The I.T Industry

[Sultan]

INDUSTRY ANALYSIS:
Circumstances Make Pakistan Hot IT Outsourcing Location



By Anthony Mitchell
E-Commerce Times
11/02/04 5:00 AM PT

The biggest boost to Pakistan's efforts to break into the global IT marketplace came on September 28, when India's finance ministry announced an income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India. This tax proposal had been in the works since the beginning of the year and is expected to prompt U.S. firms to follow GE's lead in selling off assets in India.

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Why is Pakistan the hot new offshore information technology (IT) destination? This is because of a combination of favorable economic circumstances. Just when many Western managers are finally becoming comfortable with the idea of working closely with Indian IT firms, along comes Pakistan.

Pakistan is shaking off decades of "also ran" status. Funds invested into building educational institutions in Pakistan (when there were not enough jobs to absorb all the graduates from those institutions) are paying off as Pakistan begins to field a modern, highly productive labor force that is the envy of more prosperous but less tech savvy nations elsewhere in the region.

Why Care?

Why should the average Western IT professional, businessperson or IT consumer care? Because we are all going to be buying and using more IT outputs from Pakistan. To be a smarter buyer and user of IT products calls for a familiarity with Pakistan, even for those who do not initially intend to do business with Pakistani firms. We are all part of a global economy and Pakistan is an increasingly important part of that global economy.

The issues that Pakistan faces as it gears up for the global high-tech marketplace are many of the same issues that both advanced and developing economies face elsewhere in the world, as both service providers and service consumers. Pakistan is making no effort to gloss over its challenges, which makes those challenges easier to address.

With a population of 160 million and a land area almost twice the size of California, Pakistan is a smaller and more unified country than most of its neighbors, which increases that nation's chances of solving its own problems and avoiding the mistakes that have plagued neighboring economies.

India Helps Pakistan

The biggest boost to Pakistan's efforts to break into the global IT marketplace came on September 28, when India's finance ministry announced an income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India. This tax proposal had been in the works since the beginning of the year and is expected to prompt U.S. firms to follow GE's lead in selling off assets in India.

Any Western business manager who initiated or approved the establishment of an IT production or R&D subsidiary in India in 2004 could find that decision to be a career-ending move unless they have built in financial reserves to accommodate both the tax scheme of September 28 and upcoming taxes still on the drawing board.

A proposal is under consideration in New Delhi to tax activities conducted over international private leased connections (IPLCs) that carry most of India's voice and data traffic to and from the outside world. There is also a proposal to replace state-to-state customs duties (octroi) with a national value added tax. Both those tax proposals could be combined into a single scheme.

U.S. IT brokerage firms, their U.S. clients and domestic Indian IT operations will be largely untouched by the September 28 tax scheme. But the traditional offshore migration path of outsourcing to an offshore location first -- before setting up captive operations there -- has been disrupted in India until economic reforms reduce the role of the Indian government in the economy and consequently reduce that nation's revenue requirements.

For Westerners with long-standing personal ties to India, that country's September 28 tax scheme could have both personal and financial consequences. For new Indian workers who hoped for a position with a Western firm based in India, that country's revenue policy will alter careers, lifestyles and futures. Westerners can pack up and look for other another country to set up operations. However, what country?

Pakistan's Advantages

Pakistan is the primary beneficiary of India's decision to tax foreign firms with captive IT operations in India. No other economy can match Pakistan's labor pool of educated English-speaking workers. No other economy can match Pakistan's scalability , reliability and low-cost environment.

Pakistan offers five advantages over India:

1. Western experience: Executives at IT firms in Pakistan often have worked and gone to school in the U.S., which is Pakistan's largest export market. Indian IT firms whose managers have worked in the West are generally more expensive than similarly positioned Indian firms, without always providing noticeable differences in program implementation capabilities. The willingness of Pakistanis to return home from the West stands in marked contrast to most Indians who arrive for school or work in the West and never look back.

2. Professionalism and integrity: The personal integrity of Pakistani managers is easy to identify and appreciate, especially by Westerners with business experience elsewhere in the region. However, the relatively open and trusting nature of Pakistanis has made them easy prey for Indian business brokers who have managed to cheat several Pakistani IT firms by offering to provide them with outsourcing contracts in exchange for up-front fees. The Pakistanis assumed that these Indians were open minded and charitable for coming to help less experienced firms in Pakistan gain access to international contracts, until the Indians took their money and disappeared.

3. Higher labor availability: Fewer holidays in Pakistan means less slippage in staff availability compared to India. IT firms in India are advised to hire a diverse workforce so that members of one community can enjoy important festivals while members of other communities cover the phones and keep production going.

4. Good accents: Pakistan's official language is English. Only Kolkata (formerly Calcutta) and the Punjabi areas of India can come close to competing with accents in Pakistan, where many families speak English at home and where accent neutralization for non-native speakers of English is substantially easier than in India. Language skills and accents provide Pakistan with a major advantage over all other Asian outsourcing destinations.

5. Low cost talent pool: India's top-tier labor force for IT work has been stretched thin in many areas, especially Bangalore, where escalating wage rates, turnover and higher outsourcing prices are reaching critical mass at the same time that the urban infrastructure has exceeded its carrying capacity. Annual turnover rates reported to InternationalStaff.net for most merchant call center facilities in India at the beginning of November are approaching 100 percent. High turnover rates are causing a shift to second tier Indian cities and to Kolkata. Escalating turnover rates are one of the Indian outsourcing industry's dirty secrets. In comparison, Pakistan's top-tier talent pool is largely untapped and turnover rates are less than 20 percent.

Safety and Security

Pakistan is not without challenges, some of which are real (improving the telecommunications infrastructure) and some are exaggerated, especially in terms of the security situation. Once you have lived through a few riots in India, once you have taught yourself how to quickly turn the lights out and lay down on the floor because you are afraid of what might come through the window, then Pakistan doesn't seem so scary anymore.

The biggest danger that Westerners face in South Asia is from automobile accidents, particularly at night. India has over 8 times the number of highway fatalities per passenger mile than the U.S.

If you go looking for trouble, you will find it, whether in the back alleys of Karachi or the parking lots of many suburban U.S. shopping malls. Americans who have worked in both Karachi and Mumbai report that there is no discernable difference in the safety and security situation in both cities. The lack of reporting in the U.S. media on the occurrence of violent disturbances and general strikes in India, versus the close coverage often afforded to Pakistan, has created the illusion that Pakistani cities are somehow more dangerous than cities elsewhere in the region, especially for Americans.

The U.S. Department of State does not maintain accurate statistics on economically or personally motivated attacks against their own personnel in foreign countries. Nor does it collect accurate information on crimes committed against U.S. nationals in foreign countries. This leads U.S. citizens to avoid safe areas (for example, Islamabad) and to incur excessive risks in areas where Americans are routinely victimized (for example, Mexico City).

The U.S. government is not doing a good job at providing assistance for Americans who have been assaulted, robbed or otherwise victimized in foreign countries. If it did, there would likely be some accounting of those efforts, accounting that would demonstrate that Pakistan's major cities have been and continue to be a generally safe place for U.S. business people and their families.

Shared Roles

Pakistan and the U.S. have similar roles when it comes to human rights. Both countries are a beacon of safety and a haven for refugees. The government of Pakistan has not been advertising this fact. The people who have fled to Pakistan from surrounding countries in the region have, on a one-to-one personal basis. They are Pakistan's best ambassadors.

Before making up your mind about Pakistan, talk to people who have left there or have passed through there. Their origins might be different but their stories are often tragically similar. Too often, it seems as if they are all reading from the same script: family members (or themselves) in neighboring countries who have been victimized, jailed, possibly tortured, relatives killed, and all survivors traumatized and dispossessed. Pakistan welcomes them and serves as a place of safety and security.

From Iran, Afghanistan, India and elsewhere they come, seeking the same things that immigrants to the U.S. have always sought: opportunity, liberty, freedom of religion and respect for personal beliefs.

Americans naturally identify with the underdogs, the runners up, the people who are trying harder than anyone else to succeed. This is why many Americans find it easy to identify with Pakistanis.

It is not necessary for Americans to take sides in disputes between India and Pakistan. Taking sides is not required. Long-term peaceful solutions are required.

Increased trade and joint projects between Pakistan and India will pull those two countries together and create incentives for peace. American firms doing business in one or both countries can contribute to peace through responsible business practices and the moderating effects that employment and prosperity provide. This can and should be accomplished when American firms are allowed to operate on an equal footing with local firms, which for now only appears possible in Pakistan.
--------------------------------------------------------------------------------
Anthony Mitchell, an E-Commerce Times columnist, has been involved with the Indian IT industry since 1987, specializing through InternationalStaff.net in offshore process migration, call center program management, turnkey software development and help desk management.

LINK
http://www.ecommercetimes.com/story/37750.html

[wazim]

Assalam o Alaikum Everyone
I am new to this forum and i Love this website in general, because i love to know about the new buildings, towers and hotels and i am extremely interested in Pakistani development not just Architectural but financial growth, education and IT development etc.
Sorry to go off the topic, but i was actually going to post this same article on this forum and to my surprise it was already posted by someone . I don't agree 100% with all the points, but it's GREAT news that finally we are entering the IT market (if it is all true).
Hopefully we do get the benefit of new Indian tax announcements.

[cntower]

Great article...

[HasanB]

Reading this article makes you feel real proud, i hope the points the writer makes materialise.

[UnitedPakistan]

Man i totally agree with the accent thing! I try to explain it too many people but many still dont understand!
anyways IT Outsourcing has negative effects too because look they are paying you a crappy salary for your job which may hinder the GDP Per Capita

[kshatriya]

It's an interesting article, though India has a very large pool of educated people with good spoken English, and it's not really like how it's described in that article. And dunno about that cheating bit either, but I guess it's just the way the media in both countries is. :-) But it's good news for Pakistan, the BPO wave is finally coming!

[cntower]

Pakistan has potential to be hub of IT: Microsoft ME Chief

Emre Berkin Thursday said Pakistan has the true potential of becoming IT hub not only region-wise but also worldwide.

"We believe that right ingredients are here in Pakistan. It must need to be channelled and harnessed," he told a private television channel.

"Ensuring good governance, facilitating and providing efficient services to people by introducing e-governance, ensuring accountability in every strata of life can make Pakistan the hub of Information Communication Technology (ICT)," he added.

"Productivity can be improved through Information Technology. Efficiency can be gained through collaboration between different government entities, agencies, public sector organizations."

Information and communication technologies are closely inter linked and are merging together, he added.

Responding to a question he said Pakistan should preserve intellectual property rights for ensuring progress and property of Information Communication Technology (ICT)

[Intoxication]

Inshallah Pakistan will become the hub of IT.

[cntower]

Add this!

[HasanB]

ok cntower can you please clear out your pm inbox .. .because it is full and therefore you cannot recieve any messages. Thanks.

[Hope]

Wicked!! Spread out this article to your mates....

[cntower]

I have cleaned out my inbox!

[cntower]

sticky

[UnitedPakistan]

BUMPTY BUMP

[UnitedPakistan]

As U.S. firms attempt to follow the market into an increasingly saturated India, Indian firms are looking to lower their costs by coming to Pakistan, which is 30 percent cheaper than India for IT work and has an underutilized talent pool of English speakers and computer science graduates.

Two motorcycles collide, Ben Hur style, spilling four lads out across the roadway, slick with gray water. They pick themselves up, brush off their clothes, pull fenders and other peripherals back into place, then speed away. Not one harsh word is exchanged. Nor is there a single helmet among the lot of them.

Welcome to the old Saddar market area of Karachi, Pakistan, where computers, mobile devices, and other electronics are sold. Business is booming here, with goods flying out of the stores like birds freed from a cage.

There is a hunt going on. Nearby in the same old downtown area on the following night, I spot two men attempting to climb over an iron fence. They are the first Westerners that I've seen outside a hotel in more than two weeks here. They are attempting to cross a busy street and have become stranded by heavy traffic. I wonder if they will starve.


Leading the Market
The hunt I'm on is to discover markets for information technology in Pakistan and to find software and call center firms that will perform well if provided with outsourcing contracts from U.S. clients.

As U.S. firms attempt to follow the market into an increasingly saturated India, Indian firms are looking to lower their costs by coming to Pakistan, which is 30 percent cheaper than India for IT work and has an underutilized talent pool of English speakers and computer science graduates.

These Indian firms are onto something. Why follow the market when you can lead it?

Before the Boom
Karachi feels like the Bangalore that I knew in 1995, when I was there to help found a software startup specializing in artificial intelligence . That was before the boom that has strained the availability of high quality IT labor availability across all of India except Kolkata (formerly Calcutta).

Pakistan now has better long-term economic fundamentals than India did both then and now. With inflation at 4 percent per year, a good track record on reducing foreign debt, and a prime minister whose last job was as the No. 3 person at Citibank, Pakistan has been sending strong signals on investment and trade.

Pakistan taxes domestic IT services at 5 percent. IT products and services destined for international markets are not taxed at all. This compares to India's new 36 percent tax on foreign owned IT and research and development operations there. India will always have a strong position in the market for global IT services, but Pakistan's emergence signals new high quality, low-cost service options -- and a less protectionist market for U.S. exports.

Back Alleys of Karachi
In the back alleys of this megalopolis of 30 million people (14 million in the city proper) on the shores of the Arabian Sea, I have yet to stumble upon a hidden outsourcing facility.

Staying in a rundown colonial-era mansion in downtown Kolkata a few years ago, I was surprised to find that an old horse stable on the property had been turned into an Oracle (Nasdaq: ORCL) service center. It still looked like a stable. Inside the dimly lit room were rows of tiny monochrome monitors, manned by quiet workers, mostly women.

"Can you find us any Oracle work?" asked the mansion's owner.

"Can you find these people bigger monitors?" should have been my reply, "and a proper restroom?"

Here in Karachi, everything has been on the up and up, so far.

Expectations
In Karachi I expected to see a bunch of brand new companies going after bottom-end business from the U.S. In the call center space, there are almost a dozen firms like that in Pakistan now, compared to half a dozen merchant firms here that are going after high-end business.

Karachi has only seen three call center failures over the last two years, all small operations. In 18 months, this number is expected to increase as unprepared investors enter and exit the field.

Pakistan's government is pushing local investors to start IT businesses here. Because neither the government nor local investors have much of an idea about where new IT firms should focus, there is a risk that the IT industry will repeat the mistakes made over the last five years in India.

In India, the hype about IT drove countless entrepreneurs to engage in businesses in which they had no chance of success. In that country I've seen software firms open, maintain a full staff, and then close without ever implementing a single commercial contract. One in Chennai went on that way for three years. It's painful to watch and even more painful to try to work with people in those circumstances.

Established History
One surprise about Pakistan's software industry is that there are numerous well-established firms that have been in business here for a long time. Pakistani IT firms have been quietly doing work for international clients such as Amazon.com (Nasdaq: AMZN) , Wal-Mart, and Fry's Electronics while those clients' slower competitors follow the herd into Pakistan's neighbor.

The oldest international outsourcing firm in Pakistan is Solutions, which started providing payroll-processing services in 1977 and now builds and customizes mortgage processing and escrow software.

A host of hardware support firms and ISPs have long histories in Pakistan too. International technology firms have generally not bothered to set up permanent support operations here. They have made minimal marketing efforts in Pakistan, or have done so indirectly, through languid Indian offices with no interest in selling or supporting anything in Pakistan.

How To Export to Pakistan
American firms seem clueless about marketing to Pakistan, constantly repeating the same strategic mistakes. Red Hat (Nasdaq: RHAT) , for example, by selling to Pakistan through India, has seriously undermined its market potential in this country. Red Hat's Indian office reportedly hoards marketing funds and research and development resources. It also refuses to sell the full range of Red Hat products to firms in Pakistan.

Symantec's (Nasdaq: SYMC) arrangement of selling to Pakistan through South Africa is another example of marketing ineffectuality.

American firms need to make direct sales relationships with distributors in Pakistan. Otherwise, they will continue to abandon the market to local firms and to the Europeans. Hiring non-resident Indians (NRIs) in the U.S. to head sales and marketing efforts directed at Pakistan invites problems.

Domestic Focus
Home grown IT service firms in Pakistan have tended to focus on the domestic market. A good example is ZRG.com. This Karachi-based firm builds and sells its own automated call distributors (ACDs), interactive voice response units (IVRs), recording devices, and other call handling solutions.

ZRG.com has never worked on a project that involved having its corporate customers make or receive calls outside of Pakistan. The scale of the projects that they have been involved in has also been small. ZRG's largest call center project to date is 225 seats.

Other Pakistani firms have taken U.S. products and provided ad-ons to make them faster and cheaper to use, as ArwenTech.com has done with Cisco (Nasdaq: CSCO) routers.

E-Commerce
One firm to watch is InfiniLogic.com, which provides content to more than 4,500 e-commerce Web sites around the globe. Their sales people work closely with their technical staff to help make sure that clients' expectations are met. They hired overseas Pakistanis returning from the U.S., whose Americanized speech often causes clients to think they are dealing with a U.S. firm.

To expand their international presence, InfiniLogic's COO Ayub Khan went to a language school in Karachi and asked two German language instructors there to join his German language services section. To convince them, Ayub offered the instructors twice what they were making as teachers.

Ayub has turned down opportunities for mid-level or low-level call center work, preferring to focus on his firm's core e-commerce capabilities. It was a surprise to hear Ayub's perfect English accent, acquired growing up and working in England.

Competitive Position
Karachi's biggest surprise came at e-commerce infrastructure firm Etilize.com. When I asked their cofounder and CTO, Aamir Baig, who he was competing against, I expected that we were going to have "the India conversation" again. Instead, Aamir responded by saying that his competitors are in Israel and the U.S. One is also in Russia.

"India last year had IT exports of [US]$10 billion to $14 billion, whereas Israel had $35 billion," Aamir said, adding that Israel's population is only about 7 million people, including Palestinians. India, in comparison, has more than 1 billion people.

Aamir said that his firm is not going to compete with India for low-end work. Instead, he competes with firms in the U.S. and Israel -- on the basis of brainpower.

Aamir has lived most of his life in the U.S., although he was born in Pakistan. Hip, handsome and well spoken, I asked him why he had chosen to move away from the U.S. and locate his e-commerce firm in Karachi.

"People are what it really boils down to," Aamir said, adding, "Pakistan was our natural first choice."

[zees]

As per the news that appeared in the leading National dailies, the Governor of Sindh Dr. Ishratul Ibad has approved 200 acres of land near Super Highway at Karachi for building an Internet Media City. This decision is another landmark for ultimately enhancing the opportunities available to the masses by encouraging foreign investment to be made in the country.

In the opinion of Mr. Hanif S Kalia (Chairman Ko-Ordination Group - KRG), the decision over – due and is crucial as it aims towards transforming Karachi into an IT hub for further growth and development of IT sector in the region. The Chairman reiterated that the decision is a landmark towards providing equal opportunity to the locals to get properly aware with Information Technology while utilizing it for performing their various activities as well as add a distinctive feature to their talents and skills through which they will be able to make a name for Pakistan. He said that it was an overdue demand of KRG to take concrete steps in this regard and it is hoped that this endeavor will not exist in papers only and will be materialized soon. He added that undoubtedly, it would attract a lot of foreign investment through which IT Sector will grow more and benefit Pakistan in the long run..

He praised Dr. Ishratul Ibad and Provincial IT Minister (Sind) Mr. Syed Mustafa Kamal in their efforts to make Karachi an IT hub of the region after Bangalore and Dubai. He reiterated the aim to fulfill the world’s requirements of IT professionals while also proving the world that Pakistan is also capable of producing IT professionals of similar international standards.

Mr. Hanif S. Kalia further appreciated the effort of Sindh Government and said that these continuous efforts will play a vital role in making Pakistan emerge as a prominent country in the IT market across the globe and will be able to earn a huge precious foreign exchange.

According to the current details, the land was said to be located on the Link Road on Super Highway, for the internet media city close to the proposed educational city had been planned by the federal government to provide an infrastructure and other basic utilities on the same pattern.

[FK]

I wonder if Karachi's Masterplan has been completed or not, their announcing new projects just like that.

Im sure Super Highway's the only place left, since most of Karachi is 'full', but still they should have a decent Masterplan to follow it.

[swerveut]

The masterplan for Karachi will never be made...

[UnitedPakistan]

'Strict anti-piracy laws to attract investment in IT sector'
KARACHI (April 14 2005): The proper protection of intellectual property rights could attract more local and foreign investment in the country's nascent software sector, said Co-Chairman Business Software Alliance (BSA), a group of world's leading software companies here on Wednesday. Al Redha, based in Dubai and currently visiting Pakistan, said that the software piracy had been discouraging both the national and international software companies to invest in Pakistan.

Violation of copyright laws had become a considerable problem and needed to be checked with all means to develop the IT industry, he observed.

Over the last few years, most of the investment in the software sector had been diverted to those countries where the anti-piracy laws were strongly implemented, observed the Co-Chairman BSA.

BSA groups the world's leading IT companies, which have joined hands to check piracy all over the globe. These include Adobe, Apple Computer, AutoDesk, Compaq, Corel Corporation, IBM, Intel, Lotus Development, Macromedia, Microsoft, Network Associates, Novell, Sybase and Symantec.

"The worldwide software piracy figures depict that 83 percent business software used in Pakistan is illegal. This unauthorised usage is costing the country millions of rupees each year in the shape of lost taxes and depriving people of employment opportunities in the huge software industry," he added.

Al Redha said that the software was made available through the hectic efforts of a number of people including programmers, designers, artists, producers, distributors and retailers, who had to suffer at the hands of pirates. Software piracy was not only harmful to the software producers but also equally detrimental to its users, he said.

Al Redha said the legal software provided all the documentation including disks and tutorials and qualified the user for free or low-price upgrades through registration. On the contrary, Al Redha said, pirated software did not ensure quality performance. The illegal software may also introduce viruses, which were a major threat to the priceless data stored on the hard disks, he added.

Al Redha urged all the end-users, resellers and hard disk loaders not to use pirated software as it was harmful to software producers and the national economy.

In its efforts to develop IT industry in Pakistan, he said, some of BSA's members were helping the students and educational institutions in installing reliable software by giving them up to 90 percent discounts on the original prices.

He said BSA was promoting the growth of the software industry through its international public policy, education, and enforcement programmes.


Copyright Associated Press of Pakistan, 2005

[UnitedPakistan]

Workshop on 'Internet Resource Managing' opens
KARACHI (April 07 2005): New cost-effective and speedy Internet services are being offered in Pakistan, which are not even available in most of the countries of the region. This was stated by the President Internet Service Providers Association (ISPAK), Ansar-ul-Haq at the inauguration of a two-day training workshop on 'Internet Resource Managing', conducted by Asia Pacific Network Information Centre (APNIC) here on Wednesday. ISPAK is the local organiser whereas the workshop is being sponsored by CyberNet.

Experts from APNIC, Australia would provide training to the local Internet professionals. About 34 participants, mostly from telecom and the ISPs are taking part in this extensive training.

Ansar said that the CyberNet has recently launched unlimited Internet service in Pakistan, which is not available in other countries of the region. Even in America, this service is not for 24 hours. But in Pakistan this service is being offered for 24/7 throughout the year and is very much affordable for Pakistani users, he added.

"We have received a tremendous response from the users and our target for the whole month of April has been achieved within two days," he said.

Speaking on the occasion, ISPAK Secretary General V. A. Abidi spoke at length on the purpose of the training in Karachi.

He said a similar type of training was earlier organised by NUST in Islamabad, but that was mostly for students. This training is being organised for the first time in Karachi in which Internet professionals are taking part, he added. Abidi also gave brief introduction of ISPAK and APNIC.

The Training Manager, John Hang said that the APNIC is based in Australia, and provides training to Internet professionals in the regional countries.

The APNIC is a regional Internet Registry. It also allocates and registers Internet Protocol (IP), address numbers, Autonomous System (AS) numbers and reverse DNS delegations.-PR


Copyright Business Recorder, 2005