Diaspora Entrepreneurship Leads to "Win-Win" Scenarios

Diaspora Entrepreneurship Leads to "Win-Win" Scenarios
By: Athar Osama
Published in eCommerce Times, Monday, June 6, 2005
At: http://www.ecommercetimes.com/story/Mei8JtAAVDL0mR/Diaspora-Entrepreneurship-Leads-to-Win-Win-Scenarios.xhtml

One of the most interesting, though predictable, empirical regularities in the new software exporting nations' (e.g. India, Pakistan etc.) quest for prominence is the importance of diaspora entrepreneurship. The stories of the instrumental role played by successful non-resident Indians (NRIs) in the relatively short history of the Indian software and ITeS industry is well documented in literature. Tale has it that Vinod Khosla--a former co-founder of SUN Microsystems and one of the leading venture capitalists in the Valley--and an Indian American by background spent a lot of time travelling back and forth between United States and India in the early 1990s to jumpstart what we now term as the IT revolution in India. Vinod Khosla and his likes made possible the enormous creation of wealth in both India and the United States by doing what they did.

The Importance of the Diaspora Factor

A recent study by Pakistan Software Export Board (http://paksoftwarestudy.vttp.org) clearly establishes the important role of expatriate entrepreneurship in the development of the software industry in Pakistan, in particular, and developing countries, in general. It elevates the involvement of diaspora in the conception and execution of a business idea to one of the defining characteristics of a set of generic software business models that in turn derive the strategic landscape and competitive drivers of a new venture.

Much more than any other factor, the study suggests, it does matter whether the founder or the founding team of the company is based in Pakistan or the target market (e.g. United States) on what sort of challenges it faces and whether it can successfully execute upon the idea. The study found a clear positive correlation between ventures that had "foreign-based" founders (generally, expatriate Pakistanis) and their success and growth over the last year. The study surveyed and interviewed CEOs/Directors of around 60 software companies in Pakistan and finds corroborating qualitative evidence to support the above statistical finding.

What is it about diaspora/expatriate entrepreneurship that makes it work the way it does? The study provides several clues on that question.

Benefits of the Expatriate Entrepreneur

Firstly, an expatriate-connection helps ease the challenges of understanding and targeting a foreign market. For companies attempting to compete in the innovation-intensive US/European markets, it is important to understand the customers' context and continue to innovate at the cutting edge. An expatriate founder (or founding team) already residing in the target market is in a much better position to get those innovative insights than one residing 10,000 miles away. Not that the latter has not been attempted but, statistically speaking, it has a much lesser chance of success. The reason being that many in the developing countries do not even have the right kinds of life-experiences to allow them "dream" innovative ideas and applications for their ideas.

Secondly, an expatriate-connection helps bridge the cultural differences between the customer and the marketeer to a level that considerably eases the selling process. A founder who has never stepped onto the United States or Europe is at a great disadvantage against one who has a cultural understanding, pre-established networks and connections here. Even minor things--such as starting a conversation, addressing a person, understanding cultural jokes and appropriately responding to them etc.-- that create a cozyness in a business conversation don't come so easily to those who haven't had a cultural experience of living in ones market.

Thirdly, an expatriate founder (or founding team) generally brings much more than just cultural awareness, connections, and new ideas to the table. S(he) is often an invaluable source for capital and the much needed due-diligence for an idea. Expatriate founders are generally better off (financially) than a wholly domestic founding team and bring capital (either their own savings or from angel and venture networks abroad) to the table. This can be the much needed lifeblood for the venture in a developing country environment with ill-developed (venture) capital markets. Along with this capital also comes the due-diligence of the owners of the capital, namely, the US angels and venture investors, as has been the case with the numerous diaspora-owned ventures that have been created, over the last few years.

Win-Win Scenarios for All Involved

The result of the confluence of the these factors is a much better chance of success for the proposed venture and a "win-win" scenario for all involved. One can cite several instances where diaspora-led entrepreneurship has led to outcomes that have not only created valuable jobs and employment in the developing country but also tremendously benefitted the end-consumer in the developed country.

One example is Etilize Inc.--a Southern California based provider of electronic cataloging systems--that operates a 200+ person facility in Karachi, Pakistan. Not very unlike other ventures, Etilize was first conceived for a different purpose but, over time, evolved into a provider of electronic catalogues and knowledge databases with clients like Amazon.com, Best Buys, Walmart, OfficeMax, and other major US retailers. What is relevant here is that during its re-incarnation post-dotcom bubble-burst, Etilize realized that it could not raise enough capital to execute a labor-intensive data-base development operation in the United States, thus forcing it to look offshore for support. It was thus an idea that could not have happened without an offshoring component attached to it thus depriving the US consumer of the very important--now a part of our every day life--feature of having to search online for the latest digital camera or a rare piece of electronic equipment in several ways before ordering it from the comfort of his/her home.

Etilize now plans to move into intelligent catalogues that would make it even easier to search what consumers are looking for based on their pre-disclosed preferences and purchases. It is precisely these kinds of labor intensive ventures that wouldn't have been possible without an offshore element of the strategy that create a win-win situation for both the developed and the developing countries involved. The expatriate founders, like Hameed and Baig of Etilize Inc., are the real heroes who make it happen for all of us.

Two Models of Expatriate Involvement

There are signs that diaspora entrepreneurship of the kind described above might be growing with time, albiet in different shapes and forms. One model of disapora entrepreneurship is the "straddling expatriate" who lives in the United States or Europe (the developed "market") but operates a company whose development hub is in a developing country ( e.g. Pakistan). The Resource Group (TRG) that is often cited in the business literature provides call-center services to tens of its clients in the US through its thousand-odd agents in Karachi, Lahore, and Islamabad, Pakistan. Zia Chishti, the founder and the brains behind this innovative call-centers business model, is a Pakistani-American expatriate who straddles the two worlds and makes all this possible through his deep understanding of and connections in both Pakistan and the United States.

The second model of diaspora entrepreneurship is the "returning expatriate" who, after spending several years abroad, has now returned back to his native country--atleast partially, if not fully--and now by helping develop a foundation for innovation and employment in his native country is helping create a more globalized world order. One example of such a venture is Systems Integration, Innovation and Intelligence (SI3) in Karachi that is founded by Amer Hashmi--an ex-IBM Global Services executive last year. In an interview in Karachi, Amer highlighted the "domestic-first, export-later" policy of SI3. During the post-dotcom years, Amer came across the vast opportunity that exists for system integration services in Pakistan and moved back to capitalize on it.

"All Pakistani software houses that I looked at during my pre-assessment phase were doing low-end software development or BPO type work. None was looking at the real opportunity which was system integration and high-end services. Pakistani companies ( e.g. in financial and telecom sectors) are going through a major renewal and modernization at the front end but they are still working with obsolete legacy systems at the back-end that do not provide the opportunity for customer innovation that they would need to compete in the post-WTO order. I positioned SI3 to help them modernize their IT and Data management systems.", explains Amer. If SI3 and their likes were to succeed, it would contribute in putting Pakistan on a path to greater economic competitiveness. When that happens, we would have created a more equitable, just, and secure world than todays.

Its a Matter of Timing too

In many ways, countries and markets undergo stages of development before they are ripe for major investment and reach the kind of inflexion points that, many believe, Pakistan is seeing now. There is a sense of urgency in these expatriates' ambitions never seen before in the history of Pakistan. "None of this would have been possible 10 years ago--but now it is here and happening", says Dr. Aamir Matin, the Managing Director of Pakistan Software Export Board (PSEB).

As demonstrated in the examples of India and Pakistan, diapora-driven entrepreneurship represents a safe way to enter a new market like Pakistan or some of the other countries of the South East Asia, South Asia, Eastern Europe and Middle East. It minimizes risks for foreign companies seeking to operate and, when it succeeds, provides a win-win scenrio for all parties involved and the rest of the world.


Athar Osama is a Doctoral Fellow at the Fredrick S. Pardee RAND Graduate School of Policy Studies in Santa Monica, California. His research and consulting focusses on Technology and Innovation Management Issues. He maybe reached at athar.osama@gmail.com

Fighting an "Image" Problem, IT Industry Arises in Pakistan

Fighting an "Image" Problem, IT Industry Arises in Pakistan
By: Athar Osama

Edited version Published in TechNewsWorld.com on May 17, 2005
(http://technewsworld.com/story/XQP0gK0pkEemEp/Fighting-Image-Problem-An-IT-Industry-Rises-in-Pakistan.xhtml )

Nadeem Malik, the CTO of Pakistan's oldest software company narrates an interesting story about his company, Systems Pvt. Ltd--a software development and system integration company formed in 1976. The tale has it that Steve Ballmer, Microsoft's current President and CEO, was once visiting Lahore, Pakistan in late 1970s to attend a wedding of one of his room-mates, a Pakistani fellow, at Stanford University. The gentleman happened to know Nadeem and his associates who had just opened shop in Lahore by the name of Systems Ltd and asked Ballmer to visit them while he was in Lahore. Ballmer--who, along with Bill Gates, had just opened a small software company in the United States--visited Systems' offices in the Chambers of Commerce building in Lahore and was pleasantly surprised. He also suggested some possibilities of "doing something together".

Microsoft Corporation was, back then, a promising yet small venture hoping to make it big someday, and Ballmer, in all fairness, probably thought that they could use the help of these cool guys in Lahore to get there. " Of course, we thought otherwise", reflects Malik, "we were Pakistan's first and largest software company at that time. We thought it a little strange to partner with a small relatively unknown entity (back then) called Microsoft. It turned out to be the single largest mistake that we ever made in our entire careers". Not that one can fault Nadeem or Systems Ltd. for not foreseeing Microsoft's enviable rise as a software behemoth and hence foresee the value of the partnership at that time, the anecdote illustrates the fact that Pakistan's IT entrepreneurs were way ahead of those from other countries in thinking about the opportunity in IT and setting up companies to capitalize on it as back as in 1976 but also that they missed the boat on a number of occasions very early on in the process.

The Industry on the rise, despite handicaps and missed opportunities

The country, and its software industry, has come a long way since that day a couple of decades back. A recently conducted study of software development activity in Pakistan paints a promising picture of the future of software development in Pakistan, provided the industry leaders, entrepreneurs, and policymakers continue to work together, as they have in the last decade or so, and build upon the foundation for future growth that is now there. Pakistan is increasingly becoming a part of the global software development activity and even moving up the value chain.

According to the results of this study--that looked at over 50 of Pakistan's leading software development operations--over 40% of the companies are foreign subsidiaries of foreign companies, around 55% have front offices abroad--primarily in the United States but also increasingly in the UK/EU and the Middle East. While the average size of these companies and the entire industry is small, there are obvious signs that it is growing through a new wave of ex-patriot led company formation activity.

Despite the industry's impressive performance in the recent years, two factors have been major "bottlenecks" to the continued expansion and growth of the industry. The first of these is its rather late arrival on the world's software map. In Pakistan, as elsewhere, IT and software was, for a long time, a career option for those who could not make it to the more "lucrative" university programs--Electrical Engineering, Medicine, Business, and Acccountancy etc. It wasn't a coincidence, then, that the country's most creative and brainy people chose other career options. It was not until the mid 1990s that software became a craze and a favored career for bright young Pakistanis.

By that time, however, the Millennium Bug contracts had already been made and the DotCom/Internet bubble was about to burst. While Pakistan prepared itself for the challenge--its archrival India took it head on and reaped the rewards. The next few years had been a painful learning experience for the industry as well as its leaders--and there are signs that, as the world's software markets come out of the recession, this learning may be on the verge of paying off. Last year alone, as per the survey, the industry's employment grew at a rate of around 27% while the revenues were up 37%. The industry executives believe that 2005 would probably be even better than the last.

When "Image becomes the reality"...

The second major bottleneck for Pakistan's software industry is none other than the country's "image" problem. The industry agrees. According to the above-cited study, "image" was named the single most important hindrance in the expansion/growth by as many as 70% of the companies surveyed. There are atleast two dimensions to the problem. The first dimension is political/geo-strategic. After the Sept. 11, 2001 attacks on the United States and the ensuing hostilities in Afghanistan--one of Pakistan's western neighbors--compounded with some tension on its border with India around 2002, the country has been widely perceived as a riskier place to do business in. The US State Department has also been quick at slapping a travel advisory against US Citizens visiting Pakistan. The software business, as a result, has suffered hugely. The second dimension of the "image" problem is purely commercial in nature, namely, Pakistan's software industry (unlike India's) has not been able to "brand" itself as a natural destination for the world's wealthy corporations to get their outsourcing needs met. These problems are, however, to a large extent "chicken-and-egg" problems and the industry is gradually learning to get around these.

Pakistan, more than any other country in the world, is a prime example of where the "image becomes the reality". It sometimes does not matter who you are, but rather how the world sees (or perceives) you to be, goes a common saying. This has been one of Pakistan's major problems as far as "marketing" itself and attracting investment is concerned. The software industry is only gradually learning to deal with it, Individually and in remarkably creative ways. And in the process effectively linking itself to the global software value chain.

... Small is beautiful, and sometimes very effective

Salim Ghauri, the CEO of Netsol, one of the largest software companies in Pakistan--specializing in financial-leasing software and IT management consulting areas--that has a parent operation based in Calabasus, California and is also listed on NASDAQ agrees with the notion that sometimes image can become a reality but contends that one can counter that by actually convincing ones customers to experience the reality themselves. "We have never had a customer who has come to Lahore (Pakistan) and has not given business to us. Although it might take us a while to convince our foreign collaborators/customers who are skeptical of the law-and-order and security situation in Pakistan and misperceive it to be an under-development and tribal country, once we get over that initial bottleneck— sometimes through gradual persuasion and other times assurances of security etc.— and get him/her to land in Lahore, we've almost always won the deal. I once took a potential customer, first to Mumbai and then brought him to Lahore. The contrast between the squalor and lack of infrastructure of Mumbai and the orderly and classy infrastructure of Lahore couldn't have been more pronounced. Needless to say that his/her fears and perceptions were based more on hearsay and less on reality. That one trip to Lahore did the trick for us in winning over his business."

Khalid Razzaque, the CEO of Genesis Solutions, a company specializing in software and hardware of ATM machines, encrypted communication systems, and information kiosks etc. couldn't agree more. "I once had a customer who was visiting India and I convinced him to pay a visit to Karachi (Pakistan) on his way back to the UK. He was a little skeptical at first but my persuasion skills prevailed in the end and he ended up landing at Karachi. When we met him at the airport, he was wearing a pair of shorts and a t-shirt, and here we were, receiving him in business suits and luxury cars. As we escorted him to our campus and brought him to a meeting in a conference room full of company leaders and well-wishers, he became visibly uncomfortable. It was much later that he confessed to me that he had a very different picture of what Pakistan was like, and that it turned to be much more advanced, from an infrastructure standpoint than even his earlier stop, India, came as a pleasant surprise to him." Stories like these are not uncommon in the local Industry--and while the mention of India as a rival is rather ironic--they and are increasingly becoming a norm for the industry bent up shattering its long-persisting negative image in the western world.

A Supportive Government joins the Fray

Even the government is joining the ranks in this regard. In addition to helping create a favorable policy environment and continually slashing telecom bandwidth prices, the government of Pakistan recently co-sponsored "Expo Pakistan", one of the largest "show and tell" events to market Pakistan to its potential clients in a whole variety of industries--software being one of them. Special arrangements were made, through the Ministries of Foreign Affairs, Commerce, Industry, and IT and Telecom, to invite western CEOs, business leaders, investors, opinion-makers, and journalists as state-guests to attend the conference and the exhibition and to meet local businessmen with common interests.

"We are ready", says Shahid Tarrar, the Commercial Councellor at the Consulate General of Pakistan in Los Angeles, "to take American business leaders to Pakistan and help them see for themselves the 'real' face of Pakistan and the opportunity it represents--a face that is very different from the one often potrayed in US media" . Tarrar intends to execute upon his plan by taking upto ten US businessmen and investors to Pakistan shortly and, by doing so, hopes to nullify the ill-effects of the country's misperceived negative image and level the playing field for Pakistan's software industry.

Americans who make it to Pakistan find an altogether different world than the one they had expected, as Anthony Mitchell--a regular columnist for eCommerce Times and InternationalStaff.net--found out this February. When it comes to Pakistan, the "image" belies the reality and seeing is believing. From the shadows of a misplaced image has thus emerged an innovative strategy that seems to do the trick for Pakistan's IT entrepreneurs. This might just be the right kind of "break" the country's software industry needs from its rather lackluster past. Pakistan is fast becoming a happening place for IT.


Athar Osama is a Technology Policy Analyst and a Doctoral Fellow at Fredrick S. Pardee-RAND Graduate School for Public Policy in Santa Monica, California. He also consults on issues of technology management and strategy and maybe reached for comments at Athar.Osama@gmail.com.