Md. Mamun-Ur-Rashid AskariAssistant Chief
Bangladesh Tariff Commission25 June 2015, Dhaka.
Problems and Prospects of IT & IT Enabled Services
Outsourcing in Bangladesh
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Research Advisor
Dr. Md. Azizur Rahman
Chairman
(Secretary)
Bangladesh Tariff Commission
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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)
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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
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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
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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
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Methodology
Literature ReviewPreparing QuestionnairePrimary Data Collection
IT& ITES industries, Freelancers;Interview
Secondary Data Collection Published Articles, Journals, BASIS, BB, BBS, NBR, EPB etc.
Group DiscussionAnalysis
Tabular, Graphical and Statistical Analysis
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Limitations
• Time Constraint
• Unavailability of complete National Statistics
• Limited Budget
• Reluctance of providing financial statements
• Inadequate data collector
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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)
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Questionnaire
EnterprisesA. General InformationB. Personal InformationC. InfrastructureD. ObstaclesE. FinanceF. Human resourcesG. ClientsH. PerformanceI. Role of the government
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Questionnaire Contd…
FreelancersPersonal Information Age Experience Education and TrainingRationale for FreelancingObstaclesPerformanceRole of the Government
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Data Collection
• Random Sampling21 Firms15 Freelancers
• Interviews5 Entrepreneurs5 Freelancers
• Discussion Meetings Bangladesh Bank, Dhaka Chamber, Bureau of Statistics, Export Promotion Bureau
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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.
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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)
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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
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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
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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
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Comparison of Tax Structure in Asia
Bangladesh records the highest tax rate in the South Asia region in ICT Goods and Services.
BangladeshTurkeyNepalBrazil
PakistanSri Lanka
IndiaPhillipineSingapore
NigeriaChina
0 10 20 30 40 50 60 70
60.538
33.528
22.418
1212
75
2
Source: Miller and Atkinson, 2014
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Export-Computer Services
2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 2013 - 2014 -
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Export of computer software Computer consultancy servicesComputer data processing
Mill
ion
US$
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Export-Computer Data Processing
2009 - 2010
2010 - 2011
2011 - 2012
2012 - 2013
2013 - 2014
0.005.00
10.0015.0020.0025.0030.0035.0040.0045.0050.00
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
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Export-Computer Consultancy Services
2009 - 2010
2010 - 2011
2011 - 2012
2012 - 2013
2013 - 2014
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00Other Countries
INDIA
CHINA, Peoples' Republic of
FRANCE
NETHERLANDS
KOREA, REPUBLIC OF
UNITED KINGDOM (UK)
GERMANY
CANADA
SINGAPORE
UNITED STATES OF AMERICA (USA)
Mill
ion
US$
Source: Calculation based on Bangladesh Bank Statistics
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Export-Computer Software
2009 - 2010
2010 - 2011
2011 - 2012
2012 - 2013
2013 - 2014
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00Other Countries
IRELAND
UNITED KINGDOM (UK)
CANADA
DENMARK
NORWAY
GERMANY
SINGAPORE
KOREA, REPUBLIC OF
HONG KONG
UNITED STATES OF AMERICA (USA)
Mill
ion
US$
Source: Calculation based on Bangladesh Bank Statistics
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Findings
Key Obstacles TotalPoint
1 2 3 4 5Frequency
Cost of obtaining internet bandwidth 61 0 2 0 8 5Smooth transaction of payments 60 0 2 3 3 7Lack of proper infrastructure 59 1 0 2 8 4Foreign Exchange Policy 58 1 1 3 4 6Electricity load shedding 57 0 4 2 2 7Internet bandwidth (speed) 57 1 3 0 5 6Business related rules and regulations of government
53 1 3 4 1 6
Access to Finance 46 2 2 5 5 1Tax Policy 39 1 8 3 2 1
Challenges Faced by Freelancers Total No. of Observations = 15
Likert Scaling Regarding Obstacles Faced by Freelancers where1= No Obstacle 2= Minor Obstacle 3= Moderate Obstacle 4= Major Obstacle 5= Severe Obstacle
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Findings Contd…
Key Obstacles Total Points
1 2 3 4 5 N/AFrequency
Electricity load shedding 81 1 0 5 10 5 0Cost of obtaining internet bandwidth 75 1 3 4 9 4 0Shortage of Skilled Manpower 68 3 0 5 10 2 1Foreign Exchange Policy 66 0 3 3 9 3 3Lack of capital 64 2 5 6 6 2 0Access to Finance 63 0 7 5 6 2 1Rules and regulations of government 63 1 6 9 2 3 0Internet bandwidth (speed) 62 2 7 5 4 3 0Smooth transaction of payments 61 5 2 5 8 1 0Lack of proper infrastructure 52 5 2 2 8 1 3Loyalty of staffs 52 6 5 5 4 1 0Obtaining work order 50 6 5 7 2 1 0Tax Policy 50 9 1 4 3 3 1
Challenges Faced By Enterprises
No of Observations = 21
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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
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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
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Findings Contd….
Cost Components of Enterprises Example of three Enterprise A, B and CWeb, Mobile & Software Development Category
Enterprise
Enterprise Name A B C AverageTurnover 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
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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 BOPExport Growth
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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
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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
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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