Pakistan's Software Industry Report Highlights Best Practices & Challenges

PAKISTAN’S SOFTWARE INDUSTRY
BEST PRACTICES & STRATEGIC CHALLENGES

AN EXPLORATORY ANALYSIS

MINISTRY OF INFORMATION TECHNOLOGY
GOVERNMENT OF PAKISTAN
ISLAMABAD

FEBRUARY 2005

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  research@pseb.org.pk .

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.



              Pakistan’s Software Industry: Best Practices & Strategic Challenges 2005 2

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




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.



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%



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



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”



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
FIGURE–GENERIC BUSINESS MODELS & THEIR TRANSITIONS SCENARIOS
Western European countries fall in
this category. Although there are DOMESTIC‐FOCUSED EXPORT‐FOCUSED EXPORT‐FOCUSED DEDICATED

LOCAL FIRM LOCAL FIRM FOREIGN‐FIRM DEVELOPMENT CENTER
some that have taken the products
ITIM Associates
route, their numbers are relatively ZRG TPS
ThreeSixtyDegreez
Post Amazers
Etilize
Prosol MetaApps

smaller than those focusing on    Lumensoft Advanced Comm. Adamsoft Clickmarks

Yevolve Netsol Ultimus Enabling Tech. (Quartics)
export of services. The most 2B Technologies Makabu MixIT Trivor Systems

SI3 Autosoft Dynamics Techlogix Strategic Systems Int’l
defining feature of this class of Softech Systems Sidaat Hyder Morshed Xavor ESP Global Systems

companies, namely, the local‐ Genesis Solutions Avanza Solutions Elixir Technologies

Alchemy Technologies GoNet
presence of their founders and the AppXS Kalsoft

export‐orientation of their Oratech Jinn Technologies
3
Askari Info Systems Secure Networks
products/ services, brings a Acrologix Systems Ltd
Comcept Progressive Systems
number of unique and important LMKR Millennium Software
Cressoft T K
challenges to this type of a firm. CARE RANSITIONS EY

D    M&A / F
IVERSIFICATION F
W OREIGN IRM S P
HIFTING RIORITIES

We discuss three of these in great M , V ‐ ATURITY B
ALUE ADD L M .
UYOUT BY OCAL GMTE P ‐O .
LEVATION OF AK PS

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



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



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.




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



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




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).




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.



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.




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:




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’.



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.



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



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


R&D PERFORMANCE MAIL SURVEY

1.Research 2. Survey 3. Survey
Questions Parameters Instrument
(RQ) (sample
Preliminary Literature
Review (LitR1) 4. 5. Survey 6. Analysis
Instrument Administra & Results
Testing -ion
Reflective
Data Collection on Lit. Review (LitR3)
Context & Background

COMPANY INTERVIEWS x-Method

Analysis
Perceived Policy Problem Policy &
Problem & Definition Research 1.Thematic 2. Identify 3.
Opportunity Questions (RQ) Areas for Sample / Administer
Interviews Participant Interviews

Briefing &
Write-up

ON‐GOING LITERATURE REVIEW (LITR2)

Figure-I: The Multi-Pronged Research Methodology


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.



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.

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

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.



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.



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




Pakistan's Software Industry Report Highlights Best Practices & Challenges

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