IT projects: Boosting local participation

IT projects: Boosting local participation Capital market reforms National Clearing and Settlement System Income tax ordinance 2001

Pakistani companies have clinched top of the line orders purely on merit in the international market

By Syed M. Aslam
Aug  06 - 12 , 2001

The tendency on the part of public sector companies to award projects to foreign companies is not only depriving the local IT sector a substantial volume of business but is also sending all kinds of wrong signals to prospective investment. On the one hand, it is denying the local software houses to make deeper inroads into the local market — one of the major prerequisite for access overseas- and on the other it is costing the country a sizeable chunk of precious foreign exchange.

The fallout of the rampant practice, remember state-owned national flag carrier Pakistan International Airlines' reservation contract with Sabre in not so distant a past, is not only resulting in tangible losses but also immense intangible losses to the national economy. The examples of first is restricting the participation of local software houses many of which are seen fit by the government of the US, and Guam as well as bluechip multinationals like Mercedes, Chrysler, ICI, etc. to clinch orders on merit alone. Denying the local software houses participation in public sector IT projects is another way of saying that the Pakistani government does not trust its own companies.

The intangible losses is the loss of goodwill, productivity, enthusiasm on the part of the developers, mainly the medium and small size houses who are pressurised on one side by either the acute shortage or total absence of orders — foreign as well local. In a market where state still exercises a monopolistic control on almost all areas of trade and services these intangible losses are more than enough to kill the entusiasm of even the top optimist. In addition, it also deprives the relatively smaller software development houses the seal of governmental approval to make them look impressive on their prospective curriculum vitae for winning international orders.

Perhaps the single biggest loss is the pervading sense that the policy makers are driven more by something other than supporting and encouraging the local IT players, be it software developers or even multinationals hardware companies operating in Pakistan. It also jeopardises the entire IT planning which despite advocating increased local participation instead has always seen it fit to award the jobs to foreign companies from start to finish. Something somewhere is seriously wrong between the time of the announcement of policies and their implementation, which hardly ever materialises.

President of Pakistan Software Houses Association (PASHA), Hamza Matin, complained that the public sector companies have developed a habit of awarding IT contracts to foreign companies without inviting bids locally. Commenting on the $ 28 million (Rs 1.8 billion at current exchange rate officially) contract awarded by the central bank, the State Bank of Pakistan, to Korean company Hyundai for automation last year, Hamza said such contracts benefits only the foreign companies. By their very nature such contracts, he added, discourages the transfer of technology as they allow the foreign companies to utilise their own technical and supporting human resources with little or none local participation and that too at the lowest rung of the project. In addition, awarding IT projects to foreign companies is a highly expensive option which tantamount to drainage of public money.

But the domestic IT players, be it software houses or skilled manpower, are not the lone losers of the public sector tendency to award projects to foreign companies. The PC, languages, software development programmes are only the tool and since Pakistan is entirely dependent on their imports to support what passes for its IT industry many multinational companies of personal, commercial and industrial machines and accessories have marketing presence in Pakistan. Awarding mega IT projects to foreign companies also deprive these multinational companies to lose business locally irrespective of the fact that in the end it benefits their head office.

Most of us are aware that budgets of multinational companies operating in any country are based on the financial performance of the company in that particular country. Failure to better financial performance every year can mean downgraded budgets, the ripples of which can be felt on the salaries and incentives for the staff and workers at all levels of organisation in a particular country. Losing sales to a branch in another country, thus, offers almost no consolation to an office in a another country as it doesn't register on his books.

The SBP's automation project mentioned above involved many well known global hardware and accessories marketer who also maintain heavy presence here. However, it were their country offices in the Far and Middle East that were selected to supply the hard and software for the project. The relevant question is that these operations, many of which are lead by Pakistanis, were deprived of a substantial volume of business to justify their presence in the country which is the venue of the project.

Coming back to software exports: They are viewed as one of the primary indicator of the status of any national IT industry — a high volume of software exports is seen more often than not as an advanced IT industry compared to one exporting less. A strong software export base indicates the international acceptance of quality, credibility, technical know-how, IT prowess, etc.

The financial size of IT sector — hardware & accessories, training, software for domestic market as well as exports — was $ 197 million in 1999 and increased to $ 319 million in 2000. Education/training claimed the biggest share of the IT sector as it increased from $ 70 to $ 130 million, an 85 per cent jump. The share of hardware & accessories, almost all imported, also depicted a strong increase of 53 per cent from $ 98 million to $ 150 million. The value of software exports also depicted a similarly robust increase from $ 19 million to $ 28 million, a good 48 per cent increase. The value of software aimed at domestic market depicted the least increase of 10 per cent from $ 10 million to $ 11 million. The sluggish growth of the software subsector is a cause of concern as it means that we are spending an unproportionate amount of monies on IT training/education in a country reeling from unmatched value of software and low retention rate of IT manpower at all levels — be it certificate, diploma, or degree holders.

The above statistics highlight the need for strengthening the base of domestic software market which can hardly be expected to come amidst the tendency to award mega projects to foreign companies. The $ 28 million SBP project could have made all the difference to give a much needed boost to local IT sector, particularly software development which is able to do just $ 11 million of business last year.

But are the local software houses capable to develop quality products like the foreign companies hired by the PIA or SBP? Hamza said that while the public sector companies keep on awarding projects to foreign IT companies on the pretext that the job cannot be done here in Pakistan the facts don't support their logic. Terming this highly unfair, he said, that Pakistani companies have clinched top of the line orders purely on merit in the international market. They have been trusted by bluechip multinationals as well as governments of such developed countries as the US to prove that they are capable of developing projects here in the country irrespective of what one says, he added.

He said that a delegation of PASHA concerned about awarding contracts outside the country is scheduled to meet the Minister for Science and Technology, Dr Ata-ur-Rahman on August 7. Asked if he is optimistic that this time around the government would make good on its promises of awarding IT projects to domestic players unlike in the past, Hamza said that the sitting government looks serious by defining procedures and recommendation under the IT commission. "The minister has called me personally a couple of times and I take that as an indication that the government is serious to ensure that its ongoing projects such as government-on-line, e-government-initiative and e-government-on-line would include a much greater local participation," he added.