India, with its vast experience and talent pool, topped the global rankings, followed by China and Malaysia.
“The depth of Sri Lanka's existing IT, Business Process Outsourcing (BPO), and Knowledge Process Outsourcing (KPO) operations often comes as a surprise to people,” the consultants said during an overview of the market.
Sri Lanka’s outsourcing industry covers everything from large multinationals to innovative local start-ups, providing automated application testing and infrastructure outsourcing, high-end Research and Development, enterprise resource planning (ERP) implementations, the latest cloud and open-source applications, transcription services and call centers, complex financial research, and legal advice.
Sri Lanka aims to achieve 75 percent IT literacy levels by 2015 and is training 50,000 teachers to meet this target.
The report said Sri Lanka continued to show sturdy economic growth and attracted foreign investments even during the decades long ethnic conflict that ended in May 2009.
Over the past decade, Sri Lanka attracted 4 billion dollars in FDI inflows, twice what it attracted in the three preceding decades.
While FDI inflows suffered as a result of the global downturn in 2009, they have recovered quickly and are expected to have reached record levels in 2011.
Recent sovereign bond issues have also been heavily oversubscribed, reflecting investor confidence.Infrastructure
Sri Lanka's infrastructure is generally far superior to that found in other low-cost countries. Being a relatively small capital city, Colombo has far less congestion and pollution than most other fast-growing capitals.
Moving within the city is much easier than in Cairo, Dhaka, Manila, or Mumbai; and the country is expanding and improving links between cities, building a new airport, a port, an IT Park and other facilities in the deep south of Hambantota.
Sri Lanka is uniquely positioned to compete in knowledge process outsourcing (KPO) because of its numerous certified professionals, including accountants, lawyers, doctors, and architects.
About 50 percent of students earning higher education degrees are trained in technical and business disciplines.
Sri Lanka has already carved out a niche in financial and accounting outsourcing (FAO) thanks to its strong talent base.
The country boasts the second-highest number of Chartered Institute of Management Accountants (CIMA) students in the world (see figure).
Thousands of students also pursue qualifications from the Association of Chartered Certified Accountants (ACCA) and the Association of Accounting Technicians (AAT).
Sri Lanka also boasts a significant number of graduates and prospective graduates with U.S. qualifications such as certified public accountants (CPA).
Although consumer software piracy is an issue—as in most developing countries—Sri Lanka has among the most rigorous intellectual property (IP) protection regimes in the region.
“Industry stakeholders do not cite IP as a concern for business-to-business products, and several companies stated that they originally chose Sri Lanka over India because of a perception that information security is higher in Sri Lanka,” the report said.
Given the reputational risk that this issue poses for the country, Sri Lanka has created a national intellectual property rights office that focuses on awareness, policy issues, and enforcement.
The country is progressing well, with the second-highest reduction worldwide in recorded software piracy rates over the past year (three percent).
Sri Lanka's relatively positive regulatory environment is reflected in the country's ranking in the World Bank's Doing Business Index and Transparency International's Corruption Perception Index, above that of India and other countries in the region.
Like many countries in South Asia, Sri Lanka tends to have rather rigid labour regulations and procedures.
In terms of overall flexibility in hiring, redundancy, and working hours, Sri Lanka scores slightly better than the rest of the subcontinent and several Southeast Asian competitors. Yet, Sri Lanka still lags far behind global best practices.
Companies in the IT and BPO sector with 24/7 operations have obtained exemptions from regulations restricting aspects such as holiday work and shift work, but wider reforms to bring more flexibility to labour practices will be necessary if Sri Lanka is to compete with countries such as Malaysia, Mauritius, and Singapore.
Sri Lanka has extensive international air links. More than 20 international airlines operate out of Bandaranaike International Airport. The airport offers more flights to India than any other country—more than 140 flights per week.
Most Indian cities are less than two hours away, which is a major advantage for companies with investments in the region.
Sri Lanka's telecommunications quality and sophistication is also comparable to other countries in the region.
The country has nine telecom operators (four fixed line and five mobile), 33 external gateway operators, 22 Internet service providers, and four international submarine cables. Broadband, leased-line, and satellite connectivity are available, and Sri Lanka was among the first South Asian countries to establish 3G and 4G technology.
The report welcomed the government’s decision to cut red tape and allow 100 percent foreign ownership in almost all sectors and places.
There are no restrictions on repatriation of earnings, fees, or capital. As a result, its regulatory environment is ranked well above that of neighboring India and Bangladesh.