Pakistan
Now a Hot Spot for IT Outsourcing
By Anthony Mitchell
The biggest boost to Pakistan's
efforts to break into the global IT marketplace
came on September 28, when India's finance ministry
announced an inc
ome tax of more than 36 percent on foreign firms
with software, R&D and customer service operations
in India. This tax proposal had been in the works
since the beginning of the year and is expected
to prompt US firms to follow GE's lead in selling
off assets in India.
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Why is Pakistan the hot new offshore information
technology (IT) destination?
This is because of a combination of favorable economic
circumstances. Just when many Western managers are
finally becoming comfortable with the idea of working
closely with Indian IT firms, along comes Pakistan.
Pakistan is shaking off decades of "also ran"
status. Funds invested into building educational
institutions in Pakistan (when there were not enough
jobs to absorb all the graduates from those institutions)
are paying off as Pakistan begins to field a modern,
highly productive labor force that is the envy of
more prosperous but less tech savvy nations elsewhere
in the region.
Why Care?
Why should the average Western IT professional,
businessperson or IT consumer care? Because we are
all going to be buying and using more IT outputs
from Pakistan. To be a smarter buyer and user of
IT products calls for a familiarity with Pakistan,
even for those who do not initially intend to do
business with Pakistani firms. We are all part of
a global economy and Pakistan is an increasingly
important part of that global economy.
The issues that Pakistan faces as it gears up for
the global high-tech marketplace are many of the
same issues that both advanced and developing economies
face elsewhere in the world, as both service providers
and service consumers. Pakistan is making no effort
to gloss over its challenges, which makes those
challenges easier to address.
With a population of 160 million and a land area
almost twice the size of California, Pakistan is
a smaller and more unified country than most of
its neighbors, which increases that nation's chances
of solving its own problems and avoiding the mistakes
that have plagued neighboring economies.
India Helps Pakistan
The biggest boost to Pakistan's efforts to break
into the global IT marketplace came on September
28, when India's finance ministry announced an income
tax of more than 36 percent on foreign firms with
software, R&D and customer service operations
in India. This tax proposal had been in the works
since the beginning of the year and is expected
to prompt US firms to follow GE's lead in selling
off assets in India.
Any Western business manager who initiated or approved
the establishment of an IT production or R&D
subsidiary in India in 2004 could find that decision
to be a career-ending move unless they have built
in financial reserves to accommodate both the tax
scheme of September 28 and upcoming taxes still
on the drawing board.
A proposal is under consideration in New Delhi to
tax activities conducted over international private
leased connections (IPLCs) that carry most of India's
voice and data traffic to and from the outside world.
There is also a proposal to replace state-to-state
customs duties (octroi) with a national value added
tax. Both those tax proposals could be combined
into a single scheme.
US IT brokerage firms, their US clients and domestic
Indian IT operations will be largely untouched by
the September 28 tax scheme. But the traditional
offshore migration path of outsourcing to an offshore
location first -- before setting up captive operations
there -- has been disrupted in India until economic
reforms reduce the role of the Indian government
in the economy and consequently reduce that nation's
revenue requirements.
For Westerners with long-standing personal ties
to India, that country's September 28 tax scheme
could have both personal and financial
consequences.
For new Indian workers who hoped for a position
with a Western firm based in India, that country's
revenue policy will alter careers, lifestyles and
futures. Westerners can pack up and look for another
country to set up operations.
However, what country?
Pakistan's
Advantages
Pakistan is the primary beneficiary of India's decision
to tax foreign firms with captive IT operations
in India. No other economy can match Pakistan's
labor pool of educated English-speaking workers.
No other economy can match Pakistan's scalability,
reliability and low-cost environment.
Pakistan offers five advantages over India:
1.Western experience: Executives
at IT firms in Pakistan often have worked and gone
to school in the US, which is Pakistan's largest
export market.
Indian IT firms whose managers have worked in the
West are generally more expensive than similarly
positioned Indian firms, without always providing
noticeable differences in program implementation
capabilities. The willingness of Pakistanis to return
home from the West stands in marked contrast to
most Indians who arrive for school or work in the
West and never look back.
2. Professionalism and integrity:
The personal integrity of Pakistani managers is
easy to identify and appreciate, especially by Westerners
with business experience elsewhere in the region.
However, the relatively open and trusting nature
of Pakistanis has made them easy prey for Indian
business brokers who have managed to cheat several
Pakistani IT firms by offering to provide them with
outsourcing contracts in exchange for up-front fees.
The Pakistanis assumed that these Indians were open
minded and charitable for coming to help less experienced
firms in Pakistan gain access to international contracts,
until the Indians took their money and disappeared.
3. Higher labor availability: Fewer
holidays in Pakistan means less slippage in staff
availability compared to India. IT firms in India
are advised to hire a diverse workforce so that
members of one community can enjoy important festivals
while members of other communities cover the phones
and keep production going.
4. Good accents: Pakistan's official
language is English. Only Kolkata (formerly Calcutta)
and the Punjabi areas of India can come close to
competing with accents in Pakistan, where many families
speak English at home and where accent neutralization
for non-native speakers of English is substantially
easier than in India. Language skills and accents
provide Pakistan with a major advantage over all
other Asian outsourcing destinations.
5. Low cost talent pool: India's
top-tier labor force for IT work has been stretched
thin in many areas, especially Bangalore, where
escalating wage rates, turnover and higher outsourcing
prices are reaching critical mass at the same time
that the urban infrastructure has exceeded its carrying
capacity. Annual turnover rates reported to InternationalStaff.net
for most merchant call center facilities in India
at the beginning of November are approaching 100
percent. High turnover rates are causing a shift
to second tier Indian cities and to Kolkata. Escalating
turnover rates are one of the Indian outsourcing
industry's dirty secrets. In comparison, Pakistan's
top-tier talent pool is largely untapped and turnover
rates are less than 20 percent.
Safety
and Security
Pakistan is not without challenges, some of which
are real (improving the telecommunications infrastructure)
and some are exaggerated, especially in terms of
the security situation. Once you have lived through
a few riots in India, once you have taught yourself
how to quickly turn the lights out and lay down
on the floor because you are afraid of what might
come through the window, then Pakistan doesn't seem
so scary anymore.
The biggest danger that Westerners face in South
Asia is from automobile accidents, particularly
at night. India has over 8 times the number of highway
fatalities per passenger mile than the US. If you
go looking for trouble, you will find it, whether
in the back alleys of Karachi or the parking lots
of many suburban US.shopping malls.
Americans who have worked in both Karachi and Mumbai
report that there is no discernable difference in
the safety and security situation in both cities.
The lack of reporting in the US media on the occurrence
of violent disturbances and general strikes in India,
versus the close coverage often afforded to Pakistan,
has created the illusion that Pakistani cities are
somehow more dangerous than cities elsewhere in
the region, especially for Americans.
The US Department of State does not maintain accurate
statistics on economically or personally motivated
attacks against their own personnel in foreign countries.
Nor does it collect accurate information on crimes
committed against US nationals in foreign countries.
This leads US citizens to avoid safe areas (for
example, Islamabad) and to incur excessive risks
in areas where Americans are routinely victimized
(for example, Mexico City).
The US government is not doing a good job at providing
assistance for Americans who have been assaulted,
robbed or otherwise victimized in foreign countries.
If it did, there would likely be some accounting
of
those efforts, accounting that would demonstrate
that Pakistan's major cities have been and continue
to be a generally safe place for US business people
and their families.
Shared Roles
Pakistan and the US have similar roles when it comes
to human rights. The countries are a beacon of safety
and a haven for refugees. The government of Pakistan
has not been advertising this fact. The people who
have fled to Pakistan from surrounding countries
in the region have, on a one-to-one personal basis.
They are Pakistan's best ambassadors.
Before making up your mind about Pakistan, talk
to people who have left there or have passed through
there. Their origins might be different but their
stories are often tragically similar. Too often,
it seems as if they are all reading from the same
script: family members (or themselves) in neighboring
countries who have been victimized, jailed, possibly
tortured, relatives killed, and all survivors traumatized
and dispossessed. Pakistan welcomes them and serves
as a place of safety and security.
From Iran, Afghanistan, India and elsewhere they
come, seeking the same things that immigrants to
the US have always sought: opportunity, liberty,
freedom of religion and respect for personal beliefs.
Americans naturally identify with the underdogs,
the runners up, the people who are trying harder
than anyone else to succeed. This is why many Americans
find it easy to identify with Pakistanis. It is
not necessary for Americans to take sides in disputes
between India and Pakistan.
Taking sides is not required. Long-term peaceful
solutions are required.
Increased trade and joint projects between Pakistan
and India will pull those two countries together
and create incentives for peace. American firms
doing business in one or both countries can contribute
to peace through responsible business practic es
and the moderating effects that employment and prosperity
provide. This can and should be accomplished when
American firms are allowed to operate on an equal
footing with local firms, which for now only appears
possible in Pakistan.
Anthony Mitchell, an E-Commerce Times columnist,
has been involved with The Indian IT industry since
1987, specializing through InternationalStaff.net
in offshore process migration, call center program
management, turnkey software development and help
desk management.
http://www.ecommercetimes.com/story/37750.html
(Courtesy E-Commerce
Times)
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