• Monday, December 16, 2019

Pakistan Now A Hot Spot For It Outsourcing

Discussion in 'Pakistan Economy' started by Kaiser, Feb 24, 2006.

  1. Kaiser

    Kaiser FULL MEMBER

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    The biggest boost to Pakistan's efforts to break into the global IT marketplace came on September 28, when India's finance ministry announced an income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India. This tax proposal had been in the works since the beginning of the year and is expected to prompt U.S. firms to follow GE's lead in selling off assets in India.

    Why is Pakistan the hot new offshore information technology (IT) destination? This is because of a combination of favorable economic circumstances. Just when many Western managers are finally becoming comfortable with the idea of working closely with Indian IT firms, along comes Pakistan.

    Pakistan is shaking off decades of "also ran" status. Funds invested into building educational institutions in Pakistan (when there were not enough jobs to absorb all the graduates from those institutions) are paying off as Pakistan begins to field a modern, highly productive labor force that is the envy of more prosperous but less tech savvy nations elsewhere in the region.


    Why Care?
    Why should the average Western IT professional, businessperson or IT consumer care? Because we are all going to be buying and using more IT outputs from Pakistan. To be a smarter buyer and user of IT products calls for a familiarity with Pakistan, even for those who do not initially intend to do business with Pakistani firms. We are all part of a global economy and Pakistan is an increasingly important part of that global economy.

    The issues that Pakistan faces as it gears up for the global high-tech marketplace are many of the same issues that both advanced and developing economies face elsewhere in the world, as both service providers and service consumers. Pakistan is making no effort to gloss over its challenges, which makes those challenges easier to address.

    With a population of 160 million and a land area almost twice the size of California, Pakistan is a smaller and more unified country than most of its neighbors, which increases that nation's chances of solving its own problems and avoiding the mistakes that have plagued neighboring economies.

    India Helps Pakistan
    The biggest boost to Pakistan's efforts to break into the global IT marketplace came on September 28, when India's finance ministry announced an income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India. This tax proposal had been in the works since the beginning of the year and is expected to prompt U.S. firms to follow GE's lead in selling off assets in India.

    Any Western business manager who initiated or approved the establishment of an IT production or R&D subsidiary in India in 2004 could find that decision to be a career-ending move unless they have built in financial reserves to accommodate both the tax scheme of September 28 and upcoming taxes still on the drawing board.

    A proposal is under consideration in New Delhi to tax activities conducted over international private leased connections (IPLCs) that carry most of India's voice and data traffic to and from the outside world. There is also a proposal to replace state-to-state customs duties (octroi) with a national value added tax. Both those tax proposals could be combined into a single scheme.

    U.S. IT brokerage firms, their U.S. clients and domestic Indian IT operations will be largely untouched by the September 28 tax scheme. But the traditional offshore migration path of outsourcing to an offshore location first -- before setting up captive operations there -- has been disrupted in India until economic reforms reduce the role of the Indian government in the economy and consequently reduce that nation's revenue requirements.

    For Westerners with long-standing personal ties to India, that country's September 28 tax scheme could have both personal and financial consequences. For new Indian workers who hoped for a position with a Western firm based in India, that country's revenue policy will alter careers, lifestyles and futures. Westerners can pack up and look for other another country to set up operations. However, what country?

    Pakistan's Advantages
    Pakistan is the primary beneficiary of India's decision to tax foreign firms with captive IT operations in India. No other economy can match Pakistan's labor pool of educated English-speaking workers. No other economy can match Pakistan's scalability, reliability and low-cost environment.

    Pakistan offers five advantages over India:

    1. Western experience: Executives at IT firms in Pakistan often have worked and gone to school in the U.S., which is Pakistan's largest export market. Indian IT firms whose managers have worked in the West are generally more expensive than similarly positioned Indian firms, without always providing noticeable differences in program implementation capabilities. The willingness of Pakistanis to return home from the West stands in marked contrast to most Indians who arrive for school or work in the West and never look back.

    2. Professionalism and integrity: The personal integrity of Pakistani managers is easy to identify and appreciate, especially by Westerners with business experience elsewhere in the region. However, the relatively open and trusting nature of Pakistanis has made them easy prey for Indian business brokers who have managed to cheat several Pakistani IT firms by offering to provide them with outsourcing contracts in exchange for up-front fees. The Pakistanis assumed that these Indians were open minded and charitable for coming to help less experienced firms in Pakistan gain access to international contracts, until the Indians took their money and disappeared.

    3. Higher labor availability: Fewer holidays in Pakistan means less slippage in staff availability compared to India. IT firms in India are advised to hire a diverse workforce so that members of one community can enjoy important festivals while members of other communities cover the phones and keep production going.

    4. Good accents: Pakistan's official language is English. Only Kolkata (formerly Calcutta) and the Punjabi areas of India can come close to competing with accents in Pakistan, where many families speak English at home and where accent neutralization for non-native speakers of English is substantially easier than in India. Language skills and accents provide Pakistan with a major advantage over all other Asian outsourcing destinations.

    5. Low cost talent pool: India's top-tier labor force for IT work has been stretched thin in many areas, especially Bangalore, where escalating wage rates, turnover and higher outsourcing prices are reaching critical mass at the same time that the urban infrastructure has exceeded its carrying capacity. Annual turnover rates reported to InternationalStaff.net for most merchant call center facilities in India at the beginning of November are approaching 100 percent. High turnover rates are causing a shift to second tier Indian cities and to Kolkata. Escalating turnover rates are one of the Indian outsourcing industry's dirty secrets. In comparison, Pakistan's top-tier talent pool is largely untapped and turnover rates are less than 20 percent.

    Safety and Security
    Pakistan is not without challenges, some of which are real (improving the telecommunications infrastructure) and some are exaggerated, especially in terms of the security situation. Once you have lived through a few riots in India, once you have taught yourself how to quickly turn the lights out and lay down on the floor because you are afraid of what might come through the window, then Pakistan doesn't seem so scary anymore.

    The biggest danger that Westerners face in South Asia is from automobile accidents, particularly at night. India has over 8 times the number of highway fatalities per passenger mile than the U.S.

    If you go looking for trouble, you will find it, whether in the back alleys of Karachi or the parking lots of many suburban U.S. shopping malls. Americans who have worked in both Karachi and Mumbai report that there is no discernable difference in the safety and security situation in both cities. The lack of reporting in the U.S. media on the occurrence of violent disturbances and general strikes in India, versus the close coverage often afforded to Pakistan, has created the illusion that Pakistani cities are somehow more dangerous than cities elsewhere in the region, especially for Americans.

    The U.S. Department of State does not maintain accurate statistics on economically or personally motivated attacks against their own personnel in foreign countries. Nor does it collect accurate information on crimes committed against U.S. nationals in foreign countries. This leads U.S. citizens to avoid safe areas (for example, Islamabad) and to incur excessive risks in areas where Americans are routinely victimized (for example, Mexico City).

    The U.S. government is not doing a good job at providing assistance for Americans who have been assaulted, robbed or otherwise victimized in foreign countries. If it did, there would likely be some accounting of those efforts, accounting that would demonstrate that Pakistan's major cities have been and continue to be a generally safe place for U.S. businesspeople and their families.

    Shared Roles
    Pakistan and the U.S. have similar roles when it comes to human rights. Both countries are a beacon of safety and a haven for refugees. The government of Pakistan has not been advertising this fact. The people who have fled to Pakistan from surrounding countries in the region have, on a one-to-one personal basis. They are Pakistan's best ambassadors.

    Before making up your mind about Pakistan, talk to people who have left there or have passed through there. Their origins might be different but their stories are often tragically similar. Too often, it seems as if they are all reading from the same script: family members (or themselves) in neighboring countries who have been victimized, jailed, possibly tortured, relatives killed, and all survivors traumatized and dispossessed. Pakistan welcomes them and serves as a place of safety and security.

    From Iran, Afghanistan, India and elsewhere they come, seeking the same things that immigrants to the U.S. have always sought: opportunity, liberty, freedom of religion and respect for personal beliefs.

    Americans naturally identify with the underdogs, the runners up, the people who are trying harder than anyone else to succeed. This is why many Americans find it easy to identify with Pakistanis.

    It is not necessary for Americans to take sides in disputes between India and Pakistan. Taking sides is not required. Long-term peaceful solutions are required.

    Increased trade and joint projects between Pakistan and India will pull those two countries together and create incentives for peace. American firms doing business in one or both countries can contribute to peace through responsible business practices and the moderating effects that employment and prosperity provide. This can and should be accomplished when American firms are allowed to operate on an equal footing with local firms, which for now only appears possible in Pakistan.

    Pakistan is currently looking into a 5-10 Billion FDI in the IT sector for the next 8 years in which these number could easily double, these do not include the Billions that will flow in from the goverment and buisness investments. Pakistan is also expecting to get a FDI of 3-5 Billion in the Telecommunication sector. All these major boosts will easily make Pakistan a world hot spot capable of passing the Philipines and tacklings India's IT tiger with large force
     
  2. Sid

    Sid SENIOR MEMBER

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    Old news. Already heavily discussed on other Pakistan forums. Anyways, still way behind India, more needs to be done.
     
  3. toton

    toton FULL MEMBER

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    Hi,
    Keeping in mind the recent Mariott Hotel Blast at Islamabad, Pakistan can no longer be considered a safe heaven for investing and specially in IT. The series of bomb blasts, fighting at Waziristan province and other internal strifes are causing serious damages to Pakistan's image worldwide. For IT industry to prosper, Pakistan need to have a conducive atmosphere instead of the tense situation currently prevailing there.I think, itz high time that these Zardaris,Sharifs pull up their socks and start doing something for Pakistan instead of speech delivery. You need to deliver software projects in order to place pakistan at least somewhere in the IT world. Yes,India has got a headstart ahead of Pakistan in IT, but the gap has widened as the years have passed by.Now India and China are in the same league when talked about software and hardware with Pakistan being a mere spectator to all he developments happening in these two countries.China is now collaborating with India regarding software trainings and many indian IT majors have set up bases in China.So Pakistan need to come out of this political turmoil ASAP and start restructuring its IT setup at the earliest because my friend " TIME IS RUNNING OUT"

    Signing off-

    Toton
     
  4. Goodperson

    Goodperson SENIOR MEMBER

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    Even I was unaware of this.
     
  5. Contrarian

    Contrarian ELITE MEMBER

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    Lol. Absolutely crap article!
     
  6. Contrarian

    Contrarian ELITE MEMBER

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    I think it was withdrawn later and the tax break extended for a few more years...
     
  7. Cheetah786

    Cheetah786 PDF VETERAN

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    Funny calling it crap yet at the same time admitting the article is true buy admitting India withdrew tax for few more years.(unless India will never tax them they will flee as soon as tax is added)

    Don't no how to break it to you pal but even Indian owned IT companies have moved operations out of India when Indian started demanding higher wages.so if u think that these so called multinationals will stick around cause you said so.....stay of the wacky tobacy

    Got news for you they only moved to India cause they didn't wanted to pay higher wages in west not cause INDIA offered any thing different that they couldn't get in west.

    As far as IT companies or any other companies investing in Pakistan is concerned not going to happen.we can pretend nothing is wrong in Pakistan but investors don't pretend when they investing.
     
  8. Zaheerkhan

    Zaheerkhan FULL MEMBER

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    God...if I ony knew the source of all your knowledge!!!:lol:

    People shifting away from India because indians demand higher wages???:lol:
     
  9. Goodperson

    Goodperson SENIOR MEMBER

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    Believe or not its true to certain extent.
     
  10. Contrarian

    Contrarian ELITE MEMBER

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    Yes, the article is crap, it uses some facts to paint its own picture which is false.

    The tax benefits were given back in lieu of the crunch the IT companies were facing because of the huge market recession in IT, and the extreme drop in demand from their primary customer-the US. It was not to retain the competitive edge-it was a breather in view of the market conditions.

    Allow me to tell you 'pal' that these companies are going to tier 2 and 3 cities instead of tier 1 cities to cut costs and then even apart from that the current recession in IT has put a big stop on the rising wages of the IT engineers.

    Like is said, wages are frozen, and salaries would start declining again soon.
    Indian IT companies are investing abroad and opening IT centers in western countries-does that mean that they dont care about wages there? By your logic, they should have gone to phillipines than US/Europe.

    Pakistan may or may not become an IT hub, but it wont become one for the reasons stated in the article.
     
  11. Contrarian

    Contrarian ELITE MEMBER

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    My previous post Goodperson, these companies arent leaving in a hurry. And the market recession has put a full stop on the rising wages, if it continues for a while, the salaries will start to drop again.
     
  12. SmashJ

    SmashJ BANNED

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    kaiser, the salaries have risen but that is because the complexity of work that is being handled has changed. when the outsourcing boom started, the work that was sent to india was very simple e.g. processing email, customer service, indexing etc. But now it has changed to very complex level for e.g. processing claims(legal), processing gas and electricity connections (utilities), financial collections etc.

    Additionally, when you say that "income tax of more than 36 percent on foreign firms with software, R&D and customer service operations in India.".... please understand that the impact will be limited only to captive BPOs and this will NOT impact the third party BPOs. Third party BPOs are Indian companies which have contractually agreed to work for forgien companies. They form the bulk of outsourcing units in india.
     
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  13. Zaheerkhan

    Zaheerkhan FULL MEMBER

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    The reason why ppl come here to do business here is the skill of the Indian IT workforce and R&D...Look at the Indian auto industry..every major car maker in the world has a R&D in India and is exporting cars from India to around the world....Boeing is in talks to open a major R&D in India...India already has an acclaimed space technology....almost all major softwares, from mobile phone software to airplane softwares have an Indian connection coupled with a boom in computer hardware manifacturing.....wages are no hurdle, they are paying for the services from the person.
     
  14. Goodperson

    Goodperson SENIOR MEMBER

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    Yes but nature of work is changing, work which is sensitive to wages may shift.
    Bigger companies have faith in India thats why so many R&D centers are opened in India as pointed by SmashJ.
     
  15. Contrarian

    Contrarian ELITE MEMBER

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    Yeah, but like i said GP, the current recession in the IT market in India has frozen wage increments, and if it continues, then you will actually see wages declining. Its kind of good for the industry in the long run.