Troubled Pakistan aims for a larger share of outsourcing

Pakistan, which has been affected by Islamic extremist violence and civil unrest against the current government, is trying hard to compete for a share of the offshore outsourcing business.

The country’s highly skilled, English speaking people provide a key advantage, said Yusuf Hussain, managing director of the Pakistan Software Export Board (PSEB), a government agency set up to promote the IT, BPO (business process outsourcing) and call center industries in Pakistan. Some multinational companies have centers in Pakistan, while others are outsourcing work to IT and services companies in the region, he added.

Salaries in Pakistan are lower by 30 percent than in neighboring India, said Ashraf Kapadia, president of the Pakistan Software Houses Association (PASHA), an association of software, call center and BPO companies in Pakistan.

On the downside, the country has an image problem, according to Kapadia. “There is this perception abroad that Pakistan is politically unstable,” he said. However, these problems have not scared away customers, Kapadia said.

His software and BPO company, Systems Limited, has a number of large multinational customers, including Bank of America Corp. and Citigroup Inc., which continue to do business with his company, despite the country’s unrest, he said.

A customer that has never done business in Pakistan may hesitate to outsource to a company in the country, Kapadia said. But regular customers understand that Pakistan is large, and trouble in a corner of the country will not affect their operations in another part of the country, he said. Software, BPO and call center companies have in place disaster recovery strategies, and centers in many locations, to ensure that work does not get disrupted, he added.

Pakistan’s exports of IT and services have grown by 50 percent year-on-year for the last three years, Hussain said.

The PSEB now has an ambitious target: to boost exports of software, IT services, call center and BPO from US$1.4 billion in the fiscal year ended June to about $4.5 billion by 2010. By then, the overall IT and services industry in the country is also expected to grow to $10 billion from the current $2.4 billion a year.

In computing its IT and services export figure, Pakistan includes exports by Pakistani companies, salaries of its people with work-permits working on IT jobs abroad, as well as sales of services to operations in Pakistan of foreign companies, and foreign government agencies.

Several challenges abound. Pakistan has similar characteristics that have made India successful as an outsourcing hub, such as its low-cost, skilled, English-speaking staff, said Siddharth Pai, a partner at sourcing consultancy firm, Technology Partners International Inc. in Houston. But the IT industry in Pakistan is still in its early stages, and companies have very little experience in the business and lack the ability to scale their operations, he added.

To boost the country’s outsourcing industry, PSEB and other Pakistan government agencies have launched a multipronged strategy covering infrastructure, cheaper communications, investment in education, quality certifications and a data confidentiality law.

The PSEB is also investing in promoting Pakistan as an offshore location to European and U.S. companies. Most of the media coverage of the country so far has focused on law-and-order problems, rather than on its thriving economy, Hussain said.

Not many people outside Pakistan know, for example, that the country has over 63 million mobile phone subscribers for a population of about 164 million people, Hussain said. The percentage of Pakistan’s population using mobile phones is more than that of India, which is seen as a key Asian market for mobile-phone vendors.

Besides helping to earn foreign exchange and provide large-scale employment in Pakistan, the country expects a booming IT industry to change the nation’s business culture from “industrial age” to a more modern, “knowledge age” industry, Hussain said. Growth of the IT sector will also help increase productivity in local agriculture and industrial sectors, he added.

The PSEB has introduced a package of incentives including tax breaks for the IT sector until 2016, and low-rent facilities for IT companies. The PSEB already operates 750,000 square feet of software technology parks in eleven building across Pakistan, with large IT parks planned in Islamabad, Karachi and Lahore.

For the Islamabad park, the PSEB has invited global developers to bid to set up and operate the park under a “build, operate, transfer” model.

Other government agencies are also pitching in. The country is investing in education with an eye to avoid the shortages of staff that have affected India’s outsourcing industry. The annual budget of the Higher Education Commission has gone up to about 30 billion Pakistan rupees ($497 million) from 600 million rupees seven years ago, Hussain said. Nine engineering universities are being set up with foreign collaboration, and will have foreign faculty, curriculum and certification, he added.

“We don’t have staff shortages now, but that could change in the next three years, as the industry is growing very fast,” Kapadia said.

The PSEB is also setting up a venture capital fund, which will be run by international venture capital, Hussain said. The fund will invest in both IT services and products companies, he added.

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Jim Love, Chief Content Officer, IT World Canada

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