Tight margins in Sri Lanka

UNESCO Courier, Dec, 1998 by K.J.M. Varma

An expanding data processing sector at the beck and call of middlemen

"Ten years ago only a few companies in Sri Lanka dared to venture into the IT and data processing industry. But today we are in the midst of unprecedented growth in this field," claims Suresh Dominic, Managing Director of John Keels Computer Services (JKCS), a company based in Colombo, Sri Lanka's capital. Established in 1987 with a capital of over $85,000, JKCS expects a turnover of $3.7 million this year. In the last ten years it has captured substantial data processing and software business - mainly checking, validation and management of data from multinational companies like P & O Nedloyd, DHL and Mentor Computers.

By sending their data processing work tO countries like Sri Lanka, these multinationals are saving about 70-75 per cent of their costs. Meanwhile, Sri Lankan professionals also regard themselves as beneficiaries. In a country where a civil war is going on and foreign businesses are not exactly falling over themselves to invest, any business opportunity is welcome.

Competition from India and the Philippines

"There is no bargaining power," says Somasundaram Dharmavasan, Managing Director of Kingslake Engineering Systems Private Ltd, which caters to over 300 Sri Lankan businesses and twenty multinational companies. His firm does not get its orders directly from multinationals, but via agencies based in the West which earn high profits from acting as intermediaries. London-based Techno for example, receives orders from companies like British Gas, Shell and British Petroleum and then sends them overseas on a sub-contract basis. "We have always been dependent on intermediaries," says Dharmavasan. "But now our aim is to establish direct links with our clients so that we can increase profits. The market is extremely competitive, and if we quote higher rates our orders will automatically go to India or the Philippines."

Low overheads and import duty exemptions

At present, there are sixty small and medium-sized data processing and software companies in Sri Lanka. They had a turnover of around $25 million in 1998. Experts point out that they are no longer hindered by problems of transmitting their work (via Internet) since the state has invested in modernization of the country's telecommunication systems. They also benefit from low overheads, exemption from customs duty on computer and software imports, and above all from the availability of cheap labour. Data processing professionals earn an average of $600 a month (compared to $3,500 in developed countries). But the industry would be growing faster were it not for the relative shortage of skilled IT professionals.

This shortage of human resources is the country's major handicap in relation to India. "In this respect our neighbour is ten years ahead of us," Dhananjava Chandrasekera, JKCS's software director, points out. "At present we have 95 professionals," Dominic adds. "We badly need another fifty employees right away, but unfortunately it is not easy to get computer graduates in Sri Lanka." Sri Lanka produces about 200 computer graduates a year whereas the growing industry needs at least 1,000 professionals, and so companies are now turning to well-trained diploma holders from private institutions. To get hold of competent staff, JKCS has made an agreement with the National Institute of Information Technology (NIIT), a noted Indian computer training centre which recently opened branches in Colombo and Kandy, in the south of Sri Lanka.

"The computer business is the only field in which a young Sri Lankan professional can start out earning $600 a month and double or even triple his earning power within a matter of months," Dominic explains. "More and more Sri Lankans are turning to computers and this augurs well for the future."