IT & ITeS Outsourcing in Bangladesh Presentation

Md. Mamun-Ur-Rashid Askari
Assistant Chief
Bangladesh Tariff Commission
25 June 2015, Dhaka.
Problems and Prospects of IT
& IT Enabled Services
Outsourcing in Bangladesh

Slide । 2Bangladesh Tariff Commission, June 2015
Research Advisor
Dr. Md. Azizur Rahman
Chairman
(Secretary)
Bangladesh Tariff Commission

Research Team
Name Designation
Md. Mamun Ur Rashid Askari Asst. Chief(Principal Researcher)
S.M. Sumaiya Zabeen Research Officer(Asst. Researcher)
Kazi Monir Uddin Research Officer(Asst. Researcher)

Introduction
 Outsourcing- A practice to reduce costs by
transferring portions of work to outside suppliers
 Sometimes involve transferring employees and
assets from one firm to another
 The term "outsourcing" dates back to at least 1981
 IT Enabled Services (ITES) is a sector of Information
Technology (IT) Industry
 ITES means production and delivery of services
involving IT

Rationale of the Study
ICT – One of the top priority sectors of
the Government.
ICT may contribute 1% to GDP
Bangladesh-an emerging destination of
IT/ITES
Action oriented Policy needed to boost
this sector
Employment Generation

Objectives of the Study
To evaluate present status and trends
 To analyze related Acts, Rules and Policies
To explore potentials and export opportunities
To assess possibility of employment generation
To identify constraints and opportunities
To prepare policy recommendations

Methodology
Literature Review
Preparing Questionnaire
Primary Data Collection
IT& ITES industries, Freelancers;
Interview
Secondary Data Collection
 Published Articles, Journals, BASIS, BB,
BBS, NBR, EPB etc.
Group Discussion
Analysis
Tabular, Graphical and Statistical Analysis

Limitations
• Time Constraint
• Unavailability of complete National Statistics
• Limited Budget
• Reluctance of providing financial statements
• Inadequate data collector

Literature Review
• Export Target- US$ 1 Billion by next 5 years-BASIS;
• One of the top 30 outsourcing destinations-
Gartner (2010)
• An Emerging IT/ITES Outsourcing Destination-
KPMG (2012)
• Amongst highest top 50 Global Services Location
Index, Bangladesh Ranked 26 - AT Kearney (2014)

Questionnaire
Enterprises
A. General Information
B. Personal Information
C. Infrastructure
D. Obstacles
E. Finance
F. Human resources
G. Clients
H. Performance
I. Role of the government

Questionnaire Contd…
Freelancers
Personal Information
 Age
 Experience
 Education and Training
Rationale for Freelancing
Obstacles
Performance
Role of the Government

Data Collection
• Random Sampling
21 Firms
15 Freelancers
• Interviews
5 Entrepreneurs
5 Freelancers
• Discussion Meetings
 Bangladesh Bank, Dhaka Chamber, Bureau of
Statistics, Export Promotion Bureau

Trade in Services and IT/ITES
• GATS divides all services in 12 subsectors and
Four modes of Supply
• IT itself occupied a service sector
• Cross border Supply Involves(Mode 1) the use of
IT in most of the services sectors
• GATS uses Central Product Classification (CPC)
codes for specification of Services.
• Such coding is significant for negotiation for
different types of barriers imposed by countries
to help restrict the import of Services from other
countries.

Central Product Classification (CPC)
Computer and related services (CPC 84)
• Consultancy services (CPC 841)
• Software implementation services (CPC 842)
• Data processing services (CPC 843)
• Database services (CPC 844)
• Maintenance and repair services (CPC 845)

Bangladesh IT/ITES Sector at a Glance
Export size-713 million US$ (ICT)
Export Target- 1 Billion US$ by next 5 years;
Outsourcing Fund - 250 million annually
Registered companies – Over 1000 Software &
ITES
Unregistered Companies -Almost 100
Exporting Software- Some Companies

Acts, Rules, Regulations and Policies
Major Rules/Regulations include-
• ICT ACT 2006 (amended in 2013)
• ICT Policy 2009 (Formulation of ICT Policy 2015 is
underway)
• Bangladesh Bank Rules and Regulations
• Vision 2021
• Five Year Plan
• Export Policy 2012-15
• Import Policy Order 2012-15
• Industrial Policy 2010

Tax Structure
Service
Code
Service VAT SD Comments
S012.10 Telephone 15.0% 5% Service provided Only through
Mobile RIM & SIM Card
S012.20 SIM Card Provider 15.0% 35%
S099.10 Information
Technology Enabled
Services
4.5% 0% VAT- 4.5% of 30% of total
receipt by service provider
S099.50 Online product &
Service
4.0% 0% 4.0 of 26.67% of total receipt
by service and provider
S074.00 Rent of Place &
Establishment
9.0% 0 Exemption Withdrawn

Comparison of Tax Structure in Asia
Bangladesh records
the highest tax rate
in the South Asia
region in ICT Goods
and Services.
60.5
38
33.5
28
22.4
18
12
12
7
5
2
0 50 100
Bangladesh
Turkey
Nepal
Brazil
Pakistan
Sri Lanka
India
Phillipine
Singapore
Nigeria
China
Source: Miller and Atkinson, 2014

Export-Computer Services
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014
MillionUS$
Export of computer software Computer consultancy services
Computer data processing

Export-Computer Data Processing
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
Other Countries
HONG KONG
GERMANY
MALAYSIA
AUSTRALIA
NETHERLANDS
CANADA
DENMARK
UNITED KINGDOM (UK)
SINGAPORE
UNITED STATES OF AMERICA (USA)
Source: Calculation based on Bangladesh Bank Statistics

Export-Computer Consultancy Services
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
MillionUS$
Other Countries
INDIA
CHINA, Peoples' Republic of
FRANCE
NETHERLANDS
KOREA, REPUBLIC OF
UNITED KINGDOM (UK)
GERMANY
CANADA
SINGAPORE
UNITED STATES OF AMERICA
(USA)

Export-Computer Software
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
MillionUS$
Other Countries
IRELAND
UNITED KINGDOM (UK)
CANADA
DENMARK
NORWAY
GERMANY
SINGAPORE
KOREA, REPUBLIC OF
HONG KONG
UNITED STATES OF AMERICA
(USA)

Findings
Key Obstacles Total
Point
1 2 3 4 5
Frequency
Cost of obtaining internet bandwidth 61 0 2 0 8 5
Smooth transaction of payments 60 0 2 3 3 7
Lack of proper infrastructure 59 1 0 2 8 4
Foreign Exchange Policy 58 1 1 3 4 6
Electricity load shedding 57 0 4 2 2 7
Internet bandwidth (speed) 57 1 3 0 5 6
Business related rules and regulations of
government
53 1 3 4 1 6
Access to Finance 46 2 2 5 5 1
Tax Policy 39 1 8 3 2 1
 Challenges Faced by Freelancers
Total No. of Observations = 15
Likert Scaling Regarding Obstacles Faced by Freelancers where
1= No Obstacle 2= Minor Obstacle 3= Moderate Obstacle 4= Major
Obstacle 5= Severe Obstacle

Findings Contd…
Key Obstacles Total
Points
1 2 3 4 5 N/A
Frequency
Electricity load shedding 81 1 0 5 10 5 0
Cost of obtaining internet bandwidth 75 1 3 4 9 4 0
Shortage of Skilled Manpower 68 3 0 5 10 2 1
Foreign Exchange Policy 66 0 3 3 9 3 3
Lack of capital 64 2 5 6 6 2 0
Access to Finance 63 0 7 5 6 2 1
Rules and regulations of government 63 1 6 9 2 3 0
Internet bandwidth (speed) 62 2 7 5 4 3 0
Smooth transaction of payments 61 5 2 5 8 1 0
Lack of proper infrastructure 52 5 2 2 8 1 3
Loyalty of staffs 52 6 5 5 4 1 0
Obtaining work order 50 6 5 7 2 1 0
Tax Policy 50 9 1 4 3 3 1
Challenges Faced By Enterprises
No of Observations = 21

Findings Contd…
 Inadequate Marketing and Branding
 High Cost of Bandwidth
 Language problem in voice based ITES services
 Shortage of skilled manpower in specific domains
like financial, medical, graphics etc.
 Country branding support to increase
participation in global market
 Limited participation in international outsourcing
forums

Findings Contd…
Features of Enterprises-
– IT/ITES firms operating in Bangladesh are Private
limited company while some are sole proprietorship.
– Some enterprises are also joint venture
– Young Entrepreneurship
– Firms organizes trainings as Professional training
more important than education
– Higher education needed for high end services like
software development.
– Highly qualified resources leaving country as well as
company
– Female employment is low

Findings Contd….
Cost Components of Enterprises
Example of three Enterprise A, B and C
Web, Mobile & Software Development Category
Enterprise
Enterprise Name A B C Average
Turnover 117.0 86.0 420.0 207.7
Office Rent 6.8 2.5 17.6 9.0
Total salaries 95.4 65.0 331.4 163.9
Electricity 1.4 1.3 4.9 2.5
Internet cost 2.4 0.8 3.0 2.1
Other Operating Costs 10.0 1.0 46.0 19.0
Total Costs 116.1 70.6 402.9 196.5
No of Experts 15 10 24 16
Total Investment 35.0 5.8 13.0 17.9
Values in Lac BDT

Strength and Prospects
 Attractive Demographic Dividend
 Availability of Technical Skills
 Language Skills
 Growth of Quality Education
 Low Operating Cost
 Employment Generation
 GDP growth to be increased
Improvement of BOP
Export Growth

Recommendations Contd…
• Advanced Science and Technology Institute to
be Established
• Free e-learning resources to be freely available
• Introduce friendly governmental policies
supporting FDI
• Need specific professional trainings to be
provided
• Highly qualified talent pool of technical
graduates to be created

Recommendations Contd…
• High-Tec Park has to come up with other socio
economic infrastructure.
• High-Tec Park should be promoted for attracting
FDI.
• Internet should be available to all districts at
same price.
• VAT on e-Commerce to be eliminated

Recommendation Contd…
• The jargon BPO, BPM, KPO, KPM, LPO should
be introduced in addition to ITES.
• Entrepreneurship should be encouraged for
employment generation
• Immediate initiatives to be taken by Govt. to
attract Pay Pal to run Business in Bangladesh
• Government needs to prioritize the
impediments faced by this sector and
undertake concrete follow up actions.
• Awareness building regarding Freelancing

Q&A

IT & ITeS Outsourcing in Bangladesh Presentation

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