1. Md. Mamun-Ur-Rashid Askari
Assistant Chief
Bangladesh Tariff Commission
25 June 2015, Dhaka.
Problems and Prospects of IT
& IT Enabled Services
Outsourcing in Bangladesh
2. Slide । 2Bangladesh Tariff Commission, June 2015
Research Advisor
Dr. Md. Azizur Rahman
Chairman
(Secretary)
Bangladesh Tariff Commission
3. Slide । 3Bangladesh Tariff Commission, June 2015
Research Team
Name Designation
Md. Mamun Ur Rashid Askari Asst. Chief(Principal Researcher)
S.M. Sumaiya Zabeen Research Officer(Asst. Researcher)
Kazi Monir Uddin Research Officer(Asst. Researcher)
4. Slide । 4Bangladesh Tariff Commission, June 2015
Introduction
Outsourcing- A practice to reduce costs by
transferring portions of work to outside suppliers
Sometimes involve transferring employees and
assets from one firm to another
The term "outsourcing" dates back to at least 1981
IT Enabled Services (ITES) is a sector of Information
Technology (IT) Industry
ITES means production and delivery of services
involving IT
5. Slide । 5Bangladesh Tariff Commission, June 2015
Rationale of the Study
ICT – One of the top priority sectors of
the Government.
ICT may contribute 1% to GDP
Bangladesh-an emerging destination of
IT/ITES
Action oriented Policy needed to boost
this sector
Employment Generation
6. Slide । 6Bangladesh Tariff Commission, June 2015
Objectives of the Study
To evaluate present status and trends
To analyze related Acts, Rules and Policies
To explore potentials and export opportunities
To assess possibility of employment generation
To identify constraints and opportunities
To prepare policy recommendations
7. Slide । 7Bangladesh Tariff Commission, June 2015
Methodology
Literature Review
Preparing Questionnaire
Primary Data Collection
IT& ITES industries, Freelancers;
Interview
Secondary Data Collection
Published Articles, Journals, BASIS, BB,
BBS, NBR, EPB etc.
Group Discussion
Analysis
Tabular, Graphical and Statistical Analysis
8. Slide । 8Bangladesh Tariff Commission, June 2015
Limitations
• Time Constraint
• Unavailability of complete National Statistics
• Limited Budget
• Reluctance of providing financial statements
• Inadequate data collector
9. Slide । 9Bangladesh Tariff Commission, June 2015
Literature Review
• Export Target- US$ 1 Billion by next 5 years-BASIS;
• One of the top 30 outsourcing destinations-
Gartner (2010)
• An Emerging IT/ITES Outsourcing Destination-
KPMG (2012)
• Amongst highest top 50 Global Services Location
Index, Bangladesh Ranked 26 - AT Kearney (2014)
10. Slide । 10Bangladesh Tariff Commission, June 2015
Questionnaire
Enterprises
A. General Information
B. Personal Information
C. Infrastructure
D. Obstacles
E. Finance
F. Human resources
G. Clients
H. Performance
I. Role of the government
11. Slide । 11Bangladesh Tariff Commission, June 2015
Questionnaire Contd…
Freelancers
Personal Information
Age
Experience
Education and Training
Rationale for Freelancing
Obstacles
Performance
Role of the Government
12. Slide । 12Bangladesh Tariff Commission, June 2015
Data Collection
• Random Sampling
21 Firms
15 Freelancers
• Interviews
5 Entrepreneurs
5 Freelancers
• Discussion Meetings
Bangladesh Bank, Dhaka Chamber, Bureau of
Statistics, Export Promotion Bureau
13. Slide । 13Bangladesh Tariff Commission, June 2015
Trade in Services and IT/ITES
• GATS divides all services in 12 subsectors and
Four modes of Supply
• IT itself occupied a service sector
• Cross border Supply Involves(Mode 1) the use of
IT in most of the services sectors
• GATS uses Central Product Classification (CPC)
codes for specification of Services.
• Such coding is significant for negotiation for
different types of barriers imposed by countries
to help restrict the import of Services from other
countries.
14. Slide । 14Bangladesh Tariff Commission, June 2015
Central Product Classification (CPC)
Computer and related services (CPC 84)
• Consultancy services (CPC 841)
• Software implementation services (CPC 842)
• Data processing services (CPC 843)
• Database services (CPC 844)
• Maintenance and repair services (CPC 845)
15. Slide । 15Bangladesh Tariff Commission, June 2015
Bangladesh IT/ITES Sector at a Glance
Export size-713 million US$ (ICT)
Export Target- 1 Billion US$ by next 5 years;
Outsourcing Fund - 250 million annually
Registered companies – Over 1000 Software &
ITES
Unregistered Companies -Almost 100
Exporting Software- Some Companies
16. Slide । 16Bangladesh Tariff Commission, June 2015
Acts, Rules, Regulations and Policies
Major Rules/Regulations include-
• ICT ACT 2006 (amended in 2013)
• ICT Policy 2009 (Formulation of ICT Policy 2015 is
underway)
• Bangladesh Bank Rules and Regulations
• Vision 2021
• Five Year Plan
• Export Policy 2012-15
• Import Policy Order 2012-15
• Industrial Policy 2010
17. Slide । 17Bangladesh Tariff Commission, June 2015
Tax Structure
Service
Code
Service VAT SD Comments
S012.10 Telephone 15.0% 5% Service provided Only through
Mobile RIM & SIM Card
S012.20 SIM Card Provider 15.0% 35%
S099.10 Information
Technology Enabled
Services
4.5% 0% VAT- 4.5% of 30% of total
receipt by service provider
S099.50 Online product &
Service
4.0% 0% 4.0 of 26.67% of total receipt
by service and provider
S074.00 Rent of Place &
Establishment
9.0% 0 Exemption Withdrawn
18. Slide । 18Bangladesh Tariff Commission, June 2015
Comparison of Tax Structure in Asia
Bangladesh records
the highest tax rate
in the South Asia
region in ICT Goods
and Services.
60.5
38
33.5
28
22.4
18
12
12
7
5
2
0 50 100
Bangladesh
Turkey
Nepal
Brazil
Pakistan
Sri Lanka
India
Phillipine
Singapore
Nigeria
China
Source: Miller and Atkinson, 2014
20. Slide । 20Bangladesh Tariff Commission, June 2015
Export-Computer Data Processing
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
Other Countries
HONG KONG
GERMANY
MALAYSIA
AUSTRALIA
NETHERLANDS
CANADA
DENMARK
UNITED KINGDOM (UK)
SINGAPORE
UNITED STATES OF AMERICA (USA)
Source: Calculation based on Bangladesh Bank Statistics
21. Slide । 21Bangladesh Tariff Commission, June 2015
Export-Computer Consultancy Services
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
MillionUS$
Other Countries
INDIA
CHINA, Peoples' Republic of
FRANCE
NETHERLANDS
KOREA, REPUBLIC OF
UNITED KINGDOM (UK)
GERMANY
CANADA
SINGAPORE
UNITED STATES OF AMERICA
(USA)
Source: Calculation based on Bangladesh Bank Statistics
22. Slide । 22Bangladesh Tariff Commission, June 2015
Export-Computer Software
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2009 -
2010
2010 -
2011
2011 -
2012
2012 -
2013
2013 -
2014
MillionUS$
Other Countries
IRELAND
UNITED KINGDOM (UK)
CANADA
DENMARK
NORWAY
GERMANY
SINGAPORE
KOREA, REPUBLIC OF
HONG KONG
UNITED STATES OF AMERICA
(USA)
Source: Calculation based on Bangladesh Bank Statistics
23. Slide । 23Bangladesh Tariff Commission, June 2015
Findings
Key Obstacles Total
Point
1 2 3 4 5
Frequency
Cost of obtaining internet bandwidth 61 0 2 0 8 5
Smooth transaction of payments 60 0 2 3 3 7
Lack of proper infrastructure 59 1 0 2 8 4
Foreign Exchange Policy 58 1 1 3 4 6
Electricity load shedding 57 0 4 2 2 7
Internet bandwidth (speed) 57 1 3 0 5 6
Business related rules and regulations of
government
53 1 3 4 1 6
Access to Finance 46 2 2 5 5 1
Tax Policy 39 1 8 3 2 1
Challenges Faced by Freelancers
Total No. of Observations = 15
Likert Scaling Regarding Obstacles Faced by Freelancers where
1= No Obstacle 2= Minor Obstacle 3= Moderate Obstacle 4= Major
Obstacle 5= Severe Obstacle
24. Slide । 24Bangladesh Tariff Commission, June 2015
Findings Contd…
Key Obstacles Total
Points
1 2 3 4 5 N/A
Frequency
Electricity load shedding 81 1 0 5 10 5 0
Cost of obtaining internet bandwidth 75 1 3 4 9 4 0
Shortage of Skilled Manpower 68 3 0 5 10 2 1
Foreign Exchange Policy 66 0 3 3 9 3 3
Lack of capital 64 2 5 6 6 2 0
Access to Finance 63 0 7 5 6 2 1
Rules and regulations of government 63 1 6 9 2 3 0
Internet bandwidth (speed) 62 2 7 5 4 3 0
Smooth transaction of payments 61 5 2 5 8 1 0
Lack of proper infrastructure 52 5 2 2 8 1 3
Loyalty of staffs 52 6 5 5 4 1 0
Obtaining work order 50 6 5 7 2 1 0
Tax Policy 50 9 1 4 3 3 1
Challenges Faced By Enterprises
No of Observations = 21
25. Slide । 25Bangladesh Tariff Commission, June 2015
Findings Contd…
Inadequate Marketing and Branding
High Cost of Bandwidth
Language problem in voice based ITES services
Shortage of skilled manpower in specific domains
like financial, medical, graphics etc.
Country branding support to increase
participation in global market
Limited participation in international outsourcing
forums
26. Slide । 26Bangladesh Tariff Commission, June 2015
Findings Contd…
Features of Enterprises-
– IT/ITES firms operating in Bangladesh are Private
limited company while some are sole proprietorship.
– Some enterprises are also joint venture
– Young Entrepreneurship
– Firms organizes trainings as Professional training
more important than education
– Higher education needed for high end services like
software development.
– Highly qualified resources leaving country as well as
company
– Female employment is low
27. Slide । 27Bangladesh Tariff Commission, June 2015
Findings Contd….
Cost Components of Enterprises
Example of three Enterprise A, B and C
Web, Mobile & Software Development Category
Enterprise
Enterprise Name A B C Average
Turnover 117.0 86.0 420.0 207.7
Office Rent 6.8 2.5 17.6 9.0
Total salaries 95.4 65.0 331.4 163.9
Electricity 1.4 1.3 4.9 2.5
Internet cost 2.4 0.8 3.0 2.1
Other Operating Costs 10.0 1.0 46.0 19.0
Total Costs 116.1 70.6 402.9 196.5
No of Experts 15 10 24 16
Total Investment 35.0 5.8 13.0 17.9
Values in Lac BDT
28. Slide । 28Bangladesh Tariff Commission, June 2015
Strength and Prospects
Attractive Demographic Dividend
Availability of Technical Skills
Language Skills
Growth of Quality Education
Low Operating Cost
Employment Generation
GDP growth to be increased
Improvement of BOP
Export Growth
29. Slide । 29Bangladesh Tariff Commission, June 2015
Recommendations Contd…
• Advanced Science and Technology Institute to
be Established
• Free e-learning resources to be freely available
• Introduce friendly governmental policies
supporting FDI
• Need specific professional trainings to be
provided
• Highly qualified talent pool of technical
graduates to be created
30. Slide । 30Bangladesh Tariff Commission, June 2015
Recommendations Contd…
• High-Tec Park has to come up with other socio
economic infrastructure.
• High-Tec Park should be promoted for attracting
FDI.
• Internet should be available to all districts at
same price.
• VAT on e-Commerce to be eliminated
31. Slide । 31Bangladesh Tariff Commission, June 2015
Recommendation Contd…
• The jargon BPO, BPM, KPO, KPM, LPO should
be introduced in addition to ITES.
• Entrepreneurship should be encouraged for
employment generation
• Immediate initiatives to be taken by Govt. to
attract Pay Pal to run Business in Bangladesh
• Government needs to prioritize the
impediments faced by this sector and
undertake concrete follow up actions.
• Awareness building regarding Freelancing