CLUSTERING STRATEGY FOR SOFTWARE INDUSTRY
By Dr. A Nasir Afghan
Jun 05 - Jun 11, 2000
Most significant contribution in developing software industry is having more technology institutions
New industry in Pakistan has always progressed without government's regulatory framework. Whenever government has regulated an emerging industry, the growth of the industry starts declining. The experience of medical equipment industry and textile industry shows little hope through government bureaucracy. The best way the government can help the industry is through minimum regulatory interventions. This article is an attempt to identify the basic elements, essential for an industry to develop in a country or location. Furthermore, what government interventions are suitable for the emerging industry.
According to a research conducted by Michael Porter (1990), that a numbers of internationally successful firms and often-entire cluster of industries are located in a single town or region within a country. This concept is known as clustering of industry in a geographic location. For examples, the vast majority of Italy's woollen textile products are located only in two towns. This indicates clustering of firms, their main suppliers and customers located at the same location. All well-known British auctioneers are situated within a few blocks in London. Again these auctioneers firms have created market for suppliers and customers at same location. Another example is city of Basel in Switzerland, the home for all three (original) Swiss Pharmaceutical giants. It was possible only due to highly advance chemical research institutes in Basel. The chemical institutes are still the constant sources of well-qualified skilled chemist to the industry. Finally, a large number of world-class software / technology firms are located in Silicon Valley, CA, USA. The fact is California has been centre of highly advance technology institutes and Universities. These technology institutes have created large pool of scientists and researchers especially in computers and software related industries. These examples provide evidences that successful firms often come from same location or region. But the question is how it is possible to create and develop the cluster of successful firms at the same geographic location. The research conducted on these successful locations indicated that the geographic clustering (concentration) of internationally successful firms in a given industry often occurs because of the following elements.
Factor conditions: It is the availability of skilled labour force and communication infrastructure, essential to compete in a given industry. Firm sustain competitive advantage only if the location / region constantly creates and advance her factor conditions. Means constantly creating highly skilled human resources and communication infrastructure.
Demand conditions: It is the sophistication and scope of home / location demand for the industry's product or services. The higher and sophisticated home / location demand makes the firm more competitive in international markets.
Related and supporting industry: The presence of suppliers (IT graduates in the case of software industry) industries and related industries that are world class themselves. If university is supplying graduates to the software industry these universities must also be world class themselves.
Firm strategy: It is the governing style of the firms and how companies are created, organized, and managed, and the nature of domestic rivalry of the firms. Figure 1 gives an overview of these four elements, essential for creating and sustaining an internally competitive industry.
Firm strategy, structure and rivalry
Related and supporting industries
These four elements help in creating the conditions, under which firms gain and compete internationally. These four elements are discussed below with respect to the software industry in Pakistan.
Creating factor conditions in Pakistan for software industr: Creating factor conditions is the main area of government intervention, rather than regulating the industry. There are two issues related to the factor creation and advancement for software industry. First is the development of communication infrastructure essential for the software industry. Including, availability of Internet lines with high bend width. Pakistan's own communication station to provide direct links with the rest of the world, rather than communication going through India, Hong-Kong, Singapore, UK etc. It requires government to commit itself for the communication infrastructure development. The second issue for the factor condition is constant creation and advancement of information technology (IT) professionals for the industry. This requires large pool of software engineers, electronics engineers, programmers and mathematicians. These two interventions, communication infrastructure and technical universities must focus towards the geographic clusters, (Lahore and Karachi) where there is number of industries, banks and multinational firms, that needs the software application. It is more likely that software houses will grow where there is a constant supply of IT graduates and demands for software products.
Creating demand conditions for software industry: Two aspects are significant for the creation of demand for software. One is government itself creates demand by performing governmental task through computers systems. This will be the best chance for local small firms to gain experience and develop skills in software development. Secondly local firms develop strategic international alliances with foreign firms. It is a fact that no software development firm can survive on the local (Pakistan) business only, because of the limited demand. They must have international customers to provide them financial leverage and profits. Hence, local software firms must have International-Software- Partnership with US based or international firms.
Developing supportive and related industry: At present Pakistan produces very limited numbers of computers science graduates (500 / every year). According to the industry analysts, the core competitive advantage for the software firm is having highly skilled and motivated software professionals. In Pakistan, we have either highly sophisticated computer science professionals or simple diploma holders trained in specific software packages. The industry however, demands a large numbers of quality software specialists with flexible skills in different platforms, languages, technologies and software products. In Pakistan, there are large number of traditional universities, producing poor quality graduates as compared to a handful of good quality institutions such as GIKI, LUMS, NUST, SZABIST, and NED etc. It is known fact that the most significant contribution in developing software industry is having more technology institutions. These technology institutions must be located at same geographic location as software developments firms. They must include all of the relevant departments of software industry, from applied mathematics to programming languages and software technologies.
Firm strategy: Management style in Pakistan is an autocratic management style. This management style destructive to the individual creativeness and motivation. One-man show or one person decisions making has much negative influence over development of smart and effective work place environment. These knowledge workers (software developers) must be given full authority and infrastructure support in organization so that they can sit, think and work. Organizations most successful in attracting and sustaining software engineers are organized around product teams, each team has no more than 6-9 people. In figure 2 an overview of the software industry cluster is presented, which can help to establish technical universities and software firms at a single geographic location. The clustering strategy requires strong linkages between software houses, technological institutions, and the local or international business firms.
Software Development Firms
World Class Technical Institutions
Business Firms (Local / International)
In this article I have tried to provide an overview of a model of software industry development in Pakistan. The core idea is the geographic clustering of software / technology universities and institutions. If any region / location has world class institutions than it is most likely that successful software firms can be attracted.
*Dr. A Nasir Afghan has an MBA in Industrialization and Strategic Management and he holds a Ph.D. from Holland in International Management. At present he is a senior faculty member at SZABIST, Karachi.