Bangladesh sits in the perfect position to utilize the offshoring sector and reap its benefits
People in upper income levels avoid work typically considered to be low-skilled or labourious. But such work has to be done by others. Corporate entities minimize costs by getting these jobs done by outsourcing them. Higher income countries execute these jobs via offshore locations. These arrangements are commonly referred to as business process outsourcing, or in cross border cases, it is termed as offshoring services.
Operational works are done by these offshoring arrangements. This is basically back office work. Just as an example, transactions that are recorded after the execution of services is done by accounting people. These are labourious works such as data processing, reconciliation, etc, that require high cost in upper income countries. There are other services like offshore customer care services, overseas marketing services, banking back office operations, etc. Information technology supports such service offshoring.
Nowadays, technology is widespread and used by most people and Bangladesh has become a country of tech savvy people. Bangladeshis are smart enough to render services warranted by non-residents. Despite this, offshoring services in Bangladesh are not up to the expected mark. The offshore works are executed at a minimum level by corporate entities, and while individual freelancing has been reported to be increasing, the average earnings are not so significant.
Bangladesh has a large working age population and is still enjoying a demographic dividend. But the younger population needs to be utilized properly. Work is a dire need. There are many sectors to accommodate young manpower such as the export sector, manufacturing sector, consumer product sales services, etc. But young people are not interested in these sectors. They are eager for desk jobs in the public sector and banking sector in particular.
Work for offshoring staff or service providers can employ a large pool of manpower. There needs to be an initiative for institutional development because providing offshoring services is as good as export services.
Under GATS, services are delivered through four modes — mode 1: Cross border service delivery; mode 2: Consumption abroad; mode 3: Commercial presence; mode 4: Physical presence.
Garments
Mode 1 includes offshoring services by non-residents. As we know that Bangladesh achieved a lot in readymade garment industries. This sector depends on external inputs. Procurement of different items is used to produce outputs which are moved abroad as exports. This is basically nothing but an offshoring production facilities of foreign buyers. Local industries are providing services to manufacture readymade garments as independent contractors. In the same way, Bangladesh can be an offshore location for corporate entities operating abroad.
Back office services
As a part of the work, service providers need to provide back office services. A chartered accounting firm can, as an example, provide to a corporation outside Bangladesh data processing services such as information arrangements into a system, reconciliation, etc. Back office services can be provided to global banks in the same ways. The work is basically systematic, which requires simple technological knowledge to process raw information into finished ones and upload the same in the designed system.
Call centre or customer support
Call centre service is another window. This is basically a customer care centre for non-resident corporate entities. The centre works round the clock based on a list of “frequently asked questions.” As it works round the clock, three sets of staff are required to run the operations. The work needs foreign language skills, English in particular. It has another challenge to encounter supplementary questions asked by callers. However, this is possible to be orchestrated; the necessary support is in need.
Foreign exchange transactions
As a part of development, manufacturing activities take the seats of agriculture. Service sectors become the replacement of manufacturing ones. The developed world is now dependent on service sectors, phasing out manufacturing activities. Considering the cost of services for regular employment, monotonous work is being shifted to low, lower-middle, and middle income countries. This is an opportunity for alternative employment which can generate income in foreign currency.
Since offshoring services are required by non-resident corporate entities, it relates to foreign exchange transactions. The country’s foreign exchange rule book shows that firms/companies/individuals may provide services outsourced by non-residents through the internet like data processing, data entry, etc, rendered from Bangladesh in non-physical form, against which payments in foreign currencies are received through banks.
The payment against these services is normally due on delivery of the services and it may not necessarily require documents for collection of export proceeds. In this context, the rule book allows banks to credit the receipts in foreign exchange to the account of the relevant service exporters in equivalent local currency. Admissible portions of the remittances can also be retained in retention quota accounts in foreign currencies.
Declarations and legitimizing income
One of the documentary formalities contained in the regulations is that service providers need to declare on a form in case of inward remittances exceeding $20,000 or its equivalent.
Declaration by service providers can be made through electronic means as per the regulations. According to business insiders, many banks maintain mobile apps to facilitate the declaration to be made by service providers. It is also observed that incentives are available against exports of software and IT enabled services. It is also found from foreign exchange regulations that inward remittances can be received by banks through non-banking service channels like online payment gateways, digital wallets, and other legitimate payments service providers. Moreover, banks can provide acquiring services to service providers to capture payments made by non-residents through international cards.
The present regulatory framework pertaining to inward remittances seems to be corporate-friendly. Despite this, income from external sources against cross border services is also not up to the expected level. As per the balance of payments statement of the financial year 2022-2023, it is recorded that Bangladesh earned $0.66 billion from telecommunications, computer, and information services; and $1.20bn from other business services. This figure seems to be very insignificant compared to the billions made in income by our peer countries.
Supporting the sector
The government has adopted the “Smart Bangladesh Vision 2041.” Smart Bangladesh is built on the four pillars of “Smart Citizens,” “Smart Government,” “Smart Economy,” and “Smart Society.”
It focuses on bridging the digital divide by innovating and scaling sustainable digital solutions that benefit citizens, regardless of their socio-economic background, and all businesses, regardless of their size. This is an indication that Bangladesh is on the right track. The vision can materialize to make Bangladesh a destination of service offshoring by global corporate entities. But the development is not seen to be visible in terms of income from the cross border service deliveries.
There may be problems similar to those faced by infant industries. The problems may be of different types from entrepreneurship development to financing. A tech savvy young population can be a window for entrepreneurship. But they require appropriate policy support to unlock the potential of making Bangladesh a destination offshore location. The support may include recognition as a priority sector, easy access to finance as startup feeding, low cost loan facilities, etc.
Bangladesh has the potential to become an offshore location for providing services beyond borders. The sector is new, but can facilitate the economy to earn income in foreign currencies. Priority may be given to the sector with appropriate recognition as deemed fit. It is expected that providing offshoring services by non-resident corporate entities will be the second best alternative to earn foreign currencies. Keeping this view in mind, our efforts should be directed to ensure the development of this sector.
Mehdi Rahman works in the development sector.
Source: Dhaka Tribune.