The software industry-widely seen as the "great enabler" - provides an opportunity to the
developing countries to play a greater economic role in the fast globalizing world. The example
of neighboring India-whose ambition and progress towards becoming a "mini (software)
superpower" is no mystery from the world-is often cited in the development literature as an
evidence of the fact. Pakistan's software industry-widely perceived to be sharing a number of
key factors with India-has embarked upon an ambitious effort of its own to claim its share in
the riches of the world's software markets. Pakistan is currently viewed as a tier-3 country in a
widely quoted taxonomy of software exporting nations (Carmel, 2003). It is widely believed
that, with the wealth of talent and strengths available, the country deserves a better place in this
global pecking order of software exporting nations-atleast a tier-2 status like Russia and
China, or even a tier-1 status alongside archrival India1.
Pakistan's software industry has been a subject of the curiosity of interested by-standers-both
local and expatriate entrepreneurs-industry analysts, and potential investors alike. Yet, lack of
credible data on the current state and competitive dynamics of the industry has often been a
hindrance in engaging these individuals and materializing many prospective ventures. We
were recently involved, on the request of an expatriate investor, in an effort to incubate an ITfocused
venture capital in Pakistan. As we spoke with industry leaders and the financial
community, we repeatedly encountered a series of tough questions, for example:
- Why hasn't the Pakistani software industry been able to produce a single world-class
software firm (e.g. Wipro, Infosys or TCS of India) in the last 10-15 years?
- Why haven't we been able to grow Pakistani software exports beyond a certain level
($30-60 million per annum) for the last 5 years?
- Does Pakistani software industry merely represent a lower level of development or an
altogether different development trajectory as compared to known peer nations?
- What constitutes a generalized set of best practices in the local software industry (i.e.
what differentiates better performers from those that don't perform that well)?
This study attempts to answer some of these questions. While several factors are widely
believed to be a hindrance in the country's aspiration to become a significant software exporter,
not the least important of which are macro- and geopolitical in nature (e.g. law and order and
security situation, image of the country etc.), we adopt an inside-out approach that asks: "What
can the various players, essentially software companies, in the industry learn from each
other?" There is a growing realization that we must truly understand the structure of the
Pakistani software industry and the nature of Pakistan's competitive advantage in the software
arena in order to devise better industrial and organizational strategies and public policy
interventions. The Best Practices in Pakistani Software Sector Project-being the first of its kind
and scope in Pakistan-is an exploratory study of the Pakistani software industry that attempts
to do just that.
The study draws upon an "on-the-spot" survey of 40 of the most prominent and largest
software companies in Pakistan, as identified by PSEB and PASHA. We conducted
organizational interviews with senior executives (CEOs/CTOs or Local of Heads of Operations)
of 47 of these companies to supplement the statistical data with qualitative insights. These
interviews focused on understanding these organizations, their business and revenue models,
competitive drivers, strategic challenges, and policy bottlenecks. We also conducted interviews
of opinion leaders, policy-makers, and senior executives of other organizational entities (e.g. IT
MNCs, financial institutions, and academia) that had a significant bearing on the local software
industry. In all we conducted over 65 interviews between Oct.-Dec.
The substantive findings of the study can be broadly divided into two components.
The first part attempts at creating a brief statistical snapshot of the Pakistani software industry, as
gleaned from the data on organizational, managerial, and technical practices of our
respondents.
The second part of the study uses taxonomy of generic software business models
to develop a qualitative sense of software development activity in Pakistan. It also identifies key
strategic challenges (13 in all) typically faced by companies within each of these generic
business models and managerial best practices (20 in all) adopted by various players in the
industry to meet each of these strategic challenges. The report concludes with a discussion on
environmental and policy bottlenecks and some tentative conclusions
The results of the statistical analysis are quite illuminating. On the whole, the 60 software
houses included in our statistical sample employ over 4000 technical and professional
employees-for an average of 62 employees per organization. Roughly one third (32%) of the
software companies reported annual revenues of more than a million dollars with some
reporting more than $5M, another third (36%) between $200K and $1M, and the rest (32%) less
than $200K. 6 of the companies had more than 250 employees and another 8 had between 100
and 250 employees. On the whole these 60 companies had experienced an employment growth
of about 27.5% and a revenue growth of 37.4% over the last year-pointing at better utilization
of excess capacity or value-addition per employee, or both. Around 40% of the companies in
our sample were subsidiaries of foreign companies-with majority of them having a parent
company in the United States. 55% of the companies had one or more front offices abroad (50%
in the US, 11% each in UK and Middle East, and 3% in the Asia Pacific region). 45% of the
respondents had quality certification (mostly ISO-9000 with only 3% having CMM). 73.7% of
the companies had dedicated quality assurance teams.
Broadly speaking, our respondents derive their revenues from export and domestic markets in a
ratio of 60:40. On the exports side, they derive 22.5% and 38.5% of the revenues from products
and services respectively. Although we did not ask directly, our conversations with the top
leaders of the industry suggest that a majority of the product-exports are "customized" rather
than "shrink-wrapped" products. On the domestic side, however, the ratios are somewhat
reversed with products and services contributing 23% and 16.5% respectively. Our respondents
predominantly serve the private sector markets with around 85% of the total sales going to
private sector (local and foreign combined) and the rest going to public sector, equally divided
between domestic and foreign.
We tried to parse the data into various classifications in an attempt to understand the
organization and dynamics of software industry. For example, we looked at the differences
between export-focused, domestic-focused, and hybrid software operations; between productfocused,
services-focused, and hybrid operations; between large and small operations; and
between operations formed prior to and after the DotCom Bubble burst in the United States.
Our results are suggestive of several interesting trends.
For example, on the managerial practices side, there is some suggestive evidence that exportfocused
software operations are more likely to distribute stocks/ownership among employees,
hold employee bonding activities, and benefit from employee-driven innovation while
domestic-focused software operations are more likely to share profits with employees, provide
additional benefits to female employees, have greater financial discipline, and provide time to
employees to work on their own interests. Despite the latter, however, they seem to benefit less
from employee-driven innovation and suffer more from a perception of lower delegation
quality. Hybrids fall in between the two categories on almost all these measures.
Export-focused operations tend to spend more, on average, on quality assurance while hybrids
tend to have a greater propensity for seeking a quality certification. All companies, across the
board, prefer to use and express greater satisfaction with high-contact approaches of marketing
(e.g. word-to-mouth, one-on-one contacts, and pre-established networks). We do not find a lot
of differences between the cost-structures of export-focused, domestic-focused, or hybrid
operations, except that hybrids seemed to under-invest in product-development to pay for
expensive marketing and advertising, and training and certification. CEOs of export-focused
software operations tend to spend much more time in tactical rather than strategic mode (doing
day-to-day management rather than marketing and business development).
If you want to read the complete report please click here to read it from the official web site of Pakistan Software Export Board PSEB.
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