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Software/BPO industry of Pakistan has seen a major growth during the past several years, the growth in this industry has seen few small IT companies been transformed into an industry. Over the recent years IT companies have been very successful, which helped in the development of this industry. The industry has matured during the recent past. Several large companies are now trying to transform themselves in order to achieve higher revenue growth and stabilize their income. They want to diversify and want to be recognized as a professional institution that can provide top quality products to their clients domestically and internationally.
This is an industry in which a unique idea can take a company to greater level and many medium sized firms are trying to capitalize on this formula. These unique ideas are targeted towards niche market; this adds to the diversity of the industry and also adds depth. Also, development in the ideas, products and entrepreneurial ventures has stabilized this industry.
Over the years many companies have entered in this industry, but as the number has increased other factors begun to shape up too. This includes not for profit groups, associations with the industry, programs which help in entrepreneurial development etc. Today's industry takes advantage of many media outlets, which includes blogs that focuses on news and gossip of the industry, Facebook, Twitter and LinkedIn.
The informal yet dense set of relationships and networks that have played an instrumental role in creating and sustaining other geographical clusters around the world (e.g. Silicon Valley, and increasingly Bangalore) have now begun to take root in the Pakistani software / BPO industry as well. There has also been a gradual increase in the level and maturity of the support infrastructure (e.g. media and PR firms, law-firms, accounting firms, HR advisories, investment banks etc.) necessary for the creation of a successful industry - infrastructure that was thus far either inadequate or largely absent.
Software / BPO industry of Pakistan have grown considerably and have reached a higher level. One other thing in which this industry has been very fortunate is that the policies and other circumstances have been very easy on this industry. This could really help this industry in achieving major breakthrough in the years to come. CEO of one of the leading IT firms of this industry said:
"The question now is not whether Pakistan can create successful software / IT companies that could distinguish themselves against their competitors in international and domestic markets. We already have created several of these companies that, in due course, will grow in revenues, size, and their service offerings, but whether or not we are capable of creating truly global companies. The latter depends on our ability to solve some of the issues that have thus far escaped resolution"
Very few companies have achieved the tag of being a global company. And with a hard work of over 10 years behind this industry, many companies can deliver on this aspiration.
The Industry: Then and Now
To look at the challenges and best practices within the software industry of Pakistan, Pakistan Software Export Board (PSEB) funded a study in 2004-5. The study was the first of its kind and it examined the characteristics of the organizations which are more successful within the industry and it highlighted strategic challenges faced by the software companies of Pakistan.
Pakistan's software / BPO industry was still a bit disjointed and there was uncertainty in the direction of the industry. The industry suffered from the loss in focus as the size of various companies increased. They lost their momentum because of the growth in the size. The major conclusion carried out from this study was that the challenges cannot be generalized to industry as a whole. This study recognized a set of four business models that was incorporated in various companies in this industry. Also, it highlighted that the strategic challenges which hinder the growth in a company are a function of which business model the company fits in. To look at the industry in this way is noted in the report, which was:
"Understanding the model limitations is critical to the long-term growth of firms and the industry as a whole. Depending upon the circumstances and the goals and aspirations of the founders, many firms - trapped in the structural limitations of a particular business model - may try to outgrow it by doing more of the same. This, they ultimately find out is the fruitless approach. This taxonomy is an attempt to drive home the fact that, when in a situation like that, one must think "out-of-the-box" and change the structure rather than fight it."
This shows that for the development and growth of the companies there should be a specific business model. Over the last three years, the industry has responded to exactly what was called for. Companies try to introduce innovation in their business models. Also firms have progressed in a way that they have recognized their competitiveness and try to align their assets and external environment.
The Industry: A Value Proposition
One of the major factors in the movement of outsourcing is the difference in the cost between the developed countries and various outsourcing hubs which includes Philippines, Pakistan, India and China. Cost saving has been a major driving force in outsourcing a job to different locations; this has also been proved by many studies. Also these outsourcing hubs, keeping in mind the cost provides great quality products. This too is a major attraction for companies in the developed countries to outsource the work and get a quality product at low cost. Cost saving has been a major motivation for companies, after all companies are trying to make profits in the end. A survey shows that companies successfully save cost at around 85%. Keeping cost aside other major factors of outsourcing a work is getting quality work and meeting timely milestones.
One important thing to look here is that the difference in cost between developed countries and rather developing countries is the labor cost, which is cheap in the developing countries. The developing countries have abundance of cheap labor at their disposal, also keeping in mind skilled labor which determines the attractiveness in any outsourcing country. Pakistan score very highly in these factors. The quality of labor is very important for any country and Pakistan has a large supply of good human resources. Though India and China are very successful countries when it comes to outsourcing but Pakistan and Philippines have grown a lot too and with the quality labor at its disposal, Pakistan is not to be undermined.
Pakistan has been recognized as a major outsourcing destination in the world. This is because of the value that Pakistan brings on the table. Gartner Inc. rates Pakistan among the list of potential major players in the outsourcing industry of the world.
To remain competitive globally cheap and abundant labor are not the only answer. It involves other factors also. Though Pakistan scores very nicely when it comes to public policy and business infrastructure but when it comes to political instability and law and order situation, Pakistan does very poorly. Over the years, Pakistan has improved as an outsourcing destination. But Pakistan have to work hard in order to be a solid outsourcing destination.
Background of the Theme
Software Industry in Pakistan is growing rapidly. The major reason for that is many companies are off shoring IT services and projects to India, Pakistan, Philippines and China. The growth in this industry is mainly because of the following key success factors
In the software industry, Quality means meeting the requirements with easy to use product, minimal bug problem and measures taken for security. Software quality assuarance (SQA) monitors and test the quality of software, also it ensures that the system will be in working condition when delivered.
Being competitive is a very critical success factor in this industry, being competitive includes technology improvement, quality and reliability of the products and services. Competitive environment will also lead to better quality of the product and competitive fair price for any product, which attracts new clients and in turn grow the industry further. Also, competitive environment increase the efficiency and effectiveness of a company.
Managing resources means management of human resources, financial resources and technological resources. Also involved is to gain a competitive advantage out of them. A software company has to retain its talent as it is vital. Outsorcing a job also includes in resource management and the company that does these things efficiently gains an edge over the others.
Acquisitions and Alliances
Mergers and acquisitions have grown the software industry. Acquisitions and alliances can help in achieving speed, flexibility and improve penetration in the market.
Protection of Intellectual Property
Protection of intellectual property is very important in the software industry as it dictates the money which the innovator gets back from the product, in short return on investment. This why protecting the intellectual property is a major factor in the success of industry.
Research and Development
Technology changes very quickly, today updates in the technological world is immense. A company has to be on its toes to meet the changing requirements. Companies have to spend on their research and development to keep pace with changing environment. If any company does not act accordingly then they will go out of business.
Product Design and Usability
Usability of any product and designing of a product is an important factor. Many companies rely on the uniqueness in the design of their product for example competitive advantage of Apple comes from its product design and usability. Apple has also turned their focus towards creating new competitive factors to succeed.
Internet users are growing rapidly all over the world which is another factor why software industry is expanding globally.
Nowadays companies have to be very flexible in their approach to adapt rapidly to new circumstances, changing requirements and opportunities.
Cost is an important factor in Pakistan's success in the software industry. In the top 36 countries with IT capabilities Pakistan has the lowest cost base. Another thing to mention is that Pakistan is internationally known as a country with IT capability of good quality. This shows that at low cost Pakistan provide a very good quality products.
Skills and Expertise
Experienced people and trained people are available for the maintenance and support of the IT infrastructure. Senior management of the software companies are proven professionals, and possess good business knowledge and excellent communication skills. Many such individuals have prior experience abroad or at other Pakistani businesses. Companies in Pakistan have acquired expertise in niche sectors like Insurance, Banking and Telecom.
Pakistan has large number of English speaking human capital. Of course, most of these people do not possess the proficiency in the English language. But this certainly helps in growing the software industry in Pakistan further.
Restraining Forces Inhibiting Growth of It Industry in Pakistan
These are the restraining forces that have been identified:
Entrepreneurial skills are lacking
In new technologies, there is a shortage of higher power professionals
Due to the lack of quality IT institutes, there is a shortage of good education in the technologies
Shortage in the link between industry and academic
Managerial knowledge of professionals in IT is not good
IT companies do not cooperate and collaborate amongst themselves
Lack of awareness of the business process
Professionals in the industry are unwilling to work on the long term projects
The growth is hindered because of the lack of support for the software industry from government
Changes in economic policies are affecting the growth of the industry
IT literacy is hardly found in any government officials
The monopoly of PTCL is costing the industry because of high communication cost
People does not pay appropriate price for a software
IT industry has serious problems in securing financing and credit
Brain drain is a major issue
The growth is hindered because of the economic infrastructure which is poor
Lack of incubation and startup companies
Marketing focus lacks in the industry
Regulations of Foreign Exchange restricts growth
Government does not take initiatives to lure companies from abroad
In the government departments there is very low computerization
To setup a company the owners face a lot of restrictions
Major Driving Forces Pushing For Growth of It Industry in Pakistan
Following are the driving forces for the software industry of Pakistan:
Growth all over the world in the industry
Low cost labor availability
Motivation that neighboring country is doing this and having success
Internet has faced massive growth
It is a perception that this industry has potential for development
It is a perception that this industry is a low investment industry
High return on investment is another force
Unique idea is treated very well
Attraction of getting rich quickly
Start up cost is fairly low in software industry
Good for new comers because of low entry barriers
International market is easily accessible
Technical professionals who are unemployed also drives them to enter into this software industry
People have good understanding of English language in Pakistan
The Industry Size and Revenues
It is very difficult to estimate an industry's overall size. For the software industry of Pakistan this is complicated further by the companies which are rather private than public and therefore are under no legal obligation in providing verifiable data. This is a very dynamic industry with new firms established on regular basis. This makes it all the more difficult to keep track of the size of the industry. Some handling on this matter is provided by PSEB(Pakistan Software Export Board) and P@SHA(Pakistan Software Houses Association). These two entities help in managing and keeping track of the software industry to some extent. P@SHA provides with some credible estimates on the software industry with more than 200 member companies.
The software industry of Pakistan has grown considerably during the past 6 to 7 years. We have seen more companies jumping into this industry which have seen the size and numbers grown in this industry. A study conducted in 2005 reveals that the IT industry of Pakistan has its overall size at around $700 million. The software industry alone was of size $80 million. The study also showed that Pakistan's software industry is growing by 45%. This shows that how much growth we have witnessed in this industry.
Graph for the Cumulative Revenues of Progression (Fig. 3-1) can be seen in the Appendix. Also to look at the market size of the software industry of Pakistan (Fig. 3-2) please look at Appendix.
The growth in the revenue which can be seen in Fig. 3-2 is achieved by increase in the revenue size of the company. The study conducted in 2005 shows that ost companies in Pakistan can be characterized as small companies with revenues of less than $500,000. There are very few companies with revenue of $1 million or more. In the figure 3-3, available in Appendix, we can see companies divided into different revenue categories.
First Trend: There are a few companies who have broken from the ranks and are playing at a different and much higher level, some of them includes Techlogix, Netsol and others. These companies have really worked hard and have grown incredibly. These companies have contributed significantly in the growth of Pakistan's software
Second Trend: Over the past three years many companies have experienced continued growth in the revenues. This shows that there is a quick return on investment in this industry, which has attracted lots of companies. And this has therefore helped the industry in their development. For figure 3-4, look at Appendix.
Third Trend: Another trend is that there are relatively larger group of companies who are not earning revenues as expected or either they are facing some limitations or have been hit by some barriers. This is also because of the fact that majority of companies in Pakistan are smaller companies and most of them do not have huge clientele. Most companies rely on handful of clients and therefore it is very difficult for these companies to maintain the revenue growth.
Geographical and Market Focus of the Industry
When we look at the geographical focus software industry in Pakistan rely hugely on the western market especially US market, just like India. Though the trend is shifting a bit and local companies are trying to develop software for local companies and trying to create their own ideas and sell it to others. This trend shift has been because Pakistan in recent years also have been hit by some law and order situation and therefore companies in west are vary of these threats and that is why they go for India instead. This has really opened up opportunities for companies in the software industry to look for business locally.
Figure 3-6 which is in the Appendix, shows the connections of the Software industry in Pakistan.
Another reason that the trend has been shifted towards local market is the growth in sectors such as Banking, Insurance, Finance, Media, Entertainment and Telecom. Because of the growth in these sectors software industry has also been given a push and lack of software export has not affected Pakistan's Software industry that much.
One other factor to look here is that telecom sector is growing in Pakistan rapidly and same is the case for mobile sector. This has brought in improvement in the connectivity. People in Pakistan also are realizing the power of internet and every day more and more people are joining in, this further helps not only the software industry but IT industry as a whole.
Figure 3-7, 3-8, 3-9, 3-10 and 3-11 shows geographical profile of various parent companies of Pakistan's Software Industry, also Revenue sectoral breakdown can be seen.
The Product-Service Profiles
The profile of products and services of various software companies shows that there are different kind of products and services which software companies provide. These includes services, consulting, product, BPO etc. This shows that software companies engage in different kind of services rather than relying solely on the development of software.
Figure 3-12 shows a graph which explains the revenue which companies generate from providing these various services.
Domestically Pakistan have seen a decline in the average revenues on the products side while on the other hand Pakistan software industry have seen an upward trend towards services side. Many companies within Pakistan are trying to outsource some of their help desk or call center to local BPOs. This shows a lot of promise too. One industry insider speaks about this:
"Non-voice BPO and outsourcing of non-core functional areas within large domestic public and private sector entities is likely to be the next wave in Pakistan's domestic IT market. A beginning has already been made with outsourcing of data centers by a small but growing number of private sector entities. The Higher Education Commission (HEC) has engaged potential players in consultation to create and manage a major educational network on an ongoing basis. The National Bank of Pakistan (NBP) has also recently floated an RFP for complete hands-off outsourcing of its IT functions to this effect and other public and private entities may follow suit."
Figure 3-13 and 3-14 elaborates the destination offering and public-private mix of the software industry.
Pakistan' software industry engages in various products and provides various services. Also different sector is treated in its own way. Detailed table on the product classification is given in figure 3-15. Also classification on the different sectors of the industry is given in figure 3-16.