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Pakistan Has Become a Hot Spot for IT Outsourcing

Why is Pakistan the hot new offshore information technology (IT) destination? This is because of a combination of favorable economic circumstances. Just when many Western managers are finally becoming comfortable with the idea of working closely with Indian IT firms, along comes Pakistan.

Pakistan is shaking off decades of “also ran” status. Funds invested into building educational institutions in Pakistan (when there were not enough jobs to absorb all the graduates from those institutions) are paying off as Pakistan begins to field a modern, highly productive labor force that is the envy of more prosperous but less tech savvy nations elsewhere in the region.

Why Care?

Why should the average Western IT professional, businessperson or IT consumer care? Because we are all going to be buying and using more IT outputs from Pakistan. To be a smarter buyer and user of IT products calls for a familiarity with Pakistan, even for those who do not initially intend to do business with Pakistani firms. We are all part of a global economy and Pakistan is an increasingly important part of that global economy.

The issues that Pakistan faces as it gears up for the global high-tech marketplace are many of the same issues that both advanced and developing economies face elsewhere in the world, as both service providers and service consumers. Pakistan is making no effort to gloss over its challenges, which makes those challenges easier to address.

With a population of 160 million and a land area almost twice the size of California, Pakistan is a smaller and more unified country than most of its neighbors, which increases that nation’s chances of solving its own problems and avoiding the mistakes that have plagued neighboring economies.

India Helps Pakistan

The biggest boost to Pakistan’s efforts to break into the global IT marketplace came on September 28, when India’s finance ministry announced an income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India. This tax proposal had been in the works since the beginning of the year and is expected to prompt U.S. firms to follow GE’s lead in selling off assets in India.

Any Western business manager who initiated or approved the establishment of an IT production or R&D subsidiary in India in 2004 could find that decision to be a career-ending move unless they have built in financial reserves to accommodate both the tax scheme of September 28 and upcoming taxes still on the drawing board.

A proposal is under consideration in New Delhi to tax activities conducted over international private leased connections (IPLCs) that carry most of India’s voice and data traffic to and from the outside world. There is also a proposal to replace state-to-state customs duties (octroi) with a national value added tax. Both those tax proposals could be combined into a single scheme.

U.S. IT brokerage firms, their U.S. clients and domestic Indian IT operations will be largely untouched by the September 28 tax scheme. But the traditional offshore migration path of outsourcing to an offshore location first — before setting up captive operations there — has been disrupted in India until economic reforms reduce the role of the Indian government in the economy and consequently reduce that nation’s revenue requirements.

For Westerners with long-standing personal ties to India, that country’s September 28 tax scheme could have both personal and financial consequences. For new Indian workers who hoped for a position with a Western firm based in India, that country’s revenue policy will alter careers, lifestyles and futures. Westerners can pack up and look for other another country to set up operations. However, what country?

Pakistan’s Advantages

Pakistan is the primary beneficiary of India’s decision to tax foreign firms with captive IT operations in India. No other economy can match Pakistan’s labor pool of educated English-speaking workers. No other economy can match Pakistan’s scalability, reliability and low-cost environment.

Pakistan offers five advantages over India:

1. Western experience: Executives at IT firms in Pakistan often have worked and gone to school in the U.S., which is Pakistan’s largest export market. Indian IT firms whose managers have worked in the West are generally more expensive than similarly positioned Indian firms, without always providing noticeable differences in program implementation capabilities. The willingness of Pakistanis to return home from the West stands in marked contrast to most Indians who arrive for school or work in the West and never look back.

2. Professionalism and integrity: The personal integrity of Pakistani managers is easy to identify and appreciate, especially by Westerners with business experience elsewhere in the region. However, the relatively open and trusting nature of Pakistanis has made them easy prey for Indian business brokers who have managed to cheat several Pakistani IT firms by offering to provide them with outsourcing contracts in exchange for up-front fees. The Pakistanis assumed that these Indians were open minded and charitable for coming to help less experienced firms in Pakistan gain access to international contracts, until the Indians took their money and disappeared.

3. Higher labor availability: Fewer holidays in Pakistan means less slippage in staff availability compared to India. IT firms in India are advised to hire a diverse workforce so that members of one community can enjoy important festivals while members of other communities cover the phones and keep production going.

4. Good accents: Pakistan’s official language is English. Only Kolkata (formerly Calcutta) and the Punjabi areas of India can come close to competing with accents in Pakistan, where many families speak English at home and where accent neutralization for non-native speakers of English is substantially easier than in India. Language skills and accents provide Pakistan with a major advantage over all other Asian outsourcing destinations.

5. Low cost talent pool: India’s top-tier labor force for IT work has been stretched thin in many areas, especially Bangalore, where escalating wage rates, turnover and higher outsourcing prices are reaching critical mass at the same time that the urban infrastructure has exceeded its carrying capacity. Annual turnover rates reported to InternationalStaff.net for most merchant call center facilities in India at the beginning of November are approaching 100 percent. High turnover rates are causing a shift to second tier Indian cities and to Kolkata. Escalating turnover rates are one of the Indian outsourcing industry’s dirty secrets. In comparison, Pakistan’s top-tier talent pool is largely untapped and turnover rates are less than 20 percent.

Safety and Security

Pakistan is not without challenges, some of which are real (improving the telecommunications infrastructure) and some are exaggerated, especially in terms of the security situation. Once you have lived through a few riots in India, once you have taught yourself how to quickly turn the lights out and lay down on the floor because you are afraid of what might come through the window, then Pakistan doesn’t seem so scary anymore.

The biggest danger that Westerners face in South Asia is from automobile accidents, particularly at night. India has over 8 times the number of highway fatalities per passenger mile than the U.S.

If you go looking for trouble, you will find it, whether in the back alleys of Karachi or the parking lots of many suburban U.S. shopping malls. Americans who have worked in both Karachi and Mumbai report that there is no discernable difference in the safety and security situation in both cities. The lack of reporting in the U.S. media on the occurrence of violent disturbances and general strikes in India, versus the close coverage often afforded to Pakistan, has created the illusion that Pakistani cities are somehow more dangerous than cities elsewhere in the region, especially for Americans.

The U.S. Department of State does not maintain accurate statistics on economically or personally motivated attacks against their own personnel in foreign countries. Nor does it collect accurate information on crimes committed against U.S. nationals in foreign countries. This leads U.S. citizens to avoid safe areas (for example, Islamabad) and to incur excessive risks in areas where Americans are routinely victimized (for example, Mexico City).

The U.S. government is not doing a good job at providing assistance for Americans who have been assaulted, robbed or otherwise victimized in foreign countries. If it did, there would likely be some accounting of those efforts, accounting that would demonstrate that Pakistan’s major cities have been and continue to be a generally safe place for U.S. businesspeople and their families.

Shared Roles

Pakistan and the U.S. have similar roles when it comes to human rights. Both countries are a beacon of safety and a haven for refugees. The government of Pakistan has not been advertising this fact. The people who have fled to Pakistan from surrounding countries in the region have, on a one-to-one personal basis. They are Pakistan’s best ambassadors.

Before making up your mind about Pakistan, talk to people who have left there or have passed through there. Their origins might be different but their stories are often tragically similar. Too often, it seems as if they are all reading from the same script: family members (or themselves) in neighboring countries who have been victimized, jailed, possibly tortured, relatives killed, and all survivors traumatized and dispossessed. Pakistan welcomes them and serves as a place of safety and security.

From Iran, Afghanistan, India and elsewhere they come, seeking the same things that immigrants to the U.S. have always sought: opportunity, liberty, freedom of religion and respect for personal beliefs.

Americans naturally identify with the underdogs, the runners up, the people who are trying harder than anyone else to succeed. This is why many Americans find it easy to identify with Pakistanis.

It is not necessary for Americans to take sides in disputes between India and Pakistan. Taking sides is not required. Long-term peaceful solutions are required.

Increased trade and joint projects between Pakistan and India will pull those two countries together and create incentives for peace. American firms doing business in one or both countries can contribute to peace through responsible business practices and the moderating effects that employment and prosperity provide. This can and should be accomplished when American firms are allowed to operate on an equal footing with local firms, which for now only appears possible in Pakistan.


This story was originally published on November 2, 2004, and is brought to you today as part of our Best of ECT News series.


12 Comments

  • well.. to be honest, both india and pak are not really great venues ethically… as most indian and pak firms use pirated software to deliver services. This is what makes them cheap. I AM a pakistani myself living in karachi, but I would urge all the ppl outside PAK or IND not to invest in india or pakistan unless the software piracy gets eliminated (which isnt gonna drop anytime soon)… coz essentially, the pak and ind software houses are stealing your software illegally and serving you guys with that same software…
    but, if u dont care about ethics.. pak and ind are the best options… esp. Pak now as india has put 36% tax… in Karachi you’ll find as good software engineers as anywhere in India… and at 36% less, thats something to look for…

    • Couldn’t agree more with Nukepuke. I too can assume from which lobby the author has got his cheque from to author this article.
      Classic example of a pretty poor mis-representation of facts. My heart goes for the author who had to write this article just for some lobbysts who when couldn’t do anything on political front to bring their country back in reckoning have resorted to such tricks.
      But then TRICKS n PLAYS are part of the soil there.
      I could only laugh n laugh while n after going thru this article.
      Shows the desperation in the mindset of pakistanis (Professionalism and integrity section) to get thru some orders from anywhere n esp. when they GET THUMBS DOWN from all majors in front of even upcoming & middle-tier software & BPO companies.
      Social security, Secularism, Professionalism …….ha ha ha ha ha ha ha ha
      I can understand how well they follow these practices when they have a General as President who himself got to the power by all unlawful
      tricks.
      The plus points the article states are only bcoz they don’t have work. When they don’t have work to do obviously the turnover will be meagre
      20% as against 100% of India as they state.
      Low cost pool – When they don’t have work to do anybody will go for the cut-throat prices to work n earn something. I mean 20% turnover itself states a lot abt the country’s potential.
      They say "Language skills and accents provide Pakistan with a major advantage over all other Asian outsourcing destinations." I can assume for some data which shows how many out-sourcing contracts went in their favor not only against India but other outsourcing favorite countries like china, philippines etc.
      I wish they could throw some figures to represent these facts too.
      I can go on n on to just write abt this article.
      To conclude in a few words ………. "TOTAL RUBBISH"
      ALL READERS ARE ADVICED TO SEE A HORROR MOVIE
      INSTEAD IF THEY WANT TO ACTUALLY BE LITTLE SERIOUS.
      THIS IS A LAUGH RIOT ARTICLE …….. 🙂 😉

      • Mr Nukepuke’s ideas are nothing but rubbish.
        1. English accent is very important for the Call Center Industry and Pakistanis have an accent that can be easily nuetralized as compared to their Indian counterparts.
        2. India’s IT sector has grown because of the PR campaign led by Indians in the US who are well placed within the US media.
        3. Pakistan has one of the best Universities in Asia. Recently Newsweek rated National University of Sciences & Tech, Ghulam Ishaq Khan Inst. of Eng. Sciences & Tech, Shaheed Zulfikar Ali Bhutto Inst. of Science & Tech in the Top 40 Science and Technology Schools in Asia. http://www.asiaweek.com/asiaweek/features/universities2000/scitech/sci.overall.html
        4. Pakistan is a totally peaceful country only getting bad media representation. Having lived in the US and in Lahore, Pakistan, I find no difference in the security situation. Well, yes if you go to the Afghan border which is about 3000 miles from Lahore, you might get into trouble but the big cities are very safe. India has had more death in terrorism related incidents, the Gujarat massacre of 2002 in which almost 2000 people were killed is just one.
        5. Anthony Mitchell has done a great job with this article. He has made very good arguments about why Pakistan will be big in IT in the future.

        • ECT is an excellent site with lots of valuable information. That is why I AM extremely disappointed with the terribly biased and lack of truth in the article by Anthony Mitchell. But I was even more AM azed and disappointed by the fact that ECT has included this article under "Best of ECT news" section!! Something has gone terribly wrong.
          I AM not going to proceed on a ‘Pak-bashing’ session in this mail (nukepuke & Ankit have already done lots of that). In fact, I feel that Pakistan should be helped to succeed in the world of business and become a stronger economic nation. If Pakistan can achieve some AM ount of economic stability, then it will surely have tremendous positive ramifications on world peace and stability. The youth in Pakistan will have more opportunities to invest their energies, rather than participate in the mindless propaganda-laden campaigns of a few people in Pakistan. Ever noticed how the nations which are in a state of continuous violence, misery and poverty completely shun away stupid and fanatic ideologies once they begin to prosper economically? Japan, Germany, South Korea…..the list is endless.
          The basic education system in Pakistan needs to focus on imparting professional skills to future corporate managers and not churn out experts in religious gospels. Certain sections of various Indian Governments have also tried to impart biased education to children over the years. But since India is a democratic nation, there have (thankfully) been opposing and neutralizing views which have not allowed any fanatic ideologies to prevail. Pakistan’s challenge is to overcome its authoritarian system and create an unbiased and fact-based education system.
          I have interacted with many Indians & Pakistanis in the US and they certainly seem to be a very determined, intelligent and hard-working set of people. But the Indians abroad certainly have a more positive outlook about their country’s future than the Pakistanis. Ask any Pakistani in US about what the ground reality is in Pakistan and they will tell you about the constant instability and slow progress. The problems are almost similar as India’s…only the gravity of the situation is much more in Pakistan. Let’s all hope that there is a lot of educational and economic development in Pakistan in the years to come so that it can eventually realize it’s true potential. After all, a nation focused only on AM assing weapons and creating soldiers will only go the ‘Afghanistan’ way in the long run.
          As for Mr. Mitchell’s article, the less said the better. I hope next time he ‘tries’ to make it seem a bit more realistic. Who knows….probably if he cuts down a bit on the blatant lies, someone might just believe his article!! As for the comments of David Khan..thanks for providing us outdated stats from year 2000. Dude, it’s the end of 2004!!! Wake up! Also, I think Mr. Khan thought no one would probably visit the URL mentioned in his message (http://www.asiaweek.com/asiaweek/features/universities2000/scitech/sci.overall.html). Mr. Khan is only succeeding in promoting India’s status as a Mecca for higher studies…. 5 of the top 10 mentioned in that list are Indian institutes!! And there are no Pakistani institutes till no. 20!
          I hope in future, the readers contribute "constructive" and "informative" articles, which can positively influence the world around us instead of leading others into dark pits of lies and illusion, as attempted by Anthony Mitchell.

          • Hey!! Hey!! Hey!! Mr. David Khan
            I’m sure u must have thought no one would probably visit the URL mentioned in your message (http://www.asiaweek.com/asiaweek/features/universities2000/scitech/sci.overall.html).
            First of all as A1Star also mentioned…….wake up dear. Which ages u r still reeling into. Ohhhh I think they feel so backward that they’re still into 2000 when the world has raced to 2005.
            Providing the link is the biggest blunder of his msg. Thanks dude. U r only helping India ….. 5 of the top 10 mentioned in that list are Indian institutes!! Where’s the first pakistani institute ,,,,,,,,,,,, oh!!!!! its right there at No. 20
            ha ha ha
            Even our lesser known but a good university acc. to the news article (Anna University) was juusstt behind the 2nd of the only 2 universities of pakistan.
            What all do I say abt Mr. Khan posting ……????????
            Have a good day all……

          • Hi jvalant,
            first I AM very much thankful to Anthony Mitchell who knows the truth and reality about Pakistan .
            second I was not expecting these type of comments
            from our neighbours about us but these are your thoughts and comments
            you said:
            Has anyone here even seen a Paki working in an IT company? I sure have not. English speaking Pakistanis? (these are your comments)
            but reality is my name is Saleem Chaudhary
            I AM working as a Oracle Application programmer/Analyst in Softtek Integration system IT company for the last 7 years, my younger brother Nadeem working with General Publisher as a IT consultant for the last 13 years and my brother Kaleem is also programmer working in IT company 4 year ,my brother in law(Shahid) is running POS
            point of sales business with mirosoft 9 year, my cousin masood is networking IT Manager,my nephew Hammad just completed MS Degree (web designer) ,my brother in law (Kamran)
            is network programmer for the last 6 years these are my relatives in IT
            thousand and thousand pakistani are working in IT industries
            warm wishes to you and your family
            Saleem Chaudhary

          • thankyou very much for defaming india. i AM sure u r a pakistani who just love to hear,write,read and talk bad things about india. and please never dare to compare pakistan with india, we are lot more ahead than you. and everyone knows what pakistan is, pakistanis only know to do terrorist activities.

  • The authors have been clearly paid for this article and this is evident in the gross mis-representation of facts. It also reflects the inferiority complex of the Pakistanis. Why do they have to compare themselves to India? India does not compare itself to Pakistan cause we know that thers is no comparision. Its time that they shed this mentality and concentrate on building themselves up. India is already attracting around 10 billion dollars and will continue to do so. God help the Pakistanis.

  • Pakistan is a world leader in IT – atleast in a parallel universe where IT stands for International Terrorism. As far as Information Tech is concerned, they don’t have enough schools or colleges – unless the madrassahs there now have WLANs with 802.11 a/b/g. Has anyone here even seen a Paki working in an IT company? I sure have not. English speaking Pakistanis? They might as well look for a needle in a haystack or rather a needle in a stack of needles. People shouldn’t be much concerned about such articles – freedom of speech and expression throw up all sorts of fairytales.

  • Hello Mr. Mitchell and Mr. DavidKhan,
    The article sure makes for an interesting reading. As an Indian I’ll be very happy if my close neighbour grows economically so that the entire south asian region rides on the tide of development. Having said that, I find it very difficult to understand that Pakistani’s support (if they really do) the views as expressed by Mitchell. Pakistan’s development lies in the hands of its own people. Showing India in bad light just to project pakistan up is ridiculous coz India is years ahead of pakistan in terms of economic and technological advancements (I don’t think anyone will disagree, not even our good old neighbours)

  • However much I try to read this article in an objective fashion, it comes across as one from an author who has no clue about the ground realities that exist,
    1. "English accent" is not the key to make outsourcing work. There are bigger issues involved.
    2. Outsourcing has been primarily moving towards India partly due to the key role Indians have occupied in the US tech sector.
    3. There isnt an educational system worth its name in Pakistan, unless you are talking about Madrassas.
    Here is another advantage of sending the work to Pakistan,
    5. The more Westerners you have in Pakistan, the easier it becomes for the Laden gang to spill more blood.
    (To the author – Don’t tell me you didn’t get paid to write this article, and I might even be guessing the group (lobbying) correctly)

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