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Why ERP firm IFS’s passage to Sri Lanka deserves attention

IT companies scour the world these days for destinations that will help them locate skilled workers and drive cost efficiencies. India has of course become a global nexus for software factories, consulting services and offshoring. Central and eastern Europe have become happy hunting grounds, even for countries that have had troubled recent histories: Microsoft has a sizeable development centre in Serbia, for example.

Pockets of the Americas also prosper, helped by relative proximity to the US. Vietnam and the Philippines are often mentioned as part of dev teams for majors. But by any lights, the large and increasingly symbiotic relationship between ERP software provider IFS and Sri Lanka must be considered a fascinating outlier… and one that may yet become a template for others seeking new sources of innovation.

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IFS may be dwarfed by outsize rivals SAP, Oracle and Microsoft but it is still a high-profile player in the enterprise applications space, particularly in asset-intensive sectors such as aerospace, defence, manufacturing and energy. Founded in 1983, the company has become known for its customer service ethos. Indeed, company lore has it that its founders literally camped out, erecting a tent as a temporary residence, to support its first ever customer.

Today, the company has €820 million in annual revenues and may reach the totemic €1 billion mark sooner rather than later based on current trajectory, which appears to be outpacing rivals. Since CEO Darren Roos arrived in 2018, the company has notched serial double-digit growth years and when private-equity firm Hg took a stake in IFS in March 2022, it valued the company at $10bn. For the last financial year, other indicators were propitious, notably annual recurring revenue (up 57 per cent year on year) and cloud revenue (up 80 per cent).

These are good-looking numbers for a company that hasn’t relied on blockbuster M&A deals to boost its numbers. But one other data point makes the company stand out: its 5,500 staff include 2,200 in “the teardrop island”, as Sri Lanka is sometimes known.

It's not (just) cricket

Sri Lanka is an attractive country for tourists keen to explore its hugely varied topography that spans a manageable scale compared to, say, India. Temples are everywhere, food is exquisite, prices are relatively low, flora and fauna abound. In sport, Sri Lankans obsess over cricket and its players invented much of what is now commonplace in limited-overs versions of the game. Its charming people smile and welcome visitors in a manner that belies recent economic crisis, political turbulence, power cuts and street protests.

But in the case of its relationship with IFS’s improving financial position, Sri Lanka is different in another way.

“The powerhouse behind our growth is Sri Lanka,” says Oliver Pilgerstorfer, IFS chief marketing officer, during a presentation for media, celebrating the 25th year of the company’s presence there.

IFS’s Sri Lanka presence has gone up sharply during CEO Roos’s reign. Headcount there has doubled in the last three years with 800 staff added in 2022 alone to boost its status as an R&D and product support hub.

So why the against-the-grain investment in a country not known for technology?

If anyone should know it’s Ranil Rajapaske, IFS COO and SVP of offshore operations, and also one of the company’s first two employees in the country: "[It’s a] big-fish-in-a-small-pond type of situation,” he says while projecting grainy snapshots of its first local office in the 1997 days of landline phones, boxy desktop PCs and CRT monitors.

Rather than being lost in the hugely competitive Indian market, IFS gets to be a high-profile player, he argues. Go to capital city Colombo and you will see what he means about profile as everyone from concierges and bar staff to tuk tuk rickshaw drivers know its name. That sense of scale and career opportunities also has an impact on morale, team building and a length of tenure which, at an average of five years, is well beyond a typical western stay. More than 350 current IFS Sri Lanka staff have been there over 10 years and over 150 have passed 15 years.

See also: Is Nigeria a genuine outsourcing option?

Today, new blood is coursing through the company with an average employee age of just 30. Other demographics skew to progressive: 39 per cent of staff and 29 per cent of management is female. Neither is this a case of simply pursuing low-cost arbitrage and grunt jobs with 900 people working in R&D.

IFS enjoys the standard carrots of tax breaks but it has also fostered links with Sri Lanka’s universities and local business chambers. These relationships give it an advisory say in curricula and in signposting strategic ways forward to make the island fight above its weight in the global battle for attracting tech sector-fuelled growth.

“It provides us with preferential treatment,” Rajapaske says. “People are more tempted to come and work with us. Some competitors turn [their interest] on and off but we’re continuously investing.”

Links between company and Sri Lanka are tight: IFS staff give lectures and the company hosts students, for example. That proximity helps give it a trusted advisor role so that if, say, particular AI and DevOps skills are what’s needed, those are likely to go onto the university or higher-education curriculum.

Culture is also key and Rajapaske says he wants to foster “a company people want to work for”. So, working hours and locations are flexible and there is an emphasis on social and sporting clubs and all the support mechanisms you would expect to see in anywhere in the wider modern tech world.

"We have a strong focus on mental health with our Let's Talk programme, and also provide support through mentoring,” says VP of HR Thilanka Jayathilake. “It's important to us that we provide multiple types of support to new joiners, those who are accelerating their careers with IFS, through to the employees who have been with us from the start 25 years ago. Over 60 employees are now being mentored and we plan to expand that in the future."

Even IFS’s local philanthropic programme, the IFS Foundation, seems to go way beyond the usual industry tax-deductible giveaways to the familiar distant charities and causes. In the northwest village of Welusumanapura, the company is attempting to address poverty by providing clean water, toilets, a maternity room, commercial opportunities with sewing machines and machinery for coconut husk chipping, and the chance for kids to learn via a library and English lessons.

“Very often you have people make one donation but we have this dialogue,” Rajapaske says. “They understand we are doing this on a long-term basis.”

IFS in Sri Lanka: Seeds of innovation

In the heart of the city, we enter an impressive building that dates back to when Sri Lanka was known to the world as Ceylon and the tea trade was a huge export. Here we find another surprise, Hatch. Think of this as a sort of Sri Lankan Y Combinator. Yes, it’s on a smaller scale but then Sri Lanka is a country of 21.4 million versus the US’s 331.4 million. And it really does look like incubators the world over with trendy artworks, inspirational quotations, exposed pipes and lots and lots of young makers keen to make a career (and maybe even change the world) on the bare bones of digitisation and binary code. IFS is currently working with Hatch on ChallengerX, a competition to come up (in just six months and teams of four) with ideas to anticipate and react to extreme weather events.

Bhagya Kandage, director of software engineering and programme lead for ChallengerX at IFS, explains: "We have taken the collaboration with Hatch seriously in order that the participating teams in the incubator can push the limits of what's possible and find new ways to address a very relevant problem that many countries across the world face. We provide them with access to tools, technical expertise, and I'm lucky enough to spend time with them every week outside of my day job to ensure the programme delivers."

It’s winner takes all, with a cash prize of 1.5 million rupees (US $4,644) but just as important are the coaching, mentoring and expert engineering knowledge that accompany the project.

The West may still feel that it leads the technology sector but in other ways it remains prehistoric in its attitudes and make-up. Sri Lanka’s population is majority female and, as one speaker put it, during the times of Covid and economic crisis, “All of the females had to stand up and take ownership.”

About 500 companies have gone through Hatch’s doors and, if representation is anything like when I was there, a very healthy percentage of those budding entrepreneurs are young women.

There are opportunities and there is optimism. The Sri Lankan government is pursuing green energy and to that Hatch founder/CEO Jeevan Gnanan adds fintechs as a plausible future success area. But most startups fail and few parts of the world can rival the environments fostered in Silicon Valley or, say, Israel.

“Two big problems startups face: one is market access and two is funding,” Gnaman says. He adds that he craves more state funding and an end to the brain drain that sees Sri Lankan entrepreneurs migrate to India or other destinations.

A day in the country

Sri Lankan capital Colombo.

IFS’s presence has some practical advantages in working with local companies. Singer, known for its iconic sewing machines but now a much broader concern, is a local customer, as is Silvermill, a 104-year-old provider of foodstuffs and other products, centred on the coconuts which abound in the country.

On the two-hour drive from the city, passing cows roam the roads interrupting traffic flow to, seemingly, nobody’s consternation while legions of roadside hawkers sell every fruit and vegetable you could name and many you couldn’t. We eventually arrive at Silvermill’s factory in the Giriulla area.

Silvermill does, or has done, pretty much everything you can do with a coconut, which is a surprising amount. A concise list might include items from managing estates filled with the trees themselves and helping to develop Mars Bounty chocolate bars to making snacks, drinks, creams and oils, power generation and repurposing husks and shells so they can be used in garden mulch and for other purposes.

Its premises are set in lush and bucolic surroundings and many staff remain there a lifetime. But Silvermill is in many ways a very modern company that’s on a mission to persuade the world of the value of its products, mostly based on “the tree of life” as the coconut is known, but also other ingredients such as cinnamon, the “true” version of the exotic spice in which Sri Lanka dominates world production. The company has a long and complex value chain, so it needs ERP support, and it uses IFS to manage its processes in the cloud.

“We haven’t done a single customisation,” says Silvermill IT head Kelum Prasad, proudly. He adds that Silver Mill is “a very, very complex business and we procure and process in a traditional way” but the company still jumped on the opportunity to automate processes and manage operations online.

Silvermill wanted to modernise and, with on-premises hardware and software reaching the end-of-life stage, it had no reluctance in going to cloud and adapting to the ERP rather than demanding custom code. “We found that a workaround was more [cost-efficient] than a customisation,” Prasad adds.

And with that it’s time to head off home with one final journey to marvel at local sights, sounds and smells. Dogs defeated by heat and humidity lie asleep in streets inches away from swarming cars, buses, trucks and those ubiquitous tuk tuks. There’s the by now familiar cornucopia of products available in the streets from car parts to live chickens, the cricket games that take place wherever there is grass and, eventually, the capital Colombo and sightings of the country’s latest signature monument, the Lotus Tower.

It’s unlikely that the US will fritter away its traditional power base ecosystem in tech, nor that China will stop surging to lead in AI, cellular comms and devices. But with India as a beacon of what is possible, the rise of globalisation and the need for enterprises to differentiate and think differently, it’s possible that for countries like Sri Lanka the future can be richer in many ways.

Maybe more companies will consider alternative destinations in which to invest their wealth, their faith and their aspirations for a more international and equitable future. And perhaps they will build foundations for more people outside the old familiar countries and regions to succeed, build new sorts of companies based on complementary skills and cultures, and dream up whatever comes next.