# Sri Lanka IT and ITES: Cheap is not enough

July 06, 2011 (LBO) – I moderated a session on IT and BPO industries at the Sri Lanka Economic Summit. True moderation is not time keeping and turn management. It requires preparation. I prepared.

I was bothered by a figure that was presented by the government spokesperson, the CEO of the ICT Agency. This placed workforce numbers and export revenues on the same graph. When you place two things in the same figure, you are implying they are related.

The two numbers were USD 392 million in export earnings and 62,000 in the ICT workforce, both for 2010. In my communications with the panelists and speakers prior to the event, I pointed out that this gave an earnings per employee number that was way too low, and suggested that one or both of the numbers were erroneous.

You can do the math: divide USD 392 million by 62,000 to get annual revenue per employee. Divide that by 12 to get monthly revenue by employee. Multiply by 110 to get the number in LKR. Then think what you’d have to pay an employee and what you’d have to spend to support an employee (electricity, computers, telecom, space, etc.). Does not add up.

Earnings per employee

My query worked. I was provided by the real numbers from the ICT workforce survey. The total employed was 63,000, not 62,000 (as reported in http://www.lankabusinessonline.com/sri-lanka-doubles-ict-workforce-in-four-years/). But this included all sorts of people, including those working for government.

So the numbers relevant to exports are 13,000 in the BPO sector and 27,000 in the IT industry (software). So we have a total of 40,000 people working in the export sector, not 63,000.

So, let us do the numbers again: USD 9,800 per employee per year. That amounts to USD 817 per employee per month. In LKR, that means the combined export-oriented software and BPO industries are generating LKR 89,333 per month per employee. Not bad, one might think.

But stop.

Here’s how much WSO2, a Sri Lankan software firm I am familiar with, makes per employee per year: USD 40,000. Per month in LKR that is 366,667. Average monthly earnings per employee of LKR 89,333 are pretty unimpressive in relation to that.

So let me go back to the numbers provided by SLASSCOM and ICTA.

The total software earnings of USD 294 million are produced by 27,000 people. That is LKR 99,825 per employee per month. Lower than I expected.

On the BPO side, 13,000 people produce USD 98 million. That boils down to LKR 69,103 per employee per month.

Now that does not look too pretty, does it? Taking overheads and marketing into account, the firms in the BPO industry would be lucky to be able to spend LKR 40,000 on compensation per employee per month. That’s an average.

BPO on the cheap

The conclusion is not very different from what I wrote about in the last column (http://lbo.lk/fullstory.php?nid=1135964237): we are a cheap BPO destination. No different from the tourism business model the prevailed for the past three decades: cheap charters bringing the Karens and Traceys from Essex.

But cheap is not enough. Cheap is not sustainable. Especially in knowledge industries. How do we move up the value chain? How do we make BPO an attractive career option, and not a stop gap?

Here is what a CEO of a software firm says in a comment on LBO

“Most of the software engineers work for 5-10 years and they move into different industries due to home problems.
That’s why we can’t see many software engineers above 40 years old.”

Home and other problems disappear when salaries are big enough. How can this be done without the per-employee earnings being raised quite a bit above the prevailing levels?

That is the real question the industry must address. Not only BPO. Software too, with a few honorable exceptions.

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the ‘Choices’ category.