SOFTWARE EXPORTS

S.M. ABBAS ZAIDI,
Research Analyst, PAGE
Aug 04 - 10, 2008

Over a period of time, Pakistan has developed a strong base of Informational Technology on the back of immense potential to respond positively to the calls from the West for outsourcing services.

With an IT Industry worth more than US$ 2.8 billion, including annual IT exports exceeding US$ 1.4 billion, Pakistan is eyeing to increase the size of IT sector to over US$ 11 billion by 2011. Software export activities by Pakistani companies are not only enhancing the country's image abroad but are also having a positive impact on the IT export related earnings of the country. In Pakistan, there are 1215 active IT companies registered with Pakistan Software Export Board (PSEB) and are mostly running in Islamabad , Karachi and Lahore . Other cities are expected to have around 80 IT companies. Netsol, a local leading IT company listed at NASDAQ, has recently been dual-listed for trading on the Dubai International Financial Exchange (DIFX). About 75 per cent of the total software exports from Pakistan are done by six top software developers i.e. Netsol, Systems Limited, CresSoft, ITIN Associates, Techlogix and Soft net. The rest of 25% exports are shared by other 20 or so companies.

IT SECTOR IT HC REQUIREMENTS

 

2005-06

2006-07

2007-08

2008-09

2009-10

IT Industry HC (Exports)

10,000

15,000

22,500

33,750

50,625

IT Industry HC (Domestic)

25,000

33,250

44,223

58,816

78,225

Public Sector (Government, Semi--government and Defence)

25,000

27,500

30,250

33,275

36,603

SECP-registered Public and Private-sector Companies

25,000

27,500

30,250

33,275

36,603

Educational Sector

5,000

5,500

6,050

6,655

7,321

Total

90,000

108,750

133,273

165,771

209,376

Source: PSEB

EXPORT TARGETS

The State Bank of Pakistan in its statement for the year 2006-07 reports the export figures of software and IT enabled services to be US$116 million which shows a consistent annual growth. PSEB has also proposed a four-year draft strategic plan, which will increase the IT Industry's size to an optimistic figure of US $11 billion in the calendar year 2011. So far, eight strategic areas with missions and annual targets have been identified. These include facilitation, human resource development, industry finance, marketing, office space provision, public policy and quality and telecom bandwidth provision. PSEB has provided an export plan to the Planning and Development Division for incorporation into Pakistan's overall export strategy and targets.

CHALLENGES

The IT industry in Pakistan which is mainly made up of small and medium enterprises continues to face various challenges one of which is the non-availability of financing. There is not one but many reasons the primary being the lack of the much needed governmental support, absence of allocation of budget for the IT industry, dearth of quality IT training institutions, low production of top notch IT professionals, acute shortage of venture capital and bank loans, an overall lack of focus and direction, and highly expensive marketing in the international market.

With the IT marketplace slowly but surely gaining maturity, the issue of non availability of financing options is a major obstacle to the growth of this industry in Pakistan . Literally all stakeholders are unanimous in their demand for opening up access to capital markets for the IT industry. The traditional form of business financing is usually not applicable to the IT industry given its high start up risk and substantial involvement of Intellectual Property based assets. Therefore, this sector is usually required to be serviced either through direct financing of the IT entrepreneurs or using other more risk prone developmental financing options including Venture Capital [VC] financing.

Since 2002, the Federal Government has also strictly prohibited the use of pirated software on the nearly 5000 computers spread throughout its ministries, divisions and departments. Vendors are clearly instructed to quote the rates for registered software only as piracy remains a major concern for Software manufacturers.

PAKISTAN SOFTWARE EXPORTS BEHIND INDIA

The Pakistani software products are better in quality than those of India; still, Pakistan has fewer software exports in comparison with the neighboring country. The exports volume of Indian software industry is $60 billion; whereas, Pakistan software exports are only $1.4 billion according to PSEB. The finance is invested in mostly telecom sector; but, investment in software and hardware sectors is quite minimal, so the government should encourage the companies to invest in Pakistan software industry as there is a need of marketing at international level to attract foreign investors. The massive lead enjoyed by India which started exporting software in 1983 has gone above $ 60 billion in 2008. India whose export earnings from all sources totaled $ 36 billion till recently has been able to boost its total exports to $ 260 billion in 2008 out of which 35% are from IT related exports.

TOP FIVE SOFTWARE COMPANIES OF INDIA ANNUAL SALES BILLION $

Tata Consultancy Services

5.7

Wipro

5.00

HCL Technologies

4.9

Infosys Technologies Ltd

4.00

Satyam Computer Services

2.00

SOURCE: Aarnav

CONCLUSION

The key success to increase the export of software / information technology business is by penetrating more into US market which is still considered the hub of Information Technology. Now the important question, which comes in mind, is how to do this and the best answer is by adopting International Standard CMMI. Countries like India and China are getting more and more share of International Software Market by quickly adopting to this standard. However, one of the main factors behind Pakistan IT sector's rapid growth is Pakistan Government's policy to allow foreign investors 100% ownership of equity and 100% repatriation of profits, as well as tax exemption for IT companies until 2016. With this map we can assume that Pakistan IT is now picking up pace in the right direction and if the other important geo-political factors remain positive we are all set to make our self a prominent country in the world of IT.