Almost all the leading IT players in the world have ensured their presence in Pakistan which indicates that things are happening

Dec 05 - 11, 2005

The IT industry has been taking strides in Pakistan for the last two years. It has not only attracted foreign and local investment, it also enabled services and the software exports to fetch $ 48.5 million during the year 2004-05. This vibrant sector has set an export target of $70million during the current financial (2005-06) year.

Dr. Amir Mateen, IT Advisor to Minister for Science and Information Technology, says that almost all the leading IT players in the world have ensured their presence in Pakistan which indicates that things are happening.

"IT industry is probably the most exciting and dynamic sector of the national economy today as it is supporting revenue growth by 30 to 40 percent annually.

In an exclusive interview Dr. Mateen told PAGE, IT characterized by about 80,000 professionals, major ongoing IT projects within government and the private sector to the tune of hundreds of millions of US dollars, and world class software product and services companies bear testimony to the vibrancy of the IT and IT enabled services sector in Pakistan. The convergence of communications, computing, and entertainment has resulted in the blurring of boundaries between disciplines and IT companies now come in all shapes and sizes. "IT has indeed been taken out of the closet and has been mainstreamed into every aspect of industrial and economic activity within the country."

The business community in the country has finally understood the value that automation can add to their commercial concerns, by driving down costs, improving productivity, reducing time to market and providing quality services to their customers. This is borne out by the fact that during fiscal year 2003-04, over US $200 million were invested by the financial services sector into information technology products and services. The banking sector in particular has dramatically increased its dependence on the use of IT, as is evident by the growth in the number of branches that are connected online. Likewise, the number of Automated Teller Machines (ATMs) and the use of automated cheque clearing and other back end systems within the banking community has increased. Customer relationship management systems typified by Siebel have been deployed, and online banking is de rigueur. Within the industrial sector, the use of Enterprise Resource Planning software such as SAP and Oracle has become commonplace. Companies such as ICI, Caltex, PSO, Packages, KSB Pumps, Pakistan Tobacco, Honda Atlas and tens of others have deployed high end ERP solutions.

The textile sector is investing heavily into specialized software and IT solutions to reduce costs and improve quality. Sapphire Textiles, Kohinoor, and Hasni Hosiery have ongoing IT projects worth millions. The government has not lagged behind, with the more mundane applications such as office automation and budgeting currently being developed, and SAP implementation with the AGPR nearly completed. CBR has massive IT projects in the pipeline, starting with the customs and taxation systems in 2005.

Complex logistics systems for the armed forces, sophisticated intelligence gathering and sifting systems for the intelligence agencies, guidance and control systems for missiles, simulators for nuclear plants, avionics software for the JF-17 fighter aircraft, and computer aided design and manufacturing systems for submarines are examples from the defence sector. The airline industry is another enthusiastic user of IT, with Air Blue being totally automated, there being no paper ticket whatsoever. DHL couriers and other similar players use hand held devices to interact with their base stations, and packages are being tracked in real time. Stocks are traded online, and the National Commodities Exchange set to start operations in September 2005 is one of the most advanced implementations of its kind anywhere. The electronic media has not been left behind, and state of the art IT solutions are being used by these companies to record, produce, edit, transmit and otherwise manage their entire operations.

Continuing, Dr. Mateen said that almost all of the 50 multinational IT companies operating in Pakistan dramatically increased revenues over the past couple of years, with IBM, NCR, HP, Cisco, Dell, Oracle and Microsoft all being a part of this sharp upturn. Whilst actual figures are difficult to tabulate given that these companies are under no legal obligation to divulge these numbers, guesstimates based on insider information is taken together, the various industry players have annual total revenues in the range of US $ 200 to 300 million. PCs sales alone are over 700,000 units per year, generating revenues of US $ 280 million annually.

Agreeing with the questioner that there are many who feel that the exports of IT and IT enabled services, in spite of the many fiscal and other incentives offered by the government over the past many years, have fallen short of the expectations, Dr. Mateen said that on the exports front, the numbers that were stagnant for some years have shown good results during fiscal years 2004-05 when export proceeds went upto US $48.50 million from US $32.88 million during fiscal year 2004-05. This growth of about 50% during the latest fiscal year has been possible due to the efforts of the private sector and the general upturn in the international marketplace. He, however, agreed that thousands of masters and degree holders in IT were out of jobs but hastened to add that such unemployed were those who had aquired degrees from inferior institutions which have grown like mushroom but were not equipped nor capable of imparting quality education. There is no dearth of jobs for really qualified and talented young men, he added.

He said that the Pakistani IT industry can be categorized as follows:

The traditional "software house" that develops customs made applications. This sub-sector of the industry is slowly but surely declining, following trends that are visible worldwide. Custom built applications are no longer cost effective nor viable for any enterprise, given the vast array of software products that are available for companies ranging from small shops to major industrial concerns. The number of pure play software houses is declining, but those that remain are growing in terms of employees and turnover. NetSol, Techlogix and Systems are examples of this genre.

The "System Integrators" provide total solutions. This sub-sector of the industry is rapidly growing within the country, as more and more of the projects are being outsourced on a turnkey basis. These companies put together the hardware, the data communication infrastructure, and the software package, as well as providing the implementation support and training that is required to ensure that the entire solution is implemented and that it delivers the business benefits that were expected of it. Examples include Si3, which has recently won a contract with NLC. The PIFRA project within AGPR was being led by Price Waterhouse Coopers (PWC) and now by Sidemen's. Likewise, Accenture has been awarded a turnkey contract by Telenor.

The" Internet Service Providers" and other similar entities: This sub sector has seen growth but there has been some consolidation given the large number of companies that had mushroomed rapidly. Growth is still rapid in this sector, with the introduction of broadband services.

The "multinational" that sells prepackaged software or hardware: This sub sector has also seen changes take place over the past years. Nearly all the multinationals now use a channel mechanism to carry out their businesses, whether this be personal computers or it be software such as database management systems or office automation products. This change of approach has resulted in growth in the small to medium enterprise sector, with many Pakistani owned companies becoming business partners with the global IT giants.

The "IT enabled Services" or "Business Process Outsourcing sector:

The call center companies: Growth in this segment is rapid, with currently 2500 individuals employed in this industry servicing international clients and another 2500 providing call center services to domestic customs. Growth is expected to be as high as 60% per annum for the next two years.

The Medical and Legal Transcription sub-sector: This has been a cyclical industry but the upturn is being seen since 2003, with current employment numbers being about 1,000 individuals.

Other outsourced services such as accounting and engineering design: There are a very few companies that provide such services but revenues naturally reflect the high value addition that such companies provide to their clientele. Most prominent in this sub sector is JGC -Descon which has about $ 5 million annual revenues and which employs over 300 high end mechanical engineers. Accounting outsourcing is also being carried out by a number of companies in the country.

The following chart provided clearly illustrate the status of IT industry in Pakistan:

Total Number of IT companies working Pakistan 700 (Registered PSEB Members)
Number of substantial IT companies 350 (active PSEB Members)
Number of companies ISO certified 70 with another 30 due to be certified by September 2005.
Number of Companies CMM Assessed One CMM Level 5 company, One Level 4 Anohter five ready for assessment at CMM Level 3 by December 2005
Total Number of Foreign IT & Telecom companies working in Pakistan 55 (50 PSEB Members)
IT and IT Enabled Services Exports during 2004-05 US$48.5 million (transacted through the State Bank of Pakistan)
Percent growth in Exports 50% over Fiscal Year 2003-04
Export target for the current fiscal year 2005-06 US$70 million (State Bank transactions)
Annual Software Industry Turnover Around US$ 70-8- million
Number of IT graduates produced per year About 5,500
Number of Universities offering IT/CS program 54
Number of IT Professional engaged in export oriented software development About 6000-8000
Number of Call Center agents working for international clients About 2,500
Total Number of IT professionals employed in the country About 80,000
Total IT spending in fiscal year 2004-05 About US $300 million excluding PC sales
Total amount of space utilized in STPs 600,000 sq.ft
Cost per E-1 connection (2MB) US$ 2000 per month
Number of PCs sold annually 700,000 units

Continuing, Dr. Mateen said that after lengthy and thread-bare discussion with the various stakeholders in the country covering the entire cross section of the industry, the ministry has formulated a development strategy to promote the IT industry in Pakistan

The significant elements of the strategy are:

Offer innovative incentives to strategic foreign partners. The large IT multinationals, in the past, have been selling their products in Pakistan without any thought being given to developing strategic relationships with these companies. Such relationships can take the form of these companies setting up software development centers in Pakistan, or awarding R&D projects to Pakistani Universities, or using Pakistani expertise to localize their software products.

Approach multinationals that already have significant investment in Pakistan: A major problem faced by the Pakistani IT industry is the poor international image that inhibits potential customers from engaging with any Pakistani entity. However, this issue is not a problem with companies that are already present in Pakistan, such as Philips, ICI, Siemens, Ciba, Nestle, British American Tobacco and so on. These companies have profited greatly by their business operations in Pakistan and hence any negative perception is not an issue for them.

Focus on selected areas for outsourcing/call center industry.

* Mechanical Engineering Design (automobile spare parts) and Denfese Industries
*Insurance claim processing

- Support domestic software industry by encouraging government and other entities to outsource IT projects to local companies. Such projects are not only in the software development segment but also in the outsourcing of business processes. This is not to imply that large complex projects should be given out to inexperienced companies. Even if the solution has to be imported from abroad, the deployment, customization and training should be carried out by local partners.

- Promote "Productization" amongst software companies: The global paradigm shift away from customized solutions towards the use of pre-packaged software implies that Pakistani companies should look at developkng products as opposed to looking for projects that involve customs software development.

- Strengthen academic R&D with emphasis on linkages with Industry and Defence.

- Engage actively with internationally known research and consultancy companies such as Gartner, IDC, Bearing Point and others to enhance name recognition and enhance the credibility of the Pakistani IT industry.

- Coordinate with industry associations as well as EPB, BOI and entities such as PASHA.