‘although the country has been moderately successful in attracting foreign BPO firms to Kenya, the focus on international BPO work has not succeeded’ firms to Kenya, the focus on international BPO work has not succeeded as originally envisioned and Kenya has not been able to build a positive and successful brand around the BPO sub-sector. There are three possible explanations why BPO has failed to realize the gains envisioned: • The strategy for BPO focused on the international market before developing local clients, including Government. This lack of focus on development of a local outsourcing industry to grow the local BPOs and ITES companies and give them the capacity to deliver on larger projects was fatal to developing depth in the industry and spurring large scale companies. • In the low-end BPO space, Kenya will never be able to compete with the economies of scale that India or the Philippines offer. It will, however, be able to occupy certain strategically useful niches like impact sourcing (ibid.). • In the intervening period, there have been changes to the global BPO and Outsourcing industry which has rendered the traditional BPO market that Kenya had been focusing on less attractive. For instance, global outsourcing contracts are increasingly larger in scale and bundled i.e. they include various services e.g. IT support, help desk and contact centers. Also due to the competitiveness of the global outsourcing market, the deals also have smaller margins. The lessons learned from these challenges have been used in this Master Plan for the re-engineered ITES sector to be successful. Although the low-end BPO work will continue to provide much needed jobs, the high-end IT outsourcing work will contribute to both value capture and skills development in Kenya (ibid.). In this Master Plan, more emphasis will be put on ITES to signal a move away from BPO because of some of the reasons given earlier. c) Development of the ICT Sector Kenya has a leadership position in terms of mobile applications and services. This leadership position is largely attributable to innovations in mobile money transfer services. However, there is an opportunity to build on this leadership role and become a leader in applications and service. In addition, there is potential for Kenya to develop local capacity for assembly and light manufacturing of ICT devices and ac- ..86 .................................................................................................................Towards ...............a...Digital .............Kenya ............ cessories and in turn create a significant economic sector. The development of ICT products and services has faced two key challenges: the fact that ICT is presently considered as a sub-sector and lumped with other sectors like transport or previously in Commerce and Industry, has inhibited the realization of the potential of this sector; and there is lack of legal framework for protection and enforcement of copyright and other IP laws. In order to spur the growth of ICT, there is an urgent need for proper categorization of ICT as a fullfledged economic sector with its own classification standards. An additional challenge in developing the Kenyan ICT sector is the widespread notion that we can only focus on mobile innovations. Why is it not possible to manufacturing computer parts, developing enterprise software for the local and regional markets, etc. We need to deal with this during this planning period. ‘Kenya has a leadership position in terms of mobile applications and services’ 5.3.2 Driving Forces a) Technology I nnovation: Despite the current low innovation index for Kenya, the country has huge potential for developing innovations in the ICT sector, as was illustrated in Figure 7. Progress has been made in developing infrastructure, especially broadband and mobile telecommunications, as well as in the regulatory and business environments. The following are the key forces that will drive innovation in the ICT sector: • Widespread adoption and use of mobile phones by the population. • Availability of broadband that covers large parts of the country. • Population that is composed of large numbers of educated but unemployed youth. • Widespread availability of tertiary and higher education. • Government commitment to research and innovation through establishment of KENIA, National Research Fund, and National Commission of Science, Technology and Innovation through the 87 Towards a Digital Kenya ..............................................................................................................................................................