Software Development in Pakistan: What Do Statistics Tell Us?
Software Development in Pakistan: What Do Statistics Tell Us?
By: Athar Osama
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 (e.g. a supply of English-speaking, technically trained, and cheap manpower, a favorable public policy and infrastructure environment, and a government willing to help private interests etc.)—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 (defined as having around $25 Million in export earnings, tens of software companies, and upto 5 years of industry maturity) in a widely quoted taxonomy of software exporting nations. It is widely believed, in both government policy and entrepreneurial circles, 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 (defined at $200 Million or more in software revenues) like Russia and China, or even a tier-1 status (defined at more than $ 1 Billion in export earnings) alongside archrival India. Whether or not the Pakistani software industry is able to capture its “due” share and make a mark on the major software markets of the world remains to be seen.
While 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, 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. In the absence of relevant data to back these assertions or visible success stories of appropriate stature, these strategic conversations revolve around many tough questions about the current state and future prospects of the industry. 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)?
Answering these questions require insights and understanding of the local software scene. In October of 2004, Pakistan Software Export Board (PSEB)--an entity charged to promote the local software industry--funded a 3-month long preliminary research study aimed at developing these insights and understanding of the local software scene. While 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.), the study adopted an inside-out approach that asked: “What can the various players, essentially software companies, in the industry learn from each other?”
The benefits of the above study, we believed, would be two fold. The primary motivation for undertaking this study is that of within industry learning. To that effect, this study aimed at developing a comprehensive snapshot of software development activity in Pakistan and catalyze a learning process for the software entrepreneurs, executives, financiers, managers, and professionals. The secondary motivation for undertaking this study is to promote and facilitate investment in the local industry. In that context, the study results would be of value to investors and financiers, local and foreign, as well as those on the sidelines, contemplating starting a software venture and looking for a good sense of what they can learn from the collective experiences of tens of successful and not-so-successful entrepreneurs.
The study was concluded in December of 2004 and briefed to industry leaders through a series of consultative meetings in January 2005. It was formally published and launched by Pakistan Software Export Board (PSEB) on April 26, 2005. The detailed report and related material may be found at the study website (http://paksoftwarestudy.vttp.org) and the study blog (http://Pakistan-Inc.blogspot.com). This is a two-part article series that draws upon the results of the PSEB study to create a picture of the Pakistani Software Industry. In this first of the series of articles, we would look at the statistical snapshot of software development activity in Pakistan. In the second article of the two, to be published next week, we would attempt to develop a qualitative snapshot of the Pakistani Software Industry.
The study draws upon an “on-the-spot” survey of around 40 of the most prominent and largest software companies in Pakistan (60 in all), as identified by PSEB and P@SHA. To ensure homogeniety of results, the sample focused on "pure" software development activity and purposefully excluded BPO and IT-enabled services (ITES). We conducted organizational interviews with senior executives (CEOs/CTOs or Local of Heads of Operations) 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. The results of the statistical analysis are quite illuminating.
Pakistan’s software industry is still going through early-stage growth with only few large players, but it is growing at a fairly decent rate. 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.
A Large number of companies are formed as subsidiaries of foreign companies and many local operations seek to develop front-offices abroad. Around 40% of the companies in our sample are 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). There are, however, differences in propensities to seek such arrangements by type of offering (product-service) and target market (exports-domestic) of software companies.
The industry’s market-offering mix is skewed towards export-services and domestic-products, primarily to the private sector. Public-sector or government sales represent small fraction of the total market. Broadly speaking, the sixty companies in our sample derive their revenues from export and domestic markets in a ratio of 60:40. On the exports side, they earn 37% of their revenue from products and 63% from services (22.5% and 38.5% respectively, of the overall revenue). On the domestic side, however, the ratios are somewhat reversed with products and services contributing 58 and 42% respectively (23% and 16.5% of the total). These ratios are further skewed if we looked at specializations of firms. For example, clearly-domestic-focused firms would derive, on average, 68% of their revenues from domestic operations and clearly-export-focused firms may derive, on average, 85-98% of their revenues from export of software. Again, the pattern is skewed towards services for export-revenues and products for domestic-sales. Our conversations with the top leaders of the industry suggest that majority of the product revenues are from customized rather than "shrink-wrapped" products. As much as 85% of the software sales are to private sector and only 15% to the public-sector or government.
There are few clear-cut differentiating patterns in managerial practices of exports- and domestic-focused software operations. There is some suggestive evidence, however, 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. Exports-, hybrid, or domestic-focused software operations are equally likely to have a dedicated quality assurance team. The former, however, spend a much higher percentage of their expenditure on quality assurance function (17% of the employee payroll as against 12% for the other two categories) but are much less likely to seek a quality certification. Only 50% of export-focused software operations have an ISO/CMM certification while 72% of the hybrids have it. The corresponding figure for domestic-focused operations is 36%. The trend probably points towards the privileged business relationships of export-focused operations that do not require a quality certification. Data on cost-structures of export, hybrid, and domestic-focused firms also confirms these findings. Hybrids, on the other hand, tend to operate in a much more competitive environment and hence feel a greater need to signal quality through a certification. Hybrids also display a greater propensity to use standard software engineering methodologies (e.g. waterfall, iterative, prototyping) as against export-focused operations that tend to use more esoteric (“homegrown”) and non-standard approaches that fit best with their clients’ processes.
Companies, across the board, focus on high-contact strategies to seek customers. That “selling software is a highly contact intensive sport” is evident from data on use and perception of successfulness of marketing approaches. All types of organizations identify high-contact methods like 1-to-1 contacts, network and relationships, and word-of-mouth referrals as the most successful (all rated > 3.5 on a scale of 5, on average) of the marketing approaches and low-contact ones like advertising and going to conferences and exhibitions as least successful (rated <2.5 on a scale of 5, on average) of the approaches. The use of alliances and agreements with channel partners seem to fall in between these two extremes—with the important caveat that these don’t seem to work as well for domestic-focused operations as they do for hybrids and export-focused ones. Consequently, in line with the perceptions of successfulness, companies seem to have focused their energies on approaches that appear to work best.
Additionally, the data on cost-structures (i.e. % of total expenditure spent on various heads) of software operations seem to suggest that export-focused companies engage more in “relationship-selling” rather than direct marketing & advertising, while hybrids under-invest in product-development, perhaps, to pay for costlier marketing/advertising and training and certifications. Also export-CEOs operate in a relatively tactical profile—focusing more on day-to-day management and less on product and strategic planning & marketing/advertising.
Classifying the data in other ways (e.g. development center-type operations vs. the rest, products vs. services focus, small vs. large, pre-DotCom vs. post-DotCom etc.) suggest 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 can be explained as manifestation of their “mid-life” crisis and/or the recession in the markets of the respective parents. Although there is a trend towards productization in the industry, there are 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 software operations created before and after the DotCom Bubble burst, over and above those that can attributed to relatively younger profile of the latter.
Do aggregate statistics reveal a pattern of “best practices” within the Pakistani 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 falling within the top-quartile, globally) and found 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 were, however, inconclusive, at best. Here, we did 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.
On the whole these findings paint a picture of lack of real focus and specialization within the Pakistani software industry. That product-focused operations are similar to services-focused operations and pre-DotCom operations are not qualitatively very different from post-DotCom operations does not speak well for the maturity of the industry as a whole. The second finding is especially disturbing in the sense that the DotCom Bubble burst in the United States is widely seen as a watershed event in the relatively short history of the country’s software industry and is widely perceived to have brought clarity of thought and business focus to the industry’s entrepreneurs. An alternate, and perhaps the right, way to look at this seemingly discouraging finding is that the more dominant of the effects of the DotCom Bubble burst has been the influencing of the business models of the already established firms. For example, there is a clear trend among export-focused software operations towards diversifying their bets by establishing a significant local presence too.
One can also observe a trend towards the “hybridization” of software development activity in the country and the emergence of some managerial best practices. 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 in tough economic times, it is not quite clear if it is the optimal model of organization of software development activity in the long run. Another important organizational observation pertains to the average size of the firm. Scalability has often been cited as a major managerial issue confronting Pakistan’s software industry. It is often believed that the industry, as a whole, suffers from a 200-people barrier. We found that to be true, figuratively if not literally. One positive finding is the adoption of employee-friendly policies and profit-sharing among the relatively more successful companies. The study results seem to suggest that, contrary to the general perception, such employee friendly policies seem to pay off the form of better performance in the long-run. Their importance is also paramount in software industry in particular because of the highly creatively and eccentric workforce that it tends to employ.
Finally, while the software industry has managed to grow at a decent 37% over the last year, the results vary considerably across sub-sectors. To a large extent, domain and domain expertise has emerged as a key determinant of firm success. In the domestic market, for instance, software firms developing products for financial and more recently the telecommunications sub-sector have done much better while those dealing with ERP and industrial automation systems have done much worse than the average. This essentially drives home the fact that the fate of the software industry, in general, and the domestic software industry, in particular, remain largely linked with the growth in relevant sectors of the economy. That software industry in and of itself cannot generate growth in stagnant industrial and economic environment is an important insight for policy makers as well as aspiring entrepreneurs. The situation is only slightly different for the export markets where customers are increasingly demanding a prior track record, domain expertise, and experience in handling large projects as a pre-condition for lucrative foreign contracts thus pushing the industry into a chicken and egg problem. Software companies founded by expatriates, although better prepared to meet the above challenge, have failed to grow beyond a certain size due to multiple reasons, not the least important of which is the depressed demand for software in the US market.
In short, while the industry has had its fair share of challenges and problems, it seems to be on a fast learning curve, has done much better than before, and is expecting even better performance next year. Next week, we would look at the qualitative findings of the study attempt to identify the key strategic challenges faced by the industry.
Athar Osama, the author of the PSEB Study, is a Science and Technology Policy Analyst based in Santa Monica, California. He maybe contacted for comments and queries at Athar.Osama@gmail.com
By: Athar Osama
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 (e.g. a supply of English-speaking, technically trained, and cheap manpower, a favorable public policy and infrastructure environment, and a government willing to help private interests etc.)—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 (defined as having around $25 Million in export earnings, tens of software companies, and upto 5 years of industry maturity) in a widely quoted taxonomy of software exporting nations. It is widely believed, in both government policy and entrepreneurial circles, 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 (defined at $200 Million or more in software revenues) like Russia and China, or even a tier-1 status (defined at more than $ 1 Billion in export earnings) alongside archrival India. Whether or not the Pakistani software industry is able to capture its “due” share and make a mark on the major software markets of the world remains to be seen.
While 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, 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. In the absence of relevant data to back these assertions or visible success stories of appropriate stature, these strategic conversations revolve around many tough questions about the current state and future prospects of the industry. 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)?
Answering these questions require insights and understanding of the local software scene. In October of 2004, Pakistan Software Export Board (PSEB)--an entity charged to promote the local software industry--funded a 3-month long preliminary research study aimed at developing these insights and understanding of the local software scene. While 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.), the study adopted an inside-out approach that asked: “What can the various players, essentially software companies, in the industry learn from each other?”
The benefits of the above study, we believed, would be two fold. The primary motivation for undertaking this study is that of within industry learning. To that effect, this study aimed at developing a comprehensive snapshot of software development activity in Pakistan and catalyze a learning process for the software entrepreneurs, executives, financiers, managers, and professionals. The secondary motivation for undertaking this study is to promote and facilitate investment in the local industry. In that context, the study results would be of value to investors and financiers, local and foreign, as well as those on the sidelines, contemplating starting a software venture and looking for a good sense of what they can learn from the collective experiences of tens of successful and not-so-successful entrepreneurs.
The study was concluded in December of 2004 and briefed to industry leaders through a series of consultative meetings in January 2005. It was formally published and launched by Pakistan Software Export Board (PSEB) on April 26, 2005. The detailed report and related material may be found at the study website (http://paksoftwarestudy.vttp.org) and the study blog (http://Pakistan-Inc.blogspot.com). This is a two-part article series that draws upon the results of the PSEB study to create a picture of the Pakistani Software Industry. In this first of the series of articles, we would look at the statistical snapshot of software development activity in Pakistan. In the second article of the two, to be published next week, we would attempt to develop a qualitative snapshot of the Pakistani Software Industry.
The study draws upon an “on-the-spot” survey of around 40 of the most prominent and largest software companies in Pakistan (60 in all), as identified by PSEB and P@SHA. To ensure homogeniety of results, the sample focused on "pure" software development activity and purposefully excluded BPO and IT-enabled services (ITES). We conducted organizational interviews with senior executives (CEOs/CTOs or Local of Heads of Operations) 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. The results of the statistical analysis are quite illuminating.
Pakistan’s software industry is still going through early-stage growth with only few large players, but it is growing at a fairly decent rate. 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.
A Large number of companies are formed as subsidiaries of foreign companies and many local operations seek to develop front-offices abroad. Around 40% of the companies in our sample are 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). There are, however, differences in propensities to seek such arrangements by type of offering (product-service) and target market (exports-domestic) of software companies.
The industry’s market-offering mix is skewed towards export-services and domestic-products, primarily to the private sector. Public-sector or government sales represent small fraction of the total market. Broadly speaking, the sixty companies in our sample derive their revenues from export and domestic markets in a ratio of 60:40. On the exports side, they earn 37% of their revenue from products and 63% from services (22.5% and 38.5% respectively, of the overall revenue). On the domestic side, however, the ratios are somewhat reversed with products and services contributing 58 and 42% respectively (23% and 16.5% of the total). These ratios are further skewed if we looked at specializations of firms. For example, clearly-domestic-focused firms would derive, on average, 68% of their revenues from domestic operations and clearly-export-focused firms may derive, on average, 85-98% of their revenues from export of software. Again, the pattern is skewed towards services for export-revenues and products for domestic-sales. Our conversations with the top leaders of the industry suggest that majority of the product revenues are from customized rather than "shrink-wrapped" products. As much as 85% of the software sales are to private sector and only 15% to the public-sector or government.
There are few clear-cut differentiating patterns in managerial practices of exports- and domestic-focused software operations. There is some suggestive evidence, however, 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. Exports-, hybrid, or domestic-focused software operations are equally likely to have a dedicated quality assurance team. The former, however, spend a much higher percentage of their expenditure on quality assurance function (17% of the employee payroll as against 12% for the other two categories) but are much less likely to seek a quality certification. Only 50% of export-focused software operations have an ISO/CMM certification while 72% of the hybrids have it. The corresponding figure for domestic-focused operations is 36%. The trend probably points towards the privileged business relationships of export-focused operations that do not require a quality certification. Data on cost-structures of export, hybrid, and domestic-focused firms also confirms these findings. Hybrids, on the other hand, tend to operate in a much more competitive environment and hence feel a greater need to signal quality through a certification. Hybrids also display a greater propensity to use standard software engineering methodologies (e.g. waterfall, iterative, prototyping) as against export-focused operations that tend to use more esoteric (“homegrown”) and non-standard approaches that fit best with their clients’ processes.
Companies, across the board, focus on high-contact strategies to seek customers. That “selling software is a highly contact intensive sport” is evident from data on use and perception of successfulness of marketing approaches. All types of organizations identify high-contact methods like 1-to-1 contacts, network and relationships, and word-of-mouth referrals as the most successful (all rated > 3.5 on a scale of 5, on average) of the marketing approaches and low-contact ones like advertising and going to conferences and exhibitions as least successful (rated <2.5 on a scale of 5, on average) of the approaches. The use of alliances and agreements with channel partners seem to fall in between these two extremes—with the important caveat that these don’t seem to work as well for domestic-focused operations as they do for hybrids and export-focused ones. Consequently, in line with the perceptions of successfulness, companies seem to have focused their energies on approaches that appear to work best.
Additionally, the data on cost-structures (i.e. % of total expenditure spent on various heads) of software operations seem to suggest that export-focused companies engage more in “relationship-selling” rather than direct marketing & advertising, while hybrids under-invest in product-development, perhaps, to pay for costlier marketing/advertising and training and certifications. Also export-CEOs operate in a relatively tactical profile—focusing more on day-to-day management and less on product and strategic planning & marketing/advertising.
Classifying the data in other ways (e.g. development center-type operations vs. the rest, products vs. services focus, small vs. large, pre-DotCom vs. post-DotCom etc.) suggest 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 can be explained as manifestation of their “mid-life” crisis and/or the recession in the markets of the respective parents. Although there is a trend towards productization in the industry, there are 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 software operations created before and after the DotCom Bubble burst, over and above those that can attributed to relatively younger profile of the latter.
Do aggregate statistics reveal a pattern of “best practices” within the Pakistani 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 falling within the top-quartile, globally) and found 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 were, however, inconclusive, at best. Here, we did 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.
On the whole these findings paint a picture of lack of real focus and specialization within the Pakistani software industry. That product-focused operations are similar to services-focused operations and pre-DotCom operations are not qualitatively very different from post-DotCom operations does not speak well for the maturity of the industry as a whole. The second finding is especially disturbing in the sense that the DotCom Bubble burst in the United States is widely seen as a watershed event in the relatively short history of the country’s software industry and is widely perceived to have brought clarity of thought and business focus to the industry’s entrepreneurs. An alternate, and perhaps the right, way to look at this seemingly discouraging finding is that the more dominant of the effects of the DotCom Bubble burst has been the influencing of the business models of the already established firms. For example, there is a clear trend among export-focused software operations towards diversifying their bets by establishing a significant local presence too.
One can also observe a trend towards the “hybridization” of software development activity in the country and the emergence of some managerial best practices. 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 in tough economic times, it is not quite clear if it is the optimal model of organization of software development activity in the long run. Another important organizational observation pertains to the average size of the firm. Scalability has often been cited as a major managerial issue confronting Pakistan’s software industry. It is often believed that the industry, as a whole, suffers from a 200-people barrier. We found that to be true, figuratively if not literally. One positive finding is the adoption of employee-friendly policies and profit-sharing among the relatively more successful companies. The study results seem to suggest that, contrary to the general perception, such employee friendly policies seem to pay off the form of better performance in the long-run. Their importance is also paramount in software industry in particular because of the highly creatively and eccentric workforce that it tends to employ.
Finally, while the software industry has managed to grow at a decent 37% over the last year, the results vary considerably across sub-sectors. To a large extent, domain and domain expertise has emerged as a key determinant of firm success. In the domestic market, for instance, software firms developing products for financial and more recently the telecommunications sub-sector have done much better while those dealing with ERP and industrial automation systems have done much worse than the average. This essentially drives home the fact that the fate of the software industry, in general, and the domestic software industry, in particular, remain largely linked with the growth in relevant sectors of the economy. That software industry in and of itself cannot generate growth in stagnant industrial and economic environment is an important insight for policy makers as well as aspiring entrepreneurs. The situation is only slightly different for the export markets where customers are increasingly demanding a prior track record, domain expertise, and experience in handling large projects as a pre-condition for lucrative foreign contracts thus pushing the industry into a chicken and egg problem. Software companies founded by expatriates, although better prepared to meet the above challenge, have failed to grow beyond a certain size due to multiple reasons, not the least important of which is the depressed demand for software in the US market.
In short, while the industry has had its fair share of challenges and problems, it seems to be on a fast learning curve, has done much better than before, and is expecting even better performance next year. Next week, we would look at the qualitative findings of the study attempt to identify the key strategic challenges faced by the industry.
Athar Osama, the author of the PSEB Study, is a Science and Technology Policy Analyst based in Santa Monica, California. He maybe contacted for comments and queries at Athar.Osama@gmail.com
posted by Athar Osama at
7:10 PM
0 Comments:
Post a Comment
<< Home