Developing BPO Clusters in Bangladesh: What Can We Learn from Indian Experiences?

1. Developing BPO Clusters in Bangladesh: What Can We Learn from Indian Experiences? Dr. Sougata RayIndian Institute of Management Calcutta SOFTEXPO 2005 Bangladesh Association of Software &Information Services (BASIS)

2. IT & ITES (BPO) – Some Facts & Trends

3. Global BPO Market Size Global BPO Market Size *Gartner Dataquest

4. Delivery of outsourced services will increasingly be offshore Outsourcing Industry Growth 38% 26% CAGR (2001 - 2008) 1.5% Onshore Outsourcing Offshore outsourcing Captive offshoring & Shared services • Offshore outsourcing will show the highest growth • Cost & quality levels are the biggest drivers

5. BPO Service Matrix (Horizontal Services)

6. BPO Service Matrix Vertical Services Insurance Financial Services Airlines Back Office Healthcare Application Processing Underwriting Claims Adjudication Member Management Services Tax Processing Asset Management Loan Processing Mortgage Processing Airlines Data Services Revenue Accounting Frequent Flier Program Management Medical Billing Claims Adjudication Member Management Services Cashless Hospitalization Services

7. Global Virtual Community in BPO Radiology Groups & IDNs Clinical Board Radiologist Team GLOBALLY CONNECTED COMMUNITY

8. Extent of offshore BPO varies with process complexity • Research Services • Content development • Product design services • CAD / CAM services High • Knowledge Services • Customer analytics • Portfolio & risk management • Equity research Complexity Medium • Back Office • Fin. & Acctg., HR, Procurement shared services • Technology support • Contact Services • Inbound customer relations & helpdesk Outbound telemarketing • Collections Low • Data Processing • Basic data entry • Transaction processing • Document management

9. Selection of offshore destinations is driven by macro factors & cost effectiveness Location attractiveness • Infrastructure • Communications • Other basic infrastructure • Country risks/FDI incentives • Attractive incentives • Political environment • Time zone attractiveness Ireland Ireland Australia Singapore UK High India China Philippines Low Mexico Low High People attractiveness • Quality • Cost • Type of skills • English language Source: McKinsey & Co. Size of circle indicates quantity of knowledge workers

10. South Africa Northern Ireland Czech Republic India China Israel Ireland Poland Hungary Russia Overall climate Qualitative Indicators of Country Suitability Fair Good Very good Excellent Poor Language Government support Labour pool Infrastructure Educational system Cost Political stability Cultural compatibility Data/IP security

11. Clusters as a Tool For Economic Progress • A new way of thinking about an economy and organizing economic development efforts • Recast the role of the private sector, government, trade associations and educational or research institutions • Brings together firms of all sizes • Creates a forum for constructive business-government dialog • A means to identify common opportunities, not just common problems • Provides guidance for both economic and social policies

12. A Typical BPO Cluster Telecom Service Providers Facility Owners HR & Trng. Agencies Utility Service Providers Technology Providers Customers BPO Companies VCs & Other Funding Agcy. Social Amenities Providers Professional Services Infra Services Edu. & Res. Institutions Government Industry Associations

13. Why Clusters Matter • Clusters Increase Productivity / Efficiency • Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs) • Ease of coordination and transactions across firms • Rapid diffusion of best practices • Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals • Clusters Stimulate and Enable Innovations • Enhanced ability to perceive innovation opportunities • Presence of multiple suppliers and institutions to assist in knowledge creation

14. Why Clusters Matter • Clusters Facilitate Commercialization • Opportunities for new companies and new lines of established business are more apparent • Commercializing new products and starting new companies is easier because of available skills, suppliers, buyers, etc. Clusters reflect the fundamental influence of externalities / linkages across firms and associated institutions in competition

15. Indian Study • Nation-wide study of all major IT and ITES clusters • Detail case studies of three cities in different stages of development cycle • Bangalore: first mover, already established (US $ 4.5b) • Hyderabad: late mover, early growth stage (US $ 1.2b) • Kolkata: late mover, past glory, trying revival (US $ 0.5b) Why successful IT and ITES clusters are formed only in some cities

16. Indian IT & BPO Industry – Recent Trends

17. Indian IT & BPO Industry – Recent Trends

18. India's Projected Share in Global BPO Market in 2008 * McKinsey-NASSCOM Report on ITES

19. KEY IT and ITES Clusters • Ahmedabad-Gandhinagar • Bangalore • Chandigarh-Mohali • Chennai • Hyderabad-Secunderabad • Kochi • Kolkata • Mumbai-Navi Mumbai-Thane • New Delhi-Gurgaon-Noida • Pune • These 10 clusters account for more than 85 percent of the India’s IT/ITES exports

20. IT Cluster

21. How the Cities stack up… DELHI BOMBAY KOLKATA BANGALORE HYDERABAD MADRAS Knowledge Capital Operating Costs Power & Telecom Transport & housing Political Stability & Law & order & Infrastructure Health & Social Work culture Source : PwC India Poor Fair Good

22. Case 1 - Bangalore • 1985: 13 firms; 2004: 1200+ firms, 100,000+ professionals • Fourth largest hub of technology innovation in the world • Early factor advantages • Science/technology institutional support • Hi-tech PSUs • Pool of high quality professionals • Largest number of engineering colleges • Excellent climate

23. Case 1 - Bangalore • Local entrepreneurs kick started the Cluster • Electronics MNCs preferred location (TI: 1984) • IT majors created entrepreneur pool • Growing cooperation and competition among firms • ICT infrastructure development facilitated off-shoring and BPO • Brand building by the Industry Association • State: indifferent to benign neglect to intermittent active facilitation

24. Case 2 - Hyderabad • STPI – 1991-92; Gained momentum from the late 1990s, 150 plus firms in 2004 • Moderate – Hot weather • Modest infrastructure to start • Modest pool of talent to start • Large number of engineering colleges

25. Case 2 - Hyderabad • Entrepreneurial leadership of state • Naidu as CM (1996-2004) • Microsoft Development Centre • E-governance to attract IT investments • WB funded infrastructure development • Hi-tech City • City beautification; green cover up • IT policy (1999); ITES policy (2002) • Indian School of Business • Brand Building • High Quality educational and research facilities

26. Case 2 - Hyderabad • Home proximity as location factor • Local entrepreneur pool waiting for infrastructural support • State admin shed bureaucracy and turned entrepreneurial • All IT majors came in, expanding now • IT majors feeding to the local entrepreneur pool now • Traditional manufacturing companies exploring BPO (contract research, logistic services, etc.)

27. Case 3 - Kolkata • First major industrial city, Best educational and research institutions once upon a time • Communist strong hold, persistent labour unrest, sick units, higher % of low skilled employment and regular influx of migrant population • New CM, Buddhadeb (2000) • Perform or perish! • Many initiatives similar to Hyderabad (e-govt, infrastructure, branding, road shows, Elect. City) • IT Policy 2001 and ITES Policy 2002 • New investments – local, NRB and others • Attracting investment in other sectors too- Balancing Act to reduce social divide – learning from Naidu’s debacle

28. Key Enablers for BPO Cluster Cost of operations Talent Investor support Infrastructure Policy

29. Talents Requirement in BPO Activities

30. Issues in BPO Talent Creation • Need a BPO certification system in partnership with BPO training companies and academia • Requirement of a common database of employable personnel • Need to improve English speaking ability • Need to familiarize students with accounting terms 3. Lack of avenues to aid in hiring 1. Lack of English education (speaking ability) 2. Lack of ITeS training institutes • Need to communicate the need for BPO training jointly with reputed BPO companies • Need to create win-win collaborations between colleges and BPO training institutes

31. Demand Conditions Industry Structure Industry Attractiveness Innovative Policy Mix Factor Conditions (supply of) Entrepreneurial leadership of government Local Demand Creation Infrastructure Related Industries Effective Implementation Manpower Entrepreneur Pool Local Outsider Lessons Learnt Competitiveness of location

32. Implications and Lessons • India (Blr, Hyd, Kol) is a microcosm of the world (DC+LDC) - learning for different situations • Role of industry attractiveness and factor conditions in cluster formation well known • New cluster can be created with appropriate intervention strategies by government • Traditional financial incentives too expensive to be of any effect – negative effect on other section of the economy • A mix of FDI and local Entrepreneurial initiatives critical

33. Implications and Agenda • Government has to act as an entrepreneur (not bureaucrat) and facilitator (not controller) • Support creation and development of a local pool of entrepreneurs; identify a few horses with winning chances to be role models • Work relentlessly to attract some key Outsiders – other will follow • Build and Nurture Synergy among Industry Attractiveness, Factor Conditions, Local Pool of Entrepreneurs and State as an Entrepreneur

34. Private Investors in Cluster Development – Roles & Responsibilities • A company’s competitive advantage is partly the result of the local environment • Company membership in a cluster offers collective benefits • Private investment in “public goods” is justified

35. Private Investors in Cluster Development – Roles & Responsibilities • Take an active role in upgrading the local infrastructure • Nurture local suppliers and attract new supplier investments • Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs • Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development • Focus corporate philanthropy on enhancing the local business environment

36. New Roles of Business and Industry Associations • Negotiate with government-Trade and regulations • Information collection and dissemination • E.g. regular benchmarking • Joint marketing • E.g. trade fairs, missions • Training • E.g. curriculum for managers-Close collaboration with outside educational institutions-Sponsoring of targeted scholarships • Research • E.g university partnerships-Standard setting and testing-Specialized research institutes • Procurement • E.g. joint purchasing programs • Environmental • E.g. demonstration projects-Research sponsorship

37. Can Bangladesh emerge as the most Preferred BPO Destination in 2015? As the country advantage starts shifting from India & other countries Bangladesh has a huge potential in IT Services & BPO. To realise the same the political and economic leadership of the country needs a plenty of • Ambition & Imagination • Courage & Conviction • Passion & Drive • Luck

38. Bangladesh – the most Preferred BPO Destination in 2015? • To make the dream a reality, the country needs to embark on widespread, determined and sustained programs for IT and ITES Cluster Development • Building a globally competitive cluster is a marathon, not a sprint • Rapid progress on cluster development as a late mover will also require a new model of joint private-public efforts rather than a government-driven model only • Bangladesh has the best opportunity to develop a larger section of the population as knowledge workers; the country can’t afford to squander this opportunity

39. Thank You DHAKA