Pseb It Market Review

1
Table of Contents
1 Executive Summary.................6 2 Background and Introduction11 3 Study Objectives and Design.13 4 Pakistans IT Market Revenue Classification and Assessment ....14 4.1 Past Estimates of Pakistans IT market and Software Export Revenue ..14 4.2 Pakistans Software / BPO Revenue Estimates..16 5 State of Pakistans IT Industry: Survey of Industry Performance & Firm Characteristics..22 5.1 Pakistans IT Industry: Companies, Markets, and Offerings ..23 5.2 The Pakistani IT Firm: Strategy, Management, and Resources 34 5.3 Public Policy Environment and Infrastructure Bottlenecks ..46 6 Pakistans IT Market: A Review of Supply and Demand 49 6.1 The Supply Side: Producers of IT and IT-enabled Services49 6.2 The Demand Side: Users of IT and IT-enabled Services.62 7 Conclusions and Policy Recommendations ..........74
8 Appendices A LIST of Interviewees: PSEB MEMBER COs CEOs and Executives..77 B LIST of Interviewees: IT USER COs / CIOs and IT Directors..78 C LIST of Interviewees: MNC Country Heads..............79 D LIST of Interviewees: IT Policy Makers and Decision Leaders.79 E PSEB IT Market and Revenue Estimation Study PSEB Member Survey..80 F PSEB IT Market and Revenue Estimation Study CIO Survey.81
List of Figures and Tables

1. 2 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. Figure 1.1: Impact of 2007 recession on total revenue and spend of Pakistans IT industry Table 1.1: Estimated size of domestic and export revenues for 2008, 2009, and 2010 Figure 2.1: The data needs of a three-tiered evidence-based policy-making process Figure 3.1: Graphical representation of the work plan Table 4.1: Software export / BPO revenue estimates by various sources (and studies) Figure 4.1: Pakistans IT spend and global revenue (Source: P@SHA 2008) Figure 4.2: Impact of the 2007 recession on total revenues of Pakistans IT industry Figure 4.3: Growth in total revenue and spend of Pakistans IT industry Table 4.2: IT market revenue classification scheme sectors and product-service offerings Table 4.3: In sample estimates of global revenue and domestic revenue and spend Table 4.4: Proportion of companies of various sizes within the sample and their median revenues Table 4.5: Corrected global and domestic revenue and spend of Pakistans software / BPO industry Table 4.6: Corrected global and domestic revenue and spend of Pakistans software / BPO industry Table 4.7: In sample estimates and population corrections for industry revenues Table: 4.8: Estimated size of domestic and export revenues for 2008, 2009, and 2010 Figure 5.1: Foreign roots and connections of Pakistans IT companies Figure 5.2: Geographical distribution of parent-subsidiary connections and front offices Figure 5.3: The recession and full-time employment in Pakistans IT companies Figure 5.4: Full time employment and employment growth in Pakistans IT industry Figure 5.5: Full time employment by type of work performed Figure 5.6: Product-service profile of Pakistans IT companies Figure 5.7: Platforms or development approaches of Pakistans IT companies Figure 5.8: Sectoral breakdown of total global revenues of Pakistans IT industry (2008) Figure 5.9: Sectoral breakdown of domestic and export revenues of Pakistans IT industry (2008) Figure 5.10: Global revenue by product-service category, platforms, and tools (2008) Figure 5.11: Domestic and export revenue by product-service category, platform, and tool (2008) Figure 5.12: Target market strategies of Pakistans IT companies Figure 5.13: Destination offerings mix of Pakistans IT companies Figure 5.14: Client risk and diversification in Pakistans IT industry Figure 5.15: Expenditure profile of companies in Pakistans IT industry Figure 5.16: Percentage of CEO time spent on company activities in Pakistans IT industry Figure 5.17: Management and entrepreneurial characteristics of Pakistani IT companies Figure 5.18: Average proportion of full time employment in Pakistani IT company by type of work Figure 5.19: Pattern of employment in Pakistans IT industry by educational qualifications Figure 5.20: Part time and women employment in Pakistans IT industry Figure 5.21: Attrition in Pakistans IT industry Figure 5.22: Sources of initial funds for setting up companies in Pakistans IT industry Figure 5.23: Avenues to investment resources to support next phase of company growth Figure 5.24: Quality certifications in Pakistans IT industry Figure 5.25: Quality assurance teams and function in Pakistans IT industry Figure 5.26: General perception of policy and infrastructure issues in Pakistans IT industry Figure 5.27: Most important policy and infrastructure issues in Pakistans IT industry Table 7.1: In sample estimates and population corrections for industry software / BPO revenues
List of Abbreviations
ADC AHBL AKUH ARL BAP BOP BPM BPO BPR B&F CARE CCNB CDC CEO CIO CMM CMMI CMS DIY DRS EGD ERP FMCG FTE GIKI GIS GSM HBL HIMS ICT ICT4D IBA IH IPD ISO ITES KESC KSE MCB MGA MITETF MNCs MS NADRA Alternate Delivery Channels Arif Habib Bank Ltd. Aga Khan University Hospital Attock Refineries Ltd. Business Acceleration Programme Balance of Payment Business Process Modernisation Business Process Outsourcing Business Process Re-engineering Banking & Finance Centre for Advanced Research in Engineering Customer Care and Billing Central Depository Company Chief Executive Officer Chief Information Officer Capability Maturity Model Capability Maturity Model Integrated Campus Management System Do It Yourself Domestic Revenue and Spend Electronic Government Directorate Enterprise Resource Planning Fast Moving Consumer Goods Full Time Equivalent Ghulam Ishaq Khan Institute Geographical Information Systems Global System for Mobile Communications Habib Bank Ltd. Health Information Management System Information and Communications Technology ICT for Development Institute of Business Administration Indus Hospital IT Product Development International Standards Organisation IT Enabled Services Karachi Electric Supply Company Karachi Stock Exchange Muslim Commercial Bank Ltd. Mobile Applications, Gaming, and Animation MIT Enterprise Forum Multinational Corporations Managed Services National Database and Registration Authority
NASSCOM NUST OGDCL PABX PNS PRAL PS PSEB PTA PTCL P@SHA QA RBI RBS R&D SaaS SBP SCB SDS SECP SFA SHMA SICES SKMT SNGPL SSGC TAN TiE TRG T&U UBL VAR VAS Y2K
National Association of Software and Services Companies National University of Sciences and Technology Oil and Gas Development Co Ltd. Private Automatic Branch Exchange Private and Non-Profit Sectors Pakistan Revenue Automation Ltd. Public and Semi-Public Sector Pakistan Software Export Board Pakistan Telecommunications Authority Pakistan Telecommunications Corporation Ltd. Pakistan Software Houses Association for IT and IT Enabled Services Quality Assurance Reserve Bank of India Royal Bank of Scotland Research and Development Software as a Service State Bank of Pakistan Standard Chartered Bank Software Development and Services Securities and Exchange Commission of Pakistan Sales Force Automation Sidat Hyder Morshed Associates Systems Integration and Consulting and Embedded Systems Shaukat Khanum Memorical Trust Sui Northern Gas Pvt. Ltd Sui Southern Gas Co. Tech Angels Network The Indus Entrepreneurs The Resource Group Telecommunications and Utilities United Bank Ltd. Value Added Reseller Value Added Services Year 2000
1 Executive Summary
The global recession during the last 2-3 years (2007-2010) has tested the industrys grit and resilience. Not unlike other countries, Pakistans software and BPO industry underwent a substantial period of change and turmoil. It has, however, emerged as much stronger and more resilient than ever before. In 2007, The P@SHA Annual Review 2008 noted that Pakistans Software and BPO industry was on the verge of a take-off. In FY2006, the software / BPO industry had stood at $193.4 million of local revenues and spend and a global revenue impact $779.7 million. Industry leaders were project another year of growth with the domestic revenue and spend to reach a projected $269 million and the global revenue impact of around $900+ million. The projected growth, however, did not materialise. Even before the global recession of the early 2008 had hit, the relative political-economic stability within the domestic environment in Pakistan had begun to falter. A limited judicial crisis that started around the middle of 2007 became a full blown constitutional row between the government and the judiciary. As 2007 turned into 2008, the country was shrouded with considerable political uncertainty that paralysed the government resulting in considerable policy uncertainty that hit domestic IT spending. As these developments unfolded on the domestic front , the credit crunch and sub-prime mortgage crisis had turned into a full-fledged recession across much of the developed world. The global recession hit in the early 2008 and with it came considerable belt tightening in IT spending in the countrys major export markets most notably United States, Canada, and Europe. In the West, the recession resulted in business closures and lay-offs whose impact ricocheted through the industries across the developing world, including Pakistans. For most companies in Pakistans software / BPO industry, 2007 and 2008 became the years when the brakes were applied. The effect of these twin crises could be amply gleaned from the following figure:
Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry
1000 900
Revenue (US$, Million)
800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 (Projected) Year 2007 (Realised) 2008 2009
Global Revenue Impact Local IT Revenue & Spend
Figure 1.1: Impact of 2007 recession on total revenue and spend of Pakistans IT industry
On the whole, domestic revenue and spending declined by 40% between 2006 and 2007 while exports were hit by up to 60%. Growth seem to return back starting 2009. It is estimated that by the end of 2010 the industry would have recovered to pre-2007 levels. Despite the painful reality that these figures reflect, though, largely the industry did quite well to weather the storm and in certain sectors even continued to grow bigger. Estimating industry size and future projections The Technomics Survey of PSEB Member Companies (2010) which is the subject of this report was carried out towards the end of 2009 and early-to-mid 2010. The figures are, therefore, most accurate for FY 2007 and FY2008. In Sample and population estimates for FY2008, 2009, and 2010 are:
Revenue Classification Domestic Revenue & Spend (DRS) Global Revenue (GR) Stratified Medians Method - DRS Stratified Medians Method GR Modified 80:20 Model DRS Modified 80:20 Model GR India (RBI) Model DRS India (RBI) Model GR FY2008 (Actual) In Sample Estimates $130.06 million $332.83 million $394.05 million $762.76 million $226.57 million $489.83 million $250.03 million $470.01 million $135.78 million $315.54 million $399.77 million $745.47 million $232.29 million $472.55 million $255.75 million $452.73 million $177.71 million $389.38 million $ 441.70 million $819.35 million $274.22 million $546.38 million $297.68 million $526.56 million FY2009 (Est.) FY2010 (Proj.)
Population Adjusted Figures Using Three Correction Models
Source: PSEB Member Survey 2009-10, figures based on 75 responding companies (RR=25%).
Table: 1.1: Estimated size of domestic and export revenues for 2008, 2009, and 2010 On the whole, though, the estimates suggest upper and lower limits on Pakistans software / BPO global exports revenues to be between $761.93 million and $469.19m respectively and domestic revenue and spend to be between $393.3million and $226.57million respectively. Beyond these figures, a number of other quantitative and qualitative findings stand out: Overall size of the industry: Of the total of 75 companies surveyed, 8 (10.6%) had more than $10 million of revenues, 21 (28%) had between $501k-$10 million, and 41 (61.3%) had less than $500k in revenues. The industry has been undergoing a trend of greater diversification across multiple geographies. In particular, there is a stark trend away from the United States and towards new and emerging markets such as Africa, the Middle East, and Asia Pacific. Market offerings mix: Around 40% of the companies develop and customise their own proprietary platforms. An increasing number of companies (about 25%) develop on established proprietary platforms (Microsoft, Oracle, or SAP etc.). Over 50% also work with Open Source (OS) platforms.
Among the leading product service categories on the basis of global revenue for software development are: e-business (web 2.0 etc.), capital market software, and specialised vertical specific ERP solutions that account for around 7%, 4%, and 3.5% respectively. The same or outsourcing are: voice-based BPO, outsourced application management, and outsourced support account for 24%, 14%, and 5.7% respectively. Pakistans software / BPO industrys revenue continues to remain dependent on a small number of high growth sectors, namely, telecommunications and finance accounting for threefourths of the industrys total global revenue impact. Other sectors such as retail (6%), computing and electronics (4%) healthcare and life sciences (4%) have emerged and some such as government (down to 3%) declined during the last few years. Company management and operations: The 75 companies surveyed employ around 7500 full time staff for an average firm size of approximately 131 full time equivalents (FTEs). Employee attrition rates decreased considerably from 2.62 years (2005) of average employment to to 3.52 years (2009). The Pakistani Software / BPO firm has continued to evolve in terms of its strategic focus. While the vast majority of the firms are multi-product (or service) firms, there has been a gradual shift towards niche market orientation and vertical focus. The industry does quite bad, although it continues to gradually improve, on its ability to utilise part-time talent and encourage women employment thus hinting towards an industry that makes sub-optimal use of the talent available to it.
Funding needs and growing pains: The industrys relatively narrow set of options for start-up funding continue as before with organic cash-flows based funding and foreign venture capital registering some increase and local venture capital available to companies declining in terms of number of deals available to companies. Industry CEOs overwhelmingly favour public (or private) spending programmes focussed at improving the hard and soft infrastructure to support their international marketing and alliance-building activities as against other programmes such as training or venture capital. Public policy and infrastructure challenges: The perception of countrys image and law and order made a resurgence as the most important public policy and infrastructural bottlenecks that affects companys growth. This time around, though, these perceptions may be much more real than in earlier years. There is also a sense that telecommunications gains made in late 1990s may be eroding. The availability of quality HR and physical infrastructure remain bottlenecks to company growth.
The silver lining: emerging new demand and supply segments While the revenue and spend statistics provide a particular view of Pakistans IT and IT-enabled services industry, they fails to fully capture and appreciate the highly dynamic and vibrant nature of the industry. Pakistans IT and IT-enabled services industry has continued to evolve and mature despite the political and financial turmoil and the global economic recession. As the more traditional sub-sectors such as pure software development services experienced erosion of market demand, new and exciting areas have emerged promising potential for innovation and market growth. In the last few years, for instance, systems integration and embedded systems seem to have come of age as an important sub-sector of the Pakistani IT and IT-enabled services industry. While systems integration has been a part and parcel of the IT industry since its inception, its growth has been somewhat limited. Increasingly, though, domestic IT spend as well as export opportunities is breathing new life in this particular sub-sector of the overall IT market. The industry has also climbed up the value chain within the customised software development services sub-sector as the firms have increasingly specialised in customisation of well-established platforms (like Microsoft, SAP, and Oracle etc.) instead of trying to create in-house proprietary platforms. Similarly, mobile applications, gaming, and animation is an emerging new area with considerable promise to become a key driver for the industry in the years to come. Supported by strong underlying demand, cut throat competition and the need for innovation and low cost and barriers to entry, mobile applications and gaming seem to have produced a few exciting players. A number of Pakistani start-ups have done very well in producing content and games that have hit the Top-10 lists in their respective genres at the Apple Store. Cricket Revolution a full fledged cricket game is the first of its kind developed in Pakistan. On the demand side of the IT industry as well, there has been considerable change within various subsegments of demand for IT products and services. Financial and telecommunications industries remain the largest users of IT and IT-enabled services within the country although the former has experienced some flattening of demand in the recent years. The share of multinationals in spurring demand for IT products and services seems to be going through a trough that is broadly in line the global trend towards rationalisation and centralisation of IT procurement budgets of multinationals worldwide. There are several opportunities for IT firms to engage with the emerging areas of local demand. New avenues of IT spending growth that are likely to drive growth in the future are opening up. Mobile Banking, for instance, is an exciting new area that may bring together two IT demand drivers and set the stage of another spurt of explosive spending growth in the coming years. Value-added services (VAS) represent yet another lucrative frontier that still presents an untapped opportunity for the industry. The dynamic character of Pakistans IT and IT-enabled services industry continues to evolve and reinvent itself to meet the new challenges and opportunities that it faces. It is an industry that survives and thrives in spite of the various geo-strategic, political, and socio-economic challenges that are uniquely the countrys own. Perhaps no other industry in the world with such ambition has been burdened with graver challenges than Pakistan. No other country has demonstrated more tenacity and a greater will to succeed despite the odds.
2 Background and Introduction

The years 2007-9 have been a period of considerable turmoil for the global software industry. The onset of the global recession brought about by the credit crunch of 2008 is still affecting demand for IT and ITenabled services around the world. Around the world, IT industrys focus has primarily been on the preservation of existing markets and margins rather than on expansion. While Eastern destinations, particularly in Asia and the Pacific, have survived the massive lay-offs that have haunted the West, the former have nevertheless been affected by a dampening of growth in the IT sector and the broader economy. In addition to the direct impact of slowing demand for IT products and services, job losses and unemployment in the West have lessened the appeal of IT outsourcing. Today, the software / BPO industry is operating in an entirely different environment than what was a mere couple of years ago. While traditional drivers of the growth in IT demand may have dampened in the current recessionary environment, new drivers have emerged to take their place. Crises and recessions could serve as stepping stones towards new avenues and opportunities for those who are willing to see new possibilities and strategically manoeuvre to take advantage of these. It is important, however, to keep track of what the current state of play is and where one is heading even under the most turbulent and confusing of times. This must apply to both the company and the industry as a whole. The ability to see the trends, opportunities, and challenges in almost real time before they either become reality and hence too late to act upon or do not materialise as expected is critical to making quality organisational and policy decisions. Collecting timely data on the industry to benchmark its performance over time and against other competitor industries is critical to taking stock of its performance and understanding the dynamics and changing trends. Over the years, a number of studies have been carried out to achieve this for the Pakistani IT industry. These have documented the industry with varying degrees of accuracy and comprehensiveness and include, among others: PSEB Best Practices Study of Pakistans Software Industry (2003-4); BearingPoint ITES-BPO Study (2006); P@SHA Annual Review of Pakistans Software Industry (2007);
These studies vary in terms of their coverage of industrys various segments and sub-sectors and the type of data collected. In addition, a number of other informal approaches have also been made to capture data relevant to the industry but their coverage has been limited to trying to estimate industry size. Most notable of these attempts is a paper published by PSEB in 2006 and State Banks Balance of Payments (BOP) statistics. One of the primary challenges for the strategic planners and policy-makers in Pakistan is the absence of credible and reliable industry data across the entire software industry value chain including inputs (e.g. human resources, employment etc.), outputs (revenues distributions by sectoral and technology categories etc.), and outcomes etc. The absence of credible data on the industry outcomes of interest results in critical weaknesses in the policy-making processes thus hampering the use of evidence-based policy practices in the first place and limiting the ability to improve upon the policy and programme design once a policy regime has been put into place.
10
Well designed and executed policy programmes require upfront analysis and assessment, evidencebased policy design, and seamless implementation with key stakeholders on board. Policies and programmes designed with detailed planning, analytical rigor, and a high implementation focus are most likely to deliver best results. Timely and accurate data is central to this endeavour.
Detailed Situational Assessment
Dubai Framework Broad National

(Case for Public Support)
Policy Outline
Specific Detailed Policy Packages
Market Side: -Revenue Assessment -Strategic Market Analysis and Opportunity Assessment -Opportunities and Trends Analysis Policy Side: -Policy and Programme Effectiveness Assessment - Cost and Benefit Analysis
-Stakeholder exercise to ascertain objectives and thrusts -International policy benchmarking -Preliminary review of policy costs and benefits -Creation of an Evidence-based policy package / regime -Broad National Policy Outline -Stakeholder buy-in and implementation plan
-Detailed analysis of individual policy instruments and packages (e.g. HR, Certifications, Marketing and Branding, IT Parks, Procurement, etc.) -Detailed cost and benefit and impact analysis of individual policy instruments - Detailed design of policies and programmes -Detailed implementation plans for policies and programmes
Figure 2.1: The data needs of a three-tiered evidence-based policy-making process A related benefit of having credible and reliable data on the industry is the ability to better market the industry abroad. A mature and fast growing industry, like Pakistans, must take the necessary steps to ensure timely and adequate data collection and project these, locally and internationally, in a proactive and professional manner. It is, therefore, important to regularly survey the industry to collect data on its current state and future direction and make this data available for strategic planners, marketers, and policy-makers alike. This report is a fresh attempt in a series of attempts over the last few years to capture credible and reliable data on Pakistans software / BPO industry. It puts forth and builds upon a data collection framework that seeks to collect data on revenues and markets, employment, management and operations, quality of technical operations, funding needs, and public policy. It also, for the first time, uses a detailed revenue classification scheme to create a finer grain understanding of revenues and activity across various IT and IT-enabled services sectors as well as tools, platforms, offerings.
11
3 Study Objectives and Design

The objectives of the study are as follows: To improve and enhance the statistical knowledge and qualitative understanding of Pakistans software development and IT-enabled services (ITES) industry leading to an assessment of where it currently stands and where it is heading. This will be achieved by carrying out a survey of CEOs / CTOs of the countrys leading software development and ITES operations; and To develop an appreciation of the size and nature of the countrys IT user market. This will lead to a fine-grained understanding of the needs and challenges faced by some of the largest users of IT within Pakistan. This will be carried through interviews with of CIOs (and Heads of IT) of the countrys largest IT users in the financial, telecom, utility, MNCs, and public sectors.
This analysis will lead to better understanding of the opportunities and challenges confronted by Pakistans software / BPO industry and will provide a critical link in the information feedback loop between producers and users of IT and IT-enabled services in the country. In line with these objectives, a three pronged strategy was adopted. This is depicted below: Task 1
Design of Analytical Strategy
Task 2
Collection of Industry Data
Task 3
Analysis and Findings
1: Refinement and development of data collection instruments Develop an analytic strategy (i.e. methodology, population / samples, bias adjustment etc.) to address the objectives of the study. Draw upon the earlier survey work carried out on the Pakistani software / BPO industry to develop a refined version of a survey instrument. Test the new survey instrument.
2: Surveys of producers and users of IT and ITES in Pakistan Carry out quantitative surveys PSEB Member Companies. Carry out surveys and interviews of the top-50 leading IT users in Pakistan including Banks, Multinationals, Telecom and Utilities, and Public Sector. Carry out interviews with CEOs of 50-70 largest software / BPO companies in Pakistan.
3: Findings: Analysis of qualitative and quantitative data Analysis of survey data of PSEB Companies to benchmark industrys performance over the last 2-3 years, understand emerging trends, and document policy challenges Writing of final report and conclusions.
Figure 3.1: Graphical representation of the work plan Two separate set of interviews, namely, CEOs of about 50 of the Pakistans leading and most prominent IT and ITES companies and more than 45 CIOs (and Directors of IT) of Pakistans largest and most prominent IT users were carried out between mid-2009 and early-2010. Special care was undertaken to ensure representation of important sub-sectors within each of these categories. Within the IT and ITES companies, companies with IT products, services, systems integration, mobile application and gaming, and business process outsourcing sub-sectors were selected. Within the IT user companies, banks and financial institutions, multinationals, telecommunications and utilities, public sector organisations, and private and non-profit sub-sectors were selected. The results of these quantitative (chapter 4 and 5) and qualitative (chapter 6) analyses are documented in the chapters that follow.
12
4Pakistans IT Market Revenue Classification & Assessment

This chapter attempts to calculate the software / BPO revenue of Pakistans IT (software and BPO) industry. It looks at various estimates of Pakistans software / BPO export figures put forward by various sources in the past and uses data from a specially designed survey to arrive at current estimates of the industry revenues.
4.1 Past estimates of Pakistans IT market and software export revenue

Pakistans Software / BPO industry is relatively nascent as compared to many similar industries around the world. Systematic data collection on the industry has, therefore, been an even more recent development. Over the last 5-7 years, a number of attempts have been made to better document the size and nature of this industry. A number of different estimates exist that attempt to calculate the industrys size (and characteristics) at various points in time. These use different methods and formulae to estimate the industry size leading to results that are often not comparable. In particular, five different studies carried out thus far have attempted to estimate the size of Pakistans software / BPO industry. These are summarised in the figure below:
Revenue Estimate Source State Bank of Pakistan PSEB 2005 Bearing Point 2005 PSEB 2006 P@SHA 2008 Gartner 2008 Software / BPO Export Estimate and Year
2009 Software: $115.95m, Call Centres: $17.52m 2004 Software: $81.5m (SBP for 2004 = $32m) 2005 IT/BPO Export: $100m (Total: $700m) 2006 Export Earnings: $150m (Global: $600m) No independent estimate
1 2
Estimation Methodology
Compilation of BOP data Survey based extrapolation Multiples and Rules of Thumb Rules of Thumb Survey based extrapolation N/A
2007 Domestic Spend: $269m (Global: $640m)
Source: Technomics Compilation
Table 4.1: Software export / BPO revenue estimates by various sources (and studies) These figures represent a somewhat confusing picture of Pakistans software / BPO industry. The most accurate of the above estimates one backed by a verifiable accounting data trail is that of State Bank of Pakistans balance of payment statistics for trade-in-services. However, this does not capture the full extent of the revenues and earnings of the Pakistani software / BPO industry. Bearing Point (2005) and PSEB (2006) represent the use of multiples and rules of thumb to arrive at an overall figure for Pakistans IT industry. These approaches have their own limitations and may be highly inaccurate when applied inappropriately. PSEB (2005) and P@SHA (2008) represent survey based approaches that, although limited in scope and coverage, have the potential to be quite accurate and lend themselves to bias correction. To date, P@SHA (2008) is by far the most comprehensive attempt to calculate the overall size of the industrys revenues. This study used a well-tested survey methodology to collect data on a sample of 80 companies (out of over 300 P@SHA members). It then used an 80:20 Rule to extrapolate these results to arrive at revenues / exports for the entire industry. The results are documented in the figure below:
P@SHA 2008 estimated the overall Pakistan IT Market (Hardware & Software) to be between $1.7 2.25 billion.
13
Figure 4.1: Pakistans IT spend and global revenue (Source: P@SHA 2008) P@SHA (2008) sub-divides the overall IT market into five sub-caterogies. These are: Revenue Category A: Domestic Revenue and Spend of Pakistans Software / BPO industry was estimated on the basis of survey of 80 software / BPO companies at around $269 million (2006). This was extrapolated to produce an overall industry figure of $322.8 million. Revenue Category B: Global Revenue Impact of Pakistans Software / BPO industry was estimated on the basis of a survey of 80 software BPO companies at around $640 million. This was extrapolated to arrive at an overall industry figure of $768 million. Revenue Category C: Domestic Revenues of Leading IT multinationals (e.g. IBM, Cisco, NCR, Oracle, Microsoft, SAP, SaaS, and Intel etc.) forms a major share of the domestic IT spend and was estimated at around $200-250 million a year. Revenue Category D: Domestic hardware market, over and above that captured by the IT multinationals, was estimated at $300-500 million a year. Revenue Category E: IT spend on in-house operations of major IT users (such as MNCs, Banks, and government entities) was estimated at around $200-400 million of additional IT spend.
These estimates put Pakistans software / BPO industry at around $1.7 to 2.25 billion. One of the major contributions of the P@SHA Annual Review 2008 was to introduce, for the first time, a rigorous estimate of the industrys global impact. The idea of Global Revenue Impact of Pakistani IT companies was introduced that sought to address the challenge of attributing the portion of revenue of a Pakistani company but that was never brought into the country to Pakistani exports. Bearing Point Study of 2006 had estimated the global revenue of Pakistani companies to be four times what was brought within Pakistan. The Global Revenue Impact metric went a step further by attributing to the Pakistani company a share of the overall revenue of its foreign parent based on its contribution to the creation of those revenues.
14
4.2 Pakistans software / BPO revenue estimates

In 2007, at the time of the P@SHA Study, Pakistans software / BPO industry was projected to have double digit revenue / export growth over the foreseeable future. The 2006 full-year revenues of the software / BPO industry had been at $193.5 million of domestic software / BPO revenues and spend and $779 million of global revenue impact. The projections for 2007 stood at $269 million of domestic revenues and spend and $909 million of global revenue impact. However, before the 2007 projections could become a reality, a mix of domestic (a political and constitutional crisis) and international (global financial meltdown and the resulting recession) crises had hit the industry. These crises ended up changing the industry considerably. The effects are illustrated in the figures below:
Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry
1000 900
800 700 600 500 400 300 200 100 0 2004 2005 2006 2007 (Projected) Year 2007 (Realised) 2008 2009
Number of Companies in Various Revenue Categories and the 2007 Recession (2004-10)
35 30
Number of Companies
< $50K $50K-100K $101-500K $501K-1M $1M-5M $5M-10M > $10M
25 20 15 10 5 0 2004 2005 2006 2007 (Projected) 2007 (Realised) 2008 2009 2010 (Projected)
Year
Figure 4.2: Impact of the 2007 recession on total revenues of Pakistans IT industry The twin crises resulted in a 40% decline in domestic revenue and export-related revenue and spend and an even greater (60%) decline in global revenue impact of the industry. The second of the two
15
figures shows the number of companies within various revenue categories over a 7-year period pieced together across three different surveys. The two years clustered in the middle represent the numbers projected and realised for 2007. The contrast is striking. The projected transition from 2006 to 2007 clearly tells a story of considerable growth with several companies hoping to transition to $10 million of revenues through the course of the year. That transition never took place. By early 2009, the industry seemed to have turned a corner and began to see prospects of a return to its earlier growth trajectory. By 2010, the industry is projected to have fully recovered the decline experienced during the recession and return back to its 2006 level. Several CEOs that Technomics spoke with talked has begun to see positive signs of a market that was beginning to open up after two years of spending freezes and cost-cutting. One of the CEOs Technomics spoke with described the recessionary period as one full-year of growth missing from the companys record.
From January to December of 2008, we grew by 15% in Rupee terms against a forecast of 35%. From January to December of 2009, it looks like we will be able to manage 19-20% if the year pans out as it appears like it would. The end result of these two years has been to reduce one full year from the companys long range growth plans.
This company, and many others, saw modest revenue growth with flat or slight decline in profitability over the two year period.
Growth in Total Revenue and Spend of Pakistan's IT Industry
900 800
700 600 500 400 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 (Projected)
Year
Figure 4.3: Growth in total revenue and spend of Pakistans IT industry Clearly, 2007 was a bad year for the industry as it saw many companies slip their revenue targets and projections. The chart also depicts the turnaround that began to take place by end-2008 and had taken firm roots by 2009. The number of companies in various revenue categories is expected to surpass where they were at end-2006 by the end of the current year (2010). Revenue figures tell a similar story. The above data provides a starting point for estimation of software / BPO export revenues for the entire industry. This is carried out below:
16
IT Market Revenue Classification Scheme

A Sectoral Classification of Pakistans IT Market 1 2 3 4 5 6 7 8 9 10 11 Financials Computing and Electronics Education Government Automotives Telecommunications Retail Services Utilities Manufacturing Transportation Aerospace and Defence 12 13 14 15 16 17 18 19 20 21 Healthcare and Life Sciences Media, Entertainment, Advertising Real Estate Energy excluding Utilities (e.g. Petroleum) Hospitality (including Airlines) Shipping, Couriers, and Logistics Professional and Business Services Fashion and Textiles High Technology (e.g. Ebay, Yahoo! Etc.) Others
A Product Services Offerings Classification of Pakistans IT Market Software & IT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 IT Governance and Strategy IT Consulting ERP General ERP Specialised (Vertical Specific) ERP Middle Market (SMEs) Financial Specialised (Core Banking) Financial Specialised (Banking Apps) Financial Specialised (Capital Market) Financial Specialised (Non-Banking) Document Management Office Productivity Billing and Payments Customer Relationship Management Education and Training Systems Integration 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Network Consulting and Integration Animation and Graphics Gaming Mobile Content and Applications Virtualisation and Cloud Computing Location-based Services e-Business (e.g. Web 2.0, Search etc.) Information Security eGovernment Business Performance Management Data Warehousing Business Intelligence Embedded Systems Software Product Development, Engg, and Design Business Continuity and Recovery Software Testing and Assurance
A Product Services Offerings Classification of Pakistans IT Market IT-enabled Services 1 2 3 4 5 6 7 8 Finance and Accounting Human Resources Procurement and Logistics Customer Interaction & Support (Voice) Customer Interaction & Support (Non-Voice) IS Outsourcing Transactions Processing Outsourced Support 9 10 11 12 13 14 15 Knowledge and Content Services Analytic Services Sales and Marketing Transcription Services Managed Services Applications Management Others
Table 4.2: IT market revenue classification scheme sectors and product-service offerings
17
The survey of PSEB member companies resulted in the following figures:

Revenue Classification Domestic Revenue & Spend Global Revenue FY2007 (Actual) $115.92 million $315.80 million FY2008 (Actual) $130.06 million $332.83 million FY2009 (Est.) $135.78 million $315.54 million FY2010 (Proj.) $177.71 million $389.38 million
Table 4.3: In sample estimates of global revenue and domestic revenue and spend The PSEB Member Survey was carried out towards the end of 2009 and early-to-mid 2010. The figures are, therefore, most accurate for FY 2007 and FY2008. Figures for 2009 are estimates based on half-year sales. 2010 figures are merely projections. As with similar surveys carried out by other countries such as India and Ireland, these figures are based on small sample sizes and need to be corrected for biases and adjusted to account for entire populations. We divide the non-respondents into 3 groups, namely, large, medium, and small sized companies. Large companies include Revenues > $10 million per annum Medium companies include Revenues between $501K to $10 million per annum Small companies include Revenues < $500K per annum Among the respondents, these groups form about 10.66%, 28%, and 61.33% of the total population.
Company Size Large (>$10 million) Medium ($501k-$10million) Small (<$500k) Number of Cos. 8 / 75 21 / 75 46 / 75 Proportion 10.66% 28.00% 61.33% Median Global Revenue $12.767million $2.000million $120k Median Domestic Revenue & Spend $9.375million $1.125million $104k
Source: PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.4: Proportion of companies of various sizes within the sample and their median revenues Although, PSEB boasts a total of 1739 members on its website, its active (fee paying) members numbered around 673 3 in 2009. However, there are still a large number of small and medium sized companies that operate under the radar and may contribute towards software / BPO export. Assuming that: with the exception of large companies that are over-represented the survey sample is broadly representative of the proportion of small and medium companies in the general population; and the respondents overall and within each size segment are biased towards larger sized operations such that the median could be an appropriate measure for the revenue of nonrespondents.
A correction was applied to the in sample estimates to arrive at figures for the entire population:
3
As per PSEB Websites Industry Overview Section available at: http://www.pseb.org.pk/item/industry_overview
18
Company Size Large (>$10 million) Medium ($501k-$10million) Small (<$500k) Sub-Total Total Global Revenue Company Size Large (>$10 million) Medium ($501k-$10million) Small (<$500k) Sub-Total Total Domestic Revenue & Spend
Companies in Sample 8 (10.66%) 4 21 (28.00%) 75 (100%) Companies in Sample 8 (10.66%) 21 (28.00%) 46 (61.33%)
6
Global Revenue $260.53m $63.20m $8.34m $332m Domestic Spend $78.60m $43.19m $7.52m $129.31m
Companies in Population 45 167

7
Correction based on Median Revenues $51.06m $334.88m $43.98m $429.93m $761.93million Correction based on Median Revenues $37.5m $188.37m $38.12m $263.99m $393.30million
46 (61.33%)
367 673 Companies in Population 4 167 367 673
Source: Technomics Estimates. PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.5: Corrected global and domestic revenue and spend of Pakistans software / BPO industry Two alternate approaches for calculating software / BPO earnings, namely, RBI Software Survey Correction Model and a modified 80:20 Rule lead to more conservative estimates:
Company Size Modified 80:20 Rule Large (>$10 million) Medium ($501k-$10million) Small (<$500k) Corrected Modified 80:20 Total Grand Total India (RBI) Method Company Size Large (>$10 million) Medium ($501k-$10million) Small (<$500k) Corrected India (RBI)Method Grand Total Sample Global Revenue $260.53m $63.20m $8.34m $332m Population Correction 8 1.02m 42.69m 93.47m 137.19m Sample Domestic Spend $78.60m $43.19m $7.52m $129.31 Population Correction $0.89m $37.33m $81.74m $119.97m $260.53m $63.20m $8.34m $332m $52.10m $63.2m $41.7m $157.0m $78.60m $43.19m $7.52m $129.31m $15.72m $43.19m $37.6m $96.51m Sample Global Revenue Population Correction Sample Domestic Spend Population Correction
$489.83million
$226.57million
$469.19million
$249.28million
Source: Technomics Estimates. PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.6: Corrected global and domestic revenue and spend of Pakistans software / BPO industry
4 5
Over represented in the Survey Sample Estimate based on industry knowledge of large non-respondents 6 Slightly under-estimates the proportion 7 31% and 68.5% of non-respondents respectively after correction for over-representation of large companies 8 Based on additional revenue for 598 non-respondents at a median global revenue impact of $255k per company and a domestic revenue and spend of $223k per company
19
Summarising the results of the population estimates for the three methods 9 used:
Global Revenue [Sample] Stratified Medians Correction Modified 80:20 Method RBI (India) Model Corrected Population Estimates: Stratified Medians Correction Modified 80:20 Method RBI (India) Model $761.93m $489.83m $469.19m $393.30m $226.57m $249.28m $332.0m $332.om $332.om Population Correction for Global Revenue $429.93m Domestic Revenue [Sample] $129.31m $129.31m $129.31m Population Correction for Domestic Spend $263.99m $96.51m $119.97m
$157.00m
$137.19m
Source: Technomics Estimates [2010]
Table 4.7: In sample estimates and population corrections for industry software / BPO revenues Clearly, these figures are based on the assumptions that are made about the characteristics of the nonrespondents. The Technomics Survey of PSEB Member Companies (2010) which is the subject of this report was carried out towards the end of 2009 and early-to-mid 2010. The figures are, therefore, most accurate for FY 2007 and FY2008. In Sample and population estimates for FY2008, 2009, and 2010 are:
Revenue Classification Domestic Revenue & Spend (DRS) Global Revenue (GR) Stratified Medians Method - DRS Stratified Medians Method GR Modified 80:20 Model DRS Modified 80:20 Model GR India (RBI) Model DRS India (RBI) Model GR FY2008 (Actual) In Sample Estimates $130.06 million $332.83 million $394.05 million $762.76 million $226.57 million $489.83 million $250.03 million $470.01 million $135.78 million $315.54 million $399.77 million $745.47 million $232.29 million $472.55 million $255.75 million $452.73 million $177.71 million $389.38 million $ 441.70 million $819.35 million $274.22 million $546.38 million $297.68 million $526.56 million FY2009 (Est.) FY2010 (Proj.)
Population Adjusted Figures Using Three Correction Models
Table: 4.8: Estimated size of domestic and export revenues for 2008, 2009, and 2010 On the whole, though, the estimates suggest upper and lower limits on Pakistans software / BPO global exports revenues to be between $761.93 million and $469.19m respectively and domestic revenue and spend to be between $393.3million and $249.81million respectively.
Please refer to PSEB Software / BPO Export Revenue Recognition and Assessment: A Policy Options Study, PSEB 2010 for assumptions underlying each of the three models.
20
5 State of Pakistans IT Industry: Survey of Industry Performance and Firm Characteristics

The global recession during the last 2-3 years (2007-2010) has tested the industrys grit and resilience. In mid-2007, P@SHA Annual Review 2008 noted that Pakistans software and BPO industry was on the verge of a take-off. In FY2006, the software / BPO industry stood at $193.4 million of local revenues and spend and global revenue impact $779.7 million. A survey of industrys leading CEOs projected these figures to growth to $269 million and $909 million respectively in 2007. With the industry growing in high twenties and low-to-mid thirties, for much of the last half decade, there appeared no reason to expect any less for the foreseeable future. In addition to a general growth trend that seemed to go on unhindered, several other factors supported an optimistic picture of industry growth. In particular, the last 2 years had seen a considerable opening up of the domestic market for Pakistans software / BPO industry. Telecommunications, financial sector, and public-sector were the three largest spenders of IT and each had experienced solid growth in the years before. Pakistan had become a world leader in mobile penetration with around 60% of the countrys population having a mobile phone connection. This created the right environment for several billion dollars of foreign direct investment within the telecom sector. Financial sector was in the midst of a consumer finance revolution driven by continued deregulation, strong growth in foreign exchange reserves, and considerable excess liquidity in the market. The countrys largest Banks had been going through massive IT modernisation projects thus driving up the demand for IT products and services at least part of which were being serviced by the local IT industry. The government had, for the first time in many years, begun to invest heavily in IT through (planned) modernisation of major public sector functions. While the eGovernment Directorate (EGD) primary responsible for making investments in IT had not found its element, other players within the government and defense, in particular, had begun to drive growth in public-sector IT spending. The global recession hit in the early 2008 and with it came considerable belt tightening in IT spending around the world in the countrys major export markets most notably United States, Canada, and Europe. However, even before the effects of the global economic recession had begun to make a dent, the relative political-economic stability within the domestic environment in Pakistan had begun to falter as well. A limited judicial crisis that started around the middle of 2007 became a full blown constitutional row between the government and the judiciary. As 2007 passed, the country was shrouded with considerable political uncertainty that paralysed the government. By early 2008, new elections were called in and new governments came into power at federal and provincial levels. Although peaceful and democratic, this resulted in considerable turmoil at the political level and, from a business standpoint, the country found itself in the midst of a period of policy uncertainty. As these developments unfolded at the domestic front through much of the 2007 and early 2008, the credit crunch and sub-prime mortgage crisis had turned into a full-fledged recession across much of the developed world. The recession resulted in business closures and lay-offs in the countrys major export markets in the West. If the hit to countrys IT revenues on the domestic front (60% of the total revenues in 2007) was not bad enough, by early to mid-2008 these had been hit yet again on its external front thus drying up the export demand as well. By the time the dust was settled on the 2007-2008 recession, the industry revenues had experienced a 40% decline in domestic revenue and a 60% decline in exports.
21
For most companies that had gone through year-after-year of double digit growth in the past, 2007 and 2008 became the years when the brakes were applied. The industry largely muddled through the economic downturn without the kind of massive lay-offs and failures that became the fodder for 24hour news channels in the West, the impact of the twin-crises was quite massive. However, largely the industry did quite well to weather the storm and in certain sectors even continued to grow bigger. The resultant turmoil, perhaps, also provided the industry players with much-needed respite to begin thinking afresh. During this period, a number of new exciting developments took place that have the potential of becoming major new future revenue streams for the industry. Most notable of these has been the growing popularity and coming of age of mobile applications and gaming sub-sector within the industry where a number of exciting start-ups have begun to make a mark. The second development was the advent of mobile commerce (branchless banking) where Easy Paisa - the joint product of Telenor and Tameer Bank became a success story and point to the possibilities ahead.
5.1 Pakistans IT industry: companies, markets, and offerings

A number of surveys of software / BPO industry have been carried out since 2003-4 that provide insights into characteristics of Pakistans Software / BPO industry, and its evolution, through time. This section draws from the data gleaned through a number of surveys to create a picture of the industrys performance and evolution. These surveys are: PSEB Best Practices Study (2005) involved a detailed survey of company performance, organisational characteristics, and infrastructure and policy challenges of Pakistans largest software companies. A convenience sample of 50 of the countrys largest companies was created and face-to-face interviews and on-the-spot surveys were carried out with these companies. A response rate of 96% ensured very high integrity for this analysis. An additional 12 companies filled out an online version of the survey for a total sample size of 60 companies. The sample included data for FY2004 for software development operations (products and services) and purposefully excluded business process outsourcing (BPO). P@SHA Annual Review (2008) involved a detailed survey of company performance, organisational characteristics, and infrastructure and policy challenges of P@SHA member companies. P@SHA member companies are an approximate sub-set of PSEB membership and hence represent a sample from within the broader population. The survey resulted in responses from 80 software and BPO companies (from around 250 who were contacted) for a response rate of about 33%. Up to 25 of these 80 were also represented in PSEB (2005) sample. P@SHA (2008) also, for the first time, systematically surveyed business process outsourcing (BPO) companies. The data collected included actual data for FY2006 and estimates for FY2007. PSEB IT Market Assessment (2010) is a detailed survey of company performance, organisational characteristics, and infrastructure and policy challenges of PSEB member companies. The survey includes a much expanded revenue classification scheme that builds upon the data collected earlier and includes domestic and export earnings within a set of 20 domains and 35 product-service categories (e.g. offerings, tools, and platforms). The PSEB (2010) data includes companies specialising in software products development and services delivery, business process outsourcing, mobile applications, gaming and animation, and systems integration. A total of 75 companies (from a convenience sample of about 300) responded to the survey for a response rate of 25%.
22
The following subsections draw upon these three surveys to present a snapshot of Pakistans IT industry. The picture may not be completely representative of the entire industry as it only represents a limited sample rather than the population. However, appropriate extrapolation techniques have been used, where possible, to extend the findings to the population. Also, the potential for large biases is pointed out, when necessary. 5.1.1 Company parentage and geographical focus The Pakistani Software / BPO industry has its roots firmly grounded in the export-focussed development and outsourcing movements that became popular during the late 1990s. Consequently a number of Pakistani companies have foreign roots or connections. While these roots have weakened somewhat since the 2004 with fewer number of companies now having front offices abroad (down from over 50% in 2004-5 to around 36% in 2008-9), they have still remained quite significant.
Foreign Roots and Connections of Pakistan's IT Companies

60.00
Proportion of Companies Surveyed
50.00 40.00 30.00 20.00 10.00 0.00 Subsidiaries Front Offices 2004 2007 2009
Foreign Connections
Figure 5.1: Foreign roots and connections of Pakistans IT companies This has happened for two reasons. First, the considerable growth in the domestic market has resulted in noticeable re-orientation of the companies away from the export business. Second, the model of opening foreign front offices for companies without any prior connections in the foreign market (e.g. through an expatriate founder) has had as much as success as had been originally anticipated thus leading to a rethinking of that model of market entry within a foreign marketing. Instead, today companies are increasingly seeking alliances, joint ventures, and other forms of licensing arrangements to establish a foreign marketing presence. Nevertheless, foreign operations, in particular in the United States, remain a very critical feature of Pakistans IT industry and perhaps the most logical market entry strategy where an expatriate founder is involved. The Pakistani software / BPO industry continued to diversify geographically. For companies with parents abroad, for instance, United States continued to dominate other destinations by an order of magnitude with over 20 of the 75 companies reporting to be a subsidiary of a US company as against 3 from Europe / UK and one each from Middle East and Asia. Majority of these parent-subsidiary relationships represent the aspirations of an Pakistani expatriate entrepreneur who has either moved back to set up a company here or is managing a development centre while himself (or herself) living in North America or Western Europe.
23
Geographical Distribution of Parent Entities of Pakistani IT Companies

25 20 15 10 5 0 United States Europe / UK Middle East Asia Pacific Canada South America Africa Australia & New Zealand China 2004 2007 2009
Number of Companies
Country of Origin
Geographical Distribution of Front Offices of Pakistan's IT Companies

Number of Companies with Front Offices
35 30 25 20 15 10 5 0 United Europe / Middle States UK East Asia Pacific Canada South America Africa Australia & New Zealand China Other 2004 2007 2009
Geographies
Figure 5.2: Geographical distribution of parent-subsidiary connections and front offices With respect to the industrys marketing focus i.e. having a [marketing] front office abroad, there seems to be much greater geographical diversification. In particular, there is a stark trend away from the United States and towards new and emerging markets. The companies with marketing presence in the US is down from 30 of the 45 companies (66%) in 2005 to 28 out of 80 companies (36%) in 2007 to 15 out of 75 companies (20%) in the 2009. While European (mostly UK) and Middle Eastern front offices are slightly down as well from 2007 to 2009, there is clearly a trend towards Africa, Asia Pacific, China, and Australia. Traditionally, these have not been major markets for Pakistans software / BPO industry and the trend towards geographical diversification is a positive development. Part of what we are seeing here is the effect of the global recession that impacted North America and Western Europe much more than it
24
impacted China and Asia Pacific. However, that is only part of the story. There is a definite move towards new and emerging markets in Africa and Asia and greater alliances in the Middle East. Netsol one of the countrys largest software exporting companies boasts a major share of its relevant IT market segment within China and is making inroads into the Middle East through strategic alliances. Techlogix another one of the industrys well-respected companies is aggressively pursuing the Asia Pacific market for products and services aimed at the higher education sector in partnership with Oracle. Several financial products companies have found Africa as promising geographical market segment for their products and services. The final picture that emerges of Pakistans IT industry is one firmly grounded in the United States but is going through geographical diversification in search for more promising and hospitable markets in the new and emerging markets in Africa, the Middle East, and Asia. 5.1.2 Employment in Pakistans Software / BPO industry The following figure lays out the industry employment as gleaned from the survey of 75 software / BPO companies. As with revenues and other statistics, there is a discontinuity that is commensurate with the hit taken during the recession of 2007 and 2008. As with other indicators, today the industry is almost at the same level as it was at its peak in FY 2006 just before the recession had begun to hit the industry.
Total Full Time Employment (FTE) in Pakistan's IT Industry
14000
Number of Professionals
12000 10000 8000 6000 4000 2000 0 2004 2005 2006 2007 Projected 2007 Actual 2008 2009 2010 Projected
Total FTE
Year
Figure 5.3: The recession and full-time employment in Pakistans IT companies Today, the 75 companies surveyed employ around 7500 full time staff for an average firm size of approximately 131 full time equivalents (FTEs). Apart form the overall employment, a number of indicators of employment continue to improve over time. Employee attrition rates, for example, decreased considerably with length of employment increasing from 2.62 years (2005) to 2.89 years (2007) to 3.52 years (2009). The jump in employee retention is considerably higher in the recent years (between 2007 and 2009) than the earlier period (between 2004 and 2007). This might partly be attributable to the economic climate and lack of job security and alternative options for workers.
25
Total Full Time Employment (FTE) in Pakistan's IT Industry

12000 10000 8000 6000 4000 2000 0 2004 2005 2006 2007 Year 2008 2009 (E) 2010 (P) Total FTE
Number of Professionals
Percentage Employment Growth in Pakistan's IT Industry

80 60 40
% Growth
20 0 -20 -40 -60 -80 Year

2004-5 2005-6 2006-7 2007-8 2008-9 2009-10
Employment Growth
Figure 5.4: Full time employment and employment growth in Pakistans IT industry There are still two conflicting ways to look at the issue of HR quality and availability. Interviews with industry CEOs reveal a divided opinion. Some CEOs believe that the HR availability may not be an issue anymore, especially in light of the strategies, coping mechanisms, and workarounds adopted by the industry to deal with shortages. The overall HR pool, however, does not seem to have the depth necessary to scale up at will, if needed. The highest shortage categories are project management, jobs requiring high level of English language composition and comprehension, and specialist domain skills. Another skill particularly lacking in the industry is the professional middle management skill that has often been credited with difficulties in scaling of software businesses within the industry.
26
Average Proportion of FTE in Pakistan's IT Companies, By Type of Work

60.00
Average Proportion of Professionals
50.00
40.00
30.00
2004 2007
20.00
2009
10.00
0.00 Top Management Project Managers / Leads Developers Business Analysts Client / Technical Support Type of Work Customer Business Development Service Agents Others
Figure 5.5: Full time employment by type of work performed The quality of HR, however, remains a critical issue for most CEOs. Availability of quality HR remains one of the most important policy and infrastructural bottlenecks identified by the CEOs. More than 30-50% CEOs continue to identify HR availability and quality as critical issues hampering business growth. 5.1.3 Product service strategies Pakistans software / BPO industry has its roots in the software services and body shopping movement of the Y2K era and the business processing outsourcing bonanza that happened after the recession of the year 2001. Many of these businesses, initially, lacked product-service focus as they sought to fill in the needs of whatever work was on the offer. The product service strategies of Pakistans software / BPO companies have continued to evolve since those early days. Over the years, there has been an increasing trend towards greater specialisation and refinement of the product services strategies across the industry. The figure below amply demonstrates this trend. Companies were asked to describe their strategic focus as product, services, consulting, BPO, system integration, or other company. They could nominate themselves in as many categories as they deemed fit. A higher proportion of companies describing themselves against several of these categories is a sign of lack of specialisation. The figure shows decline in each of these categories pointing towards a trend of greater specialisation. There has also been a steady growth in the number of companies claiming to be engaged in systems integration, IT consulting, and embedded systems business. Although we do not have the benefit of prior data on this, but more than 10% companies classified themselves as systems integrators in the current survey. What is amply evident from the results, however, is the increasing precision with which companies define their area of focus.
27
Product - Service Profile of Pakistan's IT Companies

80.00
Proportion of Companies
70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Packaged Software IT Services IT Consulting Business Process Outsourcing Systems Integration Other
2004 2007 2009
Product - Service Profile
Figure 5.6: Product-service profile of Pakistans IT companies The figure below digs deeper into particular platforms and development approaches used by the respondent companies.
Platform or Development Approaches of Pakistan's IT Companies
70.00
60.00 50.00 40.00 30.00 20.00 10.00 0.00 Custom Own Proprietary Open Source development Proprietary Platform (e.g. Platform Platform SAP) Platform neutral Other Percentage of Companies
Platform or Development Approach
Figure 5.7: Platforms or development approaches of Pakistans IT companies There are several things of interest here. Around 40% of the companies develop on top of their own proprietary platforms but an increasing number of companies (about 25%) us well-established established proprietary platforms (such as Microsoft, Oracle, or SAP etc.). This has been a major change in the industry over the last few years as companies have move towards greater specialisation and value-addition using established platforms and away from the tendency of re-inventing the wheel.
28
There is also a growing move to use open source platforms with at least 50% of the companies doing some work with OS. 5.1.4 Sectoral Distribution Pakistans software / BPO industry revenue continues to remain concentrated in a small number of high growth sectors, namely, telecommunications and finance. These two sectors combined accounted for three fourth of the total global revenue for Pakistans software / BPO industry. In 2006, for instance, the top-5 industry sectors included finance (32%), telecommunications (18%), government (10%), energy (4%) and education (4%). In 2008, on the other hand, telecommunications accounted for 57% of the total global revenue figure and finance accounted for 18%. Other trends worthy of note are the emergence of sectors such as retail (6%), computing and electronics (4%), and healthcare and life sciences (4%) and decline in other sectors such as government (down to 3%). On the whole, though, the industry growth is still highly lop-sided and is a source of some concern. Even within the two most important sectors, but also beyond that, there is considerable variation in output and sales.
Sector-wise Breakdown of Total Global Revenues of Pakistan's IT Industry (2008)

4% 2% 6% 1% 4% 18% Financials Computing & Electronics Education 4% 1% 3% Government Telecommunications Retail Manufacturing Healthcare and Life Sciences High Technology Others
57%
Figure 5.8: Sectoral breakdown of total global revenues of Pakistans IT industry (2008) Looking at domestic software / BPO revenue and spend and software / BPO exports separately, one can begin to appreciate the competitive dynamics of these different industrial sectors and Pakistans position within each of these. The two figures below lay out the sectoral break-down of domestic IT revenue and spend and export revenues of Pakistani software / BPO companies.
29
Sector-Wise Breakdown of Domestic Revenues of Pakistani IT Companies (FY-2008)

1% 1% 0% 1% 1% 29% Financials Computing & Electronics Education Government Telecommunications Retail Utilities 53% 3% 4% Manufacturing Professional Services Others 7%
Sector-Wise Breakdown of Export Revenues of Pakistani IT Companies (2008)

4% 2%1% 5% 2% 4% 9% 1% 13% Financials Computing & Electronics Government Telecommunications Retail
c
Manufacturing Healthcare and Life Sciences High Technology Hospitality Others
59%
Figure 5.9: Sectoral breakdown of domestic and export revenues of Pakistans IT industry (2008) While the financials sector played a much greater part (29%) in domestic demand for IT products and services, it played a lesser role in countrys exports (13%). This is broadly in line with the effect of the global recession that affected the financial sector the most, internationally, but did not affect the Banks as much in the Pakistan. Over the last several years, most Banks in Pakistan have been going through a cycle of IT investments that have carried through even during recessionary times. Telecommunications play an equally strong role in domestic (53% of total revenue and spend) and export (59% of total export earnings) markets.
30
Important differences between domestic and export revenues of Pakistans software / BPO industry includes a greater share of revenues attributed to Government (7%) and Education (3%) sectors on the domestic front and to retail (9%), healthcare and life sciences (7%), and computing and electronics (4%) on the export front. Looking across two different timeframes (FY2006 and FY2008), it is obvious that the very strong growth experienced in the telecommunications sector across both domestic and export fronts has been a major driver of demand for IT for the Pakistan software / BPO industry. Major gainers on the domestic front are education and computing and electronics and the losers are government, aerospace and defence, and energy sectors. On the export side, the major gains are in retail, computing and electronics, and healthcare and life sciences. Healthcare and life sciences, in particular, is gradually emerging as a niche area of some strength for Pakistani companies. 5.1.5 Platforms and tools
Global Revenue by Product - Service Cateogies, Platforms, and Tools (FY-2009)
IT Governance and Strategy IT Consulting ERP - General ERP - Specialized (Vertical-Specific) ERP - Middle Market (SMEs) Financial - Specialized (Core Banking) Financial - Specialized (Banking Applications) Financial - Specialized (Capital Markets) Financial - Specialized (Non-Banking) Document Management Office Productivity Billing and Payments Customer Relationship Management Education and Training System Integration Network Consulting and Integration Animation and Graphics Gaming Mobile - Content and Applications Virtualization and Cloud Computing Location-based Services eBusiness (e.g. Web 2.0, Search, eCommerce) Information Security eGovernment Business Performance Management (BPM) Data Warehousing - Business Intelligence Embedded Software Systems Product Development, Engineering, and Design Business Continuity and Recovery Software Testing and Assurance Outsourcing - Finance and Accounting Outsourcing - Human Resources Outsourcing - Procurement and Logistics Outsourcing - Customer Interaction and Support (Voice) Outsourcing - Customer Interaction and Support (Non-Voice) Outsourcing - IS Outsourcing Outsourcing - Transaction Processing Outsourcing - Outsourced Support Outsourcing - Knowledge and Content Services Outsourcing - Analytic Services Outsourcing - Sales and Marketing Outsourcing - Transcription Services Outsourcing - Managed Services Outsourcing - Applications Management None of the Above
Figure 5.10: Global revenue by product-service categories, platforms, and tools (2008) The figure above lays out the breakdown of global revenue of Pakistans software / BPO companies by product service categories, tools, and platforms. The classification system developed to capture revenue within these categories includes a mix of software product, services, systems integration, and outsourcing categories that are likely to be valuable to industry leaders and planners. Among the leading product service categories on the basis of global revenue impact are: a) Software Development and Deployment: ebusiness (web 2.0 etc.), capital market software, and specialised vertical specific ERP solutions that account for around 7%, 4%, and 3.5% respectively.
31
b) Outsourcing: Voice-based BPO, outsourced application management, and outsourced support account for 24%, 14%, and 5.7% respectively.
Local Revenue by Product - Service Cateogies, Platforms, and Tools (FY-2009)
Export Revenue by Product - Service Cateogies, Platforms, and Tools (FY-2009)
Figure 5.11: Domestic and export revenue by product-service categories, platforms, and tools (2008)
32
Looking at the picture from a domestic and export perspective presents a more fine-grained picture. On the whole, about 60.5% of the overall domestic revenue and spend happens within the traditional software development (custom development, services, and consulting etc.) realm while 18.35% falls within outsourcing (including IT-enabled services) domain. A big portion (about 21%) of the activity does not fall under any of the defined product-services categories thus pointing to a vast diversity of productservices offerings within the domestic industry. For exports, on the other hand, a vast majority (83%) of the revenues fall under the Outsourcing (including IT-enabled services realm with software development comprising only 17% of the export revenues. Unlike domestic revenue and spend, a very small proportion of the export earnings does not fall under either one of the 35 product-service categories thus suggesting a greater degree of maturity within the export market.
5.2 The Pakistani IT firm: strategy, management, and resources

In this section, the report focuses on the Pakistani software / BPO firm as against the whole industry. PSEB (2005), P@SHA (2008), and PSEB (2010) have systematically looked at and followed a range of important firm-level characteristics such as strategy, management, resources, and quality of technical operations over time. Taken together, these data provide insights into the micro-economics of the IT production and a fairly comprehensive picture the evolution of the software / BPO firms in the country. The typical Pakistani IT firm has also matured considerably over time and has now become stable in its characteristics. Technomics survey of Software / BPO industry included sections that sought to glean information on strategy, management, and resources of respondent companies.
Target Market Strategies of Pakistan's IT Companies
70.00
60.00 50.00 40.00 30.00 20.00 10.00 0.00 Niche Market Horizontal Focus Vertical Focus Other 2004 2007 2009
Target Market Strategy
Figure 5.12: Target market strategies of Pakistans IT companies The Pakistani software / BPO firm has continued to evolve in terms of its strategic focus. While the vast majority of the firms are multi-product (or service) firms, there has been a gradual shift towards niche market orientation and a vertical focus. Both of these strategic orientations require an accumulation of specialist domain knowledge and relationship networks. The firms (and the industry as a whole) seem to have been developing both of these capabilities over the years.
33
The following figure presents the destination offering mix of an average Pakistani Software / BPO company:
Destination - Offering Mix of Pakistan's IT Companies

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Export Products Export Services Export BPO Domestic Domestic Domestic Products Services BPO
Average Percentage Revenue
2004 2007 2009
Destination - Offering Mix
Figure 5.13: Destination offerings mix of Pakistans IT companies Between 2004 and 2007, the proportion of domestic services businesses grew considerably primarily driven the buoyant demand of IT products and services within the domestic market. This was offset by slight declines in the proportions of export products and services and domestic product categories. Between 2007 and 2009, however, the BPO segment experienced considerable growth. In particular, domestic BPO rose from less than 2.5% of the total product-service offering mix to more than 10% of the total. Export BPO also almost doubled in proportion. While the emergence of domestic BPO is a strong, well-founded, and welcome trend, the export BPO category may have been driven by a relatively small number of large players (most notably, TRG). These gains were offset by declines in domestic products and services categories.
Client Risk and Diversification In Pakistan's IT Industry
90.00 80.00
% of Company Revenue
70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 % Revenue from Largest Client % Revenue from Top-5 Clients Risk and Diversification 2004 2007 2009
Figure 5.14: Client risk and diversification in Pakistans IT industry
34
The figure above depicts an important metric of the maturity of an average software / BPO firm within the industry. It measures the diversity and client risk facing a typical Pakistani software / BPO firm as assessed by the average percentage revenue earned by a typical firm from its largest client as well as top-5 clients. The findings are self-explanatory. While these ratios grew between 2004 and 2007 showing greater risk and lesser client diversification they underwent a decline recently (between 2007 and 2009). In particular, percentage revenue from top-5 clients registered an almost 20% decline at a typical software / BPO firm. 5.2.1 Management and control The typical Pakistani software / BPO firm has developed a matured and stable set of management and operational practices. The figure depicts the proportion of expenditure on various heads at a typical Pakistani software / BPO firm. There clearly is a degree of stability evident in this with firms, on average, spending 10% of their expenditure on marketing and advertising, about 45% on product development, 15% on support, between 5-7% on R&D, just under 10% on quality assurance, and around 5% on training. The variation across years is quite minimal with the sole exception of gradual decline in average spending on R&D.
Expenditure Profile of Pakistan's Software/BPO Companies
60.00
Average Percentage Expenditure
50.00 40.00 30.00 20.00 10.00 0.00 Marketing & Product Advertising Development Product Support R&D Quality Assurance Training Other 2004 2007 2009
Expenditure Heads
Figure 5.15: Expenditure profile of companies in Pakistans IT industry The figure below depicts another important metric to assess the maturity of management and operational processes of a typical software / BPO firm. This reflects the average time spent by a CEO (or Head of Pakistan Operations) on a number of different activities. There are some variations here over the years. In particular, the average time spent by a typical CEO in day-to-day management of the company has declined from about 33% in 2004 to 24% in 2009. Fundraising cost continues the trend of decline, albeit only slightly, over the years pointing either to an easier access to funds or a change in the funding strategy and structure of a typical firm.
35
Management Practices: Percentage of CEO Time Spent on Company Activities

35.00 30.00
Average Percentage Time Spent
25.00 20.00 15.00 10.00 5.00 0.00 Day-to-Day Mgmt Strategic Planning Product Planning Fundraising Marketing HR and Hiring and Business Development Others 2004 2007 2009
Type of Activities
Figure 5.16: Percentage of CEO time spent on company activities in Pakistans IT industry HR and recruitment costs increased slightly between 2004 and 2007 but have declined since. Marketing and business development declined slightly between 2004 and 2007 but has slightly increased since. Both of these changes can be attributed to a relatively hotter market during the 2006-7 timeframe that has now been replaced by a much cooler market. On the whole, the above figure paints a positive picture of greater maturity within a typical software / BPO firm within the industry. Technomics also quizzed industry CEOs on the presence or absence of a set of good management practices that are known to have a positive impact on the performance of software / BPO firms around the world. These are summarised in the footnote 10 and depictured in the figures below. The first of the two figures contains a number of management and control best practices dealing with the credentials and capabilities of the founder or the executive team (e.g. domain knowledge, prior experience of entrepreneurship, ability to manage finances, milestones-based development etc.). As obvious, the typical firm shows quite predictable set of characteristics over the timeframe of interest (2004-2009). With the exception of growing pains which seeks to measure degree and quality of delegation within the company and varies between the three periods of interest, the other set of characteristics is quite stable over time.
[Expat Founder] - The primary idea champion (e.g. founding entrepreneur) of this company has foreign work experience [Technical Management] - The companys top-management team primarily comprises people with technical degrees. [Incentives] - Incentives (profits) are shared among companys employees [Stocks] - The company offers stocks/ownership to its employees [Incentives for Women] - The company provides additional benefits (e.g. maternity leave, flexible time) to female employees [Paid work on interests] - Technical/professional employees are provided with some paid time to work on their own interests [Bonding] - The company holds regular employee bonding activities (e.g. Picnics, Tech-Forums etc.) [Financial Mgmt.] - The top-leadership (CEO/CFO) closely tracks companys cash-flows several months into the future [Project Review] - The company uses a formal process of post-project reviews to close every project/assignment [Strategy Awareness] - The companys employees are regularly briefed about broader corporate strategy and goals [Entrepreneurship] - The members of executive team have launched successful/unsuccessful companies prior to this one [Profitability] - The company continues to grow in sales/revenues but not in terms of profitability. [Growing Pains]- Employees/managers often feel I have to do it myself, if I have to get things done correctly [Employee Conceived Products] - A portion of companys current or future product-line comprises projects conceived by employees
10
36
Management & Entrepreneurial Characteristics of Pakistan's IT Companies

90.00 80.00
70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Expat Founder Technical Mgmt. Financial Control Project Review Entrepreneurship Profitability Growing Pains
2004 2007 2009
Management Characteristics
Management & Entrepreneurial Characteristics of Pakistan's IT Companies

90.00 80.00 70.00
60.00 50.00 40.00 30.00 20.00 10.00 0.00 Incentives Stocks Incentives for Women Paid Work on Interests Strategy Awareness Bonding Activities Employee Conceived Products
2004 2007 2009
Management Characteristics
Figure 5.17: Management and entrepreneurial characteristics of Pakistani IT companies The second figure depicts a number of employee-related management best practices (e.g. the use of individual incentives, discretionary time, stock options, bonding activities, strategy awareness, special incentives for women etc.). Of these seven attributes three, namely, bonding activities, use of incentives, and employee conceived products show trends in the right direction (i.e. greater use of an established good practice). In 2009, as against earlier years, a typical firm was less likely to provide stock options to employees, incentives to encourage women employment, and invest in strategy awareness of employees. Clearly, while there may still be further room for improvement, the industry seems to have settled on a pattern of management and control that has not changed much since 2004.
37
5.2.2 Human resource practices The availability of quality human resources and the management of this precious resource has long been recognised as the most important challenge facing the Pakistani software / BPO firm. Firms within the industry have continued to evolve in this important dimension. The following figure presents the average make up of Full Time Equivalent (FTE) employment in a typical Pakistani firm:
Average Proportion of FTE in Pakistan's IT Companies, By Type of Work
60.00
Average Proportion of Professionals
50.00 40.00 2004 30.00 20.00 10.00 0.00 Top Project Management Managers / Leads Developers Business Analysts Client / Technical Support Business Customer Development Service Agents Others 2007 2009
Type of Work
Figure 5.18: Average proportion of full time employment in Pakistani IT company by type of work As obvious, there have only been relatively minor changes in this over the years. The only consistent trend is the reduction in the percentage of people within a typical company that comprise topmanagement of the company.
Pattern of Employment in Pakistan's IT Industry, By Educational Qualification
70.00
Average Percentage Employment
60.00 50.00 40.00 30.00 20.00 10.00 0.00 PhD MS / MEng BS / BEng MBA Chartered Accountants Others 2004 2007 2009
Educational Qualification
Figure 5.19: Pattern of employment in Pakistans IT industry by educational qualifications
38
The two figures below depict an important set of characteristics of a countrys software / BPO workforce, namely, part-time employment and average proportion of women employed within a typical firm. The former is important though not critical because it reflects a certain degree of maturity on the part of the human resources and project management function within a typical firm. Managing parttime employees is a challenging task but so is making the best of all the talent that is available to a company. Companies may do this by either engaging talented staff on a part-time basis or using parttime staff to supplement its workforce. The latter is important because women typically represent more than half of the potentially employable workforce within an economy. In Pakistan, women generally tend to do better than men of comparable age in the education system but fare much worse in employment outcomes. Software / BPO industry is particularly appropriate for women employment because of the creative (and non-physical) nature of work associated with software development. The possibilities of contractual, remote, or flexible working arrangements also tend to favour women of child-bearing age more than men in the similar age groups.
Average Proportion of Part-Time Employees on Company Payroll

Proportion of Part-Time Employees
4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2007 Year 2009
Average Proportion of Women Employees on Company Payroll

16
Proportion of Part-Time Employees
14 12 10 8 6 4 2 0 2004 2007 Year 2009
Figure 5.20: Part time and women employment in Pakistans IT industry
39
On both of these measures, a typical Pakistani firm has a long way to go. The proportion of part-time employees has almost doubled, albeit from a very small initial base of 1.5% of total workforce. Women in the workforce declined from under 14% in 2007 to just over 10% in 2009. Both of these metrics speak of an industry that is making a sub-optimal use of the talent available to it in particular women who could work remotely or using a flexible work arrangement.
Attrition: Average Length of Employment in Pakistan's IT Industry

4.00 3.50 3.00
No. of Years
2.50 2.00 1.50 1.00 0.50 0.00 2004 2007 Year 2009
Average Employment
Figure 5.21: Attrition in Pakistans IT industry On the retention front, Pakistani software / BPO firms tend to be improving over time. The average length of employment has increased from just over 2.5 years in 2004 to just over 3.5 years in 2009 a jump of almost 40% over a 5 year period. Technomics interviewed revealed that companies do a number of things to make this happen. A number of companies retain employees by consistently increasing the financial payout often in the form of salary raises but also other in-kind incentives such as free meals, picnics, happy hours etc. There is still very little equity sharing (e.g. through stock options) within the industry. Even the firms that do this tend to restrict this only to senior management of the firm rather than spreading the equity lower in the organisational hierarchy. Still other firms try to make the work more rewarding and engaging by providing discretionary time to employees to work on their projects and creating professional development opportunities such as training and regular seminars etc. A small but increasing number of firms also guard against brain drain to the West (mostly United States and Europe) by providing a career trajectory that will enable promising employees to move to a foreign office for a duration of time before returning back to the country. On the whole, data seems to suggest that firms are doing a decent job of finding and retaining talent. Studies around the world have shown that employees tend to prefer professional (i.e. challenging and rewarding work, professional recognition etc.) rather than financial incentives. To extent that financial incentives are considered, broader based equity sharing arrangements are a norm within the IT industry and may thus be preferred over direct financial payouts. Companies seeking to compete on the basis of rapidly rising salaries could lead to perverse incentives and quickly erode the industrys competitive advantage rather than investing in a reward structure based on sharing in value creation through success. There is anecdotal evidence that some of this may be happening in the Pakistani software / BPO industry as well. However, the attrition figures suggest that there may be limits to this and that the industry may be able to uphold a voluntary though unspoken code of conduct in this respect.
40
5.2.3 Funding and access to resources Access to funding is another one of the major issues confronting the software / BPO industry. However, industry opinion varies on how critical this issue is. On the one hand, industry insiders maintain that for ideas that are well-developed and coupled with execution capability, there are avenues of funding available in Pakistan. In the past a number of such ideas have been funded by traditional business conglomerates of the country whose track record with such investments is chequered, at best. There is, however, a serious dearth of smart money within the country. A number of venture capital initiatives that have been planned in the past have either not come to fruition or have failed to deliver. The countrys first (and only) Tech Angels Network (TAN) has taken a very long time in gestation and is still at the time of this writing not ready to make investments. In the absence of these sources, friends and family remain the most important source of early-stage capital for the industry. The following figure depicts the sources of initial funds available for setting up companies in Pakistan. There have been some changes in this picture over the years. In 2009, two sources of initial capital that registered the biggest proportional increase over the previous years are company cash flows and foreign venture capital. The former represents a business as usual slow organic growth scenario. The latter, perhaps skewed because of relatively small number of deals, still represents an interesting departure from the past. Equally ominous, though, is the progressive decline in local venture capital available to companies that is down from 17% of the companies in 2004 and to around 3% in 2009.
Sources of Initial Funds for Setting Up Companies in Pakistan's IT Industry
60.00
50.00
40.00
2004
30.00
2007 2009
20.00
10.00
0.00
Personal Savings
Family and Investment Investment Cash Flows Friends by Foreign by Local Partners Partners Sources of Funds
Local Venture Capital
Foreign Venture Capital
Banking Sources
Others
Figure 5.22: Sources of initial funds for setting up companies in Pakistans IT industry Despite the dearth of formal sources and mechanisms of early-stage investment, Pakistans software / BPO industry is a relatively fertile ground for new ideas. To fill this funding gap a number of different events business planning and acceleration concepts have sprung up over the years. MITs Enterprise Forum (MIT ETF) runs a popular Business Acceleration Programme (BAP) that has now gone through
41
three annual cycles. The Institute of Business Administration (IBA) recently held its inaugural Invent Event that for the first time in the country invited cross-university partnerships. The Indus Entrepreneurs (TiE) holds a regular business plan competition. A number of incubators have also come up to support early stage entrepreneurial activity. The most notable of these has been in operation at National University of Sciences and Technology (NUST) in Islamabad for over 5 years now. Another is being planned at the new IT Park in Lahore. The emergence of this entrepreneurial eco-system notwithstanding, the lack of risk capital remains a critical weakness in the country.
Agenda Next: Where Would you Put Your Resource Dollars to Support Next Phase of Growth for Your Company
25
Number of Companies Reporting
20
15 > 50% of Resource $s 10 Between 20 - 50% of Resource $ 5
0 Venture Capital Angel Debt Mentoring Partnerships Specialist International and Training Marketing Alliances Spending Heads Other
Figure 5.23: Avenues to investment resources to support next phase of company growth Technomics also asked the surveyed companies to identify particular areas where investment public or private could lead to unlocking their growth potentials. In particular, CEOs were asked the following: if you have $100 to invest across a number of areas, how many dollars would you spend on each of these areas to ensure that your company can achieve its growth potential. In essence, companies were asked to cast their dollar-votes for public (or private) investment that are likely to be most useful to their future growth. Answers could be very informative for policy-makers seeking to invest limited resources across a number of different policy levers. The figure above presents the results. Dark blue bars represent number of companies that chose to spend 50% of their investment on a particular spending head. Light blue bars represent number of companies choosing to make between 20-50% of their investment in a particular area. Quite intuitively, 16 (about 35%) of the companies chose to spend more than 50% of their investment dollars on international marketing and, much less intuitively, 18 (about 40%) of the companies chose to spend more than half of their investment dollars on help with strategic partnerships and alliances. Specialist training, mentoring, access to debt, venture capital and angel funds received between 5-15% of the companies dollar-votes. However, venture capital and angel funds and mentoring received 2050% of the dollar-votes of around a fourth (25%) of the companies thus pointing to their importance as well. The results may be interpreted as follows. A sizeable majority of companies would like public (or private) investment in programmes that strengthen international marketing efforts as well as international linkages, partnerships, and alliances. Investments in venture capital, angel funding, and
42
mentoring programmes, though important, may not be as important in unlocking companies growth potentials as the above. 5.2.4 Quality of technical operations From a technical standpoint, Pakistans IT industry has sought certifications to enhance the quality of their operations. While an ISO or a CMM certification is not a guarantee of revenues, it does send an important signal to the importers of software / BPO services.
Technical Quality: Quality Certifications in the Industry

70.00
Proportion of Companies Certified
60.00 50.00 40.00 30.00 20.00 10.00 0.00 ISO CMMI COPC Other None
2004 2007 2009
Certification Type
Figure 5.24: Quality certifications in Pakistans IT industry Survey results indicate that the most common type of certification (about 40% of companies) is an ISO certification, followed by CMM and CMMI. While a number of companies have spent their own resources in securing an ISO certification, majority of CMM certifications have been subsidised by the Government through a PSEB Initiative. Majority of the companies in the survey (and the industry) still do not have a quality certification. Our survey did not find any call centre certifications. The overall picture on certifications, therefore, is quite mixed and presents an enigma for policy-makers. If certifications are a signal for quality that lead to greater revenues, why does the industry not invest in these? What public (and private) returns may be expected of the government subsidisation of quality certification programmes. Is the money better spent elsewhere? The hype notwithstanding, certifications (with the exception of specialist certifications like CMM/CMMI) contribute less to the quality of the technical operation than to the overall management systems, procedures, and processes of running a successful business. In the absence of a widespread culture of seeking certifications, the survey sought to assess quality through two other indicators, namely, the presence of an independent quality assurance function within the organisation and the QA expenditure as a proportion of overall payroll expense. The importance of the former is well-established as a measure of technical quality. Independence of QA teams ensure a better functioning QA operation. The latter signals the importance given to quality assurance in that it suggests if QA employees are better (or
43
worse) paid as compared to the rest of the organisation. The results are depicted in the two figures below and are self explanatory.
Technical Quality: Presence of Independent Quality Assurance (QA) Teams

82.00 80.00 78.00 76.00 74.00 72.00 70.00 2004 2007 Year 2009 % Companies with QA Team
Technical Quality: Quality Assurance Function as Percentage of Employment and Payroll

16.00 14.00
Percentage (%)
12.00 10.00 8.00 6.00 4.00 2.00 0.00 2004 2007 Year 2009 QA Professionals as Percentage of Tech. Employment QA Expenditure as % of Payroll
Figure 5.25: Quality assurance teams and function in Pakistans IT industry Independent quality assurance teams exist in about 80% of the businesses (up from 74% in 2007). Though this is an encouraging sign, the flipside of this is somewhat disturbing as well, namely, that as many as 20% of the companies surveyed still do not have independent quality assurance teams. With regards to employment in the quality assurance functions, there has been a slight decline from 2004 (just over 8% of total workforce) to 2009 (just over 6% of total workforce). This has also coincided with a somewhat similar decline in the percentage of payroll expenditure attributed to QA function (down from 14% in 2004 to 10% in 2009). While the numbers maybe as they are, qualitative evidence suggests
44
a growing degree of maturity in the quality assurance function within the industry over the last 5 years. Two trends stand out in this respect. First, the quality assurance function has generally become more established and specialised within the companies. Second, there is some anecdotal evidence to suggest that companies have also begun to undertake quality assurance and testing as an outsourced service.
5.3 Public Policy Environment and Infrastructure Bottlenecks

Policy Bottlenecks: General Perception of Policy and Infrastructure Issues in Pakistan
Other Difficulties in Incorporation Access to Bank Funds Vendor Information Issues with Taxation System Customs Training
Policy or Infrastructure Issue
Brain Drain Law and Order Govt. Contracts Regulatory Burden HR (Quality) Entrerepreneurial Culture HR (Availability) Country Image Venture Capital Physical Infrastructure IP Regime Legal Framework Telecom (Avail) Telecom (Cost) 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 2009 2007 2004
Proportion of Companies Reporting
Figure 5.26: General perception of policy and infrastructure issues in Pakistans IT industry Policy and infrastructure bottlenecks real or perceived by software CEOs change quite radically over time. These statistics also provide a highly timely and very poignant reality check for the policy-makers and business leaders alike. The two figures reflect a comparison of industrys perception and reality of public policy and infrastructure challenges at three points in time, namely, 2004, 2007, and 2009. Results are self explanatory. Several important things stand out. First, the perception of countrys image as a general problem that affects companies growth went down from 70% in 2004 to under 40% in 2007 and back up to more than 50% in 2009. Second, the general perception of law and order as a
45
bottleneck to companies growth has also re-emerged (identified by 60% of the companies) after a respite during 2007 (down from under 50% in 2004 to just over 40% in 2007) as an important issue. Third, there is also a sense that the telecommunications gains made during the late 1990s and early 2000s might be evaporating as an increasingly number of companies continue to identify telecom quality and availability as a general problem. Finally, physical infrastructure (office space etc.) is being seen by a greater number of companies as a bottleneck as is quality of human resources. Also, a lesser number of companies seem to view venture capital availability as a major hurdle to their growth.
Policy Bottlenecks: Most Important Policy and Infrastructure Issues in Pakistan
Other Difficulties in Incorporation Access to Bank Funds Vendor Information Issues with Taxation System Customs Training Brain Drain
Policy or Infrastructure Issue
Law and Order Govt. Contracts Regulatory Burden HR (Quality) Entrerepreneurial Culture HR (Availability) Country Image Venture Capital Physical Infrastructure IP Regime Legal Framework Telecom (Avail) Telecom (Cost) 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00
2009 2007 2004
Proportion of Companies Reporting
Figure 5.27: Most important policy and infrastructure issues in Pakistans IT industry The second of the two figures tabulates what each company thinks are the top-3 policy and infrastructure bottlenecks that have affected its own progress. The challenges identified in this figure, therefore, may be more critical and thus real to the companies existence. The top-5 challenges that stand out here are (in order): law and order (about 60%), quality of HR (51%), countrys image (about 49%), physical infrastructure (about 40%), and brain drain (about 39%) of the companies. The
46
major changes between 2007 and 2009 are: law and order (up 42%), regulatory burden (up 25%), lack of government contracts (up 24%), lack of entrepreneurial culture (up 21%), and brain drain (up 18%). The difference between the two charts is simple yet important. Taken together, the two charts may represent the agreement (or lack of it) between the perception and the reality of the public policy and infrastructure environment in Pakistan. In particular, in the past there used to be a significant gap between the perception and reality of the challenges that the countrys image and law and order used to present to companies seeking to grow and export to the West. For instance, between 2007 and 2009 a particularly turbulent period of time from a geo-political standpoint this gap has virtually been bridged. No longer is the law and order problem just a matter of the countrys image and perception but a disturbing reality in its own right. In Pakistan, it is often said that individuals (and businesses) excel in spite of the circumstances rather than because of them. The last 3 years have seen Pakistan (and the software / BPO industry) dealing with a number of geo-strategic and political challenges including, but not limited to, deep and growing political and policy instability, worsening law and order situation, and a worsening power crisis and thus rising costs of doing business.
47
6 Pakistans IT Market: A Review of Supply and Demand

While the above statistics provide one particular view of Pakistans IT and IT-enabled services industry, they fail to fully capture and appreciate the highly dynamic and vibrant nature of the same. Pakistans IT and IT-enabled services industry continued to evolve and mature despite the political and financial turmoil and the global economic recession during the last few years. This was marked with the emergence of new and exciting areas of considerable potential for innovation and market growth. In the last few years, for instance, systems integration and embedded systems seem to have come of age as an important sub-sector of the Pakistani IT and IT-enabled services industry. While systems integration has been a part and parcel of the IT industry since its inception, its growth was somewhat limited because of the nature of the local IT market. Increasingly, though, domestic IT spend as well as new export opportunities are breathing new life in this particular sub-sector of the overall IT market. Similarly, mobile applications, gaming, and animation is an emerging new area with considerable promise to become a key driver for the industry in the years to come. On the demand side of the IT industry as well, there has been considerable change within various subsegments of demand for IT products and services that may be masked when looking at the overall picture of Pakistans IT and IT-enabled services industry. Financial and telecommunications industries remain the largest users of IT and IT-enabled services within the country although the former has experienced some flattening of demand in the recent years. The share of multinationals in spurring demand for IT products and services seems to be going through a trough that is in line the global trend towards rationalisation and centralisation of IT procurement of multinationals worldwide. As these more traditional sources of demand get squeezed, new avenues of IT spending growth will open up. Mobile Banking, for instance, is an exciting new area that may bring together two IT demand drivers and set the stage of another spurt of spending in the coming years. Mobile applications and value-added services present another important set of yet untapped opportunity. The two sections that follow describe the supply and demand drivers of Pakistans IT and IT-enabled services industry.
6.1 The Supply Side: Producers of IT and IT-enabled Services

This section looks at the supply side of Pakistans IT (software / BPO) industry. Technomics identified 5 broad industry sub-sectors that we believed were worthy of attention. IT Industry Sub-Sectors
1. IT Product Development (IPD) 2. Software Development and Services (SDS) 3. Mobile Applications, Gaming, and Animation (MGA) 4. IT-Enabled Services (BPO and Call Centres) (ITES) 5. Systems Integration and Consulting and Embedded Systems (SICES)
The purpose of this section is to identify trends and opportunities within each of these sectors to enable industry leaders and policy-makers to better understand where the industry is heading. As the software / BPO industry has matured in Pakistan, there have emerged a number of industry segments (verticals) that have begun to show distinct set of characteristics such as industry structure, competition, product-service focus, and pattern of innovation etc. Each of these five areas is described below:
48
6.1.1 IT Product Development (IPD) Product development is the holy grail of software. Product development, as a sub-sector within Pakistans IT industry, has only grown with the passage of time thus highlighting increasing levels of maturity within the industry. This has also provided the industry with the means to address the scalability challenge by decoupling the relationship between company size and its revenues or profitability. There is considerable literature and debate on the relative merits of product and services businesses (e.g. Michael Cusumanos The Business of Software) and the necessary organisational characteristics and challenges of building successful products and services businesses. Sector: IT Product Development (IPD)
Companies Interviewed: 1. Netsol Pvt. Ltd 2. Sofizar 3. Mixit 4. TPS 5. Softech Systems 6. *Systems Pvt. Ltd 7. Alchemy Technologies 8. PixSense 9. Algorithm Consulting 10. Scrybe 11. Shams Group 12. iTack 13. Palmchip Pakistan 14. Amana 15. Sofcom 16. Computer Research Pvt. Ltd. 17. *Sidaat Hyder Morshed Associates
In particular, many companies that start off seeking to develop a product get sucked into providing services in order to finance the product development effort. They tend to take on project related work that ends up distracting them from their core mission of developing a product. Many unknowingly fall into this projects trap and never end up with the finished product at all. However, having a services revenue stream alongside the products can sometimes be a very lucrative strategic decision. For example, many successful product companies such as Oracle and Microsoft also have significant service revenues. Regardless of the challenges, successful product development and launch puts a company at the cutting-edge of innovation-driven growth and affords the possibility of significantly higher profitability through nearly cost-less replication of software. Software product development has long been recognised as an important growth area for Pakistans IT industry. Software product development activity takes three different forms, namely: the creation of ideas businesses, productised services, and shrink wrapped products. In each of these three categories, Pakistans IT industry has continued to make considerable progress - certainly more so in the former than the latter category of shrink wrapped products. Technomics talked with CEOs of several products companies covering a wide spectrum of sectors and categories. These include products for financial industry (Softech, Sidat Hyder Morshed Associates, Alchemy Technologies, Mixit, TPS), financial products for other industries (Systems and Netsol), healthcare (iTack and Shams Group), ERPs and productivity software for industry (Algorithm and Sofcom), and new media and internet (PixSense, Mindstorm Studios, Scrybe and Sofizar). With some exceptions, the companies in this category have been around for a little while now and so while there still remains considerable entry and exit in this particular category, there are also signs of relative maturity. Unlike some of other emerging sectors (such as mobile applications or new media) where one finds a lot of excitement about what could be done despite the current recessionary times
49
the IT product companies, as a sub-sector of Pakistans IT industry has had a relatively tough time in the last couple of years. A number of CEOs spoke about flat or declining profitability during the 20072008 timeframe and were only now beginning to see some return of growth. One CEO suggested that the last 2 years have taken up one full-year of forward progress from the growth profile of my company. His company had shown a trend of modest revenue growth but flat profitability over the last 2 year period a performance made possible only because of the devaluation of the rupee against the dollar that resulted in a 15% artificial revenue growth in rupee terms for this (and other) companies. Others though, were not as lucky. Many product companies sold in the domestic market and saw their businesses virtually come to standstill. As the industry entered into 2008, they saw their buyers go into a hold pattern thus drying out sales pipelines. For still others, while sales trickled through, payments and cash flow became a major issue as clients exploited credit terms. A number of companies described themselves as being in the survival mode for much of the 2008 and early 2009 and had only now begun to see the light at the other end of the tunnel. The key growth strategy deployed by companies in this sector during these recessionary times has been geographical diversification although that has worked with limited degree of success. Algorithm Consulting, facing the flight of much of Pakistans textile and apparel trade to other low cost producers, decided to move a major part of its operation to Bangladesh. Netsol began a major thrust in the Middle East and Alchemy Technologies has continued to seek new markets in Malaysia, Thailand, and Singapore. However, new product companies especially ideas based products continued to emerge and thrive. PixSense a mobile picture sharing product company and Sofizar a search engine optimisation service company for instance, started operations just prior to when the recession hit but continued to grow through it. Similarly, Mixit and TPS continued to grow and see even greener pastures for growth and prosperity in new markets and new products respectively. The industry also saw a flurry of new entrepreneurial activity. New start up companies like ChOpaal, SeeNReport, BumpIn, Aerocar and Scrybe started off with considerable promise. A number of these companies also managed to attract venture capital funding to further develop their ideas and products. Collectively, the success of these companies demonstrate that good, solid, innovative ideas will continue to find interest and traction, albeit at a much lower level than they otherwise would have, even during recessionary times such as these. They also point to the challenges of long and arduous product development journeys that these companies must complete before they can become viable and financially successful businesses. Not unlike earlier times, companies have sought to make this journey from services to product through both creation of new products and productisation of existing services. iTack and Five Rivers Technologies, for instance, made the transition from primarily services focussed companies to those seeking to develop a product. Generally, though, there is a clear silver lining in all of the above. Barring the effect of the recession over the last couple of years, Pakistans IT industry has continued to make considerable gains in maturity and innovation. It has also, through the experience of the late 1990s and early-2000s, willingly and consciously weaned itself off the tendency to mindlessly copy the high volumes low-margins game of neighbouring India and in that process liberated itself from the scalability problems that it had suffered during the birthing of the industry in Pakistan.
50
Instead, Pakistani entrepreneurs are gradually making the transition towards creating multi-million dollar high margin global businesses off the back of a few tens rather than thousands of employees. These products based businesses thrive on the creative and innovative potential of Pakistani entrepreneurs and are considerably more (though not totally) resilient to the unfortunate effects of the geopolitical climate and the countrys image problem. Add into the mix some of the additional constraints and advantages that software businesses face in Pakistan and what emerges is probably a uniquely Pakistani model of the evolution of the software industry.
6.1.2 Software Development and Services (SDS) Software development and services is a critical Sector: Software Development and sub-sector of IT industry in Pakistan. For the Services (SDS) context of this report software development and services sub-sector will include two different Companies Interviewed: types of businesses, namely, those that are in the business of providing on-demand software 1. Techlogix development or applications management 2. Sidat Hyder Morshed Associates (SHMA) services primarily as an off-shoring operation 3. *Systems Pvt. Ltd (pure software development services) and 4. Folio3 those that engage in customised software rd 5. Abacus Global Consulting development and deployment using 3 party 6. Bentley Pakistan pre-existing software tools and platforms (most 7. LMK Resources notably vendors such as Microsoft, SAP, Oracle, 8. Digident Solutions Siebel, etc. (software customisation and 9. Lakson Business Solutions deployment services). The distinguishing 10. Pi Sigma Group (PSG) characteristics of the companies in the software 11. Digital Prodigy development and services sub-sector being that 12. Vahzay Pvt. Ltd these do not produce intellectual property (or 13. Emmaculate proprietary software) of their own. The 12. Plexus requirements of both of the activities pure software development services and software customisation and deployment services are different. Technomics interviewed CEOs of a number of companies within the software development and services space. These included pure software development services companies such as Bentley Pakistan, PSG, Plexus, Digital Prodigy, and Lakson Business Services to customised software development and deployment companies such as Techlogix, Sidat Hyder Morshed Associates (SHMA), Abacus Global Consulting to hybrids such as Systems Ltd, Digident Solutions, Vahzay, Emmaculate, and Folio3. These conversations focussed around the challenges and emerging trends within the software development and services sub-sector. A number of themes emerged from these conversations. Generally speaking, the pure software development services model is on its decline in relative importance to Pakistans IT industry. In particular, the most basic form of pure software development services as an outsourcing and offshoring of coding operation from a more established company in the West appears to be fast becoming a thing of the past. A number of companies seem to be moving away from the traditional pure software development services. Folio3, for example, is an innovative company that positions itself as a mix between an incubator and an outsource software development
51
shop that focuses on business from Silicon Valley start-ups. Over the passage of time, Folio3 has moved towards greater specialisation and toyed with the idea of developing its own products now. This is clearly a sign of development and maturity for Pakistans IT industry as it allows companies to climb higher in the value chain. There will always remain companies who will choose to play in the low margin business of pure coding for a variety of reasons strategically important to them. However, the direction of evolution is undeniably away from the commodity coding business rather than the other way round. The second theme that emerged from these conversations is around the adoption of vendor platforms within the customised software development market. This is a theme that has been in the making for a while now but has not become a matured trend within the industry. Pakistani customised software development companies had embraced the vendor platforms in a massive way. 10 years ago, todays custom software developers would either have not been in this business or they would have been aspiring product companies. This was a time when every other IT company in Pakistan was in a rush to develop an ERP. Today, they are all happily developing solutions based on Microsoft, Oracle, SAP, and Siebel, among others. With the exception of a few companies, Siemens and Techlogix being at least two of them, the vendor platform driven customised software development is restricted to the local market only. The trend has largely been driven by increasingly levels of maturity within the corporate and industrial sectors in Pakistan that are now demanding such solutions but also major reductions in prices of vendor platforms in the recent times. One CEO spoke of the major opportunity in the ERP space. There are 50,000 companies registered on the SECP and probably another 50,000 large players who are not. This gives you a target market of about 100,000 potential ERP implementations. We are estimating that there are at least 25,000 ERP implementations to be had in Pakistan in the next few years. . At present, though, the countrys IT industry does not have the capacity to handle these implementations, should that high level of demand immediately materialise. Not all of these would use vendor platforms, however. Many of these will deploy locally developed home grown ERP solutions. One large player in the customised software market claims to do 500+ ERP implementations a year. But there is ample opportunity for vendor platforms as well. The largest players in that space do between 10-20 implementations a year. From the standpoint of business and industry automation, Pakistan is still at a nascent stage. Some companies have also begun to look regionally. Siemens - Pakistan, for example, has emerged as a major player in the ERP space particularly focussing on SAP. Siemens Pakistan leads the Middle East IT cluster for Siemens global organisation thus giving it a unique opportunity to market its capability regionally within the Middle East. Techlogix is another company that has found some traction in doing customisation work on vendor platforms for the regional market. Techlogix carried out a major project funded by HEC to develop and deploy Campus Management Systems (CMS) for a number of large Pakistani universities. Techlogix did this using the PeopleSoft platform and has since become a preferred Oracle supplier for educational applications. Oracle has recommended Techlogix for work with some universities in the Asia Pacific region. This new approach to specialisation with vendor platforms is another new feature of this customised software industry. Techlogixs ability to transform the less-than-ideal arms length vendordeveloper relationship is an encouraging one and may be a sign of things to come.
52
Greater specialisation and sophistication is the only way to push the envelope of performance (and the rates associated with it) forward and avoid becoming a commodity supplier. One of the CEOs remarked that: the market is increasingly demanding greater specialisation. The choice between offering generic and domain-specific solutions that was once enough to help you distinguish yourself in the market relevant is not enough anymore. Today you have to be new and niche to succeed.
Companies today focus on business transformation rather than ERP and identity and access management instead of information security. These differences, hopefully, are not merely that of nomenclature but represent a more refined and comprehensive approach to these problems. We are beginning to see the migration to a higher and more sophisticated level of selling within the industry. One industry CEO remarked, for instance that their salesmen had become problem solvers.
6.1.3 Mobile Applications, Gaming and Animation (MGA) Mobile Applications, Gaming, and Animation is the most exciting change sweeping across Pakistans IT industry today. There are several reasons for the excitement around this particular sub-sector of the IT market. First, Pakistan is home to one of the largest mobile subscriber base in the developing world if not globally. As per the latest indictors published by Pakistan Telecommunications Authority (PTA) there are more than 97.3 million mobile subscribers in Pakistan a figure that translates to more than 59% of the countrys population and over 100% of all qualified potential subscribers (excluding people too young to own a mobile device).
Sector: Mobile Applications, Gaming, and Animation (MGA)

Companies Interviewed: 1. Mindstorm Studios 2. TKXEL 3. Tintash 4. Post Amazers 5. Confiz 6. Geni Team 7. iTrango 8. ChOpaal 10. Folio3 11. PixSense 12. SeeNReport 13. Abacus Global 14. Trivor Software 15. Palmchip Pakistan
Second, Pakistan is also home to a tremendously talented pool of human capital whose creativity and ability to innovate is only restricted by the lack of an eco-system for them to flourish. This talent advantage is further accentuated by the ubiquitous access and use of mobile in the country across the rural and urban, generational, or gender divide not only as a luxury or a status item but as virtually a necessity given the poor record of fixed line communications technology in this country. Third, mobile applications and gaming is an area where Pakistan may enjoy a level playing field with respect to other aspirants. In the realm of software and outsourcing in general, for instance, Pakistan was a late comer trying to catch up with other players. In mobile, on the other hand, this gap might be much less and the barriers to entry are significantly lower. The need for domain expertise and foreign
53
sales channel that became a major stumbling block for Pakistans IT exports industry in the early 2000s is minimal in games and mobile apps where domain is literally everywhere and the most successful sales channel is viral marketing. All of the above augur very well for the future of mobile applications, gaming, and animation sub-sector of Pakistans IT industry and helps create the excitement around what might be possible. Technomics interviewed CEOs of several companies in the mobile applications, gaming, and animation space. These included companies that have developed full-fledged shrink wrapped games (such as Mindstorm Studios), to services and product companies focussing on particular platforms (TKXEL, Tintash, Geniteam) to animation studios (PostAmazers, iTrango), multi-player online games (Folio3) and mobile applications (ChOpaal and Confiz). Within these broad genres, Pakistani companies have already begun to think strategically and focus on very specialist areas such as casual games (Tintash) and role playing games with location awareness (Geni Team). This specialisation will continue to happen as games and platforms become more complex. Several important themes emerged during our conversations. The first, and foremost of these is regarding the economics of risk and reward in mobile game development and why it might particularly favour the nascent Pakistani industry. There seemed to be a spread of opinions about whether Pakistan has a cost advantage over other countries such as United States and Western Europe, Central Europe, and India etc. and how long will this advantage last. The general consensus seemed to be that it costs about $15-25k to develop a decent game on a mobile device in Pakistan. Pakistan may be broadly in line with India in this regard and somewhat cheaper than Central Europe. The cost for doing the same in the United States is likely to be an order of magnitude higher. It is, therefore, possible for a small start-up of 10-12 people with a burn rate of $250k a year to develop 15-20 games per year a number good enough to turn up at least one (perhaps two) winner(s) in the course of a year. Typical success ratio of a mobile game, for example, on Apple Store is 1 in 20-25 (3-4% by another account) and a typical Top-1o application on the AppleStore could do about $2 million worth of sales. These are not impossible odds as several of the companies interviewed have demonstrated. TKXEL is a mobile game development company that specialises on iPhone, Android, and Palm platforms. TKXEL operates under two different business models, namely, it does outsourcing work for US-based game development companies as a service and also seeks to develop its own games. Since its creation in 2007, several of its titles have been among the Top-100 list on the AppleStore. Tintash, another mobile game studio, focusses on casual games for iPhone and facebook platforms. It developed a title called Fishing Frenzy that hit the AppleStore Top-10 list for its genre and resulted in over 1 million downloads. These examples amply demonstrate the capability of Pakistani mobile game developers to hit the charts and churn out winning titles (and revenues) in a fairly routine manner. The challenge, however, is in striking the right balance within the product-service mix and to execute. As with the more traditional software, upfront investment is a major obstacle to developing high revenue potential opportunities in this sector. Several mobile gaming and applications companies fund this initial investment in product through outsourced game development. As with the more traditional software, there is a chance that the outsourced services work will suck the companys resources and divert management attention and creative talent from the higher value objective of producing at least enough number of titles to get the winning odds of 1 in 20-25 odds to ones favour. Although there are no hard
54
and fast rules here, and every company has to find what works best for its circumstances, a couple of models seem to work for the companies interviewed. The first of the approaches used may be termed the more casual approach that depends on the companys brute and obstinate focus. Mindstorm Studios is a full-fledged shrink wrapped game studio whose flagship product is the Cricket Revolution . Started 4 years ago, Mindstorm Studio has been able to do, through a dedicated team of 12-15 people, what some may have once thought impossible. The company was so focussed on what it wanted to do that when it couldnt find the motion capture needed to create its game in Pakistan, it created one. Today, Mindstorms CEO is ready to lend this technology to other aspiring game developers in his attempt to lessen at least one bottleneck that he had to face in his quest to develop his game. During the course of game development, Mindstorm also depended on revenues from visual design services that it performed for international clients but managed to keep focussed on its objective. TKXEL manages a similar ship by leveraging its outsource revenues from highend web development to fund game development. The second of the two approaches may be a bit more scientific. This calls for a small dedicated product development team within the company whose primary and only objective would be to develop its own games while a much bigger services team supports the product development group. There is probably some logic and method to doing this in systematic way as it may lead to a greater focus. The CEO of Geni Team spoke about his experience in managing such an operation. Of the 25 employees that Geni Team has, 5 are dedicated to internal product development. The company made a decent start with earning through its product portfolio last year and hopes to do considerably more next year. Ideally, the Geni Team CEO notes, my 5 people in product development will produce as at least much revenue as 20 people in services. As the size of the operation grows, GeniTeam hopes to increase the size of the dedicated product development effort. This fairly scientific approach to funding investment in product development may work and could, perhaps, be replicated many times over. Another important theme that emerged from Technomics conversations with these CEOs concerned the (un)attractiveness of the local market for game developers. Most companies surveyed tended not to work for the local market at this point, although neither ruled out the possibility. The primary reason for not engaging with the local market, they believe, are the types of returns that are available at this point. Pakistani mobile service providers have recently turned to value-added services (VAS) as one of the key pillars for innovation-driven growth in the future. According to one of the CEOs the telecoms are hoping to produce 10% of their revenues from VAS within the next few years. This amounts to fairly substantial local market for mobile applications (and games) that must attract local application and games developers. However, these mobile service providers, reckons this CEO, have the risk-reward balance wrong. Currently, a number of telcos offer a 70:30 standard revenue split on value-added services that works in their favour. Apple, one the other hand, says one CEO, does the reverse. When you develop for iPhone and market your application through AppleStore, you get to keep 70% rather the other way round. Given the global scale of the AppleStore market and the opportunity to keep a bigger share of the revenues it is quite understandable why the mobile applications and game developers find the standard arrangement unattractive. There is certainly a need for some rethinking on the part of the telcos to make this deal work better for both parties. Some companies (such as ChOpaal and Confiz) do choose to play along. These companies have also fashioned their product-service portfolios and offerings around another key limitation (and hence opportunity) of the local market, namely, the relatively small proportion of smart phones in use in Pakistan that make the more extensive applications
55
and games largely irrelevant for mass local use. Both ChOpaal and Confiz are developed around the SMS platform. One final set of themes that tend to occur repeatedly in the discussions is the special infrastructure needs of the emerging market opportunity that mobile applications and gaming represent. There is almost a consensus among the CEOs about the exciting nature of the opportunity that this sector represents. The CEO of Mindstorm Studios noted: Should Pakistan be able to create a game development hub we have the potential to become the hottest mobile applications and gaming destination in the whole world with both economic and demographics working in our favour.
Another CEO, noting that Pakistan has missed an opportunity in the animation space, believed that mobile gaming represented the silver lining in the cloud. In Pakistan, public policy has generally not been able to do this right. While the idea of picking winners is controversial to start with, even when a policy decision has been made in the past to support a particular sector (such as software or BPO), the execution of that policy decision has often left much to be desired. However, the first steps towards discussion of how might a proactive policy be put in place is to first understand the unique requirements of this particular sector. What kinds of policy levers and programmes need to be in place for Pakistan to realise its potential in this new and emerging sector? Technomics asked this question to the CEOs themselves. A number of possible policy steps were discussed. The need for venture capital, albeit with lower investment sizes is critical. One CEO believed that an aggregator who took on several smaller operations as investor-cum-publisher could be very useful. Education was another area identified for intervention. This includes multi-platform technical software skills as well art education focussed towards animation and game development. One CEO talked about the need for specialist training (e.g. in IP protection, how to deal with publishers etc.) as one thing that could be useful as well. Generally, though, it was believed that mobile applications, gaming and animation was well-defined enough opportunity to enable federal government (or another interested policy actor) to create an oasis in an otherwise deficient innovation eco-system.
6.1.4 IT Enabled Services Business Process Outsourcing (ITES-BPO) The IT-Enabled Services and Business Process Outsourcing represents an important sub-sector for Pakistans IT industry although growth and performance of this sub-sector have been somewhat lacklustre due to concerns about internet reliability, power shortages, and the countrys image abroad. This is an area where the neighbouring India has made significant inroads during the early 2000 recession by positioning
Sector: IT Enabled Services (ITES-BPO)

Companies Interviewed: 1. Voxel Communications 2. The Resource Group (TRG) 3. Systems Pvt. Ltd. 4. Ovex Technologies 5. NDC BPO 6. CATCOS 7. Sybrid 8. Abacus Global Consulting
56
itself as low-cost destination amidst cost cutting and streamlining of operations in the United States and much of the Western Europe. Pakistan too, encouraged by Indias success, embarked upon its own quest to seek IT-enabled services and BPO business and achieved a measure of initial success. In this early period, Align Technologies, an innovative IT-enabled medical services company that is now a $1.5 billion operation was the poster child of this initial ITES-BPO euphoria. Call centres and data entry operations began opening up across the country and virtues of IT-enabled services such as legal and medical transcription were extolled in the industrys grapevine. However, this euphoria did not last much long. Shortages of English-speaking human resources, lack of redundancy in the countrys internet backbone, and difficulties of securing contracts that required real-time offshore work had been serious challenges for this nascent industry. Pakistans image as a geopolitical hotspot has been a major hindrance in the growth of this sector in Pakistan. The dilemma that the countrys ITES-BPO industry faces today is truly captured in rise and fall of Align Technologies. After a very promising initial start, as the company grew in global revenues and began to dominate the market share of the unique market that it had itself created, its investors and directors became increasingly nervous about a critical piece of the companys operations being located in Pakistan. Ultimately, they forced the company to permanently close down its facility in Lahore and the companys founder a Pakistani American entrepreneur quit in protest. While Align had the opportunity to build something worthwhile before the fateful decision came, other companies have been much less luckier. A combination of several factors, most notably, a critical shortage of a large supply of unemployed English-speaking workforce but also power shortages and lack of internet redundancy have been major hurdles in building large enough ITES-BPO operations that could succeed on the basis of economies of scale. While a burgeoning call centre industry may not have taken root in Pakistan, individual companies by virtue of the power of their business models may still continue to defy odds and succeed. Companies have done so using creative ways to get around some of the problems identified above. Technomics spoke with a number of ITES-BPO CEOs for the purpose of this study to understand where this sub-sector stood and where it was going. Several themes emerged from our discussions. First, there was an unequivocal dissatisfaction with policy vis--vis the ITES-BPO sector. One of the CEOs noted that beyond mere ambition there was no [policy] framework to start with. There simply was no leadership, no investment, no infrastructure for the BPO industry to flourish in Pakistan. Consequently, this CEO believed that the industry never got the structure right in the first place. Another CEO was much milder in his criticism and noted that while conditions were against the emergence of a strong BPO industry in Pakistan and there were some problems that were almost incurable things would have been much better than they are today with government support. IT has never been a government priority. The trend of re-orientation of the export-focussing voice-based BPO (call centre) business towards the domestic market has only strengthened with the passage of time. Several of the companies have, over the last few years, actively sought to enter the domestic BPO market and have done well. A number of CEOs see considerable domestic opportunity for BPO work in financial, public, and telecommunications sectors. According to one CEO that spoke with banks, public sector, and telecoms may require several thousand [call centre] seats to manage the subscriber base of 80-100 million customers. Although this domestic market is not there yet, potential customers are taking baby steps and it seems to be growing. The advent of managed services will only bring the inevitable forward.
57
While the domestic call centre business may not pay as well as foreign call centres, it does not cost as much either. Interviews suggest that per seat revenues range from Rs. 30 70k depending upon the type of campaign and the skill of the agent required to run it. Companies are able to charge better rates when there is an element of domain expertise involved as well. This also leads to the critical question of why, with a few exceptions, functional BPO has not taken root in Pakistan. While voice-based customer contact creates some problems vis--vis real-time availability, functional BPO (e.g. accounting, medical, legal etc.) could possibly get around these issues. The migration from voice to non-voice, although, in the works for a while has not happened as rapidly as expected. There is certainly an opportunity here that has a better chance of success than voice. The last and final theme relates to the importance of finding creative twists to the ITES-BPO business model in order to separate oneself from the crowd and add some measure of stickiness in the relationship. Systems Pvt. Ltd is able to do this by leveraging its existing relationship with a client and deep domain knowledge to begin a promising BPO operation. Systems BPO operation was built around software that it has licensed for several years to a client. Systems was able to convince the client to outsource the entire process. The Resource Group (TRG)s creative twist was its attempt to buy minority shares in depressed call centres in North America and gradually route their business to its centres in Pakistan. This has only been marginally successful. Voxel Communications attempted providing call centre equipment through its partner 2B Technologies to call centres to reduce the set up or expansion costs in exchange for an agreement to route some operations to its facility in Islamabad. Other call centres are using pay for performance type contracts to get ahead of the pack and sweeten the deal for potential clients. While these strategies have worked with varying degrees of success, they are nonetheless a critical strategic tool that could be used to compete in what is fast becoming a commodity business. One particular CEO eloquently highlighted the strategic dimension of selling ITES-BPO work in todays cutthroat market: There are three dimensions to our work: people, process, and technology. We have to come up creative ways to structure a package of service that may attract a particular type of client depending upon their needs.
What this means, according this CEO, is that ITES-BPO companies can distinguish themselves in the market place through creative mixing of critical and unique domain skills, process excellence, and providers of technology that enables business process outsourcing. In short, ITES-BPO service providers will no longer be responsible for providing a call centre agent but a complete solution that actually takes responsibility for streamlining and automating clients processes and delivering additional returns and savings to the client. As Pakistans ITES-BPO industry continues to evolve and march ahead, many of these themes will continue to be in play in varying degrees on the domestic and foreign front. In the words of one CEO: We have to wait and see how the future of foreign BPO plays out. Security situation might improve over time. However, Pakistan is not going to be an easy sell.
58
6.1.5 System Integration, Consulting, and Embedded Systems (SICES) Systems integration, Consulting, and Embedded Sector: System Integration, Consulting, Systems has, for a long time, been a neglected and Embedded Systems (SICES) sector in Pakistans IT industry. IT has become software development and call centre onlythe Companies Interviewed: spectrum of IT is much larger than just software, complains the CEO of one of Pakistans largest 1. Access Group systems integration and consulting companies. 2. Inbox Technologies While the mystique of making money selling the 3. Arwentech invisible software takes the limelight, the real value 4. Softech Microsystems is generated only when software interacts with 5. CARE Pvt. Ltd hardware to deliver a service. This is where system 6. Infotech integration comes into play. If one looks around 7. Palmchip Pakistan oneself there will literally be tens of thousands of 8. Five Rivers Technologies systems that support our lifestyles by making us more comfortable and productive. They make us who we are and what we have become in this age of scientific and technological miracles. Even in a modern automobile there are probably tens of systems-on-chip that can perform functions such as helping us drive better by stopping the car from skidding in an icy cold day or deploying life-saving airbags in a fraction of a second when an accident happens. These systems integrate hardware and software to delivery the functionality that we need. Even though systems integration has been somewhat of a neglected sector in Pakistan, it has not been devoid of successful companies. Systems Ltd, Pakistans first software company, as its name suggests, started in the 197os as a systems company with the objective to capitalise on the need for systems integration in the rapidly developing and modernising economy. Many others followed suit in the 1980s and early 1990s much before software became the buzzword for start-ups in this country. The IT multinationals such as IBM, NCR, Motorola, Alcatel etc., even though they often competed and many times won against the local systems integration start ups, have played a part in serving a market need alongside other Pakistani companies of note such as Digital Communications, Integrated Devices, and Innovative etc. Technomics interviewed a number of companies in this sub-sector to develop a sense where they were and what their particular challenges were. The companies varied from those that specialised in particular sub-segments of systems integration such as telecommunications (CARE, Softech) to satellites (Access Group) and large-scale infrastructure development (Infotech). While some primarily focussed systems integration as their only line of business others had broader scope of activities including software and outsourcing (Arwentech) and hardware (Inbox technologies). The picture that emerged from Technomics conversations with these CEOs is interesting and holds a lot of promise for this relatively untapped segment of Pakistans IT industry. Several themes emerge from these conversations. First, there is always room for innovative application of a software-hardware system that meets the needs of a particular set of customers. The example of Access Group, a relatively young company that has delivered a number of firsts in this country is the case in point. In its 15-year old history, Access
59
Group created the Orix Shared Payment Network in Pakistan with its 14,000 terminals that we see everyday at retail outlets around the country; introduced iDirect with its more than 500 terminals countrywide; and the customer loyalty cards such the PSO Card. The PSO card, for instance, is the largest single item credit card in this country with around $2 billion of transactions a year. In each of these instances, Access used the combination of software and hardware systems to generate new value for its customers and consequently millions of people in this country. A similar trajectory could perhaps have been followed by Softech Microsystems, a company created to become an industry automation specialists dealing, in particular, with design of processor-based controls and automation systems. The company hit an initial jackpot when it developed a 200 line microprocessor-based PABX system and found a ready market for it within the private sector. In those early days the company invested considerably in new product development and R&D and produced a number of firsts for its customer PTCL. In the early 1990s, Softech was selling completely locally designed and assembled PCBs and was destined for bigger things when policy changes in import duty and procurement brought about an end to its profitable and growing PABX business. The second theme therefore is that the Achilles heel of the software integration company has been its relatively higher dependence on government policy and procurement processes for its continued survival and growth. In fact systems integration business is doubly dependent on policy for two reasons. First, the primary geography of focus of systems integration companies is local rather than foreign. Second, the largest customers of systems integration are government, defence, and large public-sector and semi-public sector monopolies. When Softech lost out on its profitable and growing PABX business it was because the government decided to buy from Alcatel even through Softech and a number of other local companies were very close to having the capability to deliver. The third theme that emerges from the above is the need to continuously innovate and position oneself in the rapidly changing market. The all or nothing dilemma that Softech faced in its PABX episode described above may come in the life of most systems integration firms and some may lose the deal. However, they will maximize their chances of surviving and thriving by being more nimble, more innovative, and more diverse. Access Group, for example, continues to position itself in a rapidly changing environment and enter new areas as they emerge. Today Access CEO describes the company as being in the managed services (MS) business and laments the fact that most people do not understand the difference between MS and value-added reseller (VAR). We want to be the number one company in every sphere that we operate in, he adds. Inbox Technologies learnt the same lesson when it found itself unable to compete in its quest to become a locally branded PC and laptop design and assembly company due to government policy thus forcing it to look into other ways to leverage its strong in-house hardware assembly skills. In its new life, the company sought to focus on opportunities in telco solutions, high-end storage, workflow management, collaboration, document management, and virtualisation etc. CARE Pvt. Ltd. a unique specialist R&D company with a history of chip-design and a telecommunications and systems focus faced several similar challenges and its power to continue to innovate was the only thing that came to its rescue. CAREs CEO explained during our interview with him, we have been in all or nothing situations several times when, had we not delivered on a particular R&D project, we would have gone out of business. CAREs CEO attributes his companys survival to hard work and innovation, butt power as he calls it. CARE has worked on and successfully delivered on a number of telecommunications and defence R&D projects and products. Continuous innovation and rapid adaptation to changing market needs and public policy is critical for a systems integration business.
60
Finally, the core set of skills necessary to operate in the systems integration market are somewhat different from those necessary in other IT sub-sectors. A diverse skill-set that is vendor independent can be critical. Arwentech, for instance, has grown from 10-12 people 5 years ago to 300 people today partly by virtue of its technology business seeks to deliver multi-vendor systems capability across a range of systems areas such as communications, systems, ATMs, computing, and building management solutions. The job of a systems integrator, really, is to identify a client that has a problem and then solve it no matter what it takes. Infotech Pvt. Ltd, for instance, specialises in large-scale infrastructure deployment such as storage, middleware, applications, and servers etc. Infotechs CEO described the companys sales ethic in three simple words: Dont sell, Solve. On the whole, the future of systems integration looks promising. Pakistan continues to be a country where per capita public-sector spend on IT is much less than what it needs to be for a country of similar size and level of development. This is bound to grow in the coming years. The telecommunications sector has been one of the largest buyers of systems integration services in the past. CARE and others ably demonstrate that it is possible to establish a strong relationship with the defense establishment which could be an even bigger buyer of systems integration services in the future. The government must and will get its act together on eGovernment and other elements of IT procurement. While the eGovernment Directorate (EGD) in the past government failed to deliver on the promise, new efforts are afloat at the provincial level that give hope in this respect. International donor money is also increasingly available at least in the short to medium term future to fund public sector ICT and systems integration firms could be a major beneficiary of this. Consistent public policies and creative and far-reaching use of procurement policies would go a long way in realising the promise of this sector. These exciting trends and the growing spotlight on this sector will likely encourage more entrants in the field and a new wave of innovation and entrepreneurship.
6.2 The Demand Side: Users of IT and IT-enabled Services

This section looks at the demand side of Pakistans IT (software / BPO) industry. The purpose of this section is to identify trends and opportunities within each of the sub-sectors of IT demand to enable industry leaders and policymakers to better understand where the industry is heading and how the market demand for new products and services is likely to evolve. This report is the first attempt to systematically study the IT user industry of Pakistan. IT User Industry Sub-Sectors
1. Banking & Finance (B&F) 2. Telecommunications and Utilities (T&U) 3. Public and Semi-Public Sector (PS) 4. Multinationals (MNCs) 5. Private and Non-Profit Sectors (PNS)
The IT user industry has been divided into five sub-sectors outlined in the box (above). These are described below:
61
6.2.1 Sector Report: Banking & Finance (B&F) Banking and Finance has been, for a much of the last decade, one of the major drivers of IT spend within the country. Banking and Finance is a fast and growing sector in Pakistan. According to the 200910 Economic Survey of the Government of Pakistan, there are a total of 55 banking and development financial institutions in the country including public sector commercial banks (4), specialised scheduled banks (4), private local banks (25), foreign banks (7), development finance institutions (8), and microfinance banks (7). In addition to these, a large number of brokerage and security companies, leasing and finance companies, insurance companies, and specialist service providers make up this large and fast growing sector in Pakistan. Pakistans banking and financial sector has benefitted considerably from liberalisation policies of successive governments since 1991. These policies have only been further strengthened and accelerated during the previous government between 2001 and 2007. Consequently the banking and financial sector have gone through successive periods of growth during the last decade and a half. With the banking and financial boom and expansion came the need for product diversification and innovation. Pakistani banks and financial institutions were forced to build technological capacity to expand access and deliver a wider range of products and services to an increasingly sophisticated and demanding customer base. This then has become the driver for IT spending within the sector. IT User Group: Banking & Finance (B&F)
Companies Interviewed: 1. Habib Bank Ltd. (HBL) 2. Muslim Commercial Bank Ltd. (MCB) 3. United Bank Ltd. (UBL) 4. Royal Bank of Scotland (RBS) 5. Standard Chartered Bank (SCB) 6. Arif Habib Bank (AHBL) 7. Silk Bank 8. Bank Al Islami 9. AKD Securities 10. KASB Securities 11. Karachi Stock Exchange (KSE) 12. Central Depository Company (CDC)
Beyond the general conditions and drivers of demand, there similarities between banking and finance sectors are few. The IT investment patterns in banking and finance sub-sectors could thus be subdivided between banking and financial sub-sectors with the former further comprising of large and small banks and the latter including a wide array financial institutions most notably brokerage houses, leasing and insurance companies etc. Technomics interviewed a cross section of companies from the banking & finance sector to develop a sense of the current state and future course of IT spending within this sector. Among the companies interviewed were large banks (HBL, MCB, UBL), smaller private sector banks (Silk, Bank Al-Islami, Arif Habib), multinational banks (RBS and SCB), large semi-public financial institutions (KSE and CDC), and non-banking financial entities (AKD and KASB Securities) Within the banking sub-sector, in particular, a vast majority of Pakistani banks have spent considerable amount of money on installing IT capacity core banking solutions, add-on software, and IT infrastructure such as disaster recovery centres, call centres, and data centre operations. For much of the last decade, Pakistani banks both major and smaller have dedicated sizeable budgets to IT systems upgradation and modernisation. The most notable of the categories of IT spend for a Bank is their core banking application which forms the backbone on which the Bank operates. Here, according
62
the estimate of one industry observer, hundreds of millions of dollars have been spent during the last decade or so with the 5-7 major banks spending in the order $10-15 million a year on the licensing and implementation of their core banking applications alone and 15-20 smaller banks spending lesser but nonetheless quite significant sums of money. There seem to be a clear pattern in this spending. For the major (large) banks with millions of customers and hundreds of branches around the world, implementing a core banking system has been a choice between various international vendors for such applications. Buying from a Pakistani vendor was simply not perceived to be a viable option for a variety of reasons. A number of the Bank CIOs lamented the fact that while Pakistani companies with core banking solutions do exist (e.g. PIBAS and Autosoft) none has the depth and breadth to manage banking operations of a thousand-plus branch network. They also raised concerns about continued viability, professionalization, and lack of continued product development within the relatively small core-banking solutions provider community. The choice, as often described to us, was between implementing one of the international brands, namely, Symbols, Mysis, Temenos, and iFlex etc. Here too, the Banks had largely been at the mercy of vendor manipulation and buying decisions seem to have been made on the basis of cost alone often the first [initial] cost rather than the life-cycle or quality-adjusted cost. The implementation choices have varied between foreign consultants with associated high costs or development of an in-house or outsourced implementation team with steep learning curves. In either case, there are several examples of botched implementations and schedule or cost overruns. Only in the recent years has the situation improved a bit with implementation capacity been developed within either the Banks themselves or through the local partners of foreign vendors and banks seem to be getting better at implementing and managing large foreign core-banking systems, albeit after some highly costly misadventures. For the smaller Banks, though, the story is a bit different. Here, the CIOs do not have to deal with the challenges of legacy systems and large multi-national branch networks thus making the job of implementing a core banking application much simpler. At least a couple of the Banks that were interviewed seemed to take a fairly creative and resourceful view of the challenge and had almost built the system from scratch using open source platforms and buying hardware (servers, storage etc.) and network infrastructure one a case-by-case basis as per the actual needs of the business. Foreign banks generally adopt the core banking systems that are being run at their parent entities and do not have implementation and support issues that local banks have to face. By and large, the Banking sub-sector seems to be at the tail end of a 5-year investment cycle in which considerable resources have been spent on implementing new core banking applications, porting from legacy systems, upgrading network and storage infrastructure, and setting up customer contact operations. While opportunities for local companies may exist in each of these areas, they are likely to be limited in size and scope. However, many new areas are beginning to open up. The Bank CIOs mentioned a number of areas where considerable opportunity exists in the next few years and they are actively looking to buy as well. Applications for alternate delivery channels (ADCs) such as internet banking, mobile commerce, branchless banking, as well as applications that may lead to greater efficiencies within the current system such as data warehousing and business intelligence, system optimisation, and network management etc. may become a focus of CIOs in the banking industry. Another trend that many CIOs see coming and may welcome it is the emergence of Managed Services (MS) to take on the plethora of services that they have to deliver in-house at this point.
63
In the non-banking financial industry a somewhat different dynamic seemed to prevail. Here, unlike the banking sector, there has been substantial local vendor expertise available to meet the growing needs of the industry especially in the field of brokerage and mutual funds etc. For a variety of reasons including industrys profit potential and needs for regulatory compliance with SBP, Stock Exchange, and SECP regulations, local vendor capability did develop initially and, in some cases, was able to meet the needs of a rapidly innovating industry. Companies like Softech Systems, among many others, have delivered successfully to clients both within and outside Pakistan. New players on the Pakistani financial software vendor scene, such as Mixit, add to the potential of this growth market segment. In the financial services sector, in general, and brokerage, in particular, there is a trend of maintaining small in-house IT operations as they buy the key trading platforms from established local vendors. These IT departments primarily serve the purpose of providing support to the users but are also are often capable of developing small add-on applications and, as in the case with Karachi Stock Exchange (KSE) and Central Depository Company (CDC), writing major portions of software platforms as well. Like smaller banks, there seemed to be some general concern within the financial industry with vendor sustainability and reliability but most of the CIOs interviewed seemed to be satisfied with the degree of maturity of the existing local vendor industry and were happy to do business with them. The companies interviewed were of the view that the current state of vendor capability was quite in line with the demands of the market. They expressed the notion that the consumer was not very educated or hence very demanding although this seems to be something that is quickly changing. In recent past, brokerage houses have deployed online trading platforms that allow consumers to trade directly without the help of an intermediary. Increasingly the consumer is becoming more sophisticated and is demanding greater functionality. There is a clear move towards online brokerage and, perhaps, mobilebased services and transactions in foreign markets. These areas then could be the next frontier for innovation within the finance sub-sector. 6.2.2 Public and Semi-Public Sector (PS) Public and Semi-Public Sectors not only play an indirect role in setting the stage for the development of ICT industry within a country but is also one of the biggest direct consumers of IT products and IT User Group: Public and Semi-Public Sector services. Around the developing and developed (PS) world, large public sector entities have been key users of IT infrastructure, products, and services. Companies Interviewed: Like rapidly industrialising economies (such as Malaysia), in Pakistan as well, the public and 1. State Bank of Pakistan (SBP) semi-public sector could play a significant role in 2. Pakistan Revenue Automation Ltd. (PRAL) the development of IT industry through creative 3. National Database and Registration Authority and constructive procurement policies and lead (NADRA) the way in IT procurement through far-sighted 4. Securities and Exchange Commission (SECP) e-Government (e-Gov), business process 5. Strategic Organisation (Anonymous) modernisation (BPM), and ICT for Development 6. Central Depository Company (CDC) (ICT4D) Initiatives. Technomics interviewed a representative sample of public and semi-public entities across a variety of eGovernment, regulatory, and citizen services functions to create a picture of how government interacts
64
(or does not interact) with the IT industry as it seeks to deliver IT-enabled services itself. Among the entities interviewed were the Central bank, revenue and tax authorities, companies and citizens registration authorities, a strategic (defence) organisation, a stock exchange and the central depository functions. Collectively, these entities represent a vast spectrum of public sector functions that could become the core of an IT-enabled government reform agenda. Put together, these entities present a very powerful and compelling picture of the public sector IT usage in Pakistan. Several themes emerge from our interviews. First, and perhaps the most important, is that, by and large, the public sector and private sectors work in a virtual isolation with each other in Pakistan. Amongst the public sector entities surveyed was perhaps the countrys largest software and data entry operation in the country (by headcount), one of the worlds largest centralised citizen registration and database organisation, and a fairly respectable central depository, and stock trading platform capable of handling a billion shares a day with sub-second response time all developed in-house, virtually from scratch within setups that started small and gradually grew to be what they are today. Without going into the merits of whether or not such an approach is advisable, it is also quite evident that given the right kind of leadership, vision, and management capability it is possible to develop these capabilities in-house. With a couple of exceptions, most of the public sector CIOs defended and emphasized their DIY strategies rather than buying off the shelf, engaging a software development entity, or outsourcing these operations. The reasons often quoted for doing so included security of data and operations, lack of availability of vendor capacity, reliability and long-term sustainability of vendors, lack of specialist domain knowledge, non-responsiveness of vendors to unique regulatory needs, total cost of ownership over the life of the software or service, and lack of trust on private sector vendors etc. Most CIOs did, however, emphasize that their decisions to develop in-house were not a result of outright rejection of the outsourcing option but were based on a careful and realistic review of costs and benefits. One CIO summarised the public sector CIOs challenge as spending minimum $ to achieve maximum impact and noted that most private sector entities that seek to sell IT had a decision calculus that was quite the opposite. Having to make a decision within these operating constraints, he often found that in-house development won the argument at the end of the day. The would-be IT users in the public sector have increasingly become accidental producers of software and IT-enabled services. Regardless of the underlying causes, there now exists a fairly credible software development and business process capability within some of the largest public sector organisations in Pakistan. Several of these public sector entities seemed to have achieved the level of sophistication and capability that allows them to begin to look beyond the borders to export their software services to governments of other countries facing similar problems. In doing so, they are often competing directly with large multinational IT companies as well as Pakistani companies with similar product-service capabilities. NADRAs success in securing several contracts from countries in Africa, in particular, is the case in point. This ability of the company to commercially market its services abroad has also given it a certain degree of independence from the government as it is no longer dependent on the national exchequer for its software development operations. NADRA is not an exception. These forays into export markets have included products as diverse as trading platforms, central depository platforms, and tax collection and administration though with varying degrees of success. . Technomics asked the CIOs regarding the possibility and opportunities of setting up private sector spinoffs to market their software development capabilities and product-service portfolio on a commercial
65
basis. The decision seems to be divided on that. While some organisations may never seek to become fully independent software development companies because of mission or security considerations, others admitted having considered the idea to be an appealing end result of their continuous evolution. Some CIOs, also admitted having tested the waters and found themselves not ready for full-scale commercial operations. One of the most important reasons often cited was the critical differences in developing a software platform for an internal client only versus selling it to an outside client as a packaged product. There could perhaps be an opportunity for these public sector entities to work with the local software industry in a partnership where each could bring a valuable capability to the table. The public-sector entities bring customisable fully-functioning software platforms, development capabilities, and deep domain knowledge into a critical set of government functions that, to a large extent, have not hitherto been open to private sector IT companies. The private sector IT companies bring knowledge and experience of software productisation as well as useful commercial skills such as branding and marketing, pricing and negotiation, and customer service and support. An intelligent deployment of this combination across a range of areas could serve the Pakistani IT industry well in its quest to seek the non-traditional export market of eGovernment and citizen services. 6.2.3 Multinationals The Multinationals sector plays an important part in the economy of Pakistan. It provides everything from the most technologically advanced goods and services such as aircrafts, consumer electronics, medical imaging and diagnostics, and heavy IT User Group: Multinationals (MNCs) engineering equipment, on the one hand, to life saving medicines that make life possible and luxury items that make it pleasurable. With their significant Companies Interviewed: role in the capital and consumer goods economy of the country, it is logical that multinationals will be an 1. Philips Pakistan integral part of the countrys IT economy as users 2. Lakson Group but also, potentially, producers of IT products and 3. Shell Pakistan services. In the context of this study, it was important to try to gauge the size of IT spend by multinational corporations within the country and understand how they interact with the local IT industry. Technomics interviewed a number of multinationals from across the sectoral spectrum including Philips, Seimens, and Honda (capital goods), Lakson Group, Unilever, and Nestle (FMCG), Reckkitt and Akzo Nobel (Pharmaceutical and Chemicals), Makro and DHL (Services), and Shell (Energy). These companies differed in terms of their level of commitment to the country and numbers of years they had been in Pakistan with Siemens Pakistan (as one of only 3 worldwide Siemens organisations, other two being Siemens India and Siemens Germany) being on the one end of the spectrum to Makro (a new entrant into the highly fragmented Pakistani retail space) on the other end. While several of these companies (e.g. Nestle, Unilever, and Reckitt) saw Pakistan as an important and growing market for the future, others (most notably Philips) were in the midst of closing
4. Nestle Pakistan 5. Reckitt and Benckeizer 6. Akzo Nobel Pakistan (ICI Pakistan) 7. Unilever Pakistan 8. Siemens Pakistan 9. Honda Pakistan 10. Makro 11. Glaxo Smith Kline (GSK) 12. DHL Pakistan
66
down a significant part of its manufacturing operations within the country due to high labour and energy costs and overall costs of doing business. From an IT standpoint, however, the multinational sector presents a fairly uniform picture across the board. With very minor exceptions, the multinational sector in Pakistan is going through a wave of globalisation and vendor standardisation that is sweeping throughout the global corporate world today. This movement across the world is dictating standardisation and rationalisation of suppliers and supply sources, harmonisation of systems and processes, and centralisation of the procurement function to extract the maximum possible efficiencies from within the organisational global eco-system. In the words of the Head of IT of a large multinational in Pakistan, the aim of the ongoing efforts is to minimise the cost involved in running 500 different process through simplification and standardisation so that one global organisation is run on one single IT platform managed centrally. What this practically means for the IT function within these multinational operations is the migration of control over strategy, budgets, and even deployment to higher levels within the global hierarchy. This has resulted in major shrinking and retrenchment of IT departments for most multinationals in Pakistan. The change is fairly radical and differs only in its intensity across the multinational organisations interviewed. The Head of IT of one large MNC noted that his organisation does not have an IT department in Pakistan anymore. Everything is outsourced. We have no application development, no control over telecommunications and infrastructure. Our server is outsourced to Wipro as is helpdesk. Even the SAP implementation is being carried out remotely from Malaysia. Other companies found themselves operating at varying degrees of freedom within this overall philosophy. One CIO remarked that he had varying levels of freedom for different kinds of IT needs and applications. For this organisation, projects that could be done within a 3-6 month period generally were allowed to be undertaken at the local level and for anything more than 1-2 years the project had to wait until it could be carried out regionally or globally. Different companies went through different types of justification processes to initiate a local change request. Most were required to first look inwards to see if another country office or business unit had experienced the problem before and if there was a fix available for it before looking outside for local development. For multinationals that did find some degree of freedom to engage with local procurement processes, the propensity to engage with local IT companies also varied. Reckitt and Bankieser, for example, has a roughly defined proportion of IT budget that it has the liberty to spend on local applications development projects. Glaxo Smith Kline while it doesnt engage in local application development spends a vast majority of its IT budget locally. Unilever has worked with Pakistani vendors to develop its extensive Sales Force Automation (SFA) tool that it deploys to manage its critical and vast distributors network. For those who did work with local vendors, there were mixed feelings about their capability and level of service. Most, however, expressed satisfaction with the local vendors ability especially in niche areas to deliver quality service. Others had some bad experiences to share. The above presents a somewhat discouraging picture of the role of multinationals in the IT sector of the country. Much of this, however, is dictated by global forces on which either the multinationals local operations or government may not have an influence. The precise situation, however, varies from one multinational to another and a number of the local IT operations work within their constrained freedom to develop business cases for greater freedom and control. Siemens Pakistan is a case in point. Using its somewhat privileged position as the head of the Middle East IT Cluster, Siemens has embarked upon an ambitious strategy to expand its IT operations beyond Pakistan by becoming a provider of SAP services
67
to other countries in the region. Siemens SAP operations have grown considerably over the years and account for significant business today.
6.2.4 Telecommunications and Utilities (T&U) Telecommunications has for much of the IT User Group: Telecommunications and first part of this decade been one of the most Utilities (T&U) exciting and important driving forces behind the growth in the IT sector in Pakistan. Fuelled Companies Interviewed: by an almost exponential growth in mobile phone subscribers within the country from a 1. Sui Southern Gas Co. (SSGC) subscriber base of less than a million in 2000 to 2. Sui Northern Gas Pvt. Ltd. (SNGPL) between 60-70 million in 2007, the 3. Ufone Pvt. Ltd. telecommunications sub-sector emerged as 4. Karachi Electricity Supply Co (KESC) one of the top-3 growth drivers in 2006-7. In 5. Oil and Gas Development Co Ltd. (OGDCL) relative terms, it has even bettered that record 6. Wateen Telecom (Wateen) in 2009-10 to become the leading source of 7. Telenor (Telenor) revenues for the IT industry. In addition to generating direct demand for IT products, services, and employment by setting up in-house IT operations as they sought to spend several billion dollars of foreign direct investment from foreign companies like Etisalat (Dubai), Telenor (Norway), Warid (Abu Dhabi and Singapore), Omantel (Oman), Orascom (Egypt), and Zong (China Mobile), this subsector has also generated indirect demand for IT products and services by buying from the domestic IT industry. As these companies built and expanded operations to soak up the potential subscribers, they invested heavily in technology, infrastructure, manpower training, and capacity and brought in new management styles and ways of doing business. The utilities sub-sector is another area that has the potential for considerable growth over the years. Between telecommunications and utilities lies a very large consumer base within Pakistan that can lead to opportunities for a whole range of services. Efforts are already underway to try to monetize this extensive subscriber base through both consolidation and cross-selling. For example, a few years ago Experian the major international credit rating agency established an entity in Pakistan to begin to introduce individual credit ratings that will allow service providers (e.g. banks, telecoms, utilities, etc.) to use consolidated data from across these multiple entities to create histories and scores of individual credit worthiness that could be used to fully monetize these large subscriber bases. Beyond these possibilities of overlap, there are significant similarities and differences from an IT demand and supply standpoint between these two sub-sectors. For similarities, for instance, both sectors deal with large subscriber bases that necessitate the use of certain kinds of IT products and services such as extensive customer care and billing (CCNB) systems, customer contact centres, and highly specialised ERP modules. The key differences between the two sub-sectors, however, arise in the broader economic environment in which they operate in Pakistan putting different kinds of competitive pressures and stresses on operators. In telecommunications, for instance, there is cutthroat competition between the 5 major providers in the country that are competing for a fairly saturated subscriber base on the basis of successive almost self-defeating price cuts. There is a dire need to compete on the basis of innovation price, service quality, and greater customer intimacy rather than just price alone. In the utilities sub-sector, on the other hand, regional monopolies prevail and bring their own set of
68
challenges and opportunities. Here the challenge is to enhance the efficiencies of the distribution systems (i.e. grids and pipelines) and reduce problems of theft and non-payment. Technomics interviewed a number of organisations within the telecommunications and utilities sector to understand the dynamics and determinants of IT spend in these sub-sectors as well as how they interact with the local IT industry in Pakistan. Among the organisations interviewed were large public sector utility companies (namely, SSGS, SNGPL, and KESC), mobile service providers (namely, Telenor and Ufone), and an internet (Wimax) provider (namely, Wateen). There are several themes that emerge from Technomics conversations with CIOs of these leading telecommunications and utility companies. There is clearly a trend towards IT-enabled modernisation across the board with some of these companies making significant IT investments over the last several years. While this may not be a surprising fact for the telecommunications which is heavily driven by technology, it has been much more of a conscious choice for utilities. The CIO of one of the utilities that we spoke with emphasized the game changing role that technology can play to help improve the performance of his company, adding that technology can really help us leapfrog [by overcoming our problems such as non-payment and theft in a non-invasive manner]. In most part, though, the use of IT has almost been necessitated by the inevitable reality of a fast growing middle class that is demanding better and more sophisticated services. There is no other way that these telecommunications or utilities would survive except through increased automation of their systems. This realisation has resulted in major investments in ERP (back-end) systems and customer care and billing systems (front-end) of these organisations. Majority of these ERP implementation projects are now at the tail end of their implementation. Most companies that we interviewed have used generalist ERP solutions such as SAP and Oracle and supplemented these with more specialist add-on software such as advanced utility modules etc. With some exception, most of the ERPs have been implemented through local affiliates of foreign providers. One utility, for instance, after having several bad experiences and false starts with local vendors, decided to develop its own in-house ERP implementation capability. Today, as per the CIO whom Technomics interviewed, the company hosts some of the best ERP implementation resources within the country. Another utility we spoke with, however, adopted a totally opposite approach to the problem by going out and finding implementation partners. This difference in approach may, on the one hand, represent a difference of organisations procurement philosophies and styles of particular individuals involved and, on the other hand, may merely represent timing and a trend of temporal maturity. The southern utilitys ERP implementation experience precedes the northern utilitys experience by at least a couple of years and the differences in their experience with vendor quality and capability may have been representative of industrys maturity at those respective times. While issues with vendor quality still exist, they are not as deep as they used to be a few years ago. Another area that has received considerable attention from both utilities and telecommunications companies is customer care and billing systems. One of the utilities highlighted the need for automation to address the challenge of printing 2.2 million customer bills every month. The top-3 telecommunications providers in the country face a challenge that is at least an order of magnitude greater and more complex. Customer care and billing systems, therefore, are a major opportunity for local IT industry to contribute and not everyone of the companies we surveyed have figured out how to solve the problem. Several CIOs complained of lack of capability amongst local vendors to deliver sophisticated CCNB systems. One CIO talked about his experience with a local vendor who having
69
developed a billing application for GSM-based system could no get to terms with the differences and nuances of doing the same for a different environment. Ultimately he ended up delaying the launch of the service by several months. The company is still looking for some who could deliver a high quality system to meet their needs. The sectors affinity to engage with the local IT industry varies from company to company. For instance, we already discussed the sharply different procurement philosophies and styles of engagement across two very similar companies above. One company outsourced virtually every type of system development and implementation and service that it could, namely, ERP, CCNB, BPR, and call centre etc. while the other chose to bring virtually everything inside. However, the general trend seems to be to do things that are core to the companys business in-house and outsource the rest. One telecom CIO with more than a billion rupees a year of IT spend described his companys philosophy as follows: We will bring all the software applications that are core to our business in-house and outsource the rest to local companies. So we may keep ERP maintenance, some very specialist software, and customer management in-house but outsource bill printing, call centres and similar activities. Our company philosophy generally is to supplement our capability with local providers. Value-added services is one promising area where local companies can substantively engage with the telecommunications service providers as they increasingly look to the local industry to help the compete through innovation rather than price cutting. While some mobile service providers have sought to create and support their own value-added service providers and networks, others would prefer to deal with them on a more hands-off manner. One model that is often discussed in the industry is the 60:40 revenue split model that some mobile providers are trying to promote within the industry to deal with the value-added services problem. This has clearly not caught on and the mobile applications developers increasingly find this model unfair to work with especially when compared and contrasted with Apples much more liberal approach in the US. There is clearly room for some more thinking in this area and perhaps putting in place some private or public-sector driven initiatives that could promote better linkages between the users and producers of mobile applications and value-added services. Other areas that telecommunications CIOs are looking to buy in are business intelligence and data warehousing services, energy efficient and green computing, data centres, and disaster recovery and business continuity and planning offerings. Like telecoms where value-added services may be the key to higher earnings per subscriber and hence profitability within the sector, network efficiency improvements and accounting and collections from subscriber base could be the key to performance for utilities. Consequently, utility CIOs are seeking to look for applications such as cost-effective automated meter reading solutions, general system efficiency and network optimisation solutions, GIS based techniques to allow better capturing of customer location data etc. These then could be areas where software vendors could potentially focus their creative energies over the next 2-3 years.
6.2.5 Private and Non-Profit Sector Private and non-profit sector makes up a vast majority of the businesses and organisations that exist within the country. However, in a relatively less developed country like Pakistan, these organisations are likely to represent a smaller portion of overall IT market spend. This could partly be attributed to relatively small size of these businesses but also reflect their somewhat traditional and conservative
70
character. These businesses, however, represent the single largest opportunity for modernisation and hence for IT investments in any country. Pakistan is no different. There is a large number of private sector (and non-profit) organisations in Pakistan that have or are in the process of going through successive waves of modernisation, including, capturing efficiencies and possibilities available through investments in IT. These companies come in all shapes and sizes including, but not limited to large and small industries, small and enterprises, retail and restaurants, hospitality and entertainment, healthcare facilities, and educational institution etc. It is next to impossible to capture a comprehensive snapshot of IT adoption and usage within these broad category of institutions without actually interviewing a large number of organisations within each sub-sector. However, what we did manage to do was to take a handful of organisations within this sector and attempt to make some educated guesses about the shape of things in this sector. Technomics was able to interview organisations across four different categories in this sector, namely, industry and business (Engro, Attock Oil, and Fauji Foundation), hospitals (Aga Khan, Indus, Shaukat Khanum, and Fauji Foundation), educational institutions (GIK and Aga Khan University), and hospitality (Pearl Continental Hotels). We believe that collectively these organisations begin to paint a picture albeit a much less accurate one than ones described above of IT usage and spend within this important sector. By and large the IT spend and adoption in the private sector is considerably low. A vast IT User Group: Private and Non-Profit Sectors majority of these businesses have only woken (PS) to the prospect of IT-driven modernisation and efficiency improvements fairly recently. The Companies Interviewed: value of IT is not very well understood and ROIbased arguments are not clearly made in 1. Fauji Foundation support of IT investments. Things are beginning 2. Attock Information Systems (ARL) to change though. Among the more mature 3. Engro Pakistan Ltd. and relatively new companies, IT adoption is 4. Aga Khan University Hospital (AKUH) happening. Even the old more traditional 5. Shaukat Khanum Memorical Trust (SKMT) industries and businesses are beginning to 6. Indus Hospital (IH) move in the direction of IT systems and 7. Pearl Continental Hotels (PC) establishment of formal IT departments. While 8. Ghulam Ishaq Khan Institute (GIKI) general ledger and HR etc. constituted the first wave of modernisation in this sector during the 1980s and 1990s, ERPs represent a second wave. The trend is beyond doubt towards greater IT spending within the sector. With industrial and business sectors, in particular, there is a growing use of IT to expand the performance envelop, achieve efficiencies through integration of supply chains, and improve human productivity through better communication, automation, and collaboration. Many of these companies have small IT departments that with their beginnings in financial and administration based functions have gradually evolved into becoming champions of full-fledged ERP implementations. For a lack of a mass market ERP for SMEs in the past, most of these organisations began developing specialist add-ons to their HR and GL systems to capture other elements of the value-chain. Over time, these patchworks of software add-ons have gradually evolved into de-facto ERP systems. More recently, though, as prices of ERPs have come down with SAP and Oracle providing big discounts to promote adoption and new mid-market ERP applications (such as Microsoft Dynamics etc.) have emerged, there is a gradual shift
71
from these legacy systems towards more robust ERP platforms. A fairly conservative estimate would suggest a potential market for several hundred large-scale ERP deployments over the next decade or so. In addition to general ERP systems of various shapes and sizes, the demand for more specialised software platforms such as campus management systems (CMS) and healthcare information management systems (HIMS) is also growing with the passage of time. The four healthcare CIOs that we spoke with had each evolved their own healthcare management systems over time and each was gradually moving towards the ideal of a paperless hospital. One hospital had an old legacy healthcare system bought a couple of decades ago and had decided to build a system in-house after considering the cost of buying one off-the-shelf. A number of CIOs thought that the cost of an off-the-shelf system was too high for the hospital to be able afford. However, each of these four healthcare organisations was able to develop a viable system that met their needs at fraction of the cost for which they would have been able to buy from abroad. Each of these have also considered the idea of licensing their HIMS to other hospitals both within and outside Pakistan as an independent revenue generator. The Aga Khan Hospitals IS department has signed a 20-year contract with a French Childrens Health Institute in Kabul to deploy and maintain its system in their facility. It has also been able to leverage Aga Khan Networks relationships in Africa to deploy their system. Shaukat Khanum has worked with 4 other hospitals in and around Lahore to develop or deploy HIMS for these facilities. Indus Hospital is also engaged with discussions with other charity hospitals to investigate the possibility of licensing their system to these outfits. All these conversations and interactions point towards a healthy demand for automation within the healthcare sector in Pakistan. The healthcare sector with its low penetration remains a fairly substantial untapped market in the country. As with the accidental software companies in other sectors, here too there have been discussions internally within each of these organisations regarding spinning-off the IT group to be able to better market itself commercially yet each has ultimately decided against the option. The discussion, however, is still ongoing. The education sector, as with healthcare, is yet another unexplored market that may hold considerable potential for software companies. Here again, as with healthcare, user organisations have developed their own fairly low-cost (and low capability) systems in-house. Most universities and many larger schools and school systems have either sourced an inexpensive solution or developed their own inhouse system to deliver a good enough performance to fulfil their current needs. A campus management system (CMS) that goes beyond a patchwork of the rudimentary functions to push the envelope of performance and deliver efficiencies could still find a receptive audience. One such effort in the recent past has been an HEC initiative to fund campus management systems in large public sector universities. A large Pakistani IT firm won that contract and developed Oracle-based systems that have now been deployed in a number of public sector universities in Pakistan. Although these systems came at no cost to the universities concerned, there is probably a willingness to pay for systems that deliver outcomes of value to universities and school systems. A case in point is recruitment platforms that many universities have readily embraced.
72
7 Conclusions and Recommendations

The global recession during the last 2-3 years (2007-2010) has tested the industrys grit and resilience. Not unlike other countries, Pakistans software and BPO industry underwent a substantial period of change and turmoil during the last 3 years. It has, however, emerged as much stronger and more resilient than ever before. As certain segments of the Pakistani IT and IT-enabled services industries have faced challenging market conditions and have sought to reinvigorate and reinvent themselves, others have rebounded as much stronger, and still others that never existed have been born and come of age. The story of Pakistani IT and IT-enabled services industry like any dynamic, living, and breathing industry has been one of relentless change and innovation. In mid-2007, P@SHA Annual Review 2008 that Pakistans Software and BPO industry was on the verge of a take-off. In FY2006, the software / BPO industry stood at $193.4 million of local revenues and spend and a global revenue $779.7 million. A survey of 80 of the industrys leading firms projected the domestic revenue and spend of countrys software and BPO industry to be in excess of $269 million with the a global revenue impact of around $900+ million by end-2007. That projected growth, however, did not materialise. Even before the global recession of the early 2008 had hit, the relative political-economic stability within the domestic environment in Pakistan had begun to falter. A limited judicial crisis that started around the middle of 2007 became a full blown constitutional row between the government and the judiciary thus affecting directly and indirectly the domestic demand for IT and IT-enabled services. On the export front as well, the credit crunch and sub-prime mortgage crisis turned into a full-fledged recession across the developed world. The global recession hit in the early 2008 and with it came considerable belt tightening in IT spending in the countrys major export markets most notably United States, Canada, and Europe. The twin crises massively hit the industry revenues. During 2007-2008, the industry experienced a decline of 40% in domestic revenues and spend and 60% in export revenues. Growth began to re-emerge in 2009, albeit from a much lower level than the industry had been in 2006. The industry has since continued to grow and, in 2010, is expected to hit the level that it had achieved in 2006. Documenting and understanding the size and exact nature of this growth will require accurately estimating the relevant set of metrics for sample and extrapolating these to include the entire population. The Technomics Survey of PSEB Member Companies (2010) which is the subject of this report was carried out towards the end of 2009 and early-to-mid 2010.
Global Revenue [Sample] In Sample Estimates and Population Correction Stratified Medians Correction Modified 80:20 Method India (RBI) Model Total Revenues and Spend Stratified Medians Correction Modified 80:20 Method India (RBI) Model $761.93m $489.83m $469.19m $393.30m $226.57m $249.28m $332.0m $332.om $332.om $429.93m $129.31m $129.31m $129.31m $263.99m $96.51m $119.97m Population Correction for Global Revenue Domestic Revenue [Sample] Population Correction for Domestic Spend
$157.0m
$137.19m
Source: Technomics Estimates [2010]
Table 7.1: In sample estimates and population corrections for industry software / BPO revenues
73
These three set of figures then present the upper, mid, and lower bounds for revenue estimates for the entire IT and IT-enabled services industry. Technomics recommends: Instituting a systematic process to collect industry data on a more regular basis to better capture the current state and future challenges and opportunities of Pakistans IT and IT-enabled services industry. This must be instituted through a compulsory survey of PSEB member companies conducted in a manner that ensures greater coverage and reduced non-response bias. Developing better and more refined approaches to calculating and accounting for non-response bias that will allow easy convertibility of in sample estimates to population figures. This may require collecting at some initial expense population data on a limited number of important measures and calculating the extent and nature of non-response bias. The underlying assumptions of three models of extrapolation (namely, stratified medians, India method, and modified 80:20) may also be tested to arrive at the most appropriate ones. The Silver Lining: Emerging Demand and Supply Segments While the revenue and spend statistics provide a particular view of Pakistans IT and IT-enabled services industry, they fails to fully capture and appreciate the highly dynamic and vibrant nature of the industry. Pakistans IT and IT-enabled services industry has continued to evolve and mature despite the political and financial turmoil and the global economic recession. As the more traditional sub-sectors such as pure software development services experienced erosion of market demand, new and exciting areas have emerged promising potential for innovation and market growth. In the last few years, for instance, systems integration and embedded systems seem to have come of age as an important sub-sector of the Pakistani IT and IT-enabled services industry. While systems integration has been a part and parcel of the IT industry since its inception, its growth has been somewhat limited. Increasingly, though, domestic IT spend as well as export opportunities is breathing new life in this particular sub-sector of the overall IT market. The industry has also climbed up the value chain within the customised software development services sub-sector as the firms have increasingly specialised in customisation of well-established platforms (like Microsoft, SAP, and Oracle etc.) instead of trying to create in-house proprietary platforms. Similarly, mobile applications, gaming, and animation is an emerging new area with considerable promise to become a key driver for the industry in the years to come. Supported by strong underlying demand, cut throat competition and the need for innovation and low cost and barriers to entry, mobile applications and gaming seem to have produced a few exciting players. A number of Pakistani start-ups have done very well in producing content and games that have hit the Top-10 lists in their respective genres at the Apple Store. Cricket Revolution a full fledged cricket game is the first of its kind developed in Pakistan. On the demand side of the IT industry as well, there has been considerable change within various subsegments of demand for IT products and services. Financial and telecommunications industries remain the largest users of IT and IT-enabled services within the country although the former has experienced some flattening of demand in the recent years. The share of multinationals in spurring demand for IT products and services seems to be going through a trough that is broadly in line the global trend
74
towards rationalisation and centralisation of IT procurement budgets of multinationals worldwide. There are several opportunities for IT firms to engage with the emerging areas of local demand. New avenues of IT spending growth that are likely to drive growth in the future are opening up. Mobile Banking, for instance, is an exciting new area that may bring together two IT demand drivers and set the stage of another spurt of explosive spending growth in the coming years. Value-added services (VAS) represent yet another lucrative frontier that still presents an untapped opportunity for the industry. Technomics recommends: PSEB study the sources of IT demand in a more comprehensive and more detailed manner than has been possible during the course of this study. This may be achieved by seriously engaging with the IT user community in a more sustained manner than has been possible in the past and to use PSEBs platform to build relationships between producers and users of IT products and services. Developing a systematic understanding of below the radar activity in emerging growth areas such as mobile Gaming and applications. PSEB must constitute a study of innovation in these smaller invisible firms to better understand Pakistans strategic positioning in these emerging sectors and may provide market intelligence and specialist support to cultivate and develop these new growth areas.
The dynamic character of Pakistans IT and IT-enabled services industry continues to evolve and reinvent itself to meet the new challenges and opportunities that it faces. It is an industry that survives and thrives in spite of the various geo-strategic, political, and socio-economic challenges that are uniquely the countrys own. Perhaps no other industry in the world with such ambition has been burdened with graver challenges than Pakistan. No other country has demonstrated more tenacity and a greater will to succeed despite the odds.
75
APPENDIX A: LIST OF PSEB MEMBERS COS. INTERVIEWED (July 09April 10) INTERVIEWEE 1. Yusuf Jan, CEO 2. Ashraf Kapadia, MD 3. Shahzad Shahid, Director 4. Ted Marra, VP 5. Sajjad Kirmani, VP 6. Abbass Khan, Partner 7. Hassan Rizvi, CEO 8. Salman Iqbal, CEO 9. Shahid Ali, GM 10. Zia Imran, CEO 11. Rana Saad, CEO 12. Ovais Ashraf, CEO 13. Atif R. Khan, CEO 14. Syed Ahmed, CEO 15. Faizan Buzdar, CEO 16. Adnan Lawai, CEO 17. Fahd Bangash, CEO 18. Salman Akhter, CEO 19. Zafar Khan, CEO 20. Jawwad Farid, CEO 21. Saquib Saeed, CEO 22. Khurram Minhas, CEO 23. Ghias Khan, CEO 24. Umar Saif, Advisor 25. Anjum Ansari, CEO 26. Saeed Qadri, CEO 27. Shahzad Khokhar, CEO 28. Aamer Zahoor, CEO 29. Shahryar Hydri, CEO 30. Sohail Minhas, CEO 31. Babar Ahmed, CEO 32. Arooj Alam Khan, Sr. Mgr 33. Nadeem Malik, CEO 34. Umair Javed, CEO 35. Khurram Samad, CEO 36. Faisal Khan, CEO 37. Abdur Rahman, Director 38. Mohammad Sohail, CEO 39. Murad Akhtar, CEO 40. Zahoor Motiwala, COO 41. Sajid Qadri, CEO 42. Owais Zaidi, CEO 43. Nadeem Elahi, Director COMPANY
MixIT Systems TPS Sybrid Netsol Abacus Consulting Five Rivers Technologies Softech Systems Palm Chip Vahzay PSG Bentley LMKR Digital Prodigy Scrybe Folio3 Amana Techlogix Sofizar Alchemy Algorithm Consulting Emmaculate Inbox See N Report Arwentech Voxel Digident Solutions NDC BPO iTrango Computer Research (CPRL) Mindstorm Studios Sidat Hyder (SHMA) Infotech Pvt. Ltd TkXEL GeniTeam Ovex Technologies Plexus Shams Group Tintash Post Amazers Catcos Access Group TRG
SECTOR Product Product / BPO Product ITES Product Services (SDS) Product Product Product Services (SDS) Services (SDS) Services (SDS) Services (SDS) Services (SDS) Product Services (SDS) Product Services Product Product Product Services Systems Product Systems ITES Services ITES Mobile (MGA) Services Product Services Systems Mobile (MGA) Mobile (MGA) ITES Services Product Mobile (MGA) Mobile (MGA) ITES Product ITES
DATE / LOCATION 13/07/09 KHI 13/07/09 KHI 13/07/09 KHI 13/07/09 KHI 15/07/09 LHE 15/07/09 LHE 15/07/09 LHE 15/07/09 LHE 15/07/09 LHE 15/07/09 LHE 16/07/09 ISB 16/07/09 ISB 16/07/09 ISB 16/07/09 ISB 17/07/09 ISB 23/07/09 TEL 24/07/09 TEL 28/07/09 TEL 03/08/09 TEL 03/08/09 TEL 04/08/09 TEL 04/08/09 TEL 05/08/09 - TEL 24/08/09 TEL 07/09/09 TEL 14/09/09 TEL 14/09/09 TEL 17/09/09 TEL 31/03/10 TEL 31/03/10 TEL 01/04/10 TEL 01/04/10 TEL 02/04/10 TEL 02/04/10 TEL 02/04/10 TEL 02/04/10 TEL 03/04/10 TEL 02/04/10 TEL 03/04/10 TEL 03/04/10 TEL 03/04/10 TEL 05/04/10 TEL 05/04/10 TEL
76
44. Fahad M., CEO 45. Fahad, Director 46. Najam Khan, CEO 47. Raza Saeed, CEO 48. Umar Saif 49. Owais Ashraf 50. Farrukh Kamran
iTack Lakson (LBS) Softech Systems Confiz ChOpaal Trivor Software CARE Pvt. Ltd
Product Services Services Mobile (MGA) Product Services Systems
05/04/10 TEL 05/04/10 TEL 05/04/10 TEL 05/04/10 Email 24/08/09 LHE 16/07/09 ISB 04/06/10 ISB
APPENDIX B: LIST OF IT USER COMPANIES / CIOs INTERVIEWED (Sept 09March 10) INTERVIEWEE
1a. Zuhair Siddiqi, CIO 1b. Irfan Zafar, CITO 2. Tulu Islam, CIO 3a. Zafar Alvi, Director IT 3b. Waqar Nisar, CIO 4. Nasiruddin Khan, CEO 5. Faisal Khaliq, CIO 6. Usman Mobin, CTO 7. Javed Minhas, CIO 8. Haris Zahoor, CIO 9. Zafar Ahmed Khan, CEO 10. Dr Fawad Rauf, CIO 11. Tahir Ali, CIO 12. Sabah Zaman, CIO 13. Asif Shah, CIO 14. Hasan Jafri, CIO 15. Sohail Siddiqui, CIO 16. Javed Edhi, CIO 17. Asad Aleem, CIO 18. Imran Daudi, CIO 19. Ahmed Rehmani, CIO 20. Kumail Wala, CIO 21. Mujtaba Hussain, Head IT 22. Asad Saquib, CIO 23. Abdullah Jan, CIO 24. Jawed Desmukh, Director 25. Syed Amer Iqbal, IT Mgr. 26. Faizan Siddiqi, Director 29. Faraz Siddiqi, CIO 30. Shakil Akhtar, CIO 31. Syed Ishtiaq Bokhari, CIO 32. Khurram Kazmi, Director 33. Atif Aziz Ahmed, Director 34. Shabbir Gadriwala, CIO 35. Amir Munsif Khan, CIO
COMPANY
SSGC SSGC HBL SNGPL SNGPL PRAL Ufone NADRA SECP Fuaji Foundation ARL OGDCL RBS SBP CDC Arif Habib Bank Philips Pakistan Silk Bank Bank Al Islami Engro Pakistan Lakson Group UBL Shell Pakistan SCB KSE AKUH PC Hotels DHL Reckett & Beckeizer Indus Hospital Honda AKD Securities KASB Securities GSK Wateen
SECTOR
Telecom & Utilities Telecom & Utilities Banking & Finance Telecom & Utilities Telecom & Utilities Public Sector Telecom & Utilities Public Sector Public Sector Private & Non-Profit Private & Non-Profit Telecom & Utilities Banking & Finance Public Sector Banking & Finance Banking & Finance MNC Banking & Finance Banking & Finance Private & Non-Profit MNC Banking & Finance MNC Banking & Finance Banking & Finance Private & Non-Profit Private & Non-Profit MNC MNC Private & Non-Profit MNC Banking & Finance Banking & Finance MNC Telecom & Utilities
DATE / LOCATION 14/07/09 KHI 14/07/09 KHI 14/07/09 KHI 15/07/09 LHE 27/07/09 TEL 16/07/09 ISB 23/07/09 TEL 25/09/09 ISB 28/09/09 ISB 29/09/09 ISB 29/09/09 ISB 29/09/09 ISB 30/09/09 KHI 30/09/09 KHI 30/09/09 KHI 30/09/09 KHI 01/09/09 KHI 01/09/09 KHI 01/09/09 KHI 01/09/09 KHI 02/09/09 KHI 02/09/09 KHI 02/09/09 KHI 02/09/09 KHI 02/09/09 KHI 30/10/09 KHI 30/10/09 KHI 30/10/09 KHI 28/01/10 TEL 01/02/10 TEL 02/02/10 TEL 02/02/10 TEL 02/02/10 TEL 09/02/10 KHI 03/02/10 TEL
77
36. Nadeem Siraj, CIO 37. Shariq Saifuddin, CIO 38. M. Idrees Khokhar, IT Mgr. 39. Shahid Saeed, CIO 40. Shafat M. Bazaz, HOD 41. Usman Qureshi, CIO 42. Kh. Tanweer Saleem, CIO 43. Asad Ahmed, CIO 44. Khurram Khwaja, CIO 45. Naufil Mahmud, CIO
Nestle ICI SKMT MCB GIK Telenor Unilever Seimens Makro KESC
MNC MNC Private & Non-Profit Banking & Finance Private & Non-Profit Telecom & Utilities MNC MNC MNC Telecom & Utilities
03/02/10 TEL 04/02/10 TEL 04/02/10 TEL 04/02/10 TEL 19/02/10 TEL 19/02/10 TEL 19/02/10 KHI 23/02/10 TEL 30/03/10 TEL 30/03/10 TEL
APPENDIX C: LIST OF IT MULTINATIONALS INTERVIEWED (April 10 June 10) INTERVIEWEE 1. Aamer Matin 2. Ashar Zaidi 3. Sajjad Syed 4. Humayun Bashir COMPANY Cisco Systems Intel Corporation SAP IBM DATE / LOCATION 05/04/10 TEL 05/04/10 TEL 05/04/10 TEL 05/04/10 TEL
APPENDIX D: LIST OF IT Policy Makers and Decision Leaders (July 09 April 10) INTERVIEWEE 1. Talib Baloch, Acting MD 2. Jehan Ara, President 3. Azhar Rizvi, CEO 4. Zia Imran, MD 5. Dr. Jawed Ghani, Chairman 6. Athar Mian, Chief of Strategy 7. Yusuf Jan, Chairman of Board COMPANY Pakistan Software Export Board P@SHA Tech Angels Network Pakistan Software Export Board Punjab IT Board Punjab IT Board P@SHA DATE / LOCATION 16/07/09 ISB 13/07/09 KHI 30/07/09 TEL 24/02/10 ISB 17/04/10 LHE 17/04/10 LHE 16/04/10 KHI
78
APPENDIX E: SURVEY INSTRUMENT SURVEY INSTRUMENT: PSEB IT Market and Revenue Classification and Estimation Study PSEB MEMBER CO SURVEY
Dear Member Company: Pakistan Software Export Board (PSEB) began a national data collection effort to better document and benchmark Pakistans software and BPO industries in 2004/05. PSEBs Best Practices Study of Pakistans Software Industry was the pioneering attempt to begin benchmarking industrys progress in Pakistan. In 2007-8, P@SHA carried forward the exercise by publishing P@SHA Annual Review 2008 that further improved our understanding of the industry and the underlying and emerging trends within both software development and IT-enabled services sectors. While these efforts improved the quality of data available considerably, they still left major gaps in our understanding of the overall IT market especially within the IT user segment. Keeping in view the importance of having accurate and up-to date data on the IT market on an ongoing basis, PSEB has recently initiated an extensive study to estimate the size of IT market. The study is being carried out by Technomics International (here). The purpose of the Study, is as follows: To improve and enhance our statistical knowledge and qualitative understanding of software development and IT-enabled services sectors in Pakistan leading to an assessment of where we are and where we are heading in these important sectors of our economy. This will be achieved by carrying out a survey of CEOs / CTOs of the countrys leading software development and ITES operations. To develop an IT market revenue classification and estimation system to assess the size of the IT user industry to provide critical market intelligence to plan future offerings to domestic market. This will be carried by a survey of CIOs (and Heads of IT) of the countrys largest IT users in the financial, telecom, utility, MNCs, and public sectors etc. To make recommendations for enhancing the quality of data available for policy-making and to make policy recommendations and a case for future public support for IT and ITES industry in Pakistan that is based on accurate picture of the IT industry revenues, trends, and forecasts. The study would entail an online survey and may also require an organizational interview with the topmanagement (CEO/CTO/Resident Head of Operations). The Survey can be found online (here) and is available online for 4 weeks and will take between 15-20 minutes to fill out. Your participation in the survey is critical to ensure that we are able to devise policies and marketing collateral based on rigorous data on the industry. PSEB reserves the right to retain this data for ongoing surveys. However, the data would be kept confidential and presented in aggregates only. We hope this study will be of value to you in furthering your business worldwide and creating a case for policy support for Pakistans IT industry. Should you have any further query, please do not hesitate to contact the undersigned. Best Regards, Zia Imran Managing Director Pakistan Software Export Board
79
APPENDIX F: SURVEY INSTRUMENT: PSEB IT Market and Revenue Classification and Estimation Study CIO Survey
Dear CIO As you may know, Pakistan Software Export Board (PSEB) has commissioned a National IT Market Revenue Classification and Estimation Study. The purpose of the study is to develop an accurate assessment of Pakistan's Total IT Revenue / Spend and a useful classification for reporting that spend. The study builds upon previous work done at PSEB (2005) and P@SHA (2008) but will extend this to include the IT user sectors as well. For the first time, we are carrying out a survey of the country's leading IT users (CIOs) to develop a more comprehensive picture of total IT revenue and spend in the country. The study is being strongly supported by Pakistan Software Houses Association (P@SHA). As a part of the study process, we have been carrying out detailed interviews with CIOs and Directors of IT of Pakistan's leading IT user organisations (including Banks, Telecoms, Utilities, Multinationals and Public Sector Users) to develop an up to date picture of how IT usage trends are evolving within the country to size the market and to understand emerging trends within the IT sector in Pakistan. Several of you have already been contacted for telephone or in-person interviews to discuss the state and trends within IT in your particular sector and we will continue to do so over the next month or so. In addition, an online survey is now being made available to allow systematic collection of data on the industry. A similar survey has been launched for the development side of the IT industry. The PSEB CIO IT Market Survey will be online from Dec 10, 2009 to Dec 31st 2009 and is available at the following: https://www.hostedware.com/secure/hs/takesurvey.asp?c=PSEBCIOSurvey2009 On behalf of PSEB's Leadership, we would like to invite you and strongly urge you to take a few minutes of your precious time to fill out the survey as a mark of national service and to enhance the visibility and professionalism of the IT industry in Pakistan. The results of this survey will be included in a PSEB study (to be released later in 2010) and will help us immensely in internal stocktaking and benchmarking, marketing Pakistan's IT capabilities, making meaningful policy for the IT sector. Please feel free to write to me or call me if you have any questions. Best Regards,
Zia Imran Managing Director Pakistan Software Export Board
80
This Page is Left Intentionally Blank
81
82
83

Pseb It Market Review

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Pseb It Market Review

Încărcat de

Drepturi de autor:

Formate disponibile

1

List of Figures and Tables

Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry

Global Revenue Impact Local IT Revenue & Spend

Population Adjusted Figures Using Three Correction Models

2 Background and Introduction

Detailed Situational Assessment

Dubai Framework Broad National

Specific Detailed Policy Packages

3 Study Objectives and Design

4Pakistans IT Market Revenue Classification & Assessment

4.1 Past estimates of Pakistans IT market and software export revenue

2007 Domestic Spend: $269m (Global: $640m)

Source: Technomics Compilation

4.2 Pakistans software / BPO revenue estimates

Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry

Global Revenue Impact Local IT Revenue & Spend

< $50K $50K-100K $101-500K $501K-1M $1M-5M $5M-10M > $10M

Revenue (US$, Million)

Global Revenue Impact Local IT Revenue & Spend

IT Market Revenue Classification Scheme

The survey of PSEB member companies resulted in the following figures:

As per PSEB Websites Industry Overview Section available at: http://www.pseb.org.pk/item/industry_overview

Companies in Population 45 167

367 673 Companies in Population 4 167 367 673

Source: Technomics Estimates [2010]

Population Adjusted Figures Using Three Correction Models

5 State of Pakistans IT Industry: Survey of Industry Performance and Firm Characteristics

5.1 Pakistans IT industry: companies, markets, and offerings

Foreign Roots and Connections of Pakistan's IT Companies

Proportion of Companies Surveyed

Geographical Distribution of Parent Entities of Pakistani IT Companies

Geographical Distribution of Front Offices of Pakistan's IT Companies

Total Full Time Employment (FTE) in Pakistan's IT Industry

Total Full Time Employment (FTE) in Pakistan's IT Industry

Percentage Employment Growth in Pakistan's IT Industry

20 0 -20 -40 -60 -80 Year

Average Proportion of FTE in Pakistan's IT Companies, By Type of Work

Average Proportion of Professionals

Product - Service Profile of Pakistan's IT Companies

Product - Service Profile

Platform or Development Approach

Sector-wise Breakdown of Total Global Revenues of Pakistan's IT Industry (2008)

Sector-Wise Breakdown of Domestic Revenues of Pakistani IT Companies (FY-2008)

Sector-Wise Breakdown of Export Revenues of Pakistani IT Companies (2008)

Manufacturing Healthcare and Life Sciences High Technology Hospitality Others

Export Revenue by Product - Service Cateogies, Platforms, and Tools (FY-2009)

5.2 The Pakistani IT firm: strategy, management, and resources

Target Market Strategy

Destination - Offering Mix of Pakistan's IT Companies

Average Percentage Revenue

2004 2007 2009

Destination - Offering Mix

Figure 5.14: Client risk and diversification in Pakistans IT industry

Management Practices: Percentage of CEO Time Spent on Company Activities

Average Percentage Time Spent

Management & Entrepreneurial Characteristics of Pakistan's IT Companies

2004 2007 2009

Management & Entrepreneurial Characteristics of Pakistan's IT Companies

2004 2007 2009

Average Proportion of Professionals

Average Percentage Employment

Figure 5.19: Pattern of employment in Pakistans IT industry by educational qualifications