PAKISTAN SOFTWARE INDUSTRY - United Nationsunpan1.un.org/intradoc/groups/public/documents/... · The “Best Practices in Pakistani Software Sector” Project is funded by the Pakistan

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FEBRUARY 2005

Pakistan’s Software Industry: Best Practices & Strategic Challenges 2005

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Copyrights © 2005 Pakistan Software Export Board (G) Ltd. Ministry of Information Technology Government of Pakistan Printing March 2005 Published by Pakistan Software Export Board

The Funding Agency

The “Best Practices in Pakistani Software Sector” Project is funded by the Pakistan Software Export Board (PSEB).

PSEB is the entity within Government charged with the task of enhancing exports of software and IT enabled services

(ITES) from Pakistan. PSEB is a guarantee limited company totally owned and funded by the Government of

Pakistan. Any questions or comments about this report may be directed to PSEB Islamabad at 92‐51‐111‐333‐666 or

through e‐mail at [email protected] .

Disclaimer

The report is published by PSEB for the use of its members & the IT industry. This report is a result of a 3‐month long independent

research study conducted by the principal consultant with support from PSEB. The study also incorporates feedback from PSEB,

Ministry of IT and Telecom (MOITT) and stakeholders of the Pakistani IT industry. It faithfully reports what the consultant found

the on‐the‐ground reality of the Pakistani software industry to be and accurately reflects (and wherever possible attributes to others)

the opinions he was able to form on the basis of his discussions and onsite visits to about 50 Pakistani software companies. To that

effect, the report solely reflects the views of the consultant and may or may not reflect those of Pakistan Software Export Board

(PSEB), the Ministry of IT and Telecom (MOITT), or the Government of Pakistan (GOP). The study advisors or the contributors are

not responsible, in any way possible, for the errors/omissions of this report.

This report is a best intentioned effort to disseminate information about the Pakistan’s Software Industry and should not be used as

a sole means of advice for making investment decisions. PSEB does not accept any liability for any direct and consequential use of

this report or its contents. The contents of this report may be reproduced only after prior permission from PSEB.


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CONTENTS

1. EXECUTIVE SUMMARY ......................................................................................................................................4

2. BACKGROUND & INTRODUCTION ..............................................................................................................11

2.1—BACKGROUND AND MOTIVATION FOR THE STUDY......................................................................................12 2.2—INTRODUCTORY REVIEW OF THE RELEVANT LITERATURE...........................................................................13

3. THE OBJECTIVES, AUDIENCE, AND FORMAT OF THE STUDY..............................................................16

3.1—THE ANALYTIC AGENDA: .............................................................................................................................16 3.2—THE BENEFITS AND INTENDED AUDIENCE: ..................................................................................................18 3.3—THE FORMAT OF THE STUDY: ........................................................................................................................18

4. A BRIEF NOTE ON PROJECT METHODOLOGY...........................................................................................19

5. A STATISTICAL SNAPSHOT OF PAKISTAN’S SOFTWARE INDUSTRY.................................................22

5.1—ESTABLISHING A POINT OF REFERENCE FOR PAKISTAN’S SOFTWARE INDUSTRY ................22

5.2—SOFTWARE DEVELOPMENT IN PAKISTAN: STATISTICS ON MANAGERIAL AND TECHNICAL PATTERNS.....24 5.3—SEARCH FOR THE HOLY GRAIL: DO STATISTICS REVEAL A PATTERN OF “BEST PRACTICES”? ...................49

6. UNDERSTANDING PROMINENT BUSINESS MODELS & COMPETITIVE DRIVERS...........................53

6.1—A TAXONOMY OF GENERIC SOFTWARE BUSINESS MODELS.........................................................................54 6.2—THE EXPORT FOCUSED LOCAL FIRM (THE “SYSTEMS” OR “NETSOL” MODEL) ..........................................59 6.3—THE DOMESTIC FOCUSED LOCAL FIRM (THE “TPS” OR “LMKR” MODEL)...............................................68 6.4—THE EXPORT‐FOCUSED FOREIGN FIRM (THE “TECHLOGIX” OR “ETILIZE” MODEL)..................................80 6.5—THE DEDICATED DEVELOPMENT CENTER (THE “ITIM ASSOC.” OR “CLICKMARKS” MODEL) .................90

7. ENVIRONMENTAL, INFRASTRUCTURE & PUBLIC POLICY CHALLENGES....................................101

7.1—TELECOM INFRASTRUCTURE COST & AVAILABILITY .................................................................................105 7.2—AVAILABILITY OF VENTURE AND RISK CAPITAL........................................................................................106 7.3—UNDER‐DEVELOPED DOMESTIC MARKET...................................................................................................107 7.4—AVAILABILITY OF PHYSICAL INFRASTRUCTURE .........................................................................................108 7.5—INTELLECTUAL PROPERTY RIGHTS .............................................................................................................110

8. CONCLUSIONS & RECOMMENDATIONS..................................................................................................111

8.1—SUMMARY OF RESEARCH RESULTS AND FUTURE DIRECTIONS ..................................................................112 8.2—THE WAY OF THE FUTURE: SOME TENTATIVE CONCLUSIONS...................................................................114

9. APPENDIX A: LIST OF ORGANIZATIONS SURVEYED/INTERVIEWED ..............................................117

10. LIST OF BIBLIOGRAPHIC REFERENCES ...................................................................................................119

11. ABOUT THE AUTHOR / CONSULTANT....................................................................................................123


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PAKISTAN’S SOFTWARE INDUSTRY

BEST PRACTICES & STRATEGIC CHALLENGES

AN EXPLORATORY ANALYSIS

1. EXECUTIVE SUMMARY 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 IT‐focused 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,

1 A widely quoted GOP target of $1B in software exports by Y2000 would have propelled Pakistan into the exclusive tier-1 club.


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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. timeframe (see Appendix)

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%


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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 product‐focused, 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 export‐focused 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).

Our analysis of other classifications provides few interesting insights. The dedicated development centers tend to be smaller, more rigorous (from a technical and process


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standpoint) than the rest of the industry. They, however, seem to experience serious constraints to revenue and employment growth—a fact that we interpret as a manifestation of their “mid‐life” crisis. Although we see a trend towards productization in the industry, we found few significant differences between product‐focused and services‐focused operations. This lack of differentiation (e.g. in the cost structures of services and product‐focused operations) is problematic, to say the least. There were also few significant differences between large and small software operations and between those created before and after the DotCom Bubble burst.

On the whole these findings also paint a picture of lack of focus and specialization within the Pakistani software industry. Those product‐focused operations are similar to services‐focused operations and pre‐DotCom operations are not qualitatively different from post‐DotCom operations does not speak well for the maturity of the industry as a whole. A related substantive finding is the trend towards the “hybridization” of software development activity. The hybrid firm has emerged as an important organizational class on its own rather than the average of the two extremes. While the hybrid firm tends to do better than the two extremes on some measures and hence might be seen as a manifestation of the industry’s survival instinct, it is not quite clear if it is the optimal model of organization of software development activity in the long run.

In line with the study objectives, we also asked the question: Do aggregate statistics reveal a pattern of “best practices” within the software Industry? We use multiple comparison groups (e.g. 40 most prominent companies, top‐10 companies, 14 fastest growing companies, 14 companies that describe themselves as globally competitive against the rest of the industry) and find mixed results on that account. For example, we find robust evidence to support the fact that better‐performing companies tend to adopt a set of employee‐friendly management practices (e.g. flexibility, stock ownership, profit‐sharing etc.) and have access to high quality managerial talent (e.g. mix of technical and business backgrounds, prior venture experience, financial discipline etc.) than the rest of the industry. All companies, across the board, prefer high‐contact marketing approaches over low‐contact ones but better‐performing companies report higher satisfaction with the former than the rest of the industry. Our results on various measures of technical and process quality are, however, inconclusive, at best. Here, we do not find any clear patterns that differentiate better‐performing companies from the rest of the industry. We believe that best practices within technical and process realms are dependent on the type of work performed and a number of project‐specific variables. As reported elsewhere, therefore, project‐level data might be better suited to identify these differences.

Next, based on our statistical findings and qualitative insights, we devise a 4‐part taxonomy of generic business models. The four sub‐classifications, named after their most prominent examples, include: Export‐focused Local Firm (“Systems” or “Netsol” Model), Domestic Focused Local Firm (“TPS” or “LMKR” Model), Export Focused Foreign (Expatriate) Firm (“Techlogix” or “Etilize” Model), and Dedicated Development Center (“ITIM” or “Clickmarks”


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Model). We present a snapshot of each of these generic software business models and identify key strategic challenges for each—13 in all for the entire industry. As we discuss the ways relatively more successful firms in the industry have countered these strategic challenges, we also arrive at twenty (20) managerial best practices that could be replicated by other players in the industry.

The Export‐focused Local Firm is one founded by a predominantly Pakistan‐based entrepreneurial team (that may or may not have been aided/encouraged by a group of expatriates), but with an explicit purpose of exporting software products or services. Majority of the firms established in pre‐DotCom Bubble burst era with an expressed purpose of exporting services to North America and Western European countries fall in this category. Although there are some that have taken the products route, their numbers are relatively smaller than those focusing on export of services. The most defining feature of this class of companies, namely, the local‐presence of their founders and the export‐orientation of their products/ services, brings a number of unique and important challenges to this type of a firm. We discuss three of these in great detail and allude to several others. The ones we discuss in depth include: customer acquisition in a foreign market, setting up a foreign marketing presence, and understanding the domain and context of a foreign customer. Some salient examples of this type of business model in action are: ThreesixtyDegreez, Post Amazers, Advanced Communications, Makabu, Netsol, and Autosoft Dynamics etc.

The Domestic‐focused Local Firm, with an exception of a few companies, is really one because of circumstances rather than choice. More often than not, and logically so, the domestic‐focused local firm plans to export its products or services abroad and is merely using the domestic market as a vehicle to gain a track record with real life customers. Whether a firm is in this category by choice (“I’ll do domestic first, export later”) or by circumstances (“Since the export market doesn’t seem very good right now, I’ll survive by selling at home”) the strategic challenges are quite similar. We discuss three of these in some detail. These include: operating in an under‐developed local market, getting access to capital, and having a business plan and a strategic/domain focus. Other challenges alluded to include: migrating from the domestic to the export market, developing relationships, delivering quality products/services, and even

ZRG

TPS

Lumensoft

Yevolve

2B Technologies

SI3

Softech Systems

Genesis Solutions

Alchemy Technologies

AppXS

Oratech

Askari Info Systems

Acrologix

Comcept

LMKR

CARE

ThreeSixtyDegreez

Post Amazers

Advanced Comm.

Netsol

Makabu

Autosoft Dynamics

Sidaat Hyder Morshed

Avanza Solutions

GoNet

Kalsoft

Jinn Technologies

Secure3 Networks

Systems Ltd

Progressive Systems

Millennium Software

Cressoft

Etilize

Prosol

Adamsoft

Ultimus

MixIT

Techlogix

Xavor

Elixir Technologies

ITIM Associates

MetaApps

Clickmarks

Enabling Tech. (Quartics)

Trivor Systems

Strategic Systems Int’l

ESP Global Systems

DOMESTIC‐FOCUSED LOCAL FIRM

EXPORT‐FOCUSED LOCAL FIRM

EXPORT‐FOCUSED FOREIGN‐FIRM

DEDICATED DEVELOPMENT CENTER

FIGURE–GENERIC BUSINESS MODELS & THEIR TRANSITIONS SCENARIOS

DIVERSIFICATION M&A W/ FOREIGN FIRM

BUYOUT BY LOCAL MGMT.MATURITY, VALUE‐ADD ELEVATION OF PAK‐OPS.

SHIFTING PRIORITIES

TRANSITIONS KEY


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marketing abroad. Some salient examples of this type of business model in action are: 2B Technologies, ZRG, TPS, Lumensoft, Yevolve, SI3, Softech Systems, AppXS, and Genesis Solutions etc.

The Export‐focused Foreign Firm is one founded abroad (or jointly, in Pakistan), by a predominantly foreign (usually, an expatriate) entrepreneurial team, with an explicit purpose of using the Pakistan‐based offshore development facility to deliver a product or service demanded by the foreign market. This type of business model has been adopted by services and product‐focused companies alike. While this class of companies enjoys several advantages over those in earlier discussed categories, namely, quality of due‐diligence on the basic idea, foreign contacts/networks of founders, and better access to capital etc., there are significant challenges as well. We discuss four of these challenges in some detail and identify a number of managerial best practices followed by some of the interviewees. These challenges include: dealing with the “image” problem, countering the geographically shifting “labor arbitrage” argument, scaling up the Pakistan‐based operation, and getting to know the land and managing expectations etc. Some salient examples of this type of business model in action are: Elixir, Etilize, Ultimus, MixIT, TechLogix, Prosol, and Xavor etc.

The Dedicated Offshore Development Center, as the name suggests, is a fairly limited offshore operation of a foreign company. It is different from the Export‐Focused Foreign (Expatriate) Firm in the sense that it is often an “add‐on” to an already existing company whose strategic and managerial processes and controls are quite well‐established. Due to its unique nature (i.e. limited scope) it faces a number of challenges that are distinct from the earlier‐discussed category. We discuss three key challenges faced by organizations in this business model and identify innovative best practices to counter these. These include: managing the parent‐subsidiary relationship, setting up an offshore facility in Pakistan, and building a quality software development operation. Some salient examples of this type of business model in action are: MetaApps, ITIM Associates, Clickmarks, Trivor Systems, and Strategic Systems International etc.

The taxonomy of generic software business models may be helpful in several ways. Firstly, it gives us a relatively easy and comprehensive way to classify a particular software operation into a broad enough category of organizations and a hence a reference point to compare ourselves against. Secondly, it highlights the importance of understanding the strengths, weaknesses, pre‐requisites, and structural limitations of each of the generic software business models. It is also important here to understand that while transitions between these generic software business models are possible, they are not necessary or automatic. None of these business models is essentially good or bad, they are just different and one must pick the particular model that best suits his/her idea‐offering‐destination mix.

We conclude the study with a brief review on environmental and policy bottlenecks that have hindered the growth and development of the software industry. This is, by no means, an


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exhaustive study or even a comprehensive list of policy issues but rather a description of our statistical and qualitative findings. The country’s image, over‐and‐above the company’s brand, tops the list as the problem identified by as many as 68% of all respondents. This is followed by quality of manpower (56%), the cost of IT/Telecom infrastructure (50%) and law‐and‐order and security situation (48%) as the most important problems from the perspective of all‐types of firms combined. While there are variations between how each of these may disproportionately affect various sub‐categories of organizations, image, IT/Telecom infrastructure, and HR appear to rate consistently as among the top‐5 problems in all categories. We also faithfully narrate several proposals, put forth by our interviewees, to address some of these issues.

On the whole, there are a few generalized conclusions that one can draw. The first and foremost contribution of this study is to bring forth the very vibrant face of Pakistan’s software industry. Pakistan today, unlike yesteryears, is fast turning into a happening place for IT. Although the industry has come a long way since its first company opened shop in 1976, it has only been in the limelight—for investors and policymakers alike—since the early 1990s. Ten years is a very short time for the development of an entire industry and there are signs that Pakistan’s software industry, having laid the foundations for a tomorrow, maybe in for better times ahead. Last year alone, the industry has grown at around 37% in revenues and 27% in terms of technical and professional employment. Many of the CEOs we spoke to expect a better‐than‐last‐year performance in 2005. Another encouraging sign is the increasing number of Pakistani‐owned foreign firms being located to Pakistan as well as the reverse brain drain being caused by returning Pakistani entrepreneurs who see the relatively less competitive and virgin market at home as a tremendous opportunity for setting up a Pakistan‐based company. Systems Integration, Innovation and Intelligence (SI3) and The Resource Group (TRG) are the poster children of this undeniable trend. None of these would have been possible a decade ago.

On the domestic‐front as well, there is a growing likelihood of considerable opening up and modernization of traditionally conservative segments of the economy. If deregulation in the financial sector is any credible sign of things to come, we are likely to see massive changes in the shape of the local manufacturing and service industries by virtue of telecom sector deregulation and the enhanced competition under the now‐effective WTO trade regime. The former has already begun to show tremendous promise with around a billion dollars of promised investment in last year alone. An investor whom we spoke to sees the situation as the fading away of the Old Pakistan and the Emergence of the New Pakistan that is effectively linked to and a significant player of the global economic system. The New Pakistan presents considerable promise and opportunity to those willing to bite at it. There are live examples of companies—TRG, SI3, LMKR, Netsol, Techlogix, Etilize, TPS and many more—that have capitalized on this new set of opportunities and positioned themselves to reap the rewards.


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There are, however, considerable, although not insurmountable, challenges too. The industry suffers from a serious professionalization and institutionalization deficit. The 200‐people barrier, although psychological, is real till it is actually broken—and broken convincingly and forever. In addition to the 200‐people barrier, we also face a 20‐people and a 2‐people barrier that requires as much attention as the former. Many of our very innovative firms continue to resist professionalization and thus fail to grow beyond a particular size. The industry is hungry for capable investors/acquirers to come forth and bring about paradigm shifting structural changes to these companies and enable them to move to the next higher level of growth. The fast maturing market of outsourcing and offshoring services necessitate that our entrepreneurs and business leaders think about new ways of doing things. It is unlikely, given the consolidation in the outsourcing industry, that we would see a new player replacing Wipros, Infosys’, or TCS’ of this world. Rather than blindly copying the already well‐established countries and players, we must think creatively to devise a model that best suits our own strengths and weaknesses. Our ability to lead in the business model innovation would determine, to a large extent, our place in the future pecking order of software exporting nations. Playing the volumes‐game (ITES/BPO), without the requisite scalability and HR, is unlikely to succeed on an industry‐wide scale. Until we can resolve the scalability issue, we must learn to play in the equally lucrative ideas‐game.

In a dynamic and fast changing industry like IT/Software, tomorrow can and will be radically different, and not merely an extension of today. It would require investors’ foresight, business manager’s insight, and entrepreneur’s courage to capture the moment and build the next generation of niche players and industry leaders and build it in the New Pakistan. Profits are certainly to be earned by those who “break the rules” and try the unthinkable. There is, however, a dire need to think deep and hard about the problems, patterns, and strategic challenges identified in this report, find explanations for these, and devise strategies to get around them.

2. BACKGROUND & INTRODUCTION Pakistan’s software/IT industry has shown an uneven pattern of growth through its relatively

short history. While Information technology and software industries were not a government

priority before early nineties, software houses have existed in the country since 1970s. From

early‐to‐mid 1990s, however, promoting the software/IT industry has been a stated, if not

always adhered to, government priority—a fact motivated partly by India’s rise to prominence

as a “mini (software) superpower”. Several policy actions and infrastructure development and

up‐gradation projects have been undertaken by Government of Pakistan (GOP) to promote not

only a domestic software/IT industry but also exports of software from Pakistan. Many of these


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are documented in the National IT Policy and its accompanying Action Plan (MOST, 2000). The

progress on these actions and initiatives has, however, been sketchy (UNCTAD, 2004). The local

software scene does not yet show the kind of vitality and growth that is a characteristic of major

tier‐1 or even tier‐2 software exporting nation as described in Carmel (2003).

2.1—Background and Motivation for the Study

While the causes of Pakistan’s below‐par performance in the software sector may be many, the

importance of within industry learning and an organic growth cannot be overlooked. Pakistan’s

software industry (and its ancillary and related industries e.g. banking, venture capital etc.) is in

dire need of sharing of best practices, of its own industry icons and heroes, and of a lot of hope,

optimism and the focus to succeed. It needs an in‐depth understanding of the current state of its

affairs, beyond the general rhetoric, and a vision of the future to motivate it to upgrade itself

and capture its due share in the world software/IT market. A formal research study of best

practices and strategic and competitive drivers of the Pakistani software sector has long been in

order. The proposed study would develop a shared understanding of the problems and the

promise of the Pakistani software sector and build a coalition of support around this shared

reality. It would also serve as an authentic source of data and information to quickly upgrade

the understanding of potential investors intending to invest in the local software scene. Finally,

and most importantly, it would help the industry itself in learning from each others’ successes

and failures.

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.). While resolving

these issues is critical to developing a strong and robust industry, this study adopts a

different—inside‐out—approach that asks the question: “What can the various players,

essentially software companies, in the industry learn from each other?” In essence, we are

attempting to learn from the variations in performance of companies operating under the same

set of geo‐political and policy environment. Secondly, 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. A firm‐level analysis has the potential

to unearth the factors behind within‐industry performance differentials (e.g. Netsol vs. Cressoft

vs. Enabling Technologies) and identify best practices that can be adopted industry‐wide.

Regardless of what the final conclusion may be, the one thing that is certain about the Pakistani


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software industry is that it is not a very well understood and researched one. For example,

questions like:

• 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)?

Answering these (and other) questions would require considerable industry research, sharing of

best practices, and discussion/debate. The ultimate answer to these questions is most surely not

going to be a silver bullet either but a formal inquiry has the potential to set in motion a process

that might give us some hints towards a possible answer or enable us to ask more intelligent

questions and thus lead us nearer to the truth.

2.2—Introductory Review of the Relevant Literature

There has been considerable increase in the interest in software industries within developing

country contexts in the recent years. Proponents of the school of thought that sees IT and

software as a “great enabler” have argued that information technology in general, and software

industry in particular, provides an opportunity to the developing countries to inextricably link

themselves with the developed economies of the west. This “globalization of work” (or

production), some believe, is a harbinger of subsequent phases of globalization that would

reduce the disparities across the world and provide an equal opportunity for everybody to

participate in the global production and creative processes. In many instances, these predictions

have also been validated by initial experiences in some developing countries. Most notable of

these are India, Ireland and Israel, famously known as the three Is of the global IT revolution

and the new entrants in the tier‐1 of software exporting nations that already includes relatively

more developed, mostly, OECD countries and, and to a lesser degree, China and Russia (tier‐2

countries). Following the examples of these tier‐1 and 2 nations, are a host of other developing

countries, namely, Brazil, Mexico, Malaysia, Sri Lanka, Pakistan, Ukraine, Bulgaria, Hungary,

Poland and the Philippines (tier‐3 countries) and Cuba, Iran, Jordan, Egypt, Indonesia and

Bangladesh (tier‐4 countries) and many others (Carmel, 2003).


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While the boundaries between the countries in this 4‐tiered taxonomy are quite fuzzy, primarily

by‐design but also due to lack of credible data on each, Carmel (2003) attempts to differentiate

tier‐1 countries as having hundreds of companies, more than a billion‐dollars of export

revenues, and the industry maturity of more than 15 years; tier‐2 countries as having at least a

hundred companies, exports revenues of more than $200 million, and greater than 10 years of

industry maturity; and tier‐3 countries as having tens of companies, more than $25 million in

export revenues, and over 5 years of industry maturity. All other “aspirants” that do not make

the cut fall in the tier‐4 of the taxonomy.

Many researchers and analysts have tried to understand the dynamics of the Indian software

industry (NASSCOM, 2001, 2002, 2003, 2004; Heeks et al, 1996, 1998, 2002; Bajpai and Shastri,

1998; Desai, undated; Arora et al., 2000). Software industries of other countries such as China

(Tschang and Xue, 2003), Japan (Rapp, 1996), Iran (Nicholson and Sahay, 2003), Romania

(Grundey and Heeks, 1998), Sri Lanka (Barr and Tessler, 2002), Korea (Barr and Tessler, 2002)

and Malaysia (Mohan et al., 2004), among others, have also been documented in literature.

Several researchers have attempted to take this knowledge and apply it to the context of other

countries (UNCTAD, 2002, Tessler et al., 2003). Others have tried to develop policy frameworks

and draw policy conclusions (Carmel, 2003b, Heeks and Nicholson, 2002) or develop generic

analytic frameworks for analyzing the competitiveness of software industries (Heeks, 1999; and

Bhatnagar, 1997). Heeks (1999) describes a 2x2 theoretical framework (described in section 5.2)

that classifies software companies on the basis of their destination (domestic or export) and type

of offering (product or service). Bhatnagar (1997), taking a different approach, describes nations

as going through four stages of maturity transitioning from building skills and reputation, to

building services, to building products.

Heeks’ (1999) analytic framework is interesting and useful and roughly forms the basis of this

report’s analytic framework. The four resultant categories of companies from Heeks’ 2x2

frameworks are different in terms of their organizational characteristics, competitive strategies,

and enabling conditions and requirements. While it is clear where most companies from

developing countries would like to be (i.e. exporting products and services), Heeks (1999)

argues that getting there is not all that easy. Very few companies have been able to successfully

execute on strategies dictated by the needs of each of these four “quadrants” and Heeks (1999)

claims that majority of what we see is a constrained kind of an optimization—he calls them

“survival strategies”— rather than a free play within these categories. Drawing upon an earlier

paper (Heeks, 1998) it also presents secondary and anecdotal evidence to support his

conclusions.


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That the much‐touted success of the software “mini‐superpowers” may not be as convincing as it is portrayed can be gleaned from the following facts. Firstly, developing country packaged software exports –the “24‐carat gold” of the software exports business—are minimal—in the 5‐10% range from even the best of the software exporters like India, with the sole exception of Ireland and perhaps to a lesser degree, Israel. Secondly, majority of the work done by the developing countries consist of low‐skilled programming or coding services and while some countries, notably India, might have done well in this type of activity, it seriously suffers from issues of value‐addition and scalability. Thirdly, majority of the work being performed by developing countries is located in relatively few concentrated enclaves of software development activity worldwide (e.g. India’s Bangalore), being performed by foreign‐trained programmers working in subsidiaries of foreign companies who spend a major portion of the revenues onsite (in the country of their clients) to pay for the travel and living expenses of their consultants, leaving much to desired in terms of value gained by the developing country itself. Heeks (1999) describes major challenges (or bottlenecks) that a firm may encounter in each of these four product‐market categories and describes the reasons of the type of performance we see in each of these categories.

Still other researchers have taken a multi‐country view of software industries. Rubin (2000) is an interesting, though dated, overview of global software economics (Pakistan is not included as one of the countries surveyed). It presents data on several interesting variables (e.g. labor productivity, size of software staff, size of portfolio, cost per delivered and documented line of code, cost per supported line of code, average salaries of developers and maintenance staff, and defects per 1000 lines of code etc.) for a large number of countries. Coward (2003) takes an “outsourcers’ view” of the software industry looking at the 14 factors that influence the decisions of American SMEs to outsource software development activity to developing countries. Cusumano et. al. (2003) is a review of global software development practices. Based on a study sample of 104 projects, it compares the software development practices of American, European, Japanese, and Indian companies.

This study finds that conventional software engineering practices (e.g. functional specs, design reviews, code reviews etc.) are popular in India, Japan, and Europe but not the United States where they are used less, across the board. It identifies Indian companies as especially adept in mixing these conventional approaches with the relatively newer approaches like daily‐builds, tester‐developer pairs, and paired programming techniques. Overall, the report finds Japanese and European software operations to be most productive (in terms of lines of code per average staff*calendar) followed by US and Indian operations. Japanese projects also produced the lowest number of defects, followed closely by Indian and US projects, and the Europeans finishing last on this metric.


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This study confirms similar findings by other researchers that describe the technical quality of software development processes employed by Indian software companies (Dutta and Sekhar, 2004) and the adoption of standardized quality practices like Six Sigma methodologies (Radhakrishnan, 2004) and CMM certifications. These geographical differences in software development practices, however, maybe attributed to both cultural and type‐of‐work related factors. For example, Cusumano et al. (2003) observe that India and Japan significantly lag the American and European software operations in terms of the innovative quality of their work. Dutta et al. (1997) finds similar across‐country differences within 16 different European countries.

Collectively, this constitutes a wealth of information about the development and evolution of software development activity in developing country contexts from multiple perspectives. They point towards a number of factors, environmental, policy‐analytic (e.g. Carmel’s Oval Model, Heeks’ National Export Success Model) and organizational (e.g. Cusumano et al., 2003, and Cusumano, 2004) and identify major bottlenecks that might affect the execution of a particular strategy (e.g. Heeks, 1999). While development planners seek to extract prescriptions, this collective body of literature falls short of doing so hinting instead at the idiosyncratic factors and early‐mover advantages that might distinguish some countries’ progress from the rest.

The overall picture that emerges from various models and frameworks is a complex one. It underscores the importance of understanding a large number of policy, environmental, and organizational factors, and how they interact with each other, as well as the individualistic features of each of the countries and their target markets before a policy or an industry‐wide prescription can be made. Every country that we looked at (e.g. India, China, Japan, Ireland, Israel etc.) is different from every other country and understanding these unique features is important before any lessons can be drawn and applied from other contexts. We take up this challenge in this report on Pakistan’s software industry.

3. THE OBJECTIVES, AUDIENCE, AND FORMAT OF THE STUDY

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. Not only is the whole subject of the formation and dynamics of software industry around the world, and especially in developing countries, relatively new and hence under‐studied, the Pakistani software industry is a totally uncharted territory as far as the structure, management practices, technical ability, and the industry dynamics are concerned.

3.1—The Analytic Agenda:

This study has been undertaken with a two‐pronged analytic agenda, namely:


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At the most basic level, the study attempts to collect qualitative (but also, whenever possible within the purview of the research, quantitative) information on the current state of software industry in Pakistan with an emphasis on firm‐level characteristics and competitive dynamics. This would help in identifying the various organizational success factors, develop a shared understanding around those, and enable stakeholders to derive strategic and policy prescriptions from these. It explores the importance and prevalence of the various structural constructs in the Pakistani software industry and documents perceptions of business leaders, entrepreneurs, and influential individuals in the industry towards each of these constructs. The study attempts to do a one‐level‐deeper analysis of why individuals hold a certain perception to move the level of debate within the industry to the next higher level (i.e. from identifying problems to identifying solutions). For example, if we hear alternative explanations of lack of a culture of entrepreneurship, we would like to explore why and on what factors are those perceptions based upon and, to the extent possible, corroborate that with ground reality.

At the more advanced level, the study attempts to establish best practices within the Pakistani software sector. This is a problem riddled with controversies, not the least important of which is the identification of high‐performers in the absence of credible performance data. Additional issues have to deal with “definitional” (i.e. “what is a best practice?”) and maturity (i.e. “when does a practice become a best practice”) problems2. The study tries to tackle this controversial subject in a number of ways. Firstly, we try to identify the relatively more successful and prominent software companies in Pakistan and compare their various organizational, structural, and process features against several others that have not been as successful. Although it is likely that the differences between the best and the “not‐so‐good” performers may not turn out to be substantive enough (or worse yet, they may turn out to be quite “obvious”), the results of the study would, nonetheless, form a documented baseline against which changing trends in the Pakistani software industry may be compared in the future or against that of other countries (e.g. India).

To the extent that a (semi‐) statistical/quantitative analysis is likely to be of limited utility, a qualitative/anecdotal approach may still be of tremendous value in identifying and developing a shared understanding of best and unique practices (and “what’s possible”) within the software sector in Pakistan. Similarly, a valid criticism of our approach maybe that in a relatively nascent and immature industry like ours, a single company may not represent all the desirable “best practice” features. We use a qualitative approach to identify and “cherry pick” specific innovative and successful features of the software development and marketing

2 According to one long‐time industry observer, “it might be difficult to identify ‘best practices’ in the relatively nascent Pakistani software industry, what one might get in return for the quest for the former would be a lot of ‘worst practices’.


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processes (e.g. partnering and alliance building, customer acquisition, and product development strategy etc.) to develop a laundry list of best practices that the rest of the industry can emulate. While our primary focus is managerial best practices, we do briefly touch upon the issue of technical practices in the passing. This is done for the primary reason that there exists an interplay and dependence between the latter and the former. We do not, however, attempt an exhaustive analysis of the technical practices of organizations being studied.

3.2—The Benefits and Intended Audience:

The primary purpose of undertaking this study is that of within‐industry learning with the secondary purpose being investment promotion and facilitation. The benefits of (and intended audience for) the above analysis would, therefore, be three fold:

• Firstly, the findings of the study would be of considerable value for the existing software entrepreneurs, executives, and managers seeking to learn from the collective experience of their compatriots. This learning could take the form of: What are the critical success factors, the Dos and Don’ts, so to speak, of running a software business in Pakistan? The industry managers would be able to gauge the performance of their companies against the best‐in‐class companies and derive recommendations for correcting course, if necessary.

• Secondly, the study would also inform the interested (yet skeptic, at times) by‐standers—potential entrepreneurs, interested businessmen and managers, and investors—contemplating starting a software venture and looking for a good sense of what we can learn from the experiences of tens of successful and not‐so‐successful entrepreneurs. It would also help inspire and illuminate the decisions of a vast number of stakeholders, namely, business leaders, industrialists, managers, financiers and investors, regulators, policymakers etc, whose decisions to engage or disengage with this nascent sector of the economy can mean the difference for the software industry.

• Thirdly, the study—being the first of its kind in Pakistan— could be of potential value for foreign investors, clients, and policymakers whose appetite for meaningful quality information on the subject goes unsatisfied for want of credible analysis done on the subject. To that effect, this study may provide a credible data benchmark (or reference point) for putting Pakistan’s software industry in larger global perspective and getting the message across to potential investors, clients, and policymakers.

3.3—The Format of the Study:

The study can be broadly divided into two parts. The first part covers a statistical snapshot of the industry as gleaned by data on our respondents. The second part combines this with the more qualitative information to discuss strategic challenges and good practices in the industry.


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The study is formatted as follows: Section‐3 provides some background that builds the motivation for the study. Section‐4 deals with the objectives, audience, and format of the study. Section‐5 briefly describes the project methodology in a narrative and a graphical fashion. Section‐6 starts with the results of the survey and attempts to build a statistical profile of the Pakistani software industry as gleaned from an “on‐the‐spot” survey of 60 of its major players.

This section is divided into 4 major parts. The starting part sets the context of this statistical analysis by discussing results from a very limited number of earlier studies. Then we discuss a basic statistical snapshot of the industry using export‐focused and domestic‐focused firms as a basis for classification. Next we discuss various other classifications (e.g. product‐focused vs. services‐focused, small vs. large, pre‐DotCom vs. post‐DotCom, and development‐centers vs. rest of the industry) to assess how these varying organizational factors affect the managerial and technical processes of software companies in Pakistan. Finally, we assess whether the industry statistics reveal a pattern of “best practices”? In essence, we use the statistical data to answer the question: How do better‐performing firms differ from the rest of the industry?

Section‐7 supplements this with information gained from around 65 qualitative interviews. It uses taxonomy of generic software business models in Pakistan to identify generic profiles and strategic and competitive challenges faced by software companies in Pakistan. We identify 13 such challenges, divided across 4 generic categories of software business models, and discuss ways in which our respondents have innovatively tried to address each of these. There are lessons to be learnt here for the software entrepreneurs and businessmen, both young and old that could be applied and replicated across the industry. Section‐8 briefly touches upon environmental, infrastructure, and policy bottlenecks confronting the software industry. Finally, Section‐9 discusses some tentative conclusions and recommendations.

This report can be read in its entirety or selectively depending upon what a reader is specifically looking for. In its entirety, we have tried to structure the report in a manner that could give the reader a comprehensive view of Pakistan’s software industry, its current state, its peculiarities, and the major challenges faced by the software community. One can also, however, pick and choose what specific sections to read. For example, the generic profiles of different types of software business models and the challenges specific to each can be read without reference to the rest of the report. Either way we hope the report would present considerable original information and generate some thought and reflection among its readers.

4. A BRIEF NOTE ON PROJECT METHODOLOGY

In order to meet both qualitative and quantitative requirements of the study, we adopted a two‐pronged approach to the project, comprising an “on‐the‐spot” statistical survey and qualitative interviews with top organizational executives of major software companies in Pakistan. Owing to the relatively short time‐line of the project, a convenience sample of software houses (or


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software development operations) was selected and contacted to become part of the study. An effort was made, however, to include key large and prominent players of the industry in the analysis. Four sources of input were utilized for this purpose. PSEB and PASHA officials were contacted to identify, from amongst their member companies, the largest, most prominent, and most significant software operations. The consulting team also utilized its own knowledge of the local software industry to add to this list of nominations. Finally, several companies were added to the list on an on‐going basis as names of companies doing innovative and interesting work came up during interviews with industry professionals.

In all, 22 companies in Karachi, and 13 each in Islamabad and Lahore (for a total of 47 companies) were personally visited and surveyed. 13 more companies were added to the statistical sample through the Online Survey of Best Practices in the Pakistani Software Industry3. This increased the total number of survey respondents to 60. 40 of these 60 companies (or 2/3rd of the total) were identified and hence categorized as the more prominent and relatively successful software operations in Pakistan. This enabled us to develop two reference groups and allowed the possibility of statistical comparisons between these two groups with a view to identifying differences between them in various managerial and technical dimensions.

3 The PSEB Best Practices Online Survey is available at: http://www.hostedsurvey.com/takesurvey.asp?c=PSEB


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Perceived Policy Problem &

Opportunity

Problem Definition

Data Collection on Context & Background

Policy & Research

Questions (RQ)

Preliminary Literature Review (LitR1)

1.Research Questions (RQ)

2. Survey Parameters (sample

4. InstrumentTesting

3. Survey Instrument

6. Analysis & Results

5. Survey Administra-ion

3. Administer Interviews

2. Identify Sample / Participant

1.Thematic Areas for Interviews

R&D PERFORMANCE MAIL SURVEY

COMPANY INTERVIEWS

ON‐GOING LITERATURE REVIEW (LITR2)

x-Method Analysis

Reflective Lit. Review (LitR3)

Briefing & Write-up

Figure-I: The Multi-Pronged Research Methodology


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Several other comparison groups were also created to highlight differences in managerial and technical practices. Throughout the following analysis, where appropriate, we invoke the differences between various categorizations (e.g. export‐focused vs. domestic‐focused vs. development centers, better performers vs. rest, product‐focused vs. services‐focused, and large vs. small software houses) to make the results more meaningful to the software community. Figure‐I (below) presents a graphical snapshot of the project methodology. Next we look at

the results of the analysis.

5. A STATISTICAL SNAPSHOT OF PAKISTAN’S SOFTWARE INDUSTRY

A discussion of the size, structure, and dynamics of Pakistan’s software industry must begin by

setting an appropriate reference for the same. This reference can either come from within

Pakistan (i.e. comparing the current industry with its state at some point in the past) or outside

Pakistan (i.e. comparing it with the state of software industry of a comparable country). There

are potential problems with both these approaches. For the former, barring a handful of reports,

we lack comprehensive and credible data of any kind, whatsoever, to say anything meaningful

about the industry at different instances in time. While for the latter, one faces the problem of

finding an appropriate country to make comparisons with. Most often, for reasons of

prominence and tradition, the example of India is invoked when analyzing Pakistan’s software

industry—a practice that, although may have some value, can at times be quite

counterproductive or lead to wrong policy prescriptions4. We will discuss each of these points

of reference in greater detail below.

5.1—Establishing a Point of Reference for Pakistan’s Software Industry

Looking for points of reference relevant to the Pakistani software industry, we could identify only a handful of studies/documents of varying credibility from the past. These include: A 1999‐2000 CSP‐SEARCC5 ICT Manpower and Skills Survey; a 2002 PASHA‐LUMS Study of Pakistan’s Software/IT Industry, a 2004 UNCTAD Study, and a 2004 EAC6 Study of Pakistan’s IT Industry. Each of these studies is fairly limited in terms of the scope and coverage of policy

4 This has been a case quite a few times in past, for example, the Government of Pakistan’s “$1 Bn. Software Export Target by FY2000” was motivated in part by using the Indian software export figure and appropriately discounting it to a smaller value rather than any credible assessment of the industry’s present or future capability. 5 This study was conducted by the Computer Society of Pakistan (CSP) in collaboration with South East Asia Regional Computer Confederation (SEARCC) and used methodology and instruments that were used among 14 countries of South-East Asia. 6 Experts Advisory Cell (EAC) is housed within Ministry of Industries, Government of Pakistan.


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and organizational (technical and managerial) issues. These studies, like any other study of this nature, also have a fair number of methodological issues and problems. For example, CSP‐SEARCC & PASHA‐LUMS studies are quite dated. While the former does fairly well as far as being representative of the industry and providing a good reference point for cross‐country comparisons, it is fairly limited in its scope (i.e. only deals with manpower issues). The latter, however, while being much broader in scope does fairly poorly on representativeness7.

The latter two studies (i.e. UNCTAD, 2004 and EAC, 2004) are focused more on the policy environment and less on organizational issues. The former makes an attempt to impose policy prescriptions from other countries without adequately demonstrating an understanding the 7 The maximum sample size in PASHA LUMS (2002) is 16 with very strong statistical generalizations made, at times, with as little as 7 observations, without any mentioning of potential non-response biases.

TEXT BOX # 1: SALIENT FINDINGS & METHODOLOGIES OF PRIOR STUDIES

CSP‐SEARCC Study of ICT Manpower (2000): 314 of 441 organizations responded (71% response rate) of which 40.8% were IT suppliers, 14.5% public‐sector, and 44.7% private sector end‐users. 2375 of 5000 IT professionals responded (46% response rate) of which 60.3% worked in development and 39.7% in services. Some salient findings are:

• 51.3% IT professionals worked in software development while 6.3% in IT Mgmt. • IT professionals aged between 25‐29 (33%), 20‐24 (23%), and 30‐34 (19%) • Male : Female ratio is 9:1, with roughly proportional representation in jobs incl. IT mgmt. • Salary levels: < $3000 p.a. (44%), $3‐5000 p.a. (25%), $5‐8000 p.a. (14%) • 85% of organizations report shortage of manpower (34%‐extreme, 51%‐moderate) • Top‐5 skills in critical shortage: Applications/systems development, network

protocol/typologies, dBase, mobile/wireless comm.., and multimedia development

PASHA‐LUMS Software/IT Study (2002): Sample size was 16 organizations. Asked questions about domains, revenue sizes, projects acquisition, HR and quality practices etc. The sample was highly biased towards successful software houses. Salient findings are:

• Average programmer has the potential of generating $13,000 in exports every year • 75% of companies have ISO certification and 7% have CMM certification • Average stay of an IT professional in a company is about 2 years • Of the total employment, around 56‐58% were programmers and 11% QA professionals. • Larger firms (>PKR 25M) employed double the QA professionals than smaller on a % basis.

UNCTAD Study (2004): Comprises review of secondary literature in the Pakistani and international contexts. Salient findings of the study, generally critical of the industry, are:

• Discernable action on only 18 of the 162 (11%) “commitments” of National IT Policy • Pakistan 76th of 102 countries in Network Readiness Index • Actual spending under IT Policy 2000 lags allocations, esp. in Exports/e‐Commerce • Revenues in Export: $12.2M (growth of 84%) and Domestic: $5M (growth of 49%) • Current estimate of software exports at about $12 M


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peculiar dynamics of the local software industry. The latter provides a lot of data, which is at best, sketchy, and aggregates a lot of “mundane” secondary information in an unimaginative fashion. These weaknesses notwithstanding, these studies provide a starting point for a discussion on the current state of Pakistan’s software industry. Text Box # 1 (above) provides some of the salient features and findings of these reports.

More importantly, however, these reports provide an impetus and a motivation to undertake a more extensive on‐the‐ground (“hands on”) analysis of the Pakistani software sector.

5.2—Software Development in Pakistan: Statistics on Managerial and Technical Patterns

Pakistan’s Software Industry has come a long way from its start in 1976—when a company by

the name of Systems Pvt. Ltd. opened its offices in Lahore. Over the last three decades or so, the

industry has grown from zero to an approximate size of well‐over a hundred million dollars

and employs thousands of professionals8. During this time, the industry has seen periods of

nascence, hope, euphoria, disillusionment, renewal, and rebuilding. The last decade has in

particular not only been a time of great promise, but also a test for the industry that has been

through a full cycle of reversals—from an inside‐out (“domestic first, export later) to an outside‐

in (“export‐first, domestic later”) worldview and back again. In the process, it probably has also

been through considerable maturation, not only in terms of its ability to develop good

innovative software but also build successful businesses. We find considerable evidence of the

fact that the country’s financial community—the business houses, investors, and business

managers—are learning how to manage the IT and the IT professionals are learning how to

manage the “business” parts of the IT business. The industry, however, has a long way to go

before it can truly realize it’s potential. The statistical picture that we present below, therefore, is

a snapshot, at a particular point in time, of what essentially is a moving target.

Before we discuss the statistical results, however, a disclaimer is in order. The study in question

only looks at the relatively well‐known 50‐odd software houses (or development operations) in

Pakistan and hence does not claim to be representative of the entire industry. To the extent that

an 80:20 rule can be demonstrated to apply to Pakistan’s software industry, our survey sample

8 Although a significant number in its own right, these figures present a picture of an industry that is quite insignificant in the bigger scheme of things, namely, its contribution to Pakistan’s economy both in terms of revenue generation as well as employment creation capacity.


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could easily claim to cover the largest and the most prominent players among its respondents9.

We do not, however, go any farther than that in trying to assess or claim how representative our

findings are for the rest of the industry. For some key statistics, for example, the study can

provide some very accurate and useful lower and upper bounds. This maybe the case with data

on industry revenues, employment, and quality certifications etc. For other statistics, the study

may only be able to provide a gut‐feel estimate of how things are on the ground. This maybe the

case with data on managerial, marketing, and technical practices, and access to funding etc. For

others still (e.g. issues specific to smaller companies), the study may not represent the true

picture of the industry at all. We leave it to the judgment of our audience to draw their own

conclusions on a case‐by‐case basis.

Table‐I (below) presents a brief statistical snapshot of Pakistan’s software industry—as gleaned

from our sample 60 respondents. Although the data is quite self‐explanatory, some aspects are

worth noting here. In a cumulative sense, the 60 software houses in our statistical sample have

combined revenues of over $80 million (see footnote and Table‐II for details) and employ over

4000 technical and professional employees. This picture of revenues is, however, merely an

estimate extrapolated through categorical data. Table‐II presents more accurate categorical

estimates of the revenues of our respondents. Of the 52 companies that reported their revenues,

slightly more than a third (19 companies or 36%) had annual revenues between $200K and $1M,

about a third (17 companies, or 32%) had annual revenues greater than $1M (4 of these had

annual revenues in excess of $5M), and another third (16 companies, or 30%) had annual

revenues of less than $200K. In an aggregate sense, these software houses have seen a revenue

and employment growth of about 37.4 and 27.4 percent respectively over the last year—hinting

at either improved capacity utilization in the industry or value‐addition per employed technical

and managerial employee, or both. The average size of a software house comes out to be about

62 employees with the per‐employee revenue potential being around $21,800 per annum.

9 UNCTAD (2004) makes a similar claim, attributed to PSEB, in that the top-15 or so software companies in Pakistan (e.g. the likes of Xavor, Techlogix, Netsol, Systems, Softech etc.) could account for as much as 75% of the overall industry revenues


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Table I: Key Aggregate Statistics On Respondent Companies*

Revenue & Employment in Surveyed Companies

#(%) of Software Houses Total Number of Software Houses Surveyed 60*** Cumulative Revenues (calculated through mid‐point estimation)** $81.15 Million*^ Total # of Professional/Technical Employees 4070 Average size of Company (# of Professional/Technical Employees) 62 Revenue per Technical and Professional Employee $21,814 % Growth in Professional/Technical Employment (over last year) 27.47% % Growth in Revenues (over last year) 37.4% Ownership Structure and Quality Characteristics of Companies % of Companies that are subsidiaries of Foreign Companies 40% % of Companies having Front Offices abroad (US, UK/EU, ME, AP) 55% % of Companies having a Quality Certification (ISO, CMM) 45% (3.3% have a CMM) % of Companies having a Dedicated Quality Assurance Team 73.7% Product & Strategic Posture of Companies Product Profile**** Product‐focused or Packaged Software Company 56.67% Software/IT Services Company 48.34% Software/IT Consulting Company 31.67% Strategic Posture**** Niche product/service for a Niche Market 36.67% Product/service applicable to several industries 56.67% Product/service applicable to an industry vertical 33.34% * These are based on self‐reported annual revenues *^ The State Bank of Pakistan estimates the country’s exports figures of last year to be $32M. ** This estimate needs to be used with great caution. The corresponding lower and upper limits are $39.35 and $110.95 Million. Please refer to Table‐II for a detailed categorical breakdown *** 46 software houses were surveyed in‐person—while 14 submitted data through online survey **** These categories are not mutually exclusive i.e. a company can opt for one or more categories

In terms of their product/service strategy and strategic posture in the market, 56% of the

companies described themselves as product‐focused (packaged‐software) companies, 48% as

software/IT‐services companies, and 31% as software/IT consulting companies. It is worth

emphasizing here that majority of the companies that described themselves as product‐focused

dealt with customized rather than shirk‐wrapped products. In terms of industry focus, about a

third of the companies described themselves as niche players, another third focused on an

industry vertical, and about 56% produced a product/service applicable to several industries.

Clearly, none of these categories are mutually exclusive. Many companies (as many as 42% and


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23%) identified with more than one category in the product profile and strategic posture

respectively.

TABLE II: SIZE OF RESPONDING COMPANIES BY REVENUE* & EMPLOYMENT

Annual Revenues in US$ (PKR**)

#(%) of Software Houses N=52*** Greater than $ 5 Million (>PKR 300 Million) 4 (7.69%) Between $ 1 and 5 Million (~ PKR 60‐300 Million) 13 (25%) Between $ 500K and 1 Million (~ PKR 30‐60 Million) 9 (17.31%) Between $ 200K and 500 K (~ PKR 12 – 30 Million) 10 (19.23%) Between $ 100K and 200 K (~ PKR 6‐12 Million) 6 (11.54%) Between $ 50K and 100 K (~ PKR 3‐6 Million) 5 (9.62%) Less than $ 50K (~ PKR 3 Million) 5 (9.62%) Total 52 (100%) Full‐time Employment N=60 Greater than 250 Employees 6 (10%) Between 100 and 250 Employees 8 (13.33%) Between 25‐100 Employees 23 (38.33%) Between 5‐25 Employees 22 (36.57%) Less than 5 Employees 1 (1.67%) Total 60 (100%) * These are based on self‐reported annual revenues ** 1 US$ = 60 PKR *** Eight companies in our sample did not report full‐year revenues either because it was their first year of operation or because they were development centers of foreign companies with no independent revenue estimates of their own.

Table‐III presents a statistical profile of the industry’s target customers. Broadly speaking, our

60 respondents derive their revenues from export and domestic markets in a ratio of 60:40. One

the exports side, our respondents derive 22.5% and 38.5% of the revenues from products and

services respectively. Because of the preponderance of customizable products in the product‐

service mix, we contemplate that the proportion from export of products maybe over‐estimated

and thus represent an upper bound only10.

10 Some local software houses engaged in development of software (i.e. programming and coding)—a service, from the standpoint of the local outfit—for foreign product‐based companies may have identified their revenues as arising from products.


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TABLE III: WHOM DO PAKISTANI SOFTWARE COMPANIES SELL TO?

Exports vs. Domestic & Products vs. Services

% of Total Revenues* N=54 Export‐Products 22.56% Export‐Services 38.52% Domestic‐Products 23.37% Domestic‐Services 16.53% Exports vs. Domestic & Public vs. Private Sectors N=54 Public Sector (Govt.)— Domestic 8.51% Public Sector (Govt.)— Foreign 5.90% Private Sector – Domestic 30.79% Private Sector – Foreign 54.77% * These are based on self‐reported percentages of annual revenues

On the domestic side, our respondents derive around 23% and 16.5% of their revenues from

products and services respectively. Again, a major chunk of the products revenue would

comprise “customized or custom‐developed” products rather than shrink‐wrapped products.

Another factor worth considering on the domestic side is a certain number of “hybrid”

companies that, for reasons having to do with the necessities of their business and revenue

models, bundle hardware with the software they develop. Examples maybe banking

automation companies, call‐center solutions companies, and mobile/handheld devices

companies and others whose offerings depend on simultaneous sale of specialized hardware.

This, once again, would necessitate that the figure on revenues from domestic products is an

upper bound rather than an accurate estimate of sales from purely software development

activity.

At the sectoral level, our respondents derive an overwhelming portion of their revenues (>85%)

from the private‐sector with only 8.5% of the sales coming from govt. or public sector on the

domestic front and another 6% on the foreign front. This essentially confirms the observation

about the relatively insignificant role played by public sector and the government as a

sophisticated buyer of software products and services in Pakistan. Many interviewees that we

spoke to stressed the need for the government to jumpstart the demand for local software


29

development by intelligently using its demand‐creating ability. We will discuss this theme in

much greater detail in a later part of this report.

As we dig deeper into this statistical analysis, it is quite obvious that while these top‐level

(aggregate) statistics have their own value, they tend to mask the vitality and heterogeneity of

the underlying data. That export‐focused operations may be different from domestic‐focused

operations, larger operations maybe different from smaller operations, and product‐based

operations maybe different from services‐based operations not only in terms of their

organizational and managerial arrangements but also the strategic and competitive drivers is a

foregone conclusion. What we need, therefore, is a much more fine‐grained analysis that

focuses on these important sub‐categories in addition to the aggregate‐level statistics. This kind

of analysis also has important implications for the business model and strategy issues that we

address, in a qualitative sense, in section‐6 of this report.

As we attempt to derive important sub‐categories of our data, our first reference point maybe

Dr. Richard Heeks’ work on software strategies for developing countries (Heeks, 1999). Figure‐

II (below) presents a graphical representation of Heeks’ software strategies framework that

divides the potential universe of strategies into 4 distinct components, namely, export‐services

(Strategy‐A), export‐products (Strategy‐B), domestic‐products (Strategy‐C), and domestic‐

services (Strategy‐D). For comparison purposes, he names the former (Strategy A &B) as “24‐

Carot or Fools’ Gold”, and the latter (Strategy‐C) as “Third World Microsoft” and (Strategy‐D)

as “Small Fish in a Small Pond”. According to Heeks (1999) each of these four strategies is

distinct in the sense that each has its own set of organizational requirements, competitive

drivers, environmental pre‐requisites, and risk‐factors. Yet, as Heeks (1999) points out with

illustrations from India’s case, companies try to adopt each of these strategies to varying

degrees of success.


30

While Heeks (1999) discusses relevant factors that might make each of these approaches more

or less risky (and thus more or less likely to succeed) without actually presenting empirical data

on how many Indian companies adopt each of these approaches and what percentage of them

do so successfully, we are able to put data on Heeks’ framework for the case of Pakistan’s

software industry. These data are presented in figure‐II (above). In all, 37% of our respondents

seem to follow strategy‐A, 20% seem to follow strategy‐B, 9% seem to follow strategy‐C, and

another 25% seem to follow strategy‐D. The overall picture that emerges from overlying our

data on Heeks’ framework is that of over‐reliance on the relatively riskier of the four strategies

(Strategies A&B) that Heeks calls “24‐Carot or Fools Gold” and under‐reliance on the relatively

less riskier one (Strategy D) that he calls “Small Fish in Small Pond”. Figure‐III presents this

data in a graphical format. We will discuss generic business strategies that are modification of

Heeks’ 4‐part framework in somewhat detail in the next section.

C: (Local-Products > 50%) Total #: 14 % of Total: 25%

B: (Export-Products > 50%) Total #: 11 % of Total: 20%

D: (Local-Services > 50%) Total #: 5 % of Total: 9%

A: (Export-Services > 50%) Total #: 20 % of Total: 37%

Software Business

Mar

ket S

erve

d D

omes

tiE

xpor

t

Services Packages

Figure—II: Richard Heeks’ Taxonomy of Software Businesses, as applied to Pakistan


31

100% Exports

Dom

estic <

---

Mark

et S

erv

ed -

-->

Export

Fig-III: Product-Market Profile of Pakistani Software Cos.Services <--- Software Business ---> Products

100%

Pro

ducts

0 25 50 75 100

0

25

50

75

100


32

Another way to look at the data is to classify software companies solely according to their

market orientation i.e. those that are predominantly export‐focused vs. domestic‐focused with a

lot of hybrids working in between in both export and domestic markets in almost equal

proportions. From the standpoint of being able to identify differences in organizational,

managerial, marketing, and technical processes, this seems to be a more promising approach

than Heeks (1999) as it remedies for the abrupt boundary changes across the four segments in

Heeks’ classification11. We use an arbitrary limit of 75% (exports vs. domestic and products vs.

services) to define a new typology. Thus, we define an export‐focused company as one that

derives more than 75% of its revenues from exports and a domestic‐focused company as one

that derives more than 75% of its revenues from the domestic market (products and services

combined). In between these two categories are a bunch of companies that are categorized as

“hybrids” (almost equally active in export and domestic markets). A similar scheme, based on a

75% cut‐off, can be devised for product‐ and services‐focused companies.

Given the importance of market‐orientation (rather than product‐service orientation) as a

defining factor in the conceptualization of software ventures in the Pakistani environment, we

first look at that in greater detail.

Figure‐VI (above) presents a

breakdown of our respondents

between domestic‐, export‐

focused, and hybrid operations.

Applying the above classification

on our sample, we get 18 (37%)

companies as domestic‐focused, 20

(41%) of the companies as export‐

focused, and 11 (22%) of the

companies as hybrids. We now

look at the technical, managerial, and marketing practices of companies in our sample from

both an aggregate and a categorical perspective.

11 One can speculate that the company doing 51% product-exports is not likely to be very different from doing 49% product-exports, yet the former would be placed in a different category than the latter under Heeks’ (1999) scheme.

Fig-IV: Market Orientation of Software Companies in Sample

Hybrids22%

Domestic37%

Export41%

Domestic Export Hybrids


33

Before we discuss the results of this analysis, however, it is important recognize that almost

none of the differences between export‐ and domestic‐focused operations are statistically

significant at the 5%

significance level

and, therefore, may

at best be termed as

suggestive. In the

following

discussion, when

we talk of

“significance”, we

would mean a

finding of

significance from

practical rather than

statistical

standpoint. Also,

what is practically

significant may vary from situation to situation and construct to construct (e.g. a 10% difference

maybe of little value in one context but of great value in another). With that caveat in mind,

here are some of the statistical findings:

The formation & funding strategies for export‐ & domestic operations are changing. Going back

to our data, export‐focused software houses are much less likely to be funded with savings of

local founders than either the domestic‐focused or hybrid operations (Table‐IV). We believe this

to be a representation of an after‐the‐fact conclusion i.e. it is not that there is a dearth of the

desire to explore the export route among local founders but rather than the latter have not been

able to successfully do so, either because of inadequate capital or lack of networks abroad.

Investment by a venture capital fund or a local partner (e.g. a business house) is almost equally

likely to result in a domestic‐, an export‐focused or a hybrid software operation. Domestic‐

focused software houses are much more likely to be focused on financial and automation

systems, and sell a mix of hardware‐software offerings than export‐focused software

TEXT BOX # 2: WHAT DOES IT MEAN FOR A RESULT TO BE (NOT) STATISTICALLY SIGNIFICANT?

0

10

20

30

40 qaproll

1 2 3 4 generated from the same underlying population. For example, for a 5% significance level to hold, one must be sure that 19 out of 20 times, a draw from one sub‐population would come out to be distinctly different from a draw from the other sub‐population. We do not get statistically significant results when either the sub‐populations are not dissimilar in which case there is little variation between them or there is too much variation, as is the case in the figure above where the standard deviation bands (variation) around the means are so large that none of four sub‐populations is distinctly different from others. Smaller sample sizes can sometimes, not always, be a hindrance in getting statistical significance.

Two sub‐populations e.g. different types of software houses, are considered to be different, at a statistically significant‐level, if one can rule out, with a measure of confidence that indeed they are not


34

operations. They have, on average, smaller revenue sizes but also lesser dependence on a single

client.

Export‐focused software houses tend to suffer from lack of growth in profitability (“operations continue to grow in revenues but not in profitability”) much more than domestic‐focused or hybrid software houses. This might be due to adverse terms‐of‐trade arising from recession in major software export markets in the recent years, an inability to climb up the value‐chain, or an over‐representation of development‐center‐type work done by companies in this category.

There is no clear‐cut winner among domestic/export‐focused operations in managerial practices. >From the standpoint of managerial practices (see Table V, below), there seems to be virtually no statistically identifiable difference between domestic, hybrid, and export‐focused software operations in terms of the technical backgrounds of the entrepreneurial team (i.e. founders). There is some suggestive evidence that export‐focused software operations are more likely to distribute stocks/ownership among employees (a practice that seems to have permeated from their foreign origins), 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 tend to perform somewhere between the two extreme categories or at‐least as well as one of the two in almost all managerial practices except a few. They tend to do better than either of the categories in terms of benefits to female

TABLE IV: WHERE DO SOFTWARE HOUSES GET FUNDED FROM?

Market Orientation of Software Houses

Sources of Initial Funding for Software Ventures

All Combined

Domestic Focused*

Hybrids Export Focused

N=58 N=19 N=11 N=20 Savings of local (Pakistan‐based) founders 43% 52% 72% 35% Investment by (savings of) foreign partners/founders 32% 26% 18% 20% Investment by a local partner (e.g. a business house) 13% 15% 18% 15% Funded through initial project work (or cash‐flows) 15% 15% 0% 20% Venture capital or banking sources 17% 21% 18% 20% Other 7% 10% 0% 5% * Domestic/Export‐focused software house is one with > 75% sales in domestic/export markets respectively


35

employees and employee‐driven innovation and worse in terms of improvements in profitability of the operations—a fact that might reflect a lack of focus on the part of their “inexperienced” entrepreneurial teams.

Export‐focused operations spend more on quality assurance, and hybrids on certifications.

Table‐VI (above) presents a view of technical and process quality of our respondents. Again,

some differences are worth emphasizing here. While there is no significant difference in the

proportion of companies having a dedicated quality assurance team, the export‐focused

operations tend to spend more effort on quality assurance as evidenced from the average size of

the quality assurance teams and % of employee payroll dedicated to the quality assurance

TABLE V: PREVALENCE OF KEY MANAGEMENT PRACTICES IN SOFTWARE HOUSES

Market Focus of Software Houses

Key Managerial Practices Employed All

Categories Domestic Focused


N=58 N=18* N=11 N=20 MP1. Top management team primarily comprises people with technical degrees

81% 78% 81% 80%

MP2. Company’s top‐management team has started successful/unsuccessful ventures before

44% 52% 27% 40%

MP3. Incentives (or profits) are shared among the company’s employees

51% 63% 54% 50%

MP4. Company offers stock ownership to its employees 34% 26% 36% 40%

MP5. Company offers additional benefits (e.g. flex times, maternity leave) to female employees

65% 68% 81% 55%

MP6. Provides some paid time to employees to work on their own interests

22% 31% 18% 25%

MP7. Company holds regular employee bonding events (e.g. Tech‐Forums, Picnics)

68% 52% 72% 70%

MP8. Top leadership closes tracks cash‐flows several months into the future

79% 89% 90% 65%

MP9. Company’s employees are regularly briefed about strategy and goals

77% 78% 81% 80%

MP10. Company continues to grow in revenues but not in terms of profitability

20% 10% 36% 30%

MP11. Employees/managers often feel: “I have to do it myself, if I have to get things done” 39% 42% 36% 35%

MP12. Portion of company’s current/future product‐line comprises employee‐conceived projects

36% 26% 45% 40%

* These sub‐categories exclude operations strictly categorized as “offshore‐development‐centers”.


36

function. One interesting finding is that a greater proportion of hybrids seem to have (or seek) a

quality certification, followed by export‐ and then domestic‐focused software houses. The lower

propensity of domestic‐focused software houses to seek a quality certification is quite

understandable—given the relatively less premium that the domestic customer puts on quality,

but the difference between the relative propensities of hybrids and export‐focused operations is

quite surprising. If anything, we would have expected an opposite relationship in that the

export‐focused operations paying more emphasis on quality certifications than the hybrids. We

believe what we are seeing here is a sorting of software exporting companies in export‐focused

and hybrid categories based on the sort of competitive pressures that they face. Hybrids

generally compete more openly for the export business and thus require quality certification

while export‐focused software operations leverage their long‐established relationships to do

business in export markets.

There is no clear‐cut trend, suggestive or real, in the use of software design methodologies,

except perhaps that the export‐focused software houses rely more on home‐grown or more

TABLE VI: KEY TECHNICAL PRACTICES IN PAKISTANI SOFTWARE HOUSES

Characteristics of Technical Quality

All Categories

Domestic Focused


N=58 N=19 N=11 N=20 % of Companies with dedicated QA Team 73% 73% 72.7% 68% Ave. size of the QA team (as % of total employment) 17% 9.8% 13% 26% % of employee payroll spent on QA function 13.96% 11.64% 11.8% 16.9% % of Companies with ISO/CMM Certification 45% 36% 72% 50% Programmer‐to‐PM Ratio (PM incl. Team‐leads) 5.87 4.16 8.4 5.7

Software Engineering Design Methodology Used % % % % Waterfall 32% 36.8% 54% 15% Iterative 44% 36.8% 63% 40% Prototyping 50% 68.4% 54% 30% Home‐grown 29% 15.7% 9% 45% Other 18% 15.7% 9% 30%

How Often Are Technical Best Practices Used Freq* Freq Freq Freq Project plan tracking 1.87 1.66 2 1.94 Code and design reviews 2.72 2.55 3.2 2.44 Documentation of the code 2.58 2.36 2.88 2.8 System to learn from on‐going projects 2.74 2.46 3.11 2.76 Measurement and review of process quality 2.85 2.53 3.09 2.93

* Frequency scores are presented as an average #, 1= daily/continuously, 2=weekly, 3=monthly, and 4=as needed (generally, small is better). Excluded from these figures are companies that don’t use a particular approach.


37

esoteric approaches while domestic‐focused and hybrid operations show a greater reliance on

the more traditional ones (e.g. waterfall, iterative, and prototyping). Although only suggestive,

an interesting pattern emerges from figures on the use of technical best‐practices. Domestic‐

focused software houses tend to carry out four of the five best‐practices more frequently than

either the export‐focused or the hybrid companies with the latter doing worst of all. Needless to

say, however, that this particular finding is quite the opposite of the common perception about

domestic‐focused operations and needs a closer analysis.

Companies, across the board, focus on high‐contact marketing strategies and channels to seek

customers. We look at various marketing approaches used by software houses and their

perception of “successfulness” of the same. Table‐VII presents this analysis. As before, while

none of the between‐category differences are statistically significant, some broad findings and

trends can be gleaned from the data. Most importantly, “selling software is a highly contact

intensive sport”. All types of organizations identify high‐contact methods like one‐to‐one

contacts, network and relationships, and word‐of‐mouth referrals as the most successful (all

rated > 3.5 on a scale of 5, on average) of the marketing approaches and low‐contact ones like

advertising and going to conferences and exhibitions as least successful (rated <2.5 on a scale of

5, on average) of the approaches. The use of alliances and agreements with channel partners

seem to fall in between these two extremes—with the important caveat that these do not seem

to work as well for domestic‐focused operations as they do for hybrids and export‐focused

ones. Consequently, in line with the perceptions of successfulness, companies seem to have

focused their energies on approaches that appear to work best. This clearly has implications for

the marketing and networking initiatives designed by PSEB and PASHA for the software

entrepreneurs.


38

Export‐focused companies seem to do more “relationship‐selling” rather than direct marketing

& advertising; hybrids under‐invest in product‐development, perhaps, to pay for costlier

marketing and certifications. How do software houses spend their money to develop and

market their product‐service offerings? Table‐VIII (below) tries to present a picture of their

operations in terms of percentages of expenditures on key expense‐heads. There are some

noticeable differences. Hybrids tend to spend more (3‐5 percentage points‐level) than either of

the two categories on marketing and advertising. That export‐focused software houses tend to

spend the least on the same is surprising. This finding might support our earlier hypothesis that

export‐focused software houses tend to do more relationship selling and hence need to spend

less on marketing and advertising as compared to hybrids that compete more openly in the

export markets. This, however, can only be a partial explanation. One would have expected

these figures to show the very high costs of setting up marketing front‐offices in the American

and European markets that has become somewhat of a norm these days. According to our

estimates, foreign front‐office and marketing operations, on average, are 300‐500% more

resource intensive than local operations. The survey data suggests that for companies having

front‐offices abroad, on average, 75% of the expenditure is made on the foreign operation that

only accounts for 25% of the workforce. Possible explanations for the above discrepancy might

be that firms are using different companies (or legal entities) to fund the overseas operations or

entering in partnering agreements with foreign companies to share the cost of selling abroad.

We certainly find strong evidence in support of the former, and some hint of the latter.

TABLE VII: SUCCESS OF MARKETING STRATEGIES USED

Market Orientation of the Software Operation Average Rating* (% Don’t Use)

Success of Marketing Strategies Used

All Companies

Domestic Focused

Hybrids

Export Focused

N=57 N=19 N=11 N=20 MA1‐Word of mouth approach (client referrals etc.) 3.76 (19%) 3.88 (10%) 3.90 (0%) 3.53 (25%) MA2‐Advertising in trade local/foreign journals 2.21 (59%) 2.20 (47%) 2.20 (54%) 2.14 (65%) MA3‐Attending local/foreign trade conferences 2.48 (38%) 2.23 (31%) 2.25 (27%) 2.66 (40%) MA4‐Initiate 1‐to‐1 communication w/ potential clients 3.70 (19%) 4.11 (5%) 3.53 (0%) 3.45 (25%) MA5‐Use pre‐established networks/personal relationships 3.52 (29%) 3.6 (26%) 3.75 (27%) 3.13 (25%) MA6‐Alliances and agreements w/ channel partners 2.94 (36%) 2.53 (31%) 3.00 (36%) 3.14 (30%) MA7‐Depend on a “captive” client since formation 3.16 (57%) 3.67 (68%) 2.90 (63%) 2.25 (45%) * Respondents were asked to rate the perception of successfulness of each of these approaches on a scale of 1‐5 (1=least successful, 2=somewhat successful, 3=moderately successful, 4=quite successful, 5=most successful.)


39

Hybrids also tend to spend more, almost twice as much (in percentage terms), on quality and

certification than either of the two categories. This, again, is in line with our earlier observation

that hybrids are much more likely to seek a quality certification than either of the two

categories. They, however, under‐invest in product‐development and service‐delivery by as

much as 5‐10%. This is a finding that we cannot explain on the basis of differences in demand

for products/services in the domestic/foreign markets. Perhaps, what we are seeing here is the

effect of a squeeze on expenditures to make room for their high‐than‐average investment in

certification/training and marketing/advertising etc. In other words, the hybrids may be cutting

corners to pay for these expenses and the expense‐head that most often gets cut is product‐

development. There might be alternate explanations for what we see. For example, the product‐

service characteristics of these firms might be different than either domestic‐ or export‐focused

companies and thus require lesser product‐development expenditure. We, however, do not

have any evidence to support or reject that hypothesis.

Export‐CEOs operate in a relatively tactical profile—focusing more on day‐to‐day

management and less on product and strategic planning & marketing/advertising. Finally we

look at how software CEOs (or local heads of operations) distribute their time on various

aspects of the business in an average month. The quality of top‐leadership has often been

described as a key bottleneck in the development of software industries in third world and

emerging market contexts. How the top‐executive (in particular) and senior management (in

general) distribute their time is also an indicator of professionalization and delegation quality

within an organization. For example, within our data, we find a strong negative correlation

TABLE VIII: HOW DO SOFTWARE HOUSES SPEND THEIR MONEY?


Major Expenditure Heads of Software Houses

All Combined

Domestic Focused*

Hybrids Export Focused*

N=57 N=17 N=11 N=21 Marketing and Advertising 9.5% 11.1% 14.3% 9.5% Product Development / Service Delivery 46.4% 48.35% 39.8% 45.7% Product/Service Support 15.5% 15.1% 15% 15.9% Research and Development (R&D) 8.4% 9.58% 9.27% 7.4% Quality Assurance 8.5% 6.05% 7.95% 7.7% Training and Certification 4.6% 4.17% 8.45% 4.1% Other 6.4% 6.17% 5.36% 7.47% * Domestic/Export‐focused software house is one with > 75% sales in domestic/export markets respectively


40

between the percentage of time a CEO spends on day‐to‐day management of the business and

the perceived quality of delegation. We also find that the more effort a company puts in to brief

its employees about its corporate strategy and goals, the less their CEOs have to spend time on

day‐to‐day management of the company—a possible sign of greater involvement and

ownership on the part of the company’s employees. The correlation may be spurious but it is a

correlation nonetheless.

Table‐IX (above) presents the relevant data on CEOs in our sample. As before, while there are

no clear‐cut patterns, we do have some suggestive findings. CEOs of domestic‐focused software

houses tend to spend much less time on day‐to‐day management of their business than the

other two categories. Somehow being involved in the export markets tends to get CEOs more

hands‐on onto day‐to‐day management of the business, either because of concerns for quality or

having to deal, on a day‐to‐day basis, with foreign operations and customers etc. CEOs of many

smaller startups also do a fair bit of programming/coding themselves. CEOs of export‐focused

companies tend engage significantly less in marketing and business development activities.

This can either be due to their limited role as a local head of operations of a development‐

center‐type setting or in line with our earlier observation of export‐focused companies having a

greater propensity to engage in relationship selling rather than direct marketing/advertising.

Export‐CEOs also spend considerably more time (~ 5% more, on average) in hiring and

recruitment—a fact that supports the perceived need for higher quality in the export markets.

What does all this mean for software development industry in Pakistan? At the most

fundamental level, we find a lack of real “focus” and specialization within the industry. While

there do exist some definite differences between sub‐categories of companies on the basis of

TABLE IX: HOW DO SOFTWARE CEOS SPEND THEIR TIME?


Breakdown of Time Spent in an “Average Month”

All Combined

Domestic Focused*


N=57 N=18 N=11 N=20 Day‐to‐day management 32% 20% 34% 36.5% Strategic & Product Planning 20.5% 24% 20% 15.5% Fund‐raising 6.0% 9.4% 2.7% 7.25% Marketing & Business Development 24.6% 31% 30.4% 20.65% Hiring & Recruitment 7.95% 5.6% 4.81% 11% Other 8.65% 8% 7.9% 9.25%

* Domestic/Export‐focused software house is one with > 75% sales in domestic/export markets respectively


41

their market‐destination (i.e. domestic, export, or hybrid) these are not very pronounced. For

example, one of the things we often heard from industry executives was that running a

domestic –focused business and software exports were two entirely different types of

businesses. Many suggested that even the cost structures of companies exporting software and

developing it for local consumption were so radically different that it became impossible for the

former to sell locally. We do not seem to find an evidence of this conjecture in our data. Infact,

we found a lack of statistically significant differences on majority (almost all) measures of

relevance between the three categories. Even from a practical standpoint, the data seems to

suggest that companies engaged in domestic and export‐oriented software development are

more similar to each other than not.

What we are probably seeing, from an industry‐wide perspective, is a move away from the

export‐focused firm to a well‐diversified firm with quite a few companies completely

abandoning their desire to play in the software export game and focusing instead on the

domestic market. The post‐DotCom and 9/11 scenario has brought quite a rude awakening for

the “(ir)rational exuberance” of the local software entrepreneur and his/her expatriate‐sponsor

and has been a watershed event for the Pakistani software industry. Some of this is probably

reflected in our data. Another interesting, yet related, finding is the distinctiveness of the well‐

diversified “hybrid” firm. Rather than falling somewhere in the middle, the hybrids tend to do

better or worse than the other two categories on several accounts thus elevating them to an

interesting category, in and of themselves, rather than merely the residual of the other two

categories. With the hybrid model increasingly becoming a norm in the industry, rather than an

exception, with its own strategic and competitive drivers warrant an investigation.

The market destination (domestic or export), although one of the most important, is not the only

important factor confounding the strategic choices, organizational structures, and technical‐

managerial practices of software companies. There are several other factors, some exogenous

others endogenous, that impinge upon the decision calculi of software entrepreneurs and CEOs.

Among them are the product‐service mix, the size, and other environmental factors (e.g.

economic booms and busts). We looked at some of these in an attempt to try to gain a finer‐

grained understanding of the industry and its dynamics. Following is a brief discussion:

The “dedicated” development centers present considerable promise but, thus far, have

shown limited capacity to grow in size and scope. Among our subjects, we found companies

with a number of different business models and strategic foci. One interesting class of

operations can be termed as a dedicated “offshore‐development center” (more on that later).


42

Although most subsidiaries of foreign companies—and there are 24 of them in our sample (40%

of the total)—use the Pakistan‐based operation in a development center format as evidenced

from data on revenue contribution to the foreign parent (60% of the foreign parent’s revenues,

on average, can be attributed to Pakistan‐based operation), 8 of our respondents can be

described as the purest forms of dedicated development centers (Figure V). These organizations

are different in the sense that they have a very limited strategic mandate, namely, to solely serve

as a back‐up operation (for product development) of the foreign parent. They are also different

from other, more “hybrid” software development‐center operations in the sense that they are

very tightly—almost exclusively—linked to their foreign parents and do not operate

domestically or even seek other clients in the international market.

>From a strategic standpoint, they are virtually unattached to, and to a large extent unaffected

by, the developments on the Pakistani software

scene and the strategic and competitive drivers

of the local industry, except for their

dependence on availability of IT/Telecom

infrastructure and access to quality human

resources. Because of these qualities, many of

the organizational and managerial statistics

related to these operations are thus not

comparable with the rest of the industry.

Nevertheless, they are an important segment of

the Pakistani software scene that must be

looked at closely, with a view to identifying

differences, similarities, and best practices, and we do so in the following paragraphs.

The dedicated development‐center‐type operations, almost universally, have a strong

expatriate‐connection as subsidiaries of foreign companies. They have a greater dependence on

a smaller client base (~50% from a single client, and as much as 90% from top‐5 clients), a

greater‐than‐average export‐ and product‐focus and an almost negligible domestic‐focus that

confirms our assertions about their “isolated enclave” nature on the local software development

scene. These operations tend to specialize more in automation systems across various domains

(e.g. printing, stock trading, workflow etc.) These operations have a greater‐than‐average

expenditure on product‐development/ service‐delivery and lower‐than‐average expenditure on

certification/training. They are also less likely to have a quality certification. The development

center‐type operations are much more intensive from a technical process standpoint (as

Fig-V: Proportion of "Dedicated" Development Centers

Others85%

Develop Center

15%

Development Center Others


43

measured from a variety of indirect measures like programmer‐to‐project‐manager ratio, % of

payroll spent on QA, size of QA team as percentage of total staff etc.) but less in terms of actual

rigid application of known methodologies (e.g. waterfall, iterative, prototyping etc.) and

technical best practices like project tracking, code‐and‐design reviews. This might be attributed

to the nature of the work they perform or their adherence to unique parent‐specific

methodologies rather than the standard suite of design approaches and technical best practices.

From an organizational standpoint, these development center operations are smaller (almost

half the average size) and have a higher employee turnover—a finding that may be explained

by the relatively easier outward mobility of their employees to the countries of their parent

companies. This is in spite of the fact that they tend to pay more in salary than the average

software house in Pakistan. They are, however, less likely to distribute profit among their

employees. Development center‐type operations are predominantly established with

funds/investment from foreign partners and the better‐managed ones are often headed by a

foreign founder relocating to Pakistan to serve as a local head of operation. These heads of

operations, or local CEOs, are much more involved in day‐to‐day management of the company

(spend 15% more time, on average) and much less involved in marketing and fundraising

(spend 20% less time, on average).

Another interesting and potentially consequential finding is that development center‐type

operations show a significantly lower rate of revenue and employment growth (as much as one‐

half of the average revenue growth, and one third of the average employment growth) thus

highlighting the relatively limited scope of their operations and difficulties inherent in the

scalability of this organizational model. While some of this lack of revenue and employment

growth maybe attributable to the depressed demand of the software of their parent companies

in their respective markets (abroad)—a situation that might improve over time—whether or not

the development‐center model can outgrow its limited character and resolve certain

management challenges (discussed in section 7.5) is, however, an open question. We see a gradual shift towards “productization” of services. However, services‐ and products‐

focused companies in Pakistani software industry maybe more alike than different from each

other, thus pointing out towards a lack of specialization in the industry. Product or service

orientation of a software operation has been a subject of considerable debate within the

academic and practitioner communities. While some assert that a company cannot hope to do

well in both types of offerings simultaneously, others have argued and documented the

inevitability of the convergence between product and services‐focused companies. Cusumano


44

(2004) asserts that increasingly, product‐focused companies are increasing their share of

revenues from service offerings and the services‐focused companies are moving towards

productization. It views this convergence as a robust middle‐way for large western software

companies struggling to survive during economic recessions.

In the context of software industries of emerging markets, like Pakistan’s, the product‐service

dimension assumes an even more critical meaning as it may be confounded or even driven by

the demands of the intended market rather than the inherent product‐or‐service character of the

firm’s offering. Many companies seem to have adopted a services posture merely because of the

founders’ interest to export rather than any other competitive factor. Also, a large number of

these companies often find themselves in a “projects‐trap”—moving from one project to the

next, and in the process, often unable to build critical intellectual property or a domain expertise

that could serve as value‐differentiator in the longer run. That majority of India’s exports

comprise low‐end services or body‐shopping rather than more profitable shrink‐wrapped

products are well‐documented in literature (Heeks, 1998).

Given the importance of the product‐service distinction and the peculiar organizational and

strategic requirements of each, we sought to look at these distinct sub‐segments separately. As

before, we defined a product‐focused company as one that earned more than 75% of its

revenues from product‐sales and a service‐focused company as one that earned more than 75%

of its revenues from services. In between these two categories is the hybrid company—the well‐

diversified firm that may earn its revenues from as much as 50% of products and services each.

This categorization, we believe, is most likely to identify the key differences between

organizational structures and competitive strategies of product and services‐focused software

operations. Of the 52 companies in our

sample (“dedicated” development‐

centers excluded), 23 (44%) were thus

categorized as services‐focused, 13

(25%) as products‐focused, and 16

(31%) as hybrids (Figure VI).

Looking at our data, we find that

product‐focused operations are much

more likely to be domestic‐focused

rather than export‐driven, although in

an aggregate they are much more

Fig-VI: Product Profile of Software Companies in Sample

Hybrids31% Product

25%

Service44%

Product Service Hybrids


45

likely to be well‐balanced between domestic and foreign markets than service‐focused

operations. They are also much more likely to be “focused” (not only in terms of their domain

offering e.g. financial, telecom, or automation systems, but also in terms of their overall

organizational strategy), and much more likely to sell a mix of software‐hardware offerings.

Product‐focused companies are more likely to be established through investment by a local

source (e.g. a business house) or a venture capital fund. They are also more likely to share

profits, depend on intellectual property for their continued vitality, be financially disciplined,

and benefit from employee‐led innovation. They are also much less likely to be affected by the

“image” problem than the services‐focused companies.

Product‐focused operations, however, seem to do worse than service‐focused companies as far

as revenue size is concerned but are likely to be less dependent on a smaller number of clients.

They spend more on R&D and service/support, less on certification/training, and as much on

marketing and advertising as the services‐focused operations. Product‐focused companies also

paid less (to their employees) than services‐focused companies but experienced greater sales

and employment growth (about 30% point greater on each measure), on average. There is also

some hint, although a relatively weak one, of a less‐than one‐to‐one correspondence between

revenue and employment growth in the product‐focused category as against the more

manpower intensive services‐focused category. For most of these measures, hybrids fall in

between these two categories. They do, however, tend to do better than either of the two

extremes as far as revenue sizes are concerned but they are also likely to employ more people,

on average. Hybrids also seem to have experienced faster growth than services‐focused

companies, both in revenue and employment terms.

On the technical process side, product‐focused companies are less likely to be quality‐certified

(30% ISO certified as against 60% for service companies), are much less likely to have a

dedicated QA team (46% as against 81% for services‐focused companies), and they spend half

as much as the latter on the quality assurance function (about 9% vs. 16% of total employee

payroll). While the relatively less propensity to seek quality certification is somewhat

understandable and can be explained by a perceived lesser demand of the same from their

foreign customers (for products only) the less emphasis on quality assurance must be a source

of some concern for the industry. Although beta‐testing is becoming somewhat of a norm in the

software industry, testing and quality assurance functions for product‐based companies are

atleast as important, if not more, as they are for services‐focused companies.


46

One possible explanation for why product‐based companies might be able to survive despite

this lack of emphasis on quality assurance may be the lack of maturity of the domestic market to

whom they sell a major chunk of their products. According to several industry insiders, the

domestic customer is much less technology savvy, and hence more tolerant of the poor quality.

As one interviewee pointed out, it is not hard to find examples where a software company,

unable to deliver the product of requisite quality, either due to faulty processes or specification

creep, ends up blaming the customer for lack of his/her technical sophistication. Barring this

anomaly, the trend of increasing productization is a healthy move towards a more balanced and

robust industrial structure.

Although organizational size can be an important predictor of key strategic & managerial

characteristics (e.g. focus and professionalization etc.), we find very few statistically

significant differences. Size of a company has also been a strong predictor of organizational

practices and thus a subject of considerable debate in the industrial organization literature. It is

also the only categorization on which past data may be available in the context of Pakistani

software industry12. We categorize organizations as large and small using the number of its

professional and technical employees. We categorize 31 organizations (or 62%) as small and 19

organizations (or 38%) as large (Figure‐VII). This classification roughly compares with the

findings of PASHA‐LUMS study that categorized 7 companies as small (63%) and 4 as large

(37%) on the basis of FY2000 revenues.

In our sample, smaller organizations are more likely to be focused than larger organizations.

They are also less likely to be a subsidiary of a

foreign company or have a front‐office

abroad. Smaller organizations also derive a

greater proportion of their revenues from

selling services abroad and products at home

than larger organizations that have a more

balanced portfolio of service‐product and

export‐local mix. They are also more

dependent on a single client, on average, than

12 PASHA-LUMS study focused on organizational size as a determinant of performance and managerial practices. It defined size, however, in terms of revenues (i.e. organizations having revenues > or < PKR 25 Million being the cut-off for large and small organizations respectively). Due to lack of accurate continuous data on revenues, we use professional and technical employment as a parameter for organizational size with 50 employees being the cut-off. This, however, roughly corresponds with the PASHA-LUMS study’s cut-off of revenues of $200,000 (PKR 25 M).

Fig-VII: Proportion of Small/Large Companies in Sample

Small62%

Large38%

Small Large


47

their larger counterparts. Smaller companies spend more, on average, on product‐development‐

service delivery and less on certification/training. They are also likely to pay lower salaries, on

average, than larger organizations. They are less likely to share profits or distribute stocks

(ownership) to its employees, and less likely to provide appropriate additional benefits to

female employees. Top‐executives of smaller software companies are less likely to be financially

disciplined (“monitor cash‐flows several months in advance”) and they spend less time, on

average, on marketing/business development and hiring/recruitment and more time on actual

programming and coding.

From a technical standpoint, although smaller companies are less likely to have a dedicated

quality assurance team and have a quality certification, they tend to spend much higher

percentage of their payroll on the quality assurance function (ratio of QA employees to total

employment in smaller companies is almost four times that of larger ones) and have half the

number of programmers per project manager or team‐lead. Although there is no clear‐cut

pattern, smaller companies tend to do worse than larger companies on several technical best

practices. There is some evidence of “growing pains” among smaller companies.

Despite expectations and perception to the contrary, DotCom Bubble burst seems to have little

statistically identifiable impact on strategic direction of the industry. In order to assess

whether the DotCom Bubble burst had any identifiable impact on the structure and

organization of the Pakistani

software industry, we categorized

all respondents in 2 classes—the pre‐

and post‐dotcommers—depending

on whether they were incorporated

prior to or after FY2001. Using this

approach, we categorized 35

software operations (67%) as pre‐

dotcommers and 17 operations

(33%) as post‐dotcommers (Figure

VIII). As a class, post‐dotcommers

tend to be smaller, on average, in both revenue and employment terms. They have, however,

experienced much faster growth rates (as much as 30% higher, over the last year) than pre‐

dotcommers.

Fig-VIII: Proportion of Cos. Established Before/After DotCom Bubble Burst

Pre-DotCommer

67%

Post-Dotcommer

33%

Pre-DotCommer Post-Dotcommer


48

Post‐dotcommers are much less likely to have been established through the savings of local

founders or investment by a local partner (e.g. a business house), and more likely to be funded

by a venture capital source—a fact that might merely represent the going out‐of‐favor of

software investing among business houses and coming in vogue of venture capital financing

arrangements in Pakistan. Post‐DotCom operations are equally likely to have an expatriate‐

connection, although they are much less likely to be subsidiaries of a foreign company. The pre‐

and post‐dotcommers are virtually identical in terms of their product‐service and export‐

domestic offerings, except for some very minor differences (e.g. the latter, on average, sell more

export‐products and domestic‐services than former). Both the categories are also virtually

identical in terms of their expenditure profile and their employment (work‐type) profiles. There

also is no significant difference between the strategic focus of organizations conceived during

these two time vintages. This finding, if correct, is a potentially damaging to our de‐facto

argument that DotCom Bubble burst has led to considerable learning within the industry that

may be reflected in better‐focused firms being formed in the first place. One potential

explanation, somewhat substantiated by qualitative interviews, for this lack of finding is that

the DotCom revolution might have affected the software industry more by modifying the

offerings and behaviors of already established firms than by affecting the formation of new

firms. Moreover, the sizes of the firms in latter category might be too small to register a

significant effect at the industry level.

The pre‐dotcommers are slightly less likely to distribute profit and more likely to distribute

equity among employees, they seem to do better at providing additional benefits to female

employees, and are better disciplined at managing cashflows. Post‐dotcommers, on the other

hand, tend to suffer more from issues of delegation quality and a profitability crunch—issues

that might be attributable to younger organizational structures and less‐mature product‐service

profiles. Post‐dotcommers suffer more than pre‐dotcommers from retention issues—with their

average employment length almost a full‐year shorter than pre‐dotcommers. Top‐executives

(CEOs) of post‐dotcommers also tend to spend less time, on average, on strategic and product

planning and marketing/business development and more time on fundraising and day‐to‐day

management.

Post‐dotcommers are almost 35% less likely to have a quality certification than the pre‐

dotcommers. However, they are almost as equally likely to have a dedicated quality assurance

team, and outspend the latter, in percentage‐of‐expenditure terms, on the quality assurance

function. They have double the number of QA professionals for every technical and managerial

employee and a slightly favorable programmer‐to‐project manager ratio than the pre‐


49

dotcommers. While there is no clear‐cut pattern in favor of a particular software design

methodology, post‐dotcommers seem to consistently employ the technical best practices in a

regular fashion.

In aggregate, while there maybe differences among pre‐ and post‐DotCom ventures, and many

would like that conjecture to be true, we did not find, at a statistical level, many of the

hypothesized ones. An alternate explanation would be that the industry as a whole, and hence

our data, contains too much variation to identify any significant patterns. Perhaps the pre‐

DotCom operations are so big, from a relative standpoint, that they end up overshadowing the

uniqueness of the post‐DotCom operations. On this count, therefore, our analysis is, at best,

inconclusive.

5.3—Search for the Holy Grail: Do Statistics Reveal a Pattern of “Best Practices”?

Clearly the results discussed above indicate a pattern that, although informative, is quite

inconclusive and somewhat disturbing. We do not find many statistically significant differences

between companies specializing in exports vs. domestic markets, and products vs. services,

those that are small vs. large, that were created before the DotCom Bubble burst vs. those

created after that. This might be an artifact of the data (e.g. non‐representative sample) or

suggestive of lack of maturity and specialization in the industry (e.g. large variations around

estimates). In view of the above problems, we decided to further restrict our categorization of

companies used for identification of “Best Practices” within the Pakistani software industry.

Thinking that one particular categorization scheme may not adequately represent a multi‐

dimensional concept like success, we used 4 different ways to categorize our sample using

classification schemes depending on third‐party judgment, researchers’ judgment, an objective

criterion, and self‐described measure of performance. The first of these schemes consists of a

comparison of 40 most prominent and successful organizations (identified by PSEB and

PASHA) against the rest of the sample. The second scheme uses a reference sample consisting

of companies that, in the researchers’ views, were the 10 best‐in‐class companies and compared

it against the rest of the sample. The third categorization scheme consists of the fastest growing

companies (over last year) in the sample against the rest—with the caveat that the companies

that achieved a sales growth of greater than 40% on a revenue base of atleast a million dollars

were included in this reference group. We found 14 such companies in our sample and grouped

them together for comparison purposes. Finally, we also compared companies that had

identified themselves as “among the top‐quartile, globally” in terms of “overall performance”

against the rest of the companies. We believe these were generally companies with innovative


50

products/services that were deemed globally competitive in the marketplace by their initiators.

14 companies were included in this reference group as well.

Although there are possibilities of different types of biases in each one of these categories,

together, we believe, they can lead to robust conclusions about how better performing

companies may differ from the not‐so‐good‐performers in the Pakistan software industry. In the

following narrative we would use the nomenclature “better‐performing” for the above

described reference groups. The results of this analysis are presented in Table X (below).

We see a mixed pattern. Generally speaking, for all classification schemes, an average company

in the better performing of the groups is larger in terms of revenues—a statistically significant

finding at the 5% level. An average company in the better performing of the groups is also

larger in terms of technical and professional employment, more likely to seek quality

certification, retain its employees for a longer period of time, more likely to earn a greater

portion of its revenues from exports and services. These findings are, however, not statistically

significant. For all classification schemes, except global top‐quartile, there is a greater likelihood

that the company in the better performing group would be a subsidiary of a foreign company

and would have a front‐office abroad.

Companies in the better performing groups consistently rated higher in terms of the prevalence

of key managerial practices that made them more attractive to employees, namely, profit

sharing and stock‐ownership among employees, additional benefits for female employees,

regular employee bonding events, and provision of some flexible time to work on employees

interests. While these results are not statistically significant, they are consistent enough that we

can comfortably describe them as managerial best practices or attributes of better performing

organizations. We also found a clear and consistent pattern with regards to what we believed

were indicators of management quality, namely, better performing companies were more likely

to display qualities like a mix of technical‐business backgrounds of top‐management, financial

discipline, involvement in conveying strategy and goals to employees, a clear strategy to ensure

growth in both revenues and profitability, and prior experience of creating new ventures etc.

Once again, the pattern was consistent enough that we are confident in claiming these aspects of

management‐quality to be best practices within the industry. We did not, however, find any

clear and consistent pattern in the proportion of time spent by the CEO on day‐to‐day

management of the company.


51

There is a clear and consistent pattern in the use and satisfaction with various marketing

approaches. The companies in better‐performing categories, except for the global top‐quartile

classification, tend to express greater satisfaction with the high‐contact marketing approaches,

like word‐of‐mouth (client‐referrals), one‐to‐one contacts, and networks of personal

relationships. Low‐contact marketing approaches like advertising in trade journals and

attending conferences etc. are deemed much less satisfactory. Partnerships and alliances score

in between these two categories.


52

TABLE X: THE HOLY GRAIL OF INDUSTRY BEST PRACTICES? All Top‐40 Companies Ten Best in Class Fastest Growing Global Top‐Q

Important Structural Variables Aggregate (N=60)

T40 (N=40)

Rest (N=20)

T10 (N=10)

Rest (N=50)

FG (N=14)

Rest (N=46)

GTQ (N=14)

Rest (N=46)

Foreign Subsidiary 40% 41% 38% 50% 38% 64%* 32% 35% 41% Front Office Abroad 55% 58% 47% 70% 52% 71% 50% 50% 56% Composition of Revenues & Growth Average Revenues (Midpoint Estimate, $M) $1.35M $1.9M* $368K $2.8M* $1.06M $2.5M* $992K $2.5M* $980K Export‐Domestic Mix 61:39 59:41 63:37 59:41 61:39 75:25 58:42 67:33 59:41 Product‐Service Mix 45:55 48:52 42:58 35:65 48:52 36:64 47:53 39:61 47:53 Dependence on Largest Client 36.5% 33.7% 42% 32% 37% 33.7% 37% 47% 34% Revenue Growth over Last Year 56.8% 58% 51% 47% 59% 105%* 46% 64% 54% Employment Figures & Growth Average # of Employees 68 87 32 91 64 98 59 90 62 Employment Growth over Last Year 45% 23%* 94% 23% 49% 61% 40% 80% 35% Average Length of Employment (yrs) 2.61 2.7 2.42 3.65* 2.37 2.86 2.55 3.65* 2.37 Managerial Practices (Complex Indices) Employee Attractiveness 1‐5 (MP3, 4, 5, 6, 7) 2.43 2.7* 1.89 2.9 2.33 3.07 2.24 3.07 2.24 Mgmt Quality 1‐5 (MP1’, MP2, 8, 9, 10) 3.0 3.02 2.94 3.2 2.95 3.23 2.93 3.15 2.95 Top Mgmt Time Spent on Day‐to‐Day Activities (%) 32% 32% 31.6% 26.5% 33.2% 32% 32% 30% 32% Marketing Practices (Complex Indices) Average Rating of High Contact Approaches (MA1,4,5) 3.66 3.73 3.52 4.38 3.48 3.88 3.58 3.61 3.67 Highest Rating of Low Contact Approaches (MA2,3,6) 2.94 3.00 2.77 3.50 2.78 3.55 2.74 3.25 2.85 Process and Technical Quality Measures % of companies with Quality Certification 45% 51% 33% 80%* 38% 57% 41% 57% 41% % of employee payroll spent on QA 14% 14.5% 12.4% 10.4% 14.76% 13.45% 14.1% 11.3% 14.7% Programmer‐to‐Project Manager Ratio 5.87 7.09* 3.36 9.62 5.14 5.55 5.97 3.91 6.48

* indicates a 5% significance level, Sample‐sizes are for completed entries (individual figures may differ due to item non‐response).


53

Results are mixed on measures of technical and process quality. While better‐performing

organizations show a greater propensity to have a quality certification, there is no consistent

pattern in terms of spending on quality assurance (as a percentage of employee payroll) and the

ratio of programmers to a project manager. That companies in better performing categories

companies tend to spend less on QA (as percentage of employee payroll) and hire more

programmers per project manager seems counter‐intuitive at first sight. There can be several

possible explanations for these findings. Our interviews with top executives and technical and

process quality managers revealed several of these. For example, the less QA expenditure by

better performing companies can be attributed to more streamlined and well‐defined

processes—the dividend of up‐front investments in process quality, so to speak. Similarly,

higher programmer to project manager ratios among better performing companies can be

explained through the fact that most better‐performing and well‐established operations tend to

use bi‐layered hierarchical structures with team‐leads mediating between project managers and

programmers thus artificially increasing the programmer‐to‐pm ratio. Clearly, we need to look

at the data on technical and process quality in finer detail along with the type of product‐service

offerings and software development work being performed in the companies. Other studies

have looked at technical and process quality using project‐ rather than company‐level data to

account for these differences (Cusumano et. al., 2003). Perhaps such an approach is in order to

identify technical best practices among our respondents.

The overall picture that emerges from this analysis is both encouraging and discouraging, albeit

inconclusive, at times. Firstly, while the lack of specialization and focus in the industry is quite

evident from the raw statistics, what is not so evident is whether or not this lack of

specialization and focus is a natural and hence desired consequence of the level of development

or maturity for the industry. This conjecture somewhat resonates with the consensus of

participants at a consultative meeting. Secondly, while there exists, broadly speaking, a clear

set of best practices in managerial and marketing domains, the picture on measure of technical

and process quality is far less illuminating. This lack of finding—whether driven by data or the

underlying process—is consequential and hence needs more attention. A more detailed analysis

that attempts to test alternate hypothesis and/or incorporate qualitative factors is in order.

6. UNDERSTANDING PROMINENT BUSINESS MODELS & COMPETITIVE DRIVERS

As we try to move away from an industry‐wide perspective to that of an individual firm, it is

important, once again, to define certain sets of features that determine firm‐level strategic and

competitive dynamics. These are essentially a set of generic features that are common across a


54

large number of firms thus enabling us to analyze them in groups rather than individually.

Before we do so, however, we would like to flesh out taxonomy of generic software business

models to guide this process.

6.1—A Taxonomy of Generic Software Business Models

For the purpose of convenience and brevity, we define four prominent categories of “generic”

software business models. The defining characteristics of these generic business models are the

intended market of the software product/service (i.e. domestic or export) and the place of

conception of the firm’s idea.

That the first of these factors is going to be a key differentiator of the firm’s organization and its

strategic and competitive drivers should come as no surprise to us (i.e. an export‐focused firm is

very likely to face an entirely different set of challenges than a domestic‐focused firm) and

hence does not require an elaboration. The second of these factors, namely, the place of

conception/origin of the firm’s idea, however, warrants some elaboration. We believe that it

does matter, considerably, in terms of the eventual organizational structure of firm (e.g. the

incentives sharing, issues of coordination and control, parent‐subsidiary relationships etc.) as

well as the marketing challenges that it faces (e.g. developing networks, domain expertise,

marketing arrangements etc.), whether the firm’s primary proponents are based at home (in

Pakistan) or the target market of the firm’s products/services. Before we name the four sub‐

categories of generic business models, we would also like to emphasize the following. The

placement of companies in the category as well as the nomenclature of the categories

themselves refers to the circumstances at the inception/start of the company or the idea.

Therefore, a company that started as export focused with an entrepreneurial team based in

Pakistan is placed in the export‐focused local firm category. Over time, the company may

develop a local‐focus or a foreign identity but the initial challenges it faced in getting there are

best represented by its export‐focused local firm identity. This is a subtle point but an important

one nonetheless. We would briefly introduce each of these models below and discuss them in

more detail later.

The Export‐Focused Local Firm—is one founded by a predominantly Pakistan‐based

entrepreneurial team (that may or may not have been aided/encouraged by a group of

expatriates), but with an explicit purpose of exporting software products or services. Majority of

the firms established in pre‐DotCom Bubble burst era with an expressed purpose of exporting

services—a name given to the dominant Indian model of doing offshore programming and


55

coding for foreign clients—would probably fall within this category. Although there are some

that have taken the products route, their numbers are relatively smaller than those focusing on

export of services. There are considerable challenges in working under this business model, not

only with regards to setting up a software development operation that could deliver the sort of

quality product or service demanded by a sophisticated foreign customer but also in terms of

putting in place a cost‐effective marketing front‐end in a foreign land. Some salient examples of

this type of business model in action are: ThreesixtyDegreez, Post Amazers, Advanced

Communications, Makabu, Netsol, and Autosoft Dynamics etc.

The Export‐Focused Foreign (Expatriate) Firm—is one founded abroad (or jointly, in Pakistan),

by a predominantly foreign (usually an expatriate) entrepreneurial team, with an explicit

purpose of using the Pakistan‐based offshore development facility to deliver a product or

service demanded by the foreign market. This type of business model has been adopted by

services and product‐focused companies alike. Within both the services and products domains,

this type of business model has been more valuable than the Export‐Focused Local Firm model,

primarily because of the ability of this firm’s expatriate founders to capitalize on their own

personal presence and networks in foreign lands. The key challenge for this business model has

less to do with not finding domain focus or customers abroad—which the expatriate founders

often have a very good grasp of—and more to do with successfully pulling off the task of

setting up a development facility in Pakistan by finding appropriate talent, setting up work‐

systems, and getting over the hill as far as offshore‐onshore coordination is concerned. Some

salient examples of this type of business model in action are: Elixir Technologies, Etilize Inc.,

Ultimus, MixIT, TechLogix, Prosol, and Xavor etc.

The Domestic‐Focused Local Firm—with an exception of a few companies, is really one

because of circumstances rather than choice. More often than not, and logically so, the domestic‐

focused local firm plans to export its products or services abroad and is merely using the

domestic market as a vehicle to gain a track record with real life customers. Whether a firm is in

this category by choice (“I’ll do domestic first, export later”) or by circumstances (“Since the

export market doesn’t seem very good right now, I’ll survive by selling at home”) the

challenges are quite similar, namely, first, to do enough “large” projects fairly quickly in the

local market to build a reputable portfolio of customers but more importantly, to develop a

domain expertise, and to migrate effectively from a producer of products/services for a rather

unsophisticated domestic customer to a much more sophisticated and quality conscious foreign

customer. The more successful of these firms have already begun to look overseas, primarily the

Middle Eastern region, for a piece of the export market and have been fairly successful at that.


56

Some salient examples of this type of business model in action are: 2B Technologies, ZRG, TPS,

Lumensoft, Yevolve, SI3, Softech Systems, AppXS, and Genesis Solutions etc.

The missing category of this taxonomy, namely, the Domestic‐Focused Foreign (Expatriate)

Firm is almost non‐existent for reasons having to do with the small size and lack of maturity of

the local market. It does, however, find some expression in the relocation of Pakistani

expatriates back to Pakistan with a desire to set up companies that either serve the local—the

prime example being SI3 whose expressed purpose is to work on the domestic front—or the

export market but who end up doing quite a fair bit of work in the domestic market as well.

Instead we include, as our fourth category, the Dedicated Offshore Development Center. This

model, although somewhat of a variation of the Export‐Focused Foreign (Expatriate) Firm is

different enough, in terms of some of the organizational and strategic issues it faces, to warrant

a separate treatment.

Dedicated Offshore Development Center— is, as the name suggests, a fairly limited offshore

development operation of a foreign company. It is different from the Export‐Focused Foreign

(Expatriate) Firm in the sense that it is often an “add‐on” to an already existing company whose

strategic and managerial processes and controls are quite well‐established. It, therefore, does

not get an equal say in the long‐term vision and strategic direction of its parent. This is true

atleast from the short‐to‐medium term and may change depending on how the parent wants the

offshore development operation to evolve over the longer run and on what terms and

conditions was the Pakistani subsidiary conceived. The key challenges of this business model,

therefore, also differ with reference to the timeframe in question.

In the short‐to‐medium run, the challenge is to set‐up a facility that could deliver quality

products/services in support of the product‐service strategy of its foreign parent, to do it in a

manner that the local operation is in sync with the foreign parent and its clients, and to transfer

the necessary domain expertise and customer experience to the local developers. In the

medium‐to‐long run, however, as the local operation matures and acquires a life of its own, the

key challenge then is to continue to align its interests and requirements with that of the foreign

parent. If not managed well, this may give rise to considerable management tension and

employee discontent. While most companies established under such an arrangement in

Pakistan have not yet reached the “longer‐run” of their existence, some have, and one can

clearly see them navigating through these later‐stage challenges. Some salient examples of this

type of business model in action are: MetaApps, ITIM Associates, Clickmarks, Trivor Systems

and Strategic Systems International etc.


57

ZRG

TPS

Lumensoft

Yevolve

2B Technologies

SI3

Softech Systems

Genesis Solutions

Alchemy Technologies

AppXS

Oratech

Askari Info Systems

Acrologix

Comcept

LMKR

CARE

ThreeSixtyDegreez

Post Amazers

Advanced Comm.

Netsol

Makabu

Autosoft Dynamics

Sidaat Hyder Morshed

Avanza Solutions

GoNet

Kalsoft

Jinn Technologies

Secure3 Networks

Systems Ltd

Progressive Systems

Millennium Software

Cressoft

Etilize

Prosol

Adamsoft

Ultimus

MixIT

Techlogix

Xavor

Elixir Technologies

ITIM Associates

MetaApps

Clickmarks

Enabling Tech. (Quartics)

Trivor Systems

Strategic Systems Int’l

ESP Global Systems

DOMESTIC‐FOCUSED LOCAL FIRM

EXPORT‐FOCUSED LOCAL FIRM

EXPORT‐FOCUSED FOREIGN‐FIRM

DEDICATED DEVELOPMENT CENTER

FIGURE‐IX – GENERIC BUSINESS MODELS &THEIR TRANSITIONS SCENARIOS

DIVERSIFICATION M&A W/ FOREIGN FIRM

BUYOUT BY LOCAL MGMT. MATURITY, VALUE‐ADD ELEVATION OF PAK‐OPS.

SHIFTING PRIORITIES

TRANSITIONS KEY


58

It is also important to mention here that none of these categories are as black‐and‐white as they

seem. There is considerable gray area in between and a company might show characteristics of

more than one type of generic software business model. For example, whether a company is an

Export‐Focused Foreign Firm or a Dedicated Offshore Development Center depends on the

specific details of the founding arrangement of the Pakistani and foreign directors. The

Pakistani version of the export‐focused foreign firm might appear like a dedicated development

center if the former ends up getting into a strict parent‐subsidiary relationship with its foreign

counterpart. In case where that happens, it is likely that it would encounter the challenges

identified for the latter category of businesses. On the contrary, it is also likely that, depending

upon the nature of its relationship with its foreign parent, a dedicated development center

would begin to look more and more like a export‐focused foreign firm and thus may not face

the later‐stage challenges alluded to above. In essence, it is not the organizational or legal

arrangement between the parent and the subsidiary, but the more invisible and intangible

relationships that would determine the final outcome for these local‐foreign hybrids.

Similarly, another possibility is that of one type of firm transitioning into another type during

its own life‐cycle. The most common examples that come to mind are a domestic‐focused local

firms transitioning into export‐focused local firms or vice versa. We could also identify

instances when export‐focused foreign firms had to turn to the domestic market for survival

during harsh economic times in the US and European markets. Again, as a particular type of

business model transitions into another, partially or fully, temporarily or permanently, we are

bound to see hybrids that would show characteristics of several of the business models

identified above. It is not uncommon for an entrepreneurial venture to undergo a major

transformation of its original business model—as conceived in the first business plan—and we

see the evidence of that on the Pakistani software scene as well. Many companies that were

formed during the peak of the dot‐com euphoria with the sole purpose of capitalizing on the

Internet/e‐Commerce boom have undergone a major re‐assessment of their business models in

the light of the changed realities in their target markets.

We now discuss each of these models and their strategic and competitive drivers in some detail.

While the narrative on each of the four generic software business models describes the key

structural features and competitive drivers, strategic challenges and best practices specific to

each classification of companies, there is also a fair degree of commonality across these generic

business models. We, therefore, use a numbering system for the strategic challenges (thirteen in

all) and best practices (twenty in all) that runs continuously across all generic business models.

Another observer might differ with our placement of a particular strategic challenge and best


59

practice under one specific business model and not the other. Readers seeking to thoroughly

understand the strategic challenges faced by Pakistani software industry are hence advised to

read through all four descriptions and their respective strategic challenges and managerial best

practices to get a better feel of the landscape as each contains some elements overlapping with

others.

6.2—The Export Focused Local Firm (The “Systems” or “Netsol” Model) The Export Focused Local Firm (defined above) is the most prevalent of all generic business

models in our sample of firms. As shown in Figure‐IX (above), it accounts of about a third (32%)

or 15 of the 47 firms in our sample. The key reason for the high degree of popularity of this

model is the Millennium (Y2K) and DotCom Boom in major software export markets of the

world, especially the United States, that resulted in lot of new firm creation activity in

developing countries, like India and Pakistan. We also expect that an even greater number of

software houses were created during the mid‐to‐late 1990s in response to the expectations of

getting lucrative software development contracts from the United States—many of which

ultimately failed after the US market for software went into a recession (starting early 2001)

which was further reinforced by the 9/11 Terrorists attacks in the US later that year (Sept. 2001).

To be fair, however, not all the firms in this model were created solely in response to the Y2K or

the DotCom boom. Many were already in business when the Y2K or DotCom bubble happened

and were only influenced, to

varying extents, by the bubble.

Systems Pvt. Ltd, Netsol, Autosoft

Dynamics, and Sidaat Hyder

Morshed Associates (SHMA) are

some of the examples of companies

that preceded the DotCom bubble.

Many others, (e.g. Avanza Solutions,

ThreesixtyDegreez, Kalsoft, and

Millennium Software etc.) were

created at the height (or with a slight

lag) of the DotCom bubble with

plans to get into the software

services outsourcing business. For

many of these companies, the reality

TEXT BOX # 3: THE SYSTEMS OR NETSOL MODEL, IN A NUTSHELL

Total # of Companies in Category: 16 Average Employment: 90 #/% of Foreign Subsidiaries: 12.5% % w/ Front-Office Abroad: 31% Exports : Domestic Market: 85:15% Product : Services Offerings: 28:72% Average Sales Growth (last year): 48% Average Employment Growth: 42% #/% of Companies with ISO/CMM: 44% Programmer-to-PM Ratio: 5.03 QA Employees as % of Employment: 9.5% QA Function % of Payroll: 10.3% Top-3 Policy Challenges: Image (43%), Quality of Manpower (31%), Venture Capital (31%)


60

turned out to be quite different from the expectations. Several others, (e.g. Post Amazers,

Secure3 Networks etc.) have jumped into the fray well after the DotCom Bubble burst and have

business plans incorporating the changed geo‐political environment at home and business

environment abroad.

We have named this generic business model in recognition of two of the most prominent

companies in this category, namely, Systems Ltd—the oldest software operation in Pakistan—

and Netsol—a CMM‐Level4 company that is currently perceived to be one of the most

successful companies in this category. This naming convention is purely for memorization and

reference purposes and does not aim to under‐emphasize the contributions of other companies

mentioned (and those not mentioned) in this category. Text Box # 3 presents some salient

statistics on organizational‐market characteristics of companies in our sample. Text Box # 4

presents a list of companies classified in this generic business model along with their key

product‐services offerings and domain expertise.

Regardless of the exact timeframe at which these companies might have entered the market,

their most important and defining feature is the local‐presence of their founders and the export‐

orientation of their products/

services. This combination brings a

number of unique and important

challenges to this type of a firm.

These are illustrated in Text Box #

5. The most important of these

problems have to do with the

difficulty in marketing abroad,

with or without a marketing

presence in the company’s foreign

markets. Other related challenges,

arising out of and accentuated by

the distance/separation between

the development and marketing

operations, include: understanding

and mastering a foreign customer’s

domain, dealing with the “image”

problem, penetrating the Indian

monopoly in the foreign markets, answering the “quality” question, etc. We discuss each of

TEXT BOX # 4: LIST OF COMPANIES IN SAMPLE & THEIR DOMAIN EXPERTISE / OFFERINGS:

Netsol – Financial, Leasing Solutions Systems Ltd.-- Mortgage, System Integration Avanza Solutions—Banking, CRM, ATM Solutions Sidaat Hyder Morshed – Financials, ERP Solutions Kalsoft – Financials-Accounting, ERP Solutions Millennium Software – Y2K, HR, ERP Solutions Progressive – e-Commerce, CRM, Accounting Jinn Technologies – Multi-media, Animation Secure3Networks – VPN Security (Startup) GoNet –Call Center Automation, Healthcare Solutions Post Amazers – Animation & Post-Production Advanced Communications – VoIP Billing Autosoft Dynamics – Banking Automation Makabu – Outsourced NPD / Software Development ThreeSixtyDegreez – ERP, Banking Solutions


61

these challenges in some detail (below) and identify best practices adopted by firms that have

been relatively successful in addressing these.

Strategic Challenge # 1: Difficulties of Customer Acquisition in a Foreign Market—Of the

several major challenges faced by this class of companies, the most important one has been,

beyond doubt, the difficulties of the customer acquisition process in a foreign market. The

relatively more successful of the companies in this category seemed to have done better on this

count more so by design, than by conscious efforts of the company’s leadership. There are

several exceptions, however. Majority of the better performing companies in this category were

founded by returning expatriates i.e. individuals (or entrepreneurial teams) who either had 5‐10

years of experience living abroad and hence had connections or first‐hand knowledge of the

target markets.

Wherever these companies were founded by people without a firsthand experience of their

target markets, we have generally found that the entrepreneurs’ expectations had been rather

“misplaced” or just too simplistic, especially on the customer acquisition front. Consequently, a

fairly common regularity among the not‐so‐good performers in this class of companies is the

inability of their founders to correctly estimate the difficulty in marketing products/services to a

foreign client. The DotCom euphoria and the then common perception that exporting software

was the easiest of the businesses to get into and all one needed to do was to get a desktop PC

and an internet connection may have encouraged a lot of naïve professionals to venture into this

domain. The truth, however, was far from that simplistic.

Indeed, a connection or intimacy with the targeted market seems to have paid off quite well for

atleast some of the ventures in this category. The more successful of these businesses have

leveraged the foreign networks and contacts of their founders to get a “foot‐in‐the‐door” or

even, at times, the first customer. Most of our interviewees believed that their first foreign

customer has almost always come through a prior contact or a trusted referral rather than cold‐

calling, advertising, or visiting trade conferences. And it was only after one begins working

with foreign clients and developing long‐term trusted relationships and a customer portfolio

that other marketing approaches begin to work. This observation is also in line with our

statistical findings where an overwhelming majority of respondents rate pre‐established

networks/contacts as far more successful than any other marketing approach (with the other

two highly rated approaches, namely, word‐of‐mouth client referrals and cold‐calling only

becoming a possibility after one has acquired the initial few contracts). The importance of


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networks is even more critical in some very high‐trust and exclusive domains like banking

solutions, online trading systems etc.

This gives rise to a managerial best practice for creating and sustaining successful software

operations in Pakistan. Namely:

Managerial Best Practice #1 (MBP1)— To develop effective export‐focused operations,

to the extent possible, seek a strong expatriate connection (e.g. a founder or co‐founder

either based abroad or operating equally from home and abroad) and use his/her personal

connections and networks to get a “foot‐in‐the‐door” or even acquire first customers.

Strategic Challenge # 2: Setting Up a Marketing Operation in a Foreign Market—A problem

somewhat related to acquiring the first customer is scaling up the marketing operation to

handle a larger number of potential customers and continually managing the interaction with

them. Companies, understanding the limitations of an interaction at a distance, have tried to

setup onshore marketing operations to achieve greater penetration and acceptability in their

target markets. Opening front‐offices abroad (especially in America) has thus been a fairly

common tactic for those who can afford such a proposition. Having a front‐office abroad is also

seen as a means to counter the negative perception of having to deal with an unknown and

never‐seen foreign outfit, especially in the highly skeptical post‐9/11 scenario.

Setting up a foreign marketing front office, however, is an expensive proposition, even for the

relatively better endowed software operations in Pakistan. The general consensus among our

interviewees was that a very small (2‐3 person) operation can cost as much as half a million

dollars a year. One can perhaps defray some of this cost by finding an appropriate Pakistani

already settled abroad to do the job but such arrangements are sometimes perceived to be not as

effective, from an image standpoint, as employing a bunch of “gora(s)” for the same job.

One of the companies that we surveyed took the former route at the height of the DotCom

bubble by relocating one of its founders to North America, but saw its efforts going in vain as

the doors of opportunities closed soon after the bubble burst. It has since then lowered its

expectations from its foreign operation and shifted its business priorities to focus on the

domestic market. This is not to say that this can’t be done, or has not been done successfully,

but only that opening a front office abroad is not an automatic remedy for this challenge and

that, given the costs involved, must be undertaken after a good amount of due‐diligence on

possible alternatives. We expect the larger and more resourceful of the companies to still

continue to try using this option—albeit with no guarantees of success—but the smaller

companies may have better more cost‐effective (or lower risk) alternatives to consider.


63

One such alternative is the use of alliances and marketing partnerships (arrangements) with

foreign companies whose business models are deemed synergistic with the Pakistani

counterpart. If properly undertaken, there is tremendous potential in this kind of an

arrangement, and we recommend that more companies must consider this as one of the few

alternatives on the table. Pakistani companies have tried marketing alliances and partnerships,

primarily in the context of Middle Eastern markets where they are more of a necessity than a

conscious strategy. We must look at the possibility of doing so in North American and

European Markets as well. Atleast a few of the companies that we studied, had recently penned

marketing arrangements with foreign affiliates that looked quite lucrative and promised to

greatly enhance the marketing reach of the Pakistani entity. Many others were actively seeking

such an arrangement.

TEXT BOX # 5: KEY STRATEGIC CHALLENGES & MANAGERIAL BEST PRACTICES-I

Strategic Challenge # 1: Difficulties of the Customer Acquisition in a Foreign Market—There are many manifestations of this problem, namely, acquiring the first customer and building a customer portfolio etc.

MBP1—Using personal connections and networks of expatriates (returning, or based abroad) to get a “foot-in-the-door” or even acquire first customers.

Strategic Challenge # 2: Setting up a Foreign Market Presence—Companies seeking to develop and intimate connection with the customer have tried various approaches e.g. opening front offices abroad, pursuing partnership arrangements and alliances etc.

MBP2—Actively pursue alliances with synergistic entities and off-shoring and marketing relationships with past clients

MBP3—Engage with software multinationals (e.g. Microsoft, IBM, SAP, NCR, Oracle etc.) in development and marketing arrangements

Strategic Challenge #3: Understanding Foreign Domains & Contexts—This problem arises in multiple contexts, namely, the idea-focused company and the generic provider of off-shoring services

MBP4— Understand the importance of developing a domain expertise and maintaining a focus. Develop a domain expertise by learning to take the big-picture view of the client’s business operations and look for opportunities to sell business rather than a technology solution. Get domain experts involved, if need be. Avoid the temptation of “on-today-off-tomorrow” type of contracts.

Other Challenges (discussed in detail elsewhere): The “image” problem, scaling the operation to deal with a larger customer base etc.


64

Seeking the right partner and inking the right arrangement, however remains the key to success

in this mode of operation. One of the founders—a very successful local brand—talked about a

situation where a potential foreign partner wanted to sell the company’s product under its own

name—a prospect that did not look too appealing to the Pakistani founder. Another of the

founders that we spoke to justified the arrangement that he got into in the following words: “I

made as many as 10 trips to the Middle East last year, and finally found a partner with whom I could do

business with. Although these trips cost me a lot of time and money, I have recovered all my investment

in a single year since my partner has allowed me to co‐locate and host my Middle Eastern operations in

his own premises, free of cost.”

Another possibility is the use of one’s own clients to actively pursue offshoring and marketing

arrangements. One of the software houses that we looked at prides itself for caring for its

customers. “We would do the first projects at‐cost or even below‐cost, just to allow the customer to

assess our usefulness and dependability. Once the project is done, we would definitely let the customer

know what all we can do and express our interest in becoming a trusted partner for any outsourcing/off‐

shoring work that they might want to send our way or if they would like to market our products in their

region. Many a times you would find a satisfied customer willing to talk about such arrangements”, says

the business development manager of this local operation.

Such favorable arrangements must be actively sought and, when possible, definitely pursued.

The key problem here is that such arrangements do not enjoy the same kind of visibility, at the

industry level, as opening up a front‐office abroad, and thus for lack of awareness or fear of

misadventure, many entrepreneurs fail to think about and/or capitalize on them. It is also

important to focus the interactions and discussions of PSEB/PASHA’s trade delegations

towards trying to facilitate Pakistani and foreign companies to work towards these kinds of an

outcomes rather than merely trying to make a point‐sale.

Another possible way to forge a marketing alliance is to align oneself with a large developer,

namely, likes of Microsoft, Intel, SAP, Oracle, NCR, IBM etc. and benefit from their clout and

network in the regional and international markets. Many have tried to do this and a fair number

of our interviewees had positive things to say about these arrangements. Using the local

subsidiaries of these big foreign brands— that have over the recent past become more active in

supporting the development of the local software industry by providing development

opportunities, free or subsidized training, product promotion, and/or co‐branding— is a

starting point of such a strategy.


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One CEO shared an interesting insight with us in this regard, namely, to seek a direct affiliation

with one of the divisions of these large corporations rather than the local subsidiaries. He was of

the view that the local subsidiaries were really very small—in business size and importance—in

the overall scheme of things and hence it was unlikely that anything “big” would come his way

if he dealt with them. His approach was to “get‐a‐foot‐in‐the‐door” of a major division of one of

these companies in its own home‐country, do a small project, and gradually build upon that

relationship. When possible, such an approach can bring one’s company into play for major

contracts on the innovative end of the market. While we did not find enough companies doing

this successfully enough to consider it a managerial best practices but this is certainly an

approach innovative enough to warrant some careful attention.

Based upon their widespread use among relatively successful software operations and

perceived successfulness, two clear managerial best practices emerge from the above. Namely:

Managerial Best Practice #2 (MBP2)— Enter into partnering agreements and

marketing alliances with entities having synergistic goals and objectives, especially, when

the partner contributes market knowledge and reach of the target market to the relationship.

Imaginative partnering agreements, executed tactfully, can greatly diminish the difficulties

faced by a cash‐constrained startup attempting to break into a foreign market.

Managerial Best Practice #3 (MBP3)— Engage and partner, both locally and globally,

with software/IT multinationals (e.g. IBM, SAP, Microsoft, Oracle, Intel etc.) on

software/applications development, marketing, and co‐branding opportunities. These

arrangements allow a startup firm to leverage the financial resources, domain knowledge,

and marketing reach of these behemoths without spending comparable resources.

Strategic Challenge # 3: Understanding Foreign Domains and Contexts—Another major

challenge has been that of first understanding ones’ customers’ domain and then developing a

domain specialization that could provide the firm with its differentiation in a cutthroat foreign

market. On this count as well, the record of this class of Pakistani companies has been mixed, at

best. While some star performers in this class of companies have done fairly well at quickly

understanding and mastering a foreign domain, others have failed to so. Some of the most

noteworthy examples of the more successful companies in this class are Systems Ltd. and

Netsol. The former specializes in software for mortgage industry in the US and has an entire

suite of products for that industry. The company’s expertise in this domain is such that six of

the top‐10 US mortgage companies are on its clients’ list. The latter specializes in software for


66

the leasing industry. One of its star clients is Daimler‐Chrysler that uses Netsol’s leasing

software to manage its auto‐leasing operation in several countries in Asia and Pacific. More

recently, however, in recognition of Netsol’s expertise in this domain, Daimler‐Chrysler has

decided to deepen its commitment to Netsol by agreeing to use its software for the entire

Western Europe region.

Here, Pakistani companies have faced two types of issues, depending on the exact focus of their

business. One the one hand is the idea‐centric company that is trying to break into a foreign

market of a particular niche and suffers from the typical issues of trying to guess what the

customer wants. In majority of the cases here, the firm already has a specific domain (expertise)

in mind and is only looking to fine‐tune the idea to make the sale to its targeted customers.

Although daunting as it is, this is a relatively common challenge for all startups and hence easy

relatively straightforward. The only complicating factor here is whether and how much does

the “distance from the customer” make it more difficult for the firm to feel the customers’ pulse

and make the necessary modifications to the idea to make the sale. The founders’ prior

experience with the domain is of tremendous help in dealing with the basic understanding and

fine‐tuning of the domain, as has been the case with Autosoft Dynamics (in Banking solutions)

and Post Amazers (in Animation & post‐production services).

On the other side of the spectrum is the service‐centric company that is formed with the explicit

purpose to undertake contracts entailing outsourcing of programming or coding services. These

types of operations are generally conceived as “commodity” operations designed to make

money on the differential in labor rates between the local and foreign markets. While there is

nothing inherently wrong with the above argument, the tightening and recession in the export

markets (especially US/UK/EU) has stiffened the competition for such contracts as well. Domain

expertise has thus become quite important—almost a differentiator—in what is in the post‐

DotCom era a commodity market. Increasingly, US/EU outsourcers are looking for firms

experienced in doing a particular type of outsourcing work (e.g. in hospital management or

medical systems, financial software etc.) rather than a software outsorucing outfit per se.

Consequently these types of businesses have also found it necessary to develop a domain

expertise to differentiate themselves in the marketplace. That differentiation has been hard to

come by in an environment where firms have been taking whatever project they could get in an

effort to survive. While some of these firms have been able to develop some domain expertise—

although quite a weak one at that—the process has been rather slow and painful for many of

those involved.


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For those that have done well in this category, the initial contracts or breakthroughs have been

the deciding factor. Examples of companies like Netsol and Systems (cited above) are

illustrative of this dynamic. Even for these firms, and others like these, it has taken quite a bit of

insight and farsightedness on the part of the founders, to maintain their focus, make the best out

of what they got, and not be tempted by the “on‐today‐off‐tomorrow” type of opportunities.

Some have done it better than others and many an entrepreneur have fumbled on the way. This

underscores the importance of maintaining ones focus and having a solid business plan—an

alterable but solid business pan—to follow as one navigates through this critical challenge.

Many naïve entrepreneurs have been found off‐guard in this respect. Although the

development of domain expertise has been a critical differentiator between successful and

relatively unsuccessful companies, a caveat is in order. The CEO of one of the more successful

software operations underscored the value of muddling through for a while before deciding on

a particular domain focus. “It is difficult to imagine if we had survived this long had we decided to

focus on a specific domain upfront. It is important not to force yourself into a tight corner by declining

work that help you survive in a tough marketplace and, perhaps, lets you experiment with several

domains before you can pick your particular sweet spot. Domain is important but rushing into one too

soon might be disastrous. You often only get once chance at getting it right.”

We definitely do concur with this executive. Ultimately, developing a successful software

operation is about making the right choices at the right time and developing the domain

expertise is just one of the several challenges an entrepreneurial team has to master. Making

these choices is clearly an art, not a science, that can only be learnt through experience. Every

entrepreneurial team finds itself in a slightly different situation from every other

entrepreneurial team and hence there is no generalizable solution to the problem. What is

important, however, is the realization that developing a domain expertise is important. This

gives rise to another managerial best practice for creating and sustaining successful software

operations in Pakistan, namely:

Managerial Best Practice #4 (MBP4)—Understand the importance of developing a domain expertise and maintaining a focus. Develop a domain expertise by learning to take the big-picture view of the client’s business operations and look for opportunities to sell business rather than a technology solution. Get domain experts involved, if need be. Avoid the temptation of “on-today-off-tomorrow” type of contracts.

In addition to the challenges at the market‐end of the business plan (already discussed above)

these companies also faced several—if not equally daunting—problems at home. The most

important of these are hiring quality talent, training them on its specific tools and domains, and


68

developing the flexibility to ramp‐up or scale‐down the operation according to the business

conditions prevailing in the target markets. Each of these is a challenge in its own right, but not

unique to the firms in this category of business models and we will discuss them in somewhat

detail in other contexts. We would, however, close the discussion on the export‐focused local

firm model by briefly highlighting the importance of scale and scalability in the context of

services‐oriented businesses in this category. Availability of quality human resources is one of

the major issues confronting the local industry. Many CEOs confided with us that even if they

had business in hand, it would be very difficult to scale up their operations by only as few as

fifty(50) additional people within a short span of time. These difficulties in scalability might be

affecting the services‐focused businesses much more than they would affect a product‐focused

operation—thus providing food for thought for the industry leaders.

6.3—The Domestic Focused Local Firm (The “TPS” or “LMKR” Model) The Domestic‐Focused Local Firm (defined above) is the second of the two most prevalent

business models in the Pakistani software sector, comprising another third (36%) or 17 of the 47

companies surveyed for the purpose of this study. We have named this generic category after

the most prominent of the companies in this class of business models, namely, TPS and LMKR.

Transaction Processing Systems (or TPS) is software operation involved in financial transactions

processing systems (e.g. ATMs etc.). TPS—a hybrid software‐hardware operation—has

developed and maintained the country’s largest multi‐bank ATM system. It is a hybrid

(software‐hardware) operation. LMKR, on the other hand, touts its strength from its GIS

solutions, especially for the petroleum industry. It maintains the country’s only such system for

the Government of Pakistan. LMKR—since its acquisition by a US company—is focusing on

diversifying its offerings to become a full‐spectrum IT services company that is also looking to

expand its export offerings. While LMKR has adopted a typical profile of a domestic‐focused

operation, TPS was originally conceived as an export‐focused company but quickly found

success on the domestic front. As before, this nomenclature is for easy memorization and

recognition only and does not mean to undermine the success of other companies mentioned

(and those not mentioned) in this category. Text Box # 56presents key statistical features of this

generic class, as a whole. Text Box # 7 presents a list of companies, from our sample, that fall in

this category of software business models.

As stated earlier, a fairly significant proportion of the companies in the domestic‐focused local

firm category are there not as much by choice as due to circumstances. During our discussions

with CEOs of these companies, we hardly found an example where there was no desire to


69

engage in the export markets. The question was not one of whether or not one would export but

rather when would it be possible and cost‐effective to do. A large number of the companies

identified in this category (see Text Box # 7) are already engaged in some kind of export activity

or are contemplating doing so in the future. Many of these and several others, however, are

currently focusing on the local market and planning to make a gradual transition into the export

domain. This approach to target‐market has its roots in the collective experience of the industry.

In the post‐DotCom Bubble scenario, many entrepreneurs who played in the high‐stakes

exports game and totally shifted their core focus to greener pastures abroad got their fingers

burnt as result. Consequently,

there is a growing realization

that a permanent and steady

stream of domestic revenues, if

only to sustain operations in the

bad times, is important for the

companies’ long‐term viability.

Many narrated the often‐cited

example of Cressoft—one of

industry’s icon of the yester

years—as one that left its

domestic base and went all out

to the export market and in the

process was all but eliminated.

Learning from this example, not

only are many new export‐

focused software operations now look inwards to establish a domestic presence before setting

shop abroad but also many others, having adopted the “domestic first, export later” philosophy

for reasons of necessity or strategy, are focusing on strengthening the local operation as an

insurance against the fluctuations of the international software market.

Among the companies being established in this category, we see a much greater domain focus

than the earlier category (discussed above). The primary reasons for this is that, unlike the

exports segment, there is little or no lure of pure software programming/coding “services” on

the domestic front. Thus everyone must be in the business to solve a fairly well‐defined

problem or not be in the business at all. This has led to a much faster accumulation of domain

knowledge and maturity and perhaps to some degree better and more focused business

TEXT BOX # 6: THE TPS OR LMKR MODEL, IN A NUTSHELL

Total # of Companies in Category: 14 Average Employment: 89 #/% of Foreign Subsidiaries: 28.5% % with Front-Office Abroad: 78% Exports: Domestic Market: 32:68% Product: Services Offerings: 35:65% Average Sales Growth (last year): 74% Average Employment Growth: 29% #/% of Companies with ISO/CMM: 50% Programmer-to-PM Ratio: 7.89 QA Employees as % of Employment: 14% QA Function % of Payroll: 15.6% Top-3 Policy Challenges: Image (64%), Govt. Procurement (35%), Telecom cost (28%)


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strategies to start with in the first place. This does not, however, mean that this generic business

model has been without its fair share of challenges and problems.

Strategic Challenge # 4: Operating in an Under‐Developed Domestic Market—Like the export‐

focused local firm model, we see a herd mentality in the domestic‐focused local firm segment as

well—albeit one of a different kind.

One of key challenges of firms

trying to create a viable software

business on the domestic front has

been that of avoiding the tendency

to “reinvent the wheel”. Yet, from a

practical standpoint, this has been a

struggle for reasons having to do

with the lower level of development

of the market and lack of demand

for high‐end innovative products

etc. It is difficult to conceive of the

domestic‐focused local software

firm trying to develop a cutting edge

product when the level of

automation in the local industry

makes it impossible to sell such a

product. Taking the cue from the

market’s level of development, and a perceived need for automation of industry and business

houses, a large number of software companies have ventured into the ERP segment of the

market—trying, in essence, to create the much touted “Poor Man’s ERP”. Some have succeeded

but many more have failed in this endeavor.

The problem has been so endemic that almost every medium‐to‐large name on the domestic

software side has an ERP system, a general ledger application, a billing or an HR solution in its

products showcase. Yet, very few of them have been able to successfully sell the same to even

recover a fraction of their investment on its development. As one of our interviewees pointed

out, there are no high profile success stories of ERP implementations in Pakistan. An even

smaller number of firms have really been able to use this products showcase in meeting their

stated objective of migrating to the export markets. Among those that have been able to do so,

TEXT BOX # 7: LIST OF COMPANIES IN SAMPLE & THEIR DOMAIN EXPERTISE / OFFERINGS:

ZRG – Call Center & Telephony Solutions TPS – Banking and Switching Solutions Lumensoft – ERP & Inventory Systems Yevolve – Software for Handhelds in Transport/SCM 2B Technologies – Call Center Solutions SI3 – System Integration & Back-Office Outsourcing Softech Systems –Financial & Trading Systems Genesis Solutions –ATMs, Info &Vending Kiosks Alchemy Technologies – Risk-Mgmt Solutions AppXS – Financial & Trading Systems Oratech – Oracle-based Applications Askari Info Systems – ERP, Financials-Accounting Acrologix – ERP, Archiving, foreign-language OCR Comcept – Communications Systems LMKR – Large DBs, GIS, Petrochemicals etc. CARE—Telecom Eqpt., ASICs, EDA Tools etc.


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Middle East has been the only possible export destination. Thus, the dream of “domestic first,

export later” has remained unrealized so far in any big way. We would like to qualify the above

observation with a caveat, however. This is by no means a wholesale rejection of business

models or companies in the business to develop ERPs but merely a statement of fact about the

way things have worked out for majority of those who ventured along this road. There are

exceptions, however. Algorithm Consulting—a company engaged in developing and

implementing ERP systems for the textile industry—is one such example. What we are trying to

emphasize here is something far subtle than an advice against venturing into creating an ERP.

We are essentially against having unrealistic expectations from ones venture. If one takes on the

task of “creating a market” one must realistically gauge the resources and time‐horizons

required to do so and plan accordingly.

There are many reasons for the lackluster performance of the domestic‐focused software

industry—not all of them are of their own doing. The general lack of awareness and

development on the user/buyer side of the local software market is a well‐known fact. Several of

our interviewees talked about the difficulties in selling to local industrialist or owner of a

business house—the much‐maligned “seth”, so to speak. One of our interviewees complained

about the attitude of the seth in the following way: “the industrialist or the business house owner

that we are dealing with would spend twice the amount of money on getting tiles for his office and ten‐

times the amount of money on his car but when I quote him a price of half‐a‐million rupees for an ERP

application that would save him at‐least as much money every year, he would sit on it, toss and turn, and

never come around to saying yes.” This seemingly myopic attitude of the local industrialist or

business house owner is a common feature of the Pakistani society—although it is further

accentuated in the context of the sale of an intangible product like software.

There is, however, some good news on the user‐side of the equation. The next generation of

industry and business leaders has taken, or is in the process of taking, control of the country’s

business and industrial empires. This “progressive seth”—as one software CEO calls them—is

the son/daughter of the seth and is mostly educated abroad. This new breed of business

leadership, many believe, is much more aware and receptive to new technologies or value‐

enhancing modernization. In the coming years, the major challenge would be to bridge the gap

between the “much improved and business savvy” software entrepreneur and the “much

improved and technology savvy” business leader.


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Some part of the blame must also lie with the software entrepreneur who has often failed to

really make a convincing enough “business case” for the modernization of the industrial and

business houses. We asked several of out interviewees if they had ever tried to make an “ROI‐

based” case for implementation of ERP or automation systems. Did they ever see one being

made in the industry? Did anybody they know of talk about flexible pricing strategies (e.g.

gain‐sharing etc.)? Did people consistently try to sell the solution of a business problem rather

than a technology with a fancy‐sounding name? We did not get a lot of examples—and

certainly none that could rise to a level of prominence. There is definitely a need for greater

sophistication in the way technology people think about selling. One entrepreneur that we

talked to—after having spent two long years struggling to get a break for his embedded systems

company—acknowledged that he had thought that selling the technology once it is made won’t

be such a big deal. He now believes that the marketing part is as much important to the success

of a software company as the technology itself. This is a reality that has taken a lot of time to

sink‐in with the predominantly technically trained Pakistan software entrepreneur.

TEXT BOX # 8: KEY STRATEGIC CHALLENGES & MANAGERIAL BEST PRACTICES-II

Strategic Challenge # 4: Operating in an Under-developed Domestic Market —There are many manifestations, namely, the psychological price barrier, lack of user awareness, lack of business

MBP5—Focus on the better-developed segments of the market. Understand the requirements and difficulties in “creating” a market single-handedly and plan accordingly.

MBP6—Sell a business-solution, rather than a technology. Price innovatively. Strategic Challenge #5: Getting Access to Capital—Software industry in Pakistan greatly suffers

from lack of capital at the venture initiation, expansion, and working capital stages: MBP7—Find a strategic first customer who is willing to fund (a part of) the startup and is

“willing and patient” enough to transfer domain knowledge and let you experiment. MBP8—Use the financial clout, domain knowledge, and regional network of locally

operative multi-nationals (MNCs) to fund startup. Strategic Challenge # 6: Have a Business Plan and a Strategic/Domain Focus—Many of the

domestic focused software companies have been formed on a herd mentality rather than a clear focus:

MBP9—Understand where you need help (e.g. management, marketing, institution-building, legal, accounting) and seek it. Remember: a minority stake in a larger (more successful) venture is worth more than majority stake in a smaller (less successful) one.

Other Challenges (discussed in detail elsewhere): Migrating from a domestic to an exports company, developing trust in relationships, delivering quality products and services etc.


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Another major inhibitor, besides the lack of awareness on the domestic front has been a lack of

general economic growth in various sectors of the economy. The prime example of how this

might have affected the fortune of the local software firm is the financial and

telecommunications sector. Since the DotCom Bubble burst and the 9/11, Banking/Finance and

Telecommunication sectors are the only ones that have experienced major growth in the

country’s economy. Manufacturing and industry has been rather depressed, and new

investment in industrialization, with the exception of some in textiles, has been minimal.

Consequently, software companies associated with financial and telecom sectors have done

much better than the rest of the industry.

In fact there is a fairly strong positive correlation between revenue growth of software

companies and their involvement in financial or telecom industries and a negative correlation if

they are involved in the ERP business. This, once again, is something beyond the control of the

software industry alone—what to talk of a single resource constrained software firm. Many an

entrepreneur has taken on the challenge of “creating” a demand for their products and services

and seriously underestimated the difficulty in doing so. Most entrepreneurs that we talked to,

especially those dealing with sub‐sectors that suffered from depressed demand for software,

believed in the government’s ability, as a regulator or a facilitator, to ”create” demand in the

depressed sectors of the economy as a means to jumpstart growth. We will address this issue in

some detail in the public policy segment of this report.

The above discussions provides us with two managerial practices adopted by the relatively

more successful companies and thus may be described as managerial best practices. These are:

Managerial Best Practice #5 (MBP5)— Building successful businesses is as much about “doing the unthinkable” as it is about identifying opportunities ready to be exploited and executing upon them. Focus on the untapped opportunities in the better-developed or fast-emerging segments of the market. When “creating a market”, understand the requirements and difficulties of doing so single-handedly and plan accordingly.

Managerial Best Practice #6 (MBP6)— Sell a business-solution, rather than a technology. Look at your (potential) clients’ business processes and think of ways in which your product may make a difference to his/her bottom-line. Make an ROI-based argument for the sale and price innovatively.

Strategic Challenge # 5: Access to Risk, Working, and Expansion Capital—One critical issue for

all software startups—but an acute one for the domestic‐focused local firms—is that of access to

risk or even expansion capital. The software industry is especially disadvantaged in this respect


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because of the structure and the nature of its business—namely, a major chunk of its assets are

intangible (e.g. its employees, and software etc.) and hence difficult to valuate or even liquidate,

if needed. This essentially closes the doors of traditional collateral‐based lending channels to the

software industry.

The alternative approach, namely, risk/venture capital is a relatively nascent experiment in

Pakistan and would take sometime, and a few big successes, before both investors and

entrepreneurs could become used to it as a mainstream financing instrument for early stage

startups. This leaves the software industry with very few alternative sources to access capital

from. In the days prior to and during the DotCom Bubble, one channel of capital sometimes

accessible to software entrepreneurs was investment by large business houses. However, after

the high‐profile failures of several of these ventures, namely, Cressoft, Atlas Software etc. that

too has been severely restricted. While the reasons for these failures are still undocumented, the

fact remains that only a handful of business houses have any significant investments in

IT/software operations today. The salient ones being Kalsoft and Askari Information Systems.

Founders’ equity (both cash and kind) and friends’ and family’s financial support have largely

remained as the key vehicles for funding of domestic‐focused software ventures. This has

sometimes, though not always, put a lot of entrepreneurs in a fairly tight situation. Many have

abandoned product development activities midway, and still others have been forced to take on

projects that have resulted in the dilution and loss of company’s focus. While on the hand, one

can argue that restricted access to capital might have resulted in a natural selection of the best

ideas in the market, stricter financial discipline in the industry, and in keeping one focused

towards making money. On the other hand, however, there is a possibility that some (or quite a

few) promising ideas never saw the light of the day primarily because of the entrepreneur’s

inability to sell it to a financier. This also makes prominent the “peoples and marketing skill”

aspect of being a software entrepreneur—a trait that may not necessarily be in abundance in the

Pakistani software entrepreneurs.

Consequently, the domestic‐focused software firms, especially those that have not had the good

fortune to attract one of the few locally available sources of investment from business houses or

venture capital, have either adopted a path of “organic growth” or have become unsustainable

and diversified into (unrelated) areas. Many have gone out of business. One of the most

common strategies, even for today’s product‐oriented businesses, has been to start as a projects‐

based company and gradually move your way towards a generic product. This strategy has

worked especially well in places where the final product has been innovative enough that a


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potential buyer was willing to pay for all or part of the product‐development and learning cost.

Prominent examples can be cited from areas of banking automation (ATMs etc.) and financial

trading systems etc. Here too, however, some companies have been able to transition well from

a project to a products company while others have fumbled.

There are a lot of technical and business issues involved in trying to do this right, e.g. the

technicalities of creating a generic product platform from a specific project (e.g.

parameterization) and complexities of trying to guess the needs of a general audience from that

of a specific customer etc. The key challenge and the differentiating factor between those that

have done this well and those that have not, is the ability to convince an “eager and patient”

first customer who is willing to transfer critical domain knowledge and be the subject of some

experimentation by the software company.

The example of Softech Systems as “best practice” case is worth emphasizing here. While

designing the online trading platform for a major brokerage house in the country, Softech was

able to negotiate a non‐exclusivity agreement with its first customer that allowed Softech

Systems to sell the later versions of the trading platform to other clients in exchange for some

royalty, free upgrades, and a subsidy on annual maintenance fees. Needless to say that the

arrangement has been a win‐win situation for both the brokerage house and the software

company—and more generally for the Pakistani industry and the end‐consumer. Many other

successful companies have adopted similar approaches and have succeeded in adding

successful products in their portfolios.

Another innovative strategy for funding, or partially off‐setting, the cost of product

development activity in a resource‐constrained environment like Pakistan’s, is the intelligent

use of MNCs. Being able to use the financial wherewithal of Multinational Corporations (e.g.

Financial institutions and Banks like ABN AMRO, Standard Chartered, and Citibank and others

like Shell and P&G etc.) has been a fairly successful strategy for many companies, not only for

product‐development but also follow‐on marketing. The example of Genesis Solutions—a

provider of ATMs and other financial transaction equipment—is a case in point.

The foundation of Genesis was laid when a multi‐national bank, having ruled out the ATM

equipment available in the international market, approached its founder and asked if he could

develop something specific that it had in mind. The gentleman signed an agreement as per

which the bank provided some experimentation capital to develop a prototype, a major portion

of the contract as advance, and an order of 20‐odd machines. Not only was this client himself


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satisfied with the product delivered, it also introduced and showcased Genesis’ ATM

equipment at its regional meetings in Dubai and opened up doors for Genesis’ subsequent foray

into the Middle Eastern and South Asian market. Other similar stories of satisfied

multinationals leading the software vendor to a larger regional audience are not very

uncommon—thus making it a potentially useful strategy for software houses to look at.

Another common way, sometimes available, to get around the issue of finances is to use another

parallel operation—a consulting or a hardware company—as a means to finance the

development of the product. This is essentially a variation of using a project‐based business

model to fund product development. Depending on the synergy between the two businesses,

some companies have been able to do it more successfully than others. An example is Alchemy

Technologies—a company spawned out of Alchemy Associates—an actuarial consulting and

training practice, that is launching a risk‐management software for fund managers of financial

institutions. It is possible that Sidaat Hyder Morshed Associates also leveraged its established

consulting practice in developing its fairly successful financials software.

We saw another interesting and ingenuous model of funding a start‐up at work at Lumensoft—

a Lahore‐based ERP company that was incubated, under quite generous terms, at LUMS. In

addition to LUMS’ support, that gradually tapered off and forced the company to “graduate” to

an off‐campus location in just over 2 years time, Lumensoft also used quite an ingenuous way

of distributing the firms’ ownership among several partners—who rotated in and out of the

firm during times when the operation was not sustainable or even worked elsewhere to pay for

the subsistence salaries of other partners engaged in product development. “We had some people

who were working full‐time in the company—the working partners—and some who were merely

contributing money every month to keep the operation going—the sleeping or capital partners. These

were working professionals, like us, who were putting in money to incubate the idea.” is how one of

Lumensoft’s founders described their approach of sharing and diversifying the risks and

burdens of starting their new venture.

Managerial Best Practice #7 (MBP7)— Find a strategic first customer who is willing to fund (a part of) the startup and is “willing and patient” enough to transfer necessary domain expertise and let you experiment with it. Innovative non-exclusivity contracts that give you the right to productize a particular solution and sell it to other clients in exchange for a royalty to the strategic first customer can lead to “win-win” solutions for both parties.

Managerial Best Practice #8 (MBP8)— Use the financial clout, domain knowledge, and regional network of locally operative multi-nationals (e.g. Financial institutions like ABN


77

AMRO, Citibank, Standard Chartered etc., FMCG companies like P&G and Nestle etc.) to fund startups. A satisfied MNC customer is not only a great addition to the customer portfolio but can also help with introductions to its regional network of associates, partners, and clients.

Strategic Challenge # 6: Have a Business Plan and a Strategic/Domain Focus – While one can

quote several examples of successful and unsuccessful ventures in the domestic‐market space,

the factor that is inextricably associated with the success of a domestic venture is the

opportunity to quickly build a domain and ably navigate the projects‐to‐products transition.

There are many companies who seem to have done that admirably well and, as a result, have

created considerable value for their investors. Many have even been able to attract the interest

of large foreign companies as potential acquisition candidates. One of the examples is LMKR

that began its operations as a domestic‐focused outfit, quickly developed a strong domain

expertise, and was able to attract major investment by a foreign company.

Developing a domain expertise—or starting off with one already in place—has been one of the

major issues confronting the Pakistani software entrepreneur. Majority of the companies were

established by the naïve entrepreneur in the hopes of attracting good foreign business or

finding instant utility for his “technology”. (S)he did not worry much about the importance of

having a domain to start with. Indeed, “if I can build it, they will buy it” seems to have been the

mantra of industry’s earlier entrepreneurs. Things have changed a bit and DotCom Bubble

burst has been instrumental in hastening the process. Domain expertise (or atleast the need to

have one) is gradually emerging in the industry with the newer ventures are much more

focused in terms of what they want to achieve than the earliest ones. The realization that there is

no free lunch in exports and the competition for commodity‐type programming and coding

operations is fairly cutthroat has forced the IT entrepreneurs—old and new—to think hard

about strategy, domain knowledge, and product‐or‐services issues. Needless to say, however,

that this process of learning has been gradual and sometimes painful for those involved.

The local entrepreneur is still far from the type of business sophistication you would expect

from his/her American or even Indian counterpart. Another important element that has been

lacking on the Pakistani scene is the teaming‐up of technical, business/management, marketing,

and domain expertise at the inception of ventures. The predominant model has been one in

which the IT professional starts a venture, and over time and through trial and error, acquires a

domain expertise and learns how to run a successful business as well. We encountered several

such entrepreneurs who had excellent technology under their belt but were seriously lacking in

terms of their ability to grow their organizations and thus realize the full potential of their


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operations. One of our interviewees prided himself in the fact that the company culture in

his/her organization is such that the CEO is involved in everything from product design and

development to preparing quotations and writing responses to RFPs. This CEO was working

12‐hour days and hardly found time to get into the strategic mode of operation from the tactical

mode in which he was so used to operating. Needless to say, however, that the company,

despite its tremendous potential, was operating in a day‐to‐day mode and suffered from serious

deficit of strategic and forward thinking. The good thing about this case was that the CEO had

realized that he needed help. He just did not know where to look for it.

Many a times, therefore, the software entrepreneur understands what (s)he lacks and is looking

for help but may not find it. The reason being that the software industry does not yet feature as

a place where top‐quality business and management graduates and experienced managers

would like to go and work. That would not happen until we have success stories of software

companies and the industry is seen as a place where people could find life‐time employment or

a monetarily lucrative career. Again, help might be on the way in non‐traditional ways. A vast

number of students in the current MBA class of the country’s leading business school have a

Bachelor degree in computer science. Unable to find jobs abroad, these “discouraged” young

computer scientists/programmers have decided to call it a day and join the MBA bandwagon.

They might, however, some day return to their first professions as business leaders, managers,

marketers, and domain experts. When that happens, it would be a welcome sign for the

country’s software industry.

Programs aimed at facilitating the blending and teaming‐up of business visionaries with those

capable of executing on a technical concept are a step in the right direction. One way is to

develop the culture of multi‐disciplinary university education programs to help create networks

of friendship and affiliation between professionals within technical and managerial (and other

softer) disciplines. The often‐prevalent concept of uni‐disciplinary education (e.g. IT Institutes,

Management Institutes, but not robust multi‐disciplinary universities) may be contributing to

the stove‐piping of technical and managerial talent in the country.

LUMS is trying to make some inroads in this direction—by leveraging and blending its strong

multi‐disciplinary undergraduate program and good quality graduate programs in business

and computer science. Other schools maybe following suit. Another problem is more cultural

than academic. While there is plenty of entrepreneurship culture among the trading and

business community in Pakistan, the relatively well‐educated middle and upper‐middle classes

from which the country’s gets most of its software professionals feels less inclined towards


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entrepreneurship. Education seems to be making people more risk averse. One of the deans of a

private sector university that we talked to believes that encouraging people to experiment with

entrepreneurship during their student years is one way to inculcate this often‐lacking attribute

among our more educated (“professional”) classes. “When you are a student, your risk‐return

calculus is very different from that after graduation. Nobody expects you to be responsible and ‘get a job’

thus giving you ample opportunity to experiment with doing something on your own, like running a

business. This might be the best time to teach entrepreneurship”, he asserts. Programs that facilitate

such undertakings must be encouraged. LUMS’ support for on‐campus business incubation is,

once again, a step in the right direction, and hence must be carefully looked at, evaluated, and

replicated. Lumensoft is a fine example of the potential of such programs. The above discussion

brings forth another managerial best practice in the Pakistani software industry, namely:

Managerial Best Practice #9 (MBP9) — Understand where you need help (e.g. management, marketing, institution-building, legal, accounting) and seek it. Remember: a minority stake in a larger (more successful) venture is worth more than majority stake in a smaller (less successful) one.

These are only few of the more important challenges facing a domestic‐focused software

operation. Others might include migrating from a domestic‐focused operation to a well‐

diversified or even export‐focused one, organizing to deliver quality software products and

services, and institutionalizing and professionalizing the operation etc. We will not delve

deeper into each of these issues here as they are not unique to domestic‐focused operations only

and hence have been largely covered in the discussion within other more relevant contexts. We

would, however, highlight the importance of and difficulties and pitfalls in migrating from a

domestic‐focused to a well‐diversified or export‐focused operation.

This is an inherently difficult undertaking—made further critical by the sheer number of

companies trying to accomplish it. Yet, we do not have many success stories or a very solid

roadmap to help a company trying to make this transition. A vast number of Pakistani software

companies that have made this transition have done so in the Middle Eastern or African regions

where the local domain experience is much more readily acceptable than the far better

developed North American or Western European market. There is an urgent need for the

industry to identify success stories of “domestic first, export later” model, document them, and

learn from the critical success factors responsible for such transitions.

In the final analysis, the domestic software scene is quite vibrant and has a lot of potential. It is

only a matter of time, and the want of a few success stories, before the herd behavior of the local


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market could be channelized to its own advantage. The much‐awaited automation of the local

industry will arrive one day. Some sectors may lead the rest of the industry but others are

bound to follow. The government can play a role in hastening the process by intelligent and

careful use of public policy. What is most needed is a shift in the attitudes and sophistication of

the IT entrepreneurs, the business leaders and managers, the financiers, the industrialists, and

the policymakers and government bureaucrats for everything to fall into place.

Trust is the most critical ingredient of success in this multi‐faceted set of relationships. We

talked to a number of entrepreneurs who seemed to be uncomfortable bringing in domain

expertise, especially business managers, onboard for the fear of losing control of their venture.

Sometimes, their fear may be justified but many a times it is not. Public policy and legal

arrangements that strengthen the intellectual property environment and provides essential

safeguards for each can sometimes help in creating a minimum threshold of trust among

various stakeholders and bring them to the table. LMKR’s Atif R. Khan—who sold majority

stake of his venture to a foreign acquirer but still remains in‐charge—is a shinning example. “It

is better to be a minority owner of a large (more successful) company than to be a majority owner of a

smaller (less successful) one.”

6.4—The Export‐Focused Foreign Firm (The “TechLogix” or “Etilize” Model) The Export‐Focused Foreign Firm (defined above) is the third most prevalent of the generic

business models, accounting for about a fifth (17‐20%) or 8 of the 47 companies in our sample.

We have named this business model after two companies representing the variations within this

generic model. Techlogix is a well‐recognized and respected name in the Pakistani software

industry. The company operates in the customized software development and consulting

services space and leverages its US ownership to bring business from North American/Western

European markets to be executed upon in its development center in Lahore, Pakistan (and now

Beijing). Other companies in our sample that operate on the same general principle as Techlogix

are Prosol, Adamsoft, and Xavor etc. Etilize, on the other hand, is a relatively lesser‐known

operation of about 200+ employees that represents the other type of export‐focused businesses,

namely, those operating in the more innovative‐products space of the market. Other companies

in our sample that operate in a fashion similar to Etilize are MixIT, Elixir, and Ultimus.


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With its clearly international orientation, the export‐focused foreign firm model is also

considered one of the more lucrative and prestigious of the four business models in our

taxonomy. The canonical form of

this business model comprises a

foreign entity (an individual or a

firm, generally an expatriate

individual or an expatriate‐owned

firm) coming up with the general

idea of the business, and for reasons

of costs or patriotism or both, setting

up a company with a front office in

the target market and back‐office,

generally a product development

facility, in Pakistan. This model is

different from the dedicated

development center (to be discussed

next) in the scope and nature of its

Pakistan‐based operations. Unlike

the dedicated development center

model, the Pakistan‐based operation of the export‐focused foreign firm is a critical element of

the basic business idea. More often than not, the value proposition of this class of firms is clearly the arbitrage in the

labor‐market of IT professionals. Many firms were established for precisely this purpose and

would not have been able to attract their start‐up capital or successfully execute their business

models13 without the low‐cost offshore back‐office/development‐operation being an element in

the business plan. Many of the firms in our sample were created at the height of the DotCom

Bubble—or slightly lagging that. In fact, in the capital‐scarce post‐DotCom Era, many western

(especially US‐based) investors have looked favorably on ventures that have demonstrated the

commitment to keep product development costs at the minimum by shifting the back‐office or

development operations offshore, mostly to India, Eastern Europe, or republics of the former

Soviet Union.

13 Many industry experts have made that argument in the context of outsourcing of US IT work to Indian companies.

TEXT BOX # 9: THE TECHLOGIX OR ETILIZE MODEL, IN A NUTSHELL

Total # of Companies in Category: 7 Average Employment: 77 % of Foreign Subsidiaries: 100% % with Front-Office Abroad: 100% Exports: Domestic Market: 98:2% Product: Services Offerings: 40:60% Average Sales Growth (last year): 82% Average Employment Growth: 28% #/% of Companies with ISO/CMM: 57% Programmer-to-PM Ratio: 10.44 QA Employees as % of Employment: 13.7% QA Function % of Payroll: 12.67% Top-3 Policy Challenges: Image (57%), Manpower Availability (42%), Telecom cost (42%)


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Etilize Pvt. Ltd., for example, is a case in point. Etilize is a Karachi‐based, 200+ people company

with a front‐office in Southern California. It specializes in developing catalogues for online

retailers and has clients with worldwide name recognition, like Amazon, Best Buy etc. One of

the important parts of Etilize’s business operations is the development and maintenance of

product taxonomies and knowledge‐bases—a manpower intensive task that is the backbone of

its business model but would have taken a whole lot of more capital to set up and run in the

United States. Etilize’s Karachi operation does it at a fraction of the total cost thus giving the

idea a chance to succeed. The result is a win‐win situation for both the local and the foreign

stakeholders of the company. Although the degree of dependence on “labor arbitrage” might

vary across ventures, the basic theme runs across majority of the organizations in this class of

business models.

As the name indicates, there are two

defining features of this business

model, namely, the idea is largely

applicable to a foreign (target)

market and the key proponents of

the idea i.e. the founders of the

venture are generally based abroad

(in the target market itself). What

this means is that majority of the

companies in this segment of

generic business models do not

suffer from the weaknesses in

domain expertise or pre‐launch due‐diligence that is endemic to some of the locally conceived

ventures that were discussed in the context of export‐focused local firms. The foreign investor

(or entrepreneur) is assumed to be much more business savvy than their local counterpart.

Since most of these companies also seek initial capital from and hope to go public in a far more

intelligent market abroad, they also have the additional advantage of fairly quick and ruthless

feedback on the basic idea. This is certainly true of the post‐DotCom Bubble Era than the height

of the DotCom Bubble when, even in the more sophisticated markets of the west, a lot of money

was thrown into fairly mediocre business ideas. What this means from the perspective of the

Pakistani software industry is a greatly diminished possibility that a company would pursue a

“not‐so‐good” idea because of the lack of business sophistication of a naïve

TEXT BOX #10: LIST OF COMPANIES IN SAMPLE & THEIR DOMAINS EXPERTISE / OFFERINGS:

Etilize – Online & Smart Cataloguing, Knowledge Prosol—Lotus Notes, .Net Applications Adamsoft—Hospital & Patient Mgmt. Systems Ultimus—Workflow Automation Systems MixIT—Online Trading Systems Techlogix—ERP, BP Automation, EI, DB Xavor—Enterprise Applications Integration, BPR Elixir Technologies—Automation of Volume Printing


83

entrepreneur/investor—a factor that has been an anathema of the earlier discussed classes of

business models.

Another possible advantage available to companies in this class of generic business models,

besides a better‐thought‐through idea and a more business savvy and aware entrepreneur‐

investor, is a relatively better access to venture and expansion capital. An overwhelming

majority of companies in this class of business models have been formed either with foreign

venture capital routed through the foreign parent or investment‐savings of expatriate founders.

We clearly see the effect of this enhanced access to capital on the product‐service offerings of

companies in this segment. Majority of the companies in this segment, therefore, are product‐

based, to start with and thus depend on the creation and preservation of critical intellectual

property. Majority of these companies have also been able to fund major portions of their

product‐development efforts internally. This is in sharp to the companies in the earlier two

business models that had to resort to project‐based funding for product development and thus

run the risk of diluting the focus of the business. An additional positive factor for this class of

companies is a better chance of attracting an exit event—an acquisition by a larger foreign

company or an IPO on a foreign stock exchange—that has been a major bottleneck for the

domestic‐focused or even the export‐focused local company. These advantages aside, however,

there are some significant—in fact daunting—challenges in successfully executing upon an idea

in this space

Strategic Challenge # 7: Dealing with the “Image” Problem—Of the several challenges

encountered by these companies, not the least important of which is the infamous “image”

problem that these companies have to face in the foreign markets. Although there are several

dimensions of the image problem, it all boils down to one single bottom‐line. Due to factors

beyond the control of an individual‐firm, or even a single government, the western

customer/investor is hesitant in doing business with Pakistan or an entity with significant

presence in Pakistan. The most often‐quoted example is that of Align Technologies and the fate

of its fairly large operation in Lahore. The common industry folklore has it that Zia Chishti—

Align’s CEO at the height of the US War in Afghanistan and Pakistan‐India tensions in 2000‐2—

fell out with its Board of Directors who thought that, given the geo‐political situation in the

world and South Asia in particular, the risk of war in the subcontinent was far too much for

Align to bear and asked that the development center be moved to a safer location, like Taiwan

or Mexico. Unable to make his case to his Board of Directors, Zia resigned in protest, and the

Pakistan operations of the company were later wrapped and shifted elsewhere.


84

While there is no point in denying either the seriousness of this challenge to companies in this

class of business models or the need for a concerted government‐level effort at executing either

a harm‐reduction strategy in the interim or putting together a proactive strategy for repairing of

the country’s image abroad in the long‐run, several companies that we looked at have

countered this challenge in their own unique and innovative ways.

The most basic approach, that is partly inherent in this model, is to work with a front‐office

abroad and under‐emphasize the Pakistan‐element of the company’s operations. Many

companies, in an effort to under‐emphasize Pakistan, tend to use the term “South Asia” as a

proxy for where some (or most) of their back‐office operations are carried out. While this may

be an acceptable approach for short‐to‐medium term, it has two basic flaws. First, that the

company has a significant linkage with Pakistan cannot be permanently hidden from key

foreign stakeholders, as amply demonstrated in Align’s example. The issue then becomes, at

what time would it be most appropriate to let the skeptical foreign stakeholders face the reality.

Second, under‐emphasizing the Pakistan‐connection and not letting positive examples of doing

business in Pakistan become a part of the industry grapevine, further reinforces the negative

perception and feeds back into the image problem itself. Small actions like these, sometimes

justifiable from an individual company’s standpoint, end up creating a bigger collective

problem for the entire industry.

Many senior executives that we interviewed, however, also emphasized upon the fact that

sometimes “image indeed becomes the reality” and some effort and persuasion on their part has

been fairly effective in nullifying the effects of the country’s misperceived image. The CEO of

one of the largest companies in Pakistan that has incorporated in the US and enlisted on

NASDAQ to nullify the image factor has this to say about his experiences: “We have never had a

customer who has come to Pakistan (Lahore) 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‐development and tribal country, once we

get over that initial bottleneck— sometimes through gradual persuasion and other times assurances of

security etc.— and get him/her to land in Lahore, we’ve almost always won the deal. I once took a

potential customer, first to Mumbai 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.” Stories like

these are not uncommon, highlighting towards a way to deal with the image problem.


85

Another dimension of the image problem is the enhanced security needs of many countries and

the resulting difficulties in obtaining visas for Pakistan‐based staff to travel to the country of

their customers. Here again, many companies have found intelligent workarounds, e.g. by

ensuring a minimal number of staff that have valid visas to the country of destination or by

hiring dual nationals or Pakistanis with long‐term valid visas of the target country. Many of our

interviewees, however, believed that the government, through the Foreign Office, can and must

play a positive part in facilitating business visas to software (and other) professionals.

This brings us to a couple of managerial best practices in dealing with this particular strategic

challenge. These are:

Managerial Best Practice # 10 (MBP10)— Counter the “image problem” by incorporating

in foreign countries and opening development centers in “safer” locations (e.g. Dubai, China

etc.). Hire dual nationals or people with long‐term valid visas to get around visa restrictions.

Managerial Best Practice #11 (MBP11)— Do not let the image become the reality. Be

creative and innovative about projecting Pakistan as a responsible country. Persuade your

customers and foreign partners to visit Pakistan and see for themselves.

Strategic Challenge # 8: The Geographical Shifting of Labor Arbitrage—Another potential

challenge and a serious one at that, to this class of companies is the shifting of the labor

arbitrage. For the very reason, apart of the patriotic leanings of the founder‐entrepreneur, that a

back‐office/development‐center in Pakistan became an integral part of the company’s business‐

plan, it can also become a liability. The case in point is the geographical shifting of the labor‐

arbitrage set in motion due to “over‐crowding” of the first‐generation of locations for offshore

software development (e.g. India, Russia, Ireland etc.) and the coming of age of several second‐

generation locations (e.g. China, Ukraine, and other “less‐problematic” countries). Most

recently, for example, the Indian tech‐towns of Bangalore, Mumbai, and Hyderabad have been

marred with shortages of quality manpower and skyrocketing infrastructure costs thus forcing

investors and Indian planners to seek other destinations in India and across the world.


86

There are some signs of this trend hitting Pakistan’s software industry in the not‐too‐distant

future, as well. If that happens too soon, the global software revolution would have skipped

Pakistan as a favored destination without assimilating it in any big and meaningful way. One

potential sign and also a way to encounter such an event is the recent opening of the Beijing

office of Techlogix Inc.—one of Pakistan’s star performers in this model. Many other companies

that we spoke to are looking at possibilities of opening development‐operations in Dubai,

TEXT BOX # 11: KEY STRATEGIC CHALLENGES & MANAGERIAL BEST PRACTICES-III

Strategic Challenge # 7: Dealing with “Image” Problem—Foreign customers and partners are hesitant doing business in Pakistan or with an entity associated with Pakistan.

MBP10—Counter the “image problem” by incorporating in foreign countries and opening development centers in “safer” locations (e.g. Dubai, China etc.). Hire dual nationals or people with long-term valid visas to get around visa restrictions.

MBP11—Do not let the image become the reality. Be creative and innovative about projecting Pakistan as a responsible country. Persuade your customers and foreign partners to visit Pakistan and see for themselves.

Strategic Challenge #8: Countering the Geographically Shifting “Labor Arbitrage”—For the very reasons an offshore operation in Pakistan became a possibility, it can turn into a liability:

MBP12—Develop strong domain expertise to lock in customers, move towards value-addition to avoid being pressed by the pressures of the commodity business, or continually cut costs by automating your own processes.

MBP13—The “second best” is better than none at all. Open alternate development centers in fast emerging new destinations (e.g. in Dubai, the Philippines, and China)

Strategic Challenge # 9: Scaling Up the Pakistani Operation by Hiring Quality People—The dark-side of “cheap labor” i.e. shortage of quality professionals has emerged as a major challenge for software companies:

MBP14—Counter the shortage of quality labor by hiring expatriate or returning Pakistanis. Hire people with the right attitude, not skill-set or coursework.

Strategic Challenge # 10: Getting to Know the Land and Managing Expectations—Expatriates are at a disadvantage as far as knowledge of local business customs is concerned, they also come to Pakistan with expectations that belie the reality:

MBP15—Know the land, its people and their customs and, to the extent possible, play by its rules. Make use of connections to get your way around. Make use of facilitation agencies e.g. PSEB. BOI, or PASHA where possible.

Other Challenges (discussed in detail elsewhere): Setting up an operation in Pakistan, and managing the parent-subsidiary coordination etc.


87

Taiwan, the Philippines, or even Iran to counter this trend and some of the other long‐standing

weaknesses (e.g. access to quality labor) in their Pakistani operations.

Apart from becoming a part of the shifting labor arbitrage and capitalizing on it (described

above), there are several other ways of countering it as well. One such approach is to develop

strong domain expertise that could be used as a lock‐in strategy by the software firm. Several

companies have been successful in creating such dependencies among their clients and are thus

successfully countering the above threat. Another approach is to move higher up the value

chain from providing commodity‐type software development services to more expertise

dependent consulting services that are less prone to regional fluctuations. Still another

approach would be to further lower the cost of one’s operations through automation of the

labor‐intensive processes in the software development cycle. One company that we interviewed

was developing its own process automation and speech recognition tools to further reduce the

cost of its call center and BPO operation thus countering the possibility that its clients would be

able to find cheaper alternatives elsewhere.

Regardless of what ones approach is, it is important to recognize that the labor arbitrage

argument cannot last forever and that one must strategize and plan for it, primarily through

innovation, cost‐reduction, and value‐addition, and thus remain competitive in the long run.

Managerial Best Practice # 12 (MBP12)— Develop strong domain expertise to lock in customers, move towards value-addition to avoid being pressed by the pressures of the commodity business, or continually cut costs by automating your own processes.

Managerial Best Practice #13 (MBP13) — The “second best” is better than none at all. Open alternate development centers in fast emerging new destinations (e.g. in Dubai, the Philippines, and China.

Strategic Challenge # 9: Scaling Up the Pakistani Operation by Hiring Quality Manpower—

One of the most important of our weaknesses, apart from general shifting of the labor arbitrage

argument, is the difficulty of scaling up the operations i.e. adding/hiring quality technical and

managerial talent in Pakistan. This might come as a surprise to the proponents of the “cheap

and abundant (software) labor” advantage but it isn’t a surprise for the executives in the

Pakistani software industry. While there emerged some conflicting opinions on this issue

during the course of our industry interviews, the substantial consensus of the executives

interviewed—and amply supported by statistical findings on policy and environmental

bottlenecks—seemed to be on viewing the labor market of software and related professionals as

a weakness rather than a strength.


88

Majority of our interviewees seem to think that Pakistan’s educational infrastructure is

producing a large number of software professionals that are seriously deficient in important

skills and capabilities. A large number of these CEOs only prefer to hire from the top‐three

institutes of the country, namely, FAST, LUMS, GIK and perhaps a few more. However, there

were exceptions as well as a few companies emphasized the fact that it is the attitude (to learn

and adjust) rather than the already acquired knowledge/expertise that they look for in a recent

graduate which are sometimes equally likely to be found in second‐tier institutions as well. “No

matter what you teach an IT graduate in school, it would become obsolete in a matter of years, if not

months. Therefore, what we need to emphasize on, and create in our students, is the ability and

willingness to learn. That’s where attitude comes into the picture. We try to hire those who demonstrate

the right attitude rather than an academic track record or a course here or there”, is how one executive

described his company’s hiring philosophy.

In addition to the technical skills, there are other weaknesses in the typical Pakistani software

professional. Many of these are basic (e.g. communication skills, basic critical thinking,

conceptualization and mathematical ability etc.) and soft (e.g. people skills) skills sometimes not

emphasized in their technical programs. Although many of these skill‐related deficiencies are

applicable generally, these are further accentuated when a professional begins to work in a firm

closely linked to a foreign market. “What do you do when your chief software architect or project

manager cannot communicate properly with your client” asked a CEO of one company. This entry‐

level skills‐shortage combined with an equally strong, if not more, deficiency in project

management expertise has led many of these companies to seek and relocate people with

requisite project management experience from abroad.

“It is very difficult to find people with 2‐5 years of work experience in the local market and almost

impossible to find those who have and can manage large projects as well”, is the way one industry

executive describes the HR‐situation. Many blame the lack of large projects in the local market

itself as contributing to the situation. Brain drain to the foreign (especially the US) markets is

another important factor in this equation. Others believe the development practices of the

software industry are to be blamed for the quagmire as even those companies that did get large

projects from foreign clients and successfully executed upon them have, with an exception of

the few, not been able to produce good quality project managers for the industry. “You cannot

hope to train a lot of project managers if you end up following a haphazard process over a large period of

time over and over again”, asserted one executive that we spoke to. Regardless of what ones exact

stated position is on this issue, there are no two ways of emphasizing the need for developing


89

quality software professionals with both technical and soft skills in large enough numbers to

really play the “labor arbitrage” card in a highly competitive international labor market. One of

the solutions (emphasized above), namely, opening up development centers in other labor‐rich

locations (e.g. Dubai or China) might also lessen the impact of labor shortages in the short‐to‐

medium term and give the country’s educational infrastructure the long lead time it might need

to begin producing quality software labor in adequate numbers. Until that is done, however, the

following qualifies as a managerial best practice:

Managerial Best Practice #14 (MBP14)— Counter the shortage of quality labor by hiring expatriate or returning Pakistanis. Hire people with the right attitude, not skill-set or coursework.

Strategic Challenge # 10: Getting to Know the Land and Managing Expectations—Another

important challenge for companies in this space is that of setting up shop in Pakistan with the

right set of expectations and parent‐subsidiary relationships. This is critical, not only at the

start‐up phase, but also for continued sustainability and the health of the entity. We will discuss

the dynamics and challenge of the parent subsidiary relationship in more detail later, but would

like to address the issue of getting to know the land and managing expectations here. This is

one area where the foreign founder‐entrepreneur might be at a comparative disadvantage and

need some help from the local software community and supporting institutions (e.g. PSEB, BOI,

PASHA etc.) There is some evidence that many efforts of foreign entrepreneurs/professionals to

translate their desire to work with a Pakistani company or create one in Pakistan are riddled

with difficulties having to do with their lack of understanding of the local market and the

norms of doing business in Pakistan. Many enthusiastic entrepreneurs have come to Pakistan

with high expectations and gone back disappointed when they do not find a receptive local

partner or found one that is deceptive in his/her dealings. Those who are shrewd enough to

understand the local customs and rules and hence come with the right set of expectations or are

willing to tough it out manage to do better than others.

At the Pakistan‐side of the equation, there is a need to manage these expectations through a mix

of better information and facilitation. Government entities, like PSEB, can definitely play a role

in this regard. One of the companies that we surveyed, narrated an incident where the local

PTCL exchange would not set up a leased Internet line at its facility without the payment of a

bribe to the linesman—a situation that was only resolved after the direct involvement of the

PSEB. We need to be doing a better job than allowing the linesman of a telephone exchange to

pull the plug on a potential foreign investment opportunity in this country. This incident is


90

somewhat indicative of the situation generally true for a host of other support agencies and

must be addressed in a resolute manner and at the very earliest.

At the other side of the expectations management issue as well, a lot can be said and learnt

about how to (and how not to) structure the parent—subsidiary relationship. Again there is a

need here for better awareness—not only on the part of the expatriate founder‐entrepreneur‐

investor but also on the part of the local team—of how to do this right in the first place.

Experience has shown that the right set of expectations and well‐structured institutional

arrangements lead to better managed interactions and breed more trust while the converse

leads to mistrust and frictions between the two organizational entities. This is certainly an area

where the local professional and the foreign entrepreneur are both gradually learning over time.

Structuring an appropriate relationship and expectations (e.g. distribution of financial

resources, reporting relationships, incentives structures, possibilities of wealth transfer and

expansion, the rights of the subsidiary to seek alternate clients other than the parent, and

avenues to contribute in the parent’s global strategy etc.) that could last the test of time is

certainly an area worth all careful attention that one can give. Ironically, it is not an area that

gets as much importance at the time of inception as it deserves and thus may become, over time,

a cause of friction in the parent‐subsidiary relationship. In fact, there are signs that some fast

maturing ventures might be suffering from these frictions today (we will discuss this in the next

sub‐section). There is a need for the industry to learn from its own past (e.g. adopting the

practices from the well‐managed relationships and avoiding ones from those gone sour) and

build upon it to do better in the future.

Managerial Best Practice #15 (MBP15)— Know the land, its people and their customs and, to the extent possible, play by its rules. Make use of connections to get your way around. Make use of facilitation agencies e.g. PSEB. BOI, or PASHA where possible.

6.5—The Dedicated Development Center (The “ITIM Assoc.” or “Clickmarks” Model)

The Dedicated Development Center Model is the fourth and final of the class of generic

software business models, accounting for 7 of the 47 (or 15%) of the organizations surveyed for

the purpose of this study. This is essentially a “limited version” of the export‐focused foreign

firm model. We have named this model after two relatively well‐known—though slightly

different—companies in this class of business models. ITIM Associates is a 10‐year old, well‐

established, dedicated development center of a UK‐based conglomerate. It provides software

development services to various divisions/sister‐companies of that conglomerate or for third


91

party clients through the conglomerate. It cannot, however, seek or undertake additional client

work on its own. Clickmarks, on

the other hand, is a dedicated

development center of a US‐based

company established purely for

the reasons of benefiting from the

differential in the labor rates

between Pakistan and the US

market. These organizations differ

in terms of the nature and scope of

their relationship with their parent

entities—a fact that we would take

up shortly. Text Box # 12 presents

some summary statistics on the

dedicated development centers in

our sample. Text Box # 13

enumerates these companies and

identifies their domain expertise

and product‐services offerings.

That the dedicated development center is a variation of export‐focused foreign (expatriate) firm

necessitates that many of the same challenges and bottlenecks affect firms in this business

model as well14. However, as we noted elsewhere in this report, the dedicated development

center is different from the export‐focused foreign firm in several significant ways arising out of

the very limited nature and scope of its relationship with the foreign parent. These differences

give rise to several unique challenges or may accentuate some of the challenges discussed

above. In the following discussion, we will briefly highlight the similarities and differences in

challenges in making this model work better and discuss the new ones in more detail.

Majority of the companies in this business model segment have a similar value‐proposition (i.e.

labor arbitrage) and motivation (part‐economics, part‐patriotic and associational) for setting up

their development center in Pakistan. One of the CEOs, whose company recently moved its

development center to Pakistan, justified the economic case for the move in the following

words: “Once the initial one‐time set‐up investment has been made, it costs me $8,500 per month to run 14 To that effect, we recommend that this section be read in conjunction with the earlier section on the Export-Focused Foreign Firm.

TEXT BOX # 12: THE “ITIM ASSOCIATES” OR “CLICKMARKS” MODEL, IN A NUTSHELL

Total # of Companies in Category: 7 Average Employment: 42 % of Foreign Subsidiaries: 71% % with Front-Office Abroad: 57% Exports : Domestic Market: 98:2% Product : Services Offerings: 33:67% Average Sales Growth (last year): 17% Average Employment Growth: 6% % of Companies with ISO/CMM: 42% Programmer-to-PM Ratio: 6.12 QA Employees as % of Employment: 22% QA Function % of Payroll: 20% Top-3 Policy Challenges: Image (71%), Manpower Availability (43%), Venture Capital (43%)


92

my 21‐person development operation in Pakistan. In that kind of money, I could only hire one‐software

professional at my Silicon Valley office. When you decide to relocate to Pakistan, that’s the sort of labor‐

savings you are looking at”. Another businessman who moved his development center from Los

Angeles to Karachi proudly claimed that his Karachi set‐up was delivering the sort of quality

that is equal to, if not better

than, his Southern California

operation. Encouraged by the

quality of work that can be

delivered by the operations in

Pakistan, many of these

companies have even moved

their high‐end product design

and product enhancement

work to Pakistan. Many of

these set‐ups are able to attract the best talent from the market—by paying premium wages or

simply due to the lure of moving abroad—provide them with a good working environment,

and still show respectable savings for their foreign parents. Setting up a quality development

center operation, however, is not as easy as it seems. There are important challenges to the

returning expatriate who is often not very well aware of the local business and social norms. We

discuss these strategic challenges in detail.

TEXT BOX # 13: LIST OF COMPANIES IN SAMPLE & THEIR DOMAINS EXPERTISE / OFFERINGS:

ITIM Associates—Retail (ePos) and Travel Mgmt MetaApps—Offshore Software Development Clickmarks—Mobility Products for Portals Enabling Technologies—Video over IP Solutions Trivor Systems—Engineering Graphics, Gaming Strategic Systems Int’l—Supply Chain Optimization ESP Global—Banking-Financials, ERP, e-Commerce,


93

Strategic Challenge # 11: Setting Up a Local Development Center Operation—There is a

common approach to setting up a development center in Pakistan. The process generally starts

with a perceived need, by the parent’s top‐management, for setting up such a facility. The idea

may also be floated by a champion—generally an expatriate Pakistani—who does some initial

homework before presenting it to the parent’s management committee and directors. This is

followed by detailed homework on the Pakistani software scene with special emphasis on

infrastructure availability and costs and the human resource situation. At some point in time,

TEXT BOX # 14: KEY STRATEGIC CHALLENGES & MANAGERIAL BEST PRACTICES‐IV

Strategic Challenge # 11: Setting Up a Development Center In Pakistan—Several factors play a role, namely, making a case to the foreign management, doing a preliminary assessment of potential, hiring talent from the local market, planning for disruption etc. Sometimes, it is said, successfully setting up in Pakistan requires a certain kind of “perseverance” by the entrepreneur:

MBP16—Do a detailed analysis of the local scene, including one or more visits to Pakistan. Use contacts and references as much as you can, in setting up and hiring.

MBP17—Smoothen the transition by temporarily relocating a senior member of the technical staff to Pakistan. Ensure frequent interaction, including face-to-face interaction, between the Pakistan-based and foreign employees of the company, atleast in the initial days of the operation, to facilitate transmission of corporate culture and tacit knowledge.

Strategic Challenge #12: Building a Quality Software Development Operation—The issue of technical and process quality comes up in multiple contexts, namely, certifications and delivery capability:

MBP18—Understand the “hidden” value of quality. Build it in the processes and culture from day-one. Never take a “short-cut” to process quality—an action done for wrong reasons is worse than one not done at all.

MBP19—Get a certification only if you need to but develop quality processes because you have to. Make certification a means to an end, rather than an end in itself. Think hard about process and methodology, don’t follow blindly.

Strategic Challenge #13: Managing the Parent-Subsidiary Relationship—As the development center matures, it takes a life of its own, giving rise to possibilities of serious (mis)alignment in the objectives and interests of the parent and the subsidiary.

MBP20—Clearly define the scope and nature of the parent-subsidiary relationship in the founding agreement. Provide a mechanism for the subsidiary to have a say in parent’s strategic direction.

Other Challenges (discussed in detail elsewhere): Hiring and training the local workforce and integrating them in the parent’s culture, dealing with the image problem, countering the shifting “labor arbitrage” argument etc.


94

the informal consultation (i.e. asking friends and contacts) may also lead into a more formal

study (e.g. a couple of visits to and meetings with key stakeholders in Pakistan).

Once the top‐management of the parent becomes comfortable with the idea and is willing to

seriously consider the alternative, a concurrent search for legal arrangements, office‐location,

and a local head of operations is undertaken. Only after acceptable progress has been made on

each of these fronts is the decision made to actually begin undertaking some of the more

engaging parts of the

move. These might include

formal incorporation of a

subsidiary in Pakistan or

requisite approval from the

Board of Investment, hiring

and training of head of

operations and the initial

staff, and the preparation

of the foreign parent’s

existing staff and processes

to undergo the disruption

associated with the move.

The process may take

anything from 6‐12 months

depending upon the extent

of operations being moved

and its agreed upon pace

or urgency.

Text Box # 15 describes

typical steps, along with

timelines, that one of the

companies we surveyed undertook in the beginning of this year to complete the process in just

under a 9‐month period (from first visit to Pakistan to the inauguration of its office). The idea

champion, not initially planning to re‐locate to Pakistan, started off his/her quest with just a

faint idea of what (s)he wanted to do and little or no knowledge of the local land. The CEO to

whom (s)he was hoping to sell the concept, again an expatriate, had never been to Pakistan and

TEXT BOX # 15: SPECIMEN STEPS AND TIMELINE FOR SETTING UP A DEVELOPMENT CENTER IN PAKISTAN

June-July 2003: The idea champion started playing with the idea of setting up an offshore development center to serve an already established US-based company.

December 2003: (S)he visited Pakistan, informally, to look at the HR/talent-situation in the country. Wanted to get a feel of what is possible by understanding the level of sophistication of the local IT-graduates. Went back to the US quite satisfied (visit time: 5 weeks, part-private)

March 2004: Convinced the CEO of the company (an expatriate who had never been to Pakistan) to come down and look at the labor market/other factors himself and to get comfortable with its potential (visit time: 1.5 weeks)

May-June 2004: Started to recruit for the company by advertising in the newspapers. Hired a corporate lawyer to incorporate the company as a Private Ltd. Co (4-weeks). Search for office-space began simultaneously with the help of a local friend (visit time: 6 weeks)

July 2004: Moved from States and began operations. Issued appointment letters to employees. and effective July-1 people began working from home. Moved in a renovated residential building on Sept. 2004.

September 2004: First day in the new office building.


95

was even more skeptical of whether an arrangement like the one being proposed could actually

work. During the informal survey of the local labor‐market, it became apparent to the idea‐

champion that while the market was brimming with talented young minds, project

management and middle‐management skills were in short supply. “We came to a realization that

you would literally have to bring middle management from abroad in order to develop a successful

operation in Pakistan”. This conviction grew as the idea‐champion spent time looking for

management talent and ultimately morphed into his/her own decision to temporarily re‐locate

to Pakistan.

Putting together an initial team was again a challenging task. Friends and acquaintances

warned the idea‐champion of considerable noise in the local labor‐market. “We were working on

an assumption that finding and hiring one good person per month would be a good target, and not to

expect any more than that”. However, an innovative strategy paid‐off as the idea‐champion

teamed up with some professors of a reputed computer science school who recommended some

of their brighter students and even convinced a few to join the company. The team was thus put

together in a much better‐than‐expected period of time. Another factor that has often been

associated with improving the possibility of hiring good talent is the emphasis paid on

advertising. Bigger and more prominent advertising space is more likely to capture the

attention of potential employees than small advertisements. Many executives we spoke with

viewed this additional investment in advertising space as something that ultimately pays off

handsomely in terms of better access to talent for the company. Finding appropriate office‐

space, putting the IT/Telecom infrastructure (read as “Bandwidth”) in place, and incorporating

the legal entity were other significant steps—but none of them seemed to turn out to be as bad

as a skeptic would like you to believe. The team was ready to work in 6‐months and moved to

an office location in 9‐months from start to finish.

This is a fairly typical story of the experience of setting up a development center in Pakistan.

Several factors, that may appear as minor at first sight, play a significant role in improving the

possibility of navigating this tricky process in a successful manner. These are encapsulated in

the two managerial best practices below:

Managerial Best Practice #16 (MBP16)— Do a detailed analysis of the local scene, including one or more visits to Pakistan. Use contacts and references as much as you can, in setting up shop and hiring talent for the same.

Managerial Best Practice #17 (MBP17)— Smoothen the transition by temporarily relocating a senior member of the technical staff to Pakistan. Ensure frequent interaction,


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including face-to-face interaction, between the Pakistan-based and foreign employees of the company, atleast in the initial days of the operation, to facilitate transmission of corporate culture and tacit knowledge.

Strategic Challenge # 12: Building a Quality Software Development Operation—As discussed

elsewhere, the issue of technical and process quality arises in atleast a couple of contexts,

namely, the propensity to seek a certification and the ability to deliver a quality product or

service per se, with or without a certification to show for it. That companies use quality

certifications, primarily ISO9000 but increasingly CMM, as a means of signaling the quality of

their processes is a well‐established fact in literature (Arora and Asundi, 1999). Indian

companies have been, by far, the most sophisticated users of quality certification with over half

of the total worldwide CMM‐Level5 certifications going to Indian companies alone. In Pakistan

too, this has had a ripple effect, with an increasing number of Pakistani companies trying to

acquire a quality certification. NCR’s Teradata Division recently announced itself to be the first

CMM‐Level5 company in Pakistan. Netsol is widely believed to be at CMM‐Level4 and Kalsoft

claims to be at CMM‐Level3. Taking the widely perceived CMM‐ISO equivalence standards into

account, another 30‐40 companies may be assessed as CMM‐Level2 compliant. The cost of

certification has thus far been a major, although as we will argue, not the only prohibitive factor

in an even larger number of companies acquiring a CMM certification. Consequently, the

government, through PSEB, has stepped in to subsidize first the ISO9000 and now CMM

certification of a fairly respectable number of software companies.

To be fair, the importance of quality certification, where it makes sense, cannot be denied.

There are, however, clear indications in our sample of various types of companies showing

different propensities to seek a quality certification. For example, companies in the exports of

services, especially hybrids, are most likely to seek a quality certification. Alternatively,

product‐focused companies are least likely to seek one—probably because the track record of

their products serves as an ample signaling mechanism. One of the often‐cited and very visible

examples is that of Microsoft—a company that is not CMM certified nor does it plans to be.

Microsoft’s example is also relevant here from another standpoint. When operating at the

cutting‐edge of innovative products, “good enough” quality maybe acceptable to the customer

(Cusumano, 1995). We found some evidence of that within the Pakistani market. One of the

CEOs that we spoke to, whose company specialized in cutting‐edge VoIP billing solutions,

asserted that in his particular product segment, the underlying technology or the business

solution being offered is so innovative that he can afford to ship a product that may not be

totally defect‐free. This is a kind of luxury not available to most Pakistani product‐focused


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companies as they focus on less‐innovative end of the products market, namely, ERPs,

accounting software, and run‐of‐the mill billing and automation systems. Another empirical

regularity is that the dedicated development center operations are considerably less likely to

seek certification but much more likely to adopt rigorous technical and process quality

approaches.

Herein lies the other key element of the quality issue. Many in the industry believe that

certification is not the only measure of technical and process quality. Several of our interviewees

shared the often‐expressed apprehension about the certification process. “The very act of going

through a certification process, at times, overshadows the actual software development process itself. We

tend to do a lot of things because they are needed by the certification process rather than their value in

terms of improving the quality of the process”, says one gentleman that we spoke with. It is always

a bad idea for the certification to become an end in itself rather than a means to an end (process

quality). Most organizations are, therefore, quite cautious about whether or not they seek a

certification and how they bring up the quality of their technical (software) development

processes to get there.

While our statistical findings on software engineering methodologies used, and technical best

processes employed, failed to show a clear trend, the interviews did add some perspective to

the picture. A fair number of companies use one of the several software design approaches (e.g.

waterfall, iterative, prototyping etc.) and the final choice is dictated by the type of product‐

service offering and its demands on the development process. Another factor that seemed to

influence the choice of particular software design methodologies was the need to have a

connection and alignment with the processes of the intended customer. For the five technical

best practices, namely, project plan tracking, design and code reviews, documentation of the

code, system to learn from on‐going projects, and measurement of process quality, while we

encountered some knee‐jerk reactions from respondents (“oh, of course we do it”, was a

response of one respondent who, we were not quite sure, clearly understood what the term

meant), the data suggests that better‐performers consistently did better than the rest of the

sample. These relationships were not quite as simple for other more complex metrics like %

spent on QA, programmer‐to‐project‐manager ratio etc.

One of the issues that several of our respondents faced, specifically in the context of deciding on

whether to have a dedicated quality assurance function but also more generally, was the

inability to foresee benefits from such a process. We found several of our respondents

struggling with the idea of whether to hire a 1‐2 person QA team for a relatively small operation


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of 10‐15 employees. “Wouldn’t it make better sense to use a person who works part‐time on quality

assurance? That way the utilization of resources can be optimized”, explained one interviewee when

asked about his/her decision calculus. Yet, companies that seemed to have done well in terms of

providing quality to their customers seem to disagree with that logic and emphasize instead on

“having faith”. Investments in process quality—but also in professionalization of the venture—

initially take a lot of faith on the part of the company executives. CEOs/Entrepreneurs who have

come to terms with this fact—and are quick to see the rewards at the end of the tunnel—end up

developing quality processes, others do not. Also, quality culture, if it has to be done well, must

be emphasized from the day‐one of the company rather than left for convenient “good times

when one would be able to afford it”. Several of the interviewees described the difficulties in

changing the work practices of their employees, once formed.

Another issue that has considerable bearing on the quality practices of the local software

operations is simply inexperience and lack of adequate amount of work. In the end, process

maturity is important—regardless of whether it comes with a certification or without. Many

entrepreneurs have come to realize that over time, as most point out to the fact that “maturity”

comes with gaining experience in doing projects. Ones processes cannot become mature

overnight thus making it a classic chicken‐and‐egg problem. One of the CEOs cautioned against

trying to artificially fast‐track this process, especially in the context of Government’s CMMI

Initiative, asserting that “the word ‘capability maturity’ is the essence of the entire model and it would

not be good practice to move from one level to the next in six months, if the model demands the sort of

maturity of processes that could only come in 2 years.” The following two sets of managerial

practices describe the “best practice” in the industry:

Managerial Best Practice #18 (MBP18)— Understand the “hidden” value of quality and have faith in it. Build it in the processes and culture from day-one. Never take a “short-cut” to process quality—an action done for wrong reasons is worse than one not done at all.

Managerial Best Practice #19 (MBP19)— Get a certification only if you need to but develop quality processes because you have to. Make certification a means to an end, rather than an end in itself. Think hard about process and methodology, don’t follow blindly.

Strategic Challenge # 13: Managing the Parent‐Subsidiary Relationship— The most important

challenge, in our view, that is being faced by a number of dedicated development center‐type

operations in Pakistan today and would be faced by an increasingly number of younger

operations in the years to come relates to the (mis)management of the parent‐subsidiary

relationship. Although also a challenge for the export‐focused foreign firm, it assumes a much


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critical importance in the context of the dedicated development center because of its exclusive

(“dedicated”) and limited (read as “development center”) role in the overall scheme of things.

There are differences in the timeframe and scope of the establishment of a dedicated

development center operation as compared to the export‐focused foreign firm model. Unlike

the latter model, where the Pakistan operation is an integral part of the firm’s business‐plan

right from the inception and hence conceived as such, the dedicated development center may or

may not have the similar luxury of starting from the clean‐slate days of the company. What this

means is that the dedicated development center starts its life in a well‐established

organizational environment with strategic processes and managerial controls already laid out in

advance. More often than not, in the initial years of the development center’s life, the parent

continues to remain engaged in product‐development at its headquarters or an alternate

location—an activity that is gradually transferred to the newly established offshore operation.

This puts the development center under greater managerial control and oversight, and reduces

its say in the strategic direction of the parent company—a fact that may or may not change with

the passage of time. This set of initial conditions can have interesting repercussions on the

evolution of this operation and pose some serious challenges in the mid‐to‐long term.

What really happens as a result of this restrictive relationship between the parent and the

subsidiary is that the latter, as it evolves into a mature operation, takes a life of its own. As this

parent‐subsidiary relationship enters in this phase of its life, the interests of the subsidiary may

not always align well with the interests of the parent and in the absence of an appropriate

mechanism for aligning these (e.g. by allowing the subsidiary to have some say in the parent’s

strategy) they can end up being in sharp conflict with each other.

We clearly saw this dynamic at work at several—almost all—of the more mature dedicated

development centers in our sample. For example, one of the development centers that we

looked at had a lot of potential for expanding its useful product‐services offerings, but being a

“dedicated” operation was constrained by the strategic objectives of its parent company that

saw little need for doing so. Consequently, this operation has been in an almost hiring‐freeze or

had even declined in times when other less capable and endowed companies had grown. We

found a clear sense of “something is amiss in our relationship” while talking to the senior

management of this development center operation.

Another operation we looked at is in an informal organizational arrangement with its principal,

and only, client whereby it rents out teams of professionals to project managers in the client’s


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organization. Painfully aware of the fragility of the arrangement, especially in the case of an

M&A event, the operation is looking for ways to gradually shift its dependence on its principal

client. A third operation that we looked at recently suffered a painful breakup as a result of

misunderstanding and mismanagement of the mutual expectations of the contracting parties. In

the post‐DotCom Bubble burst, as the market began to look bad for the parent, these differences

in expectations and incentives led to friction and mistrust in the parent‐subsidiary relationship.

As tensions arose on both sides of the equation, the relationship collapsed as if it was destined

to fail in the first place.

One can learn a lot—in terms of how to structure or how not to structure a relationship, what

pitfalls to avoid, and how to manage expectations across large distances—from a detailed

analysis of these examples. Setting up a dedicated development operation is merely a small part

of the overall scheme of things. Delivering quality products‐services require putting in place not

only a technical infrastructure but also critical managerial processes and organizational

structures, rules and regulations that could serve the organization well throughout its life‐cycle.

Navigating these challenges through careful attention to these pitfalls is the key to successfully

executing upon the dedicated development center model. On the most basic level, however, the

following may be categorized as a managerial best practice for software companies:

Managerial Best Practice #20 (MBP20)— Clearly define the scope and nature of the parent-subsidiary relationship in the founding agreement. Provide a mechanism for the subsidiary to have a say in parent’s strategic direction.

In addition to setting up an office and putting in place a quality software development

operation, the dedicated development center model also shares a sleuth of challenges with the

export‐focused foreign firm and other models, namely, training the locally hired workforce on

tools and methodologies being used at the parent’s original location, getting them acquainted

with the customs and culture of the parent company and its clientele, transferring the all

important domain expertise, countering the “image” problem, and the geographical shifting or

vanishing of the “labor‐arbitrage” argument.

As we conclude this discussion on the taxonomy of generic software business models, it is important to highlight its several qualities and characteristics—as well as its proper and improper uses—to allow the readers to put this taxonomy in its proper perspective. Firstly, the taxonomy gives us a relatively easy and comprehensive way to classify a particular software operation into a broad enough category of organizations, giving us a broad reference point to compare ourselves against, and quickly begin looking for certain organizational


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features, managerial characteristics, strategic challenges, and critical success factors. This act alone, somewhat simplifies the complexity of the Pakistani software scene, not only from the perspective of the industry (e.g. a policymaker/investor) but also a firm (e.g. entrepreneur). In doing so, it narrows down the search for comparables to look at or seek advice from.

Secondly, it is important to understand the fact that none of these generic software business models are inherently good or bad—just that each has its own place in the overall scheme of things. It is somewhat meaningless to compare firms across business models. It takes a fairly different set of initial conditions and skills to start, and overcoming a different set of challenges to successfully execute upon each. Each of these models, however, have better‐performing and not‐so‐good performing firms within them and what one can do, again to a certain degree only, is to compare the performance of a firm against another within the same category.

Thirdly, while transitions between the generic business models are possible—they are not automatic. Depending on what a firm intends to do (idea‐offering‐destination mix), there is a right model to look at and adopt. Although it is possible, it is not necessary that a company must try to migrate from a domestic‐focused operation to an export‐focused operation or from a local firm to a foreign firm. One can remain within a particular model and aspire to be best in class within that particular model. An entrepreneur‐investor must, therefore, clearly understand model implications before starting a firm.

Finally, it is important for aspiring entrepreneurs, business leaders and managers of existing ventures to understand the strengths, weaknesses, pre‐requisites, and structural limitations of each of the generic software business models. They must vet their ideas through the lens of these business models and ensure that they fully understand their various dimensions and then adopt one that bests fits the idea‐offering‐destination profile of their venture and their short and long‐term aspirations from the same. Understanding the model limitations is critical to the long‐term growth of firms and the industry as a whole. Depending upon the circumstances and the goals and aspirations of the founders, many firms—trapped in the structural limitations a particular model—try to outgrow it by doing more of the same. This, they ultimately find out is the fruitless approach. This taxonomy also attempts to drive home the fact that, when in a situation like that, one must change the structure rather than fight it.

7. ENVIRONMENTAL, INFRASTRUCTURE & PUBLIC POLICY CHALLENGES

In addition to the competitive, strategic, and organizational drivers, we also sought to identify

various environmental, infrastructure, and public policy challenges facing the respondents. The

survey questionnaire contained a question asking the respondents to identify, from a list of

twenty possible factors, what they perceived to be the most important environmental and


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public policy bottlenecks to the development of software industry in Pakistan. The results of the

survey are tabulated in Table‐XI (below).

The simple aggregation of the data, on perceived prevalence of environmental and policy

bottlenecks, suggests a clear picture. The table presents the percentage of respondents that

identified a particular environmental/policy bottleneck as applicable to the Pakistani software

industry and highlights (in bold) the top‐5 problems identified by each sub‐category of

organizations. Country’s Image, over‐and‐above the company’s brand, tops the list as the

problem identified by as many as 68% of all respondents. This is followed by quality of

manpower (56%), the cost of IT/Telecom infrastructure (50%) and law‐and‐order and security

situation (48%) as the most important problems from the perspective of all‐types of firms

combined. We, however, do see some variations within sub‐categories. While the “image”

problem remains a concern for most number of organizations across all categories, there is some

evidence that cost of IT/Telecom infrastructure might affect domestic‐focused operations

disproportionately than export‐focused or hybrid operations. Similarly, a greater proportion of

domestic‐focused operations tend to identify customs and tariff barriers, availability of physical

infrastructure (e.g. power, office‐space etc.), credible information on vendors/customers (lack of

market maturity), and absence of intellectual property rights as serious policy issues while a

greater proportion of export‐focused software operations tend to see the image problem and

quality of manpower as major concerns. Hybrids tend to fall in between these two categories.


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In order to further confirm these results, we also asked the respondents to identify the “Top‐3

environment and policy problems that had actually affected the growth and development of

their company”. This, we thought, would further substantiate the earlier results and identify

differences in the perception and the reality. The results are summarized in Table‐XII (above).

The “image” problem again emerges as one that had affected the most number of companies in

our sample, closely followed by quality and availability of manpower. The law‐and‐order and

security situation seems to be a component of the image problem and does not alone, by itself,

cause a lot of concern to the respondents. There are some interesting differences too. Brain drain

of talented employees tends to be a significant inhibitor for domestic‐focused software

operations, as does the cost of IT/Telecom infrastructure. Lack of government contracts appears

to disproportionately affect hybrids. Absence of intellectual property does not seem to be

among the top‐three growth‐inhibiting factors for either the hybrids or the export‐focused

operations. Only 15% of the domestic‐focused operations believe lack of IP regime has been one

the top‐3 inhibiting factors. Apart from these minor differences, however, the results are more

or less consistent and seem fairly credible.

TABLE XI : PERCEPTION OF POLICY & INFRASTRUCTURE BOTTLENECKS


Policy & Infrastructure Bottlenecks All

Combined*

Domestic Focused*

Hybrids Export Focused**

N=58 N=19 N=11 N=20 Cost of IT/Telecom Infrastructure (e.g. Bandwidth) 50% 63% 36% 30% Availability of IT Telecom Infrastructure 43% 47% 36% 30% Country’s image, over‐and‐above company’s brand 68% 63% 63% 70% Quality of manpower 56% 52% 54% 65% Law and order and security situation 48% 52% 63% 25% Brain‐drain and retention of talented employees 43% 44% 27% 45% Absence of Intellectual Property Regime (IPR) 43% 52% 45% 25% Availability of Human Resources 43% 38% 45% 50% Problems in dealing with customs & tariffs 34% 57% 18% 20% Lack of credible information on customer/vendors 32% 63% 27% 20% Lack of Physical Infrastructure (estate, power etc.) 39% 57% 54% 15% Availability of venture/risk capital 36% 42% 27% 45% Difficulties in dealing with regulatory bureaucracy 39% 52% 54% 25% ** Domestic/Export‐focused software house is one with > 75% sales in domestic/export markets respectively * Top‐4/5 in each category are highlighted (bold)


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Developing a detailed analysis of these problems, identification and recommendation of

remedial measures, or even a detailed discussion on each of them is beyond the scope of the

current research. It is strongly recommended that an exercise be undertaken to identify the most

critical of these issues, develop status/position papers on each of these issues, elucidating the

problem and its various dimensions using traditional policy‐analytic paradigm of a) defining a

problem, b) constructing the evidence, c) constructing alternatives, d) conducting analysis e.g.

cost‐benefit, business‐case, or market/government‐failure analysis, e) selecting a criteria, f)

analyzing trade‐offs, and g) making a decision. The final solution must also carry a detailed

road‐map along with performance measures for each stage of the roadmap, and must be

developed in consultation with key stakeholders, including private‐sector entities and the

software community. We suggest putting in place a comprehensive public‐private partnership

based on a series of confidence‐building measures and contingent commitments by both parties.

The detailed conceptual framework and action plan for putting together such an effort can be

developed with guidance from a realistic assessment of problems on the ground and other such

arrangements in the world.

While the Government of Pakistan has done some work in many critical areas, especially in

putting a friendlier regulatory and tax environment in place and bringing down the cost of IT

infrastructure, our survey indicates that a lot still needs to be done to bridge the gap between

the current and the desired state in almost every environmental/policy bottleneck area, but

TABLE XII: REALITY & PERCEPTION—TOP‐3 POLICY & INFRASTRUCTURE BOTTLENECKS AFFECTING GROWTH OF SOFTWARE COMPANIES

Types of Software Houses

Policy & Infrastructure Bottlenecks All

Combined*

Domestic Focused*


N=58 N=19 N=11 N=20 Cost of IT/Telecom infrastructure (e.g. Bandwidth) 24% 26% 10% 20% Availability of IT telecom infrastructure 15% 15% 9% 20% Country’s image, over‐and‐above company’s brand 48% 42% 81% 35% Quality of manpower 31% 31% 27% 35% Law and order and security situation 12% 5% 18% 5% Brain‐drain and retention of talented employees 20% 31% 9% 15% Absence of intellectual property regime (IPR) 5% 15% 0% 0% Availability of human resources 32% 26% 45% 35% Lack of availability of venture/risk capital 20% 21% 18% 20% Lack of government contracts to software firms 13% 15% 27% 10% * Top‐3 in each category are highlighted (bold)


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more specifically, in the areas of image management, infrastructure cost and availability,

human resources quality, local‐market development and demand creation, availability of

venture and risk capital, and intellectual property rights etc. While we have already discussed

several of these issues in some detail above (e.g. HR availability and quality, image problem

etc.) we would briefly touch upon the less‐discussed ones and see how they affect our

respondents. We would also talk about some of the suggestions put forward by our

interviewees. However, we do warn our readers that this, by no means, is a complete analysis of

the problems and should not be construed as such. Following is a brief review of some of the

key issues, as identified by the survey responses and qualitative interviews with over 65

industry officials from about as many organizations.

7.1—Telecom Infrastructure Cost & Availability Telecom infrastructure or simply Internet connectivity and bandwidth remain an area critical to the industry’s short‐term survival and long‐term viability and growth. High quality bandwidth assumes an even more important role for the export‐focused industry where its importance is akin to the importance of airports and seaports for trade. To be fair, the bandwidth availability and cost has significantly improved in the last few years with a dedicated leased line now costing as little as Rs. 45,000 per month (~$800) and a high‐speed T1 line costing about US $2000 a month. This is in sharp contrast to the situation a few years back when the former was almost not available and the latter was prohibitively costly. While the costs would still have to come down and there is some evidence that they are, availability and reliability of supply is as much an issue as cost.

Many of our respondents, while appreciative of Government’s efforts in terms of providing telecom infrastructure, highlighted the need for further improvements. Many of our interviewees asserted that for most mission‐critical applications or support functions (e.g. doing back‐office work, hosting applications for them etc.) a connectivity of anything less than 24x7 is not acceptable to potential clients. One of the persons we interviewed—who host banking transaction systems for several overseas clients from his facility in Pakistan—narrated the story of one such blackout when the entire country’s backbone went dead without prior warning and he could not get any alternative route to connectivity. With his cell‐phone ringing continuously, he had to upload his entire software on his laptop, embark on a flight to London, and plug the laptop into the Internet from his hotel room in London to restore the availability of his client’s systems. While this example may be unique, the problem is quite generic and needs further attention of policy‐makers in this country.


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Another problem that our respondents often alluded to was selective availability of bandwidth. While, the Internet connectivity at Software Technology Parks (STPs) around the country may be much more reliable than the rest of the country, these locations are few and far between and are not equally accessible to all types of clients. To start with, availability of space in STPs in Islamabad seemed to be an issue. Secondly, because of larger lot‐sizes, locating into an STP is not really an option for a new start‐up company with 3‐5 employees—yet cost of bandwidth and availability might be as critical to them as it is to a large company. There is certainly a need to improve the accessibility of high‐speed, high‐quality round‐the‐clock bandwidth to more locations around the country. 7.2—Availability of Venture and Risk Capital The availability of risk/venture as well as later‐stage (“expansion”) and working capital is another critical policy issue for the software industry. There are at‐least two angles to look at this issue, namely, the software industry and the financial community. That there are only limited avenues to get startup financing and majority of these end up being controlled by unsophisticated, from the software standpoint, individuals/groups would not be an understatement. The below‐par performance of software ventures created through the investment of business houses, and the reluctance of the financial sector to make investments in software startups for reasons of lack of in‐depth knowledge of the industry dynamics and inability to correctly evaluate and execute upon a software venture further complicates the situation. There is a dire need to educate the relevant stakeholders—the entrepreneurs and the financial community—to appreciate each others’ perspectives. There is a lack of understanding and sophistication on both ends of the spectrum that needs to be addressed through networking and education. Although, this process is happening gradually—one sign of which is the experimentation of the financial sector with the venture capital instrument—it may be receptive to well‐thought‐out interventions by the relevant stakeholders or a trusted intermediary.

Is there a role of a public‐sector venture capital fund to support software and technology focused businesses? While this question was not directly asked to us, it was hinted upon by several entrepreneurs in our discussions. Public sector venture capital has been a dominant theme in the technology policy literature for a while now. While there are examples of a public‐sector venture capital programs done‐well (e.g. Israel’s Yozma Program has been an unqualified success) or one that have had a catalytic effect on the industry (e.g. SBIC program in US, or the public venture capital funds established in India in the 1980s), the technology policy community generally sees it as an instrument that needs very careful


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analysis and planning, and equally adept execution. That does not, however, imply that lessons cannot be gleaned from such programs around world and an effective program cannot be developed—just that it may require great caution and care—things that do not generally come naturally to politically‐motivated public sector bureaucracies. Should such an initiative be planned for the local industry, we would recommend an unbiased clearly‐defined objective and an in‐depth analysis of alternative organizational arrangements to house the initiative. 7.3—Under‐developed Domestic Market The under‐development of the domestic market for software was another recurring theme in our discussions with the industry executives. Barring few areas (e.g. financials, Telecommunications etc.)—where we see some activity and demand for locally developed software—the local industry suffers from a serious lack of demand for software products and services. There can be many reasons contributing towards the status‐quo, namely, the prevalence of piracy and resulting fixation of the customer on low‐priced high‐quality pirated software, the inability of the customer to define his/her requirements and evaluate software vendors effectively, the inability of the developer to make an effective business case to the customer, and the absence of many replicable success stories etc. The general level of maturity and awareness in the market is something that would take its time—although the process may be, and in some cases has been, facilitated and expedited through appropriate interventions. The current government program of developing standardized specifications for major industrial sectors is one such example. Not every past or present program has been as successful, though. Many in the industry point out towards the faux pax in executing the Industry Automation and GEMS 2000 initiatives.

Government’s role in demand creation on the domestic front is fairly controversial. While some seem to appreciate its role, especially more recently, others are still very skeptical. Many of our interviewees highlighted the need for awarding large government contracts to local software firms. “They expect us to do large projects for foreign companies. How can we do it if we have never done a large project in our lives. When the government wants to award a large contract, it gives it to a foreign company or creates its own (NADRA was the often‐cited example), how can we begin doing quality work when there is no work to do”, was a comment made by one executive but reflects a somewhat general feeling within the industry. Several ideas in this regard ranged from an export‐credit scheme specifically targeted at encouraging the software industry to export to focusing on non‐traditional markets, namely, Middle East and the Islamic Bloc, to putting in place a government program of “picking winners” and


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creating “keiretsus” or “super‐firms” as done in Korea and the European Union respectively, to starting up plain‐vanilla procurement programs of significant magnitude. Each of these alternatives has its own merits and demerits and must be carefully evaluated in the light of these. Although we are fairly skeptical of the whole use of an “infant industry” argument, we believe there is some merit to these suggestions and thus a need for soul‐searching and analysis of various alternatives.

Small imaginative steps can trigger and catalyze a process that may pay‐off in the long‐run. We came across a number of ideas in this regard. One CEO of a large software house pointed out one major kink in the taxation system. While exports are exempt from taxation for a few years, companies have to pay a tax on sale of domestic software. “There is hardly any revenues on the domestic side, what good does it do to tax whatever little companies are able to make from it?” questioned this executive. What it perhaps does is that it distorts the decision calculus of many firms at inception and forces them to work on the export‐front rather than the domestic side. In a perfectly well‐meaning intention to promote export, this policy ultimately ends up producing a counterproductive effect i.e. hindering the development of a domestic market for software that might in turn feed into the software exports of the country. Many other interviewees seemed to agree with the above notion.

Another CEO also pointed out the fact that the effective “indirect” taxation on the software industry may be much more than other industries in a relative sense. The reason for this discrepancy, he believes, is the different organizational nature of the software production business. “We do not use a lot of inputs that are subsidized by the government in the same proportions that other industries do and thus do not benefit from the tax subsidies by the government. If you do accounting calculations, a software business ends up paying 40‐45% higher tax than other businesses”. Again, without going into the merits or de‐merits of each of these arguments, we would like to underscore the need for a careful examination. 7.4—Availability of Physical Infrastructure Availability of physical infrastructure (e.g. office‐space, power and water, parking etc.) is another area that may be acting as a hindrance in the way of software industry. One of the most important issues confronting software industry—perhaps as important as round‐the‐clock bandwidth—is uninterrupted power‐supply. With the quality of the country’s power supply, most ventures must also make provisions for the additional costs of putting UPS and supplemental power generation capability. Another irritant that many of our interviewees pointed out to us was the differences in rates at which power was provided to the software industry. Specifically, despite being acknowledged as an industry, the


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software industry cannot get a power connection at industrial rates. The commercial rates that software houses get for their power connections are about 30‐40% higher than the industrial rates—thus putting an added and unwarranted burden on a nascent and fledging industry.

In certain areas where it is most needed, office space is in critically short supply. Islamabad is one example where software executives told us that it is very difficult to get decent and affordable office‐space with all the infrastructural paraphernalia that is needed to set up a software operation. One of the executives told us that he/she has been looking for something that (s)he would like for the last 2 years but haven’t been able find it. “My foreign partner wants to open up an office in Islamabad and keeps on asking me how to go about it. I’ve been avoiding coming to the point with him for the last year or so. When I can’t even space for myself, how can I possibly help him”, says this executive claiming that this is a possible foreign investment opportunity gone waste for Pakistan.

On the contrary, many of our interviewees pointed out to us that majority of STPs are being setup in locations that are not as rich from a human resources standpoint, as many company executives would like them to be. One of our respondents questioned the logic behind setting up an STP in a posh Karachi locality while 90% of his/her employees—and this was a fairly common feature in Karachi—commuted from Gulshan‐e‐Iqbal and North Karachi areas. “I have a car and can travel to Gulshan‐e‐Iqbal every day”, claims this America‐returned Director of the company, “but what use to me is this office‐space if my employees have to spend 2 hours coming to work everyday and change two buses each way and end up coming to work in a frame of mind not so conducive for creative work and then they want to go back home early because they won’t find a bus if they sit late in the office”. Yet, as this Director pointed out, there is no move to set up an STP in areas where they could be most productive for software development activity. Another CEO in Islamabad—pointing out to the fact that Islamabad‐based companies have already consumed most of the quality manpower available—expressed reservations about a mismatch between where the demand for high‐quality infrastructure is and where it is being provided.

While many may not agree with the experiences of these gentleman/ladies, we believe, they have enough merit to warrant a detailed analysis of the demand‐supply patterns in the software industry to guide and set in motion short‐to‐long term infrastructure development plans.

Several other interesting ideas came up in our conversations with other interviewees. For example, one of the interviewees looked at the vast unutilized lands of Punjab University in


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Lahore and wondered if the University could develop a part of it into office spaces for technology ventures. “I can bet that in a few years, Punjab University would be earning much more revenues from this alone than what it gets from HEC”. This is precisely what Stanford University did in the 1950s that led to the creation of Silicon Valley in California. Perhaps there are lessons to be learnt from this example.

Another interviewee suggested a way to get around the security and congestion issue in Karachi by developing STPs near the Quaid‐e‐Azam International Airport. “The land belongs to CAA and as far as I know, they have also been receptive to leasing out the land to for‐profit ventures. Perhaps in a few years, people would plan to develop hotels right next to the STP and the airport. For an isolated area like this, one can develop a better functioning and foolproof security arrangement as well. This might open up a way for foreigners to visit Pakistan. You just land at the Airport, go to your hotel, hop into the STP, do your work and fly out.” There is some merit in both of these proposals. But more importantly, it underscores the need for our policymakers to think “out‐of‐the‐box” in dealing with issues like, image, law‐and‐order, congestion, infrastructure etc.

7.5—Intellectual Property Rights The fifth and final issue that we would like address in this list of hitherto un‐discussed issues is that of intellectual property rights. The issue is sensitive in the way it is often talked about in the local‐literature and policy circles. It is often associated with the images of BSA’s anti‐piracy campaigns and Microsoft’s desire to extract revenues from poor third world customers. However, there is more to it than that. To be fair, the Pakistani software industry is both a beneficiary and the affectee of software piracy. A lot of reasons for the lack of demand of software development in the local market may be attributed to the availability of pirated software. Many executives highlighted the notion that the local customer was mentally so fixated at Rs. 50 being the price of software, any software, that (s)he was unwilling to appreciate the actual cost of developing a software locally. “When I can get it in Rs. 50, why should I pay you Rs. 200,000 or even Rs. 10,000” is a typical response they get from their customers. Yet, on the other hand, all software houses, whether they acknowledge it or not, benefit from these cheap software CDs indirectly, if not directly, either through the gradually increasing software‐literacy of the local market or the cheaply trained manpower they can get because of it.

The issue of developing an appropriate regime of intellectual property rights in developing world in general, and Pakistan in particular is so complex, that it would warrant a separate independent investigation of its own. Whether Pakistan can develop a viable and world‐


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class software industry or attract significant foreign investment without arriving at an acceptable solution to software piracy is a question that requires much detailed analysis and is beyond the scope of this research. What we can say from our survey, however, is that the absence of intellectual property rights is seen as a moderate‐level environmental/policy bottleneck—40‐50% companies believe so—but is hardly seen as something that has significantly hampered their development—only 5‐15% companies categorize it as a significant (top‐3) bottleneck. Many companies that we spoke to have developed ways and means (e.g. security arrangements, alternate business models, and source‐code sharing policies) to get around the issue and their CEOs see it as an issue that they “would like to get solved some day but don’t lose too much sleep over.”

8. CONCLUSIONS & RECOMMENDATIONS In Summary, this study reveals a mixed picture of the Pakistani software industry. On the

one hand, we find an industry that is evolving and gradually maturing over time from its

much‐hyped beginnings in the early‐to‐late 1990s, while on the other hand, we see some

serious challenges that still need to be addressed if it is to make it mark on the world’s

software markets. The unrealized expectations and promise of the DotCom era has resulted

in much thinking and reflection on the part of the entrepreneurs and businessmen about

issues that are critical to the long‐term viability of a software business. Terms like domain

expertise, strategic focus, and product‐services trade‐offs are now becoming a part of the

industry lingo. While we could not statistically identify the effect of the DotCom Bubble

burst on the industry, we can relate several pieces of anecdotal evidence about the sobering

effect it has had on the structure of some of the largest firms in the industry. Those that

have survived this difficult time are much stronger and more focused companies and they

are now beginning to see things turn a corner for them.

“Ten years or slightly a little more is a very short time in the life of an industry”, claims the CEO

of one of the largest software houses in Pakistan. “It has taken India atleast a couple of decades

and a lot of good luck before they could reach a point were they stand today. We have only sown the

seed of an industry—that I am hopeful would become strong one day. What we have been able to do

in the last decade or so is to put in place the basic organizational and infrastructural paraphernalia

on which we can build a strong industry. I am positive that the next few years would see us doing

much better as individual firm and as an industry”, he added. While not all that we spoke to

would agree with this optimistic assessment of the future, we believe, today’s software


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industry is much wiser and more prepared to take on the future challenges than at any time

during the past decade. True, there are several weaknesses and bottlenecks, both at the

organizational and the policy levels, that we would have to collectively address, but it can

be done, provided we have the will to do it.

8.1—Summary of Research Results and Future Directions

From the research standpoint, this study points towards several interesting and substantive

findings and highlights areas where more research work needs to be conducted.

First, we failed to find conclusive evidence in support of a trend of specialization and

focus, at the level of an industry, if not the firm. Are we, as an industry, doing better at

creating more focused firms? Can we detect differences in the organization of software

development activity that might point towards greater specialization or optimality? For

example, the organizational processes of a company trying to do software outsourcing

should be significantly different from one focusing on a product market, a fact that should

be reflected in organizational‐level data on these two types of organizations. While there

are examples of “best‐in‐class” firms operating within well‐defined product‐services niches

and doing a good job at that, we do not find, on average, significant differences between

product‐focused vs. services‐focused firms, export‐focused vs. domestic‐focused firms (etc.)

in terms of their organizational structures and managerial practices. This is one area that

needs more work on the part of the industry and a more in‐depth analysis to identify the

reasons for the same.

Second, there is some suggestive evidence of best practices within the industry. The

relatively better‐performing firms tend to adopt more employee friendly policies than the

rest of the industry. Also, they tend to have better quality management talent. These are

robust findings across multiple reference and control groups (e.g. top‐10 firms, fastest

growing firms, and global top‐quartile firms etc.). Similarly firms of all sub‐specializations

tend to favor the more high‐contact marketing approaches (e.g. word of mouth, pre‐

established networks, and one‐to‐one contacts) against the relatively low‐contact ones.

There might be lessons in this for the policy‐makers designing programs (e.g. trade

delegations, conference attendances) to improve the networking and customer acquisition

ability of Pakistani software firms or for the industry entrepreneurs themselves


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contemplating a new venture. We further supplement these statistical results with

qualitative findings of strategic challenges and managerial best practices.

Third, although our results on measures of technical practices and process quality are

mixed—and sometimes counter‐intuitive—they point towards some consequential

findings. From the standpoint of technical and process quality, we find a lot of variation

within the Pakistani software industry—a fact that may or may not auger well for the

industry’s maturity. That firms maybe acquiring quality certifications (e.g. ISO 9000) for

reasons that may not have a lot to do with the actual quality of their processes is yet another

finding worth some thought. We also found evidence of differential propensities to seek a

quality certification (e.g. hybrids seem to have a greater propensity to seek a quality

certification than either the export‐focused or the domestic‐focused software operation)

among our sample of respondents. This was in contrast with the actual expenditure on

quality assurance where the export‐focused software operations tend to do better than the

rest. Similarly, there are no clear patterns in terms of the type of software engineering

methodologies or technical best practices (drawn partially from the CMM methodology)

preferred by various sub‐categories of software operations. A more detailed project‐level

analysis of the technical and process quality of software operations that adequately

accounts for the differences in the type of work performed, the intended market, and other

project‐level determinants is warranted.

Fourth, there are a number of generic strategic challenges that need to be addressed by entrepreneurial ventures of various types. We find a number of innovative ways in which companies have tried to address these challenges—some more successfully than others. We discuss several different approaches to each of the thirteen (13) strategic challenges identified in the report and document twenty (20) managerial best practices adopted by relatively successful companies that others might consider using as well. While many of these challenges have a clearly organizational focus (e.g. developing a domain expertise, setting up a quality software development operation, managing parent‐subsidiary relationships etc.) others may be beyond the influence of a single firm (e.g. countering the “image” problem, getting access to quality human resources etc.) and others still may require a partnership between public and private sector entities (e.g. setting up an operation in Pakistan, scaling up the Pakistani operation etc.).


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An example of one such challenge for the industry is scaling up the size of average software development operation to undertake larger projects. The (in)famous number beyond which only a few firms have managed to grow—a psychological barrier of sorts—often quoted as a part of the industry’s grapevine is 200 people. Several reasons are put forth for this seemingly intriguing regularity, including, the lack of quality professionals, inability to acquire enough customers to predict demand in the future, a lack of middle management and project management professionals, a lack of trust between various stakeholders, a hesitance to professionalizing the venture, and a lack of experience in institution‐building etc. Needless to say that there are companies that have grown to a size of 200 or more employees but the fact that we have not been able to do so more regularly and build companies that are an order‐of‐magnitude or more bigger than what we have, is still a critical strategic challenge for the industry.

Finally, despite considerable progress on a number of public policy and infrastructural bottlenecks, the industry still faces a number of environmental and public policy challenges. The prevalence of the “image problem” as a critical bottleneck to the growth of the industry and perceived to have actually affected the largest number of firms in our sample is one example. Other significant environmental and policy bottlenecks include: the quality and availability of human resources, cost and availability of IT/Telecom infrastructure, and lack of availability of physical infrastructure (e.g. office‐space, water, power etc.). We underscore the need for careful analysis of the extent of these problem and their impact on the industry, some creative and “out‐of‐the‐box” thinking on possible solutions, and putting in place a public‐private partnership framework based on contingent commitments of the two parties and governed by a transparent performance‐based assessment framework to address these.

8.2—The Way of the Future: Some Tentative Conclusions

Where do we go from here? The implications of the data and findings presented above are quite clear. We would not try to go beyond the mandate of this report and suggest alternative scenarios for the development of the Pakistani software industry and/or suggest a concrete roadmap to get to the most desired scenario. Our objective was to create the awareness and an unbiased assessment of where we are so that those responsible for deciding where to go, and how to get there, at both organizational and policy‐levels, can use the information to make better‐informed decisions. We have, however, taken the liberty


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to make some tactical recommendations as and when we have found one staring at our face during the course of this analysis.

On the whole, however, there are a few generalized conclusions that one can draw. The first and foremost contribution of this study is to bring forth the very vibrant face of Pakistan’s software industry. Pakistan today, unlike yesteryears, is fast turning into a happening place for IT. While the industry’s first documented firm— Systems Ltd.—opened shop in 1976, the industry has only been a subject of focused attention for just over a decade now. The decade of the 1990s and the DotCom Bubble burst have brought considerable maturation and reality‐check to industry players. Ten years is a very short time for the development of an entire industry and there are signs that Pakistan’s software industry, having laid the foundations for a tomorrow, maybe in for better times ahead. Last year alone, the industry has grown at around 37% in revenues and 27% in terms of technical and professional employment. Many of the CEOs we spoke to expect a better‐than‐last‐year performance in 2005.

Another sign of the industry’s maturity and coming of age—facilitated by the global geopolitical environment and offshoring trends— is the fact that an increasing number of Pakistani‐owned foreign companies are setting up development center operations in Pakistan. While many of these choose to operate under the radar screen, they are definitely going to bring about considerable transfer of know‐how and ideas from western software markets to Pakistan and result in the generation of local entrepreneurial activity. Also, another unmistakable sign is the trend of reverse brain‐drain of quality Pakistani professionals from abroad who, given significantly less competition for ideas and talent and a relatively virgin market at home, see a tremendous opportunity in setting up a Pakistan‐based company. Systems Integration, Innovation and Intelligence (SI3) and The Resource Group (TRG) are the poster children of this undeniable trend. None of these would have been possible a decade ago.

On the domestic‐front as well, there is a growing likelihood of considerable opening up and modernization of traditionally conservative segments of the economy. If deregulation in the financial sector is any credible sign of things to come, we are likely to see massive changes in the shape of the local manufacturing and service industries by virtue of telecom sector deregulation and the enhanced competition under the now‐effective WTO trade regime. The former has already begun to show tremendous promise with around a billion dollars of promised investment in last year alone. An investor whom we spoke to sees the situation as the fading away of the Old Pakistan and the Emergence of the New Pakistan that is effectively linked to and a significant player of the global economic system. The New Pakistan presents considerable promise and opportunity to those willing to bite at it. There are live examples of companies—TRG, SI3, LMKR, Netsol, Techlogix, Etilize, TPS and many more—that have capitalized on this new set of opportunities and positioned themselves to reap the rewards.


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There are, however, considerable, although not insurmountable, challenges too. The industry suffers from a serious professionalization and institutionalization deficit. The 200‐people barrier, although psychological, is real till it is actually broken—and broken convincingly and forever. In addition to the 200‐people barrier, we also face a 20‐people and a 2‐people barrier that requires as much attention as the former. Many of our very innovative firms continue to resist professionalization and thus fail to grow beyond a particular size. The industry is hungry for capable investors/acquirers to come forth and bring about paradigm shifting structural changes to these companies and enable them to move to the next higher level of growth. The fast maturing market of outsourcing and offshoring services necessitate that our entrepreneurs and business leaders think about new ways of doing things. It is unlikely, given the consolidation in the industry, that we would see a new player replacing Wipros, Infosys’, or TCS’ of this world. Rather than blindly copying the already well‐established countries and players, we must think creatively to devise a model that best suits our own strengths and weaknesses. Our ability to lead in the business model innovation would determine, to a large extent, our place in the future pecking order of software exporting nations. Playing the volumes‐game (ITES/BPO), without the requisite scalability and HR, is unlikely to succeed on an industry‐wide scale. Until we can resolve the scalability issue, we must learn to play in the equally lucrative ideas‐game.

In a dynamic and fast changing industry like IT/Software, tomorrow can and will be radically different, and not merely an extension of today. It would require investors’ foresight, business manager’s insight, and entrepreneur’s courage to capture the moment and build the next generation of niche players and industry leaders and build it in the New Pakistan. Profits are certainly to be earned by those who “break the rules” and try the unthinkable. There is, however, a dire need to think deep and hard about the problems, patterns, and strategic challenges identified in this report, find explanations for these, and devise strategies to get around them.


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9. APPENDIX A: LIST OF ORGANIZATIONS SURVEYED/INTERVIEWED

LIST OF ORGANIZATIONS & INDIVIDUALS INTERVIEWED

Name of Individual

Position, Organization

Interview Date

List of Organizational Interviews

1. Mr. Adnan Agboatwalla MD, Clickmarks Pvt. Ltd. 19/10/04 2. Mr. Rahim Hasnani CTO, ITIM Associates 20/10/04 3. Mr. Abdul Gaffar Memon CEO, KalSoft Pvt. Ltd. 22/10/04 4. Mr. Qamber Hydery CEO, 2B Technologies Pvt. Ltd. 24/10/04 5. Mr. Mazhar Hasan CEO, Yevolve Pvt. Ltd. 21/10/04 6. Syed Asif Iqbal Qadri CEO, Post Amazers Pvt. Ltd. 25/10/04 7. Mr. Amer Hashmi CEO, S‐iii Systems Innovation 21/10/04 8. Mr. Suhail Munir CEO, Secure3 Networks 20/10/04 9. Mr. Arshad Khalil Chairman, Jinn Technologies 21/10/04 10. Mr. Aamir Baig CTO, Etilize Pvt. Ltd. 21/10/04 11. Mr. Ashraf Kapadia MD, Systems Pvt. Ltd 23/10/04 11b. Mr. Nadeem Malik Director, Systems Pvt. Ltd. 11/11/04 12. Mr. Jawwad Farid CEO, Alchemy Technologies 14/10/04 13. Mr. Akbar Munir Director, Elixir Technologies 27/10/04 14. Dr. Qasim Shaikh Local Head of Operations, Quartics 27/10/04 15. Mr.Atif R.Khan CEO, LMKR (Pvt) Ltd 26/10/04 16. Mr Mohd Azam CEO, Askari Info. Systems 28/10/04 17. Mr. Nevil Patel COO, Prosol Technologies 28/10/04 18. Mr. Salman Rana GM, Ultimus Pakistan 01/11/04 19. Dr. Farrukh Kamran CEO, CARE Pvt. Ltd 29/10/04 20. Syed Nauman Hashmi CEO, Advanced Comm. 29/10/04 21. Mr. Mohd. Shamim CEO, Comcept Pvt. Ltd. 29/10/04 22. Mr. Ovais Ashraf (CEO) CEO, Trivor Systems 28/10/04 23. Mr. Mansoor A Khan CEO, Makabu Pvt. Ltd. 02/11/04 24. Wg Cdr. (Retd.) Shahid Tufail EVP, Oratech Systems Pvt. Ltd. 27/10/04 24b. Mr. Basim Mirza Mgr., MIT Pvt. Ltd. 27/10/04 25. Mr. Mohsin Aziz CEO, Xavor Pakistan Pvt. Ltd. 04/11/04 26. Mr. Shoaeb Shams EVP, ESP Global IT Services Pvt. Ltd 10/11/04 27. Mr. Salim Ghori CEO, Netsol Pvt. Ltd. 12/11/04 28. Mr. Nauman A. Zaffar VP, Techlogix Pvt. Ltd. 05/11/04 29. Dr.Salman Iqbal CEO, Softech Systems (Pvt) Ltd 09/11/04 30. Mr. Shahab Ashraf GM, Strategic Systems Int’l 08/11/04 31. Mr. Ali A. Sheikh CEO, AcroLogix (Pvt). Ltd 04/11/04


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32. Mr. Lutfullah Khan CEO, Autosoft Dynamics Pvt. Ltd. 08/11/04 33. Mr. Raza Saeed CEO, Uraan Pvt. Ltd. 09/11/04 34. Mr. Zia Imran COO, MetaApps Pvt. Ltd 09/11/04 35. Mr. Abdul Aziz CEO, Lumensoft Pvt. Ltd. 10/11/04 36. Mr. Masood Khan CEO, Adamsoft Pvt. Ltd. 11/11/04 37. Mr. Urooj A. Khan Sr. Mgr., Sidaat Hyder Morshed 26/11/04 38. Mr. Junaid Khan CEO, Avanza Solutions Pvt. Ltd. 25/11/04 39. Mr. Asad Alim CEO, ThreeSixty Degreez Pvt. Ltd 19/11/04 40. Syed Yousuf Progressive Systems Pvt. Ltd. 16/11/04 41. Mr. Khalid Razzaq CEO, Genesis Solutions Pvt. Ltd. 20/11/04 42. Mr. Yousuf Jan MD, MixIT USA Pvt. Ltd. 24/11/04 43. Mr. Ahmed Allauddin CEO, Millennium Software Pvt. Ltd. 19/11/04 44. Mr. Mohd Sohail CEO, TPS Pakistan. Pvt. Ltd. 25/11/04 45. Mr. Ayub Butt CEO, ZRG Int’l Pvt. Ltd. 20/11/04 46. Mr. Farooq A. Khan COO, GONet/AMZ Ventures 26/11/04 47. Mr. Zafar A. Sheikh CEO, APPXS Pvt. Ltd. 25/10/04

Individuals’ (MNCs, Policy‐Makers, Academics etc.) Interviews

48. Ms. Samina Rizwan Country Manager, Oracle ‐ Pakistan 26/10/04 49. Mr. Faisal Khaliq Manager, NCR Pakistan 26/10/04 50. Mr. Nasir Lone Country Manager, TRG 05/11/04 51. Ms. Jehan Ara President, PASHA 20/10/04 52. Mr. Tariq Badsha Member IT, MOITT 29/10/04 53. Mr. Aamir Khan S‐iii, Ex‐IBM, Pakistan 02/11/04 54. Dr. Fakhar Lodhi Professor, FAST Lahore 11/11/04 55. Dr. Altaf A. Khan Dean, UMT (Ex‐KASB‐Ventures) 08/11/04 56. Dr. Zahir Syed Director, KIIT 18/11/04 57. Dr. Sohaib A. Khan Asst. Professor, LUMS 05/11/04 59. Mr. Ikram Khan CEO, Business Beam Pvt. Ltd. 02/12/04 60. Mr. Asad Ur Rahman President, Ponder Alliance 02/12/04 61. Mr. Sohaib Umar CEO, TMT Ventures 21/10/04 62. Mr. Umar Suleman Entrepreneur, Ex‐Embedded Systems 11/11/04 63. Mr. Nasim Beg CEO, Arif Habib Securities 06/12/04 64. Mr. Zaheer‐uddin‐Khalid BD Manager, First Capital Equity 02/12/04 65. Mr. Murad Ansari Head of Research, KASB 06/12/04


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11. NOTE ABOUT THE PRINCIPAL CONSULTANT & PROJECT ADVISORS/CONTRIBUTORS:

The Principal Consultant for this project was Mr. Athar Osama. The Principal Consultant was advised

and facilitated by Mr. Najam U H Kidwai (CEO CCMedia Live Inc., UK), Mr. Irfan Virk (CEO,

CambridgeDocs, USA) and Dr. Zahir Syed, Director, Karachi Institute of Information Technology (KIIT).

Several other individuals contributed, informally and formally, to this report. The most notable

contribution that ranged from detailed feedback on the study design and the survey instrument and

frequent comments, insights, and suggestions came from Mr. Jawwad Farid, CEO of Alchemy Associates

Pvt. Ltd. Other contributors include: Mr. Zia Imran, Mr. Nauman A. Sheikh, Mr. Zamir Farooqi, Mr.

Sohaib Athar, Mr. Saqib Rashid, Ms. Ghazal Javed Beg, Mr. Raheel Zia, Ms. Rabia Garib, and Mr. Adnan

Shahid. The study was overseen by a Technical Advisory Committee comprising Dr. Aamir Matin, MD‐

PSEB, Mr. Tariq Badsha, Member‐IT, MOITT, and Ms. Jehan Ara, President‐PASHA.

11. ABOUT THE AUTHOR / CONSULTANT

Mr. Athar Osama is the Managing Partner at Technomics‐International, and a Doctoral Fellow

at the Fredrick S. Pardee‐RAND Graduate School (PRGS) for Public Policy in Santa Monica,

California with a specialization in Technology and Innovation Policy. He has a Bachelors degree

in Avionics engineering (PAF College of Aeronautical Engineering, Risalpur), and a Masters

degree in Public Policy (RAND Graduate School, Santa Monica), as well as a post‐graduate

qualification in Business Administration (IBA, Karachi). Athar has worked widely in several

areas of technology and innovation management and policy, including but not limited to, R&D

and innovation policy, regional technology policies, technology strategy, techno‐market risk

assessment, venture capital funds in developing countries and public‐sector, organizational

strategy, performance, and incentives systems in R&D labs and high‐technology companies etc.

He has also written widely (over 50 Op/Eds) for Pakistani Newspapers (Dawn, The News etc.)

on issues related to technology and economics. Athar has also presented at a number of

conferences, representing Pakistan and otherwise, including the World Energy Congress

(Tokyo, 1995; Houston, 1998) and the Research Symposium for Next Generation of Leaders in

Science and Technology Policy (Washington DC, 2002) organized by the American Association

of Advancement of Science (AAAS). Athar is the founder of the Pakistan Research Support

Network—a virtual group of over 1200 Pakistani researchers and research‐enthusiasts

(students) from around the world. Athar may be contacted for comments and suggestions at

[email protected].

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PAKISTAN SOFTWARE INDUSTRY - United Nationsunpan1.un.org/intradoc/groups/public/documents/... · The “Best Practices in Pakistani Software Sector” Project is funded by the Pakistan