Case Study Bangladesh: The next global sourcing location?
Although Bangladesh has yet to carve out a significant share of the large and growing market for the offshoring of information technology and business process services, with the assistance of ITC steps are under way to strengthen Bangladesh’s competitiveness and widen overseas awareness of its capabilities. To be seriously considered as a competitor of currently dominant suppliers, Bangladesh is moving to change perceptions and extend the modest market success that is already being achieved.
The computers are brand new, the screens large, and the staff is busy working on a series of flyers for the computer maker Dell, which are being formatted in several languages for markets around the globe. The office furniture is slick and contemporary. Abstract paintings hang on the walls. Altogether, the atmosphere reminds one of a start-up office in Islington, London. Apart from the saris worn by the female staff and the view through tinted windows on the lush flora of the Banani neighborhood, it is hard to believe you are in Dhaka, Bangladesh. Welcome to Graphic People, an offshore graphic design service provider specializing in pre-press work.
Companies like Graphic People are leveraging the web to offer business services to clients in China and the United States. They are the supply side of the global offshoring market, which has barely been affected by the global financial crisis.
As a matter of fact, the outsourcing of information technology (software development, network maintenance, etc.) and of business processes (data capture, call centres, graphic design, among others) has emerged as a huge global business with the fast growth of broadband Internet. Estimates for the sales volumes of ‘e-commerce of services’, i.e. global information technology (IT) and IT-enabled services (ITES) and ‘offshoring’ (outsourcing offshore, or abroad) vary significantly. However, there is consensus that the industry has been growing dramatically over the last few years and will continue to do so. According to management consulting firm McKinsey the potential annual market for IT & ITES was around US$ 500 billion in 2009. McKinsey considers, however, that only 20% of this market is actually being addressed so far (US$ 100 billion).
The number of global sourcing locations (countries that provide IT & IT-enabled services) is increasing in parallel. Over the years, India has become the largest supplier among emerging economies and developing countries, with a record US$ 50 billion in exports last year, generating employment for more than two million Indians. India is now in competition with countries like the Philippines, South Africa, Viet Nam and Pakistan. Bangladesh recently entered the fray and has the potential to become a significant player.
So far, Bangladesh can be considered an outsider. Approximately 150 companies in Bangladesh exported their IT and IT-enabled services for a total value of less than US$ 40 million in 2010. Average export earnings per company are limited, mostly in the range of US$ 100,000 to US$ 200,000 per year. The United States is the major export destination, with a market share of 60% (serviced by more than 70 Bangladeshi companies). The European Union absorbs about 30% of exports. More than 20 companies are exporting to Denmark, about half that number to the United Kingdom, eight each to Finland, Switzerland and Norway, and three to Sweden. A World Bank report released in 2009, however, anticipated optimistic yearly IT/ITES export revenues of US$ 500 million and the creation of 30,000 new jobs within a five-year period.
Unlike India and the Philippines, Bangladesh is not known for its IT and ITES industry, hence the challenge of marketing Bangladesh as a potential supplier to clients in Europe and the United States. The fact is, however, that Bangladesh is already on the 2010 list of the top 30 global sourcing locations as established by Gartner, a large technology consultancy.
ITC began supporting the IT and ITES sectors in Bangladesh in early 2007 with the development of an export sector strategy, which was endorsed by the Government of Bangladesh. Since October 2010, ITC has been providing Bangladesh with the means to realize its potential within the framework of the Netherlands Trust Fund II (NTF II), funded by the Dutch Centre for the Promotion of Imports from Developing Countries (CBI). The Creating Sustainable Exporter Competitiveness in the IT & ITES Sector project aims to enhance the branding of Bangladesh as an effective IT and ITES global sourcing location and provide the country with the visibility needed to be part of the rankings of major information technology consultancies, such as Gartner.
The project also aims to increase Bangladesh’s IT & ITES exports through targeted marketing and matchmaking activities. To ensure that the Dutch-funded project has a sustainable impact, the industry’s trade support institutions (TSIs), the Bangladesh Association of Software and Information Services (BASIS), the Bangladeshi IT & ITES association, and the Dhaka Chamber of Commerce and Industry (DCCI), will be equipped to support it in generating new business.
At the end of December 2010, 125 Bangladeshi IT & ITES companies applied to be part of the project. Forty were selected and will receive support to upgrade their marketing materials and skills and meet with potential clients both in Bangladesh and in Europe. Furthermore, TSIs in the Netherlands, Denmark and the UK, which are the three target markets for the project, have been engaged to become project partners and support these efforts in their respective markets.
First results are very encouraging. At SoftExpo, Bangladesh’s major IT trade fair held in Dhaka in February 2011, Bangladesh captured the attention of the Dutch and Danish business delegation. Delegates were impressed with Bangladesh’s skills base (solid IT education and English proficiency with historic roots) and competitive pricing. Bringing together the delegation and the enterprises was the first major activity undertaken in the framework of the two-year NTF II project as part of the effort to establish new business linkages and generate new sales for the 40 beneficiaries. ‘I think they are very well prepared for the European customers that need to look abroad,’ said Willem Hoekstra from ATOS Origin NL, a global IT company, who took part in the delegation. In June, some of the companies Mr. Hoekstra met in Dhaka will go on a road show to meet more potential clients at NTF II events in Amsterdam, Copenhagen and London.
1Infodev-World Bank. 2010. The Global Opportunities in IT-Based Services.