Pakistan poised to make Information Technology breakthrough

WASHINGTON: Pakistan could finally make the breakthrough in the IT market it has been seeking, according to a repoutable technical jounral.

A report in the California-based publication, Commerce Times, earlier this month said that irnoically, “the biggest boost” to Pakistan’s efforts to break into the global IT marketplace came on 28 September when India announced an income tax of more than 36 percent on foreign firms involved in software, R&D and customer service operations in India. The steep tax proposal had been in the works since the beginning of the year and now that it has been made law, it is expected to prompt US firms to follow General Electric’s lead in selling off assets in India, the journal said.

Meanwhile, Mushtaq Malik, economic minister at the Embassy of Pakistan, strongly denied a US-based report carried by Daily Times last week that because of US security concerns, American companies doing business in Pakistan were running into serious difficulties when making remittances to Pakistan. The report said that the United States appeared to be treating Pakistani like Cuba. The Pakistan embassy official told this correspondent on Friday, “I do not know of a single case where this has happened. Apart from keeping in touch with both the offiicial and the corporate sector, I can claim to be well-informed about the operations of our financial institutions, such as banks, and I have yet to hear our bankers complain about the kind of roadblocks the report in question mentioned. If any such difficulties are experieneced in the future, we will see to it that they are removed as our two governments would not like anything to stand in the way of good bilateral trade and commerical relaitons.”

Pakistan is the “hot new offshore information technology (IT) destination” because of a combination of favourable 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 labour force that is the envy of more prosperous but less tech savvy nations elsewhere in the region,” Commerce Times reported.

The report said the average Western IT professional, businessperson or IT consumer should care about this development, “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 neighbours, which increases that nation’s chances of solving its own problems and avoiding the mistakes that have plagued neighboring economies.”

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 US 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,” Commerce Times argued.

The publicaiton said for Westerners with long-standing personal ties to India, the 28 September 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, the new revenue policy will alter careers, lifestyles and futures. Westerners can pack up and look for other another country to set up operations, which was where Pakistan came in, being 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,” the report commented.

According to Commerc Times Pakistan enjoys five advantages over India. First, executives at IT firms in Pakistan often have worked and gone to school in the US, 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 programme 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. Two, 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,” the report disclosed.

The third factor favouring Pakistan is higher labour 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.” The fourth factor is that Pakistan’s official language being English, its people have a good grasp of English and accent neutralisation for non-native speakers of English is substantially easier than it is in India. Language skills and accents provide Pakistan with a major advantage over all other Asian outsourcing destinations. In India, only Kolkata and Punjab can come close to competing with accents in Pakistan, according to the report.

The fifth and final factor favouring Pakistan is that compared with India, Pakistan’s top-tier talent pool is largely untapped and turnover rates are less than 20 percent. India’s top-tier labour 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 for most merchant call center facilities in India at the beginning of November were 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.

The report noted that Pakistan was not without challenges, some real, others 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,” said Commerce Times. It said the biggest danger that Westerners face in South Asia is from automobile accidents, particularly at night. India has over eight times the number of highway fatalities per passenger mile than the US. “If you go looking for trouble, you will find it, whether in the back alleys of Karachi or the parking lots of many suburban US 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 US 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 publication noted.

The report said that Pakistan and the US 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 are Pakistan’s best ambassadors. Pakistan welcomes them and serves as a place of safety and security. “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,” the report pointed out.