Developing Developing BPO BPO ClustersClusters in in Bangladesh:Bangladesh: What Can We Learn What Can We Learn

from Indian Experiences?from Indian Experiences?

Developing Developing BPO BPO ClustersClusters in in Bangladesh:Bangladesh: What Can We Learn What Can We Learn

from Indian Experiences?from Indian Experiences?

Dr. Sougata RayDr. Sougata RayIndian Institute of Management Indian Institute of Management

CalcuttaCalcutta

SOFTEXPO 2005SOFTEXPO 2005Bangladesh Association of Software &Bangladesh Association of Software &

Information Services (BASISInformation Services (BASIS))

IT & ITES (BPO) – Some Facts & Trends

Global BPO Market Size

*Gartner Dataquest

Global BPO Market Size

Delivery of outsourced services will increasingly be offshore

Offshore outsourcing will show the highest growth

Cost & quality levels are the biggest drivers

USD Billion 2001 2008Onshore outsourcing + Shared services 3304 3664Offshore outsourcing 17 164Captive offshoring 35 182

Outsourcing Industry Growth

38%

1.5%

26%

Onshore Outsourcing

& Shared services

Offshore outsourcing Captive offshoringCA

GR

(2001 -

2008

)

BPO Service Matrix (Horizontal Services)

BPO Service Matrix

Vertical Services

ApplicationProcessing

UnderwritingClaims

AdjudicationMember

ManagementServices

Airlines Data Services

Revenue Accounting

Frequent Flier ProgramManagement

Medical BillingClaims

AdjudicationMember ManagementServices

CashlessHospitalizationServices

Tax Processing

AssetManagement

Loan Processing

Mortgage Processing

Financial Services

Airlines Back Office

HealthcareInsurance

Global Virtual Community in BPO

Radiology Groups &

IDNs

Clinical Board

RadiologistTeam

GLOBALLY CONNECTED COMMUNITY

Extent of offshore BPO varies with process complexity

Co

mp

lexi

ty

Data ProcessingBasic data entryTransaction

processingDocument

management

Contact Services Inbound customer relations &

helpdesk Outbound telemarketing

Collections

Back OfficeFin. & Acctg., HR,

Procurement shared servicesTechnology support

Knowledge ServicesCustomer analyticsPortfolio & risk managementEquity research

Research ServicesContent developmentProduct design servicesCAD / CAM services

Lo

wM

ediu

mH

igh

Source: McKinsey & Co.

Size of circle indicates quantity of knowledge workers

IrelandAustralia

India

Philippines

China

Mexico

Singapore UK

Ireland

Low High

Low

Hig

h

People attractivenessQualityCostType of skillsEnglish language

Location attractivenessInfrastructure

CommunicationsOther basic

infrastructureCountry risks/FDI incentivesAttractive

incentivesPolitical

environmentTime zone

attractiveness

Selection of offshore destinations is driven by macro factors & cost

effectiveness

Data/IP security

Cultural compatibility

Political stability

Cost

Educational system

Infrastructure

Labour pool

Government support

Language

Qualitative Indicators of Country Suitability

ExcellentGoodPoor Very goodFair

RussiaHungaryIndiaCzech

RepublicNorthernIreland Ireland Poland China Israel

SouthAfrica

Overall climate

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

A Typical BPO Cluster

Telecom ServiceProviders

Facility OwnersHR & Trng.

AgenciesUtility Service

Providers

TechnologyProviders

Professional Services

VCs & Other Funding Agcy.

Edu. & Res.Institutions

Social AmenitiesProviders

Infra Services

BPO CompaniesCustomers

GovernmentIndustry

Associations

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

Why Clusters MatterClusters 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

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

Indian IT & BPO Industry – Recent Trends

Indian IT & BPO Industry – Recent Trends

India's Projected Share in Global BPO Market in 2008

* McKinsey-NASSCOM Report on ITES

1. Ahmedabad-Gandhinagar 2. Bangalore3. Chandigarh-Mohali4. Chennai5. Hyderabad-Secunderabad6. Kochi7. Kolkata8. Mumbai-Navi Mumbai-Thane9. New Delhi-Gurgaon-Noida10.Pune

These 10 clusters account for more than 85 percent of the India’s IT/ITES exports

KEY IT and ITES Clusters

IT Cluster

DELHI BOMBAY KOLKATA BANGALORE HYDERABAD MADRAS

Knowledge Capital

Operating Costs

Power & Telecom

Transport & housing

Political Stability & Law & order & Infrastructure

Health & Social

Work culture

Poor Fair Good Source : PwC IndiaSource : PwC India

How the Cities stack How the Cities stack upup……

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

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

Case 2 - HyderabadSTPI – 1991-92; Gained

momentum from the late 1990s, 150 plus firms in 2004

Moderate – Hot weatherModest infrastructure to startModest pool of talent to startLarge number of engineering

colleges

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

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.)

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

TalentCost of operations

Infrastructure

Policy

Investor support

Key Enablers for BPO Key Enablers for BPO ClusterCluster

Talents Requirement in BPO Activities

Call Centre Good communication and language skills, good accent, basic computing skills, fast learner & able to deal efficiently via telephone

Transaction Processing

Computing, language, analytical and accuracy skills, willing to learn. For the financial BPO, HSC with accountancy background and/or diploma in accountancy. International/ country specific accounting rules, basic knowledge of accounting such as US GAAP

Medical Transcription/Health care

Language understanding, basic computing (word processing knowledge) and understanding of various medical terminologies Good communication and language skills, good accent, basic computing skills, fast learner & able to deal efficiently via telephone

Animation/GIS /remote sensing

Drawing and creative skills, computer graphic skills and knowledge in 3D, Understanding equipment, technical/ computing skills, programming skills

Issues in BPO Talent Creation

1. Lack of English education (speaking ability)

2. Lack of ITeS training institutes

3. Lack of avenues to aid in hiring

Need to improve English speaking ability

Need to familiarize students with accounting terms

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

Need a BPO certification system in partnership with BPO training companies and academia

Requirement of a common database of employable personnel

Competitiveness of location

Industry Structure

Demand Conditions

Industry Attractiveness

Entrepreneur Pool

Local Outsider

Entrepreneurial leadership of government

Innovative Policy Mix

Effective Implementation

Local Demand Creation

Factor Conditions (supply of)

Infrastructure Related Industries

Manpower

Lessons Learnt

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

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

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

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

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

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 & ImaginationCourage & ConvictionPassion & DriveLuck

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