Pakistan's offshore IT potential held back by political risks

Computerworld -

In the competitive world of offshore outsourcing, Pakistan doesn't get much attention. The main reasons can be found in any quick scan of news headlines about that country: terrorism and political instability, including two unsuccessful efforts to assassinate President Pervez Musharraf.

Nonetheless, Pakistan has a developing offshore IT services industry. And in many areas of the country, it's business as usual.

Indeed, in March, Chicago-based consulting firm A.T. Kearney Inc. for the first time added Pakistan to a list of 50 countries that it evaluates for their offshore services market potential. A.T. Kearney's Global Services Location Index weighs more than 40 metrics, such as a country's labor pool, infrastructure and legal system.

Johan Gott, an analyst at A.T. Kearney, said Pakistan was added to the list of evaluated countries in order to stay ahead of interest from the consulting firm's clients. Although it's doubtful that large companies will build offshore development centers in Pakistan, Gott said the country does have potential -- particularly with smaller companies seeking outsourced IT services. "In many respects, it's similar to India in terms of education and people skills," he added.

A.T. Kearney isn't the only market watcher that thinks offshore development may pick up in Pakistan. In a report last year, New York-based Lehman Brothers Holdings Inc. said Pakistan's IT industry was growing at a high rate, with more than 330 companies having registered with the country's software export board.

According to Lehman Brothers, Pakistan's advantages include relatively low wages -- amounting to as little as half the level of salaries in India -- as well as reasonable real estate costs, plentiful government incentives and a readily available supply of workers.

One of the largest IT services firms with operations in Pakistan is Calabasas, Calif.-based NetSol Technologies Inc. NetSol, which is listed on the Nasdaq Stock Market, has offices in countries such as the U.K., China and Australia. But the company was founded in Pakistan in the mid-1990s, and it has about 600 engineers in that country working on projects for global clients in industries such as automotive and financial services.

NetSol is still tiny compared with the behemoths of the offshore industry in India. However, CEO Najeeb Ghauri said he started NetSol with the hope of leveraging India's offshore success in Pakistan. He added that the Pakistani government has been trying to encourage development of an offshore services market through incentives such as a tax holiday on all IT imports and exports.

The U.S. is Pakistan's largest trading partner, and Ghauri said the country's economy is doing well. "Anytime anybody goes to Pakistan, they always come back bullish," he said.