Building regional IT capacity, vital for inclusive growth

By Gamini Warushamana

Globally, the Information Technology and Business Process Management (IT-BPM) industry is growing at a rapid pace and in 2013, global IT-BPM spending topped US $ 1.2 trillion. It includes US $665 billion in IT services, US $168 billion in BPM and US $392 billion in packaged software, Vice Chairman, SLASSCOM and Managing Director and co-founder of 99X Technology, Mano Sekaram told Sunday Observer Business.

"Therefore, we are in a strong supply constrained growth market that has massive opportunities," he said.

"To exploit these emerging opportunities, the Sri Lankan IT BPM industry needs to increase its innovative capacity, shift focus to the regions and launch 1,000 start-up companies," Sekaram said.

Excerpts of the interview.

Since 2005, there has been significant progress in the industry. The number of IT-BPM companies in the country has increased from 170 to 225 and our exports grew by 228 percent to an estimated US $720 million and employment grew from 33,000 to 75,000. In the aspects of capacity, export and employment, the sector has achieved significant growth.

Therefore, achieving our target of US $ 1 billion in exports by 2015 is becoming a reality. Today, the IT-BPM industry is among the top five export industries and it is the fastest growth sector.

Internationally, what people think of Sri Lanka as an IT-BPM destination has also changed for the better. AT Kearney global services location index has ranked Sri Lanka among the top 25 and number five in financial attractiveness, ahead of India and China. Sri Lanka is among Gartner's 30 leading locations for offshore services and among the top nine in the Asia Pacific region. IBM global location trends report has placed Sri Lanka 12th in top ranking destinations. According to the Global Service magazine, Sri Lanka is among the top 10 emerging global destinations.

In 2013, Sri Lanka was awarded the 'Offshore Destination of the Year' by Outsourcing Association of UK. Sri Lanka is now recognised as a global centre of excellence for accounts outsourcing because Sri Lanka has the world's second largest pool of UK-qualified accountants, after the UK.

Vision

Sri Lanka is also emerging as a high-end global product engineering destination. With the advantage of quality technology talent, product engineering heritage, cultural adaptability, cost advantage and high retention rate, Sri Lanka is considered as an ideal destination for high-end software product engineering which relies on strong niche skills.

Government support has helped the growth of the industry and the future plans of the industry are in line with government policies.

The Government has a clear vision to develop the sector and make Sri Lanka an ICT knowledge hub and take the dividends of ICT to every citizen and transform the way the government works through initiatives such as the e-governance project.

The IT-BPM industry has been offered attractive incentives and the Export Development Board and Board of Investment support the industry in market promotion and attracting investments.

The long-term target of the industry is US $ 5 billion in export revenue, 200,000 direct jobs and 1,000 startup companies by 2022 and to help Sri Lanka move up to the middle income bracket. An export revenue of US $ 5 billion means four percent of targeted GDP, 20 percent of exports and to be the number one export earner in value addition.

If we generate 200,000 direct jobs it would be 2.5 percent of the total workforce and 3.3 percent of private sector employment. One thousand startups means at least 10 percent of annual new company registrations. Therefore, achieving the target will make a significant impact on the economy.

Challenges

Constraints in human capital development is the main obstacle to achieving this target. Private-public partnerships are needed to address this issue and the IT-BPM industry has already set up partnerships with universities. We sit at university board meetings and are involved in curricula development and improving teaching methods. We have launched career development programs to increase opportunities in the IT-BPO sector.

Achieving these objectives and taking the industry to the next level is a challenging task due to several reasons. Globally, the industry is transforming itself and business models are changing. There is increased consumerisation of IT and changes in technology.

It means that IT has become a consumer item. Three things are happening: First, Internet of Things (IoT) is taking place, therefore, in the future everyday physical objects will be connected to the internet and identify themselves to other devices. Second, we are moving to more connected social, mobile, analytical and cloud services.

New IT solutions are coming into every aspect of our lives. Social media is becoming popular and citizen journalism is growing.

Third, everything will be on the cloud in the future. To cater to all these demands you need a lot of analytical work.

Therefore, there will be vast opportunities in building software applications.

SMEs are growing in this business environment. At present our businesses are driven on cost and in the next phase it will be on value arbitration.

We will have nonlinear growth that delivers value, goes high on value chain and produces high-end software products and services. Nonlinear growth means that if you can deliver a software product or service employing 10 people and earn $ 100,000 you will be able to earn $ 1 million by employing just two people.

Therefore, it needs more specialisation and our future plan of 1,000 startups is to meet this new condition and build an ecosystem of entrepreneurship and innovation. The existing companies will not generate the needed employment in the future, instead new companies will generate them.

To create a good ecosystem we need innovation, infrastructure, venture capital and highly skilled human resources.

Government policies are crucial in achieving them. Education policies, liberalisation of private education, facilitating universities to launch research and postgraduate programs and encouraging university and industry partnerships are important.

The Government is already doing this and Colombo with its new buildings and modern infrastructure will attract high tech investments. Innovation and specialisation will give us the opportunity to go high up on the value chain.

At present, the export market of our IT-BPM products and services is Europe and the US. This market will also expand to include BRICS countries and emerging markets.

Inclusive growth

Building regional ICT capacity is also necessary for inclusive growth. The IT-BPM industry can reduce regional disparity in economic growth. Today, 45 percent of our GDP is produced in the Western Province. The Western Province contributes over 95 percent of IT-BPM exports.

According to the nature of the industry, inclusive growth can be taken to the regions if infrastructure is in place. Most of the ICT workforce are from the regions and not from Colombo. The proliferation of ICT in provincial regions is the fastest way of developing marginalised areas.

Growth has been so far concentrated within the Western province - regional hubs need to be created. The IT-BPM industry could operate from any location, provided a conducive environment and sound infrastructure are in place. 80% of the nation's workforce comes from regional areas and this is where our greatest untapped human resources lie.

Given Sri Lanka's development drive, Colombo, which is already home to hundreds of IT-BPM firms, will only get more congested. Increased expenses would mean higher costs of operation for companies.

The creation of 'second tier cities' would empower regional systems and the economy would see a paradigm shift from being Colombo-centric to being regional-centric. Regional people will reap benefits while living in their own households, allowing them to enjoy a far better standard of life.

This will assist in achieving the Government's vision of transitioning Sri Lanka into a middle-income country.

Jaffna, Kandy and Hambantota have the potential to be developed as second tier cities, given the infrastructure in place, present and planned development and capacity to generate a skilled workforce (through schools and universities).