An in-depth report looks into the possibilities of Bangladesh’s ICT industry.
By Kashif Choudhury
Bangalore is recognized as the Silicon Valley of India. It is the darling of western companies and is seen as the defacto destination for outsourcing from the most simple of office operations to the most complex of business processes. The city, however, wasn’t always known as a tech hub. It was a result of the vision of a top infrastructure development firm, Keonics in the late 1970s and subsequently the political leaders of India during its liberalization in the early 1990s. Today, Bangalore is known as the outsourcing capital of the world.
During Bangalore’s initial stages as a outsourcing hub, business development worked a lot like a game of football, where Non-Resident Indians would act as the midfielders, integrating themselves with the tech elites by networking and bringing in work for their partners in India – the strikers; these were IT professionals who were picked from the country’s top engineering schools such as the Indian Institute of Technology (IIT), commanding cheap rates but nonetheless offering dedicated and skilled labor. The rest, as they say, is history.
Today, in 2016, the small delta of Bangladesh, housing the world’s 8th largest population needs to develop these midfielders and strikers and get on its way to becoming the next India of outsourcing. Bangladesh needs more institutes similar to IIT so that those outsourcing work to Bangladesh don’t have to be afraid of not finding the right talent. With the right set of structured actions, Bangladesh can leapfrog into the domain of IT/ITES outsourcing heavyweight by leveraging its inherent advantages.
Background of the ICT Industry in Bangladesh
Bangladesh’s ICT industry has been developing slowly over the past three decades, culminating hundreds of millions of dollars of value addition every year. In fact, Bangladesh is now considered to be the next high prospect destination in the segment, with accolades from AT Kearney, Gartner, Goldman Sachs and a host of others. The industry has seen strong growth over recent years, characterized by local demand as well as global exports. The total earnings of the industry in FY 2014 were $600 million, out of which exports amounted to $132.5 million.
Because the ICT industry encompasses technology, it is fast changing with fluid categories that often merge into each other. Industry segmentation has been designed keeping this in mind.
The ICT industry can be divided into two broad categories; IT and ITES. IT services can be broken down into Application Services (that include systems integration, IT infrastructure and consulting) and Engineering Services (including hardware and software development and testing).
The ITES category on the other hand can be categorized into Horizontal Process Outsourcing (including call centers and business process management such as HR and Supply Chain functions), Vertical Process Outsourcing (including banking, manufacturing, telecom, pharmaceutical), Knowledge Process Outsourcing (including business research, animation, data analytics, other specialized processes) and lastly, the latest entry into the segment, Automation Services (including task automation and Business Process as a Service; BPaaS).
The 1,500 IT/ITES companies currently registered in Bangladesh, are involved in most of the mentioned verticals of the ICT value chain, ranging from customized application development and maintenance, to BPO services throughout the value chain. Local demand has largely been driven by banking, telecom, pharmaceutics, RMG and Textile sectors, which has also built up capacity in the sector to export services.
The ITES segment in Bangladesh covers the entire gamut of operations which exploit IT for improving the efficiency of an organization, driving revenue growth and increasing profitability. This in turn can be broken down into horizontal, vertical and knowledge process outsourcing (categorized broadly as BPO).
Share In Total ICT Sector
The ITES category consists of specialized services that rely on technology for delivery. This includes voice services, data processing and animation among others. This represents a major portion of Bangladesh’s ICT market exports, standing at 17%. The IT segment, on the other hand, includes services that require extensive technical expertise to accomplish. These include services that offer Platform as a Service (PAAS), Software as a Service (SAAS) models to help businesses reach their goals. Furthermore, technology consulting, product design, infrastructure development, systems integrations, and ERPs are all examples of technical IT Services.
Software development, on the other hand, is another part of the IT services segment. It falls under the engineering services section of IT Services and is extensively sought after by international firms looking to outsource this facet of their operations abroad. This segment has opportunities ranging from platform and software development to testing to specialized software design and beyond. It is the driver of digital growth around the world and world-class expertise in this field are always sought. Bangladeshi companies have been outsourcing these services for a while now and have recently been joined by freelancers from across the country, sourcing work from online platforms like Elance and Freelancer on their own. However, the integrated and multidimensional nature of the software development arena requires the support of teams, with multiple capabilities, that can only be found in firms.
ICT SECTOR –AT A GLANCE
ICT Industry Fundamentals: The Numbers, Past, Present and Future
The ICT industry in Bangladesh has grown comprises of 250,000 people working in over 1,500 companies, generating revenues near $500 million. On top of this are the legions of freelancers registered in platforms like Upwork and Elance who have gained a reputation for providing quality service at affordable costs; albeit in the lower tier categories.
The fundamentals of the industry are summed up in the diagram below.
Main Export Destinations(% of BASIS Member Countries that Export)
These fundamentals have been backed by coherent and supportive government policies, pushes from the industry itself and the guidance of associations like BASIS. Being an industry with a global outlook, total exports are crucial to the long term viability of the ICT sector.
The sector currently brings in a paltry $132.5 million, which is dwarfed by the billions earned by the top exporting sectors. However, there is scope for enormous expansion, driven by the insatiable demand from developed and developing countries alike as all facets of life and business move into the digital realm, taking with it the demand for digitization, automation and economization of IT.
Currently, the USA, UK, Canada and Australia are the top outsourcing destinations for Bangladesh.
The Dream
The Government of Bangladesh has set a target of $1 billion export earnings by 2018 from the sector. The scenario is depicted below.
Bangladesh has to think big and think different in order to achieve this mammoth feat. Current growth rate forecasts show exports to be $490 million by 2018 – less than half of the targeted amount. As with all things technological, there is a way. However, it will require everyone, from the freelancers working from their homes to the policy makers at the very top, to completely disrupt their operating model.
The Game
Bangladesh has to overhaul its ICT outsourcing efforts with combined efforts from the government, private sector, Non Resident Bangladeshis, and the entire gamut of institutions that the sector encompasses.
Broadly speaking, the problems of the sector can be categorized into three areas.
Time to Get a Move On
At $132.5 million, exports of the ICT industry have a long way to go. But the essentials such as government will, private sector capability, talent availability and enabling infrastructure are already in place. Now, with the right set of structured actions, Bangladesh can leapfrog into the domain of IT/ITES outsourcing heavyweight by leveraging its inherent advantages.
A much more detailed report titled ”The ICT Sector of Bangladesh: The Road to a Billion” is being formulated by LightCastle Partners to give policy makers, private sector players and development organizations a sense of the underlying features of the industry and how to ride the wave as the government aims for a Billion US Dollars of value from the sector by 2018.
Kashif Choudhury is an Assistant Vice President at LightCastle Partners and is a Research Associate at the Green Banking Project funded by the World Bank. He can be reached at kashif.choudhury@lightcastlebd.com
