Software companies finding better, cheaper employees outside of Pakistan

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Companies in Pakistan as well as India are facing rapid shortages of adequate low-cost workers (or I should say optimal-cost workers).

Here is the basic set of competitive pressures faced by outsourcing centers (which a lot of you will be aware of):

1- Competition is driving down price-points.
The average rate charged by Pakistani companies for outsourced work for export varies from US $15 – $30/billed hour depending on how “specialized” the work is considered. This rate works in competition with Indian firms, who offer much higher quality and professionalism at about $45+.

However, with more and more options increasing for sourcing adequate software development work, including Vietnam, Bulgaria, Mexico and others that are cheaper, and also sites such as oDesk that provide reasonable quality, these price points will continue to lower unless companies choose the specialize.

2- Low-levels of professionalism and effective middle-management, high cost of business means high overheads.
The numbers are staggering actually. Rent in Islamabad is now 2nd highest in the world after Dubai — higher than London and L.A. Utilities and adequate backups require more operational expense.

On top of that, very high employee turnover rates in the industry in general (resulting chiefly from a VERY poor understanding of contracts by employees in this country) means much more added overhead in hiring and training replacements.

Finally, for calculation of cost / billed-hour you have to consider the quality of the resources in general as well. In Pakistan you typically have to have two managers for each individual person on your front-line, “guiding and teaching” that person on how to get the work done.

By the numbers, this means that if you hire someone with a salary of U.S. $4 / hour (Rs.40k) your overheads to keep that person working in your office will be about $18-20.

This the total cost of resources varies here between $15 – $24. Depending on the prices charged, then, the total margin is $4-6 / billed hour.

3- With a shortage of “good quality” employees, the salaries of the limited amount of good people is increasing
With more companies competing to get the few people in the industry who are actually worth the buck, salaries are rising rapidly.

This is thus shrinking that margin even further.

So what are companies doing about this?
The most obvious thing to do is reduce overheads — but conducting a thorough analysis of operational overheads and implementing an improvement process is large investment project, and could take more than 3 quarters to gain momentum.

The easier solution, then, is to move operations somewhere else that is cheaper.

Techlogix has been expanding its operations in China simply because they are unable to find the right people in Pakistan.

Si3 was rumored to be moving into the smaller cities in Pakistan (Multan or somewhere).

Even the giants like Tata Consulting are facing problems maintaining their margins with rising salaries — they are now setting up centers in Mexico!

Smaller companies are choosing to work with people from Vietnam or Venezuela — but not just because of cost but more importantly quality of work. One person said that you have to look outside of Pakistani resources “If you want to get some serious work done”.

This is perhaps the start of a “self-correction” phase for the industry – when industry professionals can no longer justify the salaries as a portion of the quality of their work, more and more Pakistani IT jobs will move out of the country to cheaper places until either (1) The salaries rebound and stabilize at a lower rate or (2) the quality of people increases enough to justify themselves.

My hope and bet is with quality increasing — but this is not a problem for universities alone to solve. The professionals entering the industry also have have a desire to improve themselves.

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46 Comments

  • The second point is the most important that is “Low-levels of professionalism and effective middle-management”
    With the very professional and sharp people at the middle management companies can train seemingly ordinary young people into the star performers.

    Here people expect that every one should be independent and willing to learn on his/her own which is not true in every case, sometimes people just need the little guidance to uncover their hidden talents.

    So all the faults lies with the companies if they complain that they could not find enough good resources. There are absolutely no retention policy in the companies to retain their brightest people who will train the juniors thus adding the benefits multi folds.

    just my 2 cents.

  • As far I have seen the obvious reason for it is how software professionals are being treated by their employers. We all know that after 4 years degree, one cant live on peanuts or its equivalent. As you can see even on avg for 15$/hour, the developer is being paid only a portion of that amount and the rest goes into employer ‘s pocket. Furthermore software jobs here in Pakistan are very insecure and low respected as compared to other professions. You have to daily report about your 8 hours spending, unpaid leaves, no good bonuses/health packages etc. So why the hell is one supposed to go for a job at most 30k-40k and in which with passage of time you will get more devalued in contrast to other professions.

  • Khan, maybe you didn’t read the article correctly so I encourage you to do so.

    On $3-4 / hour as a salary, you have to add $18 of overhead because the employees are rarely competent enough to do their jobs effectively without requiring layers of management to “guide them”.

    That’s $20-23 / hour as COST — which is NOT “going into employer’s pockets”.

    You should also think that there are also people around you in your own company who are getting paid Rs 100 – 200k, and in some companies Rs.400k – 800k for non-executive work (middle-management work) simply because they are true-to-bone professionals.

    They do not say things like “Why the hell”, and they understand the costing structures which leads to that.

    The bottom line is that $4-5 / hour has to “go into your employers pocket” (margin) from you (which is incidentally only about 30-40k).

    DEPENDING ON HOW GOOD YOU ARE, you can either cause overheads of $20 / hour or overheads of $10/ hour for your employers. Based on that, your salary could even increase to $12/ hour if you’re minimizing the overheads of keeping you in the office.

    My advice (although blunt) is to read through everything we’ve been saying since Sept 2006, and get over your own perceptions of how companies are probably doing what they’re doing, and become a true-to-heart professional who understands how business works and how you fit in.

    The bottom line fact is, all employees here expect “a company with seniors who can guide me so I can learn” and “salary of more than 20k” and that’s just a major contradiction that everyone needs to get over.

  • Osama lets make it clear this way, “Technology is dominated by two kinds of people, those who manage what they don’t understand and those who understand what they don’t manage”. I think its the only case for overheads here in Pakistan, because in most of the organizations over here, all those managing have very little development experience. I have worked in 3 software houses and completed projects without any supervision ( so there was no overhead factor) but all I got was 3 thousand inc. in one after probation, second had promised me 3 months review but in the 6 month there were no signs. Also mind you that, most of the manag. here doesn’t know or is not interested in to know that “I am all open source player only” so don’t get me into M$ project, no they want you to code in C++, C#, Java, php, VB. You can see the funny job requirements in local job portals. Again its my third job without any training or supervision, I have to setup all servers( mysql, subversion, trac etc), train others and no overhead but even then have not reached the 3k mark. Thats why I call it what the hell, how much more PROFESSIONALISM they want me to show.An by the way I have never seen or heard of anyone yet hitting even 100k, may be except those who have mastered fake British or American accent, not a real Engineer at least.

  • We have to train our ppl , both developer and managers to do things well, traning about any thing lacking in company. HR person should not only hire ppl but focus should be on the grooming of resource as well. Unless you dont tell ppl what are the right ways to do things
    , its wrong to expect from them.
    I agree with Khan, here a source with multiple skills is preffered over some one who is skilled in particulary one technology [jack of all master of none].

  • Nausheen: We provide training courses on Professionalism, softskills, and communication.

    Here is what the crux of the problem is: companies for the most part (with good exceptions) are not looking to sign up people just for a general course on “professional workplace behavior”.

    They will happily invest in “Communications with Customers”, “negotiations”, technical trainings, but workplace etiquettes are things that many employers will (rightfully) expect from incoming candidates.

    The question is: will students be willing to put down some money to take a course for Rs.6-7k which will give them a HUGE edge in their work by teaching them those things?

    I dont know — maybe you can tell me?

    The third area in which we’re highlighting and slowly teaching these things is here in Green & White — but the reaction for the most part here has been “oh, nice blog” rather than looking at it as the democratic even-playing-field way of discussing industry challenges and learning how to succeed — that G&W can be.

    We’ll continue to write here — but we need you guys to go out and spread the world — drag people over to the PC and make them start reading and LEARNING. That’s when we start to make change happen.

  • Khan, let me clarify few things over here. There are still a lot of adds asking knowledge of C_++/Java/PhP and every thing they can think of mentioned their and plus they put in managerial skill :) but following this industry for past 5-6 years i have seen thert ratio getting less to specialized jobs. Now you can see they mention .Net technologies when asking for a senior engineer or J2EE(Not simple Java) so things are changing. Industry is a lot mature then it was in early years. Now the major investors (Seth) of our industry have shifted their focus to property and shares leaving this Software Industry alone which is a good thing now most people heading these efforts (Read i did not say all) are technical people coming back from abroad or managing from abroad. they know the industry they don’t count the number of hours as equal to line of code you write. they value creativity and initiatives.
    About the pays let me assure if you are able to find some one with 8-10 year experience(you will be able to find few i know) and still in Pakistan he will be hovering near 100k. the growth is there if you wait. I know people graduated from local universities and working in the local industry touching those 100k mark without ever having to go out of the country for a foreign degree or experience.
    So hang in their. there is a severe shortage of skilled software engineers in the industry if you are good you will get your worth sooner or later.

  • @ Naushee,
    I don’t see it coming, cuz I myself have been deceived 3 times by HR and management. They only exploit you and don’t care if quit or stay. Yeah may be when they need you again will offer 60k, cuz now they realized that your achievements were excellent and someone else tried but couldn’t do it.

    @Qazi,
    I agree on the point that now there is demand for a bit more specialized jobs, but believe me even those jobs are not paying you what you deserve. Few weeks ago I saw add related to Ruby on Rails job and was too excited that finally we here are moving to latest tools in time and was ready to apply, but again why the hell , sorry am desperate :( , I will go for that job at my present salary. Believe me as far I am concerned, you cant imagine how much enthusiastic I am about this field and will continue so for my love of it. But as for living, I am doing job to prepare myself for Google only not to wait 8 years in Pakistan. If thats not happening , spend 8 years in a more rewarding job. And I further agree, that I.T skills will be more short in coming years, as can be seen from the much less amount of students taking computer science degree and those who already got like us switching it, but again who to blame for it?

  • @Osama

    I wish higher management learn what you ASSUME about them.

  • Assume? Pretty much everything I’ve written here is based on my experience as a consultant here working with top-tier leadership — for the most part higher-tier management does understand how to do project costing for international projects.

    There are exceptions in the local market because a lot of clients will just not pay that kind of money, and because outsourcing to another Pakistani company will still be more expensive than hiring resources in-house.

    Ammar: what’s your observations been about upper management (learnt directly from the horses’ mouths, not from speculation as employees).

  • @khan
    well problem is this no one really takes responsibility of doing things right. Employees never take interest in management stuff, seeing what issues they are having. employee devotion to work is most important. I agree with qazi sb. that if one is worth eough, 100K is nothing you get other facilities as well, I know ppl who have started at very low in their career and now they are earning 100k+. so IMO, its all about ones attitude. We as a nation as very lazy and lack commitment in our selves. If we(Employees) will only be looking how large check we gettting, we will never grow as profesionals, first show your worth to company than demand some thing in return.

    @Osama
    Talking about student taking courses to enhance their skills , C@se(Center for Advance Studies in Engineering) is perfect example, where you can see large range of engineers comming from various industries and getting to know managerial aspects of their jobs, they are learning professional ethics. We should be optimist about things. Hope fully you might see difference soon.

  • @khan
    well problem is this no one really takes responsibility of doing things right. Employees never take interest in management stuff, seeing what issues they are having. employee devotion to work is most important. I agree with qazi sb. that if one is worth eough, 100K is nothing you get other facilities as well, I know ppl who have started at very low in their career and now they are earning 100k+. so IMO, its all about ones attitude. We as a nation as very lazy and lack commitment in our selves. If we(Employees) will only be looking how large check we gettting, we will never grow as profesionals, first show your worth to company than demand some thing in return.

    @Osama
    Talking about student taking courses to enhance their skills, C@se is perfect example, where you can see large range of engineers comming and getting to know managerial aspects of their jobs, they are learning professional ethics. We should be optimist about things. Hope fully you might see difference soon.

  • Muhammad Asif Razzaque

    Everyone wants a bigger car 😉

    My take is that software companies that have hi-tec off-shore projects are better companies (perhaps a benchmark) in terms of exposure, reward and retention policies. Taking my bros examplewho happens to be an Electronics Engineer with sub-specialization in computer systems; he started with a US stocks listed company operating from Islamabad, this was some 5 years back in 2002. Starting at 20K he had reached 35K under two years as a Design Engineer & TL. Right now he is at the USC doing his masters leading to Phd. I expect that by the time he returns he can very well be afforded at a package of 150K-200K or more if he decides to gain some work experience and then return.

    Another recent case infront is a relative of mine, a FAST grad, working for a locally incorporated large outfit with lot of offshore projects and local project activities. With an experience of not more than 2 years he has reached 43K from 18K within the quality department. Unfortunately the reason for this leap has been a retention effort to stop the spill of employees to the competitors. Where this shows a realization on part of the employers it also reveals weakness in the succession planning and pro-active retention practices.

  • Muhammad Asif Razzaque

    Well about the locally incorporated companies, I have mostly observed, closely and factually, that rewards and retention have no clearly defined or SERIOUSLY practiced policies. The reasons range from preferential treatment for favorites to project limited vision (dukaan wali approach). I would however categorize these outcomes against the following core reasons:

    1.Business Model: Weaknesses in system design, targeted business (mostly follow the crowd).

    2.Product Design: Weak or no product differentiation, weak understanding of client/industry needs.

    3. Road Map: Literally no road map for the business and products for growth in a competitive reference.

    4. R&D: Absence of R&D from almost all setups.

    5. Marketing & Demos: Never heard of demos from most of the local companies. They have presumed that they have the right product for everyone and anyone.

    The outcomes are that a few favorite or dependable employees are loaded (burnt, depreciated) with most of the workload or project mgmt. This creates a big gap between the ladder from junior to middle mgmt positions. What ends up happening is that when a middle manager leaves for a better job (due to similar reasons elsewhere :-)) the owners get someone take a leap from the lower end of the void to the vacant middle mgmt position with a fat increment. This effects professional commitment of the team, hurts their morale, distorts and unrealistically increases pay raise expectations, disturbs financial mgmt., challenges continuity in both the momentum and quality of products.

    The need is to have strong regulatory and business model support and back stopping from the association of the industry and the regulatory govt. bodies to help prevent such corps from turning into corpse! The industry needs to share and learn a lot. This is a mis-fortune with most of the Pakistani economy; we just do not share and learn and avoid making the same old thrashed tested and tried repeat result yielding exercises that are called mistakes blunder and crashes.

  • @Osama

    Well here are my own personal observations and experiences.

    If the top management of the company (CEO/CTO) have experiences in US market they turn out be excellent professionals, one really learns a lot from them.

    But if they stay in US branch themselves, the management they put in charge from local industry of the office in Pakistan really sucks big time.

  • Ammar: Very true. That’s why I started consulting after coming back with US experience :)

    So next time you face any problem, you can push your employers to get Operations Management consulting from me.

    Then we’ll all be happy :)

    (Yes and this was a shameful self-promotion blurb, so there.)

  • I am sorry Osama, but it looks like you have practically no experience of the industry. I run a software firm and we have an office in Frankfurt and a development office in Lahore. We have over 30 people in our Lahore office, soon to grow to over 50 in the coming quarter.

    Now rates: average pakistani firm does NOT charge 15-20 $/hr. The firms that charge this are the ones who have a presence in the US etc. Otherwise companies charge less than $10/hr.

    Cost of living – from where did you get this statistic. Rents in islamabad are second highest to dubai? Well it’s about total cost of living, please see the detailed statistics here: http://www.finfacts.ie/costofliving.htm, even Dubai is far below in the list.

    Turnover – turn over isn’t as much as you think it is. I run a company I know!

    2 managers for every individual? My GAWD! what are you talking about dude. If i have 30 developers, does that mean i have 60 managers? All organizations work in a pyramid form, and no you dont have two managers for one front line person.

    Local salaries – no you don’t pay 40k to everyone. The average salaries start from 20k on reasonable firms. With higher firms paying upto 30k starting salaries. But on average it’s 20k. Then 40k for team leads and 60k for project managers. Of course this depends on the company. PSEB recently published a paper on this, please see PSEB site.

    PLEASE quote your references before posting such a post. I recently read your article on LUMS – i can tell you for sure (and i know atleast 10 CEOs in Lahore from companies like NetSol, Techlogix, Xavor, Naseeb, etc.) and no one is banning LUMS. It’s actually frustrating to read such ignorant pieces.

  • Ali, I’m afraid I dont understand your comments. Are your sources for refuting these facts things you’ve heard?

    Look — I will try and be fair and objective here, but you would agree that its not fair to assume you are not the only CEO of a software company?

    I have been consulting on Operations Management for firms here and I also happen to know what I know.

    1- Regarding LUMS, are you saying that Monis Rehman was also wrong in his comment to that post — that Rozee has no idea what the hiring trends of IT companies are, and that I can’t simply also quote the “10 companies” that are looking more at FAST, NUST or GIK now as opposed to LUMS?

    Hard facts are hard facts — they are bitter to accept but its worse to live in denial.

    No one wants to see LUMS fail, but if there is a “growing trend” being seen here, we will report it, and we (read: you) should be positive in exploring ways of addressing any concerns that people may have against LUMS. I’m sure you would agree that denial is not a good strategy to criticism.

    2- Pricing: You’re charging less than $10? Well, again, does it help you to go into denial at finding out that even companies serving LOCAL customers like Inbox Business Solutions charge $15?

    Or maybe I know something that I write from experience?

    Ofcourse, companies that are living off of services like rentacoder and oDesk may end up charging less than $10 — but even oDesk can give you more if you’re good!

    3- Rent: Lists on a website are one thing — I live in Islamabad and I know anyone else from Isb will testify to the way property works here.

    Rents of commercial real-estate here is between $5-10 / sq foot in some areas.

    4- Turnover: Companies call us when they’re facing turnover issues; employees get career counseling from us when they want to leave; approx 40% of the respondents in a recent poll on G&W said they were thinking of leaving their job in the next 3 months.

    I am sure you have a good organization and your particular turnover is good, but you can speak for the industry from that.

    The reality in the industry is actually rather dismal — maybe Jehan Ara or Ashraf from PASHA could shed some additional light on this.

    5- 2 Managers bit: No I didn’t say 2 managers assigned full-time, but there are two issues here: The immediate supervisor is typically involved near-to-fulltime on each person’s technical issues (this is in particular if you are doing anything bigger than simple PHP development).

    The second bigger issue is that often the manager two layers up is also involved in the technical issues.

    Now, I have consulted for a while in the US for companies like Raytheon, Broadcom Semi and others, and I know the gap that exists in the efficiency of team structures between the two countries.

    WHY is the total cost of resource 300-400% of the cost of salaries? The amount of management intervention, escalation and “guidance in general” causes this, and it is often a result of inadequate front-line staff.

    6- Salaries: Ali, the article said “IF you hire someone for $4”. Also, the salaries you offer at your company does not have a bearing on industry trends in salary structures.

    At my firm, the salary is a portion (sans operational overheads) of the economic / financial value generated by that person — so a person bringing a benefit of Rs.200k/month gets a greater salary than the person bringing in Rs.100k/month.

    MY ONLY COMPLAINT WITH YOUR COMMENT

    I welcome critique from commenters happily — it teaches me newer perspectives of how to think about issues, and it increases the total knowledge about an issue for both of us. That is all that Green & White stands for.

    I also know that building companies is hard, so I applaud the fact that you’ve managed to build up to a 30-person organization.

    With due respect, though, Mr. Ali, that does not hide the fact that there may be other people out there with other perspectives ; deeper experiences on certain things.

    Your company and your perspectives will not stop companies from sourcing employees from Vietnam, nor will it stop people from slowing down their hiring from LUMs.

    You dont know me, the companies that I run, the consulting I do, my past, or my present — I dont understand why, in such a case, you would choose to outright attack me rather than thinking that perhaps I know a little bit about what I am talking about and it might be educational for you?

    And dont take it from me if you want! You can call up Kewan from Techlogix yourself and ask them whether they can find everyone they need here.

    Cheers,

  • Made some edits on my last comment — that’s what 3am does to proofreading.

  • Osama, firstly – we are having a good conversation so rest assured I am not trying to flame here or anything. You are sharing your experiences and I am sharing mine – and of course both of us are right :). By the way, it’s 12 am in Frankfurt so excuse the errors in this post.

    By the way, the reason of outright attacking you is because then it makes a post interesting – since both parties are passionate about their opinions 😉

    Getting back to the discussion …

    1- Regarding LUMS – well, i know from my own firm that for analytical jobs we prefer LUMS grats on all other grats. Even for programming jobs they are far better than other colleges except FAST/GIKI/NUST and lately PU. By the way, not sure what monis said to you but Rozee’s product manager was a LUMS MBA grat and GIKI CS grat.

    2. Regarding rates – firstly no we don’t charge at $10. I think you should take a look at the blog post here to see costing: http://uraan.wordpress.com/2007/02/21/your-bid-is-too-high/
    In general, “midsized” companies charge 15$+ but other smaller firms charge less. And a lot of the firms do business from rentacoder, oDesk etc.

    3. Managers – let’s consider a typical large project. You have a few development teams, a few team leads, and a project manager. Ignoring analysts and QA engineers, this is the simple hierarchy. Now if PM is involved in micromanagement then there are bound to be mess-ups in the company because the PM also has to overseeing other teams. Now, this really depends on an organization how well they manage their staff and what processes they have. Also you have to keep in mind that a lot of offshore firms don’t only work on project based engagements only, there are dedicated-resources based engagements in which the client shares management of resources. In fact, most revenue is made through these dedicated engagements rather than project based engagements.

    4. I agree in islamabad the rent may be $5-10/sq ft in “some” areas (a 900 sq ft apartment would be 54k rupees! i doubt any of the developers live in such an area!), but do your developers live in those areas? Having said that, it’s true that Islamabad is expensive but certainly not the second most expensive city to live. You can still get a flat in f-8 Markaz in 12k/month and if you are sharing it with your friends, your 25k salary is good enough starting salary.

    Also you cannot do your financial calculation on individual basis. A lot of people have strategic value, may be they dont bring any revenue in short term. I am sure you considered that in your argument too. At the same time, I agree that a person’s compensation is part of the total revenue a company generates from him, however it’s never a fixed part – and it should NOT be a fixed part (say 10% or whatever). Again, i think you didn’t mean that it should be fixed, right? In any case, I do think, given “right management” a company charging $15-20/hr does make at least 50% profit on it’s net revenue. Yes, the overheads can easily increase to 300% of the salaries, but then that’s what creates the difference between good firms and not-so-good firms! If you can manage your operating costs, you have enough cash to fund growth, products (may be), and marketing/sales activities to grow further – simple!

    Coming back to original argument that people may be looking outside Pakistan for sourcing employees. Well, we are also planning to open up a development center in India. There are two reasons:
    a) there is a stigma attached with “Pakistan”. We have a hard time securing bigger contracts because of it.
    b) there is shortage of resources in Pakistan and we dont think it’ll become better anytime soon (this is one of the reason why companies are moving into smaller areas like Multan, Bahawalpur etc.). We have to hire 25 people right away, but i guess you already know the market.

    Anyway, I have a feeling that in one way or the other we have the same opinion except may be on the LUMS matter.

    Lastly, yeah I do not know you or the companies you run or the companies you consult for or how you consult for these companies, but i am only expressing my opinion :)

  • By the way, you mentioned PASHA. Write a post on PASHA/PSEB partnership. Ever thought why do Pakistani firms have to have PASHA (a private organization) membership to take part in “government sponsored” events around the world? I mean okay, you should be PSEB member, but why PASHA (does it share the cost with PSEB)? Why do we need to have another organization anyway?

    I guess you as the journalist should question Jehan Ara and find out.

  • Wow! great discussion.
    Just to add where our industry and graduates are going I met a very good PhD Candidate at LUMS (Some one who has cleared the qualifiers and is admitted to the PhD Course and it is really tough i know) and guess what are his career objectives.
    “To get a job in a bank(Not Software Job) after my PhD”
    why!!!!
    “Because they are stable”
    If a Phd candidate has this aim god have mercy on our graduates

  • Ali, I think Osama is trying to mention the rents of commercial areas (For businesses setting up operations) while you are focusing on living expenses of engineers.
    So the rent in Islamabad is high if you compare with in Pakistan. add to that the operational expense a decent internet connection in Pakistan costs a lot than what you might get in US or even India. similarly our electricity rates are high by any standard. also. getting a decent back up power solution a generator etc costs much more as the fuel prices are fluctuating. And getting any thing from top quality routers/exchanges etc and their maintainance services costs more, because there are limited vendors charging insane money for providing ‘authorized services’ add all this up and you get a fat operational expense.

  • Cant say much on PASHA — they are sponsoring G&W and we are collaborating with them on the upcoming Career Expo.

    What I will say (my opinion) is that PASHA reminds me a lot of this social service organization I was the president of in the US for about a year — it is managed through the voluntary efforts of a large number of talented people with the passion of supporting the industry in whatever way they can.

    The two areas where I think PASHA’s playing a distinct role (in the face of other people supporting the industry like G&W) is (1) Promotion of local success stories at events and (2) Strategic Capacity-building of local management through the organization of workshops.

    Maybe other people could add more to this.

  • Well, I am sure PASHA is doing good for G&W and others but why do you have to push it down the throats of the companies that don’t want PASHA membership. I mean why, PASHA’s membership is necessary to participate in PSEB event? That simply does not make sense. Do they share the costs? I am sure not. So why? Why should my company pay them 7000 for participating in CeBIT or Gitex or any other event? Okay, if I want to attend their courses and want to be promoted by them then fine, but why get their membership for something sponsored by government?

    I am not against PASHA, but I am against this PASHA-PSEB collaboration which doesn’t make sense to me. If you can explain to me how PASHA contributes to PSEB, probably I’ll change my mind (but then again, it doesn’t really matter what I think :)).

    I would like to know how many companies PASHA has actually helped in getting more business. The similar organization in India does a lot of lobbying in Europe and USA and I am sure PASHA doesn’t do anything. For instance, we need on-site consultants in Germany, however, without a team of lawyers it’s not possible. Indian companies have strong government lobbying behind them to push their cases through, we don’t have any lobbying behind us. Organizations like PASHA/PSEB are primarily busy with the self-promotional small events. Okay, capacity building is good, but before that Pakistani firms need bigger contracts, more trained resources and good infrastructure. That’s what these organizations should be focusing on.

    Regarding cost of living – well I am not saying anything just see the statistics here: http://www.finfacts.ie/costofliving.htm. Qazi, this includes everything including utilities, basic necessities, transportation etc.

    The PHD candidate thing – quite a few PHD candidates in LUMS are the ones who are there for the stipend, not for the PHD. The ones who are really there for the PHD, transfer to a university abroad in after couple of years. Besides not everyone has the temperament for a PHD (most people find out this AFTER they are in a program).

  • Regarding Rents: Let’s compare something from the website you linked to Ali.

    (Prices in Pounds — multiply by Rs.120)
    London:

    Rent (Luxury 2-bed unfurnished): 1700 GBP
    Subway: 2 GBP
    1 Cup of Coffee: 1.19 GBP
    1 Fast-food meal: 4.50 GBP

    New York:

    Rent: 1998 GBP
    Subway: 1.14 GBP
    1 Cup of Coffee: 2.26 GBP
    1 Fast-food meal: 3.43 GBP

    Islamabad (this section I’ll add because the article didn’t have it):

    Rent (Luxury Two bed): U.S. $500 – 3500
    Subway (radiocab): U.S. $5 on average
    Subway (Taxi here): U.S. $2 on average
    Subway (public): U.S. $0.2 on average
    1 Cup of Coffee: U.S. $2.2 on average
    1 Fast-food meal: U.S. $5-10 on average

    This is an apples-to-apples comparison — one could always say “well live in a small dingy flat, take public wagons, eat from khokay” but the cost of living for small families (couples, one child) in a decent area is insane!

    Especially in comparison with the salary and earning power gap!

  • Cost of living in a decent area may be “insane” but it’s about who can pay what. Let’s not get into the “socialist arguments” here. Yes difference between rich and poor is a lot and yes, not all programmers live in Luxury two bed apartments.

    In Islamabad luxury bed is around 500 (Park towers, you get an upper portion in F-10 for around 25k i.e., $400-500/month) and not 3500 which is ultra luxury for diplomats. Please remember that you are not going to give your programmers a “luxury” life. You pay them what is industry standard or a little above industry standard.

    Every one uses public transports so I dont think there should be a problem using “wagons”. After a while all software engineers can afford motor-bikes anyway.

    Bottom line: Islamabad is NOT the second most expensive city in the world. Yes, if you wanna live lavish (or decent as you put it), you have to pay a lot; but most programmers are fine with 25k starting salary which is still more than what other professions would get them (except banking may be). Also the growth in software is a lot more than other professions not to mention there is great shortage of good people so if you are good, rest assured within four years you should be making 70k!

  • Muhammad Asif Razzaque

    25K starting salary for programmers is considered “good” even from the best schools. Companies like NCR pay fresh BCS Hons. grads a starting of 30-35K. However the work at NCR is quite regular/routine since the large scale or repeat projects they do. Companies like LMKR pay a start up of around 18-25K max.

  • Ali:
    The problem with this way of thinking (and I’ve seen this being a retention issue for people I’ve consulted with) is that it is not the CEOs (your) place to really say how an engineer should or should not live. This is infact an easy way to alienate your workers — I think its better to say “Yes, everyone can have Royal Palm memberships and drive BMWs, but here’s the path of hardship and hardwork, effective communication, and loyalty that those people have to tread to earn them” (if they are earning those rewards that is…)

    From a business POV, the problem is your are qualifying everyone around a baseline or a group and not infact their actual contributions. This means that if Person A creates twice the profits for you consistently than Person B, motivation for Person A will eventually decline.

    In my view, one person’s compensation (or atleast growth in compensation) should be proportional to his returns — it IS the CEO’s responsibility (yours, mines, everyones) to create a corporate governance system to effectively measure these returns and link them to individual contributions, and also to show them a clearly identified path / preferred behavior that will make them land on the positive.

    That’s the American way! “Give them options, make them *feel* like its *their* decision, but then give them a ‘preferred’ option” – as someone once said aptly.

    I have seen even small software companies do this VERY effectively and have been impressed — some of them I might write about in a few weeks.

  • Osama:

    Actually I didn’t mean it the way it came out. I don’t want to “dictate” how someone should or shouldn’t live. My point was that salaries are determined by ground realities, and you pay on a “market rate” or higher than that but not insanely high. We (the offshore providers) are in business because of our lower costs, and we have to work on our processes to make sure that we stay low cost (as per our ecomonic conditions). Of course you reward people who perform well – everyone does that. We have an appraisal system in place and we do reward people when they perform well. In fact, in our company people have had upto 88% increments in a single year! What I was trying to say is you have to have a bottom line. You have entry level developers, and you don’t determine their salaries thinking that they should be able to afford a luxury appartment or something. You say 25k because that’s what industry average is.

    The fact is, every company HAS to reward good people, otherwise the company will simply lose these people. There is very stiff competition in the local market for good people so obviously this is important. Different companies do it in different ways (salary is just a part of it).

    Lastly, I think we are saying the same things :)

  • “in our company people have had upto 88% increments in a single year!”

    I hope here probably you are NOT talking about promoting people from intern status to the regular employees:)

    “We (the offshore providers) are in business because of our lower costs, and we have to work on our processes to make sure that we stay low cost (as per our ecomonic conditions).”

    This logic can work in assembly lines but not in the knowledge based industries such as IT.

    You need to provide quality work other wise lower cost incentives to the customers will eventually fade out. Like there is an example of a US company shifting its development outsourcing from India to Pakistan because they were not satisfied with the quality of the work.

    If our industry ever wants to become a world competitor they need to output quality work not the cheap work, otherwise as of today South America is also providing cheap “labor” and is nearer to US than subcontinent, tomorrow it can be Africa.

    If a company does not have any retention policy and good growth prospectives it will eventually lack effective middle management and team leads in a matter of few years.

    Most of the times either employers are too rigid when it comes to compensation structure or make ad hoc decisions(like giving “better” increment only if a good employee resigns mostly trying to retain such INDIVIDUALS in vain).

    The other important aspect in the original article by Osama which later on get lost in the discussion is the professional behavior and attitude of the people. I have seen people leaving because they were not satisfied with the way things work in an organization, some people have issues working with their bosses. The conflict resolution and professional counseling are almost non existents in most of the organizations.

  • There are lots of articles on how to make very good CV, how to be a more effective employee on this site.

    Osama if you could write an article on “How to judge your prospective employers” while interviewing sessions, it would be great.

    Tips on getting know how about the processes in any organization during such a short time and interactions and how to rate these processes, which are good , which are bad, which encourage success and which prove to be the bureaucratic hurdles etc etc.

  • Ali: Yes we are — one additional thing I would point out is that the right way to “ensure we remain lower cost” is not by pushing market or individual compensation rates, but by controlling your overheads.

    To ensure companies providing low-cost information workers continue to flourish, they need to invest in IT Governance systems, and train their employees on inspiration and leadership.

    Both of these require high investments, but like investments they will allow you to be in a better competitive position with lower overheads as the market shifts and tries to cope with changes in cost equations or margins (which my original article here says is already happening).

    Ammar:

    Good points, and my article already mentions that some companies are looking out of Pakistan now for cheaper employees.

    Also, great idea for a topic! I can give you guy some tips to really shake up your employers during interviews. Will see if I can write about when I get some more free time.

  • Okay people I hate to break the news to you but we are in offshore software development industry and we are basically “software” factories more than anything else. This does NOT mean quality is not important, of course quality is important which is why all of us (the offshore firms) want to be ISO/CMM certified. Needless to say, “quality” is a pre-requisite for running a software firm so let’s not discuss that. At the end of the day, people move work offshore because it’s “cheaper” and more “scalable”.

    Yes, you do have to invest in IT governance, but again there is no silver bullet. Also retaining employees depends on:

    a. salaries
    b. fringe benefits
    c. the work being done.
    d. general environment.

    The fact is Pakistani IT industry or indian IT industry is facing a boom these days, which means lots of companies are competing for the same small pool of people – so people WILL switch. That’s their right anyway. As a company you have to have processes that your projects work independent of your people. Incentives, benefits, whatever.. they don’t work. So I think there is no point of having an explicit “retention” policy. Yes give benefits above industry average, give cars, bonuses, quick increments (no i was talking about 88% for a software engineer not internee, there are no internees in our organization) etc. If they still want to leave, no problem some one else will replace them. It’s an individuals decision to see what he’s getting out of an organization financially or otherwise. If he sees growth, he sticks if not it’s better that he leaves.

    Also the growing trend is to have architects on site, and progammers off site. We are working with quite a few larger customers (the likes of BMW) and this is the way it work. Either they have their own architects on your site or you have to have your architects on their site. The point is, at the end of the day, we are expected to reduce time-to-market, maintain reasonable quality (by following our clients’ quality processes or our own) and make sure we can scale teams (for our size multiples of 10, for bigger multiples of 100).

    In my personal experience, our company has had three stages:

    First: we had just started and wanted to build up a base. At this point, we weren’t concerned with employees as we were involved in development ourself.

    Second: we were stable and wanted to have excellent employee benefits so that we are the BEST company to work for in Pakistan – the usual US way of thinking.

    Third: we stopped trying to retain employees, had our rules, focused on processes and the right people for the right jobs (stopped trying to make people “grow” professionally) and focused on marketing. This is when we had phenomenal success.

    We’ve made mistakes, and I see people here talking about the same mistakes. Just to let you know, stock options, benefits, they don’t make any difference to your younger employees. These things are important for the senior level employees (managers) who are probably married and so stability is important for them. For rest of the 70% (this is an arbitrary figure don’t hold me accountable for the source) of work-force, only immediate benefits and the ‘fun’ factor in a job matters the most.

    Bottom line: a software company’s growth depends on its processes (in my most humble opinion:)) and how little does it depend on the individual ‘heroism’ of its employees (again assuming that they do have the minimum set of qualifications required for their jobs).

  • Excellent comment Ali,and i agree about your take on processes. i wrote some thing about this lack of synchronization in expectations have a read when you have time

    http://greenwhite.org/2007/05/11/great-expectations-the-employer-employee-gap-in-pk/

    How ever here is a catch. lets say you have now become stable your budgets are now confined and revenues start pouring in you have found a good balance of pay/work/benefits. now another startup comes in and starts to hire your resources offering same work you are offering at a very high salary (Because they are new hand have investments ) these setups destroy the whole biological system you can stop that person if he is good but that will disturb your equity with in the organization. so how do you coupe for that? we have incidents of companies making open offer to employees with2-3 years experience (In my opinion they are the core source) of a 10k jump, and people do switch.

  • Actually the startups offering higher salaries can and do effect the business-eco system, however, they can hire one-two-three developers at max.. and when you are a 50 people company it just doesn’t matter. Not to mention, usually you have commitment contracts with your employees. So everyone can’t just leave with a one month notice!

    Secondly, for any company in Pakistan, HR is THE most important thing. If you HR manager is good, HR process is streamlined, not much harm can be done to you. So it’s like:

    a. smooth marketing – you have to business to run business :)
    b. smooth processes – your delivery process should be independent of the people’s capabilities i.e. you should able to deliver consistent “high enough” quality.
    c. excellent HR process to ensure you can grow quickly, replace people if required, keep people happy etc.

    Guess that pretty much tells you how to run a successful software services business in Pakistan :)

  • Just to add something, when you’ve become stable your budgets aren’t confined. If you want you can make sure that no startup comes to the market simply because you have a lot of profit margins (you can reduce your margins and make money on the turnover. I could be making $1/hr profit on all the employees and since i have lots of employees i am still better off at least until this startup is out of business!) that you are investing in new products, services, and exploring new markets and if you wanted you could hire this new startup’s all employees with three times the salary. I mean if it’s resources-vs-resources, then a running company with big profit margins is obviously better off and will give any startup a hard time!

    Not saying that this is done, but this CAN be done. When you are instable, you are vulnerable to these things, when you are stable you can manipulate a lot of things. That’s the way, open markets work! As a startup you have to be really good if you wanna take up an existing stable company head-on.

  • Ali, i don’t know the workings of business, as you are in a better postion to comment on that. but lets say i am a startup and have funds to start a business i have no running cost and i can invest on human resource, now you are a established firm who is already doing business, have 50 engineers. now some one comes and pays one of your engineer a significant difference in pay lets say 30k now he has no running cost. paying that individual 30k plus will make your operational cost go up, will it not disrupt your planning of budget profit etc?
    just trying to get a piece of you mind :) maybe i might run a business some day 😉

  • What I meant was that one engineer won’t make a difference to me :), even two engineers won’t make a difference or three or four or five!:) What I can do is, I can wait and then hire all your ten employees when you reach that number :). Rest assured at this point in time, you are burning cash to get some bootstrap startup. For me, I have incoming cash revenue e.g, I may be making $2500 / engineer so rest assured if i feel like it I can pay the same engineer $2000 :) It will make my operational costs go up BUT will make you lose 10 employees your 100% of the man-power!

    So the point is, as a startup it’s not easy for you to attract people from established firms. Firstly you have to attract them with higher salaries because they won’t know your name and won’t know how stable you are so you have to give them financial incentives.
    Secondly, for a startup it’s always more expensive to get good people. A lot of big companies like techlogix, they also play on their name and the stability attached with it.. and ofcourse the brand name. Lots of people choose from employers for the brand name rather than the salary (e.g., IBM would offer starting 25k or something, but then you’d be working at IBM!).

    Yes things like this do disrupt your budget if you start in a salary-war with your competitor. However, if your processes are right (as per my earlier post) you simply won’t care if one of your engineers leave. You’ll replace him as quickly as he leaves.

  • you are evil 😉 thanks its clearer now

  • Muhammad Asif Razzaque

    OPTIMAL DESIGN TEMPLATE
    =======================

    An interesting fact finding discussion :-)

    I have a question:

    What is the “Optimal Design Template” for a software company in Pakistan to survive and compete?

    Ofcourse anyone may comment on any aspect but I would especially like to hear as requested under:

    1. On “Financial Model” from Ali
    2. On “HR Model” from Qazi
    3. On “Product Design/R&D” from Osama

  • Muhammad Asif Razzaque

    Also a suggestion for taking lessons learnt back to work place.

    At a mutually agreed juncture in any important/widely participated thread there may be a concluding post jotting down the main few conclusions drawn from the discussion.

    This should greatly enhance the value of a thread. Will especially be meaningful for lesser experienced/industry outsiders.

  • excellent ideas Razzaque. this is the kind of interest that will build this site and our industry as a well integrated one. I will definitely write some thing up on this. keep these good ideas coming

  • We should start to look within Pakistan, as the potential of rural youth is yet to be explored.

  • is it true that Si3 is now going through a property scandal in Bhawalpur

  • I think the debate above has been great (minus the emotional diversions) in identifying the hard financial realities of most companies. I’ve recently setup a company to try to see if we can address all these issues:
    http://www.alliedc.com/careers/OurDifferentiator.aspx gives a quick overview. Its a non-profit (not an NGO) where people get to keep everything they earn.

    Companies quite consciously abstract people from the realities of the business (for whatever stupid reasons). They also create structures that create strong role definitions and discourage movement (continuity is easier). Most importantly though, these abstractions HIDE fiscal inefficiencies. People learn ways to lazy around all day long without the timesheets catching them, they mooch up their manager to get a better promotion in annual evals. The funny thing is, its not good for the manager, and its not good for the employee. Yet both are forced into a system that makes it believe it is.

    My basic premis (and I’ve seen it work over the 8 years I have worked here) is that most companies fail to provide a CAUSAL work environment. i.e. people don’t know or understand what their salary has to do with what they do.
    – what does a manager take from “your” salary because you can’t understand the customer?
    – if the project is a few weeks late ‘because of the client’, how does that impact your salary?
    – i am a .net developer but I have no clue what that is worth for the customer. why does the open source guy make more (or less)?

    Our model is simple: The company keeps nothing. you keep what you earn. You build a safety buffer for yourself first and then whatever you make, is yours. http://www.alliedc.com/careers/HowDoesItWork.aspx shows a scenario. This, very direct and causal relationship gives you constant feedback on what financial implications of “what you do” are. This takes care of the motivation to change. Pretty soon, people are fairly clear about what they need to do to improve their salaries.
    A parallel training portal (still work in progress) will help people learn these skills (like basic managerial skills, communication skills, sales etc.).Feedback is always welcome since we are doing it to change the way industry works here, not to make money.

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