Prospects and Challenges of Outsourcing to Bangladesh
Subject: Entrepreneurship Development | Topics:

Prospects and challenges of outsourcing to Bangladesh

Outsourcing involves the contracting out of a business process to another party which is also known as business process outsourcing. Companies primarily outsource to reduce certain costs such as peripheral or “non-core” business expenses, high taxes, high energy costs, excessive government regulation, production and labor costs. The unique age demography of Bangladesh, coupled with the low-cost work force and Government’s Incentive for the IT service sector, makes Bangladesh a major player at the global service outsourcing market. Bangladesh is fast emerging as the next major global outsourcing destination. According to The Outsourcing Institute, Information Technology outsourcing has been the fastest growing area for outsourcing.

The Outsourcing Institute also found some coming up trends in outsourcing which are client/server, networks, desktop systems, end-user support, full IT outsourcing. Outsourcing businesses may be classified into major two categories, one is service, and another one is through product support though this also has a bit similarity with services.Services include information outsourcing, call center services, financial/accounting information outsourcing using IT, procurement outsourcing, data center outsourcing, research, marketing and human resources marketing. And besides these product outsourcing intermediary and Consultancy has a huge demand throughout the outsourcing market. But this type of outsourcing makes organizations relax about their office spaces and work load. Second one is, vertically oriented skills will be facing a huge demand where the outsourcing works will be more done for the next five years. And this will create the high demanding situation in the outsourcing market just because of less effort and highest value delivery. In statistical term if expressed, the global outsourcing market has been increased at 16% over 5 years. SMEs within IT industry are the top adopter through this high time of outsourcing market development. However, as the business and service delivery eco systems are changing across markets, SMEs are now more exposed to offshore outsourcing options. This also represents the demand of Bangladesh’s works among the outsourcing market is putting the maximum tax facilities in this industry and there outsourcers from abroad are making the benefit of spending less in any work from Bangladesh.

Currently more than 100 organizations are exporting software and outsourcing to more than 30 countries and many are coming into this industry. There are some other organizations specialized to their respective fields such as ISPAB is working for ISP firms and BACCO is specialized for Call Center organizations and outsourcing. Bangladesh is gradually drawing attention of the developed countries in respect of outsourcing of their IT-enabled products through freelancers mainly because of competitive price and quality, industry insiders said. More than 40,000 freelancers are now working from their homes in Bangladesh for different global companies. Bangladesh is competing with India, Pakistan and some eastern European countries in freelance work, which definitely speaks of the high caliber of Bangladeshi IT professionals. According to the result this study generated, I found out that, Power crisis, Low internet speed, Money transaction problem, are the main obstacle for Bangladesh in terms of progressing in the field of outsourcing. Those barriers are limiting the potentiality and prospects of outsourcing to Bangladesh.

What is outsourcing

The concept “outsourcing” came from American Glossary ‘outside resourcing’. Outsourcing involves the contracting out of a business process to another party which is also known as business process outsourcing. It means to use outside resources and experts to develop an organization. Outsourcing sometimes involves transferring employees and assets from one firm to another, but not always. Outsourcing is also the practice of handing over control of public services to for-profit corporations.

Companies primarily outsource to reduce certain costs such as peripheral or “non-core” business expenses, high taxes, high energy costs, excessive government regulation, production and labor costs. The incentive to outsource may be greater for companies due to unusually high corporate taxes and mandated benefits. At the same time, it appears that companies do not outsource to reduce executive or managerial costs. The reason companies outsource is not to avoid costs in general but to avoid specific types of costs.

The unique age demography of Bangladesh, coupled with the low-cost work force and Government’s Incentive for the IT service sector, makes Bangladesh a major player at the global service outsourcing market. Bangladesh is fast emerging as the next major global outsourcing destination.

Objective

There are two objectives behind this study.

  1. Primary Objective:

The primary objective is to find the “Prospects & Challenges of outsourcing to Bangladesh: A study on Taskeater”.

  1. Secondary objective:

The report is a requirement for the completion of BBA program from BRAC University.

Scope of the Study

This report will be covering the prospects of outsourcing in Bangladesh as well as the challenges that Bangladesh has to face serving as an outsourcing destination. This report is based on the experience I accumulated from the internship program at Taskeater Bangladesh Limited.

Methodology

From selection of the topic to the final report preparation the study requires an orderly procedure. Data sources are to be identified and collected, to perform the study. They are to be categorized, analyzed, interpreted and presented in an organized manner and key points are to be found out.

So, all the information is collected from primary and secondary sources. Most of the relevant information has been collected by practically working in the department and discussing with the department employees and supervisor and also collected few data from the banks e-learning. I have also included my work experience to complete this report.

Primary Data:

  • Primary data was gathered by discussing with the employees of the organization.
  • To support myself in learning more about the topic, direct observations played a very important role.

Secondary Data:

  • Secondary data was gathered the website of the organization.
  • Relevant file study as provided by the concerned officer.
  • Some brochures and related articles.
  • Some other papers given by my supervisor.
  • Publications obtained from the Internet and from the website of Taskeater.

Description of the organization

Taskeater was founded by two seasoned internet entrepreneurs who collectively have launched five online businesses across the United States, Europe and Asia. Taskeater was a direct solution to the needs they faced when building integrated teams of brilliant and dedicated individuals.

Taskeater’s main focus is to build your extended team that will take care of the ongoing business processes while the client can focus on innovation. They are experts in building cost-effective and dedicated teams that become an integral part of client’s businesses. They are helping some of the world’s most exciting internet companies build highly scalable teams, giving them an edge over their competition.

SWOT Analysis of Taskeater

The comparison of Strengths, Weaknesses, Opportunities and Threats is normally referred to as a SWOT analysis. Its central purpose is to identify the strategies that will create a firm-specific business model that will best align, fit, or match a company’s resources and capabilities to the demands of the environment in which it operates.

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Prospects & Challenges of Outsourcing to Bangladesh (A Study on Taskeater)

Outsourcing Area

Outsourcing works has a wide line of diversification. If you visit the site of freelancer.com or odesk.com there will be a long list of categories for the jobs to work within IT or ITES. Though there are some trends coming with major areas to concentrate more. According to The Outsourcing Institute information technology outsourcing has been the fastest growing area for outsourcing. According to their measurement major areas the companies are concentrating are maintenance/repair, training application development, consultancy and reengineering, mainframe data centers. The Outsourcing Institute also found some coming up trends in outsourcing which are –client/server, networks, desktop systems, end-user support, full IT outsourcing.

Outsourcing Business:

Outsourcing businesses may be classified into major two categories, one is service, another one is through product support though this also have a bit similarities with services. Services include information outsourcing, call center services, financial/accounting information outsourcing using IT, procurement outsourcing, data center outsourcing, research, marketing and human resources marketing. These are getting so much popularity day by day. Internet is being a gathering space through the social networks. And besides these product outsourcing intermediary and Consultancy has a huge demand throughout the outsourcing market. On the other hand, through software support contains application development which itself is the product, web development, data entry & analysis, survey etc. This requires more specified people than the service peoples regarding outsourcing. But this type of outsourcing makes organizations relax about their office spaces and work load. Both the categories are popular among the outsourcing market. Just the offshore workers need to be sure where they should start and which track of serving this industry will lead them to their target.

 

Global Market Situation:

Andrew (2010) mentioned two facets of outsourcing trends. First one is, declining value of US dollar will turn outsourcing industries back to invest for US software and services and this will be accelerating. Second one is, vertically oriented skills will be facing a huge demand where the outsourcing works will be more done for the next five years. In the same context Ravi (2010) mentioned that, green initiatives or cost effectiveness of their data centers through making green technologies will be the major concentration over the decade. Most of the companies will try to get ERP solution platform to manage their operations and decisions. And this will create the high demanding situation in the outsourcing market just because of less effort and highest value delivery. Same is also supported by Mohammed (2010) who mentioned that most of the customers are investing huge on ERP because most of the advanced organizations are using ERP and many are coming. In statistical term if we want to express, we will see the global outsourcing market has been increased at 16% over 5 years (Rahman, 2012). And it is counting.

This represents how the global scenario of outsourcing market is going to be. Most of the industries will be dependable upon outsourcing industry within a few decades. Rahman (2012) also said that hybrid sourcing models and cloud sourcing are making a strong influence in the market.

Dominating Countries:

Stephanie (2010) says, in Asia, Indian region and China dominates as destinations in the outsourcing market. Besides this Sri Lanka and Philippines has also a strong influence in the market. Stephanie (2010) also mentioned that Central and Eastern Europe are also attractive destinations still fighting in the market. But the major role in off shoring IT business will be the making of strong delivery network (Karthik, 2010). Karthik (2010) also believes that India will be ahead of this point. From my point of view also I see south Asian region has the most potentiality to create a strong network of delivery chain. As Europe’s decrease of expert skills and US’s increasing debt will force both into long term economic crisis, it’s time for the Asian’s to capture the market in due time.

 

Outsourcing in Bangladesh:

The New York based global banking securities and investment management firm Goldman Sachs has included Bangladesh in ‘Next Eleven’ after BRIC (Brazil, Russia, India and China) nations. SMEs within IT industry are the top adopter through this high time of outsourcing market development. However, as the business and service delivery eco systems are changing across markets, SMEs are now more exposed to offshore outsourcing options.

Bangladesh has placed itself within the top 30 outsourcing destinations as a research of Gartner Inc. (eASiA, 2011). This also represents the demand of Bangladesh’s works among the outsourcing market. As it is mentioned Govt. is putting the maximum tax facilities in this industry and there outsourcers from abroad are making the benefit of spending less in any work from Bangladesh. Not only SMEs, individual offshore workers and freelancers are also getting benefitted with this. Currently more than 100 organizations are exporting software and outsourcing to more than 30 countries (Barkatullah, 2011) and many are coming into this industry.

In the last five years Bangladesh faced an average rate of growth at about 40% in IT and ITES industry (Chowdhury, 2011). If we consider these situations Bangladesh has attracted a lot of audience who have been seeking outsourcing partner throughout the globe. In aspect of these above, Bangladeshi freelancers are also performing well. In 2010, Bangladeshi freelancers have earned about US$7 million (Rahman, 2012). According to EPB, Govt. of Bangladesh (2012) total IT and ITES exports from Bangladesh has been increased about 24% from 2008 to 2011.

This is a great sign to us that if we try to develop ourselves, we will be the top of the rankings as an outsourcing destination. Rahman (2012) thinks that when decision makers think, they judge costing, skills and manpower available at target location, both current and future, relationship building facilities etc. And in these areas Bangladesh scores well. Almost most of the less complex IT outsourcing jobs can be done by the Bangladeshi workers as such institutions are also growing up and freelancers are getting trained from them. BCC and BASIS offers several courses to specialize the freelancers in different fields such as smartphone programming object oriented programming and web development courses. Besides them some private organizations like Genuity Systems or BASE Limited are working in the training fields for the IT industry people. There are some other organizations specialized to their respective fields such as ISPAB is working for ISP firms and BACCO is specialized for Call Center organizations and outsourcing. Quality improvements in skill levels and delivery capabilities have been steady.

Many of the Bangladeshi outsourcing vendors has achieved international certifications of CMM Level 3 and International Journal of Managing Value and Supply Chains (IJMVSC) Vol.4, No. 2, June 2013.

A few also managed to achieve Level 5. Besides these many organizations have achieved quality certifications from ISO through ISO:27001 certifications (Rahman, 2012). Bangladesh is an increasing population country, and among these 15-34 age groups are now 34% or total population which is relatively higher within global demography (Rahman, 2012). This is more than perfect for an industry related with ITES-BPO.

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Prospects of Outsourcing in Bangladesh

Different Sectors of outsourcing

Bangladesh is gradually drawing attention of the developed countries in respect of outsourcing of their IT-enabled products through freelancers mainly because of competitive price and quality, industry insiders said. Developed countries, especially the USA, the UK, Canada, Australia and Singapore are increasingly assigning local IT (information technology) experts for developing their both online and off line based software for the last couple of years.

Considering the potentials, Elance, oDesk and some other global online employment platform have come forward to work with Bangladeshi IT experts. According to the industry people, both employment and income from the sector have achieved a robust growth of about 150 percent year on year basis for the last two years.

More than forty thousand local IT personnel have so far been employed in the sector and income from the sector has reached about US$30 million till March of the current financial year (FY) which was less than thirty thousand and $20 million respectively during the corresponding period of the last FY.

“IT freelancing has taken off in a big way in Bangladesh, with around 100 to 150 per cent growth for the last couple of years. More than 40,000 freelancers are now working from their homes in Bangladesh for different global companies. But how much money they are earning from abroad each year is difficult to measure as their income is not included in the software export data, while suggesting an income of around $30 million.

Of the freelancers, around 45 percent were for IT and programming, 25 percent for designs and multimedia, 13 percent for sales and marketing, 10 percent for administration support, 5 percent writing and translation and 2 percent for miscellaneous jobs. Due to some anomalies, freelancers receive their money through Western Union, VISA card, Master card or other channels which does not enter into the government’s export earning software.

Bangladesh is competing with India, Pakistan and some eastern European countries in freelance work, which definitely speaks of the high caliber of Bangladeshi IT professionals. If the government takes sufficient measures to train-up fresh graduates of the country then the earning from the sector would increase manifold shortly. “Initial earning of a person is not that much attractive but after gaining experiences in the field; one can earn more than any professional of

Bangladesh. Freelancers earn $15 to $20 per hour on an average for technical work, and $5 to $10 for administrative or non-technical work. A new comer in the sector earns around $2 to $5 depending on type of job. However, to further boost the sector, BASIS has been providing different kinds of training and the Information and Communication Technology (ICT) Ministry has in the meantime completed a Tk70 million project for training up people in the same field. Besides, World Bank is scheduled to finance around Tk500 million in a similar training project soon.

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Challenges

There are major challenges which must be addressed before the industry can flourish: Gartner gave Bangladesh a “poor” rating in three vital areas – infrastructure, language skills and data, and intellectual property security. Poor infrastructure, including frequent power crises and slow and unreliable Internet connections are the most immediate problems for outsourcing. Ahmadul Hoq, president of the Bangladesh Association of Call Centre and Outsourcing (BACCO) stated that “We have told the government that we need an uninterrupted power supply and a second connection with high bandwidth, adding that progress on these issues was slow.”

Power crisis

Bangladesh’s businesses have long suffered from an acute power crisis, as plants generate only around 5,000 megawatts of electricity a day, but demand is over 6,000 megawatts and growing at a rate of 500 megawatts a year.

 

Low internet speed

The country has only one submarine Internet cable and desperately needs a second line to prevent frequent disruptions, Hoq said.“We are connected to submarine cable network SEA MEWE-4, which provides an Internet bandwidth of 24 gigabytes, but more speed needed and an alternative connection is essential to woo overseas clients,” Hoq said. 40% of the businesses are significantly affected by slow internet speed here in Bangladesh. Web developer and software developer firms encounter this problem more often than the others. However, companies seem to cope up with the situation and 60% companies have reported that they somehow manage it, although the working speed gets sluggish.

Money transaction problem

Bangladesh Government does not allow online transaction yet. Without any confusion what soever, Bangladeshi web-based businesses have indicated it as the biggest problem they face. Almost all the respondents are affected by this obstacle while dealing internationally. The Biggest obstacle to run the freelancing business, again majority of the firms has indicated international money transaction difficulty as the most upsetting one.

Findings

According to the result this study generated, I found out that, Power crisis, Low internet speed, Money transaction problem, are the main obstacle for Bangladesh in terms of progressing in the field of outsourcing. Those barriers are limiting the potentiality and prospects of outsourcing to Bangladesh. There are some other issues that I would like to mention are:

  • International holyday versus government holiday
  • No scope of creativity
  • Lower work to compensation ratio
  • Communication barrier

Recommendations

From my personal view, I think government should take initiative to increase the rate of infrastructural development. Top most priority given by the employer is the quality of work. Individuals or companies should render best quality service to satisfy the employer. Best quality product supplied by companies will not only bring goodwill for that company, but also uplifts the nations’ honor. So, government should establish training institutes or encourage private sectors to form training institutes to maintain the quality of the work. There are some key recommendations as follows:

  • Encourage infrastructural development.
  • A permanent solution for power crisis.
  • Proper distribution of bandwidth throughout the whole country.
  • Issue new sets of rules and regulation for the outsourcing to grow more.
  • Encourage youth and unemployed people on outsourcing.

 

Conclusion

Outsourcing involves the contracting out of a business process to another party which is also known as business process outsourcing. Companies primarily outsource to reduce certain costs such as peripheral or “non-core” business expenses, high taxes, high energy costs, excessive government regulation, production and labor costs. The unique age demography of Bangladesh, coupled with the low-cost work force and Government’s Incentive for the IT service sector, makes Bangladesh a major player at the global service outsourcing market. The demand of Bangladesh’s works among the outsourcing market is putting the maximum tax facilities in this industry and there outsourcers from abroad are making the benefit of spending less in any work from Bangladesh. Currently more than 100 organizations are exporting software and outsourcing to more than 30 countries and many are coming into this industry. There are some other organizations specialized to their respective fields such as ISPAB is working for ISP firms and BACCO is specialized for Call Center organizations and outsourcing. Bangladesh is gradually drawing attention of the developed countries in respect of outsourcing of their IT-enabled products through freelancers mainly because of competitive price and quality, industry insiders said. More than 40,000 freelancers are now working from their homes in Bangladesh for different global companies. Bangladesh is competing with India, Pakistan and some eastern European countries in freelance work, which definitely speaks of the high caliber of Bangladeshi IT professionals. According to the result this study generated, I found out that, Power crisis, Low internet speed, Money transaction problem, are the main obstacle for Bangladesh in terms of progressing in the field of outsourcing. Those barriers are limiting the potentiality and prospects of outsourcing to Bangladesh.

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