Economies have always been international. Offshore business processes outsourcing is not a new phenomenon. In our part of world outsourcing has been a prominent feature since at least the 18th century, when the British began to explore the subcontinent for riches and power. Only the information technology boom has changed practices, as well as types and directions of economic flows.
One of the most important issues in developing countries rich in human resources, like Pakistan, is to understand outsourcing. Developed countries are outsourcing to lower costs and to free scarce resources back home for high value-added work, and work concentrating on core competencies. At our end of the equation, outsourcing is important in order to boost the economy, reduce unemployment, and develop the local IT services industry.
Both sides can benefit.
AT Kearney’s 2009 Global Services Location Index rated Pakistan as the 20th most attractive outsourcing destination in 2009. Outsourcing companies in Pakistan were admired extensively for the quality of work they produced and for their technological edge. Despite the magnitude and intensity of regional and global challenges, industry insiders and investors alike continued to predict positive trends for growth possibilities. But that was not to happen.
In May this year, the Global Services Location Index released its latest findings with Pakistan dropping down eight positions, as compared to the 2009 ranking as a preferred outsourcing destination whereas Asia as a region was ranked number one, with India, China and Malaysia sitting at the top three positions.
A number of factors are contributing to this slowdown. Firstly, there are the affects of the global financial crisis. More established outsourcing destinations such as India, China and Bangladesh have battled better than Pakistan in coping with domestic spillover of the crisis. They have become more viable to corporations looking to outsource, whereas inflationary trends in Pakistan’s economy have increased the cost of doing business, as have rising energy tariffs.
Poor employee retention rates, high attrition rates and its implications, skill shortages and performance management issues are some other factors causing slow down of Pakistan outsourcing industry. Political instability and energy crises also hurt this process. On top of all this, the 2010 floods raised serious concerns about vulnerability of telecom infrastructure after the disruption of a Long Haul optical cable in Khyber Pakhtunkhuwa in.
What is more, the workforce in USA and Europe has started seeing offshore outsourcing differently: they complain that jobs meant for them are moved outside their countries, for cost savings, to the extent that they have started influencing policy makers to check this practice. Their worries were confirmed by the US Bureau of Labor Statistics, which stated that in March alone, 212,000 US computer and engineering professionals were unemployed. Still
Pakistan can be an important destination for outsourcing. The country has a good base of IT professionals and friendly government policies and laws. The effect of Pakistan’s increase in its budget for IT in previous years has already started showing results. An employable workforce with good command of the English language is available at a very competitive cost. Pakistani universities and IT institutions, in both public and private sectors, have international standard curricula and are turning out tens of thousands of graduates each year who are adept at trying their hands on anything from software development to running call centers.
The IT market has also matured, as local companies have been doing contract work for clients in developed countries for over a decade. Clearly, Pakistan needs to catch and then hold the attention of big IT players. For that, we have to have a constant supply of skilled IT workers to meet demand when it comes our way. Policymakers have to ensure that sufficient planning is done to create the human/intellectual capital. The government should reshuffle its priorities in collaboration with the private sector, which needs to develop more effective and viable business models that fit customers’ needs and the international operating environment. The government also needs to focus on providing greater incentives to create a competitive environment to support the industry. This done, it will be difficult for anyone to ignore Pakistani talent that is largely untapped.
The writer is Deputy Controller of Examination at Lahore School of Economics and blogs at http://logicisvariable.blogspot.com. He can be reached at sajshirazi@gmail.com