the IT-ITES companies reduce costs. Indian IT-ITES companies are moving to the tier II
cities and some of them even reaching out to the rural areas to further reduce costs and
minimize increasing living costs in the tier II cities.

In Bangladesh almost all of the IT-ITES companies are concentrating in the capital
city because of not having required infrastructure in other divisional and district level cities.

111

Building and improving facilities in those cities would encourage local IT-ITES companies
moving their operation bases there which will bring other social benefits and contributing to
reduce pressure on the capital city.

Regulatory Regime or Business Environment:
Indian government facilitates the sector providing friendly policy regime conducive to
IT business and established state-of-the-art export processing zones e.g. STPIs, especially for
the technology firms. Modern physical infrastructure of the country i.e. airways, railways and
roads also helped the industry and attracted foreign investment. Indian telecom policy also
helped the industry to flourish.

Figure 43 Evolution of Indian IT- ITES Industry

(Sarawgi, 2012)

India formulated National Telecom Policy in 1994 and it was reformed again in 1999.
In 1998, Indian Prime Minister created National IT Task Force to formulate National
Informatics Policy. It made 108 recommendations as part of IT Action Plan. For the IT and

112

software development enterprises voice and data communication has been permitted on
dedicated or leased circuits. Internet Service Providers (ISPs) policy was introduced and they
were permitted to set up international gateways for internet. The government provides income
tax exemption to profits made from IT-ITES exports. To facilitate finance to IT companies it
adopted a differential and flexible approach based on simple criteria such as turnover. In
2000, Indian government allowed 100 percent FDI in the IT sector. It is a signatory to the
Berne Convention and TRIPS of the WTO to protect the copyrights of the software and
intellectual property rights which is essential to attract FDI in the IT-ITES sector and the
growth of the industry. India also introduced its cyber laws i.e. Information Technology Act,
2000 to provide legal framework and sanctity to all electronic communications and activities.
A venture capital fund called National Venture Fund for Software and IT Industry (NFSIT)
was set up by Small Industries Development Bank of India (SIDBI) in association with
Ministry of Information Technology, India to meet the financial need of the small-scale IT
companies there.

Bangladesh recognized the potential of the IT-ITES sector. It has separated Ministry
of Information & Communication Technology from the Ministry of Science and Information
and Communication Technology in 2011 to give more importance to ICT and fulfilling the
vision of making Digital Bangladesh by 2021. It has adopted a national ICT policy in 2009
having 306 activities planned to be implemented in short-term, medium-term (5 years) and
long-term (10 years). Copyright Act is also amended. The government of Bangladesh has
recently declared to make the country Digital Bangladesh by 2021. It has reconstituted
National Task Force on ICT to Digital Bangladesh Taskforce and adopted an IT policy and
created Bangladesh Computer Council to facilitate the sector. Permitting private universities
to impart education in the 1990s helped increase ICT graduates in the country. Bangladesh
Bank launched Equity Entrepreneurship Fund (EEF) for the enterprises, especially for the IT
firms a couple of years ago to meet the financial needs of the industry. Unfortunately, the
banking sector of the country is yet to come up to finance the promising IT sector of the
country. Bangladesh Computer Council is given the responsibility of preparing the Hi Tech
Park at Kaliakoir, Gazipur to make it ready for technology firms operation and managing the
lone ICT Incubator having capacity of about 50 small-scale companies. Janata Tower, a high
rise building has been recently allocated as the ICT Park to meet the infrastructure
requirements of the sector. The government has also taken initiatives to promote e-
governance; a project Access to Information (A2I), running from the Prime Ministers Office,

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identified 53 e-citizen services being implemented by the respective government ministries
and divisions. Freelancing by the young IT professionals of Bangladesh is a recent trend and
the government is facilitating permitting international online payment gateway so that they
can receive foreign currency earned by them easily though they still demand to bring PayPal
to the country for more convenience in online transactions. Bangladesh Telecom Regulatory
Commission (BTRC) has been formed to facilitate the telecom sector ensuring level playing
field for the operators and promoting citizens interest. It also aims to make a favourable
environment in the sector which would facilitate the IT-ITES sector also. It has already
considerably reduced the cost of internet bandwidth.

Domestic Market Development:
India has been able to develop its domestic IT-ITES market to a sustainable level.

Figure 44: Indian Domestic IT-ITES Market

Indian domestic IT-ITES market is expected to reach Rs. 918 billion in FY2012 growing
about 17 per cent. Overall economic growth, advancement in technology infrastructure,
competitive Indian organizations, enhanced government attention and new business models
help providing IT to new customers are the principal drivers for the growth of the domestic
IT-ITES market. (NASSCOM, 2012)
Bangladesh, on the other hand, is yet to take IT to the vast segments of entrepreneurs

114

of the country save the large businesses and the banks. It is encouraging though that a good
number of micro-finance institutions led by Grameen Bank and BRAC are adopting IT and it
is still growing. It is now time to raise awareness among the businesses and entrepreneurs of
the country regarding the benefits of adopting IT in their operations. Mass media can play an
important role to achieve it.

Country and Industry Branding:
Political stability and stable democratic government for the last 65 years since its
independence, favourable government policies, mature legal system and international
reputation as a responsible nation open to cultural diversity made its country image
trustworthy to other nations including the corporate world. India also fared well in almost all
the international ratings on competitive business environment.

Cost effectiveness ensuring quality, large young population having skills in IT and
English language, favourable time zone for the US based companies running 24 hours
operation, commendable work ethics by the Indian companies, availability of required
infrastructure and business environment give India an edge over other competing countries.

India has the largest number of SEI-CMM Level 5 appraised company in the world.
Three out of every four SEI-CMM Level 5 companies are from India. The country owns
reliable satellite and submarine communication links facilitating connectivity with the rest of
the world which is essential for the IT companies. Establishing IITs and IIMs in the major
cities of the country gave India a boost in human resource development and built trust on the
Indian professionals.

India exports its outsourcing services to more than 95 countries. For software
outsourcing, more than 82% of American companies grade India as their first choice. (Thomas &
Alex)

Bangladesh is yet to be successful in building its country image in the world market to
attract investment and boost its IT-ITES business like other sectors. Political uncertainty and
endemic corruption are eating out its favourable investment policy. It also lacks required
infrastructure i.e. uninterrupted electricity and internet facility. Tremendous traffic congestion
also discourages visitors in the capital city. Divisional cities and district level towns should

115

have required facilities for the IT-ITES companies to be operated successfully. Existing
polytechnic institutes should offer courses meeting the needs of the IT-ITES industry. Quality
of education is not yet competing with other successful developing countries like India.
Special emphasis should be given to mathematics, science and English language. Special
initiative may be taken to attract IT giants of the world to invest and/or outsource to
Bangladesh.
It is heartening to observe the pace of Bangladesh IT-ITES sector in recent times. Last
fiscal year exports of IT-ITES sector grew by 56.28 percent to US$ 70.81 million from 45.31
million in the previous year though the figure is insignificant compared to India. Bangladesh
has adopted a good ICT policy and announced the vision of making the country digital by
2021 given importance to e-governance. It has taken to install its own satellite in the orbit. It
has recently got a substitute backbone to the lone submarine cable. It is also being
implementing terrestrial connection through India. In 2011, Ministry of Science and Information
& Communication Technology was changed to Ministry of Information & Communication
Technology to give a boost to the industry. About 800 small-scale IT firms are operating in the
country at the moment. A few of them have been able to achieve SEI-CMM Level 3
certification. An IT Park has recently begun its journey in the capital while another Hi Tech
Park is preparing to open soon. Ninety six public, private and international universities are
producing thousands of science and commerce graduates. Autonomous Bangladesh Telecom
Regulatory Commission (BTRC) has made National Telecommunications Policy in 1998
which is under review for further improvement to be compatible for enhancing the sector
which is integral to IT-ITES sector. The Ministry of Posts and Telecommunications may be
merged with the Ministry of Information & Communication Technology since these are very
closely connected to one another to give further boost to the IT-ITES sector.

Recently, there is a boom of freelancing IT services from Bangladesh. Around 30,000
freelancers work from the country earning US$ 20 US$ 25 million growing by 200 percent
according a statement of the President of Bangladesh Association of Software & Information
Services published in a daily while the total export earnings from IT-ITES sector registered
US$ 70.81 million in 2011-12 as recorded by EPB. (Mamun, 2012) It is to be noted here that
the earnings of the freelancers are not recorded in the exports register. Looking at the bright
prospects of freelancing in Bangladesh Freelancer, a world-renowned freelancing company
opened its Bangladesh version in December 2012.


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e-Commerce is also growing very rapidly in Bangladesh. In December, 2012 the
central of Bangladesh launched National Payment Switch, a common platform for electronic
payments for the commercial banks of the country. It is going to take e-commerce to the next
level in Bangladesh. It would be interesting to mention that cattle were traded on an e-
commerce platform of Bangladesh before the last Eid-ul-Adha in October 2012.


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Outlook of Outsourcing

The best companies outsource to win, not to shrink. They outsource to innovate faster.
- Thomas L. Friedman, The World is Flat (2005)

Three Phases of Outsourcing

Outsourcing as a business phenomenon emerged for easy accomplishment of business
projects with the contract signed by Eastman Kodak Company in 1989. Outsourcing 1.0 was
launched with this contract and transformed the way businesses used to be done. Outsourcing
1.0 was about negotiating cumbersome agreements between parties which was time consum-
ing. After collapsing few outsourcing contracts, the stakeholders revised their approach to
outsourcing business. Outsourcing 2.0 is about collaboration for mutual benefit. The main
drawback of Outsourcing 2.0 is its inability to repeat. Frank J. Casale, CEO of the Outsourc-
ing Institute, mentions the following three key forces behind moving to Outsourcing 2.0 in
his whitepaper Outsourcing 2.0.
1) Universal pain in all dimensions of outsourcing;
2) Changes in who is outsourcing and how it is done; and
3) The evolution of Web 2.0 and the growing impact it is having on communication, col-
laboration and knowledge sharing. (Casale, 2007)

Outsourcing 3.0 takes all the positives from 1.0 and 2.0 like cost savings but with
more efficiency, effectiveness and ownership. Three elements to make Outsourcing 3.0 suc-
cessful are:
1) A semantic search engine to link project needs to the appropriate outsourcer;
2) A highly collaborative workflow to ensure that the engagement process provides best
value to the parties involved; and
3) A knowledgeable network of brokers who understand information technology and
outsourcing.

Outsourcing 3.0 is all about services. In particular, this is about integrating services
for mobile devices, applications and information analytics. The parameters of transitioning
outsourcing industry are described in the following table.


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Table 37: Outsourcing 1.0 to Outsourcing 3.0
OUTSOURCING 1.0 OUTSOURCING 2.0 OUTSOURCING 3.0

Responsible
Business Climate

Development of outsourc-
ing hubs to attract interna-
tional jobs

Policy to drive ITES inno-
vations into other sectors

Policy-makers and businesses
working together to co-create
regulation in areas like e-
waste, green infrastructure
and planning applications

Smart
Philanthropy

Investment incentives
customised to screen best
employers

Companies working in dis-
advantaged communities to
provide jobs in ITES

Policy-makers and businesses
align investment to create
sustainable hubs and low
carbon export zones

Talent

Government-led training
to meet requirements of
business (e.g. language
skills)

Public-private partnerships
and ongoing training to
deepen availability of
business relevant skills

Quality educational systems
that produce high-calibre
graduates able to promote
responsible innovation

Standards and
Compliance

Policies to reduce
violation of worker rights
and environmental
infringement

Percentage of companies
satisfied with local infra-
structure and facilities

Development and main-
streaming of local and inter-
national standards for data
centres, green buildings and
adoption of carbon-efficient
infrastructure

Supply Chains

Vendors offering inte-
grated outsourcing solu-
tions

Improvements in the
efficiency of data centres

Coordinated management of
sustainability footprint of
ITES sector

Innovation

Development agencies
providing local research
and development facilities
to harness ideas in out-
sourced hubs

Fiscal incentives for
certification for environ-
mental management systems
and companies incorporat-
ing green criteria in their
outsourcing contracts

Use of 'tribesourcing' to spur
entrepreneurship and low
carbon competitiveness

Communications

Use of 'tribesourcing' to
spur entrepreneurship and
low-carbon competitive-
ness

Use of 'tribesourcing' to
spur entrepreneurship and
low-carbon competitiveness

ITES sector provides regular
updates towards ambitious
targets to contribute towards
major global problems like
climate change
(Perera, Begley, & MacGillivray, 2009)

Outsourcing 1.0 was spurred by enhancing the affordability of information technolo-
gy and dependable communications. This model was guided by a longing for low cost solu-
tions. It resulted in companies moving business-process work, such as customer service and
human resources offshore.

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Outsourcing 2.0 perceived value added jobs being moved to new areas. It was ac-
knowledged that ITES jobs could encourage dynamism in other sectors and increase the pool
of experienced managers.

Outsourcing 3.0 is being developed out of the prior models when the current players
are in trouble and the start ups are in disadvantages. Responsible competition is possible
among the companies, cities and countries but an integrated approach is needed to make it
happen.

Assessment of Locations for IT-ITES Industry

A number of consulting firms developed benchmarking frameworks, locational indic-
es and rating criteria to determine attractiveness and e-readiness of different locations for IT-
ITES services. There is wide acknowledgement in these studies that several key factors de-
termine locational competitiveness available employable skills, especially IT skills, com-
petitive cost of business, necessary infrastructure for IT-ITES industry, and business friendly
environment. The following table provides a detailed list of factors of these categories.

A few well reputed international research organizations developed a number of
benchmarks to select locations for IT-ITES services. Four of them are detailed in the table
below.


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Table 38: Frameworks for Assessment of Locations for IT Services and ITES
A.T. Kearneys Global
Services Location Index
Gartners 10 criteria Hewitts International
Benchmarking Model
McKinseys Locational
Readiness Index
People and skills availability
Remote service sector
experience and quality
ratings
Labor force availability
Education and language
Attrition risk

Financial attractiveness
Compensation costs
Infrastructure costs
Tax and regulatory costs

Business environment
Country environment
Infrastructure
Cultural exposure
Security of intellectual
property
e-Infrastructure
Power
Telecommunications
Transport

Labor pool
Quality
Quantity
Scalability
Work conditions

Educational system
Quality
Number of institutions
New grads in IT

Cost
Labor
Real estate
Infrastructure
Telecom
Stability of govern-
ment
Corruption
Geopolitical risks
Financial stability

Political and economic
environment
Stability of govern-
ment
Corruption
Geopolitical risks
Financial stability

Language

Government support
Promotional
Institutional
Education

Cultural compatibility
Cultural attributes
Adaptability
Proximity
Ease of travel

Global and legal maturity

Data and intellectual prop-
erty security and privacy
Infrastructure
Real estate
Telecom
Power

Connectivity

Talent
Availability
Quality
Cost
General demograph-
ics
Environment
Macroeconomic
Business environ-
ment
Geopolitical envi-
ronment

Clusters

Incumbent IT and ITES
Industries
Quality of infrastructure
Telecommunications/IT
Real estate
Transportation
Power

Talent
Availability
Suitability
Willingness
Accessibility
Trainability

Cost
Labor cost
Infrastructure cost
Corporate tax

Market maturity
IT/ITES employees as
percentage of total ser-
vice sector employment
IT/ITES as percentage
of services GDP
Presence of industry
association

Risk profile
Regulatory
Country investment
Data protection

Other incentives

Environment
Government support
Business and living
environment
Accessibility
(Sudan, Ayers, Dongier, Muente-Kunigami, & Qiang, 2010)


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Recommendations

Recommendations to the Government
The government needs to formulate a specific policy and incentive mechanism for
the ITES industry to sustain and increase its continuous growth. Its rate of growth
shows that it is an emerging industry.
BASIS ITES Survey 2009 found that 91% of the companies in Bangladesh started
domestically and 91.5% of them work for the local market only. It shows that the
sector has not yet able to attract considerable amount of foreign direct investment
and also not able to enter into the global market substantially. There should be
combined efforts from the government and the industry for attracting FDI in the
sector as well as taking initiatives to ensure its presence in the global market.
Major export market of ITES companies is USA having 34% of total export from
the sub-sector, followed by Europe (27%), East Asia (13%) and Middle East
(12%). Other destinations are Japan (8%), some African (3%) and Latin American
countries (2%). The diversity of export market shows that if nurtured properly,
the ITES sub-sector can be one of the major export earning industries.
Considering the potential of the sector, it should be declared as a thrust sector in
the industrial policy. Only a small number of ITES companies earn US$ 13.85
million while total exports from ICT sector of the country was US$ 45.31 in FY
2010-11. Considering the number of companies having exports, it may be
predicted that the sector has great potential.
Considering the size and potential of Bangladesh ITES sector, it should be entitled
to receive special attention as an SME and because of its special nature of
business special financing schemes need to be launched by the concerned
authorities and financial institutions. BASIS Survey found that 83% companies
are small enterprises. It urges that the sector must be included in the governments
special support programmes and incentives. Special programme should be
initiated by the concerned institution and departments like Board of Investment
and Export Promotion Bureau to attract FDI and to capture export markets. The
success story of readymade garments industry is an example of the governments
continuous support.
ITES industry can employ both the high and low skilled people. The government

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should facilitate the sector by giving special incentives and also focus on
vocational education and training in cooperation with the industry associations.
ITES sector of Bangladesh has already employed 26,420 people. Average cost of
job creation in the sector is only BDT 593,240 which is low compared to other
sectors.
It is observed from BASIS Survey 2009 that multimedia and 3D animation,
service bureau, graphics design and BPO services are in better position than the
other segments of the sector. Special focus, consultation, study and measures
should be taken on these segments on priority basis which would in turn help
support the other segments. It also should be considered that the needs of the
companies situated outside the capital city are different than the Dhaka city based
companies; needs of foreign companies are also different than the local
enterprises.
The multimedia and 3D animation, service bureau, graphics design and BPO
services are major segments of the sector in Bangladesh, which have better
potentials. Focused research and consultation with stakeholders are required for
designing support programme. Needs of the companies in Dhaka and out of
Dhaka, needs of one segment and other, needs of local companies and foreign
companies are different. It is to be noted that "one-size fits all" approach will not
work for promoting the sector.
There was a high note regarding the call centre but unfortunately it has been failed
to secure any achievement so far. The reasons behind should be investigated and
addressed. So far it has been learnt that power, internet bandwidth and English
language proficient staffs are the main problems for call centres. There are also
problems relating to licensing and other relevant facilities. Only 2.4% companies
out of total 1,934 have call centres. BTRC and BOI should give special focus
about the stumbling blocks for the segment to take appropriate measures.
Finance, insurance and the government are the major clients of local service
bureau companies. The industry needs to build its capability to enter into
manufacturing, healthcare and energy sectors and also to be able to provide
critical solutions.
Foreign direct investment in the ITES sector of Bangladesh is meager. Estimated
investment in the local ITES industry is BDT 3.88 billion out of which BDT 3.21

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billion has come from local companies. Only 0.5% companies having 100% FDI
invested only about BDT 10 million. Facilities like IT parks in different countries
would be developed outside Dhaka to encourage FDI in this sector.
Business associations of the industry should build connections with the non-
resident Bangladeshis (NRBs) living abroad. It was found by BASIS that only
3.8% ITES companies have existing collaboration with the NRBs. Issues of
business partnership and technology transfer should be focused in collaborating
with the NRBs. Non-resident Indians played significant role to uplift Indian IT-
ITES industry.
Special provisions and facilities of financing commensurate with the nature of the
industry should be offered by the banks and financial institutions. Cost of the total
fixed asset of all the surveyed companies located in the country is BDT 858.94
while yearly variable cost of the industry is BDT 2.82 billion. The ratio of variable
cost over fixed cost is 3.29. It is understandable that demand for working capital
for the sector is very high.
Adequate focus should be given on the productivity of human resources and
compensation. Per-person or per-process mode of payment is better for both the
service providers and their clients than the practice of project-wise pricing taking
place in most cases (49%); service providers can be able to maneuver variable
costs effectively.
ITES industry projected to create 14,651 new jobs in 2010 but the achievements
could not be verified. Multimedia sector is expected to create most of the
projected jobs followed by Data Entry and BPO while Call Centres would be the
least job creators which is betraying expectations from the segment.
Collaboration between the industry and the academia is necessary to produce
human resources as per industry requirements. There may be a forum for this
purpose where they can share each others requirements and barriers. The industry
can recruit people directly from the institutions. At present only 11.5% of the
companies recruit directly from the institutions. Appropriate focus should be given
to vocational training.
Since the industry is still in its nascent stage and the finance is scarce for the
entrepreneurs, the government has to take initiative to arrange premises for the
companies, may be in subsidized rent. As per BASIS Survey, 91.5% of the

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companies are located in rented premises.
The industry needs sufficient and low-cost power and internet, the two most
important infrastructural elements for the sector. Due to arrangement of additional
power supply, their cost of business increases. Price of bandwidth should be
reduced further along with alternative terrestrial or submarine connectivity. Their
work interrupts due to frequent disruptions of internet connectivity. The
government may arrange dedicated power supply in the incubation facilities for
the companies. At present 51.5% companies do not have internet connection as it
is found by BASIS Survey.
There should be strong strategic marketing plans in place for the industry and it
should be reviewed periodically. The companies, not engaged in exporting, do not
have dedicated marketing teams. Companies should have proper documentation of
their marketing plans and activities. The Export Promotion Bureau of the Ministry
of Commerce may play a greater role in this regard in addition to facilitate in
participating in international trade fairs and providing information relating to
exports.
The industry is lacking in investments, especially foreign direct investment. The
government should give appropriate attention to economic diplomacy to attract
FDI in this sector among others. Current amount of FDI in this sector is meager
i.e. BDT 0.67 (BASIS Survey 2009).
Internet cost and market access are two most severe weaknesses of the industry
according to the industry people. Infrastructure, human resources and creativity
are other key weaknesses of the sector. The government should take appropriate
measures to mitigate the weaknesses.
BASIS Survey found a large gap between understanding the importance of
compliance and actual status of compliance by the industry people. Initiative has
to be taken to raise awareness among the industry people regarding the necessity
and benefits of compliance.
Access to finance is one of the most prominent hurdles for the industry to grow.
The banks do not have policy to finance on the basis of intangible assets of IT-
ITES companies i.e. human resources. In many cases, the owners of IT-ITES
companies do not have tangible assets like other sectors. So special policy support
and understanding is necessary among the bankers and the government

125

functionaries. Existing rate of interest is not a big problem as it is observed since
very insignificant number of respondents in BASIS Survey raised concern about
the rate of interest claimed by the banks and financial institutions.
Rules and provisions of taxation for the industry should be clear and consistent.
Now the loss making companies are also forced to pay tax as some people say
though it could not be evidenced properly. Further studies could be conducted on
the issue.
Access to internet out of the capital city is still very low. A programme has to be
initiated to make internet available to the people living out of Dhaka for country-
wide spreading of IT-ITES business.
The government may provide policy support to procure local services and
solutions for the government agencies and encourage the same for the private
sector obliging WTO rules. It will help grow local IT-ITES companies.
Special initiative and coordination has to be taken to take Bangladeshi Diaspora
into confidence to secure maximum benefits e.g. through technology transfer and
securing international contracts.
Students of schools and colleges may introduce courses on graphic and
architectural designs having trained the existing computer instructors and
providing required instruments. Special attention should be given to the drop out
students.

Recommendations to the Industry
There is lack of business plan in the industry units. BASIS may help initiate
programmes for the companies in developing sustainable business plans having
achievable growth target. BASIS Survey found that 74.5% companies did not have
any recruitment after three years of establishment.
The ITES companies may provide training on payment to develop human resources to
be used later in the local as well as foreign market. They can also take interns from
the university graduates. It would serve the companies in low cost and develop skilled
human resources to be utilized in future.
Referral system is not in place in the industry for the migrating employees. It is
necessary to understand the pattern and causes of migration of the staffs. About 93%
companies have experience of its staff migrated to other local companies.

126

Local ITES companies are very optimistic about the growth potential of the industry.
Industry people think that it would grow 2.5% on yearly basis. It should be supported
by substantial action plan.
Industry association may initiate to launch online marketing. BASIS Survey found
that 13.22% companies are participating in sorts of online sales services and 83% of
the companies are willing to subscribe to such kind of services if it is made available
by the associations.
BASIS has launched an institute of Technology and Management. It may be upgraded
to university and hire faculty from countries like India where IT-ITES sector has
grown tremendously in the last decade becoming a world leader. Most of the
companies expressed their interest to accept services of the institute.
Building brand of Bangladesh as an IT-ITES outsourcing destination. An international
celebrity may be selected and contracted to be the ambassador representing the
industry world-wide.
Developing sustainable partnership and collaboration between IT-ITES sector and
other industry associations.


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Conclusion

To address the issues raised in this report, there needs to be a synergy between the
government and the industry. The government should take measures to invest required quali-
ty infrastructure, curriculum and teaching methods in engineering institutes. The enterprises
need to look into various options like rewards, flexible working hours, personality develop-
ment programmes, inspiring leadership at mid-level, providing a stronger career path to em-
ployees to motivate and retain talent. Furthermore, the industry should also work with aca-
demic institutions for periodic update of the curriculum to maintain its relevance.

Having appropriate infrastructure, human resource, marketing strategy and peaceful
political environment, the IT-ITES sector have the potentials to make it to the global market.

Future Scope of Work

Since the scope of this study is very limited to a few aspects of ITES industry, there
are enormous scopes of further research in the same vein. I would like to suggest a few as-
pects that may be addressed in any further study on Information Technology related industry.

There is great potential of high end business processes i.e. Knowledge Process Out-
sourcing which needs more qualified and skilled professionals than BPO or ITES services.

A thorough survey or study may be conducted on human resources i.e. skilled and
qualified professionals required along with a viable strategy of implementation to uplift In-
formation Technology industry as one of the major players in the global market achieving its
potentials.

A similar study on software industry of the country may be commissioned by any
stakeholder to assess its status and potential targeting its uplift as one of the prominent play-
ers in the world market.

128

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