A Pakistan is investing billions of pounds to establish itself as a major offshore software development centre to rival India, Russia or the Far East. Although it has a long way to go before its IT services industry matches that of India, the Pakistan government is confident that it can become a significant high-tech player within three years.
The recent spate of suicide bombings and abductions could intimidate firms that are just beginning to look overseas for software outsourcing but companies that are prepared to take the plunge can benefit from spectacularly low-cost deals with major Pakistan firms.
Atta-Ur Rahman, Pakistan's minister for science and technology, is the man responsible for initiating the country's transformation into a high-tech centre.
"When I took over as minister for science and technology in March 2000 I set myself the target of trying to do in three years what would normally be done in 10 or 15. I tried to condense a lot of things so that Pakistan could become a major player in IT," he said.
The country has begun investing heavily in telecommunications, the Internet and fibre-optic links to establish the infrastructure that it will need to compete in information technology.
"When I took over in 2000 Pakistan had some 29 cities with the Internet. In the past year-and-a-half, we are now exceeding 800 towns and cities which have Internet access. And to my knowledge there is no other country in the world that has expanded so rapidly," said Atta. More than 200 now have access to fibr-optic links, compared with just 53 two years ago.
Pakistan is investing heavily in bandwidth and, significantly for western investors, the government has managed to bring down the cost of broadband from $87,000 (£58,000) to $6,000, for a 2 megabit line. "We are by far the cheapest in that part of the world," said Atta.
Pakistan will need an IT-literate workforce if it is to woo western firms, so education is a top priority. It has created seven new IT universities within the space of a year, buying in the expertise of nearly 200 IT specialists.
"We are offering salaries of $5,000 a month, which is a phenomenal amount, compared to what people normally get paid in Pakistan," said Atta.
A virtual university has also been created to train thousands more students through television and the Internet. The university will have 5,000 on its books by September and a further 20,000 within 18 months. Fees are kept deliberately low, only £14 a month, to encourage applicants.
If the right IT skills are not available locally to meet an investor's requirements the government has said it will step in to train IT professionals at its own expense, including meeting the cost of the airfares and living costs of the trainers.
Atta believes that the slowdown in IT spending in the US and the UK will encourage companies to look at Pakistan as a centre for software development. The government is offering generous tax breaks to encourage western firms. "We said, 'Let's transform the whole country into a kind of export processing zone where everything is free, so no duties, no taxes, nothing'. There is a 15-year tax holiday; there is 100% repatriation of capital allowed; all duties and tax on computers and computer parts have been abolished; and the necessity for government permissions to be obtained has been taken away."
For just £6,000 a month, the Pakistan government is offering to set UK companies up with broadband-enabled air-conditioned offices, a team of 10 software developers, three team leaders, an accountant, two support staff, and an office manager with a masters degree in business - a fraction of UK prices.
"The fact that we are English-speaking puts us ahead of China" said Atta. "The fact that we have an enabling environment, with freedom to repatriate capital, lower prices for bandwidth, and infrastructure that is far superior to India, gives us an edge. Since Pakistan has come in later on the scene, we can come in with the latest technology."
Most of the big names in IT already have operations there: Oracle, IBM and Cisco are well established and more than 50 UK companies have expressed an interest. These include Sellers, a software developer from Holborn, in London. Its managing director, Sydney Abraham, said "We are talking with a number of companies. It's a bit of a step into the unknown, but people have been very helpful."
Abraham does not see Pakistan's military government, or the occasional suicide bombings that occur, as a source of particular concern. Of the recent tensions between India and Pakistan he said, "We would not have gone over then but my understanding is that the government makes every effort to work with you and to make sure security isn't an issue."
TIGA, the independent games development association which represents about 200 UK computer games developers, is working with the High Commission on a programme to train Pakistani programmers in games development. They will come to the UK on placements with member firms, before returning to Pakistan to continue development.
Plans are still at an early stage, said chief executive Fred Hasson. "Margins in games development are being squeezed and being able to outsource large chunks of development, where they have trained staff and costs are lower, is going to keep us competitive. In practice, we will need to see what the problems of distance and culture are going to be and how easily trainees in Pakistan are going to get their heads around creating a computer game," he said.
The High Commission in London will help UK firms to pair with reliable Pakistani firms. Atta is aware however, that transforming Pakistan into an offshore software development centre will not happen overnight. In the short-term he is setting his sights on using IT to provide other services, such as call centres and computer assisted translation services.
"For experienced software developers you need a good seven to 10 years of training and experience before they start delivering the goods. In other areas such as IT support services you need two or three years and you can start running really quickly," he said.
Challenges to outsourcing IT development and support to Pakistan
Businesses will need to do their homework before transferring software development operations to Pakistan. It has seen four terrorist attacks since January, and the travel advisory notices posted by the Foreign Office and the US government do not make encouraging reading. There have also been concerns about the presence of Al Quaeda operatives in Pakistan.
"Four terrorist attacks in five months is not acceptable to business travellers who are not used to this exposure. People who work in oil and gas industries are used to this, but if you are setting up for the first time they could appear to be insurmountable obstacles," said Matthew Foreman, South Asia analyst at Control Risks.
Pakistan offers a choice of good locations:
- Karachi is large and well resourced, but, according to Control Risks, some parts of the city are "no-go" areas
- Lahore, in Northern Pakistan, is one of the most liberal cities in Pakistan and has a good manufacturing base
- The capital, Islamabad, though small, could emerge as an attractive IT centre, as business parks develop in the surrounding towns.
Control Risks advises companies to put any concerns they have about security to the Pakistan High Commission, and to seek assurances and advice before making a commitment.
For its part, the Pakistan High Commission in London says incidents are rare and have not disrupted western businesses. The commission offers advice on security, and help in arranging trips and accommodation, going as far as to collect business executives from the airport and deliver them to their hotels.
Uzair Khan, head of business development at Pakistan's Software Export Board, has experience in IT marketing, business development and project management. Contact: Pakistan Software Export Board, Ministry of Science & Technology, The High Commission of Pakistan, 36 Lowndes Square, London SW1X 9JN. E-mail email@example.com, tel: 020-7664-9311
This was first published in July 2002