Outsourcing to Sri Lanka: Benefits, challenges, industries

Like many countries in South Asia, Sri Lanka is a rising star in the global outsourcing industry. 

Sri Lanka was ranked in the top 10 emerging BPO destinations by Global Services Magazine. It was also named destination of the year by the Global Sourcing Association in 2019.

The country’s favorable business environment, skilled workforce, and affordability are just some of the perks of outsourcing to this country. 

However, there are some drawbacks of outsourcing to Sri Lanka that you should be aware of.

In this article, we’ll discover the benefits of outsourcing to Sri Lanka and its main outsourcing industries. We’ll also cover two concerns related to outsourcing to Sri Lanka and highlight seven of the best outsourcing service providers in the country. 

Let’s get started. 

Table of Contents

3 notable benefits of outsourcing to Sri Lanka

The global business community has long favored Asian countries like India and China as the outsourcing destinations of choice. However, other South-East Asian countries like Sri Lanka are also progressing in the global outsourcing sphere. 

The most important outsourcing cities in Sri Lanka include Colombo, Galle, and Kandy. 

Sri Lanka offers high-quality, affordable services, a good business environment, and an educated workforce, making it a promising outsourcing destination. 

Here are three of the most significant reasons to consider outsourcing to Sri Lanka.

1. Affordability

Here’s how you can save by outsourcing to Sri Lanka.

A) Lower compensation costs due to cost of living

Although Sri Lanka has a skilled workforce, salary expectations are lower than in developed countries like the United States. This is because Sri Lanka has a much lower cost of living than the United States, Canada, Australia, and most European countries. 

Consumer prices in Sri Lanka are 70% less than in the United States, and grocery prices in Srare 63% cheaper than the United States. This means that Sri Lankan employees can live comfortably on a much lower salary than the United States. 

For example, the average monthly salary of a Sri Lankan employee is USD 285, compared to the average monthly salary of an American employee, which is USD 7900. 

Additionally, Sri Lanka has been working on expanding its outsourcing sector to rural areas. Since the cost of living is less in these areas, the rural BPO sector is able to provide even lower service costs. 

B) Infrastructure costs

According to a competitive benchmarking report by AT Kearney, telecommunications and infrastructure costs are significantly lower in Sri Lanka than in developed countries and other leading outsourcing destinations. 

For example, the average cost of Class A real estate in Sri Lanka is USD 227 per square meter, while it’s USD 918 per square meter in India. 

Sri Lanka also has a competitive telecoms industry with multiple providers. Standard rates for calls are much lower than in developed countries. It usually costs just a few cents per minute for calls to Europe, the United States, and India. 

Moreover, Sri Lanka’s electricity supply is usually more reliable and affordable than other emerging economies. 

The cost of electricity in Sri Lanka is USD 0.052 per kWh (kilowatt), compared to USD 0.159 per kWh in the United States. 

Moreover, office space costs in Sri Lanka are significantly lower than in other popular outsourcing destinations, including the Philippines, Malaysia, and other South Asian countries. Given the affordability of rental space, many BPO companies have their offices in prime locations, including the World Trade Center in Colombo. 

C) Tax and regulatory costs

Sri Lanka’s income tax rate is just 24%, down from 35% before 2011. The average global tax rate is 29%. In developed countries, the tax rate can be much higher. For example, the income tax rate in Finland is 57%.

Moreover, Sri Lankan government initiatives aim to streamline the tax system, eliminate minor taxes and levies and minimize corporate income tax and value-added tax rates. 

It also offers incentives for IT (Information Technology) and BPO (Business Process Outsourcing) companies, including reduced tax rates. 

New projects with investments over USD 250,000 are eligible for a four-year tax break, while investments exceeding USD 2 million are eligible for additional tax-free years.

2. Educated workforce

Sri Lankans enjoy free schooling up to the secondary level. The country has a 92% literacy rate – well above the global average of 86%. 

For a relatively small country, Sri Lanka has an impressive 23 universities. It also has numerous private higher educational institutions with degree programs. So it’s no surprise that around 100,000 students graduate annually. Most graduates are from the professional services industry, including computer sciences, law, medicine, architecture, engineering, and finance. 

English is the primary language used within Sri Lanka’s business community. However, you can also find employees that speak French, German, Italian, Spanish, Korean, Chinese, and Japanese. 

3. Favorable business environment

Sri Lanka also provides a relatively favorable business environment. Here are some of the advantages of doing business in this country.

A) Data security

Sri Lanka’s intellectual property (IP) protection regulations are among the most stringent in the region. The country has established national intellectual property rights offices that aim to address awareness, policy issues, and enforcement. 

Moreover, in March 2022, Sri Lanka enacted the Personal Data Protection Act, No. 9 of 2022 (the “Act” or “PDPA”). It became the first South Asian country to enact comprehensive data protection legislation. The act was modeled after the European Union’s General Data Protection Regulations (GDPR) and applies specifically to how businesses handle data. 

B) Good ICT infrastructure 

Sri Lanka’s telecommunications system is on par with other leading countries in the region. 

It was also the first South Asian country to successfully trial a 5G standalone network.

AT Kearney’s Global Services Location Index recently ranked Sri Lanka 54 on its list of countries for its digital output, skills, legal adaptability, and corporate activity. 

Sri Lanka’s infrastructure and IP security position it in Asia’s top 10 in the Network Readiness Index (NRI). With five sub-sea cables, good transport infrastructure, and as the first country to attempt island-wide internet through Google Loon, Sri Lanka is emerging as a rising star in the BPO sector. 

There are nine telecom operators (four fixed-line and five mobile) operating in the country. Sri Lanka also has 33 external gateway operators, 22 Internet service providers, and four international submarine cables servicing the country.

So now that we know the benefits of outsourcing to Sri Lanka, let’s look at some of the industries for outsourcing. 

2 industries commonly outsourced to Sri Lanka

The two industries often outsourced to Sri Lankan providers are software and financial services. Let’s take a closer look at each of them:

1. Software services sector

Sri Lanka’s skilled labor force and low costs make it a popular outsourcing destination for software services. 

The country has a high IT literacy rate of more than 40%.

Sri Lanka’s software services sector is mainly focused on telecommunication, financial services, insurance, and software testing. 

The government has identified the sector as vital to attracting foreign investment and established policies for growth in the sector. The Sri Lanka Association for Software and Services Companies (SLASSCOM) is a national chamber focused on developing Sri Lanka’s IT and BPO sector. 

The country has more than 300 IT and BPM companies in operation, including SMEs, large global IT firms, and multinationals like Microsoft, HSBC, etc. 

The majority of qualified professionals in the sector are based in Colombo. More than 80,000 employees in Colombo are employed in the IT and BPM industry, increasing by 20% each year. Additionally, employee turnover rates in Sri Lanka are relatively low, ranging between 10% and 15%. 

According to AT Kearney, Sri Lanka’s labor costs are the lowest compared to other outsourcing destinations – 30% lower per employee in some cases. 

For example, in Sri Lanka, the average monthly salary for a software engineer is USD 278. In contrast to this, a software engineer’s salary would be USD 7,650 in the United States and USD 6,710 in the United Kingdom.

Discover all about software development outsourcing in this informative guide. 

2. Financial and accounting services

The main reasons for the popularity of outsourcing these business services are: 

• Cost-effectiveness
• Skills and expertise. 
• Connectivity and information security.

Sri Lanka offers significantly low costs compared to other leading outsourcing destinations. For BPO (Business Process Outsourcing), you can expect to pay around 20% less. 

Salaries and salary inflation is also low. 

The average monthly salary of a certified chartered accountant in Sri Lanka is USD 288. In the United States, you can expect to pay USD 5,480 per month for the same position. 

Moreover, Sri Lanka has a remarkably high number of graduates in accounting and finance fields. But it’s important to check that the service provider you choose is certified in leading global software packages such as Xero, QuickBooks, MYOB, and SAGE. 

Want to know more about this BPO industry?

Check out our complete guide to financial services outsourcing. 

Whether you’re considering offshore outsourcing or nearshoring, it’s important to understand the risks before deciding on an outsourcing destination. So next, let’s look at two notable hurdles you may encounter when outsourcing to Sri Lanka. 

Challenges of outsourcing to Sri Lanka

Despite the benefits of outsourcing to Sri Lanka, there are a few drawbacks.

If you’re looking to outsource admin functions to focus on core business and increase your competitiveness, you’re sure to find affordable basic services in Sri Lanka.

However, if you’re looking to outsource more specialized functions to experienced professionals, you may find it difficult.

Although the population is skilled, there are only about 22 million people in Sri Lanka. Between 1990 and 2021, only around 50% of the population made up the labor force. 

The limited size of the talent pool may make it difficult to fill very specialized positions where specific expertise is required. 

Moreover, as of April 2022, the ongoing economic uncertainty has disrupted short-term projections for businesses looking to outsource to Sri Lanka.

Now let’s look at the leading outsourcing companies in Sri Lanka.

7 leading Sri Lankan outsourcing providers

Here are some of the best companies offering outsourcing solutions in Sri Lanka.

1. E Futures World

E Futures World is a Sri Lankan company based in Colombo that offers software development and IT consulting services. They have 20 years of experience in the outsourcing industry with a diverse client portfolio. 

Services offered

• Web design and development.
• Enterprise software development.
• Amazon web services.
• Mobile app development.

2. Acril SEO

Acril SEO is based in Kohuwala and provides outsourced marketing and back-office services to companies in Sri Lanka, Europe, Australia, and The USA. Considered a thought leader in the industry, they have an experienced group of web designers, developers, analysts, and creative professionals on their team. 

Services offered

• Call center services.
• Finance and accounting services.
• Data entry services (image tagging, form filling.)
• Social media marketing (LinkedIn, Facebook, etc.) and digital marketing.

3. Outsource Sri Lanka

Outsource Sri Lanka is a BPO company in Colombo with over 12 years of BPO experience. They have expertise in the Sri Lankan and global markets.

Services offered

• Admin and accounts outsourcing. 
• Call center services. 
• E-commerce and sales services. 
• Software support, etc. 

4. Actuals Lanka

Actuals Lanka is a company based in Maharagama, Sri Lanka, offering BPO, accounting, and data analysis services. Their call center operates 24/7, so they can provide around-the-clock service. 

Services offered

• Data analysis. 
• Marketing research. 
• Back office services. 
• Accounting outsourcing. 

5. Hayley’s BPO

Hayley’s BPO is a Sri Lankan outsourcing services provider based in Colombo with a large and experienced team of professionals. The company is a subsidiary of Hayley’s PLC, one of the largest conglomerates in Sri Lanka. 

Services offered

• Finance and accounting. 
• Payroll services.
• Procurement outsourcing.
• IT system and web development.

6. Source One

Source One is a company in Pannipitiya, Sri Lanka, offering numerous BPO services. Established in 2014, Source One provides outsourcing services to both large and small corporate entities in Sri Lanka and globally. 

Services offered

• HR (Human Resources) outsourcing.
• IT services. 
• Billing and payroll services. 
• Recruitment outsourcing. 

7. Konnect BPO Technologies

Konnect BPO Technologies (Pvt) Ltd. is an outsourcing provider based in Mount Lavinia, Sri Lanka. They offer a range of services, from outsourced telemarketing to payroll processing. 

Established in 2016, the company has worked with large and small global clients, including Coca-Cola, Betway, etc. 

Services offered

• Inbound and outbound call center services. 
• Customer support and BPM (Business Process Management)
• HR outsourcing.
• Quality assurance and monitoring services. 

Final thoughts

With its cost-effective outsourcing services, impressive business environment, and well-educated population, Sri Lanka has all the makings of a world-class outsourcing destination. 

However, you’ll also need to be aware of possible roadblocks you may encounter, including infrastructure concerns. Moreover, Sri Lanka’s relatively small population means the talent pool is slightly limited. 

If you want to understand Sri Lanka’s outsourcing market better, the information in this post can help. But before you choose to outsource to this country, you’ll need to do more research. Also, remember to check the latest news for developments in this emerging BPO destination.