An Analysis of the Information Technology Industry in Pakistan – By Faraz Hoodbhoy
This paper presents a personal perspective of the state of Information Technology (IT) industry in Pakistan. It is a collection of ideas and experiences that I have acquired while working in Pakistan. In it, I will describe briefly some of the strengths of the Pakistani Information technology companies and focus on the problems and challenges they face. This is a general paper meant for professionals and readers interested in Pakistan’s IT current state and potential.
1.1 Introduction- My Perspective
I have spent the last two years working in Data Communication & Control, a Karachi based systems engineering firm. I am a student at Rensselaer Polytechnic Institute, currently en-route to a degree in Electrical and Computer Systems Engineering (soon to change to Industrial and Management Engineering), and like to believe that I am familiar with high technology paradigms.
2.0 The Bright Side of the Information Technology Industry in Pakistan
“Information Technology in Pakistan” has often been regarded an oxymoron by the vast majority of Pakistanis and Pakistani expatriates. While I do not wish to make apologies or explanations for past performances, I would like to introduce a different perspective on the technologies industry in Pakistan.
2.1 What We Have Been Able To Produce
A skills matrix of the capabilities of Pakistani information technologies’ firms may impress even the most diehard skeptics. Speaking from experience, the company that I work with has demonstrated expertise in X Windows, native C and C++, Visual Basic and most major database development packages. The company also has extensive skills in hardware design especially with common (Motorola and Intel) and programmable microprocessors (PIC and ALTERA series.) We design and develop our own hardware (board level up) and software, using building block technologies where available- building our own where not available.
Using these skills, our company creates solutions for organizations and companies to streamline their work processes and improve their productivity. These projects include communications systems deployed in more than 25 cities and towns in Pakistan, which incorporate a variety of communication media including satellite, microwave and telephone. Other projects we’ve worked on include real time controllers for machine tools and CNC machines, and an internationally acclaimed CAD packages for Textile Design (pre-print processing.) We’re also creating intelligent GUIs (Graphical User Interfaces) for a company based in the US by embedding that company’s intensive computational engine’s functionality into standard commercial packages (e.g. Microsoft Excel.)
Lest I get carried away with my company’s achievements, other Pakistani firms too have impressive resumes. Cresoft, perhaps the most famous Pakistani “tech” house has produced several large-scale RDBMS projects for various clients in the US, most notably, a telephone customer service centre for Time Warner. Digital Communications has produced Pakistan’s largest indigenously designed telephone exchanges (up to 2000 lines) and has been successfully operating a commercial Pager network for the past several years. Similarly, Digicom (no relation to Digital Communications) was the first company to provide Internet services in Pakistan in 1992, a year before commercial Internet services were available in India. Several companies have started catering specifically to the Y2K bug’s market while others are now specializing in Java. All told, there are more than 700 companies dealing in information technology products and services as of 1997. This number is expected to at least quadruple by the turn of the century.
3.0 Limiting Factors
The industry however is largely an underachiever when looked at in the larger picture. Pakistani software houses are on record for exporting $23 million last year versus the $400+ million by the textile/garment sector. While this is more than double the $10million software exports of 2 years ago, it is abysmally small in comparison to India’s $700 million this year and hardly a drop in the estimated global Information Technology (IT) sales pool of $400+ Billion.
Below I will attempt to outline some of the factors that I feel are key restraints to the industry’s growth.
3.1 Technical Factors:
By technical factors, I mean the typical problems that an engineering firm runs into on any given project.
3.1.1 A Lack of Trained Personnel:
Our company typically spends about 3 months in training/breaking in a new engineer. Most of my colleagues possess outstanding academic qualifications. Our company is possibly the only IT company in Pakistan to have 3 gold medallists at one time from Pakistani universities. But that notwithstanding, when any new engineer starts, he/she cannot produce anything useful until they go through the 3-month period (which comprises mostly of self-learning.) University IT education in Pakistan is almost all but divorced from the IT industry. Traditional schools of excellence like the NED have virtually no linkage with local industries and so are producing engineers who are not attractive to companies.
This realization has created a situation where technical vocational schools have started to mushroom in Pakistan’s major cities. These institutes unfortunately are mass producing low quality education and offer non-certified degrees and diplomas. However there are a few new institutes of excellence that have set out to make linkages with industry. The recently founded Hamdard Institute of Information Technology (http://www.hamdard.edu/hiit/hiithome.htm/) and others like the Ghulam Ishaq Khan Institute of Technology and the Foundation for the Advancement of Science and Technology’s Institute of Computer Science (FAST-ICS) are regarded as prestigious institutes that maintain high standards of quality education. While these institutes are key recruiting grounds, the number of engineering/IT graduates produced by local schools is less than 1000 graduates a year all told.
The Pakistan Software Export Board introduced a “radical” program last year to create and promote quality IT vocational schools. Known as Action Learning Centres of Excellence (ALCOEs) their primary purpose is to produce “brick laying” IT professionals. The idea, while excellent in theory, has had marginal results. But it is an initiative that needs the industry’s support.
3.1.2 Non-Availability of Technical Standards and Printed Information:
This is a key problem. Often at our company, we have had to create our own standards when developing systems simply because international standards and models e.g. Electrical standards, communication standards, coding standards, engineering/ development models etc. are not available freely. Up to date printed material such as standards books, data books/sheets and other technical literature is not easily available; duties, tariffs and postage costs accumulate heavily and result in prohibitive prices. Importing books is a tedious process that takes between 3-6 months or longer. In this regard the Internet has proved a real boon. However, getting up-to-date standards, books and journals (e.g. Dr. Dobbs or Byte) remains a problem.
Interestingly enough, the Indian engineering community has overcome this problem by printing their own books which despite poor paper and print quality, are excellent and by legally re-printing books by western authors. Neither scenario is followed in Pakistan, mostly for market reasons.
3.1.3 Non availability of Components/Development Tools:
On occasion, our company develops its own hardware from the board level up. One of our most frustrating hurdles is the non-availability of components. The non-availability of components sets us back often for months on end. In such cases we are forced to reinvent the wheel to complete projects on time.
The situation has improved recently by the entry of a few companies representing international component distributors (Mitel, Farnell and a few others.) They do provide data books etc. but their stocks are limited and their prices are prohibitive; the associated overheads with importing components is extremely high. Normally a company doesn’t buy bulk quantities without going through a test phase with limited quantities for building prototypes.
In software development however, the paradigm is inverted. Thanks to the miracle (pun intended) of software piracy, software released anywhere in the world is available within one week of release day in Pakistan on a Rs250 (US$ 5) silver platter. These CDROMs contain virtually all software development tools and application packages. I once saw a CD that contained software worth US$25,000! The lure of getting software for free is something that few companies can resist.
Realistically, small time companies specializing in simple databases (payrolls, accounting packages etc.) built using common tools like FoxPro or Power Builder, can only charge a fee around Rs. 100,000 (US$2500) for their services. If they were to purchase original software they would simply be noncompetitive e.g. MS Visual FoxPro costs roughly Rs30,000 (US$700) here.
3.1.4 Infrastructure Limitations: Telecommunications
All IT professionals lament the weakness of the Pakistani telecommunications infrastructure. The government has given the Pakistan Telecommunications Corporation (PTC) monopoly rights on telecommunications in an attempt to keep its value high on the privatization block. Unfortunately, this policy is devoid of understanding of technological advances and global market trends and the PTC is quickly assuming the role of a lame duck as opposed to its desired role as a golden goose. This coupled with other asinine policies, such as forgoing several opportunities to obtain relatively inexpensive, permanent (as opposed to satellite rented) connections to large sea/land fiber optic cable networks (FLAG, SEA-ME-WE), has/is severely hurt the Pakistani IT industry.
The average corporate and non-corporate Internet subscriber has to spend approximately 3 times what US subscribers do for accessing the Internet. Universities are not given bandwidth at subsidized rates; therefore they opt not to have on-line facilities in their labs. This single issue is self-perpetuating and many IT professionals contend it is the Achilles’ heel of the Pakistani IT industry.
The above list is by no means exhaustive, but it does cover some of the most outstanding technical problems we face as engineers.
3.2 Business Limitations:- Management Perspectives, Local Policy Problems, Market Trends, Market Challenges
One of the beauties of engineering is that innovation always leads to a workable solution. Unfortunately, the same thing cannot be said about non-technical, human problems. From my perspective, information technology companies in Pakistan suffer primarily from poor management. There is a distinct lack of vision in Pakistani management in general. Most managers are interested in survival and not in growth. Rare is the manager who can see beyond six months. This short termed tunnel vision disallows long term planning and therefore the financial and technical stability that is needed to keep a team together.
3.2.1 Management Paradigms
Pakistani IT firms are typically run by
Technically oriented engineers who think they can be entrepreneurs
Business “SaiThs” who have made a lot of money in traditional businesses
A partnership of the first two.
The ensuing problems with the above scenarios are predictable. Virtually all are recipes for disaster.
Scenario a) entails everything that 90% of all startup companies in the US go through: many stumbling blocks, failure to be able to make sound financial forecasts, budgets and similar problems. Company normally lasts 1 year after which the owners goes abroad or starts to work with a multi-national firm.
Scenario b) is again predictable: SaiTh doesn’t know how things work, thinks he can make everything work by screaming louder, refuses to pay for overheads, company normally lasts 6months.
Scenario c) is the most typical. Normally these companies do well initially. The engineer initially has funds, is happy and puts together a team that can function well. A year after operations, he asks the SaiTh for his share of the take and is put off (Taalofied) for another 6 months. The engineer gets upset and leaves (or is threatened by the SaiTh and kicked out), the second in command is promoted to #1 by the SaiTh (at half the pay of the former partner) and then the engineer either starts his own business or leaves the country. The company, lacking professional vision, loses sight of its objectives and survives pathetically until all competent employees leave and the company quietly fades away.
I think it is obvious that what we are looking for is a new scenario where sensible financial expertise is married with innovative technical abilities. The companies that have been able to institutionalize this synergy are the ones that thrive.
3.2.2 A Lack Of Support From Financial Institutions:
Pakistani financial institutions have historically been are among the most incompetent and corrupt financial institutions in the world. It is frankly amazing how many loans for textiles have been approved (and defaulted upon) whereas there are no financial schemes/packages available to entrepreneurs in information technology. Bank borrowing rates are greater than 25% per annum and are only given against 100% cash/fluid collateral. That makes for unbearable overheads and outright discourages potential entrepreneurs. Despite reassurances from the government, attractive industrial loans and financing schemes are still unavailable to companies dealing in IT products and services.
3.2.3 Government Policies:
The Government’s policy towards Information Technology has essentially comprised of lip service. Import tariffs on computers and peripherals have vacillated over the past five years between 10% and 60%. With overheads as high as these, there was very little incentive to either sell or buy PCs. Thus, a new breed of computers called the “Unbranded Computer” was born. These are computers that are assembled from smuggled components from the Far East. These computers were sold at almost half the price of “branded” (Compaq, AST, Dell etc.) computers.
This year’s budget has reduced import duty on computers and their peripherals to 10% from the previous year’s tariff of 40%. Unfortunately, the tariffs on building block electronic components, books and technical literature etc. are still too high.
The Pakistan Software Export Board (PSEB) was set up a few years ago with the specific agenda of encouraging the growth of the software exports in Pakistan. Regrettably, despite being staffed by seemingly competent officers, they haven’t been very successful. A few of their proposals, such as the setting up Action Learning Centers of Excellence (ALCOEs) while excellent in theory, lack impetus for large scale implementation.
An encouraging step was taken last year when software development was given official status as an industry and a five-year tax holiday for software export companies was declared. The Pakistani Export Promotion bureau is now offering export-refinancing options (up to 100%) in an attempt to meet its goals. But thus far it is a case of too little too late.
188.8.131.52 Government Policies on Infrastructure Projects
The policies by the government on its infrastructure projects have thus far been representative of the people who were in power, i.e. mediocre, thoroughly lacking in understanding and riddled with self interest.
Large local contracts for government or defense organizations are routinely not awarded transparently as they should be Policies are heavily favored towards Multi-national corporations, corporation noted for their underhanded dealings around the world. Scandals such as IBM’s (now canceled) US$100 Million contract for simple magnetic stripe national ID cards and similar (though not cancelled) deals abound.
One of the famous policy bloopers is of PTC’s ban on buying local telephone exchanges until the year 2002. India’s telephony system is 100% indigenous and telephones have been available in every village for more than 10 years. In Pakistan, all exchanges are bought from one of two companies, Siemens or Alcatel. Of interest is that Digital Communications, a Pakistani firm, produced a working 1000 line exchange in 1992. They will have had to wait 10 years before they can sell that product to the PTC. This seems like a joke, but the gravity is frighteningly serious.
Fundamental infrastructure projects like GIS (Geographical Information Systems) mapping become opportunities for unscrupulous vultures to loot upon. e.g. for a comprehensive GIS of Karachi, a World Bank consultancy costing more than $100,000 was carried out; their expert opinion was that a 20:1 meter resolution map could have been made in a budget of $1million dollars. According to a visiting consultant from the UN a GIS system with an accuracy of 5:1 meters could be obtained using conventional components and software all for under US$200,000. The whole thing reeks of a sham.
I think that perhaps the fault lies in previous policies of successive governments who favored import over indigenous development. With the WTO being implemented in 2002, an isolationist policy is probably not the right approach but I fail to see a better option. India on the other hand nurtured its local companies for decades. They lived with locally built telephones and televisions and cars for decades and now the companies that produce these goods have an established infrastructure, they are poised to compete on equal footing with the west.
4.0 General Market Trends and Perceptions
Each month, nearly ten thousand computers are sold in Karachi, a city of 13 million people. Keeping in mind that computers are still concentrated in urban centers, there are roughly 200,000 new computer users every year in Pakistan. While this seems a pitifully small number (in percentage terms), it represents a twofold increase compared to last year. Analysts predict that this number will increase four to five times in the next three years.
The Pakistani market is excessively image conscious. A strong prejudice exists against local products and services; the market perception is that a “local” piece of software should be cheaper than the pirated software they purchase. After all, it IS local, right? The cost of production should be cheaper, right?
This attitude goes deep into the national psyche. Quality is something the market is not prepared to pay for. This is one reason why many IT firms either fizzle out or concentrate only on low volume/high margin products.
The market is gradually coming to terms with the need of more and more computerized processes. Some shops are using electronic registers hooked up to an on-line inventory control system. Companies are starting to rely more on computer ledgers than paper ledgers for their accounting work. But except for the very large or multinational companies, most of these firms’ owners have their software developed by their nephews who are dilettantes in FoxPro or a similar package. There is a market wide sentiment that software is meant to be copied. Indeed, many observers justify it as “our way of getting back at the west.”
The area where some local firms have been lucky is in the products arena. Local companies have enjoyed an edge in price/performance ratios on products such as intra-office telephone (5-500 line exchanges) exchanges and un-interruptible power supplies (UPS.) That edge is quickly being worn out by the infusion of inexpensive exchanges from multinational companies like Panasonic and Goldstar (now LG) that take advantage of economies of scale.
4.1 Intellectual Property Issues
As mentioned earlier, Software piracy is rampant in Pakistan. Intellectual copyrights are brushed aside with temerity, be they for software, literature, films or audiocassettes. While a few zealots argue that this is the East’s way of getting back at the West, the relative ease of being able to get software for just about free creates a dangerous market mindset where software development is not treated as a skill worth paying for. Thus, all major IT companies in Pakistan are forced to be export, or service oriented, e.g. Internet Service Providers, cellular phone services etc.
The concept of mass producing a software package is thus defeated in Pakistan because of license control problems. Theoretically, there is a huge market for an accounting and tax package in Pakistan. Pakistani tax laws are unique and updated every year. Tens of thousands of companies are already using computers so there is a market. And companies would be willing to pay Rs10,000 (US$250) for a good accounting package especially if it was updated every year in accordance with the new tax laws etc. The problem is that manufacturers know that their software will fall victim to piracy and so they create complicated safeguards for their software, e.g. time based passwords, hardware locks etc. A general-purpose package however must, by definition, be easy to install and access. So where the manufacturer is looking for a mass market, the market shrivels into a hundred licenses or less, not enough to even justify the cost of production.
The laws that protect intellectual property infringement are ludicrous. A person convicted of copyright infringement is subject to the maximum penalty of Rs.200 and an official remand. With laws as ineffectual as these, pirates blatantly violate copyright laws without fear of retribution. The situation is so pathetic that legitimate importers of western movies have resorted to hiring security firms as vigilantes who physically roughhouse video shop owners who stock illegitimate, pirated movies. The results have been surprisingly good; the danger of course is that it morally legitimizes citizens taking the law into their own hands.
The PSEB and PASHA (Pakistan Software Houses Association) have been making noises for some time to try and combat software piracy but they have had no apparent success thus far and have been working more as special interest groups as opposed to the unifying umbrellas that they should be.
While I have focused my arguments essentially on the areas that need improvement, it is imperative to recognize the effects of globalization and the dynamics of Pakistan’s resources. The Information Renaissance will, of necessity, sweep across Pakistan just as it has in other countries. The increasingly high labor costs of IT personnel in developed nations is forcing many companies to seriously consider offshore production and development. Despite Pakistan’s low literacy rate of 30%, the educated populace is still in excess of 25 million people and English is virtually the language of choice language amongst Pakistani professionals. This coupled with the all important ratio of labor rates in the west to Pakistan being at 15:1 (on base salary- not including overheads) makes Pakistan an interesting option for companies in the west interested in offshore development. Certainly technology is no longer a barrier for such events to occur.
For all its problems, I am convinced that Pakistan’s technology sector is poised to boom in 2-3 years. And with in that boom, fantastic opportunities for economic and social growth will arise.
Finally, please be aware that I am by no means an expert. My views are my own and do not necessarily represent anyone. My opinions are based on my experience as a professional and my belief in common sense as being the preferred expression of the truth.
Article dated 2006 and reproduced here with thanks and compliments of author.