MEMO FROM THE FUTURE: Sri Lanka Business Leadership Strategic Brief

Navigating Structural Transformation in IT/BPO, Exports, and Domestic Markets (2029-2030)

Prepared by The 2030 Report June 2030 Classified: Executive Leadership

EXECUTIVE SUMMARY FOR C-SUITE

The business environment in Sri Lanka has undergone structural transformation in 2028-2030 that invalidates many operational assumptions from 2025-2027. The companies that will survive and potentially thrive in 2030-2035 are those that have already begun strategic pivots. The companies that are maintaining 2027-level operations are in fact making a bet that disruption will reverse. This is an increasingly indefensible wager.

Critical Realizations for Executive Teams:

1. The offshore IT/BPO labor cost advantage has evaporated. AI has eliminated the arbitrage you were selling to global clients.
2. Survival requires rapid repurposing of assets and talent toward either: (a) higher-value technical services, (b) domestic market expansion, or (c) exit strategies.
3. Capital constraints are real and binding. Companies will not be able to fund major pivots through debt. Pivot must be self-funded through operational discipline.
4. Talent retention has become mission-critical. Every skilled employee is considering emigration. Retention strategies must be substantially upgraded.
5. The domestic market opportunity is real but small. For large companies, domestic market can only absorb portion of revenue loss from exports.

Strategic Choices Required by End-2030: - Divest/exit underperforming business lines - Consolidate workforce to sustainable levels - Invest in AI-complementary service offerings - Begin geographic expansion into emerging markets (India, Southeast Asia) - Develop domestic market products/services for recurring revenue

Companies executing these transitions now will emerge as sector leaders in 2033+. Companies that delay will likely not survive.

SECTION 1: THE STRUCTURAL COLLAPSE AND WHAT IT MEANS FOR YOUR BUSINESS

How We Arrived Here

Through 2027, the Sri Lankan IT/BPO sector was built on a straightforward value proposition: lower labor costs + reasonable quality + reliable delivery = attractive ROI for offshore development and business process work.

This value proposition was real. A team of eight developers in Colombo earning USD 1,200-1,500/month each (total cost USD 10,000/month) could deliver the same quality code as a team of eight developers in San Francisco earning USD 8,000-10,000/month each (total cost USD 65,000/month). The economics were compelling.

By 2029, this value proposition had been destroyed by two concurrent developments:

First: AI Coding Agents Major cloud providers (AWS, Azure, Google Cloud) and specialized startups (GitHub Copilot, CodeGen, others) have deployed AI systems that can write production-quality code, troubleshoot bugs, and refactor legacy systems. These AI systems are: - Available 24/7 without vacation, sick leave, or emigration concerns - Improving steadily (each new model release is 20-30% more capable than previous) - Becoming cheaper to use (unit cost per line of code is declining 15-20% annually) - Requiring minimal infrastructure (runs in cloud, no office space, no recruitment overhead)

Second: Global Supply Chain Optimization Multinational clients have simultaneously implemented AI-driven project management and supply chain optimization. This has meant: - Better understanding of true cost of offshore development (including management overhead, quality assurance costs, communication latency) - Ability to compare cost/quality/speed of AI-assisted in-house development vs. offshore teams - Pressure to consolidate vendors (work with fewer, larger contractors instead of many small ones)

The combination of these two developments created a cliff in demand for standard offshore development.

The Numbers

By June 2030, the impact is unambiguous:

Contract Pipeline Collapse: - 2027 contract wins: USD 420M (new contracts signed) - 2028 contract wins: USD 280M (-33%) - 2029 contract wins: USD 160M (-43%) - 2030 YTD contract wins: USD 65M (projected USD 130M full year, -56% vs. 2029)

Employment Contraction: - 2027 employment: 200,000 (peak) - 2028 employment: 178,000 (-11%) - 2029 employment: 145,000 (-18%) - 2030 employment: 135,000 (-7%, but further decline expected)

Average Contract Value Decline: - 2027 average contract value: USD 3.2M over 3-year term - 2030 average contract value: USD 1.8M over 2-year term (-44% value, shorter duration)

Margins Compression: - 2027 industry average gross margin: 32-35% - 2030 industry average gross margin: 18-22% (-12-15 percentage points)

This is not cyclical. This is structural. The jobs that existed in 2027 largely do not exist in 2030, and the jobs that do exist are half the price.

SECTION 2: STRATEGIC IMPERATIVES FOR LARGE COMPANIES (500+ EMPLOYEES)

Imperative 1: Right-Sizing Operations to Reality

The Hard Truth: Most large IT/BPO companies in Sri Lanka are currently 20-40% oversized relative to sustainable revenue levels. Workforce reductions to date have been insufficient to align cost structure with available work.

What This Means: Additional redundancy rounds are coming. The question is not whether, but when. Companies that acknowledge this and execute proactively have better outcomes than those that resist.

Execution Framework: 1. Assess true sustainable revenue base (not historical revenue, but realistic revenue trajectory 2030-2033) 2. Calculate headcount required to deliver that revenue profitably (target margins 20-24%) 3. Identify gap between current headcount and required headcount 4. Execute reduction in phases: - Phase 1 (immediate): Eliminate non-productive positions, improve utilization - Phase 2 (Q3 2030): First voluntary separation program (target 15-20% reduction) - Phase 3 (Q4 2030-Q1 2031): Involuntary reductions if Phase 2 insufficient 5. Communicate clearly to remaining staff that company has new sustainable baseline

Financial Impact: Redundancy programs are expensive (severance, legal, management costs). But they are cheaper than slow bleed of continuously operating unprofitable operations. Plan for 8-12% of revenue in one-time charges to execute rationalization, but expect benefits within 12-18 months.

Imperative 2: Shift Service Mix Away from Commodity Development

The traditional service mix of large IT firms was: - 45% Staff Augmentation / Body Shop - 30% Project-based custom development - 15% Managed Services - 10% Specialized/High-value services (consulting, architecture, security)

This mix no longer works. The first two categories are being destroyed by AI. Companies that derive >75% of revenue from these categories cannot survive without major repositioning.

Required New Service Mix Target (2032-2033): - 25-30% Staff Augmentation (select high-value or specialized skills only) - 15-20% Project-based custom development (high-complexity, mission-critical only) - 35-40% Managed Services (recurring revenue, sticky customer relationships) - 20-25% Specialized/High-value services (consulting, architecture, transformation, security, AI implementation)

Execution: This requires: 1. Hiring and developing specialists in new domains (AI/ML implementation, cloud architecture, cybersecurity, digital transformation). This is expensive and takes 18-24 months to show benefit. 2. Retraining or exiting commodity developers. Some developers can transition to higher-value work; many cannot. Plan for 20-30% of workforce to need transition support. 3. Rebuilding go-to-market strategy toward new value propositions. Your sales force was trained to sell staff augmentation. They now need to sell value-based services. 4. Managing customer migration. Existing clients may not value new service offerings. You may need to accept revenue loss from some customers to focus on others.

Timeline: 18-24 months to achieve reasonable progress. Revenue will likely decline during transition (2030-2031), but profitability should improve (2032+) if execution is solid.

Imperative 3: Develop Contractual Stickiness Through Managed Services

Commodity development has no stickiness. A client can fire you next month if they find cheaper labor elsewhere. Managed services—where you take responsibility for ongoing operation and maintenance of client's systems—create stickiness and recurring revenue.

Why Managed Services Matter: - Client switching costs are high (you have knowledge of their systems, relationships, data) - Revenue is recurring and predictable (multi-year contracts) - Margins improve over time (operational scale) - Customer lifetime value is 3-4x higher than project-based work

Challenges in Sri Lanka Context: - Client fear of vendor concentration (especially with Indian IT firms, where single vendor failure can cascade) - Capital requirements (need to invest in service delivery infrastructure) - Operational complexity (24/7 uptime requirements)

Recommendation: Target 35-40% of revenue from managed services by 2033. Start with existing clients where you have relationships. Build infrastructure (tools, processes, staffing) to reliably deliver. Price competitively but not at loss (target 24-28% gross margins).

Imperative 4: Talent Retention at Any Cost

The talent drain is accelerating. By June 2030, every strong technical person at your company is fielding recruitment inquiries from Australia, Canada, US, Singapore. Losing these people means you lose the technical capability to execute pivots.

Retention Strategy Framework:

Element 1: Compensation - If possible, increase salaries 15-25% for key technical staff. You cannot match what they could earn abroad, but you can reduce the gap. - Implement sign-on bonuses and retention bonuses tied to tenure/performance. - Consider stock/equity for senior technical staff (creates long-term incentives).

Element 2: Career Development - Strong performers need to see credible paths to senior technical roles (Principal Engineer, Distinguished Engineer, etc.) - Create opportunities for skill development in emerging areas (AI/ML, cloud, security) - Consider sabbatical programs or internal fellowship programs for high-value people

Element 3: Flexible Work Environment - Offer remote work options if possible (allows some people to stay if they can work from home part-time) - Consider part-time or contract arrangements for people who want to do consulting alongside your work

Element 4: Mission/Purpose - Particularly relevant for younger engineers: articulate a vision of what you are building and why it matters - Highlight work on problems that matter (not just revenue generation) - Create opportunities to contribute to open-source or technical community

Financial Reality: Top 10-15% of your technical staff can likely be retained through combination of above. Middle 30-40% will emigrate if they have opportunities; you should facilitate this gracefully. Bottom 20-30% should probably be exited to improve organizational capability.

SECTION 3: STRATEGIC IMPERATIVES FOR MID-SIZE COMPANIES (100-500 EMPLOYEES)

The Perilous Middle

Mid-size companies face a specific peril: too large to be nimble, too small to have pricing power. Large companies can absorb losses and pivot gradually. Startups can pivot rapidly. Mid-size companies often do neither effectively.

Strategy A: The Niche Specialist Play

Positioning: Become the leading specialist in a specific domain (vertical or technology) where you can achieve 10-15% market share globally.

Examples: - Healthcare IT (if you have domain expertise) - Financial services digital transformation (if you have banking experience) - Telecom infrastructure (if you have relevant experience) - Industry-specific vertical SaaS

Execution: 1. Identify a market where you have credible differentiation 2. Build specialized capability (hiring experts, developing IP) 3. Create thought leadership (conferences, publications, community) 4. Build customer base through strategic partnerships 5. Target 15-20% gross margin in niche (higher than commodity due to specialization)

Timeline: 3-5 years to establish credible specialist position. Requires patient capital and clear focus.

Risk: If niche is wrong, company fails quickly. Requires disciplined decision-making about which niches to pursue.

Strategy B: The Regional Play

Positioning: Expand beyond Sri Lanka to become a regional player in South/Southeast Asia with hubs in 2-3 countries.

Why This Works: - Diversifies currency and market risk - Allows you to offer clients talent pools from multiple geographies - Reduces dependence on Sri Lanka macro - Creates opportunity to hire talent from multiple countries

Execution: 1. Establish office in India (Bangalore or Hyderabad preferred, but Delhi/Pune also possible) 2. Establish office in Southeast Asia (Vietnam, Thailand, or Malaysia) 3. Leverage Sri Lanka operations as one of 3 hubs 4. Offer clients "follow-the-sun" support across time zones

Challenges: - Capital requirements (setting up new offices is expensive) - Visa/work permit complexities - Cultural integration challenges - Indian labor costs are comparable to Sri Lanka; Vietnam and Thailand are actually cheaper - Increased management complexity

Financial Reality: Requires USD 3-5M in capital to execute properly. Few Sri Lankan firms have this capital available. Alternative is to find global PE investor/strategic acquirer.

Potential Partners: Look for Indian IT firms interested in expanding geographic footprint. There might be M&A opportunity where Sri Lankan company becomes "center of excellence" within larger Indian firm.

Strategy C: The Exit/Pivot

Reality Check: If a mid-size company has not already begun pivoting by June 2030, the situation may be beyond recovery through organic pivot.

Options: 1. Acquisition by larger player: Larger firm (Accenture, Infosys, Cognizant, TCS) might acquire to gain: (a) Sri Lankan presence, (b) customer relationships, (c) technical capability. This is realistic for companies with strong technical teams and established customer relationships.

1. Consolidation play: Multiple mid-size firms could merge to create entity with scale advantages. Two companies with 150 employees each, each doing USD 20M revenue, might merge to create 250-employee company doing USD 35-40M revenue (eliminating redundancies). This creates scale to support specialist positioning.

2. Private equity: PE firm might acquire to roll up multiple mid-size operators and create larger platform for growth. Less likely in Sri Lankan market but possible with Asian PE firms.

3. Management buyout: If founders want to exit, management team could acquire business and potentially grow it through consolidation or niche specialization.

Recommendation: If still independent and struggling by end-2030, begin exploring M&A/partnership options. Standalone independence is increasingly unviable for mid-size operators.

SECTION 4: STRATEGIC IMPERATIVES FOR STARTUPS AND SMALL COMPANIES (<100 EMPLOYEES)

The Startups Surviving Transition

Some startups have actually survived and even thrived during 2028-2030 because they had already pivoted away from commodity outsourcing. Companies in this category: - WSO2: API management and integration (product-based, not services) - SailPoint: Identity governance (acquired, but built Sri Lankan engineering capability) - Various digital agencies: Providing services to domestic market

These companies share characteristics: - Product/IP-based business model (not just labor arbitrage) - Higher gross margins (50%+ vs. 20-25% for traditional outsourcing) - Scalability without proportional headcount growth - Less exposure to currency/macro volatility (though not immune)

The Startup Pivot Strategies (for those still in traditional outsourcing)

Strategy A: Build a Product - Identify a problem your clients face repeatedly - Build a product/tool to solve it - Transition from services to product (recurring revenue, scalability) - Examples: Project management tools, code analysis tools, automation frameworks

Challenges: - Requires product management and marketing capability (rare in Sri Lanka) - Requires patience (product takes 18-24 months to achieve product-market fit) - Requires capital (cannot be self-funded easily) - Competition from established products is fierce

Realistic Outcome: 1 in 10 startups executing this strategy will succeed. Others will wind down or pivot again.

Strategy B: Specialize in AI Implementation - Position as expert in helping enterprises implement AI and automation - Help clients transition away from human-intensive processes - Offer mix of consulting, implementation, and ongoing support

Why This Works: - High demand (every enterprise is trying to figure out AI strategy) - Relatively uncrowded (not many consultants really understand this yet) - Good margin potential (clients will pay premium for smart guidance) - Allows you to repurpose existing engineers (give them new skills in AI/ML)

Challenges: - Need to attract AI/ML talent (expensive, competitive globally) - Requires certification/credibility with major cloud providers - Market is moving fast; what is competitive advantage today may not be tomorrow

Realistic Timeline: 12-18 months to establish credible positioning. Revenue potential is real if execution is solid.

Strategy C: Dominate a Domestic Market Segment - Accept that you cannot compete globally with large firms or AI - Focus on serving domestic Sri Lankan market (other businesses, government, NGOs) - Offer solutions for their IT/digital challenges

Why This Works: - Reduced competition (large firms ignore small markets) - Relationship-based (harder to displace once you are incumbent) - Less exposure to global macro/AI disruption - Can operate profitably at smaller scale

Challenges: - Market is small and fragmented (limited total opportunity) - Payment reliability is lower (businesses/government are slow payers) - Growth is capped at size of domestic market (might reach USD 2-3M revenue, but hard to exceed) - Currency weakness makes offshore revenues more valuable (creates incentive to serve global clients)

Realistic Assessment: This is a viable path to sustainable small business (USD 1-3M revenue, 20-40 employees, reasonable profitability). Not a path to rapid growth, but defensible business.

SECTION 5: ALTERNATIVE SECTORS AND EXPANSION OPPORTUNITIES

Tourism Services Opportunity

Tourism arrivals have collapsed (1.3M in 2030 vs. 1.9M in 2027), but this has created opportunity for consolidation and upgraded experiences.

Opportunity Segments: - Boutique hotel management: Small chains (10-50 hotels) offering curated experiences - Specialized tour operators: High-value experiences (wildlife, cultural, adventure) at premium pricing - Tourism technology: Booking systems, revenue management, guest experience platforms optimized for boutique operators - Serviced residences: Longer-stay accommodation for digital nomads and remote workers

Execution: Small companies with capital USD 500K-2M and operational expertise can build sustainable tourism businesses. Market is contracting, so margins are tight, but opportunities exist for operators with good product/service.

Domestic Market SaaS and Digital Products

As Sri Lankan economy contracts and currency pressures mount, there is opportunity to build software/digital products specifically for Sri Lankan market:

Opportunity Areas: - Accounting/bookkeeping software for small businesses (XERO competitor for Sri Lanka) - E-commerce platforms for SMEs (shop builder, payment processing) - HR management software for local companies (smaller than Workday, optimized for SME needs) - Educational technology (online course platforms, training delivery) - Financial services technology (fintech, lending, insurance)

Why This Works: - Market knows local language, local business practices, local regulatory requirements - Can operate at lower price point than global alternatives - Can collect payments in local currency (no FX conversion needed) - Can target market size of 50,000-200,000 businesses (sufficient for USD 5-50M business)

Challenges: - Requires product/technology capability (not just outsourcing) - Requires go-to-market capability (sales, marketing) - Requires capital (USD 2-5M to build product, establish presence) - Payment methods/fintech infrastructure is still developing (but improving)

Realistic Assessment: Opportunities exist, but only for teams with strong product and commercial capability. Not a path for traditional software services companies without major pivot.

Export Diversification

Companies that serve global markets can diversify beyond IT/software services:

Emerging Opportunities: - Business process outsourcing in non-IT domains: HR services, accounting, legal research, medical transcription (less impacted by AI displacement than software development) - Back-office services for financial institutions: Data entry, record management, compliance monitoring - Technical documentation and translation services: For multinational companies serving non-English markets - Data annotation and training services: AI companies need human-annotated data to train models; this is labor-intensive and Sri Lanka has cost advantage

Why This Works: - Complements/leverages existing operational infrastructure - Utilizes existing workforce - Diversifies revenue away from pure software development - Can operate at reasonable margins (25-30%)

Challenges: - Still subject to AI displacement (though slower than pure software) - Requires identifying clients with need for these services - Requires different skill profiles than software development (though some overlap)

Realistic Assessment: Good diversification play for companies with operational discipline and existing customer relationships. Can generate USD 5-20M revenue in these segments for larger operators.

SECTION 6: FINANCIAL MANAGEMENT AND COST STRUCTURE OPTIMIZATION

The New Profitability Baseline

Companies need to fundamentally recalibrate profitability expectations. The margins achievable in 2030 are not the same as 2027:

2027 P&L Assumptions (Large Company): - Revenue: USD 100M - Gross Margin: 33% - Operating Expense Ratio: 20% - Operating Profit Margin: 13% - EBITDA Margin: 15%

2030 P&L Reality (Same Company, Without Significant Pivoting): - Revenue: USD 65M (-35% from 2027) - Gross Margin: 21% (-12 pts) - Operating Expense Ratio: 28% (absolute expenses did not decline proportionally) - Operating Profit Margin: -7% (negative) - EBITDA Margin: -5% (negative)

Required 2030 P&L if Company Has Right-Sized: - Revenue: USD 65M - Gross Margin: 25% (improved service mix) - Operating Expense Ratio: 22% (disciplined cost management) - Operating Profit Margin: 3% - EBITDA Margin: 5%

This is the challenge: getting from negative territory to positive profitability in face of revenue decline requires significant margin improvement AND cost discipline.

Cost Structure Reductions Required

Scenario: USD 100M → USD 65M revenue with requirement to achieve 3% operating margin

Key Levers: 1. Personnel (60% of reduction): This is biggest lever. Requires 35-40% headcount reduction. Not viable through attrition; requires active separation programs. 2. Facilities (18% of reduction): Many companies operate excess office space. Remote work policies allow rightsizing of footprint. Some companies can reduce office space 40-50%. 3. Technology & Tools (5-7% of reduction): Audit all software licenses, cloud subscriptions, tool costs. Likely 30-40% reduction possible. 4. Marketing & Sales (4-5% of reduction): Shift focus to customer retention vs. acquisition. Reduce discretionary marketing spend. 5. G&A (10-12% of reduction): Streamline back-office operations, reduce management layers, consolidate roles.

Working Capital Management

Currency weakness creates working capital challenges: - Invoices to global clients in USD create timing mismatches (strong cash generation initially) - Employees expect rupee-based compensation; salary bill increases as rupee weakens - Payables to vendors in USD create foreign exchange exposure

Recommendations: - Establish USD-denominated bank account for global revenue (avoid rupee conversion) - Hold 4-6 weeks of operating expenses in USD cash (provides buffer for currency volatility) - Renegotiate vendor contracts to lock in pricing where possible - Consider hedging strategies for major USD/LKR exposure (though cost is high)

SECTION 7: MERGERS, ACQUISITIONS, AND PARTNERSHIP STRATEGIES

Consolidation Opportunities

The sector-wide stress has created M&A opportunities. Potential acquirers:

Domestic Consolidators: - Larger Sri Lankan firms (Virtusa, WSO2, IFS) looking to acquire smaller competitors for customer base and capability - Unlikely to overpay, but may offer stability for acquired teams

Indian Acquirers: - Major Indian firms (Infosys, TCS, Cognizant, Wipro) interested in expanding global footprint and acquiring Sri Lankan operations - Can provide scale, credibility, and global customer relationships - Risk of integration challenges and cultural mismatches

Strategic Investors: - Software product companies looking to acquire services capability to complement products - Potential deal structures: acquisition + earn-out based on revenue/profitability

Private Equity: - PE firms increasingly looking at emerging market IT services for consolidation plays - Model is typically to buy multiple companies, integrate, create economies of scale, take EBITDA multiple on exit

Partnership and Consortium Models

Instead of full acquisition, consider partnerships:

Joint Ventures: Partner with larger global firm to pursue specific market or service line. Provides capital and market access; you provide execution and Sri Lankan footprint.

Reseller Relationships: Become authorized reseller or implementation partner for global software/service providers. Reduces need to develop product yourself.

Subcontracting: Position yourself as subcontractor to larger systems integrators. Provides steady revenue stream; may not be prestigious but provides stability.

SECTION 8: CURRENCY AND HEDGING STRATEGY

The Rupee Realities

Sri Lankan rupee has depreciated 46.9% from June 2027 (330/USD) to June 2030 (485/USD). This creates both opportunities and risks:

Opportunities: - Exports are more competitive (lower local currency cost) - Business service companies earning in USD have artificially high local currency revenues - Import-competing domestic businesses have price advantage

Risks: - Cost of imported goods/services increases (tools, software licenses, professional services) - Local currency appreciation is unlikely; further depreciation is risk - Uncertainty makes planning difficult

Currency Management Framework

For Companies with USD Revenue: - Convert USD revenue to local currency only as needed for local payments - Hold working capital in USD - Use USD-denominated suppliers where possible - Hedge forward major commitments (e.g., lease payments, capex) if reasonable

For Companies with Mixed Revenue (USD + LKR): - Separate P&L into USD stream and LKR stream - Manage each stream independently - Consider natural hedges (e.g., if you earn USD and spend USD, you are naturally hedged)

For Companies with Primarily LKR Revenue (Domestic Market Players): - Limited hedging options available - Focus on operational efficiency to maintain margins despite rupee weakness - Consider offering USD pricing to corporate customers (they have USD and prefer to pay in hard currency)

SECTION 9: THE NEXT 18 MONTHS: CRITICAL EXECUTION TIMELINE

Q2-Q3 2030: Strategy Clarity (Now - September 2030)

Key Decisions Required: 1. Declare which of the strategic imperatives above you will pursue 2. Communicate clearly to employees what the strategy is 3. Begin executing against strategy (hiring, organizational changes, new initiatives)

Common Mistake: Trying to do everything at once. Better to execute 1-2 strategies well than 5-6 strategies poorly.

Communication: Be honest with employees about challenges. Ambiguity is worse than bad news. Employees will be thinking about emigration; uncertainty drives emigration. Clarity (even if challenging) helps retention.

Q4 2030 - Q1 2031: Execution Against Plan

Milestones: - Right-sizing headcount completed (if applicable) - New service lines launched (if applicable) - First partnerships/M&A discussions underway (if applicable) - Customer win/loss analysis completed; retention strategy in place

Financial Targets: - Achieve positive EBITDA (even if small margin) - Improve customer retention rate (reduce churn) - Stabilize employee turnover (or initiate decline after initial separation programs)

Q2-Q3 2031: Transition Assessment

Review Questions: 1. Is revenue stabilizing or declining further? 2. Are new strategic initiatives gaining traction? 3. Is employee retention improving? 4. Are margins improving toward target levels? 5. Is company positioned for 2032+ growth?

Decision Point: If progress is inadequate, should consider M&A, partnership, or exit options.

SECTION 10: SECTOR RECOVERY SCENARIOS

The Honest Assessment of Future

No matter how well you execute, Sri Lankan IT sector will not return to 2027 employment levels. This is not pessimism; it is math. The factors that drove sector growth through 2027 (labor cost arbitrage) no longer apply.

What IS possible:

Scenario A: Stabilization at 130,000-150,000 employees (60-65% of 2027 baseline) - Some job creation from new high-value services - Some job creation in domestic market opportunities - Some continued commodity work at lower margins - Likely outcome: 65% probability

Scenario B: Further Decline to 90,000-110,000 employees (45-55% of 2027 baseline) - Companies fail to pivot; brain drain continues - Sector shrinks to core profitable operations only - Potential for some recovery after 2032 if global conditions improve - Likely outcome: 25% probability

Scenario C: Growth to 160,000-180,000 employees (80%+ of 2027 baseline) - Requires successful pivots to high-value services - Requires major new sector developments (AI implementation, renewables, etc.) - Requires global growth acceleration to enable customer spending - Likely outcome: 10% probability

Strategic Implication: Even in base case (Scenario A), sector is 30-40% smaller than 2027. This is the new reality. Companies should plan for this, not for return to 2027 baseline.

CONCLUSION: THE STRATEGIC IMPERATIVE

The companies that will thrive in 2031-2035 are those that:

1. Accept the new reality rather than deny it
2. Execute strategic pivots decisively rather than delay hoping for recovery
3. Make hard trade-offs about what to stop doing (commodity services, unprofitable customers)
4. Invest in new capabilities (AI-complementary services, domestic market products, management services)
5. Retain top talent through combination of compensation, career development, and mission alignment
6. Manage financial discipline to achieve profitability at lower revenue levels
7. Position for consolidation or partnership if independent viability is questionable

The window for decisive action is narrow. By end-2030, you will have committed to a path that will largely determine 2031-2035 trajectory. Companies that have begun execution on new strategies during 2028-2030 are in position to succeed. Companies still discussing strategies in late-2030 are falling behind.

The strategic challenge is urgent, and the time for decision is now.

Prepared by The 2030 Report June 2030 Executive briefing for leadership teams navigating Sri Lankan business environment transformation