WHY PAKISTAN IS A POTENTIAL MARKET FOR OUTSOURCING?

Simply because it costs less, far less, to do business here than anywhere else.

BY MOMEY GUL
Dec 18 - 24, 2006

Delay in building the announced Technology Parks, political instability, scarcity of skilled labour coupled with the poor market perception and lack of basic infrastructure are major hindrances in the growth of Business Process Outsourcing (BPO) industry in Pakistan.

The industry leaders, talking to PAGE, said that BPO sector was not yet matured enough vis-a-vis wide potential for growth in this field. "We have not been successful in the fields of medical transcription, legal transcription, data capture and forms processing," they said, adding, currently some of the call center operators were facing problems related to the shortage of appropriate office space for setting up new operations.

Director International Marketing, Pakistan Software Export Board (PSEB), Aon Ashraf Rana admitted that a lot of things needed to be done for developing the BPO sector. He said that the PSEB had started registration of these call centres from August this year, which previously were with the PTCL.

He said that the government had been developing new purpose-built Technology Parks on BOO basis to tackle this problem. He said that a new submarine optical fiber cable SEA-MEWE-IV was going to be operational soon, which would further resolve downtime issue.

Aon said that human resource was the key strength in BPO business and quality of human resource was the most important factor that contributed to this strength. He said that in the call center business, a customer did not care of call center's history, and location. "What truly matters, is how well the call center representative treats the customer,", the director international marketing PSEB said, adding, that is why customer service representatives were considered to be the back bone of the central source of both revenue and success.

Rana said that Pakistan was emerging as the destination of choice for IT outsourcing, as international leaders like BearingPoint, NCR Teradata, Mentor Graphics & ZTE had chosen to locate their development and consultancy centre in Pakistan. .
He said that an IT work force of 90,000 with good English and skilled people was growing at almost 20,000 a year, with a hundred ISO certified IT companies with over 20 undergoing CMM certification. He said that a reliable digital telecom infrastructure with backup and reliable energy and transport networks and an ambitious programme of world class IT parks with rents of under $1 per day were underway.

Talking about the strengths and PSEB incentives, support & funding, the director PSEB international marketing said that the establishment of a reliable IT infrastructure and provisioning of an incentive package were instrumental in the development of local IT industry.

He said that PSEB had provided several incentives to investors. Because of these incentives an increasing number of foreign IT companies have chosen Pakistan for their outsourcing operations for Information Technology Parks with low rents, fiber optic connectivity, libraries and conference rooms, provision of funds for software companies to get ISO-9000 and CMM level certifications. He said that foreign investors are allowed 100 percent ownership of equity in Software Houses/Software Companies, tax exemptions for IT companies till 2016, 100 percent repatriation of profits allowed to IT companies, nominal custom duties on import of IT related equipment and 7 years tax holiday for Venture Capital funds.

He said that the rate of depreciation on computer equipment was 30 percent and the State Bank (SBP) had also allowed opening of Internet Merchant Accounts by banks.

Aon said that Pakistan is the first country in this region to establish DWDM telecom infrastructure as several cellular companies are using digital transmission (GSM and TDMA). He said that the cost of 2 Mbps connection lowered to $1600/month, adding that the cost of setting up an IT related operation in Pakistan is one of the lowest in the region. Cost of employing skilled workers is ten times lower than employing the same in US. Average cost of employing IT professional in Pakistan is USD 6000 per annum while that of employing a clerical staff is under USD 2000 per annum.

Analysis of Business Process Outsourcing in Pakistan reveals that the sector is not mature yet and there is a wide potential for growth in this field. Although we have not been successful in the fields of medical transcription, legal transcription, data capture and forms processing but in the last few years, there has been a major boom in outsourcing voice-based call center work in Pakistan.

These include both domestic and international call centers. So far there are approximately 80 international call centers and more than 30 domestic call centers employing more than 2300 agents. Majority of these call centers have operations in major cities such as Karachi, Lahore and Islamabad.

It seems hard for the government to create the required infrastructure to jumpstart growth in the business process outsourcing sector so the Business Service Providers could concentrate on marketing their services abroad, focus on other sub sectors/areas of the industry and get due share in the international BPO market. Key strengths and weaknesses of BPO sector in Pakistan include following:

INFRASTRUCTURE

Pakistan offers state-of-the-art technology and infrastructure for establishing world class call centers. The telecom infrastructure is 100% digital and provides a robust backbone for providing mission critical services such as call centers. Fiber optic infrastructure, initially laid in the early 1990s, now accounts for well over 85% of the backbone that supports international and national exchange of data. Currently more than 40 cities of Pakistan operate through fiber optic exchanges.

Telephone density is on the increase and LL (local loop) sector is now open to private investors. The ISP (Integrated Service Provider) sector has breathed a sigh of relief because of the opening up of broadband licenses. In metropolitan areas of Pakistan, broadband charges are competitive; costing as little as US$ 25 per month.

A dedicated E1 circuit is actually the cheapest in the Asia Pacific region. Currently one E1 of 2Mbps clear pipe bandwidth is available for US$ 6600 per month. All major software technology parks currently have a capacity of over 600Mbps of Internet bandwidth. The bandwidth prices have come down drastically over last three years for call centers.

Satellite bandwidth is available for free as a backup to the fiber optic. Rooftop VSAT connections are now allowed to be full duplex.

Obtaining license for operating an international call center is free with the only requirement being a solid business plan and international client references. Many different modes of connectivity are readily available such as DXX (Digital Cross Connect), ISDN (Integrated Services Digital Network), Fiber Optic, DSL, ADSL, and rooftop VSAT. In case of establishing a call center in Pakistan, companies are more concerned with two issues related to infrastructure. These include: office space and IP connectivity. Currently, some of the call center operators are facing problems related to the shortage of appropriate office space for setting up new operations. To tackle this problem, government is developing new purpose-built Technology Parks. A new submarine optical fiber cable SEA-MEWE-IV is going to be operational soon which will further resolve downtime issue.

Weaknesses:

Political instability and poor market perception are major hindrances in the growth of BPO industry in Pakistan. Over the past few years though, Pakistan has become politically much more stable than the past decades. Pakistan also enjoys an improved degree of law and order, and violent crime rates are significantly lower than in India or Mexico. The incidents of violent crimes per 1,000 in Pakistan and some other countries are; Pakistan: 14, India: 38, Mexico 49, U.S. 13.8.

To summarize, Pakistan is at the threshold of one of the greatest opportunities in the global BPO market. We have acquired virtually all of the pre-requisites for success ranging from low cost to government incentives and funding. Pakistan even has some competitive advantages over India such as low operating cost and low wages (as indicated above).

Since the industry is still in an incipient stage in Pakistan, there are many high level employees available for work, in contrast to the situation in India where the best workers are fought over and can switch from one supplier to another very fast. The major drawback is client's concerns with Pakistan's reputation at international level.

At one time countries like Japan and India had poor images as places to invest. Advertising and public relations did not turn these situations around alone. The government took many steps to improve their economies, to develop their infrastructure and to create very tangible business climate that were pro-business.

These countries also instituted attractive incentives for investors. As a result, it played a major role in changing perception of investors as well. India has become very successful in BPO when the big groups started building IT facilities instead of coal mine shafts. The Ambanis, Tata's and Birla's did it for India. Same is true for Pakistan. The shift from traditional businesses towards a knowledge-based economy will only happen when established businesspersons and industrialists start entering the IT business segment.

WHY OUTSOURCE TO PAKISTAN? AN INVESTOR'S PERSPECTIVE

IT professionals trained in a variety of disciplines locally and abroad are applying their innovative ideas to maximize the benefit obtained from the information revolution. More and more international companies are seeking solutions from Pakistani professionals to remain competitive in the global economy.

A well developed infrastructure, availability of skilled labor, software technology parks with nominal cost, and significant government incentives provide a conducive environment for the development of the IT industry. Pakistan offers an unlimited supply of low-cost labour and state-of-the-art technology and infrastructure for establishing world-class call centers. Companies in Pakistan are developing hardware and software at cost lower than our competitors. Our trained professional call center operators are techno-literate individuals and undergo special language training courses to ensure that callers are unable to detect that they are talking to someone in another part of the world. We now have many companies providing transcription services to clients locally as well as globally. Specialized training programs in this sector have provided the industry with a large pool of data entry officers providing low cost, quality services.

The most important reason why Pakistan is a potential market for outsourcing is the simplest one. It costs less, far less, to do business here, than anywhere else. To summarize, the main motivation factors include: government support, availability of better infrastructure & HR and Low Operating Cost.

STATISTICS OF THE PAKISTANI IT/ITES INDUSTRY

Total number of IT companies working in Pakistan

732

Number of substantial IT companies

458 (active PSEB members)
162 Karachi
139 Islamabad
137 Lahore
20 Others

Number of ISO-certified companies

100 companies

Number of CMM-assessed companies

One CMM Level 5 company, one CMM Level 4, two CMMI Level 3, one CMMI Level 2

Total number of foreign IT and telecommunication companies working in Pakistan

60

Total industry size (according to a preliminary study undertaken by PSEB)

US$ 2 billion (WTO-prescribed formula)

IT and IT-enabled Services export in the fiscal year 2005-2006

US$ 72.21 million

Percent growth in exports over the last one year

56%

Export targets for the fiscal year 2005-2006

US$ 108 million

Number of IT graduates produced per year

Approximately 20,000

Number of universities offering IT/CS programs

110

Number of IT professionals engaged in export-oriented activities (software development/call centers, etc.)

More than 10,000

Total number of IT professionals employed in Pakistan

90,000

Total IT spending in the fiscal year 2005-2006

US$ 1.4 billion

Total amount of space utilized in STPs

630,000 sq ft

Sources: Pakistan Software Export Board