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
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Agenda
• Overview of BPO sector• Obstacles to growth and operations• Growth plans• Conclusions
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Overview of BPO sector
• Composition• Investment• BPO entry and reasons• Services• Export markets• Employment• Skill requirements
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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
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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
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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
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BPO entry by year
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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
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Operating costs of BPOs
Labour44%
Other26%
Telecom22%
Electricity8%
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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
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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)
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BPO service offerings
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Main export markets
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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
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Age distribution amongst BPO workers (excluding largest BPO)
59%
8%
30%
3% 18-24 years
25-35 years
36-45 years
45+ years
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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%
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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
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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
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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
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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
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Obstacles to growth and operations
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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
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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
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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
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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
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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
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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
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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
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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%
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Growth plans
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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
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Conclusions
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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
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12 Balcombe Place,Colombo 8, Sri Lanka(v) +94 11 493-992(f) +94 11 494-0290
asia@lirne.netwww.lirneasia.net
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