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Cover Story

By Syed M. Aslam
Feb 21 - 27, 2000

Pakistan’s best kept secret— its Information Technology prowess— has finally come out in the open. The major cause of revelation which has taken the IT professionals and enthusiasts the worldover by surprise, disbelief, and awe, is the first ever listing on the Nasdaq by a Pakistani originated company, with the development facility in Lahore, and corporate office in USA— Netsol International Inc.

Netsol is an IT consultancy and software developer specialising in lease and finance industry whose customer profile include an impressive list of world reknowned bluechip companies like Mercedes-Benz, Chrysler and ICI UK. With a 200 plus workforce including 120 IT professionals, engineers and developers at its Head Office in Lahore, Netsol has offices in the USA, UK and Australia.

Listing on the NASDAQ— What it implies

Tracking Netsol’s journey reads like a true-life success story. It has come a long way since its modest beginning with a limited capital of Rs 2 million (apprx. $ 40,000 at current exchange rate and much less back then) in December 1995. It has not looked back since. Netsol has become the first and is the only Pakistani origin company, software or otherwise, to get listed on the NASDAQ. In less than two months since it started trading on the NASDAQ, Netsol’s share price has increased twenty-five-fold— from $ 1.70 first day on December 23 last year to $ 42 on February 19 last week.

In less than five years, Netsol has achieved many landmarks and many firsts to put Pakistani Information Technology industry on the international map. It became the first Pakistani origin software company to receive ISO-9000 certification in January 1999. It is still one of the only two local ISO 9000 certified IT companies in the country. It is also the first, and the only, local IT company to get listed on the NASDAQ, the world’s first, and truly, global electronic market, on December 23 last year. The total market capitalisation of some 5,126 companies listed on the NASDAQ is 2.6 trillion dollars. Most of the bluechip IT companies such as Microsoft, Oracle, IBM, Hewlett Packard, Yahoo, Amazon listed on the NASDAQ.

Of the 5,100 plus companies listedon the NASDAQ— National Association of Securities Dealers Automated Quotation US, about 440 are foreign. Only two Indian software companies; Infosys and Satyam are listed on the NASDAQ. Infosys started trading in April 1999. The company which employees 12,500 plus IT professionals has a market capitalisation of over 27 billion dollars and share price of $ 409 recently. SatyamInfoway which has 4,500 plus workforce started trading on October 15 last year. Today its market capitalisation is over $ 4.2 billion and its share price was $ 200 recently.

Today, Netsol has offices in the US, UK and Australia. It has taken over an IT company in the UK, Network Solutions, as well as in Australia, Abraxas Software. Netsol’s market capitalisation on the NASDAQ touched $ 350 million as its share price increased to $ 42 February 19 up from $ 200 million and share price of 21.06 a week earlier. Netsol’s brief history reads like a story of success all along.

In March 1997 it entered into partnership with a US company. Netsol’s UK office was established in April 1998 while its USA office was established in March 1999. Netsol took over an Australian software company in October 1999.

Specialised products

Netsol specialises in developing software systems targeted at the lease and finance industry. Netsol’s extensive business knowledge in finance and leasing has helped it develop a number of cost efficient and object-oriented software application products. Netsol Wholesale Finance System (WFS) to automate and manage the floor plan activities of automotive dealers. The system covers all aspects of the transaction, including credit limit requests, loan payment information, billing and late payment information as well as the auditing of dealer stock. The primary objective of WFS is to enhance and manage finance companies wholesale business, to automate the dealer financing activities, and to control and monitor dealer stocks. The system is used by Mercedes-Benz as well as by Chrysler of the USA.

Similarly, the electronic Point of Sale System (ePOS) is a browser based flexible software application which automates the bidding, pricing and proposal process with the help of analysis and comparison tools. The system also provides a unified interface to all dealership branches that can communicate with back office systems for the approval of a proposal. The system enhances the negotiating ability of the sales force, controls and manages the business dealerships/front offices and to help negotiate better deals across the time constraints.

Netsol’s Proposal Management System (PMS) provides finance/leasing companies the ability to quickly assess the worthiness of an applicant for a loan or a lease. It enables companies to efficiently organise, track and control decision-making on financial proposals. The primary objective of this system is to automate credit approval cycle, cut credit approval time and financial analysis.

Netsol’s other software application systems comprise Help Desk and Management Diary. The first, a Lotus Notes based product designed to track the support services provided to a company’s clients. The Management Diary provides a scheduling and monitoring tool that enables a firm to compose replicate and monitor the monthly schedules of company management.

With the listing of Netsol on the NASDAQ the Pakistani industry has come out of the shadow to give the local IT industry a much needed shot in the arm. It means that Pakistani IT industry has emerged as a global competitor to offer its second-to-none products at better prices then even bargained for by an increasing number of international clients. To the surprise of many, Pakistan has arrived at the threshold of IT technology in the Asian region.

Netsol’s fete is seen by the observers as the first concerted move to let Pakistan come out of the shadow of neighbouring India which has prolific IT development and export. The fact that Netsol successfully got itself listed on the NASDAQ compared to two Indian companies. On the surface it may not appear much of an achievement but when one compares the IT industry of the two countries the fete does look miraculous.

Netsol’s ambition to become a major player in the global IT industry; mainly through mergers and acquisitions, strategic global alliances and joint ventures— with its proven track record, has made it focus on competing with Indian software export dollars. The NASDAQ listing has already given Netsol greater exposure in the investment banking and the brokerage community.

Netsol envisions itself becoming a major player in the global market of the IT industry. Aiming to get a bigger slice of the market internationally the Netsol which thus far solely concentrated on the foreign multinationals outside Pakistan has also started focusing its attention to make an inroad into the local IT market. Netsol announced last month to launch a new subsidiary, NetSol eR Inc to enter the e-commerce segment to tap the growing internet sector in the country.

NetSol eR Inc. comprise three divisions including Internet Connectivity or Internet Service Provider (ISP), Internet Technology (Development Tools and Communications) and e-commerce communities. The three divisions will actively work to develop on-line and broadband businesses, localised Internet communities, and portal and shopping services in each of its identified key regions. The new subsidiary has been created to target the business-to-business, business-to-consumer, and consumer-to-consumer marketplace. The Internet Connectivity division of NetSol eR will be launched through the creation of a nationwide ISP in Pakistan.

At present Netsol is in the process of developing a technology campus in Defence, Lahore. Spread over 2 acres with a covered area of 168,000 sq. feet, the purpose-built campus will house all Netsol functions under one roof. It will comprise R&D, Development, Training and Administrative wings and housing facility for the guests. Netsol’s plans to increase its workforce from 120 at present to 700 by October this year and ultimately strengthen it to 3000 over next three years.

Netsol’s full-fledged R&D facility employing 120 programmers, software developers and IT engineers at its head office in Lahore has developed an offshore business model offers cost efficient and core operating competent systems has helped Netsol clinch orders from many bluechip customers worldwide. It successfully beat a US competitor to get an order for Mercedes-Benz Finance Singapore.

Netsol’s customer profile include such impressive bluechip names as Mercedez-Benz Finance Singapore and Australia; Mercedez-Benz Leasing Thailand; 1st Net Technologies USA; Chrysler Finance Australia and Taiwan; ICI UK. Netsol enjoys the clientele of high profile customers all of which are outside Pakistan. Netsol International is now the parent company of Network Solution (Pvt) Limited Pakistan, Netsol (UK) Limited and Netsol USA, Inc., a newly registered based in Santa Monica, California.

Netsol’s revenue is expected to grow fifty-fold this year. In 1996, Netsol’s revenue was $ 200,000 which increased to $ 1 million in 1997, $ 3 million in 1998 and $ 5 million in 1999. This year it is expected to touch $ 10 million.

Fifty per cent of the total Netsol’s revenue come from IT consultancy followed by 30 per cent from the sales of products, 15 per cent from the bespoke development and 5 per cent from other.

A relevant question which arises here is that why the expertise of Netsol, which has undertaken such worldclass projects, has not been used locally— whether by the multinationals and public and private sectors. PAGE talked to the Chief Executive Officer of Netsol, Salim Ghauri, in Lahore about Netsol in particular and local IT industry in general.

PAGE visited Netsol head office in Lahore and talked to the Company’s chief executive officer, Salim Ghauri. It put a number of questions to Salim, one of four Ghauri brothers, who have been instrumental in turning Netsol the first global IT company of Pakistan. The four Ghauri brothers— Salim, Najeeb, Naeem and Shahab— have over 100 years of IT experience between them.

Salim started career with Citibank, Saudi Arabia in 1979. He has 19 plus years of professional IT experience in Australia, Middle East and Pakistan. He returned from Australia in 1995 and was instrumental in establishing the company in Pakistan.

Najeeb Ghauri, the CEO and president of Netsol, did his MBA in Marketing and Finance from Claremont Graduate School, California. He completed his BS in Management in Eastern Illinois University, California. He has served with Mirage Holding USA and senior manager with other multinationals including Unilever. He manages Netsol US office and played a vital role to get the company listed on the NASDAQ.

Naeem Ghauri is the CEO of Netsol UK and Europe. He is a graduate of Computer Science and Aeronautical Engineering and has served as a project manager with the Citibank and held prestigious positions with Chemical Bank, Financial Times, Fidelity Investments, Mercedes-Benz finance programme. He is also Netsol’s programme Director for Mercedes-Benz Finance Group.

Shahab Ghauri is the Joint Managing Director of Netsol UK.

International IT Industry (1998)

Total IT Revenue $ 720 Billion Approximately

-Software $ 375 Billion

-Hardware $ 330 Billion

-Education/Training $16 Billion

-Global IT Industry is growing at an average 13 per cent each year.

-US Accounts for 40 per cent of the market

-Five European countries and Japan accounts for another 40 per cent of the market.

-The rest of the 20 per cent is shared by the rest of the world.

Indian IT Industry

-IT related exports $ 5 Billion

-One million IT professionals; developers, progarmmers, engineers

-About 70,000 IT graduates including 1,500 top quality professionals

-Total growth rate is 50-60 per cent per annum

-Export to grow at 55 per cent per annum

-25 per cent of all exports are software related

-Within next 7-8 years IT realted exports are projected at $ 85-87 Billion

-Within next five years India is expected to be producing nearly 2 million It graduates every year

The three IT companies from the sub-continent listed on the Nasdaq.

Satyam Infoway (For week ending Feb. 7, 2000)

* Trading on the Nasdaq since October 15, 1999

* Share price $ 200

* Market Capitalisation $ 4.231 Billion

* 4,500 Employees

Infosys (For week ending Feb. 7, 2000)

* Trading on the Nasdaq since April 1999

* Share Price $ 409

* Market Capitalisation $ 27 Billion

* 12,500 Employees

Netsol (For the week ended Feb. 19, 2000)

* Trading on the Nasdaq since December 23, 1999

* Share Price $ 42

* Market Capitalisation $ 350 million

* 200 plus Employees including 120 at its head office in Lahore

Indian Software Industry (As of August ‘99)

* 138 of top 300 companies are ISO 9000 certified compared to just 2 in Pakistan including Netsol.

* 132 of these 138 companies are ISO 9001/9002 certified.

* 31 are CMM, the software industry specific certification compared to ISO 9000/9001/9002 which are general quality certification, certified

* Out of these 31 CMM certified companies; 8 have Level-5 certification which is the top certification. 15 have Level-4 and 8 have Level-3 certification. Today there are only 15 companies in the world which have CMM Level-5 certification, 10 of which are Indian.

The Exponential Growth of Internet

Internet is a global network of electronically linked computers. Though the idea for Internet was conceived in 1969 to link US military and to a little extent to university computers, Internet took root as an integral part of communications in just a decade ago when it became available commercially. The number of its users has doubled each year since then.

From a small number of 213 in 1981 Internet has grown rapidly to some 72 million host computers in January this year. This represents a far greater numbers of users as one host computer could plug several computers just like an office telephone can serve multiple extensions. The 72 million host computers represent over 250 million Internet users worldwide.

By 1998 there were some 107 million Internet users in the world, over half or 62 million in the US alone. There were some 20 million Internet users in Europe and 8 million users in Canada and Japan each.

Over 90 per cent of Internet users are in the industrialised countries while the developing countries which represent 80 oper cent of the world population have only 8 per cent computer users. However, the computer use is catching up in the developing countries— Internet access in Russia and Brazil grew five-fold during 1996-97 with 7 host computers per thousand people each. The fastest growing Internet markets are China and India where the number of Internet users is projected to multiply 15-fold to 4 million and 1.5 million respectively by end this year. Some 500 million people or about 8 per cent of the world population are expected to have access to the Internet by end next year.

The net, as the Internet is affectionately called, today has become a shopping centre, banking facility, a telephone, post office, library as well as source of entertainment and information for millions of online users worldwide. This has truly turned the world in to a global village where e-mails are sent and received at supersonic speeds, banking is being done, products of all types can be purchased, information about varied topics and subjects can be gathered.

While its true that the majority of the population in the developing countries lacks access to computers and thus the Internet connectivity it has changed the lives of these people in two primary ways. Number one, the awareness to get an Internet connection and the economic boost that the rapid Internet growth has offered to the IT industry in general and software development in particular in the developing countries.

For instance, India where Internet access is still low compared to the developed world is producing a big number of IT professionals to export $ 5 billion of IT related products, particularly the software. The Silicon Valley of California comprise of a heavy concentration of Indian IT professionals. Indian IT industry is growing at an extremely fast rate and IT related exports are projected to reach $ 87 billion in next eight years.

While Internet access is also increasing at a fast rate the local software industry comprising some 200 companes the total exports of which is a low $ 15 million. Only two Pakistani software houses have ISO 9001 Certification and the volume of production of IT professionals — developers, programmers and engineers per annum is very small.

The primary causes of lack of Internet access in Pakistan can be attributed to a number of factors. This include poor telecommunications infrastructure and the monopoly of state-owned PTC which deny some 70 Internet Service Providers an opportunity to offer free international connectivity. The lack of competition is also resulting in high Internet access fees and the lack of computers are the other reasons.