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INFORMATION TECHNOLOGY

HOW TO DEVELOP LOCAL MANUFACTURING OF COMPUTERS

Computers and networks are essential in transferring the information and creating digital products

By SYED ASAD HUSSAIN
MBA Coordinator/PhD Student, SZABIST
June 17 - 23, 2002

The Information Technology (IT) and its applications have grown more rapidly across the globe than one can imagine. The multiplier effect of IT revolution is being reflected almost in every layer of life. More and more businesses are getting electronically connected, consumers are getting hookup to the Internet to chat, to surf, and to get information, which they cannot get otherwise. Even governments have adopted this mode to communicate in order to better their link with their citizens.

Computers and networks are essential in transferring the information and creating digital products. Just as in case of electricity or power production, it cannot be produced and transmitted without having a proper infrastructure in place; the digital product cannot be run unless proper infrastructure facilities are provided. Therefore it can be concluded that computers and networks will form the basis for digital age and thereby industrial age.

Digitalization involves shopping on line or placing an order on phone instead of going physically to market or getting/sending information electronically. Findings suppliers on the net also represent the digitalization. In this sense, the digitalization or IT covers almost all aspects of lives, from communication to collaboration, from manufacturing to consumption, from education to entertainment, from personal shopping to government services, all of which have now become possible due to advancement in IT and thanks to hardware which have provided a basis to make it possible.

What is hardware?

Hardware is the physical aspect of computers, telecommunications, and other information technology devices. Hardware includes not only the computer proper but also the cables, connectors, power supply units, and peripheral devices such as keyboard, mouse, audio, speakers, and printers. Hardware is sometimes used as a term collectively describing the physical aspects of telephony and telecommunication network infrastructure.

Current state of IT and hardware in Pakistan in numbers:

In Pakistan, the demand for hardware has increased many folds due to stunning growth of computers (25% over last five years) and rapid advancement in other IT areas like for example, the Internet and increase in numbers of internet service providers, etc. Table 1 shows the growth in PCs, mainframes and minicomputers. Table II shows sector wise distribution of computer installed in the country.

Table I
(Total number of computers installed)

.

1985

1986

1987

1988

1989

1991

1994

1997

1999

Public Sector

Main Frame

48

55

61

75

79

85

67

103

99

Minicomputer

50

79

120

175

229

260

341

793

643

Total

98

134

181

250

308

345

408

896

742

Private Sector

Main Frame

11

14

14

14

19

21

7

13

39

Minicomputer

59

63

127

174

231

368

365

715

1051

Total

70

77

141

188

250

289

372

728

1090

Total Installations

Main Frame

59

69

75

89

98

106

74

116

138

Minicomputer

109

142

247

349

460

628

706

1508

1694

Total

168

211

322

438

558

634

780

1624

1832

Source: Pakistan Computer Bureau (PCB)

According to PCB, there were in all 1832 mainframes and mini computers installed in 510 organizations. Out of these 742 (40%) were in public sector organizations and 1090 (60%) in private sector organizations. The main frames are mainly in the public sector.

Table II
(Sector wise distribution)

SECTOR

1985

1986

1987

1988

1989

1991

1994

1997

1999

Manufacture & Industry

47

54

87

140

181

199

244

343

344

Banking & Financial Institutions

57

74

97

126

143

149

155

443

634

Utility & Services Organizations

28

37

53

59

80

86

113

262

438

Ministries & Departments

13

19

30

37

53

60

76

326

276

Education & Research

14

17

34

39

59

72

100

137

70

Commerce & Trade

9

10

21

37

42

68

92

113

70

Total

168

211

322

438

558

634

780

1624

1832

Source: Pakistan Computer Bureau

According to PCB, the Banking & Financial Institutions sector has the highest share of 34 % computers followed by Utilities & Services and Manufacture & Industry sectors having a share of 24 % and 19 % respectively.

The share of suppliers / vendors in the country based on the aggregated systems of all vendors show that IBM has the highest share of 47 %. NCR 30 %, while DEC (JBL) has a share of 13 %, ICL 5 % and UNISYS about 3.%.

The remaining 2 % is shared by ABM and SUN (SBL). The present status shows that AS/400 is the most favorite choice of the users with 434 systems. Some other popular systems are RISC-6000 and VAX Systems. As Table II & I suggest, this data stands as of 1999. No further data is available.

Demand and supply constitute the market size. Hence growth in Pakistani IT industry has increased the supply of computers, telecommunication equipments and PC hardware. And this rising trend is likely to continue in near future.

A survey of 30 manufacturers, conducted by IT Manufacturer's Association of Pakistan (ITMAP), suggets that the hardware industry has been expanding both in terms of revenues and investments.

And according to ITMAP, market size for hardware industry over next 3 years seems to be around $2700million of which public telecom operations share is around $1400 million.

At present, however, market reckons that the indigenous production of hardware and telecom equipment is not significant (no official data available) as compared to other sectors of the economy and the country is heavily dependent on imports of hardware and telecom equipment. Imports of hardware increased by 66 per cent from 1998-99 to 2000-01 (Table III).

Table III
(Imports of Hardware and Telecommunication Equipment)
(US $)

Description

1998-1999 July-June

1999-2000 July-June

2000-2001 July-June

Cal. & Acct. Machines

1666014

1301138

651203

Office Machines

6230650

5703528

6734432

Analog & Hybrid Machines

2574726

4887347

8423778

Dig. Data Processing Machines

24701719

24880216

26231709

Digital CPU

4304164

6282747

3445545

Digital Storage

641821

727050

609841

Peripheral Units

2918341

3978217

2507024

Off-line Data equip.

145413

267659

6114779

Parts, Off. & Calculating machines

5754496

4278622

5383871

Parts, Data Processing Machines

36188750

47266157

81267992

Total

85126094

99572681

141370174

Source: State Bank of Pakistan

In the above backdrop, this paper is written to suggest a growth model for industry of PC hardware and telecommunication equipment. The study feels that Pakistan can reduce its dependency on imports and can adopt a path of self-sufficiency if the model's strategies are adopted correctly. It's a long climb but not difficult to achieve. Next section describes the working of suggested model.

The Information Technology:

The Pakistani IT market can be broken down into four major layers, which together determine the size of Pakistani IT market.

The Digital Economy of Pakistan
Infrastructure
Internet Service Providers
Software Companies
Education and Training

Though the IT craze has just taken its full toll in Pakistan, however, computer phobia was accelerated in mid 90s. Computer came to Pakistan in early 80s, however, and according to Pakistan Computer Bureau (PCB); the growth in PCs in Pakistan has increased sharply to around 25% over last five years period. Thanks to the rapid growth in the Internet. And Pakistanís PC penetration (measured at PCs per hundred inhabitants) at 0.43 whereas India at 0.43 and China 1.61.

Porter's Diamond Model:

In 1990, Michael Porter of Harvard Business School published the results of an interview research effort that attempted to determine why some nations succeeded and others fail in international competition. Porter and his team looked at 100 industries in 10 nations. For Porter, the essential task was to explain why nation achieves international success in a particular industry.

This paper is an attempt to apply the concepts discussed in this model in the Pakistani context and to suggest how manufacturing base of Pakistani PC hardware and telecommunication equipment can be strengthened. The general concept of Porter's Diamond model are.

Factor endowments: Availability of factors of production for Pakistani hardware industry

Demand conditions: The nature of home demand for PCs and its peripherals

Related and supporting industries: A value added chain who will contribute more to creating jobs in the economy than the main manufacturers.

Firm strategy, rivalry and structure: The market structure of hardware and telecommunication equipment manufacture's in Pakistan.

Factor endowments: According to the model, factor endowments are of two types-basic and advanced. Basic factors include, natural resources, climate, location and demographics. Whereas as advanced factors include, communication, infrastructure, sophisticated and skilled labor, research facilities, and technical know-how.

However, Pakistan has basic factors such as, natural resources, like gas, minerals, tropical climate, suitable for agriculture and industrial production and also Pakistan is strategically located. However, Pakistan is far behind in the advanced factors (as stated above) as compared to other developing countries, like South Korea, Malaysia, Thailand, etc.

Demand conditions: In Pakistan, the demand for PCs, its peripherals and IT equipment has increased many folds. According to a report prepared by IT & Telecommunication Division of government of Pakistan, there are now 1.5 million PCs in Pakistan and in Karachi alone the purchase of PCs is around 10,000 per month. And the growth rate of PCs purchase has been over 25 per cent in five years, which shows how strong the market is. And in fact, the growth in IT industry will continue to drive the demand of PCs in Pakistan.

Related and supporting industries: These are cluster of companies, which tend to be grouped together to support basic inputs. And these form the important parts of the value added chain. Such cluster of industries is found in Pakistani textile industry, sports goods, leather manufacturing, auto manufacturing, pharmaceutical industry, etc. In Pakistani IT equipment manufacturing, related and supporting industries are almost non-existent.

Firm strategy, structure, and rivalry: The fourth broad attribute of the model deals with the entrepreneurship ability that a nation possesses and the intensity of the competition within the domestic industry. In case of Pakistan, as indigenous production is almost non-existent therefore market is not mature enough to work on forces of demand and supply and be innovative and efficient.

In the above backdrop, it is very important to suggest the roles and relationships of Government of Pakistan and telecommunication equipment and PCs hardware manufacturers.

The roles and relationships:

In this regard, the Government of Pakistan (GOP) has to act as a senior partner. A strong manufacturing conglomerate is needed which is backed by skilled labor, strong research & development. This is possible when GOP provides funds and build proper infrastructure to support research activities in the manufacturing area, and in high tech related education. To prepare the workforce for this purpose would require huge resources to education. The GOP would identify key areas for mobilization of resources and the industry would use these resources to advance the industry in the right direction. It has to be both ways.

Also the government has to ensure that local banks are ready to lend money at prime interest rates to key companies to accelerate investments in manufacturing area. It has to be a vertical-horizontal-integration of private sector and the GOP. Obviously, not everything can be done by the GOP and/ or by private sector. It has to be a warm handshake between two.

Furthermore, related and supporting industries should be horizontally integrated and share resources and put utmost efforts to achieve a sustainable growth. This is only possible when we have a clear vision and we are loyal to our country and think above personal interests.

Critical factors for success:

The industry must focus on long-term goals (set by the government) and these goals must be backed by a coherent set of policies that are consistent and with agreement to goals.

The GOP should act, as a senior partner who guides and identify the domestic market needs and provide valuable inputs to the industry to meet these needs.

The GOP must work on providing proper infrastructure to manufacturers of IT equipment and hardware. This can only be possible when massive investments pump in into manufacturing.

All told, finally, a strong and solid conglomerate has to surface, which ensures a vertical — horizontal integration of private sector and the GOP.

Conclusion:

Rapid growth in IT in Pakistan has accelerated the demand of PC hardware and telecommunication equipment. The country however, continues to rely on imports of hardware to meet the demand, whereas not much effort was put in to manufacture them locally.

The model presented in this paper strongly suggests that a solid conglomerate is to be formed where government acts as a senior partner and provides most of the resources (mainly funds) to private sector and universities for research and development. This will help ensure that the industry is strongly supported by research and development and good engineers are produced (a key input). Also government should identify the industry (manufacturing) as a priority industry and suggests to banks to lend money to this sector at prime rates so that more investment can pour in. It sounds like a happy marriage between private sector and the GOP.

Local market of PC hardware and telecommunication equipment seems strong and is still untapped market in term of local production. If Pakistan were able to manufacture quality products in IT, it would be a big achievement. It's a long climb but not difficult to achieve.

(This paper was read in a seminar on National Seminar: Manufacture of Personal Computer Hardware and Telecommunication Equipment jointly organized by COMSATS and Technology and Resource Mobilization Unit, MOST, Islamabad on April 4. The author can be reached at asad@szabist.edu.pk)