SOFTWARE EXPORTS TO EUROZONE
We should not miss this opportunity which will only grow with the inclusion of new members in the EU
By SYED M. ASLAM
Apr 22 - 28, 2002
The integration of Europe into a single economic, financial and trading bloc of affluent Eurozone with a unified cash currency, the Euro, offers tremendous opportunities to the struggling software industry of Pakistan. Struggling because it is a nascent industry compared to developed counterparts in other parts of the world and as export orders came to a trickle in the post-September 11 world.
The integration offers tremendous opportunities for Pakistani software industry, irrespective of their sizes, to find a receptive market for a whole range of software solutions for banking, accounting, sales, marketing and retail sectors to replace the products for a market needing re-engineering of processes, systems and procedures to replace the old system with the new one.
The up-for-grabs valued IT-related works in the Eurozone, however, have failed to draw the attention of the policy makers responsible for identifying potential markets for the locally developed software solutions. They have also failed to draw the attention from the industry which can be their direct beneficiary, the software industry. This is evident from the fact that there are no indications from these two important quarters of to focus on Eurozone as the top priority which should have been the case.
Javed Naushahi, a member of the Task Force on e-Commerce of the federal government, said that the local software industry should focus on European common market as it not only still offers opportunities but also offer opportunities with inclusion of ten new members by 2004. The Eurozone still requires a range of IT solutions for monetary, trade and services sectors but would also offer fresh work as 10 new economies will join the zone in next 20 months. Pakistani software industry should not let these opportunities to pass by this time around.
"The lack of direction and priority cost us millions of dollars in lost orders as we failed to exploit immense opportunities available then. For instance, the valuable works related to re-engineering of processes, systems, procedures and services to integrate Eurozone's foreign trade with other regions of the world and the movement of goods and services within the zone itself. That could have given the boost to our IT industry, particularly software, as the Eurozone economies geared themselves for the integration, a work which lasted for over half a dozen years. The lack of focus due primarily to our pre-occupation with Y2K benefited us only marginally unlike many other countries which derived immense financial benefits from it. On the other hand, an un-achievable target of $ 500 million for the export of IT services set by the then government was, of course, not achieved — not only then but till now. That, however, was past and we must divert our attention to present and future. This time around the opportunities should not be missed in the EU as much still remains to be done in the 12 member nations of the Eurozone."
The existing opportunities and the expansion still offers immense opportunities to the Pakistani IT industry despite the inclination of the EU to pass the relevant jobs to its member nations including such software giants as Ireland. However, the magnitude of the job is immense as it requires integration of services, systems and procedures in every sector of the economy, trade, banking, retail, sales which covers all types of businesses and all categories of them. In short, the job is too big for any single country to handle. That makes all the more important for the Pakistani IT industry to make its presence felt in the EU because not only it has the expertise to develop and export all types of jobs — from low — end to high-end, costly or otherwise to suit all kinds of budgets — but also because it has a large number of software houses and abundance of intelligent human resources.
Javed said that there are a number of positive indications of making a deeper penetration in Europe today as Euro Software Park, a pan-European IT company which previously used to outsource work only to its members, is now more open to outsource works to software houses in Pakistan. This is evident from the fact that it short-listed, after due diligence 10 leading local software houses of the country and signed MoUs at the ITCN held in Karachi last year. It invited all the ten companies to participate in a software outsourcing exhibition. However, only one local software house, Karachi- based KalSoft is working with the Euro Software Park. Talks with the chief executive of KalSoft, Abdul Ghaffar Memon, make part of this article later.
Javed said that the expansion of the EU by 10 new members by 2004 the majority of which belong to Eastern Europe require the same integration process in all sectors of the economy — finance, trade, business, banking, retail, marketing, sales, etc. This will require immense IT expertise of all levels and costs the bulk of which will be passed to countries outside Europe offering immense opportunities to the local IT industry. "Though the many of the 12 existing members of the Eurozone have the expertise to do the job themselves the EU would most likely prefer to pass a big portion of the job to other countries beyond the region (as was the case the last time around) due to its sheer volume. In addition, the integration this time around involve many comparatively non-affluent economies in East Europe which will require more low-end expertise and thus the outsourcing would offer immense potential for small and medium software houses reeling from shortage of orders, particularly in the aftermath of September."
Ok, so the continued expansion of the EU and its all out integration offers an immense potential to the Pakistani IT industry. The question is how it could be tapped. Javed said that Pakistan Software Export Board (PSEB) can, and should play, a vital role by focusing on the single market of Eurozone. It should give top priority to the EU and should take delegations to sell Pakistan to the businesses on one-to-one basis. Pakistani missions should market the country aggressively in the EU and non-resident Pakistani professionals should be allowed to play a greater role to approach leading software houses in the countries they are residing in as they would be better connected to understand the needs and demands of an individual company for outsourcing the work.
Javed stressed that Europe as a whole should be made the focal point as any increased penetration there automatically means enhanced presence in the EU. "However, we should concentrate more specifically on Eastern European countries because many of them are in the process of becoming a member of the EU requiring less expensive IT services and solutions required for the integration that suit their budgets. At present the top beneficiaries of the IT outsourcing in the EU are Ireland and India — the share of exports, including software, in the GDP of the former is a high 75 per cent compared to a low 15 per cent for us."
The above mentioned comparison of percentage of exports as compared to the GDP shows the negligible role exports are playing in the economy of Pakistan. With deafening stress on developing an export- based culture the low value of exports, which include a negligible share of software, makes it all the more important to find ways to expand the base of our exports. The immense awareness highlighting the importance of IT-related exports as an elixir to expand our export base has yet to come true and making EU the focal point can help a much needed boost to our IT industry which lacks neither the skills, expertise, professional and intelligent human resources to do the job at a competitive prices.
Javed said that PSEB should direct its attention to the EU as many software giants such as Israel is not catering to the demand created by the planned EU expansion primarily because they are not interested in low-end products required this time around with the integration of 10 new East European countries. "However, it is imperative for the local software companies to improve their skills. They should improve the quality controls, the most important criteria in software exports, by getting a minimum CMM-3 level, the software specific certification unlike ISO 9000 which is industry specific, to be more competitive and salable not only in the EU but also in other parts of the world.
LACK OF LEADERSHIP
However, Javed called the lack of leadership as the 'king of problem' for the local software industry. "We need a software leadership that is mature, dedicated, sincere and is well connected to local software houses. Though Karachi houses a large population of IT professionals, including software experts, the majority of them are working for a multinational of a local company which are primarily catering to the domestic needs and not the export-based services and solutions. Since Lahore is the software capital of the country which is primarily export-based, its natural the software leadership should come from there. This makes all the more sense because an export-oriented software leadership can help the country win orders from overseas as we need business not investment.
"Another factor discouraging Karachi to play a greater role in software exports is that there is a big difference in salaries of software professionals in Karachi and Lahore and for that matter Islamabad. Software professionals are paid better salaries in Lahore and Islamabad because the majority of software houses there are export-based. In short, while Karachi houses the biggest number of professionals, it contributes much less in export making hard to link them, not to mention retain them as many Karachi-based professionals have moved north which offers not only more salaries but also better law and order situation."
PAKISTAN SOFTWARE HOUSES ASSOCIATION (PASHA)
PASHA is the representative body of some 150 software houses of Pakistan. Its members include some of the biggest software exporters as well as small and medium enterprises engaged in exports as well as developing products for the local market. PAGE talked to the President of PASHA, Hamza Matin, who appreciated the magazine's effort to come up with a timely cover story on EU's relevance to Pakistani IT industry, particularly software exports.
He agreed that EU offers immense potential for local software industry in such conversion works as retail business "only 70 per cent members of which feel they are ready (the stress is on 'ready') while the remaining 30 per cent are uncertain. In addition, the monetary uniffcation and integration of inter- trade, cross country movement of goods and services integration, banking, marketing, sales, etc., still offers immense works for the local software industry."
Referring to a report prepared by reputable Connecticut-based research company, Gartner, Hamza said that the cost of conversion of services, systems, procedures including the software in the EU still totals a whopping $150-400 billion. "This highlights the immense potential in the EU as getting even a small portion of multidimensional projects can make all the difference for the local IT industry which suffered heavily after September 11.
"We already have a presence in EU, particularly in Germany and France but we should find ways to enhance it. While there are certain barriers, the major being the language, we can either make UK, which though not in Eurozone is in its proximity, or even Germany, where we already have a meaningful presence, the entry point for the EU. Although we have business presence in the EU we don't have a matching physical presence there in terms of shops or offices primarily because it is costly to set up offices, hire front-end staff and absorb related travelling and staying expenses.
"We need strong commercial missions to pursue leads to find suitable opportunities as both the private and the public sectors in the EU need IT solutions, services and softwares for the ongoing integration works.
"Surely we can compete in costs. However, cost is not the deciding factor in mission critical applications which usually have no financial restrictions. Rather in high-end solutions such as these credibility and reliability are the top important factors for awarding a contract."
Hamza was much critical about the non-participation of Pakistan, both at the official and private level, in the prestigious IT fair, CeBit 2002, held in Frankfurt in recent past. "PASHA was interested in participating in the said fair and approached such government organizations as Export Promotion Bureau and Pakistan Software Export Board to participate but its request was turned down."
"EU is the potential market and I am glad that PAGE has taken the interest to highlight the importance and priority which it should be accorded. EU is the place where there is a lot of sympathy for Pakistan for the role it played in the war against terrorism. The goodwill is evident from the fact that EU reacted faster than anyone else to remove restrictions on textile quota for Pakistan. This goodwill on the part of EU should be used to expand the base of exports for the benefit of local IT industry, software houses included, for varieties, range and types of jobs suitable for various local players irrespective of their size and expertise.
"We missed the Y2K boat. We should not miss this opportunity which will only grow with the inclusion of new members in the EU."
EU: THE NICHE
PAGE talked to Abdul Ghaffar Memon, the chief executive of KalSoft, a Karachi-based software development house, the inauguration of whose purpose-built complex was done by federal information minister Nisar A. Memon this week. KalSoft was one of the ten leading software houses short listed by Euro Software Park last year and is the only one which is associated with Euro Mobile Technologies (EMT). The Holland-based EMT provides mobile services and also develops software for mobile phone service providers. The MoU signed last year between the two companies has brought EMT (Pakistan) limited as a fully owned subsidiary of EMT Holland with an initial investment of Rs 20 million.
EMT Pakistan will be develop softwares for its parent company, EMT Holland, and will outsource most of its software development projects to KalSoft which has developed expertise to develop softwares to provide services to mobile phone users.
Mr Memon said that the Pakistani software industry is facing the same issues and problems which were faced by their counterparts in the other countries which are acknowledged as leaders at present. We must realize that a substantial increase in the value of software exports will not happen overnight. It will only come over a period of time, in a year or two. This makes it all the more important for us to find niche markets to help expand the base of our software export and exploit this exposure at the right time in near future. The opportunities in the EU offers Pakistan just such a niche without diverting attention elsewhere."
While Eurozone, he stressed, definitely offers an opportunity, one should realize that it is not the only one. "The Europe is having a good economic recovery which is fast and the integration is one of the major boosting factor. This has the potential to benefit the local software industry, particularly for the developers of low-end jobs. Yes, there is an opportunity in the EU and it should be tapped. However, the biggest opportunity will come in the US with the revival of its economy.
"However, quality controls are a must. There is only one CMM-2 level software company in Pakistan and while KalSoft claim that we have a CMM-3 it is not yet assessed (Assessment is not necessary for CMM and even after assessment no certificate is issued). CMM is costly, assessment companies (there are none in Pakistan), charge very heavily in dollars and that too on hourly basis. We expect to upgrade to level 5 end this year and expect to do an assessment then. The importance of having the benchmark quality standard can hardly be overemphasized as without it local software exporters would not be able to make the real penetration in the global market, particularly the EU."
He also expressed concerns at the lack of physical presence in the overseas markets made extremely hard at present due to difficulty in getting a visa. "Pakistanis, and for that matter Muslims, are facing hardships to get the visas which is extremely bad for marketing our products in the markets in the West."