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Monday June 27th, 2022

Leveraging Sri Lanka’s Inherent DNA to Address the Current Crisis: a Tech Perspective

Ramesh Shanmuganathan Executive Vice President and CIO at John Keells Holdings

No crisis is without an opportunity. Sri Lanka’s current economic troubles do offer an unprecedented opportunity for economy-wide structural reforms and for the technology sector to seek new markets.

For any business into exports, the opportunity to launch improved and globally competitive products as well as services is unprecedented according to John Keells Holding’s Executive Vice President and Group CIO Ramesh Shanmuganathan. He says the weaker currency augurs well for any exporter and that advantage should be strongly amplified by collaboration, co-innovation and co-creation through strategic partnerships and investments to create a better and stronger portfolio of products and services to emerge stronger from the crisis.

The crisis can also pave the way for structural reforms in the economy too. Sri Lanka will require to create more predictable and enticing conditions to attract foreign investors to leverage Sri Lanka’s tech DNA according to Shanmuganathan. He discussed these ideas during an interview:

Sri Lanka faces an economic crisis. At this time what do you think the private sector can do differently from what it has done in the past?

I’ve been reflecting on our economic history recently due to the current challenges we face. From the time we adopted an open market economy in 1977 the net beneficiaries have been the countries who have been selling things to us. Our exports have grown to an annual $12 billion dollars or so. Value-added services like IT have exports topping a billion dollars. Our imports now touch $22 billion a year.

I feel that even compared to an average Indian company we now lack the entrepreneurial spirit to take Sri Lankan businesses, products and services to the global markets.

The successive events such as the Easter attack and the pandemic have hurt our economy. As one measure to overcome this, we should have explored offering incentives to investors to leverage Sri Lanka’s potential and the opportunity to establish joint ventures in our growth sectors such as manufacturing, agriculture, technology, transportation, logistics, hospitality, financial services, etc. For example, most countries like India, Thailand, and Malaysia coerced most major exporters to their countries to set up joint ventures and localize their value creation thus creating the right impetus for the economy and broad basing their export portfolio and revenue opportunity as well.

This strategy also helps to speed up innovation as well as drive outcomes faster and there are many long-term benefits to the economy from such an approach as compared to the ones that are 100% foreign-owned.

From a Sri Lankan context, all of our key sectors of the economy – the industrial, services and agricultural, have significant opportunities for innovation and modernization. The key challenge the country is facing in being a net importer of goods and services.

Specifically, if we take agriculture, we have a long agrarian legacy but today we are a net importer of agricultural products when we have so much fertile land. Why aren’t we incentivising the cultivation of crops with export demand and modernising the sector?

Those are a couple of the things that can be done quickly and can soon contribute to a country’s balance of payment like boosting exports. Food is something you can export anywhere; a commodity which is in short supply and with increasing demand due to global consumption.

Today, most are investing in crowded sectors with minimum export opportunities. Given that our domestic market is small, it become an absolute imperative for most to set their targets on global markets through clear strategies to differentiate and move up the value chain. Apparel is one of the biggest contributors to Sri Lanka’s exports, but our value addition has been hugely around the man-power on the shop floor which is at the very low-end of the value chain whereas the opportunity to scale up to drive innovation and the trend for the industry by establishing Sri Lanka as a fashion destination.

All of these aspirations do come with challenges, no doubt. No pain, no gain. We all need to wake up to this opportunity and look at moving up the value chain through collaboration, co-innovation and co-creation. Parallelly, we must develop the human capital required for those to succeed by reinvigorating our education sector through reforms as well as establishing vocational training were required to cater to the emerging human capital requirements. We must take cues from Singapore and Dubai in terms of how they have been able to establish themselves as strong economic hubs in their respective regions within a short span of 30 years.

You’re from the services sector, you lead a successful company in value-added exports. What do you think we should focus on to be more successful in this area?

We have made significant progress, but our exports today from the IT/BPO sector are not a true measure of what we are capable of. The key challenge is that we do not have the entrepreneurial zeal to aspire to go beyond the shores of Sri Lanka. We tend to stick to our comfort zones and have failed to create sustainable value.

Firstly, we have a very unique and significant cost advantage with the depreciating rupee. It may be a short term advantage, but we must strike when the iron is hot. We need to seize this advantage as an industry and look at all possibilities to spread our wings to create and/or acquire new markets through collaboration possibilities. We must leverage the Sri Lanka advantage and this industry must be motivated and nurtured through the right reforms and structures to drive at the least a 3x growth in the next 5 years.

Secondly, we must establish Sri Lanka as a Global Innovation Hub. This is where the strategies and initiatives must link up. We must incubate talent and move them up the value chain through these strategies and initiatives and create a global talent pool in significant growth sectors in tech, namely data/AI, Security, blockchain/NFT, multi-cloud, and low-code/no-code platforms, etc. We must establish the Sri Lanka brand to be synonymous with Open Innovation and create a talent pool that is best in class. The first step towards that is to attract MNCs as joint venture partners and fast track same through the right programs and incentives. This will provide the impetus we need to drive export diversification through technology on a clear roadmap for the economy

Thirdly, we must get into productization to break the linearity in terms of our revenue opportunity. We must build our products and services around the 3rd platform with a mobile-first, cloud-first and AI-first strategy. This will help us grow our revenue stream similar to India, Israel, Ireland, Thailand, Vietnam, etc.

Fourthly, to achieve that sort of scale we have to target the right products and services and the right markets. Today, most target predominantly Europe and to an extent the Middle East and Africa, but not much to the Americas which is one of the biggest, most lucrative and competitive markets. From a GDP point of view, the U.S is $21 trillion compared to Europe’s $15.3 trillion. Those are the two markets we need to actively look at exporting to. Very few companies have made it big in both of these markets.

That’s a food for thought for Sri Lanka’s IT Industry. We have to do what the apparel industry has achieved for itself over the years and look at strategic partnerships to gain access to these markets and build a portfolio that would attract such partnerships.

Due to this crisis, we are at a time of potentially great change. Things that were impossible six months ago may now be possible. If you address the IT sector’s challenges, particularly around talent, and if you were to look for bold solutions, what would those be?

The IT industry for the bigger part has focused on the sub-continent to a greater extent and especially Sri Lanka. The industry as alluded to earlier had a lot more upside globally but must establish itself as a unique value proposition and sustain the same in the longer term. Further, most big Asian companies have a conglomerate structure, similar to John Keells, and have not leveraged IT for their businesses adequately and hence have been challenged to build a viable business out of such opportunities. Those who have made significant strides in commercializing the same to the big IT powerhouses such as TCS, Wipro, HCL, NTT, etc. From a Sri Lankan context, most IT organizations fall under the SMB category and are challenged in building the brand and presence to take their offerings globally.

We at John Keells IT have been serving the John Keells Group as well as external clients who have been mostly based out of Sri Lanka other than specific sectors such as Aviation until 2017. We repositioned ourselves as a boutique consultancy organization focused on digital transformation in 2018 and have expanded our presence greatly into Asia and Middle East and Africa which now gives us the reach together with our strategic alliances to grow our revenue to a 3 to 5x in the next five years. To achieve the same we have continued to make significant investments in establishing our offices as well as creating a significant local presence to ensure that we gain that traction to command such a growth.

We have been shifting gears to fast-track our growth internationally over the last 3-4 years and have established a solid client base which augurs well for our future growth potential as well. We were only able to achieve the same since we matched our ambition by recruiting and developing the talent that was required to achieve the same.

You suggested companies seize this opportunity to go up the value chain and expand overseas. What have you learned from doing these two things at John Keells IT?

One of the main reasons for companies to struggle is because they are just selling bodies or billing clients by the hour. We did ask ourselves these questions – How do we break the glass ceiling? What can we do differently? How do we gain that unfair advantage?

The unique value proposition we had was that we were a prosumer of technology as well as a provider of the same. We mapped out clients who would potentially envision a similar transformation journey by leveraging our best practices as well as learning outcomes and engaged them on a more consultative footing rather than as a provider of technology solutions and services. It was an audacious move, kind of like what most consultative houses like McKinsey or Accenture would do. It paid off!!

Our thinking was, let’s ensure that there is a mutual relationship and buy-in for us to invest time and start an engagement. Our engagement was always focused from the C-suite downwards. This also gave us better visibility of the business as well as their challenges and then jointly map out solutions and services that befit them. This helped us to show the value we can create. It was a Value outcome-based discussion which resonated well with our customers and I personally spend a lot of time leading these discussions with the C-suites of our customers.

The unfair advantage for John Keells IT is that we are both prosumers as well as providers. We walk the talk and we eat our own dog food. This has brought about a bigger incentive for our customers since we have been able to help them leapfrog from our learnings and experience as a prosumer.

The last couple of years have been tumultuous due to Covid and now we have an economic crisis. If there were learnings in the last two years useful or relevant in the future, what would those be?

Sri Lanka must think global. One key thing for boards and leaders to focus on is to manage the overdependence of their business portfolios in one geography. I’ve been a very ardent advocate of building a global brand and a global business with many corporate leaders both locally as well as internationally. Today, most businesses in Sri Lanka have more than 90% of their revenue from Sri Lanka and this dependency itself is an inherent risk which should be better managed.

I felt that Sri Lankan companies were more globally focused prior to 2009, but since the 2009 peace dividend, realigned themselves to focus on opportunities that arose from it by moderating their previously ambitious plans for overseas expansion. This is impacting Sri Lanka in a big way in terms of her growth as well as exports, given that the Sri Lankan market is just 21 million people.

We must look at Singapore and Dubai for inspiration. From day one, these countries recognized their home markets were insignificant and won’t be enough for them to grow. So they focused on exports as their main thrust whilst maintaining certain elements of protectionism to nurture the local businesses. That is where I feel we went wrong, not only in the recent past but since opening the economy in 1977.

It would have been always good to have some level of protectionism to develop certain industries, like what India has done, which may have been useful for building an export platform and creating a talent pool which can create an exponential impact on the economy which in turn will help us to attract and retain the best talent we need to grow our economy.

We also need to look at continuously upskilling our human capital so that we could help them move up the value chain rather than be at the low-end of the value chain. This will also create a revenue portfolio which will be lucrative for the country and will help us retain our talent across the segments. We should look at more lucrative opportunities to train and deploy our human capital. For instance, globally, there’s a huge demand for nurses. We’ve got to identify those market gaps and orient our vocational training to focus on training maybe 10,000 nurses who will probably contribute more than 10x, compared to domestic workers.

It’s always good to examine our balance sheet and think for ourselves as to are we getting the best ROI out of our biggest asset – Human Capital. We must leverage our assets by continuously rebalancing our portfolios by assessing emerging trends and keeping in step to capitalize on emerging market opportunities.

One bottleneck companies face in going up the value chain is the quality of people they are able to hire. How have you addressed this when you grow the business?

John Keells Group has always invested in people. We have multiple programs across the group to attract and nurture talent, both centrally as well as at the subsidiary level, based on the business strategies and initiatives. At John Keells IT, we have multiple programs in addition to what’s rolled out at the group level to address our present and emerging talent needs for both leadership as well as tech talent.

One of the biggest challenges I see is that most organisations don’t invest in developing their people. You hire them for a job, but ultimately do not realize that for them to progress and for us to get the best out of them, we have to develop them.

Most of our best talent will leave us someday and we must understand why? It’s mostly due to a lack of career progression or better prospects. If you examine the reasons, it’s not that they cannot add more value, but we are not giving them the opportunity to do that on a more proactive basis.

We also need to find ways of retaining the talent by broad basing the opportunities that we can create for them. A company which focuses on globally as opposed to locally will be able to provide them with a broader spectrum of opportunities as well which will help the company to retain them rather than lose them.

So, unless Sri Lanka as a country and its companies step up to bigger challenges, we will continue to lose more and more people, especially to migration.

Do you think we should also be more open to inward migration?

Yes, we must have a planned intervention similar to what Singapore, Australia, the UK, USA and Canada have done for decades to source the best talent for growth and development. We must structure the same in a meaningful way so that it will complement what we have and help us fast track a solution to address our deficit in talent in critical and growth areas.

Further, we must encourage entrepreneurs especially if they are bringing investments. Most mature economies have migration programs for entrepreneurs and those with specific skills. We must structure something similar in line with our aspirations.

You explained how John Keells is leveraging Open Innovation and Crowd Sourcing as key strategies to bring in more outside-in thinking and innovation. How can other companies take advantage of these?

We launched our start-up incubator, John Keells X in 2015. We recently launched the 4th iteration of the same and witnessed the participation of almost 400 young people, many of whom were just out of college and bubbling with enthusiasm to start their own business.

For most of them, funding their startup is a challenge. The venture capital market here isn’t so mature. In response to these challenges, JKH started the same with a view of encouraging young entrepreneurs in 2015, but this time around we are looking to create a platform for open innovation for the group where valuable solutions to problems that we are trying to solve can come to us through a crowd-sourcing strategy. This paves the way for any organization to collaborate, co-innovate and co-create with a shared objective and/or outcome. As a concept, this is what we call open innovation.

On the other hand, there are certain skills which are in high demand but you may only need them for a couple of hours a day or a week. It may not make sense to hire that person full time rather you may want to just hire him for the exact duration you need him for. At John Keells IT, we extensively use this to engage expertise which is rare, both locally and internationally, towards better business outcomes. This helps the organization to get optimal value as well as for that person the liberty to work for anyone that requires his/her expertise. As a concept, this is what we call crowdsourcing.

Both of these concepts are very forward-thinking steps for an organization and whoever wishes to embrace the same must have the maturity to make it work. Both have their pluses and minuses and it’s important for each to assess the same and make a clear judgement of their applicability.

We need to look at things more liberally and look at possibilities afresh. This also would mean that our hr practices, employment laws and the way we look at employment also need to change to keep up with the times.

What do you think should be the next steps to address the economic crisis Sri Lanka now faces?

My recommendation in terms of the 7 must DOs and the order of pecking to salvage ourselves from this crisis is,

  1. Pick a SWOT team and a leader who can command their respect and guide them to act swiftly to address the critical priorities of the country. The team must have representation from all stakeholders and subject matter expertise to deliver the best outcome in the shortest possible time.
  2. Focus on the critical priorities such as medicine, food, gas, fuel, electricity, fertilizer, etc to give relief to people in terms of their basic necessities so that life can return to normalcy.
  3. Speak to our Donor agencies and countries whilst working on a focused plan to increase our revenue through established streams such as Garments, Tourism, IT/BPO and encourage local entrepreneurship to focus on exports to boost our liquidity to address (1) above.
  4. Restructure our long-term debts and have a clear program to manage our Debt/GDP gearing with the intervention of IMF and other donor agencies/ countries.
  5. Boost our domestic entrepreneurship and production to be self-sufficient in areas such as agriculture, and dairy, and encourage value addition to our exports whilst curtailing consumption to manage our balance of payments in the short to medium term.
  6. Enrich our bilateral relationship with key trading partners and prospects to boost our economy and seek direct investments with a view to boosting our capital inflow to expand key sectors which can contribute to the economy.
  7. Look at constitutional reforms to bring the power back to parliament with clear accountability and responsibility matrix. Ensure that the executive, judiciary and parliament co-exist with the right checks and balances.