PAKISTAN'S software industry, facing hard times for some years, is seeking a stimulus package from the government to offset the adverse impact of the global financial crisis on its growth.

Chairman of the task force on information and communication technologies has asked Islamabad to accelerate the pace of its public sector automation project so that Pakistani IT companies, 1,300 in all, could get contracts.

In the outsourced business awarded by western firms, Pakistan's share has been insignificant. This is so because in the competitive world of offshore outsourcing, the country doesn't get much attention.

One outcome of the financial crisis is that the United States and Europe are no more offering as much outsourcing business to developing countries including India as they used to do in the pre-crisis period.

On Janary 16, just days before his inauguration, President Obama had told workers in Ohio, “We're not looking to create just any kind of jobs here; we're looking to create good jobs that pay well and can't be shipped overseas.” Average salary of a software developer in the US is $75,000 and $8,000 in India.

But it is not the recession in the West which has really affected our IT industry's export business nor it is the poor professional competence. The major reason is the country's image of a lawless and failing state because of frequent terrorist incidents across the country, absence of security, kidnapping of executives, suicide bombings, rampant corruption in government departments, judiciary and police, and above all, unending political instability which is discouraging flow of outsource business. As such, no foreign executive is willing to travel to Pakistan to discuss business propositions and sign a contract.

However, it does not mean that all is not well with Pakistan's IT industry. In many areas, it's business as usual. The country does boast of a developing offshore IT services industry. The industry claims it has realising its potential and has put infrastructure in place to have more and more human resource in the years to come. The number of IT professionals employed in 2007 was 110,000 and their number is on the increase.

Had the country not been a hub of terrorism, it could have clinched a bigger pie of outsourced business because India has already become an unpopular destination for American business not because of a decline in competence - it remains the best in the world - but owing to factors like being more expensive. Americans who once relied on outside firms to handle certain IT tasks to cut costs are cutting down outsourcing plans for they find them too expensive.

India has, therefore, been particularly hard hit since about 60 per cent of its outsourcing contracts come from US companies, many of which are in bad shape. First, it was the global credit crisis that erupted in September last year. Then, in November it was Mumbai terror attack that made US companies rethink about India's long-term security as an outsourcing destination. And on top of that, the financial scandal in Satyam, India's fourth-largest outsourcing provider, caused a severe setback. It raised doubts about the country's ability to have enough regulatory oversight of the outsourcing providers.

Another setback comes from curbs placed on grant of H-1B visas of which Indian IT services companies have been major beneficiaries by sending engineers to the US. Now as part of President Obama's economic stimulus package, Congress has barred any US company that receives bailout dollars from directly hiring workers on these visas.

A new study from KPMG, the leading audit and advisory firm, has identified 31 cities that could challenge established providers in India and China. Forget Chennai and Bangalore, it advises its clients, the outsourcing hubs of tomorrow will be in Belfast and Brisbane. The new cities are located in countries ranging from Australia and Ireland to areas in South America and Africa.

Belfast makes the grade for its strong schools and universities, high number of IT graduates and cheap operating costs, while Brisbane has a large talent pool, a multilingual workforce and employee costs that are 10 to 15 per cent cheaper than other Australian cities. Size is not a deciding factor as is evident from inclusion of a small city like Port Louis in Mauritius with a population of just 130,000 in the KPMG list. No Pakistani city could make it to the list.

But despite such forecasts, the Indian outsourcing market is still growing. What has happened is that the pace of expansion has dropped. After expanding by 35 per cent in 2007, it slowed to about 15 per cent growth in 2008. During the second half of 2008 the number of mega-deals (worth more than $1 billion) dropped to only three, worth a total of $6.5 billion, in contrast to 12 mega-deals, worth more than $17 billion, in the first half of 2008.

In September, India was still a seller's market, according to Forrester Research. But now it is a buyer's market where customers have much more power to negotiate better rates and better service terms. Some of the Fortune 50 companies with a revenue of $10 billion-plus are asking Indians to bring their rates down 10 to 15 per cent. US corporations will move at least 140,000 jobs offshore in 2009 and 2010, and more than 50 per cent of those jobs will be in IT.

Pakistan offers various competitive advantages over other outsourcing destinations, such as high quality software development, swift and easy establishment of business, lowest cost basis and emerging and state-of-the-art telecommunication and IT infrastructure. Experts estimate an average annual growth of 33 per cent in the sector. This will result in the total IT export revenue crossing $10 billion in the next few years.

The State Bank of Pakistan in its statement for the year 2006-07 reports the export figures of software and IT-enabled services to be $116 million which shows a consistent annual growth. It adopted BPM 5 Reporting system to report the IT exports revenue, which restricted the export figures to $116 million only in 2006-07.

In India, the Reserve Bank of India follows the BPM 6 (also called MSITS) Reporting System, which raises its exports to billions of dollars. BPM 6 includes sales to multinationals, earning of overseas offices and salaries of non-immigrant overseas workers to export revenue. Using the MSITS Reporting System, Pakistan's IT Industry exports are estimated at $1.4billion while the industry size is estimated at $2.8 billion. Pakistan's IT exports growth in each of the last few years has been more than 50 per cent.

A Chicago-based consulting firm A.T. Kearney Inc. has for the first time added Pakistan to a list of 50 countries that it evaluates for their offshore services market potential. Although it is doubtful that large companies will build offshore development centres in Pakistan, the firm says the country does have potential - particularly with smaller companies seeking outsourced IT services and that in many respects, it is similar to India in terms of education and skills.

In a recent report, Lehman Brothers said Pakistan's IT industry was growing at a high rate and that its advantages include relatively low wages, amounting to as little as half the level of salaries in India and a readily available supply of workers.