Home / Innovation /

Pakistan's Growing BPO (Business Process Outsourcing) Services Market

By Rafi-uddin Shikoh,  Updated, February 13th, 2005

What image comes to mind when you hear the word 'Outsourcing'?

Unless you've been completely disconnected with the global economy, you're most probably picturing young Indian college graduates, in a large facility sitting in front of state-of-the art flat-panel computer screens with phone headsets on. You're probably hearing the buzz of these professionals speaking in English, servicing customers halfway across the world.

BPO (Business Process Outsourcing) is essentially a strategy by which a company offloads back-office operations to reduce costs and to put more resources towards its business strengths--or in MBA vocabulary, its 'core-competencies.' For example, a large supermarket chain in the United States could outsource most of its accounting work to a low-cost accounting services company in Pakistan rather than maintain its own large internal department. In return, the supermarket chain saves money and is able to focus more on its development and marketing.

According to Gartner, a recognized technology research company, the BPO services market was estimated to be $131 billion in 2004.

An Innovative Business Model:

The star of the Pakistani BPO providers is TRG (The Resource Group), which is led by a charismatic young Pakistani, Mr. Zia Chisti.  Mr. Chisti previously founded and led a Silicon Valley Company Align Technologies, which he took public and now has a market capitalization of over $500 million. It delivered an innovative orthodontic solution called "Invisalign," an invisible brace to correct dental misalignment as an alternative to metal braces. The company secured a patent for the processes and technology in the US, and used 3-D computer graphics technology to design and manufacture orthodontic appliances (aligners.) This work was done at the development center in Lahore, Pakistan, which employed nearly 700 people who not only did the graphic design of the Align Technology's main product, but also provided valuable customer service to its customers in the US.

Unfortunately, after September 11, this outsourcing relationship with employees in Lahore was abandoned. Against Mr. Chisti's wishes, the company's shareholders, who were worried about an increased perception of security threat in Pakistan, voted to close the Lahore offices.

With a successful track record in leveraging the labor arbitrage between US and Pakistan, Mr. Chisti left Align Technologies, moved to Pakistan, and established TRG (The Resource Group), an investment company with an innovative business model.

This model involved raising capital using the Pakistani market and taking controlling stakes through its venture, TRG International, in international call center companies. The value proposition was to enhance the acquired company's profitability by shifting a portion of their operations to its offshore facility in Pakistan. TRG Pakistan raised $37 million from the Karachi Stock Exchange (KSE: TRG, Reuters: TRGP.PA) and another estimated $5-10 million from private placements. TRG has today executed more than ten international acquisitions and through its acquired companies has more than 3000 employees globally.

A maturing Pakistani BPO service market

Beyond TRG, there are many Pakistani companies successfully delivering BPO services to multinationals in telecom, financial, healthcare and other industries. Back-office functions being supported include customer support, purchasing, credit and collections, accounts payable, accounting, help desk support, information technology support and other administrative and support functions.

According to a report released in January 2005 by the Pakistan Software Export Board (PSEB), there are currently more than 110 call centers in Pakistan employing more than 2300 agents. Most of these operations have been setup within the last two years, and they have generated an estimated $50 million in 2004. The Pakistani industry is expecting a growth rate of 30% annually, and even a mere 1 or 2 percent of the overall market share could translate into huge socio-economic impact for Pakistanis.

Pakistani firms' share of the total market, however, remains relatively small. As a comparison, more than 150 thousand agents are employed in this market in India. The powerful Indian industry group NASSCOM (National Association of Software and Service Companies), estimated that India earned $3.5 billion in revenues from such work in 2004.

Advantages and challenges:

Mr. Anthony Mitchell of InternationalStaff.net places outsourcing programs for U.S. clients with both Indian and Pakistani firms. He says that facilities in both countries are similar, with those in Pakistan often having technology advantages because their equipment is newer and the quality of their voice lines is cleaner.

He also points to certain differentiating qualities of Pakistani agents; such as being more assertive thus doing well in conflict communications (e.g. collections.) Also, having more of a neutral English accent allows them to gain a better understanding of their client's expectations. Mr. Mitchell adds however that, improvements are needed in the project management and critical/ creative thinking skills.

Given India's new 36% corporate income tax on non-Indian IT firms operating in that country, Mr. Mitchell says that Pakistan has a unique opportunity to compete head-to-head for international business. India's IT growth has been so rapid and uneven that their prices have risen and qualified labor availability there has fallen. According to Mr. Mitchell, Pakistan has the scalability, the economy, and the highly skilled labor force to begin taking a leadership role in global IT markets. Pakistan's major challenge, said Mr. Mitchell, is marketing.

Mr. Tarim Wasim, a Harvard MBA student and a former TRG intern, recently completed a project with two fellow students researching BPO Opportunities in Pakistan. Their report mirrors Mr. Mitchell's sentiments on Pakistan's advantages, concluding that lower salaries and attrition, as well as cheaper real estate, offers savings of 30% or more in Pakistan relative to India. In addition, Pakistan's regulatory incentives are extremely attractive (100% foreign ownership, Tax exemption till 2016, 7 years tax holiday for VC funds.) As for the claims that Pakistani call service agents have inherent advantages over their Indian counterparts, Mr. Wasim says that the primary difference is that higher quality people are available in Pakistan due to the supply demand imbalance.

The report concludes that the biggest challenge faced by Pakistani service providers is undoubtedly the high-perceived country risk. This problem is being exasperated by a lack of country branding, a shortage of middle management, limited work experience of IT labor force, and a much smaller pool of labor than India.

Overcoming Challenges:
Raise capital, Diversify, Collaborate

With BPO's growing global prominence, just about everybody in the world is angling for a slice of the pie. A much acclaimed A.T. Kearney report of offshore outsourcing locations is expected to include more than 40 countries in 2005 compared to 22 covered in 2004. Given this growing competition, BPO service providers will have to look to other creative segments, increase their capacity, and diversify geographically.

Mr. Masaf Dawood, an experienced Pakistani professional working for a US based IT services firm, identifies the area of Clinical Process Outsourcing as one such creative segment for Pakistani BPO providers to pursue. He says many clinics, especially in rural US areas, have a tremendous need for radiology consultations. With many quality medical institutions and professionals in Pakistan, providing a first-opinion service to such clinics in a cost effective way would serve a huge need. Other such areas could include financial research, or legal compliance and record retention services vis-à-vis such US laws as Sarbanes-Oxley.

In regards to increasing capacity, much consolidation or investment is needed. In its conclusion, the 2005 "Setting Up Call Centers in Pakistan" report by PSEB (Pakistan Software Export Board) suggests that Pakistan's established industrialists will have to enter this segment as the Ambanis, Tata's, and Birla's -- their counterparts in India -- did to build the Indian BPO market.

Finally, to overcome the perception-related challenges in the North American market, Pakistani BPO providers should look to leverage emerging opportunities in the Asia-Pacific region as well. This includes alliances, acquisitions, or setting up operations in India as well as other emerging BPO markets of China, Dubai, Malaysia, Morocco, Tunisia and Singapore.

Challenges abound, but the progress so far by the Pakistani companies has been impressive.  If the growth continues, the next time you call your banks customer service to check your account balance, the friendly voice on the other line may just be someone sitting in Pakistan.

Key Learnings: A $131 billion market in 2004; BPO (Business Process Outsourcing) includes customer support, purchasing, credit and collections, accounts payable, accounting, help desk support, information technology support and other administrative and support functions. With some comparable skill-sets and unique advantages of their own, more than 100 Pakistani BPO service providers are making a run for this market. BPO service providers will have to look to build scale and diversify geographically and to other creative segments to counter growing competition.

Your Feedback

I was recently visiting India and Pakistan and was very impressed by the professionalism of operators in Pakistan. I had the pleasure of interacting with a number of executives and finally placed some business with Voxel Communications in Islamabad. I fully believe that Pakistan is poised to become a viable alternative destination for BPO and call centers. The Government can and should play a more proactive role in training of CSRs and strengthening business ties with english speaking countries other than US as well. Best of Luck.
J. Kilchuk

Pakistan has nearly 60 companies operating in the BPO. No doubt Pakistan is a great place for such kind of outsourcing and hope to attract more foreign investment towards it.
M. Jamal

I read your article "Pakistan's Growing BPO (Business Process Outsourcing) Services Market" with a lot of interest. It is a comprehensive article for a maturing industry. Thank you.
M. Akhter

With the release of CIA comments on pakistan couple of days back and the report submitted to the government that recommends reducing investment costs, all this PR activity on BPO in Pakistan should be laid to rest. It would be next to impossible for Pakistan to get more than 2% of offshore outsourcing pie in the next 10 years.
Roshan

Your article fails to mention that TRG is the largest call center in Pakistan. We have 400 agents (Karachi & Lahore), now and we are growing rapidly.
Asim, MD Karachi

The article provides very good coverage of emerging call centers in Pakistan. Pakistan is a great place for such kind of outsourcing and hope to attract more foreign investment in other fields also (like software development.)
A. Omair

Great article as it provides a lot of insight on the mushrooming IT industry in Pakistan. Well supported with statistics. In order to enhance a positive perception of Pakistan in the world, we need more of articles like these.
Rabya