Tech Takeoff in 'Serendipity'

“I think they are going to attend
some big technology conference,” whispered an air-hostess to
hercolleague while the last delegate of the SP Summit, 2011 was
getting out of the airbus at the Colombo airport. Not surprising
considering the enthusiasm and excitement generated by the soloution
providers during the 3-day conference in Colombo. The choice of
Colombo as a venue was interesting and well thought out.Sri Lanka,
often projected as a country of war by the media across the world, is
now emerging as a growing IT market. The nation which is alike South
India in culture, heritage, practices and even currency, has business
methodologies, too, like Indians.

After all, the two countries share a
long history and which has been mostly witnessing bonhomie, barring
one or two isolated instances. It started way back in the 4th century
BC when Prince Dantha and Princess Hemamala set sail from Kalinga in
India with the sacred relic of Lord Buddha's tooth. They set sail
from Tamralipti, a port at the mouth of the river Ganges, and landed
in Sri Lanka at the port of Lankapattana (now Ilankeiturei). It is
said that Sri Lanka was chosen as the new home for the tooth relic
because the Lord Buddha had declared that his religion would be safe
in Sri Lanka for 2,500 years. The Tooth Relic still rests in the
Kandy temple in Sri Lanka, an age-old symbol of Indo-Sri Lankan
friendship down the centuries. From Buddhism in ancient times to
cricket in modern times, the two nations have shared passions through
the ages. That the likes of Murali and Sangakkara and Ranatunga are
equally popular in India is ample testimony of this bonhomie.

In recent months there have been
attempts to extend this relationship to IT too, especially amongst
solution providers from both countries, and the DQ Channels SP Summit
in Colmbo hopefully was a significant catalyst to the bilateral IT
relationships.

THE GOVERNMENT LENDS A SUPPORTING
HAND

“India has become one of the leaders
in IT industry and channel partners are able to become one of the
pillars of the success story through which economic progress of India
has taken a significant step and solution providers in India are
going global,” said Prof Tissa Vitharna, Senior Minister of
Scientific Affairs, Government of Sri Lanka, while inaugurating the SP
Summit, 2011, Vitharna also asked the Indian IT industry to help
Sri Lanka become a significant player in the IT industry.

“To promote the IT trade in the
country in a big way, we are trying to setup 5 hubs which will enable
us an economic take-off and these are besides marine, aeronautical,
commercial, and knowledge hubs.”, said Vitharna. “Two key aspects
which have been approved by the cabinet as national strategy are
developing advanced technologies which includes bio-technology,
nanotechnology, electronics, ICT and mechatronics, and through that
process we believe that we will be able to increase the value of our
materials which will again act as a driver for industrialization,”
he added. Vitharna further added that the ICT sector will be expanded
and a lot of incentives are available for the private sector and our
government has announced triple tax relaxation for entrepreneurs who
invest on research.

NODAL AGENCIES-MARCHING FORWARD

Like IT agencies in India, the island
nation, too, has few organizations which are working for growth of
the country. One among them is the Federation of Information
Technology Industry and Services, Sri Lanka (FITIS). Udaya de Silva,
secretary, FITIS said that India and Sri Lanka are 2 nations which
are much similar in terms like people, culture and tradition etc. He
also said that

because of the tension prevailed in the
country for the last few years, economic development were in a slow
phase or somehow it got stuck.

“Now we are slowly recovering from it
as civil war has come to end. We are on a developing path in the
forthcoming days,” de Silva further added. The agency is involved
in hardware, software, computer education and training, internet
services and communications across the island nation. FITIS provides
a negotiating body and represents the IT industry on all matters
concerning IT and is in discussion with the Sri Lankan government.

FITIS also encourages members to
provide worldclass products, services and solutions in Sri Lanka and
overseas apart from acting as the advisory consultative body for the
industry and formulating model legislation and other such measures
for the advancement of the IT industry in the country. Apart from
FITIS, there are other bodies like Association of Computer Training
organizations (ACTOS), where members are companies whose business is
providing education and training in IT; Sri Lanka Computer Vendors
Association (SLCVA), with 58 members represents computer hardware
vendors. It also organizes awareness programs for the general public;
Sri Lanka Association for the Software Industry, (SLASI) which
comprises 61 software development organizations and is the national
organization representing software industry in Sri Lanka.

THE EMERGING SINHALA LION

According to a report by a private
research website, the addressable IT market in Sri Lanka is forecast
at $393mn in 2011, just 2% of the size of India's IT market, but is
expected to grow to $742mn over a 5-year forecast period. The
computer market has comfortably grown at a double- igit compound
annual growth rate (CAGR) for several years, yet the penetration rate
remains below 1%. Computerization has only just started in the
service and the government is implementing an eSriLanka strategy.”

Another research report predicts that
Sri Lankan IT spending should continue to benefit from local and
regional economic recovery. The restoration of peace and improvement
in security of the country have immensely helped to release
enterprise demand for IT solutions as companies look forward to boost
efficiency. Over the course of this fiscal, the PC segment will
benefit from a further reduction in prices following the decision by
the Sri Lankan government in June 2010, to reduce import duties on
electronic goods.

A projected report further suggests
that Sri Lanka is one of the fastest growing markets in the Asia-
acific region, even though from a low base. Industry developments in
the Q1 of this fiscal, the government has launched a web portal and
services platform, a key step in the implementation of its eSriLanka
agenda, as the new portal has been designed to reduce costs and
provide traditionally under served people with an easy access to ICT
tools. At the same time, as a support from the government, import
duties on electronic goods were reduced by 3.5% in 2010. This is
expected to result in a further reduction of local market PC prices.
The decision will lead to a reduction in tax collection on imported
CPUs, leading to low prices for locally assembled computers.

According to Vitharna, in 2010, the
government planned to roll out 1,500 computer labs for school
students, in addition to the 3,500 that have already been constructed
in rural and urban areas. In 2011, it should continue to roll out new
education-related IT initiatives. Also, not only in Colombo, the
government is keen to promote IT growth of tier-1 and tier-2 towns
even though, 50% of the country's GDP comes from western region of
the country like Colombo and the areas surrounding it.

BIG BRANDS: ADD VALUE

The IT services in the country
comprises largely hardware and software implementation, maintenance
and support, but they provide a basis for development of the market
for more advanced services. Also, the competitive landscape is now
turning to IT services as theemerging market is dominated by local IT
distributors. The local distributors have built IT service offerings
around portfolios of big brands such as HP, SAP and IBM. In 2010,
Microsoft started promoting its cloud computing solutions in Sri
Lanka, which it believes, could transform software delivery model for
Sri Lankan enterprises. Hidramani Group, one of Sri Lanka's largest
apparel manufacturing companies, is running a cloud computing pilot
project on the Windows Live. The domestic market for computer
production is also in the developing phase. It is expected that
greater economic stability in Sri Lanka will further enable an
expansion of domestic computer production. In May 2010, Sri Lankan
manufacturer, Singer launched its Singer X series of affordable
notebooks and netbooks targeting rural users. A number of other Sri
Lankan PC brands, including Panora, Maya and Kobian, have established
a niche in the local market.

THE FUTURE IS BRIGHT

The provision of IT services is still
typically built around hardware sales, with the growing base of
installed hardware and software systems make the foundation for an
expansion of services provision. The consulting element should become
more significant over the forecast period. The economic situation and
credit tightening are likely to have an impact on projects in some
key sectors.

There is a considerable growth
potential as the level of computerization is low, with PC penetration
estimated at less than 5%. One needs to check the impact of IT
industry in Sri Lanka, the number of computer retail shops at the
Colombo airport is a living witness. Besides, one can find all
varieties of IT brands in all the parts of the country.

The sky-high hoardings of the vendors
prove that they have started finding huge opportunities in the
country. PC sales in the computer hardware market is forecast at $270
mn in 2011 and is projected to reach $489 mn in 2015. As basic
infrastructure improves in areas outside Colombo, there is huge
potential for strong growth in the North and East regions of the
country. Sri Lanka's IT market will stay dominated by hardware,
with spending on hardware accounting for an estimated 71% of Sri
Lanka's IT spending in 2010. The average price of a PC has already
dropped over the past few years to less than $300, bringing computers
within the reach of lower income consumers. However, the spending on
software remains rather low, with forecast at around $48 mn in 2011.
The estimated 11% share of the total IT spending, accounted by
software, reflects the relative immaturity of Sri Lankan IT market.
However, the domestic software market is expected to grow at a CAGR
of about 20% through 2015.

One significant market restraint is the
high level of software piracy, with 9 out of 10 packages in use are
believed to be unlicensed. The core business software demand is for
applications such as enterprise resource planning (ERP), as well as
basics such as email. Local channels have estimated that there are
about 400 ERP installations in the country. Figures also rate that
the IT services in the country is expected to reach $75mn in 2011,
accounting for about 17% of Sri Lanka's total spending on the IT
sector. The market is dominated by demand from the government,
finance, and telecoms sectors.

END OF THE WAR-ADVANTAGE POLICIES

The Sri Lankan government claims that
they are now finally over with the war (the fracas with separatist
Tamil groups that led to more than two decades of civil war). Sri
Lanka suffers from a very low level of Internet penetration, which
reflects the state of its telecom infrastructure as a result of many
years of civil war. The situation has been perceived by the
government as a major barrier to future social and economic
development. Progress is expected over our forecast period, with
internet penetration reaching 19%, and broadband penetration 23%, by
2015. In recent years, the government has announced broadband
infrastructure roll out plans and has also encouraged the deployment
of technologies such as WiMax and Wi-Fi, but adoption remains
limited. The sacred Tooth relic of Buddha has existed over the
centuries from Anuradhapuram to Poranuwa to Kandy (as the capitals
have changed). India and Sri Lanka play a large number of cricket
matches every year (including the recent World Cup). Are we
witnessing the beginning of a new chapter in Indo- Sri Lankan IT
relationship? Will it be the solution providers who will lead the
heralding of this new era? The DQ Channels SP Summit at Colombo might
just become an important footnote in the IT history of the two
countries.