Bangladesh has emerged as a vibrant hub of the ICT industry —a2i.gov.bd Photo
India's success in IT export, reaching $199 billion in 2024, has been a decisive inspiration factor for Bangladesh and many other less developed countries. In 2023, India's IT industry experienced over 11 per cent growth-expanding exports by almost $20 billion in a single year. With the success of India, Bangladesh's dream of reaching $5 billion in exports and creating jobs for 1 million youths within the next few years appears to be a highly achievable target. Despite such an apparent possibility, there seems to be a high risk of meeting this target. One of the reasons is the repeated failure to meet targets over the last 25 years. Hence, it's time to reflect on the high gap between reality and apparent possibility.
COMMONLY CITED LIMITATIONS: At the dawn of the 21st century, commonly cited limitations included (i) lack of submarine cable connectivity, (ii) high power failure rate, (iii) scanty supply of computer science graduates, (v) high cost of Bandwidth, (vi) low internet penetration, and (vii) minimal IT expenditure of the government. Fortunately, despite these there has been significant progress in all these areas. For example, in addition to two submarine cables landing at the shore of Bangladesh, the country is connected to more than a dozen of submarine cables in India through terrestrial cables. The fibre optics network has been expanded to connect most areas of the country. On the other hand, number of graduates in computer science and engineering has crossed from less than a thousand in 2005 to over twenty-five thousand per year. To augment it further, the government provided training by recruiting foreign firms for many youths. Besides, government expenditure on IT has jumped from tens of millions to over a billion over the last 25 years. Similar progress has taken place in all other commonly cited areas. Despite this, why has Bangladesh not met the target that was set to reach twenty years ago?
There appears to be no strong correlation between the progress in addressing commonly cited limitations and the ground reality. Does it mean there has been a deficiency in understanding what it takes to develop software business and IT service export revenue? Hence, let's look into relevant issues further.
BARRIERS TO REPLICATING INDIA'S LINEAR MODEL: In the late 1980s, a window of remote IT service opened up due to the rapid progression of telecommunication, primarily due to VSAT connectivity and the sudden need to fix Y2K bugs. India was a forerunner in tapping this opportunity compared to other less developed countries. India changed several policies to allow private companies to install VSAT terminals to establish seamless connectivity with their overseas clients overnight. Besides, Motorola's software development operation in Bangalore demonstrated the possibilities. Hence, a wave of IT service delivery to American and foreign clients started taking off. Among others, struggling Infosys found a scalable growth path. The business model was plain and simple. Instead of sending graduates to client sites, connecting them remotely with VSAT terminals became a new business model. Unlike developing software, Infosys, Tata Consulting, and many others focused on training graduates and leasing them to foreign clients over the network, giving birth to the linear model.
Despite the simplicity, service providers started developing economies of scale effects. The underlying cause had been the scope of reusability of knowledge and experiences gained through past projects. As a result, early entrants started gaining a high productivity edge, resulting in the natural tendency of monopoly. Consequently, despite wage differential, late entrants could not make them better alternatives. On the other hand, due to colossal graduate supply capacity, Indian companies did not face the barrier of running out of supply. Hence, despite the wage differential and steady advancement of capabilities, late-entrant Bangladesh could not succeed in attracting large customers from Indian suppliers. Therefore, despite apparent potential, wage differential, and visible advancement in addressing limitations, Bangladesh's success in IT service export is insignificant. Consequently, we should not be surprised about Bangladesh's persistent failure to meet targets despite exponentially growing public expenditure in addressing limitations.
NON-SCALABILITY IN BANGLADESH'S FREELANCING SUCCESS: According to some rankings, Bangladesh attained the 2nd position in the number of freelancers. However, Bangladeshi freelancers were at the bottom in generating revenue per hour. Due to automation of the type of service Bangladeshi freelancers used to deliver, there has been a sudden drop in ranking, reaching 29 among 30. Unfortunately, without an adequate understanding of the scalability, the government invested in training to create a considerable service export success through millions of freelancers.
LEVERAGING THE DOMESTIC MARKET FOR BUILDING SOFTWARE INDUSTRY: Some experts are of the opinion that protection should be given for creating the domestic market for software products of Bangladeshi companies. It's worth noting that India's IT success has been due to the export of IT services through leasing programmers. Success did not come from the export of software products alone. Ironically, due to the focus on developing software for the domestic market, iconic Infosys faced severe growth limitations in the early 1980s.
Both software and IT hardware have a natural tendency of monopoly due to scalability from the flow of ideas. Hence, despite IT service exports through leasing programmers, India's software application market is in the hands of foreign companies. For example, on average, 25 per cent of the cost of smartphones is in software. Despite the progress in assembling, Indian companies' success in generating revenue from software running smartphones is almost zero. A similar, reality has been in banking and corporate applications. For example, Infosys revenue from its banking and other business applications is less than one per cent of its total revenue.
The challenge is to join the global innovation race to succeed in the application business. To gain tangible success in this race, in addition to technology competence, there must be expertise in understanding global software innovation dynamics and developing institutional capacity for creating a systematic flow of ideas for unleashing creative destruction waves. For sure, you need R&D financing. But does Bangladesh have the technology and innovation management expertise to leverage it? NO. Hence, protection cannot build a globally competitive domestic software industry, unlike generic drug manufacturing, due to patent waiver. Thus, unless there has been progress in technology and innovation management capacity for winning the global monopoly race of software, building the software industry through protection and giving all kinds of incentives, even for local consumption, suffers from weak merits.
Upon drawing the lesson from the past and given the nature of business and competition, what options are left for Bangladesh? Although there have been bits and pieces of success in leasing human resources or selling services, the journey does not appear scalable. To address it, Bangladeshi companies must know how to outperform their competitors in the global space. In this regard, mastering the latest technology is not good enough. The focus should be on software intellectual assets that could be traded to multiple clients. Instead of blocking global software firms from serving the local market, Bangladeshi firms should target to be their development and implementation partners. As wage differential, technology competence, protection, incentives, and infrastructure are insufficient for leveraging potential in the IT sector, Bangladesh must focus on technology and innovation management for developing and trading software assets to create the much-needed scale effect.
M. Rokonuzzaman, Ph.D is academic and researcher on technology, innovation and policy. [emailprotected]
