Productivity and Performance of IT 

Sector in Bangladesh: Evidence 

from the Firm Level Data 

NAOKO SHINKAI *

MONZUR HOSSAIN**

This paper analyses productivity and performance of the IT sector in 

Bangladesh based on a survey of 202 firms of various sizes. It also 

makes an assessment of the impact of recent global financial crisis on 

the sector. The negative impact of the global financial crisis appeared in 

the performance in 2007 but most IT firms seemed to have recovered in 

2008. This indicates the inherent strength of the sector in terms of 

productivity and efficiency. It is observed that e-governance activities 

contribute to total productivity of the firms that are more than five years 

old. Infrastructure development, tax exemption, export promotion and 

training of engineers, among others, are major concerns in IT business 

operations, which can be tackled by appropriate policies to support 

further development of the sector.

I. INTRODUCTION 

The Information Technology (IT) industry is one of the fast growing 

industries worldwide. It is widely recognised that South Asia has tremendous 

potential in the IT sector development because of availability of talented 

workforce at cheap wage rates. The IT industry can contribute to the overall 

economic development of these developing countries through employment 

generation, gaining share of service trade and increasing production efficiency of 

*

 Associate Professor, Graduate School of International Development (GSID), Nagoya 

University, Japan. 

** Research Fellow, Bangladesh Institute of Development Studies (BIDS), Dhaka. 

The study was conducted when the first author was a Visiting Scholar at BIDS in 2009. 

The first author therefore thanks BIDS authority for providing her with all facilities to 

conduct the study. The authors thank Zaid Bakht for his helpful comments on the study. 

Authors also thank the officials of Bangladesh Association of Software and Information 

Services (BASIS) for their support in conducting the survey. The earlier version of this 

paper was published as GSID Discussion Paper (No.181), Nagoya University 2 Bangladesh Development Studies 

other sectors by the adoption of proper information technology. However, except 

India, the IT sector has not developed strongly in other South Asian countries. In 

Bangladesh, the IT sector has started growing, particularly after 2000, as a result 

of some favourable policies of the government. The objective of this study is to 

examine the productivity and performance of IT firms in Bangladesh. It will also 

assess the impact of the global financial crisis on the IT sector in terms of 

productivity and profitability, which will help understand the extent of 

integration of this sector with the global market. 

The Sub-prime loan crisis that led to the grave recession in 2007 in the 

United States seemed to have affected trading partners all over the world since 

demand from those countries decreased. At the same time, some countries might 

have benefited from this crisis due to shifts in locations of productions for cost 

advantage. Cost reductions have been revealed to be one of the main factors to 

trigger offshoring activities (Dachs et al. 2006, Houseman 2007, Lewin and 

Cuoto 2007, Marugami et al. 2005). As for the supply side, there might be a case 

that international investors who rebuilt supply chains in order to hedge the risk 

from the global financial crisis could have brought new opportunities. Therefore, 

it is neither evident whether the effect of the financial crisis was negative in all 

sectors, nor how severe those effects were. Even within the sector, there might be 

a case where not all the firms are affected by the crisis in the same manner. The 

effects of the crisis may not be avoided but for a country, with cost advantage 

and abundant human resource base, like Bangladesh can minimise the crisis 

impact. In this study, the IT sector in Bangladesh is examined in order to measure 

the effect of the recent global financial crisis and identify factors that enable 

firms to make a good use of opportunities yielded, and to direct to policy 

recommendations. 

For the analysis, this study uses survey data of 202 IT firms collected for the 

year 2008 from various locations of Dhaka. The data were collected by using a 

structured questionnaire. Combining with descriptive analysis, we have estimated 

productivity of firms and examined the determinants of productivity and how the 

firm productivity and profitability were influenced by the global financial crisis. 

The paper is organised as follows. After the introduction, the background of 

the IT sector is outlaid in Section II, followed by performance assessment of IT 

firms in Section III. The analysis of determinants of productivity of the IT sector 

is provided in Section IV with some consideration about the impact of the global 

financial crisis. Section V discusses some relevant policy recommendations. 

Finally, Section VI concludes the paper. Shinkai & Hossain: Productivity and Performance of IT Sector in Bangladesh 3 

II. BACKGROUND OF THE IT SECTOR IN BANGLADESH 

Bangladesh is a country of population over 150 million with literacy rate of 

more than 50 per cent. In the last two decades, the country has fetched 

remarkable economic progress with GDP growth rate of more than 5 per cent. It 

is argued that there is a tremendous prospect for the country to leapfrog into 

industrialised economy through the development of the IT sector. Because 

Bangladesh has high potential to become a huge source of skilled human 

resources with its cultural adoption capability, English language skills, analytical 

capability and a large number of educated and energetic youths with bright 

aptitude, good quality and natural ability in software development. A recent 

study by Hossain et al. (2011) shows that the wage rate of IT professionals in 

Bangladesh is almost half of the Indian IT professionals. However, the IT sector 

has not yet been growing as much as expected. The country obtained US$ 33 

million by exporting software in 2009. Although the export earnings from the 

software sector increased by eight million dollars in 2009, compared to 2008, the 

share of software export is only 0.2 per cent of the country’s total export (BASIS 

2010). The IT sector mainly concentrates in Dhaka, the capital city of 

Bangladesh. There is only one IT cluster namely the IT incubator centre, which 

was established in November 2002, where around 50 IT firms are now doing 

business. 

Recently, in Bangladesh, large-scale automation projects have been 

implemented in telecom, banking, finance, pharmaceutical, and garment/textile 

sectors and domestic demand for software and IT Enabled Services (ITES) 

industries is, therefore, expected to increase rapidly. According to Bangladesh 

Association of Software and Information Services (BASIS), more than 500 

software and ITES companies are registered in Bangladesh. These companies 

employ over 12,000 IT professionals. Out of 500 software and ITES companies, 

more than 20 per cent companies are exporting their products and services to 

over 30 countries. About 6 per cent companies have been established through 

joint-venture with overseas companies or as an offshore development centre 

(ODC) by 100 per cent foreign capital. Most of these companies started their 

operations within last five years, indicating that the Bangladesh software and 

ITES industries have started to be focused by overseas clients. Over twenty 

companies have already obtained ISO certification and a number of companies 

are in the process of acquiring CMMI certification and at least six companies 

have achieved Capability Maturity Model Integration (CMMI) Level 3. 

The size of the IT market in Bangladesh, excluding telecom, is estimated to 

be around $300 million (BASIS 2010). Hossain et al. (2011) show that the major 

export market is North America, followed by EU countries and East Asian 4 Bangladesh Development Studies 

countries, especially Japan. The present government of Bangladesh is envisioned 

to create a “Digital Bangladesh” by 2021.1

 In this context, with government IT 

supportive policies, more automation projects such as e-governance projects are 

expected to be undertaken, which will increase the demand for IT services as 

well as will contribute to further development of the sector. 

In pursuit of that, the Bangladesh government, in its Export Policy, has 

formally identified the IT sector including the software industry as one of the 

“thrust sectors.” In what follows, initiatives taken are exemptions of income tax, 

value added tax, and customs duty for the IT industry, formulation of National IT 

Policy, organising the IT National Taskforce (the chair is the Prime Minister), 

establishment of IT incubation centre, enactment of Copyright Law (Trademark 

Law 2009), enacting of ICT Act 2006 in the parliament, increase in IT budget 

allocation by the government (targeting 2 per cent of annual development plan 

expenditure), etc. With these supports from the government, the software 

industry inBangladesh has started growing since the 2000s.Bangladesh has 

recently been focused by other countries as an outsourcing target. However, the 

absence of IT Park as well as electricity and internet problems remain as key 

barriers to expanding the industry at an expected level. 

Historically, computer use started back in 1964 by Atomic Energy Centre 

and Dhaka University. The first main frame computer came to Bangladesh in 

1964.The Internet came late in Bangladesh, with UUCP e-mail beginning in 1993 

and IP connectivity in 1996. By July 1997, there were 5,500 IP and UUCP 

accounts.2

 In June 1996, the government decided to allow private companies to 

act as Internet Services Providers (ISPs) using VSATs. In June 1997, the 

Government of Bangladesh appointed a Committee to look into the problems and 

prospects of export of software from Bangladesh. The Committee submitted its 

report in September 1997.3

 The government has taken a decision on June 1998 to 

withdraw all import duties and VAT from all computer hardware and software. 

1

 Piazolo (2001) provides a definition of an “digital economy” as: “an economy where both final 

output and intermediate input increasingly consist of information and where the modern (digital) IT 

increasingly provide world-wide immediate access to any information made available. These new 

technologies might have the potential to enable an increase in the productivity of conventional 

business practices, but also facilitate the establishment of new processes and products. 

Consequently, the evolution of the digital economy should not be considered as being restricted to 

the information sector, but as a far reaching process that might alter and extend the products and 

production processes within the whole economy” (p 30).

2

http://www.c2o.org/reports/Report_PAN_Asia_Networking.pdf

3

http://www.sdnbd.org/sdi/issues/IT-computer/expartsoft-report.htmShinkai & Hossain: Productivity an