Developing the local market
By SYED M. ASLAM
Sep 30 - Oct 06, 2002
You don't have to be a gambler to know that small stakes mean small losses — and vice versa. The analogy used here, is not meant to encourage the vice of gambling but rather to better understand why Pakistani IT industry, and for that matter almost all other economic activities, were able to cushion the impact of 11.9, the date which has become a reference point of the modern history no matter how hard one tries to ignore it.
Pakistani IT industry, like all other industries, has started to come out of the shadows of that fateful day which sent the global economy into a spin. The fact that the industry has been able to cushion the blow with a much greater ease than many of its counterparts elsewhere can be attributed to the absence of greater stakes. This is not meant to deny the Pakistani IT industry the credit of putting the national industry on the global IT map, clinching world-class software orders from some of the most prestigious multinational companies. The performance is all the more laudable as it was made possible by the private sector alone and that too, years before the present government accorded IT the priority which it deserved all along. The private sector, if I may, has played the role of a surrogate mother to put the Pakistani IT industry on the global map.
Certainly 11.9 had made the dent, however, it was not able "to burst the IT bubble, locally as well as globally," says Dr. Sayeed Ghani, Chairman MIS & Computer Science at the prestigious Institute of Business Administration (IBA). "The last year gave the much needed direction to the global IT industry. Prior to 11.9, the supply had far outgrown the demand as every single industry jumped into the IT bandwagon whether required or not. That resulted in an un-proportionate growth between supply and demand, the former outgrowing the latter by a wide margin.
"Today, the supply has bottomed out and though the demand is still on a continuous rise, the supply has been reduced. The un-proportionate gap between the two has been reduced as industries and people the world-over which previously viewed IT as a panacea for everything have started to see it as what it really is — an enabler and a means, not an end. Like all other revolutions, the limitations of IT are also finally being recognized.
"Moreover, the connotation of the 'bubble bursting' implies an absolute end which has not been the case with the IT industry continue to grow albeit at a much more steady pace as the gap between supply and demand has narrowed down. The industry is in transition the world-over and in process of change realizing that it is not an instant ticket to riches. Only the serious players are now entering the industry which would give it the direction which it did not have in the past. The fact that venture capitalists the worldover have lost more money in IT than they have lost in last 30 years have made them extremely prudent to finance only the most viable of the projects.
"Compared to the rest of the world the Pakistani IT industry, or what passed for it, was able to cushion the impact much more softly because it had comparatively little riding on it. For instance, the value of software exports from the country totalled a small $ 10-20 million officially. The export-oriented software houses suffered more than those who had directed their products for the local market."
So what's been the fallout like in terms of human resources in a country where IT till last year was seen as an equalizer by the young generation, particularly the middle and low income segment of the society which makes the bulk of the population? For a large number of these students IT was seen as a ticket to good jobs not only within the country but also lucrative jobs in the developed world offering them an opportunity to migrate to greener pastures. The thought pattern is evident from IT being the first choice of the students and the proof is the mushroom growth of IT institutes of all shapes and sizes across the country offering certificates, diplomas and degrees. For a while, even a certificate was seen by many as a ticket to riches.
Today, according to crude estimates the country is producing over 100,000 IT professionals of all shades, including gray, comprising certificate, diploma and degree holders. True that the 11.9 incident has taken a heavy toll on the morale of the previously IT-savvy youths but it still continues to lure them. With strict visa restrictions imposed by the developed countries, chances of getting a job overseas have been greatly diminished and only the serious students are still staying. Many of the software houses, the majority of which preferred export-orders over local orders due to the lure of getting paid in mighty Green backs, have been forced to reduce their operations in the topsy turvy world. A few wrapped up their operations altogether. Many jobs have been lost but the fallout has been less devastating compared to the developed world which invested heavily in dot coms.
Dr. Ghani said that the fallout on the human resources has been mixed in Pakistan. "Previously an IT degree meant that you had got it made. Today, IT professionals are not making the kind of money that they used to make till last year. However, IT, like education, is, and will, always remain an asset. This technology revolution is here to stay for the rest of our lives as each new product and service keeps on enhancing our lives. While IT no more offers phenomenal salaries, having a technical degree and a technical population is, and will be, good for Pakistan. In short, IT, will remain the key to success for all peoples across the world albeit only for those who are serious."
So, is the closure of job opportunities overseas an asset of liability? "It can certainly be viewed as an asset. The presence of a large number of IT professionals of all levels is definitely a value-add as it will ultimately benefit the country. The talents will find ways to benefit the industry one way or the other as only the serious students will enter the field. For instance, 11.9 had no negative impact on the admissions at IBA. In fact, we received approximately 1,200 applications at IBA last year compared to approximately 2,400 applications this year. The newly launched MBA MIS evening degree programme at the IBA has become the most popular self-financed programme.
"With the closure of job opportunities overseas the greater portion of the IT cream will now stay in the country and definitely something positive will come out of it. The government and private sector have to do extensive brain storming to reap the benefits of the situation. This silver lining should be transformed into sunshine but the big question remains as to how that can be done? The scenario of the professionals remaining non-productive is indeed not good. I feel that it is imperative for the government to find ways to utilize the surplus IT professionals. However, we don't have to follow the rest of the world as we are already lagging 20 years behind and we have a lot of catching up to do. The economic slowdown in the developed world has given Pakistan a unique opportunity to catch up with years of lost work to narrow the big gap."
The situation has provided an opportunity to the software export driven Pakistani IT industry to take a deep hard look at itself to assess its strengths and weaknesses. The stricter visa restrictions have brought the brain drain to a trickle to best utilize the services of top notch IT professionals. This highlights the need for developing the IT industry from inside out instead of trying to grow from outside in. Most of all the situation has made the industry to realize how important it is to have a strong domestic base.
It is imperative to find ways to create job opportunities to absorb the immense professional human resources. The corporate sector, both public and private and particularly the financial institutions and manufacturing sector, can and should come forward to turn challenges into opportunities. According to the Governor of the State Bank of Pakistan, Ishrat Hussain, the Information Communication Technology continues to be a high potential industry despite the recent hiccups. "There is a great window of opportunity for IT in Financial sector. Globally, online banking has really caught on, with 25 per cent of Europeans and Canadians banking online. In the US, 47 per cent of banks provide online banking services.
"... given the global economic downturn, our IT industry must not rely on export led growth alone. The local market must be explored and aggressively pursued. The Financial Industry in Pakistan is an obvious market because it requires Customer Relationship Management and Enterprise Resource Planning software and systems to enable it to meet customer expectations in a competitive environment. I would urge the financial industry to tap the local IT industry for meeting its IT services needs. This would not only encourage the local IT service providers and boost the economy, it would also present cost-efficient opportunities..."
Yes, the Pakistani IT industry has heavily relied on export led growth to neglect the domestic market. The post 11.9 world has made it realize the importance of having a strong domestic base. Software exports for the year ended June 30 this year dipped to $ 24 million, less than half of the total last fiscal. According to Dr. Ghani "the software export business still remains a stand-still market because of concerns of the developed world about security in the region. With the Pakistani software houses looking at a shortfall in export this year, the time is right for the industry to tailor its products for domestic needs. In the past we failed to make the best use of our talents which on their part preferred to leave the country in search of better paying jobs in the developed world. It is time to use the services of the best of our talents to produce products targeted at the domestic market instead of relying heavily on foreign services."
The global economic downturn has taken a heavy toll on the local IT industry not only in terms of morale. Many of the major export oriented software houses are forced to cut their operations while many small ones have been closed and a large number of them are struggling to survive. The export oriented software houses have suffered more than those catering to the local market. Hundreds of professionals have been laid off, only a portion of them able to find new jobs. The IT is not what it used to be just a year ago. However, all is not lost.
NEW SOFTWARE HOUSES
A month ago the Pakistan Software Export Board (PSEB) announced to establish 20 new software houses. These new software houses will employ 100 IT entrepreneurs and 20 system support professionals to facilitate and groom fresh and experienced IT graduates. Under this project, named GEMS-2002, the PSEB will patronize the 20 software companies selected for one year. It will provide the entire infrastructure and technical support to these software houses at the Software Technology Park, Lahore to use the ideas by young IT professionals to develop products, particularly concentrating on producing softwares not yet produced locally such as games, etc. PSEB will do the marketing for the products globally.
PSEB will provide the logistic support and infrastructure to these software houses and will share only 20 per cent of the profit with the companies during the patronizing period. The software houses will be free to establish their own set-up anywhere they like once they are established. The project is expected to earn exports earnings of over $ 5 million by next year.
Similarly, last month the Ministry of Science and Technology directed the governments of Punjab and Sindh to speed up projects to set up a model IT district in the two provinces. Punjab has selected Sialkot and Sindh has selected Karachi to make the cities a fully automated e-district. The Punjab IT department outlined a project worth Rs 75 million to make Sialkot a fully automated e-district but no such details given for Karachi, the biggest city of the country lagging far behind Lahore in terms of software exports.
As is, Karachi only had its first Technology Park last month compared to Lahore and Islamabad which had such facility for last many years. Six weeks later the first Technology Park of the biggest city of the country still awaits the needed infrastructure waiting for PTCL to provide the necessary services without which tech companies cannot function. In addition, a US-based software house employing many American citizens as well as Pakistanis remains the first and the only occupant of the Park using 4,000 square feet of the premises on the 15th floor. The slow speed of providing the essential telecommunication services to the Park by the PTCL has angered even the officials of Sindh IT Board.
On the 11th of this month President Pervez Musharraf promulgated an ordinance titled "Electronic Transactions Ordinance 2002." The ordinance provides legal recognition of electronic documents, records, information, communications and transactions. On the same day the President promulgated another ordinance titled the "Virtual varsity ordinance 2002." The ordinance deals with the issues related to the providing education and training in information technology, business management and emerging sciences through satellite, television and internet. Under the ordinance the Virtual University will provide life-long learning, deliver courses and educational facilities to a large segment of the population at its designated campuses, place of work and residences.
The first ordinance provides legal cover to electronic activities while the second is aimed at providing IT education to masses at the convenience of their own time and place. The first is meant to create demand while the second is meant to provide mass IT education, the first is meant to fuel demand while the second is aimed at creating mass IT functionality as well as top skills if so required.
On the other hand, the decision to set-up new software houses by the PSEB is seen by many as diverting from its main objective — marketing the locally produced softwares overseas. The President of PASHA, Hamza Matin, is much critical of PSEB to indulge in activities not fitting its charter. "Attempts to developing a parallel software industry by the PSEB would undermine the local software industry by discouraging the private sector which has played a vital role to put the industry on the map without any official help within a short span of five years. The PSEB should limit itself to the role it was established to play in the first place — promoting and finding overseas markets for software products produced in the country."
One of the major problems the local IT industry is facing is the non or late implementation of the decisions taken at the highest levels. It seems that announcements are made without doing the necessary homework and are meant more to make a good copy in the press. PAGE called PSEB office in Karachi numerous times to get more information about the announcements regarding establishment of new software houses as well as about the Ministry of Science and Technology's directive to the Sindh Government to speed up projects to make Karachi into a model IT City. The officials did not even have the information and when pressed promised to get the information within a couple of days. Contacted once again they promised to get back in 'a few days' but never got back even after three weeks.
Another such example is the reduction in the bandwidth rate announced by the Pakistan Telecommunication Company Limited (PTCL) from January 1 this year. PTCL announced to slash its internet bandwidth tariff for the ISPs, educational institutions and software developers by 60 per cent to $ 6,000 per 2 mb monthly. Nine months later the PTCL is still charging $ 6,000 per 2 mb monthly. According to the President of Internet Service Providers Association of Pakistan (ISPAK), Ansar ul Haq, not only the tariff remains unreduced still but the overselling on the part of the PTCL is resulting in inferior services to the internet subscribers.
"PTCL has a total internet bandwidth capacity of 155 mb. All of this comprise STM 1. However it is shortchanging the wholesale customers such as the ISPs as it is selling 180 mb bandwidth which is 25 mb above its capacity. Many major ISPs, including Cybernet from which I belong, are thus getting no more than 1.5 mb though PTCL is charging us the full amount of $ 6,000 per 2 mb per month. Selling the internet bandwidth way above the capacity is not only burdening the system resulting in slow connectivity and speed but also frequent disconnectivity. Both the ISPs and the internet users are being shortchanged by the overselling practises of the PTCL."
Ansar said that the additional set up to boost the international internet connectivity beyond the 155 mb STM 1 facility by FLAG (Fibre Line Around the Globe) has been set up but is still remains to be launched by the PTCL. Ansar said that FLAG will help double the present internet bandwidth available with the PTCL from 155 mb to 310 mb. However, at present the overselling of the bandwidth by the PTCL remains a big problem, he added.
The ISPs are also concerned by the plans of the Ministry of Science and Technology to provide huge load of bandwidth to the academic institutions and that too at prices much below what PTCL is charging to the ISPs . Ansar said that it will result in a massive abuse as once the academic institutions are connected to the PTCL network they will sell it in the open market competing with the ISPs which are paying huge bandwidth charges. "The threat is very real and will bleed the ISPs who have made large investments."
Ansar told PAGE that ISPAK has asked the feedback from its member to act jointly on the issue, including litigation if necessary to protect the interests of the ISPs. However, he said, ISPAK will ask the Ministry of Science and Technology to clarify if the bandwidth provided to the educational institutions is for Internal Institution LAN use only or also for connecting the dialup users.
Despite the downturn, IT still holds an immense power to attract a large number of students and the country keeps on producing a large surplus of professionals. With the job opportunities drying up in the developed world there will be more of them available in the country.
It is time to find ways to create jobs within the country which can only come if both the public and the private sector chose to automate the industry, business and trade. It is also necessary to pass jobs to the local IT industry instead of awarding them to foreign companies overseas as has been a practise in the past.
Last, but not least, it is imperative to create demand for the IT products and services to help the industry build a strong domestic base to help it lean less heavily of overseas market. We have created a surplus of supply. It is time to create a matching demand.
The post 11.9 world has provided the industry with a unique opportunity to 'look inward' to create the demand side and financial sector can be the catalyst as it is the biggest user of the IT Commerce any where in the world and the same is true for Pakistan.