1. 1

2. 1

3. Table of Contents
1 – Executive Summary………………………………………………………………………….................6
2 – Background and Introduction……………………………………………………………………………11
3 –Study Objectives and Design…………….………………………………………………………………13
4 – Pakistan’s IT Market Revenue Classification and Assessment ……………………...………….14
4.1 – Past Estimates of Pakistan’s IT market and Software Export Revenue …………………..14
4.2 Pakistan’s Software / BPO Revenue Estimates…………………………………………………..…16
5 – State of Pakistan’s IT Industry: Survey of Industry Performance & Firm Characteristics…..22
5.1 – Pakistan’s IT Industry: Companies, Markets, and Offerings …………………………………..23
5.2 – The Pakistani IT Firm: Strategy, Management, and Resources ………………………………34
5.3 – Public Policy Environment and Infrastructure Bottlenecks ……………………………………..46
6 – Pakistan’s IT Market: A Review of Supply and Demand ……………………………………………49
6.1 – The Supply Side: Producers of IT and IT-enabled Services………………………………………49
6.2 – The Demand Side: Users of IT and IT-enabled Services………………………………………….62
7 – Conclusions and Policy Recommendations ……………………………………………………..........74
8 – Appendices
A – LIST of Interviewees: PSEB MEMBER COs CEOs and Executives…………………………..77
B – LIST of Interviewees: IT USER COs / CIOs and IT Directors…………………………………..78
C – LIST of Interviewees: MNC Country Heads……………………………………………..............79
D – LIST of Interviewees: IT Policy Makers and Decision Leaders……………………………….79
E – PSEB IT Market and Revenue Estimation Study – PSEB Member Survey………………..80
F – PSEB IT Market and Revenue Estimation Study – CIO Survey……………………………….81
2

4. List of Figures and Tables
1. Figure 1.1: Impact of 2007 recession on total revenue and spend of Pakistan’s IT industry
2 Table 1.1: Estimated size of domestic and export revenues for 2008, 2009, and 2010
3. Figure 2.1: The data needs of a three-tiered evidence-based policy-making process
4. Figure 3.1: Graphical representation of the work plan
5. Table 4.1: Software export / BPO revenue estimates by various sources (and studies)
6. Figure 4.1: Pakistan’s IT spend and global revenue (Source: P@SHA 2008)
7. Figure 4.2: Impact of the 2007 recession on total revenues of Pakistan’s IT industry
8. Figure 4.3: Growth in total revenue and spend of Pakistan’s IT industry
9. Table 4.2: IT market revenue classification scheme – sectors and product-service offerings
10. Table 4.3: “In sample” estimates of global revenue and domestic revenue and spend
11. Table 4.4: Proportion of companies of various sizes within the sample and their median revenues
12. Table 4.5: Corrected global and domestic revenue and spend of Pakistan’s software / BPO industry
13. Table 4.6: Corrected global and domestic revenue and spend of Pakistan’s software / BPO industry
14. Table 4.7: “In sample” estimates and population corrections for industry revenues
15. Table: 4.8: Estimated size of domestic and export revenues for 2008, 2009, and 2010
16. Figure 5.1: Foreign roots and connections of Pakistan’s IT companies
17. Figure 5.2: Geographical distribution of parent-subsidiary connections and front offices
18. Figure 5.3: The recession and full-time employment in Pakistan’s IT companies
19. Figure 5.4: Full time employment and employment growth in Pakistan’s IT industry
20. Figure 5.5: Full time employment by type of work performed
21. Figure 5.6: Product-service profile of Pakistan’s IT companies
22. Figure 5.7: Platforms or development approaches of Pakistan’s IT companies
23. Figure 5.8: Sectoral breakdown of total global revenues of Pakistan’s IT industry (2008)
24. Figure 5.9: Sectoral breakdown of domestic and export revenues of Pakistan’s IT industry (2008)
25. Figure 5.10: Global revenue by product-service category, platforms, and tools (2008)
26. Figure 5.11: Domestic and export revenue by product-service category, platform, and tool (2008)
27. Figure 5.12: Target market strategies of Pakistan’s IT companies
28. Figure 5.13: Destination – offerings mix of Pakistan’s IT companies
29. Figure 5.14: Client risk and diversification in Pakistan’s IT industry
30. Figure 5.15: Expenditure profile of companies in Pakistan’s IT industry
31. Figure 5.16: Percentage of CEO time spent on company activities in Pakistan’s IT industry
32. Figure 5.17: Management and entrepreneurial characteristics of Pakistani IT companies
33. Figure 5.18: Average proportion of full time employment in Pakistani IT company by type of work
34. Figure 5.19: Pattern of employment in Pakistan’s IT industry by educational qualifications
35. Figure 5.20: Part time and women employment in Pakistan’s IT industry
36. Figure 5.21: Attrition in Pakistan’s IT industry
37. Figure 5.22: Sources of initial funds for setting up companies in Pakistan’s IT industry
38. Figure 5.23: Avenues to investment resources to support next phase of company growth
39. Figure 5.24: Quality certifications in Pakistan’s IT industry
40. Figure 5.25: Quality assurance teams and function in Pakistan’s IT industry
41. Figure 5.26: General perception of policy and infrastructure issues in Pakistan’s IT industry
42. Figure 5.27: Most important policy and infrastructure issues in Pakistan’s IT industry
43. Table 7.1: “In sample” estimates and population corrections for industry software / BPO revenues
3

5. List of Abbreviations
ADC Alternate Delivery Channels
AHBL Arif Habib Bank Ltd.
AKUH Aga Khan University Hospital
ARL Attock Refineries Ltd.
BAP Business Acceleration Programme
BOP Balance of Payment
BPM Business Process Modernisation
BPO Business Process Outsourcing
BPR Business Process Re-engineering
B&F Banking & Finance
CARE Centre for Advanced Research in Engineering
CCNB Customer Care and Billing
CDC Central Depository Company
CEO Chief Executive Officer
CIO Chief Information Officer
CMM Capability Maturity Model
CMMI Capability Maturity Model Integrated
CMS Campus Management System
DIY Do It Yourself
DRS Domestic Revenue and Spend
EGD Electronic Government Directorate
ERP Enterprise Resource Planning
FMCG Fast Moving Consumer Goods
FTE Full Time Equivalent
GIKI Ghulam Ishaq Khan Institute
GIS Geographical Information Systems
GSM Global System for Mobile Communications
HBL Habib Bank Ltd.
HIMS Health Information Management System
ICT Information and Communications Technology
ICT4D ICT for Development
IBA Institute of Business Administration
IH Indus Hospital
IPD IT Product Development
ISO International Standards Organisation
ITES IT Enabled Services
KESC Karachi Electric Supply Company
KSE Karachi Stock Exchange
MCB Muslim Commercial Bank Ltd.
MGA Mobile Applications, Gaming, and Animation
MITETF MIT Enterprise Forum
MNCs Multinational Corporations
MS Managed Services
NADRA National Database and Registration Authority
4

6. NASSCOM National Association of Software and Services Companies
NUST National University of Sciences and Technology
OGDCL Oil and Gas Development Co Ltd.
PABX Private Automatic Branch Exchange
PNS Private and Non-Profit Sectors
PRAL Pakistan Revenue Automation Ltd.
PS Public and Semi-Public Sector
PSEB Pakistan Software Export Board
PTA Pakistan Telecommunications Authority
PTCL Pakistan Telecommunications Corporation Ltd.
P@SHA Pakistan Software Houses Association for IT and IT Enabled Services
QA Quality Assurance
RBI Reserve Bank of India
RBS Royal Bank of Scotland
R&D Research and Development
SaaS Software as a Service
SBP State Bank of Pakistan
SCB Standard Chartered Bank
SDS Software Development and Services
SECP Securities and Exchange Commission of Pakistan
SFA Sales Force Automation
SHMA Sidat Hyder Morshed Associates
SICES Systems Integration and Consulting and Embedded Systems
SKMT Shaukat Khanum Memorical Trust
SNGPL Sui Northern Gas Pvt. Ltd
SSGC Sui Southern Gas Co.
TAN Tech Angels Network
TiE The Indus Entrepreneurs
TRG The Resource Group
T&U Telecommunications and Utilities
UBL United Bank Ltd.
VAR Value Added Reseller
VAS Value Added Services
Y2K Year 2000
5

7. 1 – Executive Summary
The global recession during the last 2-3 years (2007-2010) has tested the industry’s grit and resilience.
Not unlike other countries, Pakistan’s software and BPO industry underwent a substantial period of
change and turmoil. It has, however, emerged as much stronger and more resilient than ever before.
In 2007, The P@SHA Annual Review 2008 noted that Pakistan’s Software and BPO industry was on the
verge of a take-off. In FY2006, the software / BPO industry had stood at $193.4 million of local revenues
and spend and a global revenue impact $779.7 million. Industry leaders were project another year of
growth with the domestic revenue and spend to reach a projected $269 million and the global revenue
impact of around $900+ million.
The projected growth, however, did not materialise. Even before the global recession of the early
2008 had hit, the relative political-economic stability within the domestic environment in Pakistan
had begun to falter. A “limited” judicial crisis that started around the middle of 2007 became a full
blown constitutional row between the government and the judiciary. As 2007 turned into 2008, the
country was shrouded with considerable political uncertainty that paralysed the government resulting in
considerable policy uncertainty that hit domestic IT spending.
As these developments unfolded on the domestic front , the credit crunch and sub-prime mortgage
crisis had turned into a full-fledged recession across much of the developed world. The global
recession hit in the early 2008 and with it came considerable belt tightening in IT spending in the
country’s major export markets – most notably United States, Canada, and Europe. In the West, the
recession resulted in business closures and lay-offs whose impact ricocheted through the industries
across the developing world, including Pakistan’s.
For most companies in Pakistan’s software / BPO industry, 2007 and 2008 became the years when the
brakes were applied. The effect of these twin crises could be amply gleaned from the following figure:
Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry
1000
900
800
Revenue (US$, Million)
700
600
Global Revenue
500 Impact
400
Local IT Revenue &
300 Spend
200
100
0
2004 2005 2006 2007 (Projected) 2007 (Realised) 2008 2009
Year
Figure 1.1: Impact of 2007 recession on total revenue and spend of Pakistan’s IT industry
6

8. On the whole, domestic revenue and spending declined by 40% between 2006 and 2007 while exports
were hit by up to 60%. Growth seem to return back starting 2009. It is estimated that by the end of 2010
the industry would have recovered to pre-2007 levels.
Despite the painful reality that these figures reflect, though, largely the industry did quite well to
weather the storm and in certain sectors even continued to grow bigger.
Estimating industry size and future projections
The Technomics’ Survey of PSEB Member Companies (2010) which is the subject of this report was
carried out towards the end of 2009 and early-to-mid 2010. The figures are, therefore, most accurate for
FY 2007 and FY2008. “In Sample” and population estimates for FY2008, 2009, and 2010 are:
Revenue Classification FY2008 (Actual) FY2009 (Est.) FY2010 (Proj.)
“In Sample” Estimates
Domestic Revenue & Spend (DRS) $130.06 million $135.78 million $177.71 million
Global Revenue (GR) $332.83 million $315.54 million $389.38 million
Population Adjusted Figures Using Three Correction Models
Stratified Medians Method - DRS $394.05 million $399.77 million $ 441.70 million
Stratified Medians Method – GR $762.76 million $745.47 million $819.35 million
Modified 80:20 Model – DRS $226.57 million $232.29 million $274.22 million
Modified 80:20 Model – GR $489.83 million $472.55 million $546.38 million
India (RBI) Model – DRS $250.03 million $255.75 million $297.68 million
India (RBI) Model – GR $470.01 million $452.73 million $526.56 million
Source: PSEB Member Survey 2009-10, figures based on 75 responding companies (RR=25%).
Table: 1.1: Estimated size of domestic and export revenues for 2008, 2009, and 2010
On the whole, though, the estimates suggest upper and lower limits on Pakistan’s software / BPO global
exports revenues to be between $761.93 million and $469.19m respectively and domestic revenue and
spend to be between $393.3million and $226.57million respectively. Beyond these figures, a number of
other quantitative and qualitative findings stand out:
Overall size of the industry:
• Of the total of 75 companies surveyed, 8 (10.6%) had more than $10 million of revenues, 21
(28%) had between $501k-$10 million, and 41 (61.3%) had less than $500k in revenues.
• The industry has been undergoing a trend of greater diversification across multiple geographies.
In particular, there is a stark trend away from the United States and towards new and emerging
markets such as Africa, the Middle East, and Asia Pacific.
Market – offerings mix:
• Around 40% of the companies develop and customise their own proprietary platforms. An
increasing number of companies (about 25%) develop on established proprietary platforms
(Microsoft, Oracle, or SAP etc.). Over 50% also work with Open Source (OS) platforms.
7

9. • Among the leading product – service categories on the basis of global revenue for software
development are: e-business (web 2.0 etc.), capital market software, and specialised vertical
specific ERP solutions that account for around 7%, 4%, and 3.5% respectively. The same or
outsourcing are: voice-based BPO, outsourced application management, and outsourced
support account for 24%, 14%, and 5.7% respectively.
• Pakistan’s software / BPO industry’s revenue continues to remain dependent on a small
number of high growth sectors, namely, telecommunications and finance accounting for three-
fourths of the industry’s total global revenue impact. Other sectors such as retail (6%),
computing and electronics (4%) healthcare and life sciences (4%) have emerged and some such
as government (down to 3%) declined during the last few years.
Company management and operations:
• The 75 companies surveyed employ around 7500 full time staff for an average firm size of
approximately 131 full time equivalents (FTEs). Employee attrition rates decreased
considerably from 2.62 years (2005) of average employment to to 3.52 years (2009).
• The Pakistani Software / BPO firm has continued to evolve in terms of its strategic focus. While
the vast majority of the firms are multi-product (or service) firms, there has been a gradual shift
towards niche market orientation and vertical focus.
• The industry does quite bad, although it continues to gradually improve, on its ability to utilise
part-time talent and encourage women employment thus hinting towards an industry that
makes sub-optimal use of the talent available to it.
Funding needs and growing pains:
• The industry’s relatively narrow set of options for start-up funding continue as before with
organic cash-flows based funding and foreign venture capital registering some increase and local
venture capital available to companies declining in terms of number of deals available to
companies.
• Industry CEOs overwhelmingly favour public (or private) spending programmes focussed at
improving the hard and “soft” infrastructure to support their international marketing and
alliance-building activities as against other programmes such as training or venture capital.
Public policy and infrastructure challenges:
• The perception of country’s image and law and order made a resurgence as the most important
public policy and infrastructural bottlenecks that affects company’s growth. This time around,
though, these “perceptions” may be much more real than in earlier years.
• There is also a sense that telecommunications gains made in late 1990s may be eroding. The
availability of quality HR and physical infrastructure remain bottlenecks to company growth.
8

10. The silver lining: emerging new demand and supply segments
While the revenue and spend statistics provide a particular view of Pakistan’s IT and IT-enabled services
industry, they fails to fully capture and appreciate the highly dynamic and vibrant nature of the industry.
Pakistan’s IT and IT-enabled services industry has continued to evolve and mature despite the political
and financial turmoil – and the global economic recession. As the more traditional sub-sectors such as
pure software development services experienced erosion of market demand, new and exciting areas
have emerged promising potential for innovation and market growth.
In the last few years, for instance, systems integration and embedded systems seem to have come of
age as an important sub-sector of the Pakistani IT and IT-enabled services industry. While systems
integration has been a part and parcel of the IT industry since its inception, its growth has been
somewhat limited. Increasingly, though, domestic IT spend as well as export opportunities is breathing
new life in this particular sub-sector of the overall IT market. The industry has also climbed up the value
chain within the customised software development services sub-sector as the firms have increasingly
specialised in customisation of well-established platforms (like Microsoft, SAP, and Oracle etc.) instead
of trying to create in-house proprietary platforms.
Similarly, mobile applications, gaming, and animation is an emerging new area with considerable
promise to become a key driver for the industry in the years to come. Supported by strong underlying
demand, cut throat competition and the need for innovation and low cost and barriers to entry, mobile
applications and gaming seem to have produced a few exciting players. A number of Pakistani start-ups
have done very well in producing content and games that have hit the Top-10 lists in their respective
genres at the Apple Store. Cricket Revolution – a full fledged cricket game – is the first of its kind
developed in Pakistan.
On the demand side of the IT industry as well, there has been considerable change within various sub-
segments of demand for IT products and services. Financial and telecommunications industries remain
the largest users of IT and IT-enabled services within the country – although the former has experienced
some flattening of demand in the recent years. The share of multinationals in spurring demand for IT
products and services seems to be going through a trough that is broadly in line the global trend
towards rationalisation and centralisation of IT procurement budgets of multinationals worldwide.
There are several opportunities for IT firms to engage with the emerging areas of local demand.
New avenues of IT spending growth that are likely to drive growth in the future are opening up.
Mobile Banking, for instance, is an exciting new area that may bring together two IT demand drivers and
set the stage of another spurt of explosive spending growth in the coming years. Value-added services
(VAS) represent yet another lucrative frontier that still presents an untapped opportunity for the
industry.
The dynamic character of Pakistan’s IT and IT-enabled services industry continues to evolve and re-
invent itself to meet the new challenges and opportunities that it faces. It is an industry that survives
and thrives in spite of the various geo-strategic, political, and socio-economic challenges that are
uniquely the country’s own. Perhaps no other industry in the world with such ambition has been
burdened with graver challenges than Pakistan. No other country has demonstrated more tenacity
and a greater will to succeed despite the odds.
9

11. 2 – Background and Introduction
The years 2007-9 have been a period of considerable turmoil for the global software industry. The onset
of the global recession brought about by the credit crunch of 2008 is still affecting demand for IT and IT-
enabled services around the world. Around the world, IT industry’s focus has primarily been on the
preservation of existing markets and margins rather than on expansion.
While Eastern destinations, particularly in Asia and the Pacific, have survived the massive lay-offs that
have haunted the West, the former have nevertheless been affected by a dampening of growth in the IT
sector and the broader economy. In addition to the direct impact of slowing demand for IT products and
services, job losses and unemployment in the West have lessened the appeal of IT outsourcing.
Today, the software / BPO industry is operating in an entirely different environment than what was a
mere couple of years ago. While traditional drivers of the growth in IT demand may have dampened in
the current recessionary environment, new drivers have emerged to take their place. Crises – and
recessions – could serve as stepping stones towards new avenues and opportunities for those who are
willing to see new possibilities and strategically manoeuvre to take advantage of these.
It is important, however, to keep track of what the current state of play is and where one is heading
even under the most turbulent and confusing of times. This must apply to both the company and the
industry as a whole. The ability to see the trends, opportunities, and challenges in almost real time
before they either become reality and hence too late to act upon or do not materialise as expected is
critical to making quality organisational and policy decisions.
Collecting timely data on the industry to benchmark its performance over time and against other
competitor industries is critical to taking stock of its performance and understanding the dynamics and
changing trends. Over the years, a number of studies have been carried out to achieve this for the
Pakistani IT industry. These have documented the industry with varying degrees of accuracy and
comprehensiveness and include, among others:
• PSEB Best Practices Study of Pakistan’s Software Industry (2003-4);
• BearingPoint ITES-BPO Study (2006);
• P@SHA Annual Review of Pakistan’s Software Industry (2007);
These studies vary in terms of their coverage of industry’s various segments and sub-sectors and the
type of data collected. In addition, a number of other “informal” approaches have also been made to
capture data relevant to the industry but their coverage has been limited to trying to estimate industry
size. Most notable of these attempts is a paper published by PSEB in 2006 and State Bank’s Balance of
Payments (BOP) statistics.
One of the primary challenges for the strategic planners and policy-makers in Pakistan is the absence of
credible and reliable industry data across the entire software industry value chain including inputs (e.g.
human resources, employment etc.), outputs (revenues distributions by sectoral and technology
categories etc.), and outcomes etc.
The absence of credible data on the industry outcomes of interest results in critical weaknesses in the
policy-making processes thus hampering the use of evidence-based policy practices in the first place and
limiting the ability to improve upon the policy and programme design once a policy regime has been put
into place.
10

12. Well designed and executed policy programmes require upfront analysis and assessment, evidence-
based policy design, and seamless implementation with key stakeholders on board. Policies and
programmes designed with detailed planning, analytical rigor, and a high implementation focus are
most likely to deliver best results. Timely and accurate data is central to this endeavour.
Detailed Dubai Framework
Broad National Specific Detailed
Situational Policy Outline Policy Packages
Assessment (Case for Public Support)
Market Side: -Stakeholder exercise to ascertain -Detailed analysis of individual
objectives and thrusts policy instruments and packages
-Revenue Assessment (e.g. HR, Certifications, Marketing
-International policy benchmarking and Branding, IT Parks,
-Strategic Market Analysis and
Opportunity Assessment -Preliminary review of policy costs Procurement, etc.)
and benefits -Detailed cost and benefit and
-Opportunities and Trends Analysis
-Creation of an Evidence-based impact analysis of individual policy
policy package / regime instruments
Policy Side: -Broad National Policy Outline - Detailed design of policies and
-Policy and Programme programmes
-Stakeholder buy-in and
Effectiveness Assessment implementation plan -Detailed implementation plans for
- Cost and Benefit Analysis policies and programmes
Figure 2.1: The data needs of a three-tiered evidence-based policy-making process
A related benefit of having credible and reliable data on the industry is the ability to better market the
industry abroad. A mature and fast growing industry, like Pakistan’s, must take the necessary steps to
ensure timely and adequate data collection and project these, locally and internationally, in a proactive
and professional manner.
It is, therefore, important to regularly survey the industry to collect data on its current state and future
direction and make this data available for strategic planners, marketers, and policy-makers alike.
This report is a fresh attempt – in a series of attempts over the last few years – to capture credible and
reliable data on Pakistan’s software / BPO industry. It puts forth and builds upon a data collection
framework that seeks to collect data on revenues and markets, employment, management and
operations, quality of technical operations, funding needs, and public policy. It also, for the first time,
uses a detailed revenue classification scheme to create a finer grain understanding of revenues and
activity across various IT and IT-enabled services sectors as well as tools, platforms, offerings.
11

13. 3 – Study Objectives and Design
The objectives of the study are as follows:
• To improve and enhance the statistical knowledge and qualitative understanding of Pakistan’s
software development and IT-enabled services (ITES) industry leading to an assessment of
where it currently stands and where it is heading. This will be achieved by carrying out a survey
of CEOs / CTOs of the country’s leading software development and ITES operations; and
• To develop an appreciation of the size and nature of the country’s IT user market. This will
lead to a fine-grained understanding of the needs and challenges faced by some of the largest
users of IT within Pakistan. This will be carried through interviews with of CIOs (and Heads of IT)
of the country’s largest IT users in the financial, telecom, utility, MNCs, and public sectors.
This analysis will lead to better understanding of the opportunities and challenges confronted by
Pakistan’s software / BPO industry and will provide a critical link in the information feedback loop
between producers and users of IT and IT-enabled services in the country. In line with these objectives,
a three pronged strategy was adopted. This is depicted below:
Task 1 Task 2 Task 3
Design of Analytical Collection of Analysis and
Strategy Industry Data Findings
1: Refinement and development 2: Surveys of producers and 3: Findings: Analysis of
of data collection instruments users of IT and ITES in qualitative and quantitative
Pakistan data
• Develop an analytic strategy (i.e. • Carry out quantitative surveys • Analysis of survey data of PSEB
methodology, population / PSEB Member Companies. Companies to benchmark industry’s
samples, bias adjustment etc.) to • Carry out surveys and interviews performance over the last 2-3
address the objectives of the of the top-50 leading IT users in years, understand emerging trends,
study. Pakistan including Banks, and document policy challenges
• Draw upon the earlier survey work Multinationals, Telecom and • Writing of final report and
carried out on the Pakistani Utilities, and Public Sector. conclusions.
software / BPO industry to develop • Carry out interviews with CEOs of
a refined version of a survey 50-70 largest software / BPO
instrument. companies in Pakistan.
• Test the new survey instrument.
Figure 3.1: Graphical representation of the work plan
Two separate set of interviews, namely, CEOs of about 50 of the Pakistan’s leading and most prominent
IT and ITES companies and more than 45 CIOs (and Directors of IT) of Pakistan’s largest and most
prominent IT users were carried out between mid-2009 and early-2010. Special care was undertaken to
ensure representation of important sub-sectors within each of these categories. Within the IT and ITES
companies, companies with IT products, services, systems integration, mobile application and gaming,
and business process outsourcing sub-sectors were selected. Within the IT user companies, banks and
financial institutions, multinationals, telecommunications and utilities, public sector organisations, and
private and non-profit sub-sectors were selected. The results of these quantitative (chapter 4 and 5) and
qualitative (chapter 6) analyses are documented in the chapters that follow.
12

14. 4–Pakistan’s IT Market Revenue Classification & Assessment
This chapter attempts to calculate the software / BPO revenue of Pakistan’s IT (software and BPO)
industry. It looks at various estimates of Pakistan’s software / BPO export figures put forward by various
sources in the past and uses data from a specially designed survey to arrive at current estimates of the
industry revenues.
4.1 – Past estimates of Pakistan’s IT market and software export revenue
Pakistan’s Software / BPO industry is relatively nascent as compared to many similar industries around
the world. Systematic data collection on the industry has, therefore, been an even more recent
development. Over the last 5-7 years, a number of attempts have been made to better document the
size and nature of this industry. A number of different estimates exist that attempt to calculate the
industry’s size (and characteristics) at various points in time. These use different methods and formulae
to estimate the industry size leading to results that are often not comparable.
In particular, five different studies carried out thus far have attempted to estimate the size of Pakistan’s
software / BPO industry. These are summarised in the figure below:
Revenue Estimate Source Software / BPO Export Estimate and Year Estimation Methodology
State Bank of Pakistan 2009 – Software: $115.95m, Call Centres: $17.52m Compilation of BOP data
PSEB 2005 2004 – Software: $81.5m (SBP for 2004 = $32m) Survey based extrapolation
Bearing Point 2005 2005 – IT/BPO Export: $100m (Total: $700m) Multiples and Rules of Thumb
1
PSEB 2006 2006 –Export Earnings: $150m (Global: $600m) Rules of Thumb
2
P@SHA 2008 2007 – Domestic Spend: $269m (Global: $640m) Survey based extrapolation
Gartner 2008 No independent estimate N/A
Source: Technomics Compilation
Table 4.1: Software export / BPO revenue estimates by various sources (and studies)
These figures represent a somewhat confusing picture of Pakistan’s software / BPO industry. The most
accurate of the above estimates – one backed by a verifiable accounting data trail – is that of State Bank
of Pakistan’s balance of payment statistics for trade-in-services. However, this does not capture the full
extent of the revenues and earnings of the Pakistani software / BPO industry. Bearing Point (2005) and
PSEB (2006) represent the use of multiples and rules of thumb to arrive at an overall figure for Pakistan’s
IT industry. These approaches have their own limitations and may be highly inaccurate when applied
inappropriately. PSEB (2005) and P@SHA (2008) represent survey based approaches that, although
limited in scope and coverage, have the potential to be quite accurate and lend themselves to bias
correction.
To date, P@SHA (2008) is by far the most comprehensive attempt to calculate the overall size of the
industry’s revenues. This study used a well-tested survey methodology to collect data on a sample of 80
companies (out of over 300 P@SHA members). It then used an “80:20 Rule” to extrapolate these results
to arrive at revenues / exports for the entire industry. The results are documented in the figure below:
2
P@SHA 2008 estimated the overall Pakistan IT Market (Hardware & Software) to be between $1.7 – 2.25 billion.
13

15. Figure 4.1: Pakistan’s IT spend and global revenue (Source: P@SHA 2008)
P@SHA (2008) sub-divides the overall IT market into five sub-caterogies. These are:
• Revenue Category A: Domestic Revenue and Spend of Pakistan’s Software / BPO industry was
estimated on the basis of survey of 80 software / BPO companies at around $269 million (2006).
This was extrapolated to produce an overall industry figure of $322.8 million.
• Revenue Category B: Global Revenue Impact of Pakistan’s Software / BPO industry was
estimated on the basis of a survey of 80 software BPO companies at around $640 million. This
was extrapolated to arrive at an overall industry figure of $768 million.
• Revenue Category C: Domestic Revenues of Leading IT multinationals (e.g. IBM, Cisco, NCR,
Oracle, Microsoft, SAP, SaaS, and Intel etc.) forms a major share of the domestic IT spend and
was estimated at around $200-250 million a year.
• Revenue Category D: Domestic hardware market, over and above that captured by the IT
multinationals, was estimated at $300-500 million a year.
• Revenue Category E: IT spend on in-house operations of major IT users (such as MNCs, Banks,
and government entities) was estimated at around $200-400 million of additional IT spend.
These estimates put Pakistan’s software / BPO industry at around $1.7 to 2.25 billion. One of the major
contributions of the P@SHA Annual Review 2008 was to introduce, for the first time, a rigorous estimate
of the industry’s global impact. The idea of Global Revenue Impact of Pakistani IT companies was
introduced that sought to address the challenge of attributing the portion of revenue of a Pakistani
company but that was never brought into the country to Pakistani exports. Bearing Point Study of 2006
had estimated the global revenue of Pakistani companies to be four times what was brought within
Pakistan. The Global Revenue Impact metric went a step further by attributing to the Pakistani company
a share of the overall revenue of its foreign parent based on its contribution to the creation of those
revenues.
14

16. 4.2 Pakistan’s software / BPO revenue estimates
In 2007, at the time of the P@SHA Study, Pakistan’s software / BPO industry was projected to have
double digit revenue / export growth over the foreseeable future. The 2006 full-year revenues of the
software / BPO industry had been at $193.5 million of domestic software / BPO revenues and spend and
$779 million of global revenue impact. The projections for 2007 stood at $269 million of domestic
revenues and spend and $909 million of global revenue impact. However, before the 2007 projections
could become a reality, a mix of domestic (a political and constitutional crisis) and international (global
financial meltdown and the resulting recession) crises had hit the industry. These crises ended up
changing the industry considerably. The effects are illustrated in the figures below:
Impact of 2007 Recession in On Total Revenue and Spend of Pakistan's IT Industry
1000
900
800
Revenue (US$, Million)
700
600
Global Revenue
500 Impact
400
Local IT Revenue &
300 Spend
200
100
0
2004 2005 2006 2007 (Projected) 2007 (Realised) 2008 2009
Year
Number of Companies in Various Revenue Categories and the 2007 Recession (2004-10)
35
30
< $50K
Number of Companies
25 $50K-100K
$101-500K
20
$501K-1M
15 $1M-5M
$5M-10M
10
> $10M
5
0
2004 2005 2006 2007 (Projected) 2007 (Realised) 2008 2009 2010 (Projected)
Year
Figure 4.2: Impact of the 2007 recession on total revenues of Pakistan’s IT industry
The twin crises resulted in a 40% decline in domestic revenue and export-related revenue and spend
and an even greater (60%) decline in global revenue impact of the industry. The second of the two
15

17. figures shows the number of companies within various revenue categories over a 7-year period pieced
together across three different surveys. The two years clustered in the middle represent the numbers
projected and realised for 2007. The contrast is striking. The projected transition from 2006 to 2007
clearly tells a story of considerable growth with several companies hoping to transition to $10 million of
revenues through the course of the year. That transition never took place.
By early 2009, the industry seemed to have turned a corner and began to see prospects of a return to its
earlier growth trajectory. By 2010, the industry is projected to have fully recovered the decline
experienced during the recession and return back to its 2006 level. Several CEOs that Technomics spoke
with talked has begun to see positive signs of a market that was beginning to open up after two years of
spending freezes and cost-cutting. One of the CEOs Technomics spoke with described the recessionary
period as “one full-year of growth missing from the company’s record.”
‘“From January to December of 2008, we grew by 15% in Rupee terms against a
forecast of 35%. From January to December of 2009, it looks like we will be able to
manage 19-20% if the year pans out as it appears like it would. The end result of
these two years has been to reduce one full year from the company’s long range
growth plans.” .
This company, and many others, saw modest revenue growth with flat or slight decline in profitability
over the two year period.
Growth in Total Revenue and Spend of Pakistan's IT Industry
900
800
Revenue (US$, Million)
700
600
Global Revenue
Impact
500
Local IT Revenue &
400 Spend
300
200
100
0
2004 2005 2006 2007 2008 2009 2010 (Projected)
Year
Figure 4.3: Growth in total revenue and spend of Pakistan’s IT industry
Clearly, 2007 was a bad year for the industry as it saw many companies slip their revenue targets and
projections. The chart also depicts the turnaround that began to take place by end-2008 and had taken
firm roots by 2009. The number of companies in various revenue categories is expected to surpass
where they were at end-2006 by the end of the current year (2010). Revenue figures tell a similar story.
The above data provides a starting point for estimation of software / BPO export revenues for the entire
industry. This is carried out below:
16

18. IT Market Revenue Classification Scheme
A Sectoral Classification of Pakistan’s IT Market
1 Financials 12 Healthcare and Life Sciences
2 Computing and Electronics 13 Media, Entertainment, Advertising
3 Education 14 Real Estate
4 Government 15 Energy excluding Utilities (e.g. Petroleum)
5 Automotives 16 Hospitality (including Airlines)
6 Telecommunications 17 Shipping, Couriers, and Logistics
7 Retail Services 18 Professional and Business Services
8 Utilities 19 Fashion and Textiles
9 Manufacturing 20 High Technology (e.g. Ebay, Yahoo! Etc.)
10 Transportation 21 Others
11 Aerospace and Defence
A Product – Services Offerings Classification of Pakistan’s IT Market – Software & IT
1 IT Governance and Strategy 16 Network Consulting and Integration
2 IT Consulting 17 Animation and Graphics
3 ERP – General 18 Gaming
4 ERP – Specialised (Vertical Specific) 19 Mobile – Content and Applications
5 ERP – Middle Market (SMEs) 20 Virtualisation and Cloud Computing
6 Financial – Specialised (Core Banking) 21 Location-based Services
7 Financial – Specialised (Banking Apps) 22 e-Business (e.g. Web 2.0, Search etc.)
8 Financial – Specialised (Capital Market) 23 Information Security
9 Financial – Specialised (Non-Banking) 24 eGovernment
10 Document Management 25 Business Performance Management
11 Office Productivity 26 Data Warehousing – Business Intelligence
12 Billing and Payments 27 Embedded Systems Software
13 Customer Relationship Management 28 Product Development, Engg, and Design
14 Education and Training 29 Business Continuity and Recovery
15 Systems Integration 30 Software Testing and Assurance
A Product – Services Offerings Classification of Pakistan’s IT Market – IT-enabled Services
1 Finance and Accounting 9 Knowledge and Content Services
2 Human Resources 10 Analytic Services
3 Procurement and Logistics 11 Sales and Marketing
4 Customer Interaction & Support (Voice) 12 Transcription Services
5 Customer Interaction & Support (Non-Voice) 13 Managed Services
6 IS Outsourcing 14 Applications Management
7 Transactions Processing 15 Others
8 Outsourced Support
Table 4.2: IT market revenue classification scheme – sectors and product-service offerings
17

19. The survey of PSEB member companies resulted in the following figures:
Revenue Classification FY2007 (Actual) FY2008 (Actual) FY2009 (Est.) FY2010 (Proj.)
Domestic Revenue & Spend $115.92 million $130.06 million $135.78 million $177.71 million
Global Revenue $315.80 million $332.83 million $315.54 million $389.38 million
Source: PSEB Member Survey 2009-10, figures based on 75 responding companies (RR=25%).
Table 4.3: “In sample” estimates of global revenue and domestic revenue and spend
The PSEB Member Survey was carried out towards the end of 2009 and early-to-mid 2010. The figures
are, therefore, most accurate for FY 2007 and FY2008. Figures for 2009 are estimates based on half-year
sales. 2010 figures are merely projections. As with similar surveys carried out by other countries such as
India and Ireland, these figures are based on small sample sizes and need to be corrected for biases and
adjusted to account for entire populations.
We divide the non-respondents into 3 groups, namely, large, medium, and small sized companies.
• Large companies include Revenues > $10 million per annum
• Medium companies include Revenues between $501K to $10 million per annum
• Small companies include Revenues < $500K per annum
Among the respondents, these groups form about 10.66%, 28%, and 61.33% of the total population.
Company Size Number of Proportion Median Global Median Domestic
Cos. Revenue Revenue & Spend
Large (>$10 million) 8 / 75 10.66% $12.767million $9.375million
Medium ($501k-$10million) 21 / 75 28.00% $2.000million $1.125million
Small (<$500k) 46 / 75 61.33% $120k $104k
Source: PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.4: Proportion of companies of various sizes within the sample and their median revenues
Although, PSEB boasts a total of 1739 members on its website, its active (fee paying) members
numbered around 673 3 in 2009. However, there are still a large number of small and medium sized
companies that operate under the radar and may contribute towards software / BPO export.
Assuming that:
• with the exception of large companies – that are over-represented – the survey sample is
broadly representative of the proportion of small and medium companies in the general
population; and
• the respondents overall and within each size segment are biased towards larger sized
operations such that the median could be an appropriate measure for the revenue of non-
respondents.
A correction was applied to the “in sample” estimates to arrive at figures for the entire population:
3
As per PSEB Website’s Industry Overview Section available at: http://www.pseb.org.pk/item/industry_overview
18

20. Company Size Companies in Global Companies in Correction based on
Sample Revenue Population Median Revenues
Large (>$10 million) 8 (10.66%) 4 $260.53m 45 $51.06m
6 7
Medium ($501k-$10million) 21 (28.00%) $63.20m 167 $334.88m
Small (<$500k) 46 (61.33%) $8.34m 367 $43.98m
Sub-Total 75 (100%) $332m 673 $429.93m
Total Global Revenue $761.93million
Company Size Companies in Domestic Companies in Correction based on
Sample Spend Population Median Revenues
Large (>$10 million) 8 (10.66%) $78.60m 4 $37.5m
Medium ($501k-$10million) 21 (28.00%) $43.19m 167 $188.37m
Small (<$500k) 46 (61.33%) $7.52m 367 $38.12m
Sub-Total $129.31m 673 $263.99m
Total Domestic Revenue & Spend $393.30million
Source: Technomics Estimates. PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.5: Corrected global and domestic revenue and spend of Pakistan’s software / BPO industry
Two alternate approaches for calculating software / BPO earnings, namely, “RBI Software Survey
Correction Model” and a “modified” 80:20 Rule lead to more conservative estimates:
Company Size Sample Population Sample Population
Global Revenue Correction Domestic Spend Correction
Modified “80:20” Rule
Large (>$10 million) $260.53m $52.10m $78.60m $15.72m
Medium ($501k-$10million) $63.20m $63.2m $43.19m $43.19m
Small (<$500k) $8.34m $41.7m $7.52m $37.6m
Corrected – Modified “80:20” Total $332m $157.0m $129.31m $96.51m
Grand Total $489.83million $226.57million
India (RBI) Method
Company Size Sample Population Sample Population
Global Revenue Correction 8 Domestic Spend Correction
Large (>$10 million) $260.53m 1.02m $78.60m $0.89m
Medium ($501k-$10million) $63.20m 42.69m $43.19m $37.33m
Small (<$500k) $8.34m 93.47m $7.52m $81.74m
Corrected – India (RBI)Method $332m 137.19m $129.31 $119.97m
Grand Total $469.19million $249.28million
Source: Technomics Estimates. PSEB Member Survey 2009-10, Median Revenue figures are for 2008.
Table 4.6: Corrected global and domestic revenue and spend of Pakistan’s software / BPO industry
4
Over represented in the Survey Sample
5
Estimate based on industry knowledge of large non-respondents
6
Slightly under-estimates the proportion
7
31% and 68.5% of non-respondents respectively after correction for over-representation of large companies
8
Based on additional revenue for 598 non-respondents at a median global revenue impact of $255k per company
and a domestic revenue and spend of $223k per company
19

21. Summarising the results of the population estimates for the three methods 9 used:
Global Population Correction Domestic Population
Revenue for Global Revenue Revenue Correction for
[Sample] [Sample] Domestic Spend
Stratified Medians Correction $332.0m $429.93m £129.31m $263.99m
Modified “80:20” Method $332.om $157.00m $129.31m $96.51m
RBI (India) Model $332.om $137.19m $129.31m $119.97m
Corrected Population Estimates:
Stratified Medians Correction $761.93m $393.30m
Modified “80:20” Method $489.83m $226.57m
RBI (India) Model $469.19m $249.28m
Source: Technomics Estimates [2010]
Table 4.7: “In sample” estimates and population corrections for industry software / BPO revenues
Clearly, these figures are based on the assumptions that are made about the characteristics of the non-
respondents. The Technomics’ Survey of PSEB Member Companies (2010) which is the subject of this
report was carried out towards the end of 2009 and early-to-mid 2010. The figures are, therefore, most
accurate for FY 2007 and FY2008. “In Sample” and population estimates for FY2008, 2009, and 2010 are:
Revenue Classification FY2008 (Actual) FY2009 (Est.) FY2010 (Proj.)
“In Sample” Estimates
Domestic Revenue & Spend (DRS) $130.06 million $135.78 million $177.71 million
Global Revenue (GR) $332.83 million $315.54 million $389.38 million
Population Adjusted Figures Using Three Correction Models
Stratified Medians Method - DRS $394.05 million $399.77 million $ 441.70 million
Stratified Medians Method – GR $762.76 million $745.47 million $819.35 million
Modified 80:20 Model – DRS $226.57 million $232.29 million $274.22 million
Modified 80:20 Model – GR $489.83 million $472.55 million $546.38 million
India (RBI) Model – DRS $250.03 million $255.75 million $297.68 million
India (RBI) Model – GR $470.01 million $452.73 million $526.56 million
Source: PSEB Member Survey 2009-10, figures based on 75 responding companies (RR=25%).
Table: 4.8: Estimated size of domestic and export revenues for 2008, 2009, and 2010
On the whole, though, the estimates suggest upper and lower limits on Pakistan’s software / BPO global
exports revenues to be between $761.93 million and $469.19m respectively and domestic revenue and
spend to be between $393.3million and $249.81million respectively.
9
Please refer to PSEB Software / BPO Export Revenue Recognition and Assessment: A Policy Options Study,
PSEB 2010 for assumptions underlying each of the three models.
20

22. 5 – State of Pakistan’s IT Industry: Survey of Industry
Performance and Firm Characteristics
The global recession during the last 2-3 years (2007-2010) has tested the industry’s grit and resilience. In
mid-2007, P@SHA Annual Review 2008 noted that Pakistan’s software and BPO industry was on the
verge of a take-off. In FY2006, the software / BPO industry stood at $193.4 million of local revenues and
spend and global revenue impact $779.7 million. A survey of industry’s leading CEOs projected these
figures to growth to $269 million and $909 million respectively in 2007. With the industry growing in
high twenties and low-to-mid thirties, for much of the last half decade, there appeared no reason to
expect any less for the foreseeable future.
In addition to a general growth trend that seemed to go on unhindered, several other factors supported
an optimistic picture of industry growth. In particular, the last 2 years had seen a considerable opening
up of the domestic market for Pakistan’s software / BPO industry. Telecommunications, financial sector,
and public-sector were the three largest spenders of IT and each had experienced solid growth in the
years before. Pakistan had become a world leader in mobile penetration with around 60% of the
country’s population having a mobile phone connection. This created the right environment for several
billion dollars of foreign direct investment within the telecom sector. Financial sector was in the midst of
a consumer finance revolution driven by continued deregulation, strong growth in foreign exchange
reserves, and considerable excess liquidity in the market. The country’s largest Banks had been going
through massive IT modernisation projects thus driving up the demand for IT products and services at
least part of which were being serviced by the local IT industry. The government had, for the first time in
many years, begun to invest heavily in IT through (planned) modernisation of major public sector
functions. While the eGovernment Directorate (EGD) primary responsible for making investments in IT
had not found its element, other players within the government and defense, in particular, had begun to
drive growth in public-sector IT spending.
The global recession hit in the early 2008 and with it came considerable belt tightening in IT spending
around the world in the country’s major export markets – most notably United States, Canada, and
Europe. However, even before the effects of the global economic recession had begun to make a dent,
the relative political-economic stability within the domestic environment in Pakistan had begun to falter
as well. A “limited” judicial crisis that started around the middle of 2007 became a full blown
constitutional row between the government and the judiciary. As 2007 passed, the country was
shrouded with considerable political uncertainty that paralysed the government. By early 2008, new
elections were called in and new governments came into power at federal and provincial levels.
Although peaceful and democratic, this resulted in considerable turmoil at the political level and, from a
business standpoint, the country found itself in the midst of a period of policy uncertainty.
As these developments unfolded at the domestic front through much of the 2007 and early 2008, the
credit crunch and sub-prime mortgage crisis had turned into a full-fledged recession across much of the
developed world. The recession resulted in business closures and lay-offs in the country’s major export
markets in the West. If the hit to country’s IT revenues on the domestic front (60% of the total revenues
in 2007) was not bad enough, by early to mid-2008 these had been hit yet again on its external front
thus drying up the export demand as well. By the time the dust was settled on the 2007-2008 recession,
the industry revenues had experienced a 40% decline in domestic revenue and a 60% decline in exports.
21

23. For most companies that had gone through year-after-year of double digit growth in the past, 2007 and
2008 became the years when the brakes were applied. The industry largely muddled through the
economic downturn without the kind of massive lay-offs and failures that became the fodder for 24-
hour news channels in the West, the impact of the twin-crises was quite massive. However, largely the
industry did quite well to weather the storm and in certain sectors even continued to grow bigger.
The resultant turmoil, perhaps, also provided the industry players with much-needed respite to begin
thinking afresh. During this period, a number of new exciting developments took place that have the
potential of becoming major new future revenue streams for the industry. Most notable of these has
been the growing popularity and coming of age of mobile applications and gaming sub-sector within the
industry where a number of exciting start-ups have begun to make a mark. The second development
was the advent of mobile commerce (branchless banking) where Easy Paisa ™ - the joint product of
Telenor and Tameer Bank became a success story and point to the possibilities ahead.
5.1 – Pakistan’s IT industry: companies, markets, and offerings
A number of surveys of software / BPO industry have been carried out since 2003-4 that provide insights
into characteristics of Pakistan’s Software / BPO industry, and its evolution, through time. This section
draws from the data gleaned through a number of surveys to create a picture of the industry’s
performance and evolution. These surveys are:
PSEB Best Practices Study (2005) involved a detailed survey of company performance, organisational
characteristics, and infrastructure and policy challenges of Pakistan’s largest software companies. A
convenience sample of 50 of the country’s largest companies was created and face-to-face interviews
and on-the-spot surveys were carried out with these companies. A response rate of 96% ensured very
high integrity for this analysis. An additional 12 companies filled out an online version of the survey for a
total sample size of 60 companies. The sample included data for FY2004 for software development
operations (products and services) and purposefully excluded business process outsourcing (BPO).
P@SHA Annual Review (2008) involved a detailed survey of company performance, organisational
characteristics, and infrastructure and policy challenges of P@SHA member companies. P@SHA member
companies are an approximate sub-set of PSEB membership and hence represent a sample from within
the broader population. The survey resulted in responses from 80 software and BPO companies (from
around 250 who were contacted) for a response rate of about 33%. Up to 25 of these 80 were also
represented in PSEB (2005) sample. P@SHA (2008) also, for the first time, systematically surveyed
business process outsourcing (BPO) companies. The data collected included actual data for FY2006 and
estimates for FY2007.
PSEB IT Market Assessment (2010) is a detailed survey of company performance, organisational
characteristics, and infrastructure and policy challenges of PSEB member companies. The survey
includes a much expanded revenue classification scheme that builds upon the data collected earlier and
includes domestic and export earnings within a set of 20 domains and 35 product-service categories
(e.g. offerings, tools, and platforms). The PSEB (2010) data includes companies specialising in software
products development and services delivery, business process outsourcing, mobile applications, gaming
and animation, and systems integration. A total of 75 companies (from a convenience sample of about
300) responded to the survey for a response rate of 25%.
22

24. The following subsections draw upon these three surveys to present a snapshot of Pakistan’s IT industry.
The picture may not be completely representative of the entire industry as it only represents a limited
sample rather than the population. However, appropriate extrapolation techniques have been used,
where possible, to extend the findings to the population. Also, the potential for large biases is pointed
out, when necessary.
5.1.1 – Company parentage and geographical focus
The Pakistani Software / BPO industry has its roots firmly grounded in the export-focussed development
and outsourcing movements that became popular during the late 1990s. Consequently a number of
Pakistani companies have foreign roots or connections. While these roots have weakened somewhat
since the 2004 with fewer number of companies now having front offices abroad (down from over 50%
in 2004-5 to around 36% in 2008-9), they have still remained quite significant.
Foreign Roots and Connections of Pakistan's IT Companies
60.00
Proportion of Companies
50.00
40.00 2004
Surveyed
30.00 2007
20.00
2009
10.00
0.00
Subsidiaries Front Offices
Foreign Connections
Figure 5.1: Foreign roots and connections of Pakistan’s IT companies
This has happened for two reasons. First, the considerable growth in the domestic market has resulted
in noticeable re-orientation of the companies away from the export business. Second, the model of
opening foreign front offices for companies without any prior connections in the foreign market (e.g.
through an expatriate founder) has had as much as success as had been originally anticipated thus
leading to a rethinking of that model of market entry within a foreign marketing. Instead, today
companies are increasingly seeking alliances, joint ventures, and other forms of licensing arrangements
to establish a foreign marketing presence. Nevertheless, foreign operations, in particular in the United
States, remain a very critical feature of Pakistan’s IT industry and perhaps the most logical market entry
strategy where an expatriate founder is involved.
The Pakistani software / BPO industry continued to diversify geographically. For companies with parents
abroad, for instance, United States continued to dominate other destinations by an order of magnitude
with over 20 of the 75 companies reporting to be a subsidiary of a US company as against 3 from Europe
/ UK and one each from Middle East and Asia. Majority of these “parent-subsidiary” relationships
represent the aspirations of an Pakistani expatriate entrepreneur who has either moved back to set up a
company here or is managing a development centre while himself (or herself) living in North America or
Western Europe.
23

25. Geographical Distribution of Parent Entities of Pakistani IT Companies
25
Number of Companies
20
15 2004
2007
10
2009
5
0
United Europe / Middle Asia Canada South Africa Australia China
States UK East Pacific America & New
Zealand
Country of Origin
Geographical Distribution of Front Offices of Pakistan's IT Companies
Number of Companies with Front Offices
35
30
25
20
2004
15
10 2007
5 2009
0
United Europe / Middle Asia Canada South Africa Australia China Other
States UK East Pacific America & New
Zealand
Geographies
Figure 5.2: Geographical distribution of parent-subsidiary connections and front offices
With respect to the industry’s marketing focus i.e. having a [marketing] front office abroad, there seems
to be much greater geographical diversification. In particular, there is a stark trend away from the
United States and towards new and emerging markets. The companies with marketing presence in the
US is down from 30 of the 45 companies (66%) in 2005 to 28 out of 80 companies (36%) in 2007 to 15
out of 75 companies (20%) in the 2009. While European (mostly UK) and Middle Eastern front offices are
slightly down as well from 2007 to 2009, there is clearly a trend towards Africa, Asia Pacific, China, and
Australia.
Traditionally, these have not been major markets for Pakistan’s software / BPO industry and the trend
towards geographical diversification is a positive development. Part of what we are seeing here is the
effect of the global recession that impacted North America and Western Europe much more than it
24

26. impacted China and Asia Pacific. However, that is only part of the story. There is a definite move
towards new and emerging markets in Africa and Asia and greater alliances in the Middle East. Netsol –
one of the country’s largest software exporting companies boasts a major share of its relevant IT market
segment within China and is making inroads into the Middle East through strategic alliances. Techlogix –
another one of the industry’s well-respected companies is aggressively pursuing the Asia Pacific market
for products and services aimed at the higher education sector in partnership with Oracle. Several
financial products companies have found Africa as promising geographical market segment for their
products and services.
The final picture that emerges of Pakistan’s IT industry is one firmly grounded in the United States but is
going through geographical diversification in search for more promising and hospitable markets in the
new and emerging markets in Africa, the Middle East, and Asia.
5.1.2 – Employment in Pakistan’s Software / BPO industry
The following figure lays out the industry employment as gleaned from the survey of 75 software / BPO
companies. As with revenues and other statistics, there is a discontinuity that is commensurate with the
hit taken during the recession of 2007 and 2008. As with other indicators, today the industry is almost at
the same level as it was at its peak in FY 2006 just before the recession had begun to hit the industry.
Total Full Time Employment (FTE) in Pakistan's IT Industry
14000
Number of Professionals
12000
10000
8000
Total FTE
6000
4000
2000
0
2004 2005 2006 2007 2007 2008 2009 2010
Projected Actual Projected
Year
Figure 5.3: The recession and full-time employment in Pakistan’s IT companies
Today, the 75 companies surveyed employ around 7500 full time staff for an average firm size of
approximately 131 full time equivalents (FTEs). Apart form the overall employment, a number of
indicators of employment continue to improve over time. Employee attrition rates, for example,
decreased considerably with length of employment increasing from 2.62 years (2005) to 2.89 years
(2007) to 3.52 years (2009). The jump in employee retention is considerably higher in the recent years
(between 2007 and 2009) than the earlier period (between 2004 and 2007). This might partly be
attributable to the economic climate and lack of job security and alternative options for workers.
25

27. Total Full Time Employment (FTE) in Pakistan's IT Industry
12000
Number of Professionals
10000
8000
6000 Total FTE
4000
2000
0
2004 2005 2006 2007 2008 2009 (E) 2010 (P)
Year
Percentage Employment Growth in Pakistan's IT Industry
80
60
40
20 Employment
% Growth
Growth
0
2004-5 2005-6 2006-7 2007-8 2008-9 2009-10
-20
-40
-60
-80
Year
Figure 5.4: Full time employment and employment growth in Pakistan’s IT industry
There are still two conflicting ways to look at the issue of HR quality and availability. Interviews with
industry CEOs reveal a divided opinion. Some CEOs believe that the HR availability may not be an issue
anymore, especially in light of the strategies, coping mechanisms, and “workarounds” adopted by the
industry to deal with shortages. The overall HR pool, however, does not seem to have the depth
necessary to scale up at will, if needed. The highest shortage categories are project management, jobs
requiring high level of English language composition and comprehension, and specialist domain skills.
Another skill particularly lacking in the industry is the professional middle management skill that has
often been credited with difficulties in scaling of software businesses within the industry.
26

28. Average Proportion of FTE in Pakistan's IT Companies, By Type of Work
60.00
50.00
Average Proportion of Professionals
40.00
30.00 2004
2007
2009
20.00
10.00
0.00
Top Project Developers Business Client / Business Customer Others
Management Managers / Analysts Technical Development Service Agents
Leads Support
Type of Work
Figure 5.5: Full time employment by type of work performed
The quality of HR, however, remains a critical issue for most CEOs. Availability of quality HR remains one
of the most important policy and infrastructural bottlenecks identified by the CEOs. More than 30-50%
CEOs continue to identify HR availability and quality as critical issues hampering business growth.
5.1.3 – Product – service strategies
Pakistan’s software / BPO industry has its roots in the software services and body shopping movement
of the Y2K era and the business processing outsourcing bonanza that happened after the recession of
the year 2001. Many of these businesses, initially, lacked product-service focus as they sought to fill in
the needs of whatever work was on the offer. The product – service strategies of Pakistan’s software /
BPO companies have continued to evolve since those early days.
Over the years, there has been an increasing trend towards greater specialisation and refinement of the
product – services strategies across the industry. The figure below amply demonstrates this trend.
Companies were asked to describe their strategic focus as product, services, consulting, BPO, system
integration, or other company. They could nominate themselves in as many categories as they deemed
fit. A higher proportion of companies describing themselves against several of these categories is a sign
of lack of specialisation. The figure shows decline in each of these categories pointing towards a trend of
greater specialisation.
There has also been a steady growth in the number of companies claiming to be engaged in systems
integration, IT consulting, and embedded systems business. Although we do not have the benefit of
prior data on this, but more than 10% companies classified themselves as systems integrators in the
current survey. What is amply evident from the results, however, is the increasing precision with which
companies define their area of focus.
27

29. Product - Service Profile of Pakistan's IT Companies
80.00
Proportion of Companies
70.00
60.00
50.00
40.00
2004
30.00
2007
20.00
10.00 2009
0.00
Packaged IT Services IT Consulting Business Systems Other
Software Process Integration
Outsourcing
Product - Service Profile
Figure 5.6: Product-service profile of Pakistan’s IT companies
The figure below digs deeper into particular platforms and development approaches used by the
respondent companies.
Platform or Development Approaches of Pakistan's IT Companies
70.00
60.00
Proportion of Companies
50.00
40.00 Percentage of
30.00 Companies
20.00
10.00
0.00
Custom Own Proprietary Open Source Platform Other
development Proprietary Platform (e.g. Platform neutral
Platform SAP)
Platform or Development Approach
Figure 5.7: Platforms or development approaches of Pakistan’s IT companies
There are several things of interest here. Around 40% of the companies develop on top of their own
proprietary platforms but an increasing number of companies (about 25%) us well-established
established proprietary platforms (such as Microsoft, Oracle, or SAP etc.). This has been a major change
in the industry over the last few years as companies have move towards greater specialisation and
value-addition using established platforms and away from the tendency of “re-inventing the wheel”.
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30. There is also a growing move to use open source platforms with at least 50% of the companies doing
some work with OS.
5.1.4 – Sectoral Distribution
Pakistan’s software / BPO industry revenue continues to remain concentrated in a small number of high
growth sectors, namely, telecommunications and finance. These two sectors combined accounted for
three fourth of the total global revenue for Pakistan’s software / BPO industry. In 2006, for instance, the
top-5 industry sectors included finance (32%), telecommunications (18%), government (10%), energy
(4%) and education (4%). In 2008, on the other hand, telecommunications accounted for 57% of the
total global revenue figure and finance accounted for 18%. Other trends worthy of note are the
emergence of sectors such as retail (6%), computing and electronics (4%), and healthcare and life
sciences (4%) and decline in other sectors such as government (down to 3%). On the whole, though, the
industry growth is still highly lop-sided and is a source of some concern. Even within the two most
important sectors, but also beyond that, there is considerable variation in output and sales.
Sector-wise Breakdown of Total Global Revenues of Pakistan's IT Industry (2008)
1% 4%
4%
2% 18%
Financials
6%
Computing & Electronics
Education
4% Government
1% Telecommunications
3%
Retail
Manufacturing
Healthcare and Life Sciences
High Technology
Others
57%
Figure 5.8: Sectoral breakdown of total global revenues of Pakistan’s IT industry (2008)
Looking at domestic software / BPO revenue and spend and software / BPO exports separately, one can
begin to appreciate the competitive dynamics of these different industrial sectors and Pakistan’s
position within each of these.
The two figures below lay out the sectoral break-down of domestic IT revenue and spend and export
revenues of Pakistani software / BPO companies.
29

31. Sector-Wise Breakdown of Domestic Revenues of Pakistani IT Companies (FY-2008)
1%
1% 0%
1%
1% Financials
29% Computing & Electronics
Education
Government
Telecommunications
Retail
Utilities
3% Manufacturing
53%
4% Professional Services
Others
7%
Sector-Wise Breakdown of Export Revenues of Pakistani IT Companies (2008)
4%
2%1% 13%
5% Financials
2%
Computing & Electronics
4%
9% 1% Government
Telecommunications
Retail
c
Manufacturing
Healthcare and Life Sciences
High Technology
Hospitality
Others
59%
Figure 5.9: Sectoral breakdown of domestic and export revenues of Pakistan’s IT industry (2008)
While the financials sector played a much greater part (29%) in domestic demand for IT products and
services, it played a lesser role in country’s exports (13%). This is broadly in line with the effect of the
global recession that affected the financial sector the most, internationally, but did not affect the Banks
as much in the Pakistan. Over the last several years, most Banks in Pakistan have been going through a
cycle of IT investments that have carried through even during recessionary times. Telecommunications
play an equally strong role in domestic (53% of total revenue and spend) and export (59% of total export
earnings) markets.
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