Is Bangladesh A New Player In The Global Outsourcing Game?

Despite continued economic turbulence on global markets, Bangladesh continues to be one of Asia’s bright emerging stars. According to the Asian Development Bank, Bangladesh’s GDP growth accelerated to 7.1 percent in 2016, up from 6.6 percent in 2015. While the ADB anticipates this will dip slightly to 6.9 percent in 2017 Bangladesh’s economic outlook remains comparatively bright.

Much of that economic growth comes on the back of exports and continued investment by the private sector. With some 1.4 million new workers joining the workforce annually, the government remains under some pressure to maintain this growth rate. Little wonder then, that the Bangladesh government’s strategy is to diversify its economy and build up its services sector.

Digitizing the Economy

While the Bangladesh government has enjoyed some success in reducing poverty and corruption, other elements of its economic strategy have flown under the radar, particularly its drive to expand the digitization of both its public and private sectors.

Initially, the government’s “Digital Bangladesh” objectives revolved around opening up access to government services, enhancing transparency and accountability and bootstrapping the diversification of the Bangladesh economy with aspirations of becoming a major source of technology outsourcing. To support this drive, Bangladesh graduates 10,000 students from computer science programs each year.

Increasing Recognition

Bangladesh’s drive to digitize its economy is starting to gain traction amongst the global marketplace. Consulting firms Garner and AT Kearney all include Bangladesh towards the top of their ranking surveys, and New York based Goldman Sachs an international investment banking and securities firm ranked Bangladesh in its ‘Next Eleven’ after the BRIC (Brazil, Russia, India, and China) cluster.

For its part, the European Commission selected Bangladesh as an ideal destination for outsourcing.  As Denmark Ambassador Einer H Jensen commented, “Bangladesh has a good start in recent times, and it is a preferred destination for outsourcing.”

While countries such as the Philippines, Indonesia, Vietnam and Sri Lanka are all regularly mentioned as competitive business process management destinations, within the $186 billion industry sector, Bangladesh surprised many industry commentators when represented by the state-run Bangladesh Hi-Tech Park Authority as one of the sponsors of the annual Nasscom India Leadership Forum (NILF) 2017, staged in Bengaluru in March 2017.

While price and skills are major determinants of success in BPM outsourcing, some of Bangladesh’s growth stems from firms looking to incorporate a risk mitigation component into their outsourcing strategy with many firms becoming concerned they are too concentrated in India in the event of a natural disaster or large currency swing. Hence, firms are actively searching for a more geographically dispersed location strategy.

An Emerging Asian ‘Tiger’ Economy

To date, more than 100 Bangladesh-based organizations are activity exporting outsourcing and software development services to more than 30 countries with new entrants targeting Bangladesh’s outsourcing industry.

Bangladesh is gradually gaining the attention of prospective services trading partners in developed countries for IT-enabled outsourcing. Competitive pricing, reliable quality, and a steadily growing depth of expertise are fuelling this growth according to industry insiders. Developed countries, especially the USA, the UK, Canada, Australia, and Singapore have been increasingly tapping into Bangladesh’s IT expertise to develop both their online and off line based software over the past couple of years.

Established freelancing portals such as Upworks amongst other global online employment platforms have recognized the potential of Bangladesh’s 40,000 IT freelancers and are working with Bangladeshi IT experts. According to the industry sources, both Bangladeshi IT freelance employment and income from the sector have seen robust growth of around 150 percent year on year basis for the last two years.

Breaking down the forty thousand local IT freelancers, around 45 percent are engaged in IT and programming, another 25 percent in design and multimedia projects, 13 percent were active in sales and marketing, 10 percent provided administrative support, five percent in writing and translation related projects and two percent in miscellaneous projects.

The Opportunity

Three factors are supporting Bangladesh’s emergence as an outsourcing competitor to established countries such as India and China:

1. Age demography (skews heavily under 35)
2. Low-cost work force
3. Government incentives for the IT service sector

This combination is helping Bangladesh emerge as a player in the global service outsourcing market.

However, for all its gains, Bangladesh has work to do. In 2016, consulting firm AT Kearney ranked Bangladesh 22^nd in its Global Survey Location Index, which ranks countries according to a blend of financial attractiveness, people skills, and availability and business environment.

The Challenges to Outsourcing Growth

Despite its clear record of success in nurturing its outsourcing sector, significant challenges remain for Bangladesh’s government to address in coming years if the industry is indeed to flourish and achieve its true potential. In its review, Gartner rated Bangladesh as “poor” across three significant areas, infrastructure, language skills and data and intellectual property security. Three key factors appear to be acting as a break on Bangladesh’s outsourcing performance:

• Power Shortages: An uninterrupted power supply is crucial to supporting a dynamic BPM outsourcing sector. Bangladesh’s long suffering business community has labored under an acute power crisis, with a generating capacity of around 5,000 megawatts of electricity a day, continually swamped by a daily demand of over 6,000 megawatts, with the gap growing annually at around 500 megawatts a year.
• Slow Internet Connection & Limited Bandwidth: Bangladesh has only one submarine Internet cable and is in desperate need of a second line with high bandwidth to prevent frequent service disruptions. Currently, 40% of businesses are significantly impacted by slow Internet connections.
• Lack of Internet Banking: With online banking transactions still banned by the Bangladesh Government inadequate banking infrastructure is fast emerging as Bangladeshi web-based businesses biggest hurdle for growth. Seamless financial transfers are a key component to growing both traditional BPM outsourcing and freelance IT services.

Competitor Response

While the Bangladeshi government has been rightly lauded for its initiatives supporting outsourcing, we can expect to witness a major push back from major countries such as India, China, and Malaysia. All three countries have flexibility around pricing and enjoy a greater depth of outsourcing expertise together with established, well-resourced outsourcing companies with an international footprint.

Moreover, as outsourcing migrates to an AI-enabled model where big data coupled with machine learning redefines service delivery, Bangladesh will be playing catch up behind the established global giants of outsourcing such as HCL, Wipro, and Tech Mahindra.

Final Word

Outsourcing is a highly competitive global industry. Regionally, countries such as Malaysia, Vietnam, Indonesia, and Thailand are pushing hard into outsourcing, while further abroad, Costa Rica, Brazil, Mexico, Poland, and Bulgaria are similarly capturing volume growth from outsourcing and are chasing more gains. Bangladesh’s age demographics, together with its low-cost base and Government incentives for the IT service sector, have catapulted Bangladesh into the top 25 countries in the global service outsourcing market. With more than 100 organizations exporting software and outsourced services to more than 30 countries, Bangladesh is well positioned for growth, particularly given the continued emergence of new entrants into Bangladesh’s outsourcing sector.

Despite tough competition from India, China, Pakistan and eastern European countries, the primary challenges to Bangladesh’s strategy of diversifying its economy through outsourcing continue to be internal constraints on power availability, low internet speed and bandwidth problems and a banking sector which has yet to leap online banking.

– BackOfficePro