INDUSTRY ANALYSIS

Fighting Image Problem: An IT Industry Rises in Pakistan

Nadeem Malik, the CTO of Pakistan’s oldest software company, tells an interesting story about his company, Systems Pvt. Ltd, a software development and system integration company formed in 1976.

The tale has it that Steve Ballmer, Microsoft’s current president and CEO, was once visiting Lahore, Pakistan, in the late 1970s to attend a wedding of one of his roommates at Stanford University, a Pakistani. The gentleman happened to know Malik and his associates, who had just opened shop in Lahore by the name of Systems Ltd., and asked Ballmer to visit them while he was in Lahore.

Ballmer — who, along with Bill Gates, had just opened a small software company in the United States — visited Systems’ offices in the Chamber of Commerce building in Lahore and was pleasantly surprised. He also suggested some possibilities of “doing something together.”

Missed Opportunity

Microsoft back then was a promising, yet small, venture that hoped to make it big someday, and Ballmer, in all fairness, probably thought that they could use the help of these cool guys in Lahore to get there.

“Of course, we thought otherwise,” reflects Malik. “We were Pakistan’s first and largest software company at that time. We thought it a little strange to partner with a small, relatively unknown entity [back then] called Microsoft. It turned out to be the single largest mistake that we ever made in our entire careers.”

Not that one can fault Malik or Systems Ltd. for not foreseeing Microsoft’s enviable rise as a software behemoth and hence foresee the value of the partnership at that time; the anecdote illustrates the fact that Pakistan’s IT entrepreneurs were way ahead of those from other countries in thinking about the opportunity in IT and setting up companies to capitalize on it as early as 1976. But it also shows that they missed the boat on a number of occasions very early in the process.

The Industry on the rise, despite handicaps and missed opportunities

The country, and its software industry, has come a long way since that day a couple of decades back. A recent study of software development activity in Pakistan paints a promising picture of the future of software development in Pakistan, provided the industry leaders, entrepreneurs and policymakers continue to work together, as they have in the last decade or so, and build upon the foundation for future growth that is now there.

Pakistan is increasingly becoming a part of the global software development activity and even moving up the value chain.

Signs of Growth

According to the results of this study, which looked at more than 50 of Pakistan’s leading software development operations, over 40 percent of the companies are subsidiaries of foreign companies and around 55 percent have front offices abroad — primarily in the United States but also increasingly in the UK/EU and the Middle East.

While the average size of these companies and the entire industry is small, there are obvious signs that the industry is growing through a new wave of ex-patriot-led company formation activity.

Despite the industry’s impressive performance in recent years, two factors have been major bottlenecks to the continued expansion and growth of the industry.

The first of these is its rather late arrival on the world’s software map. In Pakistan, as elsewhere, IT and software was, for a long time, a career option for those who could not make it to the more “lucrative” university programs — electrical engineering, medicine, business, and acccounting. It wasn’t a coincidence, then, that the country’s most creative and brainy people chose other career options. It was not until the mid 1990s that software became a craze and a favored career for bright young Pakistanis.

By that time, however, the Millennium Bug contracts had already been made and the dot-com/Internet bubble was about to burst. While Pakistan prepared itself for the challenge — its archrival, India, took it head on and reaped the rewards.

The next few years were a painful learning experience for the industry as well as its leaders — and there are signs that, as the world’s software markets come out of the recession, this learning might be on the verge of paying off. Last year alone, as per the survey, the industry’s employment grew at a rate of around 27 percent while revenues were up 37 percent. Industry executives believe that 2005 would probably be even better than the last.

When Image Becomes ‘Reality’

The second major bottleneck for Pakistan’s software industry is none other than the country’s image problem. The industry agrees. According to the study of software development activity in Pakistan, image was named the single most important hindrance in the expansion/growth by as many as 70 percent of the companies surveyed.

There are at least two dimensions to the problem. The first dimension is political/geo-strategic. After the Sept. 11, 2001, attacks on the United States and the ensuing hostilities in Afghanistan, one of Pakistan’s western neighbors — compounded with some tension on its border with India around 2002 — the country has been widely perceived as a riskier place in which to do business.

The U.S. State Department was also very quick at slapping a travel advisory warning U.S. citizens about visiting Pakistan. The software business, as a result, has suffered hugely.

The second dimension of the image problem is purely commercial in nature, namely, Pakistan’s software industry (unlike India’s) has not been able to brand itself as a natural destination for the world’s wealthy corporations to get their outsourcing needs met. However, these problems are, to a large extent, chicken-and-egg problems, and the industry is gradually learning to get around them.

Pakistan, more than any other country in the world, is a prime example of where the image becomes the reality. It sometimes does not matter who you are, but rather how the world sees (or perceives) you to be, goes a common saying. This has been one of Pakistan’s major problems as far as marketing itself and attracting investment is concerned. The software industry is only gradually learning to deal with it, individually and in remarkably creative ways. And in the process, the industry is effectively linking itself to the global software value chain.

Small Is Beautiful, Sometimes Very Effective

Salim Ghauri, the CEO of Netsol, one of the largest software companies in Pakistan, agrees with the notion that sometimes image can become a reality, but he contends that one can counter that by actually convincing customers to experience the reality themselves. (Netsol specializes in financial-leasing software and IT management consulting areas, with a parent operation in Calabasas, Calif., and is listed on NASDAQ.)

He explained: “We have never had a customer who has come to Lahore [Pakistan] and has not given business to us. Although it might take us a while to convince our foreign collaborators/customers who are skeptical of the law-and-order and security situation in Pakistan and misperceive it to be an under-developed and tribal country, once we get over that initial bottleneck — sometimes through gradual persuasion and other times [with] assurances of security, etcetera — and get him/her to land in Lahore, we’ve almost always won the deal.”

As an example, Ghauri said, “I once took a potential customer first to Mumbai [India] and then brought him to Lahore. The contrast between the squalor and lack of infrastructure of Mumbai and the orderly and classy infrastructure of Lahore couldn’t have been more pronounced. Needless to say that his/her fears and perceptions were based more on hearsay and less on reality. That one trip to Lahore did the trick for us in winning over his business.”

Khalid Razzaque, the CEO of Genesis Solutions, a company specializing in software and hardware for ATM machines, encrypted communication systems, and information kiosks, couldn’t agree more.

Razzaque tells the following story:

“I once had a customer who was visiting India and I convinced him to pay a visit to Karachi [Pakistan] on his way back to the UK. He was a little skeptical at first, but my persuasion skills prevailed in the end, and he ended up landing at Karachi. When we met him at the airport, he was wearing a pair of shorts and a t-shirt, and here we were, receiving him in business suits and luxury cars. As we escorted him to our campus and brought him to a meeting in a conference room full of company leaders and well-wishers, he became visibly uncomfortable. It was much later that he confessed to me that he had a very different picture of what Pakistan was like, and that it turned out to be much more advanced, from an infrastructure standpoint, than even his earlier stop, India.”

Supportive Government Joins Fray

Stories like these are not uncommon in the Pakistani IT industry and are increasingly becoming a norm for an industry bent on shattering its long-persisting negative image in the Western world.

Even Pakistan’s government is joining the ranks in this regard. In addition to helping create a favorable policy environment and continually slashing telecom bandwidth prices, the government recently co-sponsored “Expo Pakistan,” one of the largest “show and tell” events to market Pakistan to its potential clients in a variety of industries, software being one of them.

Special arrangements were made, through the Ministries of Foreign Affairs, Commerce, Industry, and IT and Telecom, to invite Western CEOs, business leaders, investors, opinion-makers and journalists as state-guests to attend the conference and the exhibition and to meet local businessmen with common interests.

“We are ready,” says Shahid Tarrar, the commercial councellor at the Pakistan Consulate in Los Angeles, “to take American business leaders to Pakistan and help them see for themselves the ‘real’ face of Pakistan and the opportunity it represents — a face that is very different from the one often portrayed in U.S. media.”

Tarrar intends to execute upon his plan by taking up to 10 U.S. businessmen and investors to Pakistan shortly and, by doing so, hopes to nullify the ill-effects of the country’s misperceived negative image and level the playing field for Pakistan’s software industry.

Americans who make it to Pakistan find an altogether different world than the one they had expected, as Anthony Mitchell of InternationalStaff.net, a regular columnist for the E-Commerce Times, found out this February.

When it comes to Pakistan, the image belies the reality, and seeing is believing. From the shadows of a misplaced image has emerged an innovative strategy that seems to do the trick. This might just be the right kind of break the country’s software industry needs from its rather lackluster past. Pakistan is fast becoming a happening place for IT.


Athar Osama is a technology policy analyst and a Doctoral Fellow at Fredrick S. Pardee-RAND Graduate School for Public Policy in Santa Monica, Calif. He also consults on issues of technology management and strategy and maybe reached for comments at Athar.Osama@gmail.com.


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