Financial Times

Is Sri Lanka ready for Business Process Outsourcing?
By Zaroff Ahmed
There is an opportunity for Sri Lanka to take part in the Global Business Process Outsourcing (BPO) market currently pegged at $110 billion. What exactly is Business Process Outsourcing? Sri Lanka has already taken a lead in one sector of the BPO industry: Garment Manufacturing. The early 1980s saw the global trend of major fashion brands in North American and Europe outsource their garment manufacturing to countries such as Cambodia, China and Sri Lanka. Sri Lanka maintains its lead due to strong government and private sector support to continuously improve processes, ensure quality and reduce operating cost.

The industry also spawned support industries that ensure garments are produced and delivered on time, when needed and where needed - in shops, warehouses and shelves across the world.

This illustrates the core concept of BPO - companies that outsource critical portions of their business to a service provider who commits to deliver the services and goods using an agreed upon set of metrics. This allows the company to focus on core-business and narrow their competency.

The IT sector has also seen a significant growth in BPO. In the early 1990s, Silicon Valley hired IT professionals from India and Philippines to migrate and work in the U.S. - a result of the hype for the new "e-economy" that collapsed in the late 1990s. The result though allowed better communication technologies to evolve, resulting in a trend for outsourced IT jobs and projects that employed a highly skilled, technologically educated and English speaking labor force in the Philippines and India.

This sector continues to grow although the market has somewhat matured.
There are other driving factors why a company wants to outsource but ultimately it is to reduce operating costs and overheads. It is not uncommon for a company to realize a 40% savings on existing processes outsourced to a service provider. Other reasons include operating redundancy, decentralization, globalization, and consolidation of regional operations and services.

Global trend and opportunities
According to Global Finance Magazine, two-thirds of US banks already outsource one or more functions. For an industry known for its conservative policies, it indicates a growing trust on BPO. Outsourcing cuts across a multitude of services in all industries.

The global BPO market is currently pegged at $110 billion and expected to grow to $173 billion within the next five years. In a general classification by the Gartner research group, the most common outsourced services include: Human Resource Management, Finance and Accounting (F&A), Transaction Processing, Administrative Services, Supply Management, Sales, and Marketing and Customer Care. In addition to this, existing services for manufacturing and IT remain strong.
In Transaction Processing there is a projected 333% increase in the use of claims processing services from foreign suppliers over the next five years. In the F&A sector across all industries a projected growth of 181% from $36 billion in 2001 to $65 billion in 2006 is expected.

According to Connections Magazine and its "Asian Call Centers: Continent Review 2002", Sri Lanka moves to third place behind Philippines and India, bumping off Malaysia and Nepal as potential destinations for Call Center work. Call Center work has been traditionally associated with Sales, Marketing, Customer Care and Technical Support. This BPO sector is expected to post an increase of 200% in the next five years.

Sri Lanka, Malaysia and Nepal are classified as the "Chasing Pack" in the same review and defined as a group that has done zero to minimal call center work but has the potential to perform such services currently. It has been established that a window of opportunity exists for foreign suppliers. Sri Lanka is positioned to take advantage of this opportunity. But more critical is its ability to select the niche to develop its expertise, focus its finite resources and accelerate movements within the public and private sectors to address the issues that prevent it from achieving the status of "destination of choice" for foreign suppliers.

The challenges
In the IT and IT Enabled Services Sector, the Information and Communication Technology Agency (ICTA) has been created as the apex government agency to overse the development of ICT in Sri Lanka. ICTA is currently working closely with agencies such as the World Bank to develop and implement projects over the period 2004 - 2009. The objective would be to strengthen, predominantly through private sector-led initiatives, the existing ICT industry in Sri Lanka; to encourage emerging sectors of the industry and entrepreneurship, to stimulate broad-based industry growth and to promote international competitiveness.

For these initiatives to achieve their goals, the government and private business sector should identify the challenges and entry barriers that prevent Sri Lanka from successfully taking advantage of the opportunities in the global BPO market.
On a general analysis, the following areas are of major concern to existing providers as well as potential foreign investors wanting to set up in Sri Lanka: Legal and regulatory framework, labour market related laws and incentives, taxation reforms, workforce capacity and skill levels, and existing infrastructure and support services available.

The challenges can be summarized briefly as follows: More modern and appropriate policies related to industry regulations, taxation, and labour that addresses the unique needs of an emerging BPO sector and human resource skills, capacity and manpower availability in another. To tie this all up, the next challenge is to communicate to the global community that Sri Lanka is ready to take on the world.
International clientele expect the BPO Service Provider to adhere to known standards for operations excellence. Some of the more important standards include International Standards Organization, Support Center Practices, and Customer Operations Performance Center.

Apart from 'expertise on the trade', the financial backing and technology employed by the Service Provider (SP) is a significant criterion for a client. Clients partner with SPs that can ensure business continuity and completion of service contracts. Technology depends on the particular sector of the BPO market being targeted. For contact centers, CISCO, Avaya, Cosmocom, Alcatel and others have developed rich platforms that support major contact points such as Voice, E-mail, and Chat.
To compliment this, the telecoms infrastructure should also be redundant and reliable to ensure that connectivity is maintained at certain levels as specified by the customer. More often, the initial technology investment and recurring maintenance cost is a major component of operating costs and represents a challenge for an investor wanting to set up a Contact Centre.

There is an emerging group in the IT Enabled Services sector that provides an alternative for Call Centre solutions to companies that want to set up Call Centres but do not have the initial capital or technological expertise. The idea is simple: technology companies specialize in providing Call Centre solutions as an Applications Solutions Provider (ASP) to a group that want to set up operations but is limited by expertise and initial capital. In the most basic set-up, companies only have to connect to the ASP provider and technology related solutions is implemented by the ASP whereas the Call Centre operator focuses on productivity and its services to the customers of its clients.

A real opportunity is available for Sri Lanka to take advantage of the growing BPO market. But the window of opportunity is limited. It remains to be seen how fast the public and private sectors react will determine whether the country can live up to the "perceived" capability to service this industry.

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