Why is Sri Lanka an Attractive Destination for Offshoring?
Table of Contents
Introduction
Sri Lanka has emerged as a compelling offshoring destination in recent years, offering numerous advantages to companies looking to outsource their operations. With its strategic location, skilled workforce, favorable business environment, and government support, Sri Lanka presents a strong value proposition for offshoring, particularly in IT and business process management (BPM). This article explores the key benefits of offshoring to Sri Lanka and why it should be a top consideration for businesses seeking to optimize their operations.
Robust Intellectual Property Protection
Strong IP Laws and Enforcement
A critical factor that makes Sri Lanka an attractive offshoring/BPO destination is its robust intellectual property (IP) protection framework. The country has a comprehensive set of IP laws and regulations on par with international standards. According to the International Property Rights Index, Sri Lanka ranks favorably in terms of IP protection compared to other countries in the region. This strong legal framework ensures that companies offshoring to Sri Lanka can safeguard their intellectual assets and confidential information.
Membership in International IP Treaties
Sri Lanka is a signatory to several international IP treaties, including the Paris Convention, the Berne Convention, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These treaties provide additional layers of protection for intellectual property and demonstrate Sri Lanka’s commitment to upholding international IP standards. Companies Outsourcing/offshoring to Sri Lanka can have confidence that their IP rights will be respected and enforced.
Advanced Telecommunications Infrastructure
High-Quality Connectivity
Sri Lanka boasts a robust telecommunications infrastructure that enables seamless connectivity for offshoring operations. According to the Telecommunications Regulatory Commission of Sri Lanka, the country has a rapidly growing telecommunications sector with approximately 22.4 million mobile subscriptions, 2.8 million fixed subscriptions, and 20.5 million broadband subscriptions as of 2021. The mobile telephone density stands at an impressive 131.9%, while the fixed telephone density is at 13.2%. This extensive coverage ensures reliable communication channels for offshoring activities.
Ongoing Infrastructure Development
The Sri Lankan government recognizes the importance of a strong telecommunications infrastructure for the growth of the digital economy. Efforts are underway to further improve geographic coverage across the country, which is crucial for the success of Sri Lanka’s digital transformation roadmap. The telecommunications broadband industry is poised for rapid growth, bolstering the economy through technology diffusion. These ongoing infrastructure developments enhance Sri Lanka’s appeal as an offshoring hub.
High Literacy Rate and Skilled Workforce
Impressive Education System
Sri Lanka takes pride in its exceptional education system, which has a history dating back two millennia. The country’s constitution emphasizes the importance of universal and equal access to education at all levels. As a result, Sri Lanka boasts an adult literacy rate of 96.3% as of 2015, surpassing both world and regional averages. The country’s modern educational system, modeled after the Christian missionary system, was introduced during the British colonial era. Education falls under the purview of both the central government and provincial councils, ensuring comprehensive coverage.
Focus on Technology Education
Sri Lanka places a strong emphasis on technology education, with a computer literacy rate of 28.3% and a significant portion of the population being phone users (105%) and website users (32%) as of 2017. The country’s commitment to developing a skilled workforce suitable for offshoring is evident in the fact that 61.1% of individuals receive computer training through schools and universities. The Human Rights Measurement Initiative (HRMI) recognizes Sri Lanka’s fulfillment of the right to education, with the country achieving 97.7% of what is possible based on its income level for primary education and 93.3% for secondary education.
Thriving IT and BPM Sectors
Growth and Global Recognition
Sri Lanka’s IT and business process management (BPM) sectors have experienced remarkable growth and gained global recognition in recent years. The country consistently ranks among the top 50 outsourcing destinations by A.T. Kearney, and its capital city, Colombo, has been featured in the “Top 20 Emerging Cities” list by Global Services Magazine. The export revenue of the IT industry has witnessed a significant increase, growing from USD 213 million in 2007 to an impressive USD 1.2 billion in 2021. This growth trajectory highlights the strength and potential of Sri Lanka’s IT and BPM sectors.
Presence of Global Players
Many well-known multinational companies have established their offshore centers in Sri Lanka, recognizing the country’s capabilities in delivering high-quality IT and BPM services. Industry giants such as Microsoft, Intel, Accenture, Virtusa, RR Donnelley, London Stock Exchange, Pearson, HSBC, and Axiata have chosen Sri Lanka as their offshoring destination. The presence of these global players is a testament to the country’s competitiveness and attractiveness in the offshoring landscape.
Government Support and Incentives
E-Government Initiatives
The Sri Lankan government has demonstrated a strong commitment to promoting digital transformation and supporting the growth of the IT and BPM sectors. According to the United Nations E-Government Survey, Sri Lanka ranks highly in terms of e-government development, with an above-average E-Government Development Index (EGDI) value. The country’s Online Service Index (OSI) value also surpasses the global average, indicating the government’s proactive efforts in delivering digital services. These e-government initiatives create a conducive environment for offshoring operations.
Attractive Investment Incentives
To attract foreign investment and promote the growth of the IT and BPM sectors, the Sri Lankan government offers a range of incentives. Companies setting up offshore centers in Sri Lanka can benefit from tax holidays of up to 12 years, depending on the scale of investment and potential job creation. The government also assists in real estate acquisition for companies, considering factors such as business volume and employment generation. Additionally, dedicated IT parks and campuses have been established to facilitate the World’s best companies to archive the growth of the offshoring industry.
Free Trade Agreements (FTAs)
Sri Lanka has entered into several free trade agreements (FTAs) to enhance its trade relations and facilitate cross-border business activities. These FTAs provide preferential access to key markets, making Sri Lanka an attractive destination for companies looking to expand their global presence. The country has FTAs with India, Pakistan, and Singapore, as well as regional agreements such as the South Asian Free Trade Area (SAFTA) and the Asia-Pacific Trade Agreement (APTA). These agreements offer reduced tariffs, simplified customs procedures, and other benefits that can significantly lower the costs of offshoring operations in Sri Lanka.
Competitive Positioning
Global Rankings and Recognition
Sri Lanka has consistently earned recognition as a competitive offshoring destination. The country ranks 23rd on Kearney’s 2021 Global Services Location Index in the Digital-Centric Scenario category and 16th on Tholons 2016 Top 100 Outsourcing Destinations. Furthermore, Tholons has recognized Sri Lanka as a Global Center of Excellence for Financial Accounting Outsourcing (FAO). These rankings and accolades from reputable industry analysts validate Sri Lanka’s value proposition, which encompasses cost competitiveness, skilled talent, and robust infrastructure.
Data Protection and Privacy
In March 2022, Sri Lanka took a significant step towards strengthening data protection and privacy by enacting the Personal Data Protection Act, No. 9 of 2022. This comprehensive legislation, modeled after the European Union’s General Data Protection Regulation (GDPR), positions Sri Lanka as the first South Asian country to implement such robust data protection measures. The act governs how businesses handle personal data, providing assurance to companies offshoring to Sri Lanka that their data will be protected in accordance with international standards.
Scalability and Software Development Capabilities
Sri Lanka’s IT and BPM sectors offer scalability and a wide range of software development capabilities. The country’s skilled workforce, coupled with its focus on technology education, enables companies to scale their operations efficiently. Sri Lankan IT professionals possess expertise in various programming languages, frameworks, and technologies, making them well-equipped to handle complex software development projects. From web and mobile app development to enterprise software solutions, Sri Lankan service providers can cater to diverse business requirements. The scalability and software development capabilities of Sri Lanka’s IT sector make it an ideal destination for companies seeking to outsource their software development needs.
Conclusion
Sri Lanka presents a compelling case for companies considering offshoring their operations. With its strong intellectual property protection, advanced telecommunications infrastructure, highly skilled workforce, thriving IT and BPM sectors, and supportive government policies, the country offers a favorable environment for offshoring success. The enactment of the Personal Data Protection Act further strengthens Sri Lanka’s position as a trusted offshoring destination. As businesses increasingly recognize the value of offshoring to optimize their operations and gain a competitive edge, Sri Lanka emerges as a top choice, offering a unique blend of cost-effectiveness, talent, and growth potential.
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