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Bangladesh: A home of IT outsourcing

Syed Rayhan
THE IT sector has been identified as a thrust sector for quite sometime now, yet we are still struggling to find our place in the IT outsourcing market. Bangladesh did not make the list in a recent report from A.T. Kearney's Global Services Location Index (GSLI). a ranking of the most attractive off-shoring destinations.
The proposal is based on insights that 1 gained over last 3 years in building an IT outsourcing business (Code71).
Based on what I can gather, Bangladeshi companies exported IT services worth S27 million last year. I would venture to say that a significant part of this revenue came from freelancing sites like RentACoder and Elance. #fany of the companies involved in outsourcing are basing their businesses on freelancing. While availing opportunities available on these sites are great, we cannot build a sustainable and significant industry just off of these sites.
Many people cite infrastructure issues like unreliable power and internet connection, and high cost of suitable commercial office space as reasons behind our lack of success. While I agree with them, there are other challenges that we do not hear about but are actually holding us back from achieving success. The nature of these issues is complex and cultural.
The issues are:
Company size: Average size of an IT company in Bangladesh is about 8-10 people, only a few companies have 50+ software engineers. A small Indian company has a few hundred developers with an average annual revenue of $ 10 million (source: http://www.nasscom.in/ upload/Annual_Report07-08.pdf). 74% of the Indian companies fall in this category.
Lack of onshore presence: Most companies in Bangladesh do not have offices in the buyer's country. IT services is a relationship-based business. Without regular personal interaction, it is very difficult to build a sustainable business. The greatest challenge is the time zone differences and distance. Although it is expensive to setup and run an office in US or Europe, it is imperative to have a bridge team onshore to address this very issue.
Lack of IT savvy investors and leaders: Our business culture is based on trading and manufacturing. We do not have much experience in knowledgebased high-tech industry. Successful business people from other industries invest in the IT industry as a way to diversify their portfolio. However, many of them struggle to manage IT business because they try to run it like a manufacturing business.
We also see many young IT professionals turning entrepreneurs them-selves. This is good if they are working on some new product ideas, however, it does not work so well with IT services (that is building software for clients). One needs experience and enough credentials before starting an IT services business.
Transient nature of the industry: -Most IT companies run their businesses based on availability of projects. The mantra is hire when there is a project, and fire when there is none. They do not want to invest in people development, and the programers do not want to bet their careers on the companies that do not offer a career job. As a result, we have an industry riding on programers with an average experience of 1 -2 years.
Role of Basis, EPB, and BCS: BCS, Basis, and now EPB, seem to have overlapping goals. Responsibilities must be delineated among these three organisations so that we can be consistent.
Let's look at the market opportunity available to us. Worldwide IT services spending was $967 billion and global sourcing was $76 billion with a growth of 30% in 2008 (Source: NASSCOM). While India had the lion's share of that ($40 billion), Vietnam (it has seen 35%-45% yearly growth in last few years with export reaching $300 million) provides a good picture of what Bangladesh can achieve.
So, what can we do to address the issues mentioned above and capture the opportunity before it passes us by?
Here are some of the things that we should implement sooner than later.
Practice merger and acquisition: We all need to be open to forming larger companies through merger and acquisition. In order for us to compete with companies from Vietnam (our real competition), we need to have a larger pres-
ence. This may be difficult, not because of the mechanics involved but because of our traditional business culture. Through merger we could also solve the lack of onshore presence, one of the critical issues that prevent Bangladeshi companies form having long-term success.
Establish an IT park: Most IT companies in Bangladesh operate from a limited space because of the high cost of commercial spaces. Although the first IT incubator in BSRS Bhaban has proved to be successful in helping companies get started, it was not built with IT outsourcing companies in mind and hence lacks some of the much needed features. Now is the time to build a more comprehensive IT park with all modern facilities (security, power, internet, SAS 70 data centre, library, training facility, seminar facility, supporting services etc.) to provide excellent environment for programers. This will also help eliminate infrastructure concerns that many clients/buyers have about Bangladesh.
Restructure Basis: NASSCOM is the poster child for what such an organisation can do. We need to have a dedicated team of highly experienced professionals in marketing, business, strategy, and brand development in addition to IT experts. The team needs to be recruited from the industry for a competitive compensation to attract the right talents. It will report to a board of directors formed by the volunteers elected from the member companies. A part of the
EEF fund could be utilised to fund this operation. Develop local market for software service: A viable IT industry requires a healthy local demand. India's local market demand was $12 billion in 2008. It is important to make sure that private companies and government agencies award projects to local service providers at a price they would usually award to Indian companies. It would allow Bangladeshi companies involved in IT outsourcing to also offer the same service to the local market.
Niche market focus: It is difficult to have success with just sendee offerings (everything for everybody) as the global IT outsourcing industry is very' matured now. We need to distinguish ourselves by building expertise in niche areas (emerging trends) rather than blending in. We need to have a very clear message to the buyers as to why they should consider Bangladesh over other established IT outsourcing destinations. Low price cannot be the strategy'. There is nothing stopping Indian or Vietnamese or Chinese companies from matching our price. In fact, they are already doing so. The niche areas can be technology, industry, and market segments. We also need a brand for Bangladesh as an overall destination for IT outsourcing. I would like to propose that the Bangladesh brand be "A home of agile IT outsourcing."
I believe we can become a known destination for IT outsourcing. We have the intention, and talent, all we need is to have a focus and to take the right initiatives.