Sri Lanka must make its limitations an advantage
By Charindra Chandrasena
Export focused technology company 99x revealed its new visual identity and logo recently, with a shorter variant of its earlier name 99x Technology, and a look which the company believes embraces the simplicity in design which appeals to its primary markets in the Scandinavian region. According to the company the essence of its brand is derived from binary code and therefore “ones and zeroes” are arranged creatively to form its new logo, which is the centrepiece of its rebranding exercise.
Having built over 150 digital products since 2004, 99x has firmly established itself as a pioneer in technology innovation in the local IT (information technology) landscape and is led by its Founder and Chief Executive Officer (CEO) Mano Sekaram, a tech industry leader who has built 99x up to be one of the largest tech companies in Sri Lanka.
The Sunday Morning Business spoke to Sekaram last week to discuss the purpose of the rebranding, the state of the local IT industry, challenges posed by Covid-19, and the company’s future plans.
The following are excerpts of the interview.
Let’s start off with the obvious question. What is the rationale behind the recent rebranding of the company?
We are a 15-year-old company and we wanted to stay relevant because this is the right time for us to be current and relevant with the changing market landscape. In order to stay relevant, there were two things we were focused on; one was a bold new look because as a company we have always been different. If you look at how we present ourselves, we want to be playful because some feel that tech is a very serious industry. We have been recognised by the Great Place To Work® Institute as a “Great Place To Work”, not just in Sri Lanka but in the Asian region as a whole. So we are about people and about being an open and fun place which creates impactful digital products. We also wanted to be minimalistic with the design of the logo. It brings out the nuances of zero and one, to say that it is not just about code but also building impactful products while being cool.
Your products are mainly sold in the Scandinavian market. Is there a particular reason you are so focused on this region?
Fifteen years ago, when we started, all our competitors from India were going into the big markets like the US, so we had to find a smaller market like Scandinavia to set ourselves apart. When Scandinavian companies look for a partner, they look for innovation and quality and creativity, and we had a very good alignment with those requirements. So I think we looked at Scandinavia because we believe that market has a lot in common with Sri Lanka. The countries in this region are smaller economies which have a high innovation index. In addition, almost 70% of tech companies in Scandinavia have less than 100 people, so their economies are driven by mid-sized companies and that is a very good fit for Sri Lanka.
You have stated that you plan to expand to Europe. Any countries you are eyeing specifically in this expansion to Europe from Scandinavia?
We want to solidify our presence in Scandinavia over the next two or three years and then expand to Europe by either acquiring a company in Europe or setting up our own operation there. That is a bold move because we are doing it during adverse conditions. When other companies are trying to cut costs to survive, we are taking a massive risk. This is why it will reflect our bold new branding. We can afford to be so bold because we have run our company profitably and diligently. I’m a believer that adversity brings out the best in us.
99x has had a compound annual growth rate of 30% and $ 35 million in export revenues in the last five years. Furthermore, it has achieved a 300% increase in its billing rate (in dollar terms) from 2005 to 2020. What was the strategy behind these impressive numbers?
To date, we have built over 150 software products and expanded through organic growth without any external investments. One main component of our strategy is we want to go up the value chain and this can be achieved only by getting customers to pay more for the same service. Customers will do that only if they see greater value and innovation in our products than they see in our competitors’ products. In the past 15 years our prices have gone up by 300% because of the higher value and greater innovation, along with our reliable service.
This is also why 99x has been consistently recognised as a top Sri Lanka exporter, four times by the National Chamber of Exporters, twice by LMD and four times by the National Chamber of Commerce. We have also been named a Great Place to Work in Sri Lanka for the past eight years.
The IT industry seems to have escaped the brunt of Covid-19 and is generally seen as a “safe” sector. Is this the reality?
I think we need to rephrase that. It is not that IT is safe. If you are supplying solutions to the hotel or airline industry, you are almost dead. It is true that the IT industry has certain positives but you can’t make a blanket statement. What happened with Covid is that we had to reimagine a new economy driven by digitalisation, where IoTs (Internet of Things) and robots will be used in manufacturing. In that sense, the reliance on tech has grown and will continue to grow.
Has the pandemic forced you into layoffs and cost cutting?
What happened with Covid was a massive shock and the first thing we wanted to do was to save everybody’s jobs. We were a profitable company and we had funds to keep employees on the payroll. So what we did was freeze unnecessary expenditure, including for senior management, and it worked. In fact, it worked so well that by July we had not only returned to normalcy but we were even providing increments to our employees. We have also recruited over 50 people during this crisis.
People ask me how we did it and whether Covid has created extra opportunities for us. The answer is no. It is simply because we knew our market segment and our products are of high quality. In fact, we also had two or three of our customers close down, but we had a wide enough spread in our market to absorb those blows. It is also about being in the core part of the customers’ delivery chain. For example, if we were doing something not critical to their business, they would have simply said ‘we don’t need you anymore’.
SLASSCOM has set an annual revenue target of $ 5 billion by 2025 for the IT industry. Is the industry on track to reach this target?
I would say the target is to reach $ 3 billion by 2025, and we are certainly on track to reach that. Back in 2000, our IT export revenue was only $ 50 million. At that stage, we formed an association and set a target for ourselves of $ 1 billion by 2012. Then in 2007, we revised it and we reached that $ 1 billion target in 2015 according to the revised target.
So it took the IT industry just 15 years to generate $ 1 billion dollars in revenue. If you compare that with the tea industry, it took the tea industry 150 years to reach an annual revenue of $ 1 billion. We are now the fifth largest foreign exchange earner in the country, after remittances, apparel, tea, and tourism. In 20 years, we have gone from that $ 50 million mark to generating nearly $ 1.5 billion a year. What’s more, 99% of our offering is value addition because we are selling knowledge. For comparison, in apparel the value addition is, I think, between 20-30%. So even if we achieve $ 3 billion by 2025 or 2026, it is a significant contribution to the national economy.
It is also important to look at the per capita income of an industry and the per capita income of the IT industry workforce is three times the national per capita income. That is much higher than the per capita income of the garment industry, tea industry, or even the hotel industry. This is the only way Sri Lanka can advance to the status of a middle-income country. We must start exporting high-value products and services. We can never pull our country out of poverty if we are still reliant on low-skilled, low wage labour. We also can’t compete with countries like Bangladesh in that low-skilled, low wage space. This is why President Gotabaya Rajapaksa is so focused on the IT industry and on the digitisation of Sri Lanka.
Speaking of the economy and government, what are your views on the recently unveiled Budget 2021?
Specifically for the IT sector what the Government has come out with is tax concessions, which is very important. Overall, I would say it is a tech-friendly Budget which will ignite technopreneurship and digital transformation while promoting e-governance.
You said that Sri Lanka can’t compete in the low-skilled industries with our neighbours. When it comes to the IT sector, what is the difference you see between the skill levels of IT workers of Sri Lanka and a country like India?
Our clients say we are more creative and quality conscious and we have a lot of empathy. But India is a massive country and it has a lot of IT professionals. They are also very smart people. But we have a lot of potential to grow our industry, so what is important is that we have more and more IT graduates to realise this potential. We need about 18,000 IT graduates each year, but we are producing only about 6,000 a year. So we are a supply-constrained industry. We also need to have a lot more entrepreneurs starting IT companies and a conducive startup ecosystem is so very important for this purpose. We have immense talent at the bottom of the pyramid.
Is the Sri Lankan student population’s lack of focus on STEM (science, technology, engineering and mathematics) subjects a stumbling block to Sri Lanka’s development?
I would say yes. The first problem is that Sri Lanka has approximately 10,000 schools and out of those only around 600 schools teach science and maths at Advanced Levels. Out of that, only 200 schools have ever sent students to medical school. So our education system needs to be broad-based. The second issue is that we are testing people on memory and not on creativity, which does not stimulate entrepreneurship. Creativity at the school level, where you are challenging norms and thinking out of the box and being imaginative, is what creates entrepreneurs. We must teach entrepreneurship and innovation. We must also teach students that it is okay to fail. Unfortunately in our society, if you fail you are finished.
As an industry leader, what have you done at 99x to help create a change in this culture?
You must lead by example. I am not claiming to be a role model, but I have built a company which is a Great Place to Work. We do not have a master-slave dynamic and everyone is equal. This is important because we come from a very hierarchical society and culture which is not good for innovation. You must be able to challenge your boss. Nobody gets fired at 99x because they don’t agree. In fact, you could actually get promoted if you challenge your boss.
We also have an innovation centre and if you have been in our company for over five years, we encourage you to start your own company. We also have StartupX Foundry, which provides innovators and entrepreneurs with the means and resources of bringing new ideas to market through a network of global partners. So it is about building that ecosystem. It is not about 99x trying to enjoy it for themselves.
Is the 99x workforce mainly from state universities or private universities?
In the formative years, 80% of our workforce came from rural Sri Lanka. English is not a prerequisite at our company. You must be creative and you must have a good grasp of engineering and mathematics but language is something you can polish along the way. So all along we have got a lot of graduates from state universities, but SLIIT (Sri Lanka Institute of Information Technology) is also contributing these days.
What are the future plans of 99x and how much of it has been influenced by Covid-19?
We work on five-year plans, so right now it is about what we want to be by 2025. One goal is to double the numbers in terms of growth rate, revenue, and value. As I said, 99x is currently planning to establish a European direct presence to attract larger European customers who would expect a strong local presence in the EU (European Union). This plan is forecast to result in a 200% increase in revenue and an increase in employment of up to 500 people over the period of five years. This will also help us to de-risk ourselves and our clients from the Covid impact.
What can the IT industry specifically and Sri Lankan exporters in general learn from the 99x experience?
If Sri Lankan companies are to succeed in any foreign market, I believe they have to pick their markets and go deep into them to gain a niche advantage. So for us, our greater market is Europe, and in Europe we are focusing specifically on Scandinavia. We want to dominate in Scandinavia to make it our anchor and then gradually move into Europe. That has been our vision all along and that is how we want to internationalise ourselves because I don’t think we have the resources to start capturing all markets from West to East from the inception itself.
Sri Lankan exporters need to be focused because we can’t be everything to everyone. So I would say be a niche player. Don’t try to do too many things and focus on your strengths. Size doesn’t matter but you must have a highly motivated team to take on the world. Focus on business results and not this fancy branding or anything like that because at the end of the day you have to be profitable to be sustainable. Sri Lankan companies must also engage the higher end of the market because we can’t compete on volume with the bigger producers in larger economies. Sri Lanka has limitations and we must turn those limitations to our advantage. We must go up the value chain by adding value.