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It Industry in Bangladesh

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ISSN 1817-5090 The Cost and Management Vol. 34 No. 6 November-December, 2006, pp. 31-39

An Overview of the Software Industry in Bangladesh
Syed Munir Khasru Abstract: Software is one of the most talked about but unexploited industries in Bangladesh. Last two decades have seen lot of initiatives, both in public and private sector, to stimulate growth in this sector. Although some successes have been achieved, Bangladesh lags far behind other South Asian countries like India and Sri Lanka in terms of employment and revenue generation in the software industry. Against such background, this paper takes a close look at the software industry of Bangladesh. Starting from the formative years of the software industry to different measures taken by the government to support this sector, the paper analyzes the factors critical for achieving development and growth in this industry. In the process, a set of recommendations have been made to catalyze the software industry in exploiting its potentials to the fullest. Keywords: Software, IT Enabled Services, Intellectual Property Right, IT Policy.

Software has become a growing industry in Bangladesh over the last two decades. This paper highlights this unexploited industry based on available published information mainly collected Bangladesh Association of Software and Information Services (BASIS).

Evolution of the Industry in a Nutshell
Software industry in Bangladesh has come a long way over the last few decades. The industry has become dynamic with a significant number of energetic entrepreneurs making their mark. Major milestones of the industry are highlighted below: l In 1984, BCC (Bangladesh Computer Council) was formed under the Ministry of Science and Technology followed by the formation of BCS (Bangladesh Computer Samity) in 1987. Bangladesh Computer Samity is the voice of ICT industry of Bangladesh and currently has 498 members. l In June 1997, the Government appointed a committee to look into the problems and prospects of export of software from Bangladesh and in the following year, Bangladesh Association of Software and Information Services (BASIS) was formed. l In 1998, the Government removed all import duties and VAT from computer hardware and software. l In 2000, draft of the ICT Policy was finalized and Intellectual Property Rights (IPR) law was enacted with the Copyright (Amendment) Bill 2004, which sought to safeguard the intellectual property of local as well as foreign companies. l In 2002, BASIS in association with BCC (Bangladesh Computer Council) and the Ministry of ICT established ICT Incubator at BSRS Bhaban. l In March 2003, VOIP (Voice over Internet Protocol) issues were put into legal framework. l In May 2003, Bangladesh opened its first ICT business center in Silicon Valley with the aim of helping Bangladeshi companies gain a firm footing in the US market.
Syed Munir Khasru is an Associate Professor, Institute of Business Administration (IBA), University of Dhaka.




The industry has been experiencing double digit growth for the last decade with exports going beyond the US $10 million mark in the 2004-2005 fiscal year.

Current Scenario
Market Size Recent trends indicate that the industry has reached a take off stage and poised for high growth. Market size of the total ICT industry in the country is estimated to be approximately Tk 1,100 crore (excluding the telecom sector). Of the total ICT market, the size of software segment (mainly comprising customized and packaged software) is estimated to be around Tk. 170 crore (BASIS, 2006).

7% 60%

18% 15%

Other IETS Computer and Network Hardware


TK 170 crore (approx.)

Network and Internet Services

Figure-1: Domestic ICT Market in Bangladesh Local software companies mainly cater to the customized software development and maintenance segment of the market. They share this segment with a number of international software vendors who have significant market presence in specific client segments like banks, telecom, MNCs (Multinational Companies) and some large donor funded government projects. More than 300 registered software companies are operating in the country. The software developed in Bangladesh can be broadly divided into three categories – (1) customized software, (2) multimedia software and (3) web software. Labour Force Around 5,500 software professionals are employed in more than 300 registered software firms in the country. Total number of IT professionals in the country is estimated to be more than 25,000 a large portion of which are working in IT responsibilities at different government and non government organizations as well as hundreds of large and small private business enterprises. Diagram below shows the technical job distribution in software companies (BASIS, 2006).
System Analyst 8% System Architect 7% Programmer 42%

Testing/Quality Assurance 8%

Project Manager 7% Graphic Designer 6% Web Developer 8% Network Engineer 14%

Figure-2: Technical Job Distribution in Software Industry
32 The Cost and Management, November-December, 2006

An Overview of the Software Industry in Bangladesh

According to the graph, a significant portion of technical professionals in the surveyed firms are involved in non code activiti es (e.g. project management, system analysis, system architecture, quality assurance etc.) which are very important components of project life-cycle for any software project. This underlines the commitment of the local software firms in the process improvement initiatives. It is expected that as more and more large projects are available, the role of these important non code activities will increase further. The lifeline of a knowledge industry like software is the availability of qualified human resources in the market. The following table show s the academic background of the technical professionals employed in the software industry (BASIS, 2006) . Table-2: Academic Qualifications of Technical Professionals Graduate in non-IT subjects Masters in non-IT subjects Computer Science/Engineering Graduates Masters in Computer Science/Engineering Diploma/Certificate courses in IT Other 19% 23% 35% 9% 12% 2%

Although more than 85% of the total technical recruits in the software firms have a minimum graduation degree, a large portion of them do not have institutional IT degrees. For the software companies, unavailability of IT graduates often results in loss of productivity and costs the quality of software projects. Low numbers of computer science/engineering graduates as well as high rate of turnover and overseas migration of IT graduates have been main reasons behind this constraint. Growth Trends In recent years, with the growth of the ICT training sector and increased availability of skilled workers, software business houses are soliciting orders from outside. At present, more than fifty (50) software and IT service companies are exporting services to 30 countries in the world including USA, Canada, Europe, Middle East, Japan, Australia, South Africa and some of the South East Asian countries. Table-3: Growth of Software Export During Last 4 Years 2000-2001 Export (US$) Yearly Growth 2.24 2001-2002 2.8 25% 2002-2003 4.2 51% 2003-2004 2004-2005 7.2 71% 11.44 59%

Software and IT service export, though started from a very low base, have been growing rapidly during recent years. The export stood at 7.2 million US dollar in FY 2003/4, a growth rate of more than 70% over the previous year. In FY 04/05, the growth rate has been more than 60% and crossed US $10 million mark for the first time. Some of the larger software companies have opened up marketing offices in North America and Europe. Local companies with aim of exporting software are focusing on process/quality improvements in line with international requirements (such as CMM certificates). These initiatives are expected to yield positive results in next few years.
The Cost and Management, November-December, 2006 33


Local software companies ma inly cater to the customized software development and maintenance segment of the market. Its customers include banks, telecom operators, MNCs and government projects. In order to ensure that the consumers’ needs are satisfied, local firms use certain market research techniques and employ a specific marketing mix. Marketing Mix Product Software industry provides intangible services rather than tangible goods. Since the industry mainly tends to the customized software market, its services are organizational products. Being an organizational product, the industry’s services are judged based on performance, support services, cost of ownership, total cost of buying and owning the product. Firms in the industry achieve product differentiation through the quality of the product and the technology used. With the industry reaching the take-off stage knowledge - experience, service record and the level of customization are the unique selling propositions used by most of the firms in the industry. Despite the attempts of firms to differentiate their services, no prominent brand has developed in the industry. Price Pricing decisions are influenced by a variety of internal and external factors. Companies prefer to compete by attracting customers with their products features rather than by waging pricing war. However, software industry is an industry where price competition is intense. Firms regularly attempt to outbid each other by offering the lowest prices. The actual prices of products can vary from tens of thousands to millions of Taka. Place Software firms use a direct producer-consumer distribution channel (direct sales) and exclusive distribution. Customers buy services directly from the software firms and product is only available in one outlet in each market area. Such exclusive distribution is essential to reduce costs and to maintain maximum control during distribution process to limit risk of copyright infringement. Promotion Promotion involves wide variety of persuasive techniques used by companies to communicate with their target markets and general public. Firms in the industry use below the line promotion techniques that include exhibitions and trade fairs, personal selling and public relations. The promotional mix of firms in the software industry mainly consists of personal selling with a few of the large firms using public relations in their mix. Personal selling involves direct, person-to-person communication, either face-to-face or by phone. Bangladeshi software firms regularly take part in international computer fairs such as COMDEX and CeBIT, as well as the domestic SoftExpo.
34 The Cost and Management, November-December, 2006

An Overview of the Software Industry in Bangladesh

Porter’s Five Forces in the Software Industry
A means of providing corporations with an analysis of their competition and determining strategy, Porter’s five forces model (Porter, 1980) looks at the strength of five distinct competitive forces, which, when taken together, determine long-term profitability and competition. Diagram below illustrates the five forces in the Bangladesh software industry. Entry Easy
Low barriers to entry, Government policy encouraging the sector to grow and attracting more times.

Suppliers Weak
Individual IT experts and IT schools are the suppliers of the industry. Suppliers have little to no influence on the industry.

Rivalry Intense
About 400 firms in Bangladesh. Most of them are small with less than 50 employees. Only 4 firms have > 100 employees.

Buyers Strong
Textiles, Pharmaceutical, Financial, Telecom and Hospitality firms all have significant buying power, Government is rarely price conscious, regardless of the tendering process

Substitutes High
Many firms in the industry offer similar products and services. The cost of switching is relatively low and normally only entails the procurement of new software.

The Competitive Force of Potential Entry Barriers to entry are related to: l Learning and experience curve effects. In the software industry there are significant experience curve effects. However, new firms entering the market have hired experience programmers to negate such effects. l Brand preference and customer loyalty. Software firms work toward maintaining consumer goodwill. However, very few of the corporate clients that the Bangladeshi software industry serves have any brand preferences and continually seek the best services on offer. l Government actions and policies. Government policies to assist the development of the sector as well as the renewed desire of public enterprises for automation have led to increased demand for software attracting new firms into the market. The Competitive Force of Substitute Products A large number of firms in the industry offer similar software products and services. Large number of substitutes of a particular firm’s products or services means that firms are continuously looking to upgrade quality, reduce prices, and differentiate their products. Otherwise they risk a low growth rate in sales and profits. The Economic Power of Suppliers Software is a labor based industry and only input required by the industry is the human effort. IT schools are supplier to the industry, providing it with the only essential input. Suppliers have no bargaining power in the industry. However, the efficiency of schools in turning out IT specialists has significant influence on the success and future growth of the industry.
The Cost and Management, November-December, 2006 35


The Economic Power of Customers Bargaining power of customers in the software industry is high because: n Customers of the software industry comprise mainly of large scale manufacturers, financial institutions, and the government, all of whom have significant buying power. n Customers can find alternative sellers and switch at virtually zero cost. Software runs on standardized hardware which means that customers can use any company’s software to run on their hardware. Only cost involved in switching suppliers is the cost of the new software. n It is economically feasible for customers to purchase the input from several suppliers rather than one. Many firms in the country have used different companies’ software to automate processes in different departments. The Competitive Force of Rivalry v Rivalry in the software industry is intense. There is no clear market leader with all the characteristics of a perfectly competitive market with a large number of firms and intense competition. Even though demand for customized software is growing rapidly, competition continues to be fierce as more firms enter the market. v Products and services of competitors are so weakly differentiated that customers incur low costs in switching from one brand to another resulting in increased competition among firms.

Product Types and Target Customers
The following table shows market percentage share occupied by various products and services offered by local software compa nies. Table-4: Range of Products/Services of Local Software Industry
Products/Services Category Accounting & Financial Management Inventory Management HR Software Web Site/ Web Application Development ERP (Enterprise Resource Planning) Software Implementation& Integration Billing Asset Management POS (Point of Sales) for Retail Stores E Commerce Data Entry/Data Conversion CRM (Customer Relationship Management) E Governance Application SCM (Supply Chain Management) Data Warehousing Access Control Mobile/Wireless Application Development E Learning Data Security Gaming Software 69% 59% 58% 57% 48% 46% 43% 38% 37% 36% 34% 32% 29% 27% 23% 22% 18% 17% 14% 6%

The table shows that demand for the back office automation (accounting/finance, HR, inventory and billing) by organizational IT users is working as the main driving force for software industry. At the same time, a lot of companies have been involved in the development of high value customized applications. This demonstrates the maturing process of the software companies, as well as higher level of customer awareness of the potential value that can be generated through
36 The Cost and Management, November-December, 2006

An Overview of the Software Industry in Bangladesh

system automation in business organizations. The considerable demand for front end business applications (web applications, e-governance application, e-commerce, POS) demonstrates high level of co relation between increasing network access and use of software applications. The following graph (Fig. 3) shows the business focus of the software companies by client industry segments. The biggest buyers of software services are the two dominant sectors in the economy garments/textile and pharmaceutical. Service sector enterprises are also becoming more interested in process automation. The financial service sector constitutes a significant market for the software companies. Almost all of the banks have implemented or are in the process of implementing online banking systems. A number of software companies are also developing specialized software billing and SMS based applications for the booming telecom sector. Fig.3 Client Industry Focus of Software Industry (percentage of companies having clients in particular sector/industry)
Other Defense Services and Police Education Hotel and Hospitality Telecommunications Chemical Industry Healthcare Financial Sector Government Pharmaceutical Textiles and Garments









\A large number of software companies (57% of surveyed companies) are working on public sector IT projects. Since government is the potential biggest client for software industry, this represents a positive sign for the long term domestic industry. Furthermore, the National IT policy has set up a specific guideline for a minimum allocation of 2% of ADP (Annual Development Program) in IT which is more than Tk. 350 crore. Increased Government procurements has happened recently including a number of e-governance projects for different ministries with an approved allocation of more than Tk. 60 crore. The SICT (Support to ICT Task Force) has so far floated 17 e-governance projects.

Role of the Government
The Government of Bangladesh (GOB) has given immense importance to ICT for economic growth and poverty reduction. The GOB has taken several projects and programs. l GOB has adopted a comprehensive IT Policy. Legal policy has been adopted such as IPR and an IT Act has been enacted. A National ICT Task Force is operational. There are several committees working to foster projects and programs such as the Executive Committee of National ICT Task Force, National Committee of Bio-Technology, and National Council for Science and Technology.
The Cost and Management, November-December, 2006 37



l l


GOB is working in collaboration with the ICT industry and educational institutions to build technical ICT skills of young people in the country. Bangladesh Computer Council has taken a project titled “Assistance to Secondary Schools for Introducing Computer Course” under which computer and accessories are given to secondary schools. Taka eighteen crore has been allocated to seven universities to develop human resources by offering post graduate diploma in IT. More universities are being brought under this program. A Bangladesh-Korea Institute of Information and Communication Technology (BKIICT) has been set up at the Bangladesh Computer Council with technical assistance from Korea International Cooperation Agency (KOICA). To disseminate ICT services, including ICT education and training, in disperse locations outside Dhaka, GOB has taken up a project ‘Conducting Standard Computer Training Courses in the Divisional Headquarters’. Ministry of Science and Information & Communication Technology, in cooperation with the private sector, has taken up a program to produce skilled manpower in ICT to ensure success of the software and IT Enabled Services (ITES) industries by introducing ICT Internship Award Program in country.

The Government l Copyright laws should be rigorously enforced to protect rights of local and foreign software companies. Big companies such as IBM, Microsoft and Oracle should be invited to open development centers. l Investments mostly have been made by private investors. GOB should take steps to encourage financial institutions to fund software projects. l Expatriate Bangladeshi experts should be encouraged to set up software development companies. l Export Promotion Bureau (EPB) and Bangladesh Missions abroad should take vigorous steps to explore markets for export of software, data entry services, and ICT-enabled services including promotion of strategic partnership and outsourcing opportunities. Organizations l Associations of software companies and developers should be encouraged to exchange ideas, experience and to organize collective operations such as seminars, training, etc. and take part in trade delegations and trade shows for acquaintance with the international market, trends and establishment of business contacts. l BASIS should organize workshops on a regular basis on software development and project management issues based on the experience at home and abroad. l Organizations like BCC, BANSDOC, BERNET, BCSIR, BAEC, BTTB, BSTI need to create more opportunities for software development projects. These research organizations require coordination among themselves to assess ICT automation needs for the future. Education and Training l The quality of software engineers produced by the tertiary education system should meet same standards as that of the global market to meet future challenges.
38 The Cost and Management, November-December, 2006

An Overview of the Software Industry in Bangladesh



Universities should bring industry experienc e into the core academic programs to equip students with the industry exposures. School curricula development should be in sync with industry requirements. Shortcomings in the education system should be dealt with by teaching better English and including more material that encourages independent thinking and risk-taking.

Future Potential
Problems that may limit fully exploiting the potential of the industry needs to be addressed which among other include the following. 1 . Lack of a clear vision: Goals of country’s software industry have never been clear. The industry must decide how it wants to position itself in the world market - whether it wants to focus on outsourcing or building software products for people all over the world or providing customized software for industry and commerce. 2 . Lack of understanding of the software business: While there are some visionary entrepreneurs driving the software industry, a good number of people have jumped into the industry, believing that hiring some programmers and setting up an office with some computers will make them profitable. To be successful in the industry, firms need to be innovative and to anticipate future trends – all of which requires a well-thought-out business plan. 3 . Quality of education: The quality of education in the country effects the software industry in two ways – English and independent thinking. The poor quality of English taught in the schools effects the software professional in two ways: their ability to communicate and their confidence when dealing with foreign counterparts. Furthermore, software is an intellectual endeavor, and being able to “think outside the box” is a vital necessity. 4 . Lack of infrastructure: The telecommunication infrastructure in the country continues to be poor limiting the use of the internet as an effective tool for software development.

The existence of a strong and vibrant Software & ITES Industry is necessary for attaining growth as this is the one very important forces which can drive other sectors in achieving their objectives through efficiency, accountability, and transparency. In addition to generating significant number of employment for educated youths, this sector can add important value to the country by making other sectors viable, productive, and efficient. Currently, more than 350 registered software companies in the country are employing more than 6,000 high skilled professionals. It should be noted that the ‘local value addition’ for software export earning is 100% whereas other big export have only 10% to 15% value addition. Bangladesh’s strength lies with its people – its workforce. The only input required by the software industry is that of manpower. These factors clearly point out that the software industry has the opportunity to grow into the leading industry of the country. Despite the recent efforts of the government and the private entrepreneurs, more needs to be done at the national and organizational level to enable the industry to utilize its potential. r Reference
BASIS (Bangladesh Association of Software and Information Services) (2006), BASIS Software Product Catalog 2006, (Dhaka: BASIS). Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press).

The Cost and Management, November-December, 2006


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