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TelecomPlus Oct 09
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China: A new
Destination for Pakistani
IT Companies
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Salim Ghauri
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The Chinese economy is the 2nd largest after that of the USA and is
expected to grow at around 8 percent during the 2008-09 period. This is
despite the global economic meltdown. As a result of the sustained high
growth, the local IT companies are unable to keep pace with the required
level of automation in China. To some analysts, this relates to the same
situation that prevailed in the USA during 1980s. This is a great opportunity
for the IT companies of Pakistan to move in and fill the widening gap between
the demand and supply of ITeSs. Salim Ghjauri, Chairman Federal Task
Force on ICT, takes a closer look
China is the new land of opportunity. The huge population of the country, sustained high levels of
economic growth and burgeoning demand for industrial and consumer goods and services mean
that China will continue to emerge as a key market for exporting countries. While this translates
into an opportunity in a wide range of sectors, the opportunity is especially lucrative for offering
value added IT services and solutions in the Chinese market. For the Pakistani IT industry, this
may be a golden chance to build a strong presence in this market, similar to how Indian IT
companies capitalized on the mushrooming demand of IT services in the USA in the 1980s and the
following decades.
The huge potential of the Chinese economy has been highlighted during the global financial crisis
that the world faced last year. Despite negative growth trends in the developed world, China has
shown resilience and strength. It has continued to show high levels of growth and is estimated to
grow at 7.9 percent in 2008-09. The growth, as a matter of fact, has occurred in all economic
sectors. Therefore, it is becoming difficult for local IT solution providers to meet the emerging
demand for automation there. Interestingly, the areas with the demand of automation are
diversified. Smart IT companies will realize the potential of China’s IT needs quickly and will be
scrambling to capitalize on it as they have done in the USA.
China’s demand for IT products is similar to what was in the USA back in the 1980s. I can still recall
how a large number of Indian companies and small IT groups from Pakistan focused on the USA
market, in those early years. They invested and established infrastructure in the USA and went
through the learning curve to win a strong presence in the USA market. Resultantly, the
operations of Indian IT companies swelled to the tune of $40 billion.
However, the USA has reached at a highly mature stage now and thousands of IT companies are
competing there for survival. It’s not easy for small and large companies to get more business in
the USA nowadays. Therefore, it is right time to explore new destinations instead of running down
the beaten track. We must come alive to the promising opportunities nearer home.
According to the available data, the economy of the People's Republic of China is rapidly
developing, and is the second largest in the world after that of the United States with a GDP of
$7.8 trillion (2008) when measured on purchasing power parity (PPP) basis. It is the third largest in
the world after the US and Japan with a nominal GDP of US$4.4 trillion (2008) when measured in
exchange-rate terms. China has been the fastest-growing major nation for the past quarter of a
century with an average annual GDP growth rate above 10%. Its per capita income has grown at
an average annual rate of more than 8% over the last three decades, significantly reducing
poverty, although accompanied by rising income inequalities. The country's per capita income is
classified in the lower middle category by world standards, at about $3,180 (nominal, 104th of 178
countries/economies), and $5,943 (PPP, 97th of 178 countries/economies) in 2008, according to
the IMF.
In recent years, China has made great strides in opening up its economy through liberalization
and privatization. This includes the sale of equity in China's largest state banks to foreign
investors and refinements in foreign exchange and bond markets in mid-2000s. The government's
decision to permit China to be used by multinational corporations as an export platform has made
the country a major competitor to other Asian export-led economies, such as South Korea,
Singapore, and Malaysia. As its role in World trade has steadily grown, China’s importance to the
international economy has also increased apace. China's foreign trade has grown faster than its
GDP for the past 25 years. China's growth comes both from huge state investment in
infrastructure and heavy industry and from private sector expansion in light industry instead of just
exports, whose role in the economy appears to have been significantly overestimated. The smaller
but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from
utilities, heavy industries, and energy resources that facilitated private sector growth and drove
investment, the foundation of national growth.
Like other major economies, China too has reacted to the current Global financial crisis through
massive government interventions. In 2008, thousands of private companies closed down and the
government announced plans to expand the public sector to take up the slack. The market-
oriented reforms China has implemented over the past two decades have unleashed individual
initiative and entrepreneurship, whilst retaining state domination of the economy.
China is investing heavily on the healthcare, industrial base, financial institutions and public sector
automation. Most of Pakistani IT companies already have experience in providing IT products and
services in some of these areas in North American and European markets. They may find difficulty
in understanding the Chinese market initially like they faced in the USA market. It is important,
however, for them to invest strategically in this huge market by building both their understanding
and their presence in it. The Chinese market will be a challenge worth taking, and this opportunity
will also require going through a learning curve. The companies that are able to persevere in
learning and adoption will find very lucrative market to work with.
An immediate opportunity for Pakistan IT companies lies in the Chinese banking sector. Chinese
banks are now focusing on expansion into the global markets. Chinese banks are all set to flourish
and are in an urgent need of software to achieve this goal. Pakistan has IT companies with vast
experience in banking sector both inside and outside Pakistan. Therefore, Pakistani IT companies
should immediately look into this sector. It would be expanding extensively in the next 10 years.
Similarly, health sector is one of the largest areas where China needs automation.
I strongly believe that the PSEB, TDAP and PASHA should recognize China as an opportunity.
Especially, the PSEB should establish a task force immediately to look into opportunities in China
and assist companies to establish themselves in the Chinese market. Also, the Pakistan embassy
in Beijing needs to play a more proactive role. With the right strategy and appropriate levels of
government support, Pakistani IT companies should be able to build a significant and hugely
rewarding presence in the Chinese market.
The writer is Chairman & CEO NetSol Technologies Ltd, Chairman Federal Task Force on
Information and Communication Technologies and Honorary Consul to Australia for the Province
of Punjab, Pakistan
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