IT-BPO: AN ECONOMIC ENGINE
TARIQ AHMED SAEEDI
Apr 4 - 10, 2011
Global information technology and business process outsourcing has become a USD6 trillion industry, according to the international association of outsourcing professionals (IAOP). Led by India and China, IT-BPO business has a potential to grow further and expand to other geographies like Pakistan, which lies in the neighbourhood of India that occupies a major share in the global IT-BPO services.
India's IT and BPO is expected to generate USD59 billion in the fiscal year ending March 31, 2011, according to the national trade body. The revenue will be 18.7 per cent as compared to USD47.9 billion in the comparable last fiscal year. Indian IT companies are earning export revenues mainly from US and Europe. The industry employs more than two million workforce that is expected to add by 240,000 workers at the yearend. Indian industry has rebounded on the back of surge in spending by new customers encouraged by innovative business models, says national association of software and service companies (Nasscom).
On the other hand, Pakistan's IT industry has grown to the point where it is earning USD2 billion per annum, employing over 12,000 employees, according to Pakistan software houses and association (Pasha), a trade body representing 370 members nationwide. The global share of the country in IT-BPO services is insignificant and there is a lot of potential exiting in lifting it up.
Wage arbitrage is the core reason why foreign companies redirect their businesses to the developing economies. Multinational companies also transfer jobs to their countries of origin in order to get cost benefits. When compared to foreign nations, salary scale in low-income economies is short and wide exchange rate disparity thins it out further. IT companies in developed nations prefer to transfer jobs to the poor nations since they are conversant with cost benefits they enjoy while doing so.
The field of IT is virtually bigger than world and has journeyed a long way to reach to its present shape. No one perhaps could imagine that cyberspace would be generous enough to help a company earn multimillion dollars by operating virtually, on the internet. There would be no surprise if online business value surpasses combined revenue of mortar and brick businesses in future. Only US consumer spent USD227.6 billion on online retail shopping in 2010. Revenues of businesses whether they are using websites for marketing purposes or engaged in electronic commerce are increasing with each passing day leaps and bound with internet users ramping up swiftly around the world.
Realising the powerful role internet is assuming, companies are utilising websites as efficient and effective vehicles of adverting messages. According to a latest estimate, global online ad spend is likely to cross USD106 billion in 2011.
IT outsourcing ranges from technical to non-technical and professional jobs. From website development, designing to content development, foreign companies delegate all core jobs to workforce based in Asian countries. Software designing for websites and mobile applications developments are some other important jobs proved very costly if for instance done by the engineers in US or Europe. Comparatively, these jobs can be performed cost-effectively in Pakistan, India, Bangladesh, or other Asian countries. Web development and designing are technical fields for which there are plenty of workers available generally in the world. However, content that forms a pivot lying on which is the foundation of the internet world is poorly developed indicating the urgent need of professional writers. Interestingly, this shortage of quality content phenomenon is international.
State's support has given birth to a number of IT companies in Pakistan. Supports to the outsourcing companies include 100 per cent equity ownership and profits repatriation and income tax exemption till 2016. Unfortunately, the government left the IT industry at bay following these supports. The basic issues faced by the local based IT companies are credibility factor, funds constraints, and regulatory framework. Most often, lack of credibility directs outsourcing businesses to other destinations from Pakistan, instigating strange business practices locally. Local firms use, for example, US servers to be verified as non-Pakistani company operating from outside the country. Creative houses art works of which are appreciated are financially strained. While jobs are being created in the industry in Pakistan, development of IT industry is untidy. Regulatory framework or guidelines can only promote business ethics.
Pakistan can learn few tips of success from Indian IT industry to improve revenue from IT-BPO services, as its IT companies are sucking the major shares of global outsourcing business. Since the market is overstretched, Indian companies are also eying its neighbouring countries to share the burden of overwhelming work orders from all over the world. Last year, an India-based IT company had offered Pakistan its technical expertise to grab overseas businesses. Chief Infosys Technologies N.R. Narayana Murthy told Pakistani businesspersons delegation in New Delhi that western societies were devoid of IT graduates and they were looking towards Asian springboards to get jobs done. "There is ever increasing demands for IT-BPO services, particularly as western societies produce fewer IT graduates," the Wall Street Journal reported Murthy as saying. "All that must be done is to develop Pakistan as a destination of choice of international clients. This is where India can help." He saw Pakistan as a potential destination of outsourcing jobs in future. Educational exchanges can be powerful to remove impediments in the latent growth. Infosys was ranked second among 100 companies in global best outsourcing service providers 2010 by IAOP that has 110,000 members and affiliates worldwide.
IT industry can open up floodgates of foreign exchange in Pakistan, if the government gives up its indifferent attitude towards the industry. It is obvious that fiscal intervention in the shape of tax levies or withdrawal of tax exemptions can backfire, discourage entrepreneurships springing up on the IT scene, and thin out job opportunities in effect. But, at least it can keep on records foreign inflows and outflows of the industry to call for their economic contributions in the future. Advisably, a private-public trade body should be set up to create disinterestedly profiles of businesses related to IT and enabled services. Government should set up funds that may be sourced from IT industry to lend financial supports to the graphic designers and other creative houses in need of funds.