s IT/ BPO and Knowledge Services Industry Dr. Arul Sivagananathan MD Hayleys PLC s IT/BPO & Shared Services Sector 25 th October 2013 Overview About the Industry Where is today in the World outsourcing map? State of the n IT/ BPO industry Future focus Positioning Building the brand SLASSCOM Initiatives Rural BPO and IT 2 Way Forward 1
Customer Market segmentation in BPO Americas: America accounts for more than 63% of the global spend on IT/BPO Europe, Middle-East & Africa (EMEA): EMEA accounts for approx 19% of the global spend on IT/BPO Asia Pacific: APAC region accounts for more than 17.6% of the global spend on IT/BPO It is estimated APAC to be fastest growing market with 15-20% growth in the coming years 3 Overall Global IT/BPO market was USD 500 Billion in 2011 Source: NASSCOM Strategic Review Why do Global Companies Off-Shore? Cost-savings between 40% to 50% Fixed to variable cost Increased ability to focus on core competencies Shared Services Create CoE (24 x 7) Unlock constrains to changes Improved efficiency and higher service levels Quality improvements with Six sigma & FMEA Re-engineer processes and streamline methodology 4 2
Where is today in the World s Outsourcing landscape? 5 - Strengths Educated work force Talent pool for specific skills: eg largest pool of UK qualified accountants outside of UK, pool of IT graduates High literacy rate (>93%) Investor friendly policies with booming economy Tax concessions, BOI Time Advantage Centrally Located to West & East Beautiful Island with booming tourist industry 6 3
- Weaknesses Political Risk Regular Policy Changes Infrastructure lack of intelligent buildings / roads / transport High Telco, Utility cost Lack of skills outside of Greater Colombo (IT savvy, English) Government policies on labour law (Poya days, Female night shifts, Number holidays in ) Mindset change to embrace it as a career Change of mind-set required for Global Services 7 Where were we 5 years ago? & today? Vietnam 8 4
What need s more work Building the brand within the target segments move from pre conflict level marketing investment to something suitable Focused investment promotion (moving beyond tax incentives) Enabling environment (telecom, infrastructure) Right Talent - Accelerating capacity development while ensuring quality Catalyst policies to help the growth of the industry Government championship 9 SLASSCOM ( Association of Software and Service Companies) 5
SLASSCOM Structure Board of Directors 12 member Board of Directors including Chairman, two Vice Presidents from BPO and IT sectors Advisory panel consisting of eminent professionals from the industry Advisory Board Member Companies General Council 21 member General Council elected every year Corporate Office Team of five with full time Executive Director 11 Driving Strategy - Forums grow demand Marketing Entreprene urship Policy $1b Capacity- IT Quality Capacity - BPO 12 6
is clearly emerging as a Global IT/ BPO Sourcing Destination Ranked among the Top 25 in the AT Kearney Global Services Location Index (GSLI) in 2011 Ranked number 5 in financial attractiveness, ahead of India, and all of CEE Gartner's 30 Leading Locations for Offshore Services (2010-2011). Included among the Top 10 in Asia pacific. 12th in the top ranking destinations in IBM Global Location Trends Report Ranked among the top 10 emerging global destinations by Global Services Magazine. is another Asian country that has succeeded in positioning itself as an alternative to India. -IBM Global Location Trends Report 2010 n s geographical location, infrastructural facilities, direct access to the Indian market, high quality standards of the workforce, open economy and various free trade agreements make it an attractive outsourcing destination. Global Services Destinations Compendium 2010 13 State of the Industry 14 7
VISION of SLASSCOM by 2016, IT/BPO Industry to become 1 Billion USD in Export Revenue and create 100,000 Jobs 946 IT/BPO Export Revenue in mill USD 387 525 605 750 210 310 2009 2010 2011 2012 2013 2014 2015 Actual Estimated Source: ICT Export Value Survey (Aug 2011- PWC publication) 15 Industry made great strides over the last 5 years in revenue, employment and growth in industry Growth in 100% 182% workforce Growth in revenue Growth in new ventures starting Global growth in brand reputation Top 25 in the AT Kearney Global Services Location Index Gartner's 30 Leading Locations for Offshore Services 12th in the top ranking destinations in IBM Global Location Trends Report Traction in Australia, UK, FAO, Product Engineering Rapidly growing startup eco system Government endorsement and support Attractive corporate Tax holiday Lower PAYE tax only industry President's backing - Knowledge Hub/Year of English & IT, Set up of Ministry of IT 300m allocation in 2013 budget Significant impact from ICTA ICBP EDB and BOI alignment 16 8
Where should we set our sights for the next wave of growth? 2022 Moonshots (Vision 2022) $5b Revenue 200,000 Jobs 1000 Startups 17 Building the Brand 18 9
Country Reports AT Kearney Sri Lanka Country Benchmarking Report commissioned by ICTA ICT Export Value Survey 2010 - Published by EDB. Comprehensive view on the IT and ITES Export market (Aug 2011) 19 Unknown to most global observers, a significant knowledge services industry has been developing in Key Insights Over 300 IT, BPO and KPO companies employ more than 60,000 ns and generate more than $400 million in exports in 2011 Companies in provide sophisticated accounting services and financial analytics to their customers, as well as offshore legal services, medical diagnostics, and architectural drawings n companies export services to a wide variety of clients across regions Select MNCs operating in Select clients of n firms 20 10
Financial Attractiveness In terms of costs, s average wages are in line with South Asia, making it one of the world s lowest-cost destinations Average wages Annual Average Wages, US$ Average wages indicate overall wage pressure in an economy, regardless of industry conditions Vietnam Pakistan Bangladesh 1,012 1,272 1,440 compares closely to the other South Asian and South East Asian countries, making it one of the lowestcost options for remote service delivery India Egypt 1,524 1,584 1,620 2,772 The only countries that report significantly lower average wages are Vietnam, where incomes are rising fast, and Pakistan, where security concerns limit attractiveness UAE Malaysia Mauritius 4,716 4,860 6,708 7,641 UK 32,769 21 Source: Economist Intelligence Unit 2011, A.T. Kearney analysis Financial Attractiveness For typical positions in the knowledge services sector, offers amongst the lowest wages in the benchmark countries Professional Compensation Annual IT Programmer compensation cost, US$ Annual BPO Analyst compensation cost, US$ offers remarkably low costs, considering the value offered According to international salary surveys, compensation costs for sample IT positions are 10% lower than India and 20% lower for BPO functions In addition to low costs, companies consistently report low attrition Attrition rates in tend to be just under 20%, whereas rates in India and the typically range from 20-25% in IT to 30-35% in BPO Bangladesh 7,800 Vietnam 3,574 Pakistan 8,683 4,104 8,996 Bangladesh 4,200 India 10,170 4,653 Vietnam 11,291 Pakistan 5,374 11,371 India 5,451 Egypt 13,894 Egypt 5,913 Malaysia 16,868 9,121 23,576 Malaysia 10,398 Mauritius 33,704 Mauritius 14,145 UAE 40,504 UAE 17,895 UK 44,297 UK 28,679 22 Note: All wages are annual and fully loaded. Fully loaded compensation includes benefits, taxes, and bonus. Source: Mercer HR Consulting 2011, Watson Towers 2011, A.T. Kearney analysis 11
Financial Attractiveness Office space is available and relatively affordable, and new developments are underway Real Estate Office rent, class A office space in major business hub, US$/m 2 Companies in Colombo do not report office space to be a problem Several BPO companies are housed in class A facilities downtown as opposed to in suburban campuses In addition, class B real estate in Colombo is easier to come by and of better quality than in many emerging market capitals Private actors have created dedicated IT/BPO industry parks - not yet at capacity Mauritius Bangladesh Malaysia UK Egypt Vietnam Pakistan India 192 227 252 262 316 343 368 440 459 472 918 UAE 978 23 Source: CB Richard Ellis 2011, A.T. Kearney analysis People Skills & Availability Literacy and secondary enrollment rates are on a par with developed countries Enrollment rates With free primary and secondary education and an extensive university system, has had a very strong education system for decades s literacy rate is the highest in South Asia, positioning it to train a large number of high-quality personnel Secondary Enrollment Rate, % Adult Literacy Rate, % UAE UK 98% 96% UK 99% 95% 90% 93% Mauritius 89% Vietnam 93% 82% Malaysia 92% Egypt 81% 91% 76% UAE 90% Malaysia 70% Mauritius 88% Vietnam 70% India 59% Bangladesh 44% Egypt 66% India 62% Bangladesh 56% Pakistan 33% Pakistan 55% 24 Note: Gross enrolment ratios measure total enrolment as a percentage of the total population corresponding to the relevant age group Source: UNESCO 2011, A.T. Kearney analysis. 12
People Skills & Availability Executives rank s tertiary education among the best in Asia Education quality Quality of Management Schools Quality of Math & Science Schools s management schools are ranked among the best in Asia; their math and science programs also rank highly currently has 23 accredited universities, more than 25 private institutes offer diplomas in IT Foreign universities are partnering with local institutions to offer degree programs, and some are setting up their own campuses in UK 6.0 Malaysia 5.0 Malaysia India UAE Mauritius Pakistan Bangladesh Vietnam 5.0 4.9 4.7 4.7 4.4 4.3 4.1 4.0 3.9 3.3 UAE India UK Vietnam Mauritius Pakistan Bangladesh 4.9 4.7 4.7 4.5 4.2 4.2 4.1 3.6 3.3 3.1 Egypt 3.0 Egypt 2.4 25 Source: World Economic Forum Global Competitiveness Report 2011-2012, A.T. Kearney analysis People Skills & Availability has cultivated distinctive capabilities in particular technical and professional services Professionals To compete with large countries, Sri Lanka needs to focus on growing competitive talent in specific areas Already boasts more people with UK-recognized accounting qualifications than any country outside the UK Given a similar emphasis on other professional qualifications (in medicine, law, engineering, architecture, etc.), the country has the potential to develop distinctive remote services offerings in these areas also The IT industry has also developed distinctive capabilities in a number of niches such as open source, cloud apps and mobile technologies Top Ten CIMA Student Populations UK 45,280 12,466 South Africa 5,729 Malaysia 3,080 India 3,036 2,520 Pakistan 2,446 Zambia 2,310 Ireland 1,959 Poland 1,252 26 Source: Chartered Institute of Management Accountants 2011, A.T. Kearney analysis 13
Business Environment s business environment is considered superior to other lowcost emerging markets Regulations Ease of Doing Business, Rank Regulatory Burden The World Bank Doing Business Report measures the costs to firms of business regulations in 183 countries improved 11 points in the Doing Business rankings between 2011 and 2012 and ranks higher than all other lower cost countries in the region A three-decade legacy of pro-business and proinvestment policy has resulted in the lowest regulatory burden on the subcontinent UK Malaysia Mauritius UAE Vietnam Pakistan Egypt Bangladesh India 7 18 23 33 89 91 98 105 110 122 132 Malaysia 4.4 UAE 4.4 Mauritius 3.9 3.7 3.6 Pakistan 3.2 UK 3.1 Bangladesh 3.0 India 3.0 Egypt 3.0 Vietnam 2.7 136 2.6 27 Source: World Bank Doing Business 2012, A.T. Kearney analysis Business Environment also offers superior infrastructure to most other low-cost countries Infrastructure Overall Infrastructure Quality Score Overall infrastructure quality, including transportation and utilities, surpasses that of South Asian and almost all Southeast Asian competitors UAE Malaysia UK 4.7 5.7 5.6 6.3 This is a welcome difference to other locations, often plagued by inefficient infrastructure Mauritius Egypt 4.6 4.2 3.9 Colombo s Bandaranaike International Airport has more flights to India than any other country In terms of ICT infrastructure, also scores better than most regional competitors India Pakistan Vietnam Bangladesh 3.8 3.5 3.4 3.1 2.8 28 Source: World Economic Forum Global Competitiveness Report 2011-2012, A.T. Kearney analysis 14
The Digital Divide Low ICT Adoption/ Literacy Percentage of computer owned households by Sector and Province 2004, 2006/7 and 2009 Household computer ownership (percentage) 2009 Internet and e-mail using household population (percentage) 5-69 years aged by sector and province - 2009 Source: Computer Literacy Survey 2009 by Department of Census and Statistics 29 The road ahead.. Where can we go in the next 10 years? 15
Uduvil Vakarai & Oddusudan Mavalachiya Jaffna ONTIME BPO Batticaloa & Kalmunai Vavuniya Akkaraipatu Colombo Seenigama Foundation of Goodness In Summary is in many ways a hidden gem for outsourcing. It is uniquely positioned to offer companies skilled talent and a strong business environment at competitive costs With a population of 20 million, does not offer the size advantages of countries such as, India, and the. However, recognizing its small scale, companies in focus on higher-value niche products across industries With continued efforts to expand the talent base, reduce red tape, improve infrastructure, and establish new knowledge cities around the country, is expected to become a major player in the IT, BPO, and knowledge services industry in the next few years already offers global companies unique advantages as a location for delivery of sophisticated knowledge services. It is likely that the industry will exceed its own ambitious target to generate more than $1 billion in revenues by 2016 and put firmly on the global services map IT/BPO industry to become $5 billion industry by 2022 and the vision to become the number one industry with 1000 startups. 32 16
Thank you 17