adiba islam

BUSINESS
BANGLADESH:
EXPLORING THE SOFTWARE INDUSTRY

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Bangladesh Studies (K202)


Business Bangladesh:
Exploring the software industry


Prepared for
Sheikh Morshed Jahan
Associate Professor



Prepared by
Group 4
Aaqib Chowdhury (ZR-07)
Muhammad Saiyedul Muttaqin (ZR-11)
Sohan Al Akbar (ZR-18)
Adiba Islam (RH-20)
Afsara Zaheen Ahmed (RH -24)
Arif Faisal (ZR-34)
Shadman Sakib Anik (ZR-35)
Avirup Sarkar (ZR-38)
Saad Ashraf (ZR-40)
Shafinaz Hossain (RH-54)
Noushin Wadud Khan (RH 58)
Imtiaz Farhan Bin Habib (ZR-61)
BBA- 20th, Section-A




Institute of Business Administration
University of Dhaka

April 27, 2014

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Executive Summary
The purpose of this report is to better grasp the role of SMEs and the challenges they face,
specifically the IT sector, which is clustered in the Karwan Bazar Area of Dhaka. The IT sector
has been increasingly prominent, starting its journey in the 1960s, to its current state, where it
employs over 25,000 people in over 800 firms. The sector is surely on the rise, and has large
potential for growth, something that is explored in greater detail in the report.
As the companies are small in nature, their strengths are the small size and simple set up, while
the low labor intensiveness and generally adept workforce favors the firms as well. However, the
sector does have some issues with poor quality training provided by the courses at institutions, as
well as endemic corruption regarding contracts, as well as a general failure to properly
implement marketing tools and underinvestment in self-promotion. Even though the
identification of Bangladesh as a potential star of the future in this sector, as well as the quick
digitization of the region are big opportunities to exploit, there remain issues, like a fading
interest from students to study the relevant subjects as well as an imperfect infrastructure.
There is little formal regulation; the primary union for these firms is BASIS, which works more
as a developmental body than a regulatory one. Apart from scheduling the companies that
operate in the market, it has done appreciable work in institutionalizing training programs via its
institute, BTM, and successful lobbying for government policies like tax rebates. However,
actions in terms of networking, knowledge sharing and business development are still in
preliminary stage, with a number of options mooted for progress in these regards, like creating a
platform of communication between customers and firms and better management of the institute.
The triple triangle framework is used to analyze the industry. The primary analysis reveals that
the industry has a healthy vibrant and creative work culture, fueled by young and dedicated
entrepreneurs and employees. Most of them are capable, however, there is significant room for
improvement of the fresh graduates, as the courses currently are deemed insufficient and firms
have to offer their own, sometimes lengthy, training. Overall, the majority is small sized firms,
so capital is usually self-provided, and when thats not the case, it is not overly difficult to
acquire it from banks.
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Competition is often unhealthy in the industry, with multiple allegations of counterfeit or hacked
software, as well as unethical behavior on part of state actors when dealing with government
contracts. Overall though, the competition is not intense as the market is relatively large,
especially with international avenues. Collaboration is not significant, as there is very little room.
Most firms self-distribute, and provide only services, thus having no requirement for suppliers or
distributors. The customer base is steadily growing, as the need to keep pace with international
trends of automation and having electronic alternatives is recognized.
Globalization has provided a crucial platform for proliferation, with not only providing an
alternate market for the firms, but also a source of new technology and methods, which the local
firms integrate with little hesitance. State action has been minimal, with calls for greater
involvement than present frequent in the people surveyed.
In terms of perceived importance of business aspects, the entrepreneurs unsurprisingly rate profit
as being most important, followed by customer satisfaction, employee satisfaction, value chain
actors, and social benefits. This tends to follow the narrative of customers being the major source
of advertisement, and value chain actors and social benefits not being pertinent to the business.
Overall, this group felt that there was need for some change if the growth is to be maintained in
the future, with the need for a stronger, more authoritative governing body, better state policies,
better legal framework for protection against forgery and other copyright issues, more exposure
for IT tournaments for young people, and better extraction of utility from the marketing
departments strongly recognized.
The preparation of this report, and the requisite research allowed this group to learn and grow as
students and pseudo professionals, with better understanding of the interviewing process as well
as learning about the significance of SMEs, especially in light of the IT sector, and the potential
that it holds in the context for Bangladesh.


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1. Background
In Bangladesh, micro and small and medium enterprises (SME) play a significant role in the
development of the economy, primarily by creating employment opportunities and producing
important alternative mechanisms for accumulating foreign currency through exports. For the
growth and development of a country like Bangladesh with a huge population development of
the manufacturing sector is of utmost importance. Due to low capital investment requirements
and higher employment generation this is a major driving force for national growth.
The IT sector in Bangladesh started its journey with the nuclear program in the 1960s. After
years of stagnation the industry picked up pace in the 1990s. In recent times the It sector has
been one of major interest in Bangladesh. Owing to the improvement in education and
widespread use of English as the second language along with rapid development in
communication technology the software industry has taken a huge leap in the last 10 years. The
industry has a total valuation of approximately 1500 Cr taka and contributes to about 350 million
dollars in annual revenues. In the last 5 years alone the growth has been about 40%. The national
body for IT development Basis was established by the government in 1997, and since then they
have contributed largely to the development of this industry.
Although it is in the tertiary sector the industry workforce is of medium density. Currently there
are over 800 IT firms in Bangladesh employing approximately 25000 IT professionals. They
cater to a wide array of clients ranging from local government companies, local private
companies; NGOs to even large corporations abroad. Due to the low wage rate that is common
to Bangladesh the IT sector has an advantage over our competitors like India and China. In a
survey done in 2007-08 by JICA Bangladesh was ranked first among the Asian countries in
competitiveness in the software industry. Furthermore in 2011 Bangladesh was declared one of
the top 30 off-shore destinations for IT solutions.
The IT industry has huge untapped potential for which it is of utmost importance to conduct a
strategic analysis on this sector so that the competitiveness of this industry remains to produce
the desired development outcomes.
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2. SWOT Analysis
Strengths:
Small capital investment is needed to start a software business.
Return on investment (ROI) is high.
Lower labor costs in comparison to India, China and Pakistan.
Very skilled labor can developed in this country.
Weaknesses:
Mismatch in education provided in institutes and skillset required by employers.
Dependency on employee is high hence employee turnover can have devastating impact.
No standardized pricing strategy.
Poor business environment in terms of corruption, time to set up business and recent
security challenge.
Opportunities:
Very promising industry with Bangladesh being speculated to be in the next top 30 IT
destinations.
Global financial crisis means companies are looking for places to cut additional costs
creating a possible opportunity for Bangladesh where labor costs are relatively cheaper.
Growing digital media and need for automation.
Recent propaganda of digitalizing Bangladesh.

Threats:
Declining number of students for IT courses due to a perceived lack of employment
opportunities.
Too many competitors and new entrants in the market.
Lack of proper infrastructure such as power shortages and so on.

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3. Grid of Institutional Mandate (GIM)
Bangladesh association of software and information services (BASIS) is the primary trade body
of IT firms in Bangladesh. The importance or the significance of any regulatory body or trade
body is how effective they are in policy advocacy, knowledge sharing, business development and
network collaboration. The following table will use these criteria to see how BASIS is
performing:

Policy Advocacy:
a) They are performing quite well.
Recently lobbied to the government for
tax break till 2017 which was accepted.
b) However there are also scopes for
improvement as they should undertake
policies or strategies to inform financial
institutions regarding the asset valuation
of ICT firms. The lack of such
initiatives has hindered the accessibility
of loans for firms. This has been a major
obstacle for growth.
Business development:
a) Intellectual property preservation.
BASIS should take initiatives that will
enable its members to have easy
patented rights to softwares developed
by them.
b) BASIS Institute of Training
Management (BITM). Recently BASIS
launched training institute which is
there to address the dearth of skilled
human resource which is very much
needed in this sector..
Knowledge
a) BASIS undertakes various workshops
to keep their members up to date
regarding improvements in recent
technology.
b) BASIS should undertake large scale
research that will not be economical for
individual firm. This research work will
be necessary to help the Bangladesh
market compete in international arena.
Network Collaboration:
a) Association between members.
Sometimes to compete in international
bidding firms in Bangladesh needs to
show experience which a single firm
itself might lack hence they collaborate
to undertake such projects. BASIS
helps them to collaborate.
b) No liaison with customers. BASIS
doesnt provide a platform where
software companies and users of such
softwares can interact with one another.
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4. Triple Triangle Framework Analysis
This analysis is used to get a better understanding of the industry, by first looking at the
grassroots, i.e Firm level factors, then zooming out to industry analysis, and then zooming out
further to have a look at macroeconomic factors that might affect the industry.
Firm Level Factors
Culture: There were mostly positive views of work culture in the industry, with most
respondents pointing towards an informal, and close knit group of employees. This was mostly
attributed to the average age of the employees being quite low, as well as the management being
relatively young as well, as most of the companies started after the turn of the century.
Moreover, the size of the firms are relatively small, with most employing under 20 people, and
the low employee turnover means a long time for the group to gel as a unit. The employees were
said to be generally committed, with good adherence towards deadlines, albeit working hours are
often said to be more flexible than other industries.
Capability: In this segment, most of the respondents said they were satisfied with the number of
potential employees to select from, i.e enough fresh graduates with bachelors in CSE are being
churned out by Universities. However, some dissatisfaction with the university courses and
internal training programs was expressed, with the claims being, that more practical courses and
style of education at the universities would far negate or reduce the need for intensive on-the-job
training programs, with a few firms reporting training times as high as 6 months.
Capital: IT and internet services being a tertiary industry, the need for capital investment was
relatively low, and most of the firms are small units with low capital investment. The only major
investment required was to acquire the trade license, which was reported to be as high as 20lac,
but apart from that, not a lot of expenditure was noted. Procurement of capital and finance was
said to be relatively easy, with banks reported to be interested in investing in these businesses,
and in a lot of the cases, the businesses were entirely self-financed, eliminating the need for
external borrowing.
Industry level factors
Competitors: There are a large number of firms, mostly concentrated in the Basis building in the
Kawran Bazar area. However, as the firms offer a wide variety of services to an even wider
variety of clients, extending from local small firms to government bodies to major international
operators, the level of direct competition was reported to be low. However, there was some
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dissatisfaction at unhealthy competition, especially with regards to government contracts, with
claims of corruption and less than transparent tender allocation processes. There were some
isolated claims of software copying and other competitive unethical behavior as well.
Customers: As pointed out earlier, the customers belong to a wide variety of groups, and with
increased globalization, the group is getting wider. Greater awareness of automation and keeping
up with international standards of online bookkeeping and other electronic services is
contributing to the direct growth of the number and needs of the customers.
Collaborators: Most of the firms do not sell any actual products, and are limited to only
providing services, thus, are not involved with any vertical collaborators. This need is further
diluted as the firms tend to sell their own software through their own networking channels, so
neither distributors or suppliers are external collaborators, the processes are conducted internally
when applicable. Whatever hardware is required, like computers and other machinery, is usually
taken from any number of places, and often companies had no preference for the sourcing, as
these were needed once in every 5 years or so.
Macroeconomic Factors
Globalization & International Influence: The nature of the industry is such that globalization
plays a critical role in the proliferation of this market. Most of the respondents attributed this to
two primary factors:
a) The global trends of automation and provision of electronic services are being spilled over to
the local market, thus creating demand from local consumers for services not previously asked
for, like data categorization software, accounting and management software etc.
b) The foreign countries also provide a much needed market for these services, as local
consumption remains low, most of the respondents claimed at least part of their income to be
supplemented by foreign customers. This was further augmented by the fact that the software can
be easily transferred cross-border without need for taxes or having lengthy travel times, hence,
globalization is a valuable plus point for this industry.
Technological Advancements: The state of technology has improved markedly, mostly due to
the global development of IT, as well as the local development and investment in the sector in
Bangladesh, starting from courses at universities to the sharp rise in the number of firms in the
industry. Moreover, firms quickly adapt to international advancements, processes like cloud
share computing and incorporation of other similar techniques are done quickly and efficiently.
Even though the computers used are not always top of the line ones, the software and methods
very much are, according to the entrepreneurs surveyed.
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State & society: Most of the respondents were non-committal about state contribution towards
the business, with the view that state neither substantially helped nor hindered the business. The
high licensing fee was oft-criticized, with some respondents claiming it was too high. The
influence of the union, which some respondents were not even aware existed, was also claimed
to be minimal, with the organization seen as one which merely kept a schedule of the firms, as
opposed to a regulatory body.
The vast majority of the respondents did not see a significant social angle on their business, and
apart from their business trying to do the right thing, couldnt really point out their contribution
to society.



5. Sustainable Market Enterprise
The graph above depicts the importance and concern software firms have towards each of the
levels or elements of their business sphere. We have used arbitrary scores to quantify them in the
explanation of each dimension in the following page:
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1. Making profit.
Score=5
Making profit is the most important factor in most software firms. This is mainly due to high
developing costs and a commercial mindset of most of the managers.
2. Customers
Score=4.5
Customers are the second most important sector in the model due to them bringing all the profits
in the business. The customer base is expanded mostly by word of mouth since small software
companies have almost no advertising. The companies therefore rely on building good relations
with their customers.
3. Employees
Score=3.5
There have been extremities on the focus on employees among the factors. A high score was
given by some companies who preferred service-based operations and focused on holding their
employees to avoid excess training cost and loss if experienced workers due to replacing of an
employee. The companies with a low score mainly outsourced their employees or already had a
large available pool, which made their current employees dispensable.
4. Suppliers
Score=2.5
Software companies have a low dependency on fixed suppliers for hardware and software.
Hence, they do not have a strong supplier base. Most of their hardware come from many
different places, based on their availability and their software are either downloaded as open-
source programs such as LINUX or licensed from abroad such as Java. Their low score on
suppliers deduces their low dependency on a strong supply chain.
5. Society
Score=3
Some software companies contribute to public service such as application softwares for
government elections or census. They also promote recyclable green technology which
benefits the environment. Some companies go as far as to even donate all their award money to
charity services.
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6. Insights and Recommendations
1. Establishment of an association
Although software companies are already connected with BASIS which mostly conducts training
sessions among the software developers, there is no particular association that looks after an
individual companys interests. Neither is BASIS in a very strong position for bargaining with
the government for benefits, so a stronger association with some leverage might benefit the
industry.
2. State Policies
Although there is government budget allocation for the IT sector, the amount to be invested in
software industry is not large or specific. Moreover, there is avenue for the government to tailor
specifically to the needs of the industry, as both India (in Bangalore) and China ( in the Silicon
Valley) have successfully done, via setting up of universities and training centers in the
geographical proximity of the IT hubs.
3. Proper laws should be made and implemented
The software industry faces a huge challenge regarding security, as the products are always
vulnerable to copyright and piracy issues. Some of the respondents drew light on software theft
via obtaining the source code of other companys software through unethical means. Legal
framework for protection against these activities needs to be much stronger to provide significant
deterrent and penalties, as this industry is particularly susceptible, and it takes a long time for
companies to develop their products.
4. Organize more software related IT competitions
Apart from the people involved with the industry, few others have more than a rudimentary grasp
of the industry, its scale of employment, or the vast opportunities of growth. Greater number of
competitions related to the IT sectors, with greater media coverage, would likely draw light to
these opportunities and encourage more people to take this line of work seriously, leading to
further expansion.
5. Extracting utility from marketing tools.
Most of the companies in the market were formed by and are run by entrepreneurs who got their
degrees in CSE. Moreover, most of the companies were observed to have little to no investment
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in marketing department, and most of the contracts were acquired via word of mouth customer
feedback.
Greater focus on marketing activities on a large scale, similar to India, where Bangalore is
marketed as the IT hub of south east asia, would likely benefit the entire industry. On a micro
level, individual firms can benefit by increasing their scope of business by attracting broader
range of customers, and availing benefits from better pricing and placement strategies overall.
7. SO WHAT?
1. Exploration & Observation:
While visiting the software offices, we have sharpened quite a few of our observational and field
work skills. Listed below are a few:
* Interview Skills: we have learnt how to ask questions and gain information from individuals in
the best and most efficient way possible. We have also learnt how to kindly request for their
cooperation and to value their time.
* Observational Skills: We learned to observe small yet important details, such as the office
environment, work ethics etc of all the firms we visited. We also observed how some individuals
had very different opinions about the software industry as a whole, compared to others
2. Knowledge gained:
The field survey has allowed us to track down and visit a number of software companies which
we did not know about previously. We got to familiarize ourselves with their work environment
and business practices. We also learnt more about BASIS (Bangladesh Association of Software
and Information Services), which is the primary trade body of IT firms in Bangladesh. We learnt
how BASIS contributes to the improvement of the business environment for the software firms,
and its importance as a trade body.
3. Capitalizing on gained information:
We have discovered that the IT sector in Bangladesh is rapidly growing and generating profit.
For this reason, we believe investing here would be a good decision. With the government taking
an initiative to digitalize Bangladesh, more and more people are growing interested in social
media and smartphone applications, etc. With this rapidly growing market, there is a rapidly
growing demand for new and innovative software for both mobile phone and computers.
Currently as there are not many firms competing in this sector, the market is easily penetrable
and profitable too.
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Extension: Software Industry in practice
Key partners:
Most of the software and IT companies have apparently no direct suppliers or service providers.
Because of their business nature, software firms do not need to entitle them with others for
supplies, supports or services. Mainly, a software firms goal is to satisfy and meet its clients
requirements that are done by the intellectual workforce of the company. However, many firms
can consult with renowned individuals and firms to serve their clients properly. From this
perspective, other IT specialists or firms can be the key partners.
Activities:
The central resource for this industry is the intellectual and skilled employees. The human
resources of this industry are used to satisfy the needs of the clients that involve IT solutions,
developing new software, services or consulting related to software development etc. In addition
to that many firms develop new software and smartphone applications for the open market, give
IT solutions to the customers, design web pages and thus utilize its valued human resources.
Resources of the Software Industry:
Human Resources- The software industrys primary resource is its workforce. Potential
developers must be proficient in programming languages, such as Java and C++ for
Android development and Cocoa for iOS/OS-X development, and they must have the
desire to develop. However, some of our interviewed entrepreneurs pointed out that it is
often difficult to find people with specific skills.
Another segment worthy of mention are Marketing Firms and professionals, who help
highlight product features, uses and deliver it to the right market audience.
Equipment- First of all, computers with the required specifications are needed. Some
may need developer oriented graphics chips to facilitate development of visually
intensive applications, and most need decent levels of RAM and processing power to
keep up with the multitasking and large workload. For the accumulating data, a minimum
of 500 GB of data storage is needed for each computer.
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A high speed internet connection is also necessary with LAN to keep the developers of the
same organization connected and updated while sharing relevant data among themselves. To
achieve this, modems, routers, servers and hubs are used.
Applications- For day-to-day operations and serving as a solid platform for other OS
developments, a Windows operating system is used. Windows 7 is the most popular
version. To test out the applications, devices with the required OS are needed (Android,
Windows or iOS).
For development purposes, programming interfaces and SDKs( Software development kits) ,
which are a set of development tools, are used to develop and test out application software.
Value Proposition:
Most of the IT farms in Bangladesh provide the following services:
Web Designing and Hosting: Almost all the IT farms in our country provide web
designing and hosting services. They design and develop websites and web applications
according to the requirements of their customers and provide web hosting. This is a
highly customized service because the requirements of every customer are different and
they have to satisfy those requirements.
Developing Smartphone Applications: Many IT firms in Bangladesh are specialized in
developing application software for smartphones on different platforms such as Java,
IOS, Android, Windows etc. These applications are mostly developed when a customer
places an order. But, sometimes the firms develop applications and then release those in
app stores.
Developing Business Management software: Some of the IT firms in Bangladesh
specialize in developing software for efficient business management; for example: ERP,
MIS, Accounting software, Inventory management software etc. Sometimes they develop
a software on demand but sometimes they develop a software and then communicate the
features and benefits to potential customers.
Marketing Solutions: Some of the IT firms in our country provide Internet based
marketing solutions. They use the web as their medium of communication and enable
their clients to take advantage of the vast reach of the web in order to ensure maximum
visibility.

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Customer Segments:
The IT farms in Bangladesh mostly tread in the 3 customer segments that are given below:
Organizations: Most of the products and services of the IT farms are highly customized.
The tailor their products and services according to the requirements of their customers
who are mostly organizations. Most of the products and services of an IT firm are
developed when they are asked by an organization. Other than smartphone applications
almost all of their products and services are developed for organizational users. These
firms provide their services to almost every type of organization ranging from NGOs to
large Multinationals.
Smartphone users: The other segment of customers they target are smartphone users.
This is a segment whose contribution is relatively low now but is growing rapidly. The IT
farms develop the smartphone applications targeting this particular segment of people
and the main source of revenue from this segment is paid subscriptions and
advertisements shown during the runtime of these applications.
International clients: Initially the software development in Bangladesh started with
freelancers that made customized softwares for firms abroad. Slowly over the years the
freelancers came together to build this into the small formal sector that it is now. Despite
the growth of the domestic market the international market is still the largest client base
for the software industry.
Channels:
The most important thing for a business is to reach the target customers and provide them with a
proper channel to communicate their needs. The IT firms in Bangladesh use the following tools
to ensure proper channels of communication with their customers.
* Above the Line Communication: They usually advertise their organizations, products and
services on TV, Newspapers, Social-Networking sites, Billboards, posters etc. Sometimes they
even distribute leaflets and brochures to potential customers.
* Below the Line Communication: In most cases the IT firms send their employees to potential
customers with proposals. These employees personally communicate the benefits of the product
or service to the customers and try to convince them to become actual customers. Apart from that
almost all the IT firms in Bangladesh have their own websites through which any person can find
information about the firms products and services and contact the. Most of the IT firms have
employees specializing on customer relations whose job is to entertain calls and answer the
queries of current and potential clients.
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Building Relationships:
* Suppliers - Although software companies do not need raw materials, they need hardware
suppliers (very infrequently), office supplies( frequently) and have to buy software sometimes.
Interviewed companies often show an inclination to buying these simple and/or infrequent goods
from previously acquainted suppliers with whom they maintain good relationships due to the
years of business.
* Employees- Although the employees are satisfied with on-time salary and reasonable behavior,
some companies such as Kaz software and Zanala Bangladesh take it leaps ahead, by cooking
barbecues, playing cricket and teaching children together( in case of Kaz), and implementing a
very motivational reward and award system in case of Zanala. Needless to say, employees in
such organizations stand heads and shoulders above in motivation compared to those employee-
focused only on a medium level.
* Clients- Software companies strive to test their products and retest with beta testers to make
sure the end-product works as reliably as possible. They also try to be their best to respond
promptly to client inquiries and maintain updates and checks on their products. This builds
relationships with clients over months and this can result in endorsements from big clients.