ISSN: 1391 - 0531
Sunday February 24, 2008
Vol. 42 - No 39
Financial Times  

Off-shoring: Where are we?

By Tharindri Rupesinghe

Thirty years ago, the word ‘off-shoring’ would have produced blank looks and confusion. Today, the BPO industry is a thriving giant, especially in the countries regarded to be ‘third world’.

The Sunday Times FT spoke to Ravi Abeysuriya, CFA Managing Director of AMBA Research regarding this phenomenon recently. AMBA is a cutting-edge Investment Research Outsourcing firm with its Colombo office in the World Trade Centre.

According to him, the Indian graduates of a few decades ago may easily be called the pioneers of the BPO industry. Moving to the US software syndicate Silicone Valley in the 1960’s and 1970’s, they excelled in everything they did with their keen analytical minds and mathematical brilliance.

As a consequence of good relations, over the years a number of Indian institutes collaborated with prestigious US colleges like Harvard and Stanford and created a talent pool far superior to its US counterparts. As a result, the Americans, after years of working together, found themselves able to trust some of their lesser operations to the Indians, back in India. That was the beginning.

Soon, unlike in Sri Lanka the NRI’s settled all over the globe began their re-migration to India. With their Western-gained experience and natural ability to absorb and improve, the Indian nationals were unparalleled.

Various factors enabled the industry to further its reaches. With the Enron crisis close to a decade ago and the more recent sub-prime meltdown, weary US investment banks separated the investment section from their research section hoping for lower costs and better risk management. This gave BPO’s the push they needed to break into the market.

Following these sudden crashes, the US enforced a protocol called ‘RegFD’, or Regulation Fair Disclosure. RegFD requires all listed companies to publicly disseminate whatever information it decides necessary. This meant that no information can be disclosed to any one analyst or firm only, thus minimising chances of unfair advantage.

When questioned as to whether this would be akin to giving out company secrets, Abeysuriya disagreed by saying it was more a case of giving out information on the company’s current and future doings, not necessarily corporate secrets. This was a boon for off-shore operations. As Abeysuriya says, “The advantage is, if it is publicly disseminated, you don’t have to be physically present, and so you can work from as far away as you want.” All of these factors have together resulted in an industry that grows at an astounding rate of 30%, annually.

A 14-year history is what the Sri Lankan BPO industry has, along with its fair share of stoppages and blocks. Abeysuriya says that the main breakthroughs the industry enjoyed were the CFA signed in 2003 and the de-regulation of the telecommunication industry. “One of the main bottlenecks was the fact that we had only one international gateway,” he says, explaining that the ‘International Private Lease Cables (IPLC’s) needed for instant cross-border communications were only available through the national service provider.

Abeysuriya likens the IPLC to the Galle Road connecting Colombo and the south of the island. “If you own the Galle Road, only you can travel on it, nobody else”. In the same way, if anyone else has access to your cable, the information being shared is compromised, With the de-regulation of the industry, a number of private players entered the field, making telecommunications far less expensive and more extensive.

Services that can be outsourced are of two varieties; there are the basic data entry services, transcriptions, billings and bank work. These are the back-office operations that most multinationals now invariably choose to off-shore to a place with less-costly labour.

Then there is the financial research, equity and claim management and investment research which firms are more reluctant to off-shore, since they require high levels of compliancy and confidentiality. These services are generally referred to as the “upper-end services”. The Upper-Enders are usually referred to as the KPO’s or Knowledge Process Outsourcing. AMBA is one of them.

Globally the BPO industry stands at approximately US$ 142 billion and growing. India claims close to US$ 12.5 billion of the whole. As a destination for BPOs, Sri Lanka has been operational since the early 1980’s, but was unable to capitalise on the opportunity, mainly due to the civil strife.

Now, encouraged by India’s success, the Lankan sector is growing. According to Abeysuriya, the best chance we have is to maximise on India’s advantage, “We can piggyback on India,” he says. The point he makes is that Sri Lanka is well equipped to be the ideal place for existent off-shore operations in India to have their own back-up offices for risk minimisation. Because of the close proximity, the island can be used as a site for disaster recovery and business continuity.

Basing a entire operation in one destination is risky, says Abeysuriya, adding that using Sri Lanka to mitigate the country risk of India is a definite option for the multi-nationals.

AMBA too is has its delivery centres in Bangalore, and Costa Rica in addition to Colombo.

What’s stopping us?
The workforce would be the main constraint to this, he says. In comparison to the 2.1million graduates churned out by Indian universities annually, Sri Lanka only manages a measly 10,000 or a little more. Although allowances have to be made for the huge disparity in population size, Sri Lanka’s educated labour is still deficient in the skills required to compete globally. Since most off-shore operations are with Western companies, English fluency is a must. The lack of English-fluent graduates is a major setback.

To counteract this, Sri Lanka has the one of the highest literacy rates in the region and the second largest pool of CIMA qualified individuals outside of Europe. The number of students who sit for the CIMA, CFA, ACCA and ICASL examinations increases yearly. Intelligence-wise, there is nothing lacking here.

How much the war affects operations is debateable. Since off-shore work does not require physical client-to-client contact, work need not be hampered. Many BPO officials have mentioned the ability to do work from homes in the case of an emergency situation. However, Abeysuriya disagrees, saying that on one hand the foreign client often want to come to their off-shore destinations and scope out the area. “They want to know who’s doing their work, and they’re very concerned, and with this situation they are unwilling to so,” he says. Also, as he explains, the instable situation means that many employees opt for ‘greener pastures’, outside the country, increasing rates of labour attrition to unacceptable levels.

Final verdict

Whatever said and done, the sector holds great promise. Abeysuriya is among the many people in the industry to have expressed hope of seeing the island run neck to neck with India in the near future. As to how much that hope will be realised depends on a number of factors, many of them sadly out of the control of the common man.


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