Wanted: Skilled Migrants
While the US pursues a closed-border agenda, other countries are trying to replicate Silicon Valley’s success by welcoming skilled migrants. Chile is inviting foreign startups to test and develop their ideas there, offering incentives like $45,000 in equity-free reimbursable expense funding. A dozen Sri Lankans are believed to have moved to the South American nation that lies between the formidable Andes and Pacific Ocean.
“Chile is known as the new startup hub with access to a growing south American market,” says Ruwindhu Peiris, outgoing chairman of SLASSCOM, the tech industry body, and a managing director at Stax, heading its Colombo office. “We have an opportunity to open up and position Sri Lanka as the Digital Gateway to South Asia.”
The global economy is transitioning from an Internet-driven digital economy to an imagination economy where talent and motivation are the new capital. Sri Lanka’s tech industry employs 65,000 people and earns $1.2 billion in export revenue. That works out to about $18,500 revenue per person a year.
“SLASSCOM is pushing for more IP and product-based startups to increase the per person yield, but we will still need to have another 150,000 – 200,000 coming into the workforce to achieve the $5 billion a year foreign income target,” Peiris says.
“This means tripling the annual output of IT grads and mentoring them in new technology areas like AI and robotics by experts from across the world for us to take part in this new wave of opportunities,” he says.
In 2016, the number of computer science undergrads that graduated was 946. Tripling the output of tech grads will take too much time. Less than 20% of those qualifying to enter university actually gain admission due to limited space and from this under 5% get selected to the technology/engineering faculties.
One solution for the talent crunch is for tech firms to take on high-value, high margin work. For instance, a software engineer at 99X Technology can be billed up to $60,000 a year, more than thrice the industry average. “For us to be in this niche segment, we need access to foreign expertise whenever required,” says Mano Sekaram, founder and Chief Executive. “We’re a BOI company so we have no problems hiring foreign talent, but it’s not true for the rest.”
Jeevan Gnanam, Chief Executive at Orion City IT Park, had to wait nearly eight months for official clearance to hire a foreign consultant to set up an AI and data analytics business. His company, which commenced work in 2017, is developing solutions for global insurance companies and others. Gnanam, SLASSCOM’s incoming Chairman for 2018/1, says revenue at his company will reach $50,000 per employee by end 2019, nearly three times the industry average, but hiring locally was a challenge, and hiring from overseas was a nightmare.
Mitra Innovation, where export revenue per employee is nearly three times the industry average, finds itself in the same predicament, having to pass over lucrative contracts because it can’t find the right talent. Not only is Sri Lanka’s talent pool limited, the number of people that are employable for high-end work are too few. Across the Palk Strait sits a larger niche of talent, which Mitra Innovation wants access to.
Efforts to relax border restrictions for skilled migrants under specific conditions like value of FDI are met with strong resistance by trade unions and other interest groups perpetuating misinformation that doors would open to cheap labour from India, Singapore or elsewhere and would snatch away opportunities from Sri Lankans.
“There shouldn’t be concerns of substandard labour flooding the market if companies have good screening processes in place,” says Dammika Ganegama, Managing Director at Mitra.
Opening doors to foreign talent is not just critical to drive innovation for tech industry survival and growth; foreign professionals living here will attract investments into consumption, real estate, education and healthcare. “The multiplier-effect on the economy is the big picture we need to look at,” Peiris says.
Sri Lanka needs skilled migrants so tech companies can nimbly adopt new technology, build capacity and quality of local talent, and grow fast. This will open up an opportunity to position the country as an innovation centre and digital gateway to Asia, even the world, says Ruwindhu Peiris, a Managing Director at Stax, heading its Colombo office and outgoing Chairman of SLASSCOM, the tech industry body.
The world is transitioning into the imagination economy where talent is fast becoming what land was to the agricultural age, capital to the industrial revolution. The digital divide which characterised the age of tech is fast closing thanks to cheap data and smartphones.
The age of imagination will be characterised by talent. There will be a talent divide, and Sri Lanka needs to decide quickly which side on the fence it wants to be,” Peiris says.
“The people who will succeed are the ones who have the ability to self-ignite, self-reinvent and be life-time learners. This is true for companies and countries. The barriers to and opportunities for success are internal, within one’s self,” Peiris says. “Those who can’t motivate themselves look for external excuses for not being able to succeed.” The days of cost arbitrage are over, so fixating on low-skilled foreign tech workers flooding the market is pointless.
However, talent arbitrage is the hot thing now and Sri Lanka needs to increase the supply so local companies can grow faster and foreign companies will invest here. “As a country we urselves, and this may be our last chance,” Peiris argues.
The industry aspires to reach $5 billion in export revenue by 2020, but Peiris argues Sri Lanka should have already exceeded it by now if the talent was available. The annual output of IT grads needs to triple to even near that target. The faster route is to welcome skilled migrants. Other countries are aggressively competing for talent. Chile is successfully replicating Silicon Valley’s model of welcoming skilled migrants, Singapore is opening its borders to India and Vietnam is positioning itself away from outsourcing and as a centre for innovation transitioning.
Sri Lanka needs to have the right conversation rather than getting stuck in a discussion that is irrelevant in the grand scheme of things. “The new imagination economy is based on the flow of information and we need to be the early movers, rather than worrying about low skilled foreign workers coming here,” he argues.
“Our pay scale is 20% lower than India, so why would they come here? If we hire substandard grads then stupid on us! But then, we should be concerned about Indian firms cherry-picking the best talent here to work in India,” Peiris says. Foreign talent helped build successful tech companies like Virtusa, Millennium IT and WSO2. “Virtusa is a $1.5 billion company listed on the NASDAQ that has acquired companies like India’s Polaris. It is what it is today because it hired foreign professionals when required and this influenced local skills,” Peiris says, having worked at Virtusa for ten years. He was its Vice President and Global Head of Operations. “We can never have the numbers, nor will we have all the expertise we require, but we need to keep pace with the rest of the world,” he argues.
Hiring skilled foreign talent is a difficult process that can take up to ten weeks for official clearance alone, he says.
SLASSCOM is positioning Sri Lanka globally as the ‘Island of Ingenuity’ and the gateway to Asia to attract global tech firms and startups, with the hope that talent and investments would follow. This will not only benefit the tech firms; collaboration will elevate local talent and foreigners living here will attract investments into consumption, housing, education and healthcare, raising standards for everybody.
“This is the bigger picture that’s sadly lost in the public debate over various trade agreements,” Peiris says. “If we’re to build an edge in the global imagination economy, we will have to build a sizeable talent pool and it shouldn’t matter where they come from.”
The talent pool is small, inadequate and entitled
Mitra Innovation has doubled its business every other quarter since inception six years ago, but sustaining that growth is challenging.
The $10 million revenue tech company which employs 200 people to develop software, build and manage IT platforms for multinationals, small businesses and public enterprises in Europe, the US and Asia Pacific, is turning down new business.
“We’re leaving money on the table because we can’t find the right people to take on new work,” says Dammika Ganegama, Co-founder and Managing Director of Mitra Innovation. Only one out of nine get through its four-stage screening process. Screening job applications and CVs is the first stage, followed by a telephone chat. The third stage is a simple exam and case study to gauge an applicant’s technical knowledge and aptitude to apply that to solve a problem. The final stage is a sit down with top management. Most rejections happen at the third or fourth stage, meaning nine out of ten people can’t put their academic qualifications to practical use or don’t have the soft skills and attitude that resonates with Mitra’s culture. “Many of them feel entitled to the job just because they’re university-qualified,” Ganegama says.
“There are times we’ve turned down new business because we didn’t have skilled people,” he states. He can scrape the bottom of the barrel of the talent pool, but delivering on promises of innovation, differentiation and value creation is too important to compromise.
Finding the right fit is extremely important for Mitra.
The company is developing solutions for complex problems with high value and high margins. Over 70% of McDonald’s revenue is from drive-through, a tough problem to crack for pizza chains because baking takes time. Mitra Innovation used data like location and traffic to build a platform for a pizza restaurant chain in Australia to make drive-through possible: a customer has to place the order over the phone and a piping-hot pizza will be ready for pick-up at the restaurant.
It also used historical data to figure out the most popular pizza toppings at a given time of year or weather. For example, assuming historical data shows that Hawaiian pizzas sell more during the rainy season, the system will take weather forecasts and ensure there are enough pineapples in stock at the right time, and there are enough staff and vehicles for delivery.
Ganegama said this application can help other businesses with complex inventories to manage. Mitra Innovation is working with a multinational electronics company to build a device that scans human tissue samples and predicts the likelihood of a person getting a cancer. For Mitra to stop leaving money on the table and drive fast growth, it needs to hire people from overseas so it can continue to grow its high-value, high-margin businesses.
“Some people argue that cheap labour will flood the market, but this argument doesn’t hold because you need to screen whoever you hire,” he says. It will also give Mitra a larger pool to select the people with the right fit because the higher up you go the harder it is to hire locally.
“Learning to change faster and create new value is critical. We just need people to come in when required to create that engine so we can learn and grow. That’s what openness is all about,” Ganegama says. “Cost arbitrage is no longer viable. We need to compete on value creation for growth, and failing to do this puts our very survival at risk,” he says.
Too many me-too startups takes us nowhere
Jeevan Gnanam, the third-generation chief executive at family-controlled construction materials empire, St. Anthony’s Group, angel investor and CEO of Orion City IT Park, says opening borders has the potential to transform Sri Lanka’s lagging startup ecosystem.
Gnanam, SLASSCOM’s Chairman for 2018/19, says Sri Lanka’s tech industry is largely built around software development and business process outsourcing mainly in financial services. “We need a third pillar around data sciences and artificial intelligence. This will make Sri Lanka’s tech industry globally relevant as well, but we don’t have enough skills locally,” he says.
In 2017, Gnanam founded a tech company called SAKS Analytics which combines data sciences and AI. He estimates that by 2022 AI and data analytics will account for a fifth of Sri Lanka’s $5 billion tech exports. However, getting there from the current export revenue of $1.2 billion will require Sri Lanka to pilrelax its border controls to make it easy for companies to hire foreigners, Gnanam says.
One project SAKS Analytics is working on is a platform that will allow insurance companies to make repair estimates by using images of a car scratched or damaged in an accident. Hiring was difficult, taking eight months for the ICT Agency, Ministry of Defence, Department of Immigration and other state institutions to clear an application to hire a foreign consultant.
“The process was not clear and it took far too long just to get a yes or no response. Investors are not going to wait that long,” Gnanam said. He believes the company will reach $1 million revenue by the end of 2019, with just 20 people. These are the high-value, high-margin businesses tech companies should be aiming for.
Sri Lanka needs skilled migrants to develop products that are more exportable, or relevant to a global consumer. People will not only bring their skills and knowledge but also insights about the different markets they come from. “They’ll be a cross-pollination of business,” Gnanam says. “We will see more relevant and cooler startups that will help us win global markets,” he states. “Unfortunately I see too many me-too startups, like trying to be the Airbnb for Galle.”
Gnanam is co-founding with Nathan Sivaganathan of MAS a startup incubator and accelerator called Hatch, inviting people from all over the world to bring their ideas to Sri Lanka. “We hope to raise $1 billion in valuations by 2020. I know it’s ambitious but we need to aim for a moon-shot because we need to show what is possible.”
Sri Lanka can become a Silicon Valley for the region but it will need to relax its immigration policy. “If we get all our ducks in a row and build bridges, we’d be the startup hub for the region,” he said. As President of SLASSCOM, he aims to push the industry body’s agenda to attract foreign startups to Sri Lanka.
Open borders will lead to higher consumption and also opportunities for real estate and infrastructure development. Gnanam is expanding the Orion City IT Park to a million square feet to accommodate 12,000 people, up from 5,000 at present. “When we started Orion City we estimated a 33% return, and now because we’re building taller structures we expect a 20-30% return on equity,” he says, adding that the company may invest in a similar project in Kandy.
Low research capacity is stunting tech growth
Sri Lanka needs skilled migrants to develop the country’s non-existent research and development capabilities not just for growth but survival, says Mano Sekaram, chief Executive and co-founder of 99X Technology, a software developer serving a niche global market.
“The world is moving ahead and we can’t get left behind. We don’t have enough talent in high-skilled areas such as AI, blockchain, data sciences, digital marketing and robotics because our education system churns out limited numbers and these graduates aren’t trained to solve real-world problems,” Sekaram says.
For Sekaram, who is a former chairman of SLASSCOM, the IT/BPO industry body, and Chairman of Lankan Angel Network, a group of private investors in startups, the skills gap goes much deeper than filling vacancies. There’s also a problem in how technology is applied.
“Our universities have a body of knowledge, but no R&D capacity to solve problems and generate new ideas,” Sekaram says. “We don’t have research capabilities, period. And this will hurt the next generation of tech companies the most.” “We can’t wait five years to build capacity, but if we are open it will happen faster,” he says.
“There has to be a sizeable talent pool with the relevant skills to attract investors into research or tech. If not, even local businesses may move out to where there is talent,” Sekaram warns. By opening borders to R&D experts, Sri Lanka can attract more investments into research institutes, education and healthcare as technology permeates these areas. “This will raise Sri Lanka’s game to a whole new level.”
Chile has made some impressive gains since launching its startup programme with valuations totalling $1.4 billion in eight years since 2010.
Education reforms were aimed at feeding the tech industry. Nearly 90% of Chilean high school students gain admission to university, compared to less than 20% in Sri Lanka, and 94% of its IT graduates land jobs within a year of graduating, according to Launchway Media.
Sri Lanka’s challenge is manifest in the example of two startups dealing with food traceability and precision agriculture, which are working closely with Startup X Foundry, a startup incubator founded by Sekaram. The first product will allow consumers to trace their food throughout the journey from farm to fork providing information like place of origin, soil readings, exposure to fertilizer and pesticides, processing and even temperatures during transport. The second startup is trying to apply technology into precision farming allowing farmers to cut costs and maximise productivity by releasing water, nutrients, fertiliser and pesticides as and when necessary. But none of these are new ideas; the technology has been tried and tested elsewhere.
“We’re not just copying these products but trying to adapt them for local use and also developing them further for global markets. Sri Lanka needs to be doing more of this, but we’re constrained by the lack of research and tech skills,” Sekaram says.
A foreigner laid out 99X Technology’s quality controls and processes for its software development business nearly 15 years ago. That expertise was not available here at the time, but Sekaram had to make it happen. Today, the company employs nearly 200 people. He declined to share revenue numbers but said the company was always cash positive and was rolling out a programme to award sabbatical and funding so his employees can chase their own startup dreams. Importantly, he will give them access to his global connections.