Pakistan Inc. - The High Tech. Edition

By: Pakistan Inc. Editorial Committee

In 2004/05, Pakistan Software Export Board (PSEB) undertook a Best Practices Study of Pakistan’s Software Industry (here). This study was the first comprehensive data collection exercise about the industry and since been cited as the only credible source of data on the industry. The 2004/05 data, however, is somewhat dated now and do not represent the current state of the industry anymore. In addition, the earlier data was limited in its coverage in that it only covered software development activities (excluding BPO and IT-Enabled Services that form a major portion of the industry today). Keeping in view the importance of having accurate and up-to date data on the industry on an ongoing basis, Pakistan Software Houses Association’s (PASHA) Executive Committee has decided to initiate Biennial Surveys of Pakistan’s Software Industry to be repeated on a regular basis. 

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By: Athar Osama

In the Indian IT Industry, there is a popular saying that goes like this: “IT was the only industry that the Indian government didn’t understand well-enough to intervene in and hence destroy”. In Pakistan as well, public policy, has played a fairly controversial role in the development of IT Industry over the years. For most of the 1990s, Government’s policies towards the IT Industry were a little suspect, not because the government was doing too little, but because it was doing too much and mostly in the wrong direction. Dr. Atta ur Rahman, the then Minister of Technology in Pakistan, pushed up the hype of the IT bubble in Pakistan by touting the ease with which developing countries could join the race (”all you need is a computer and an internet connection”). While it sure was easy for someone in the developing world to go online—and many thousands did—developing quality software that could sell in the international market—or even domestically—was an altogether different ballgame.

The hype around IT in the 1990s resulted in the creation of hundreds, if not thousands, of “mom and pop” IT training institutes across the country and the government pumped money in providing Internet to 1000 villages all across Pakistan. The expressed purpose for investing in bringing Internet to Pakistan’s thousand villages was that somehow, by doing so, Pakistan would be better prepared to become a software exporter around the world. As if browsing the internet and not reading a book was the most critical skill that was needed to create the next generation of human resources in Pakistan! Indeed, ignoring even the most basic arithmetic of the IT exports business, the government announced that Pakistan would surpass $1 billion mark in software/IT exports by the year 2000. Needless to say, this was never meant to be.

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By: Athar Osama (An abridged version of this article series is published in Dawn, EBR, July 4, 2005)

One question that often floats around among Pakistani IT/software entrepreneurs, investors, and policymakers alike is whether or not and to what extent does Pakistan today represents an industry dynamic that is similar to India’s from a decade ago? The underlying reason for seeking an answer to the above curiosity is to understand whether or not the current development of Pakistan’s software industry represents a lower level of development in the natural progression of such an industry, as epitomized by India’s, or if it represents a fundamentally different development trajectory. This is a perfectly legitimate concern for those aspiring to follow the example of Indian software Industry and replicate it at home.

To be fair, however, Pakistani entrepreneurs, investors, and policymakers are not alone in this aspiration. Many other countries around the world like Russia, China, Ukraine, the Philippines, Iran, Malaysia, and several countries of Eastern Europe aspire to become the next India or, at the very least, claim a respectable share of world’s software export market. Only Ireland, Canada, and Israel–the lesser-powers of the software world–seem to have uniquely independent industrial development trajectories. Many policymakers, thus, spend sleepless nights thinking, strategizing, and day-dreaming about the goal of doing what India and China has done with the software and manufacturing industries respectively.

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By: Athar Osama (An abridged version of this article series was published in Dawn, EBR, July 4, 2004)

In this first of this series of two articles, I outlined the primary motivation behind undertaking this analysis. I also laid some ground rules and identified sources for comparing the early performance of India’s software/IT industry with that of Pakistan today. I then went on to trace the beginnings of the Indian software “miracle”. Finally, I attempted to introduce some statistics that are available through various sources, to develop a more concrete sense of the state and dynamics of the Indian software industry up until mid-1990s. As I did that analysis, I also briefly outlined and discussed major similarities and differences between the Indian software industry and that of Pakistan. In this article, I would continue my examination of the Indian software industry as it stood in 1994/95 with some additional insights on its qualitative features. Then I would turn to some analysis and prescription for other countries aspiring to do the same.

A Brief Recap

In the way of a brief recap of the first article, I discussed the early days of the Indian software industry as it rose from the shadow of a much larger and mature hardware industry. The article also noted a curious contradiction in early Indian policy towards software as it linked permissions to import computer hardware with future commitments to export software. Not only did this result in half-hearted attempts to export software–the earliest of Indian software companies were not really in it for the exports, per se, but rather for the ease with which they could import computer hardware in the name of writing exportable software–but also much of the imported hardware actually ended up being leased out to the domestic market.

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By: Athar Osama

The software industry—widely seen as the “great enabler”—provides an opportunity to the developing countries to play a greater economic role in the fast globalizing world. The example of neighboring India—whose ambition and progress towards becoming a “mini (software) superpower” is no mystery from the world—is often cited in the development literature as an evidence of the fact. Pakistan’s software industry—widely perceived to be sharing a number of key factors with India (e.g. a supply of English-speaking, technically trained, and cheap manpower, a favorable public policy and infrastructure environment, and a government willing to help private interests etc.)—has embarked upon an ambitious effort of its own to claim its share in the riches of the world’s software markets.

Pakistan is currently viewed as a tier-3 country (defined as having around $25 Million in export earnings, tens of software companies, and upto 5 years of industry maturity) in a widely quoted taxonomy of software exporting nations. It is widely believed, in both government policy and entrepreneurial circles, that with the wealth of talent and strengths available, the country deserves a better place in this global pecking order of software exporting nations—atleast a tier-2 status (defined at $200 Million or more in software revenues) like Russia and China, or even a tier-1 status (defined at more than $ 1 Billion in export earnings) alongside archrival India. Whether or not the Pakistani software industry is able to capture its “due” share and make a mark on the major software markets of the world remains to be seen.

While Pakistan’s software industry has been a subject of the curiosity of interested by-standers—both local and expatriate entrepreneurs—industry analysts, and potential investors alike, lack of credible data on the current state and competitive dynamics of the industry has often been a hindrance in engaging these individuals and materializing many prospective ventures. In the absence of relevant data to back these assertions or visible success stories of appropriate stature, these strategic conversations revolve around many tough questions about the current state and future prospects of the industry. For example:

• Why hasn’t the Pakistani software industry been able to produce a single world-class software firm (e.g. Wipro, Infosys or TCS of India) in the last 10-15 years?
• Why haven’t we been able to grow Pakistani software exports beyond a certain level ($30-60 million per annum) for the last 5 years?
• Does Pakistani software industry merely represent a lower level of development or an altogether different development trajectory as compared to known peer nations?
• What constitutes a generalized set of best practices in the local software industry (i.e. what differentiates better performers from those that don’t perform that well)?

Answering these questions require insights and understanding of the local software scene.

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By: Athar Osama

In the first of this series of articles, we looked at a statistical snapshot of software development in Pakistan. While our sample is not representative of the entire software industry in this country, it nonetheless includes a vast majority of the more significant players on the Pakistani software scene. Hoping to develop a better understanding of the structure and dynamics of the Pakistani software scene, not only facilitate investment and entrepreneurial activities but also to better inform public policy debate, we reported a number of fairly interesting findings. For example, although last year has seen considerable growth in both revenues and employment, Pakistan’s software industry is still going through a period of early-stage development and shows lack of maturity in many respects—that is only recently beginning to change. The most significant evidence in support of the above, that the study was able to bring to light, was lack of differences between domestic and export-focused software operations, between product and services-focused operations, and between pre- and post-dotcom operations—differences that one would have expected in a relatively mature industry.

We also found the prevalence of several best “managerial” best practices that differentiates the relatively better performing software houses from the not-so-good performing ones. The study, however, failed to find significant differences in technical practices of the better performing software operations as compared to not-so-good performing ones thus calling into question the assertion whether quality of software development processes makes a difference in the successfulness of a software operation. Indian software firms have been renowned in their ability to continually improve their processes through wholesale adoption and implementation of western process management approaches, like Six Sigma type approaches of the General Electric and Texas Instruments fame. No wonder then that major portion—as many as 50-75%–of the global CMM-SEI level-5 certified software operations are based in India. Indeed, a recent study by Dr. Michael Cusumano of MIT—a keen observer and researcher of software development best practices around the world—highlighted the fact that Indian software development operations have been especially successful in melding together older software development process approaches with the relatively newer ones in a manner that have made distinct and competitive.

While our own lack of finding is certainly a shortcoming of the study it cannot be perceived as an indictment of the industry. Certainly “lessons from the trenches” belie the simplistic conclusion of the statistical on that particular point. More research is certainly needed to understand the role of process quality in the development and evolution of Pakistani software industry. In this second of the two pieces drawing upon the results of the study, we highlight some of the lessons learnt from over 65 interviews of the leaders—CEOs/CTOs/Directors—of at-least 50 of the industry’s major players.

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