1 a baseline sector analysis of the business process outsourcing industry of sri lanka harsha de...
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1
A baseline sector analysis of the
Business Process Outsourcing
industry of Sri Lanka
Harsha de Silva,Sriganesh Lokanathan, Dilshani Samaraweera
27 September, 2006
Agenda
• Overview of BPO sector• Obstacles to growth and operations• Growth plans• Conclusions
Overview of BPO sector
• Composition• Investment• BPO entry and reasons• Services• Export markets• Employment• Skill requirements
Composition of Sri Lanka’s BPO industry
• Equal proportion of captive & non-captive operators (48%) • While majority are offshore, value of total offshore investment is
low = USD 4.3 million (out of USD 13.2 million)• 86% have BOI status
BPO Investments with BOI status
Type of BPO investment In millions (USD)
BOI investments 11.8
Non -BOI investments 1.4
Total investment in the sector 13.2
Offshore/ Onshore Investments
Type of BPO investment In millions (USD)
Offshore investments 4.3
Onshore investments 7.8
BPOs that are both onshore and offshore
1.1
Total investment in the sector 13.2
Reasons for locating in Sri Lanka
71%67%
48%
38%
29%
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Low er labourcost
Low eroperatinol cost
Tax incentives Time / distanceadvantage
Duty exemptionon capital
goods
Culturalsimilarity
Reasons
% o
f co
mp
anie
s
Government incentives used by BPOs
• Tax incentives is the third most frequently cited reason for locating in Sri Lanka
86%
21%14%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Tax holidays Duty free imports Status of BOI VAT exemption
Government incentives
% o
f co
mp
anie
s
Most popular services
• Accounting = 43% of the companies• Call centre services = 19% • Medical insurance processing = 14% • Non-captives offer more services than
captives (avg. of 3.5 vs. 1.4)
Employment
• Total employment (21 BPOs) = 3,700• 50% have up to 62 workers • Avg. workforce at offshore BPOs = 265 • Avg. workforce at onshore BPOs = 78 • Avg. workforce at captive BPOs = 228 • Avg. workforce at non-captive = 134
• The average monthly salary of a BPO worker = USD 270 (inclusive of bonuses and commissions.)
• 95% provide training
Age distribution amongst BPO workers (excluding largest BPO)
59%
8%
30%
3% 18-24 years
25-35 years
36-45 years
45+ years
BPO employees by educational qualification (excluding largest BPO)
Post grads2%
Professional qualif. holders
13%
Other3%
O/L holders7%
A/L holders51%
Diploma holders
9%
Graduates15%
Workforce composition of the largest BPO
• The largest BPO reported a workforce of 1,700• Degree holders = 25% • Advanced Level qualified = 75%
70%
20%
10% % 18-24 Years
%25-35 Years
%36-45 Years
Turnover in 3, 6 and 12 months (includes largest BPO)
• Avg. 1-year turnover = 6%
• Avg. 6-month turnover = 4%
• Avg. 3-month turnover = 3%
5%
1%
6%
2%
10%
4%
0
2
4
6
8
10
12
Captive BPOs Noncaptive BPOs
Type of BPO
Av
era
ge
tu
rno
ve
r
3 month turnover
6 month turnover
1 year turnover
Skill requirements – Primary Skills
• Spoken language proficiency in English considered an important requirement by 95%
• Written proficiency in English considered important by 66%
19%
5%
57%
19%
Accountingknow ledge
Technical know ledge
Language/ speech/communi.
Other
Satisfaction on availability & quality of personnel
43%
38%
19%
24%
38%38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Not satisf ied Neutral Satisf ied
Level of satisfaction
% o
f co
mp
anie
sAvailability
Quality
Leading obstacles
67%
57%
48%
0%
10%
20%
30%
40%
50%
60%
70%
Civil/political instability Mass Transport Services Telecommunications
% o
f co
mp
anie
s
Operational stability
• Civil/political instability is the leading threat to operations and growth – 67%
• Further more:• 67% expressed concerns about the state of law and
order. • 57% expressed concerns about maintaining Sri Lanka’s
image abroad.• 33% of the companies do not think that interpretations
of regulations applicable to BPOs are consistent and predictable
Regulations
• Taxes are not considered an obstacle but tax administration is seen as an obstacle by 38%
• Labour regulation are considered a difficulty by 38%
• Customs/trade regulations are seen as obstacles by 10% but 67% do not think they pose a problem
• Environmental regulations are not considered problematic
Regulations
67%71%
67%
10%
38%
10%
38%29%
19%
29%24%
24%43%
57%
38%33%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Tax rates Taxadministration
Customs andtrade
regulations
Laborregulations
Businesslicensing and
operatingpermits
Environmentalregulations
Regulations
% o
f c
om
pa
nie
s
Obstacle
NeutralNot an obstacle
Not mentioned
Delays due to regulations/procedures
• All of the companies that experienced start up delays are BOI companies
% of BPOs that experienced delays
29%
Reported delays (in days) 21, 60, 90, 99, 210, 240
Reasons for delays •Regulation payments•Company incorporation and BOI procedures•Registration procedures•Formalities
Public/Mass transport system
• Mass transport is the second most frequently cited obstacle to growth and operations• 57% said mass transport is an obstacle• 38% said transport infrastructure (roads) is an obstacle
Telecommunications facilities
38%33%
29%
71%
14%14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Unreliable Neutral Reliable
Reliability
% o
f co
mp
anie
s
Leased lines
Telephone
Reliability of leased lines and telephones
Types of Internet access used by BPOs
Type of connection
Bandwidth (Kbps) % of companies
ADSL 256 - 2048 24%
Shared leased line 256 -4096 19%
Dedicated leased line
45 - 2560 67%
VSAT 72 - 512 10%
Other Not mentioned 5%
Expansion plans
• 95% plan to increase employment
• Employment growth of 30% in 2006-7
• 76% stated expansion plans out of which:
• Physical exp. = 50%• Market expansion = 13%• New partnerships = 6%
75%77%
23% 25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Offshore Onshore
BPO companiesCompanies that are both offshore and onshore are included under offshore
% o
f co
mp
anie
s
Plan to expand
Do not plan toexpand
Primary requirements for BPO sector growth
• Capacity expansion• English• Telecommunications (+land)• Mass transport• Feasibility of setting up a dedicated BPO zone with
enhanced transport and telecommunications infrastructure should be considered.
• Facilitation of entry & operations• No specific regulatory changes• facilitation mechanisms - investment entry & operations
• Marketing and promotions
12 Balcombe Place,Colombo 8, Sri Lanka(v) +94 11 493-992(f) +94 11 494-0290