Introduction

Computers have been around us for over 50 years now, though we might not have noticed them until the seventies. Initially they were thought to be as simply machines that can do a complex set of calculations in a very short span of time and that was all. So much so that the founding chairman of IBM thought that the world had only enough demand for 300 mainframe computers. And now we know how wrong he was. Today we look around, in our daily lives, offices, banks, homes, schools; you name the place and you are bound to find computers. Computers have come a long way, from the bulky mainframes to the sleek ones of today which can fit right in your palm and they are getting even smaller. Computers have affected each and every aspect of our lives and are continually reshaping the world as we speak.

As the computers developed, they also gave rise to the need of hardware and software. A brand new industry known as Information Technology  (IT) came into being. IT can be defined as the technology required for acquiring, storing, processing and transmitting information using the hardware and the softwares. And it is the software driven side of the IT, which this paper would be focusing on specifically. 

The need for Computer software arose once the concept caught on that Computers were not mere calculating machines but were productivity tools too. As people started exploring newer avenues where the Computers could be used, the demands for job specific software grew. A good example is the development of Word processing and Spreadsheet softwares during the early eighties. These softwares came into being because someone out there had envisioned a new unexplored frontier where no one had gone before. The eighties also saw the emergence of the Personal Computers or PCs. As the usage of the PCs grew so came the new softwares. This led to the increased demand to further develop the field of software driven IT sector to cater to these demands.

 The Global Scenario

 As computers have become more popular all over the world, new industries have emerged who are linked directly or indirectly to the Computers. While Software driven IT is one example, the recent boom in E-commerce is another, which incidentally also falls under the broader scope of IT.

Though this paper would not be dealing with the subject of E-commerce but the topic would be touched briefly to give the reader an idea about the potentials of IT, though with a slightly different flavor. Around the world, but especially in the United States, E-commerce is booming and it is booming in every way one can imagine. From online banking to online groceries to online bookstores, E-commerce is every where. It is expected that it would hit the $1.5 trillion mark in transaction volumes by year 2003. Countries, not companies are now gearing up their technological infrastructures to take advantage of this rapidly emerging market.

Leaving E-commerce aside, few sectors of the global economy can expect to exceed the performance of the Software Industry. The Software industry is currently the heart of the Information Society, (though E-commerce may overtake it in the future). And this culmination of IT and Communications developments is now heralding a new industrial revolution. Software driven IT on the global scale is almost a $500 billion market and is growing at a rate of about 25% per year. Bulk of this market is concentrated in the six OECD countries (Currently the six OECD countries [USA, Japan, U.K., Germany, France and Italy] together control 73% of the market share of worldwide market software market). This industry provides for more than one million jobs globally and contributes approximately $40 billion to the Governments around the world in form of tax revenues. Just the packaged software portion of the software industry is expected to create over 70,000 jobs, on the average, each year, outside the United States. These numbers are expected to grow substantially in the future as the industry grows.

The Indian IT scenario

Other countries like South Korea, India etc besides the above-mentioned six, had been eyeing this lucrative Software market. The Indian Government and Industry had been using the Computers as early as the 50s. And India had been exporting computer-related programs since 1974 but it was only since the mid to late eighties period that India started to emerge in the field of IT.

Realizing the potential market available in the IT sector, the Indians decided to cash in on this opportunity. Armed with a work force, which was computer literate and could speak English, the Government formed Computer Software policies as early as in 1986 and marked the field of IT as a thrust area that could generate significant foreign exchange for the Country (A quick glance at Annexure A would give the reader as idea about the Indian Software Export Figures since 1980). Coupled with the fact that Indian software is extremely good quality wise at a relatively low cost, it provided India with a very good opportunity in the world market. Now India is quietly becoming an international software giant and plans to transform itself from “A Software Paradise” to “A Software Superpower” since it possesses all the prerequisites to achieve this status.

Following is a brief look at the Indian Software Industry

Growth Rate

Today the Indian Software Industry is one of the fastest growth sectors of the Indian economy. This sector has shown an average growth of over 50% from 1990 to 1999 consistently, an achievement of consistency unparalleled by any industry around the world in the past several years. And this rate is forecasted to be the same for the next decade. This sector has expanded at almost twice the rate of the United States’ Software sector, though from a smaller base.

Job creation

The Indian Software sector currently employs about 250,000 people and it is expected that this number would jump well over a million people by year 2007-8 and would be in the range of 2-3 million by the year 2010.

Number of Companies in the Indian Software Industry

There are more than 750 companies in India, which are engaged in the business of Software export. In 1997-98, 14 of these 750 companies had exported more than $24 million worth of Software each, more than 41 companies exported $12 million worth of Software each and more than 280 companies exported Software worth more than $240,000 each.

By the year 2010, it is expected that over 10 large multinational Indian companies would emerge with average revenues of over $2 billion each. These companies would form joint ventures, establish subsidiaries in export destination countries and competing countries. These companies would also participate in acquisitions, mergers and alliances.

The Indian domestic Software Industry

The domestic Software Industry in 1997-98 was worth about $1 billion, not including the in-house development of software by the end users. This figure has now grown to $1.3 billion approximately and is expected to show a 50% growth rate over the coming years. Domestic software companies launched over 113 new software products and the overseas companies in the Indian market introduced over 140 new software products in 1997-98.

The Indian Software Export Industry

The Indian Software Industry, as mentioned earlier, is growing at a rate of over 50% since 1990. From a export figure of $131.2 million in 1990/91, it has impressively gone over $1.5 billion in 1997/98 and is expected to hit the $3.9 billion mark in the 1998/99 year. It expects to reach the $5.7 billion mark by year 2000, $9.5 billion by the year 2001, $50 billion by 2008 and an unbelievable figure of $103 billion with a total capitalization of $250 billion by the end of the first decade of the next century (Mr. S. Ramadorai, CEO, Tata Consultative Services). The revenues generated by this Industry have surpassed the traditional Indian giants in Textiles, Steel, Cement etc.

The Software Export activity

India’s expertise in providing “Professional Services” and “Projects” is expected to continue its dominance in the exports of IT Software. As it was mentioned earlier that the six OCED companies control 73% of the global software market. India’s exports to these countries are 75% of its total Software exports. 

The future of the Indian Software Industry is projected to lie in the Euro currency solutions as well as providing E-commerce solutions. In the case of Euro, Indian companies are expected to form joint ventures and strategic alliances with global giants in Europe.

 Currently India exports its Software to 86 countries around the globe, out of which 58% went to the United States. In dollar terms, India exported $1.6 billion worth of Software to the United States, whereas almost $600 million worth of Software was exported to Europe (21%).

Source NASSCOM

 Mode of operating in India

As India is increasingly emerging in the world as a Software Development Center, more and more foreign companies are setting up their operations in India. These companies are operating on the Indian market through three mechanisms.

1. 100% equity holding

2. Joint Ventures with Indian Companies

3. Marketing or Technical Collaborations

Several top notch global IT players like Microsoft, Motorola, Oracle, Cisco, Texas Instruments, Alcatel and others are working on their next generation products in Indian laboratories. Interestingly, out of about a dozen level–5 (the highest level of the SEI-CMM standards) software labs around the globe, 5 are operating in India. Besides these, there are another 10 or so level-4 labs operating in India.

More than 200 of the Fortune 1000 companies outsource software of significant value from India. This software is essential for the core operations of these companies. Virtually the “who is who” of the global Software Industry is queuing up to open a shop in India. Just recently Bill Gates picked the city of Hyderabad to house his company’s first ever development center outside the United States.

Segments served by the Indian Software Companies

The main areas where the Indian companies concentrated on developing application softwares were:

1.       Banking (82% of the companies served in the sector)

2.       Communications (78%)

3.       Retail & Distribution (73%)

4.       Manufacturing (70%)

5.       Transport (65%)

6.       Hotels (56%)

7.       Insurance and Other Financial Services (55%)

8.       Defence (38%) 

Source: NASSCOM

 Effect on the Indian Economy

With all this phenomenal growth, the Software sector is expected to make a contribution of atleast 20% to the GDP, 30% to the country’s export figures and 2-3 million new jobs by the end of the year 2010.

Future plans

The Indian Government has given its blessings to the Software Industry. In its Information Technology Action plan – IT for all by 2008 and Target ITEX-50, the specially formed National Task Force on IT has given its recommendations to the Government. In light of these recommendations, the Indian Government and the Indian Software Industry is aiming to achieve the following:

1.       To make India a Software superpower.

2.       To create a world class Info-Structure.

3.       To generate employment through IT.

4.       Target $50 billion worth of IT related exports by the year 2008

5.       One PC (with Internet Connection) per 50 people by year 2008.

6.       To bring Internet access to every nook and corner of the country.

7.       Computer and Internet in every school/college of India.

8.       Internet through cable TV.

9.       IT to emerge as the main movement in India

 The Pakistani Scenario

Unfortunately in Pakistan, the situation is just the opposite of India. Whereas our neighbors, including India and Sri Lanka are gearing up to increase their exports through Software development, we are going just the other way. Deficits in the balance of trade and balance of payments are a major economic problem in Pakistan. There have been no improvements over the last five years in the overall exports of the country, which have remained stagnant between US$ 8-9 billion.

We must set ambitious but realistic software export targets for the next 10 years and ensure creating an enabling environment in terms of infrastructure training and focused marketing of our capabilities. Over the next 10 years, if we can consistently sustain efforts, there is every reason to believe that Pakistan may achieve close to US$3-4 billion. This will be a major achievement considering that it will be about 50% of our total exports today after 50 years.

Current situation

Currently there are almost 200 companies in Pakistan who claim to be Software Developers. Out of these, there are about 15-20 Software development companies who really posses the expertise to meet the international standards. Our Software related exports were estimated to be in the neighborhood of $20 million in 1998, according to PASHA (Pakistan Software Houses Association).

Our programmers lack exposure to the development side of the IT. There had been talks and talks about what needs to be done but when we look at the true picture, it is a woeful tale. In a country of more than 140 million people, there are only two institutions that can be branded as the ones who are concentrating on the sector of IT. These two are namely BCCI-FAST and Ghulam Ishaq Khan Institute of Technology (GIK). These two institutes represent any form of concrete steps that had been taken in the right direction.

Hurdles

The current hurdles, which the Software Industry in Pakistan is facing, are:

1.       Lack of proper marketing

2.       Telecommunications

3.       Non committal efforts

4.       Lack of skilled and educated labor force

1. Lack of proper marketing

As it was mentioned earlier in context of the Indian Software Exports, 60% of Indian Software is headed towards the United States. In dollar terms this comes out to $1.6 billion approximately. This goes to show that although the global market does have many buyers, the United States still is the main market to concentrate on if one wants to make money and get established in the Industry. Without presence in the United States market, we cannot expect to go anywhere in this sector.

Presence in the United States market comes through attending Software exhibitions and meeting the buyers face to face and involves hard selling. All this requires decently deep pockets, if not very deep. Unfortunately this is the problem. The software development business in Pakistan at this point in time is very small and most companies cannot afford to market their products and services internationally especially in North America and Europe. Unfortunately, we cannot let the evolutionary process of development of this industry take its normal course because that would take the next 15 to 20 years to achieve substantial levels. It is imperative that the Government, at a macro level, market Pakistan’s Software Development capabilities. Over the next couple of years sustained image building as well as focussed marketing of Pakistan, as a destination for outsourced offshore Software Development must be funded by the Government. This will provide the necessary excitement to the local companies as well as get big I.T. companies to seriously look at Pakistan. The focus of this marketing effort must be the North American and European continents.

2. Telecommunications

Pakistan’s telecommunication infrastructure needs to be vastly improved and privatized. Only then will industries like IT be able to flourish. The market in Pakistan is big enough to interest large domestic and international companies to invest substantial amounts in the telecommunications which is an essential part of the IT industry.

3. Non Committal efforts

Although the Government has taken some steps to address this issue but they have not worked apparently. For instance Pakistan Software Export Board was established in 1995 in order to bring some sort of order besides providing a platform for the industry.

PSEB

The government also established Pakistan Software Export Board (PSEB) under the advice of the Export Promotion Bureau (EPB). This board has federal secretaries as its members from the ministries of Education, Commerce, Communications, Environment and Urban Affairs, Finance, Science and Technology, and Board of Investments. The board also includes the head of PASHA, PTCL, Chairman of CBR and Vice Chairman of EPB.

This board had recommended fiscal incentives for the industry including exemption of taxes, duties, surcharges and leviable octroi on all related computer and related hardware, peripherals including telemetric infrastructure, communications hardwares and softwares and tools which are to be exclusively used for Software export.

The board also recommended financial assistance from SBFC, YIP’s, Nationalized banks and other Financial Institutions as well as equity support from government funds for the purchase of all the related equipment.

International high speed data circuits were also recommended at very competitive rates compared to the ones offered by other telecom companies in the region in order to make these houses competitive in the International markets.

Sadly, the truth of the matter is that although the PSEB had made some wonderful and thoughtful recommendations, nothing has been done to bring them from the papers to the real world settings and nothing has changed so far on the IT front in Pakistan.

4. Lack of skilled and educated labor force

Another area of concern in Pakistan is the lack of skilled and educated workforce force. One of India’s biggest advantages and assets in the field of IT is that they posses a well educated, skilled work force which can speak English. We may equip as many workers as we want in this field but realistically Pakistan cannot expect to capture a share in the global IT market and export its labor expertise if its workforce is uneducated and not properly trained.

During the tenure of last Governments and their constant tinkering with the National Education Policy, unfortunately our education system never became what it could have. The effects of these unnecessary interventions have snowballed and today we do not have any thing that can be called an Education Policy. If the Government is serious about earning foreign exchange through this sector then concrete and bold steps have to be taken in this regard, starting with a proper education policy which once formulated and implemented, has to be adhered to. What needs to be understood is that mere buildings and an infusion of cash in this industry would not start whipping out skilled workers automatically. Training and arming a workforce with necessary skills is a time consuming process and it would not happen overnight. Training institutes have to be established who would train the workforce for the Software Industry. A system has to be designed as such to ensure a constant crop of skilled workers. We need to develop some kind of mass crash I.T. workforce development strategy which will quickly provide the much needed intellectual blood transfusion to the I.T. industry.

Action Plan for Pakistan

At this point, we need to consider a 6 point agenda to seize the opportunity of becoming a global player in the business of Software Exports. As mentioned earlier, this will need consistent and concerted efforts for at least the next 10 years so that the seeds of this potentially huge industry are well planted and take roots in Pakistan. Beyond that, the market forces, our entrepreneurs and workforce will ensure success.

1.   Set up a National Task Force for Software Exports with the explicit goal of reaching US$ 4 billion mark in Software Exports by the year 2010.

2.  Support the effort of the task force by ensuring that:

•     No change in the Government affects the work in this area.
•     The telecommunication industry is privatized.

3.   Draft an enlightened and futuristic IT policy and ensure that the National Task Force is accountable for delivering the goods on a year to year basis.

4.   Create an IT fund of at least Rs. 1 billion which would be available to entrepreneurs who meet the criteria.

5.   Encourage and facilitate corporate Pakistan to play its due role in the development and promotion of the Software Industry. The financial sector needs to be prompted to understand the software industry and play a constructive role based on the Venture Capital model.

6.   Due to the acute paucity of funds, most software houses in Pakistan cannot carry out the critical business of internationally marketing their products and services. It is imperative that the government conducts a serious study in this area and provides every kind of support for software export marketing. 

In order to achieve the action plan as outlined above or as decided by the working group, it is proposed here that an Information Technology Promotion Council be set up in Pakistan immediately and it should be headed by the Chief Executive. The National Task Force on Software Exports should be headed by a professional from the private sector and should report directly to the Council and the Chief Executive. The IT Promotion Council should arrive its membership from the Corporate Pakistan as well as the IT professional residing either in Pakistan or abroad. The role of the Government should of a facilitator and the Government should not become a market player itself like we have seen in case of the PSEB.