Despite a late start, Pakistan's information technology entrepreneurs and the government are hoping to make it big in the global marketplace for outsourcing of IT-enabled services. How have other countries succeeded and where does Pakistan stand?

Naween A. Mangi spoke from New York to Ron Hira, professor of public policy at the Rochester Institute of Technology, and Rafiq Dossani, senior research scholar at the Walter H. Shorenstein Asia-Pacific Research Center at Stanford University.

Software exports, call centres and medical transcription firms have become all the rage over the last three years. Young entrepreneurs are returning after years spent working at major tech firms in the US to start up their own ventures and the government is forecasting that IT will be the next big thing in Pakistan's economy.

So far, the numbers tell a less-than-compelling story. In 2004, although the software and IT enabled services business was worth $300 million, (including hardware the figure is $600 million), exports and outsourcing made up for just $33 million of that. By comparison, India logged $12.8 billion in software and services exports in 2004.

Still, the Pakistan Software Export Board, a federal body set up to promote outsourcing, forecasts that the business will grow by at least 45 per cent annually for the next five years. A lot of that growth will come from call centres and business process outsourcing which last year made up one-fourth of total exports. In the next ten years, the PSEB aims to be at the top of the class of tier two global IT companies.

But as experts and practitioners agree, Pakistan will need more than ambitious aims to meet that goal. Prof Ron Hira, whose new book Outsourcing America assesses the impact on the US job market, says the outsourcing industry is set for rapid growth in the next few years and if done right, developing countries like Pakistan could benefit from the boom.

Hira is an expert who has testified before the US Congress on the implications of outsourcing. "Pakistan isn't on the map yet," he says. "India dominates what most people think about [when it comes to outsourcing]."

Rafiq Dossani, an expert on outsourcing and a senior research scholar at Stanford University says there are several reasons for that. First, is the poor quality of infrastructure.

"When the Internet tanked recently, that created a really bad perception that the country has not thought through even the most rudimentary aspects," Dossani says. "Deregulation in this area is too limited." He says that while voice services have benefited from the deregulation, data services are still uncompetitive.

He says there are too many stumbling blocks since bandwidth is more expensive than in other countries. "The costs are outrageous at four or five times what they should be," he says.

Dossani identifies the thin segment of English speakers as a second hurdle in the way of a flourishing outsourcing industry in Pakistan. "Of the 30 per cent of the population that lives in urban Pakistan, one tenth speak English that's good enough to work at a call centre," he says. "And of those five million or so, only about one million are available to come into this field as the rest are working elsewhere."

Then, he says poor marketing also holds the industry back. "You just don't see the trade body [in Pakistan] working like India's Nasscom to project a positive image," he says. "The Pakistani diaspora has done well and there is a great need to better use that network."

He forecasts that the outsourcing business in Pakistan can be at least $1 billion in size but says this is only possible if alliances are formed with countries like India and China.

"The Philippines has done well by understanding that it cannot reach critical mass on its own and therefore forming alliances and pitching themselves as a second location to offset country risk," he says. Dossani also says Pakistan has the advantage of a highly skilled group of entrepreneurs which "is the reason why the tiny industry does exist."

Hira adds that since Pakistan entered into the industry late, playing catch up is an inevitable need. However, the sector can take advantage of the circumstances in other countries. "India has done a lot of things right," he says. "They have been successful at not just attracting foreign investment but also building their own companies and leveraging the large Indian diaspora," Hira says.

"India is also so talked about that people are comfortable doing business there. But since wages are rising, Pakistan can use that as an entry point." He says that while countries like India have accumulated critical mass and scale, others are distinguishing themselves in different ways.

Eastern European wages are slightly higher than Pakistan and companies in that region have specialized in near-shoring by targeting the European market. Russia, meantime, is aiming at the U.S. market in both services and manufacturing while the Philippines and Malaysia are targeting services.

"The question really is how you separate yourself from the pack," Hira says. "You can compete on price to a certain extent but you have to offer something more to distinguish yourself."

He says U.S. companies are now moving from pilot stage outsourcing to full deployment which indicates both the success of the pilot projects and the rapid growth that is likely to come in the outsourcing market for the next few years. "There will continue to be a backlash from U.S. workers, but by and large there has not been any real policy movement to restrict outsourcing so there is still a large opportunity," he says.

Hira admits that the extent to which a growing outsourcing industry ties into the broader economy in terms of job creation remains unclear but he says, other advantages emerge. "In India, for example, it remains unclear that they've been able to link the benefits [from outsourcing] back in, but the big benefit is that they have created world class management which can then move into other sectors."

Therefore, Hira recommends that Pakistan take a long-term vision not for the next three or five years but for the next two decades. "Right now you can try to pick up the low hanging fruit and absorb the excess demand but don't just think about attracting the individual company to come [to Pakistan]," he says. "Think about how this will fit into the larger set of skills for your country so that you can differentiate yourself much later down the road."

For nearly two decades, most major developing countries have struggled to introduce market forces in their electric power systems. In every case, that effort has proceeded more slowly than reformers hoped and the outcomes have been hybrids that are far from the efficiency and organization of the "ideal" textbook model for a marketbased power system.

At the same time, growing concern about global climate change has put the spotlight on the need to build an international regulatory regime that includes strong incentives for key developing countries to control their emissions of greenhouse gases. In most of these countries, the power sector is a large source of emissions that, with effort, could be controlled.

The United Nations Framework Convention on Climate Change and the Kyoto Protocol included mechanisms that would reward developing nations that cut emissions, but so far the performance of these mechanisms has fallen far short of their potential.

Beginning in 2002, the Program on Energy and Sustainable Development (PESD) at the Stanford Institute for International Studies (SIIS) and the Indian Institute of Management in Ahmedabad (IIMA) have conducted a set of studies to examine the intersection of these two crucial challenges for the organization of energy infrastructures in the developing world. This research, funded by the U.S. Agency for International Development, examined power-market reforms and greenhouse-gas emissions in two key states in India. At the same time PESD was conducting a comprehensive study of electricity-market reforms in five developing countries (Brazil, China, India, Mexico, and South Africa) as well as detailed analyses of the greenhouse-gas emissions from three provinces in China in conjunction with other research partners.

PESD and IIMA presented their findings at a workshop on January 27-28, 2005, at Stanford University. The workshop brought together scholars studying the organization of the electric-power sector and other infrastructures in developing countries with energy policy makers, technologists, and those studying the effectiveness of international legal regimes, with the aim of not only focusing on new theories that are emerging to explain the organization of the power sector and the design of meaningful international institutions, but also identifying practical implications for investors, regulators, and policymakers.

The workshop offered diagnoses of what has gone wrong and what opportunities have nonetheless emerged. It focused on practical solutions and a look at the prospects for different technologies to meet the growing demand for power while minimizing the ecological footprint of power generation.

One of the key conclusions of the research and the workshop, as discussed by David Victor, director of PESD, is that electricity markets in the developing world have not progressed inexorably and consistently from a state-owned model to an open market-based model. Rather, much as the experience of the past ten years in the United States has demonstrated, reform of electric-power systems has proceeded differentially between parts of the industry and between jurisdictional units, with some segments of the power generation, transmission, and distribution systems still dominated by the state and some segments now fully responsive to signals from the market.

This hybrid condition-with portions of the electricity enterprise deregulated and other portions still fully regulated-has proven to be virtually universal and quite durable as well. For the most part, it also has proven beneficial to the overall operation of the system as well as to climate mitigation due to the fact that introduction of market forces to parts of the system tends to have a spillover effect, helping to improve efficiency in parts of the system that remain under state control.

Tom Heller, SIIS senior fellow, noted that the negotiations leading up to the

development of the Kyoto Protocol and subsequent discussions and experience have

demonstrated that the burden-sharing metaphor-expecting developing nations to

make a proportional investment and effort in reducing greenhouse-gas emissions-

will not be successful. Rather, as gross and per capita energy consumption increases in developing nations, which is occurring especially rapidly in China and India, policies and mechanisms that facilitate investment in efficient and clean energy production, transmission, and end-use infrastructures will need to be developed and rolled out.

The Kyoto Protocol provided a Clean Development Mechanism (CDM) to encourage such investment. However, the conclusion reached by practitioners developing such projects in China is that CDM is an inefficient and insufficient mechanism for fostering the magnitude of development projects that will be required to help mitigate the environmental effects of energy growth in the developing nations.

Two problems with CDM were raised at the workshop. First, the bureaucratic hurdles facing developers of CDM projects are daunting. To date no such project has received certification. Second, the Kyoto Protocol's current round of reductions targets expires in 2012, and uncertainty regarding the likely direction and form of future U.S. and European initiatives provides a disincentive to investment in CDM projects.

Alberto Chiappa, managing director of Energy Systems International, noted the good news is that in spite of these difficulties, investors are finding opportunities to develop projects to provide cleaner sources of energy and improve end-use energy efficiency. Professor P.R. Shukla of IIMA pointed out that there is a great need to align development and climate concerns if future mechanisms for climate mitigation in the developing world are to be successful.

Douglas Ogden, program officer at the Energy Foundation, noted that China has made a firm commitment to greatly increase the market share of electricity from renewable sources to 5 percent by 2010 and 20 percent by 2020 and in 2008 will adopt an automobile fuel-economy standard 20 percent more efficient than U.S. CAFE standards. Also, both China and India are engaged in developing natural gas markets in sectors traditionally dominated by coal.

Mario Pereira, director of Power Systems Research, discussed Brazil's current efforts to develop economical and efficient electricity supply through biomass-specifically ethanol derived from sugarcane bagasse. The ethanol industry was originally developed as a reaction to the oil shocks of the 1970s. Although the majority of electricity in Brazil is provided by hydroelectric projects, sugarcane ethanol has some important advantages. First, the sugarcane fields are geographically close to major centers of demand, and second, sugarcane thrives during drier periods of the year when hydroelectric production declines. The experience in Brazil thus demonstrates that renewables can provide an economically attractive source of energy for developing nations.

Looking toward the future, PESD has several projects under way pertaining to the

intersection of electricity-market reforms and global climate change. The program is expanding its research on power-market reforms through a set of case studies on independent power producer projects in ten developing nations and is also initiating a set of studies examining the introduction of natural gas to regions in India and China.

Much work remains to be done before the interface between electricity-market reform and global climate change is well understood. As energy markets in the developing world expand, addressing this question will become more and more important if we are to stabilize atmospheric levels of greenhouse gases.

China has a large and growing elderly population, but to be old in China-particularly in the countryside-is to be vulnerable. In the country's rural areas there are few clinics and hospitals, and health insurance is virtually nonexistent. Compared with elderly Chinese living in urban areas, those in rural areas have a shorter life expectancy and a poorer quality of life.

Further, little academic research has focused on the health needs and health status of China's elderly. It is with the goal of addressing this deficit that Pengqian Fang, a trainee with CHP/PCOR's China-U.S. Health and Aging Research Fellowship, recently returned to China from Stanford. Fang is seeking to document the health disparities between China's rural and urban elderly population, and to use his findings to propose healthcare assistance programs for the elderly in rural areas of China.

Fang spent a year at Stanford studying health-services research concepts and methods and developing his research project.

In the project, which Fang refined with guidance from CHP/PCOR faculty, Fang will conduct a detailed survey of the health status, health needs, and healthcare utilization of elderly people in rural and urban areas of China, through in-home interviews in three Chinese provinces with different geographic and socioeconomic characteristics: Guizhou (in southwest China), Hubei (in central China), and Guangdong (in the southeast).

He will conduct the project in collaboration with the health departments of the

three provinces, and with support from Tongji Medical College in Wuhan, where he

is director and associate professor of healthcare management.

Fang's study will be among the first of its kind in China. Such research is needed, Fang explained, because China's elderly population (of whom 70 percent reside in rural areas) is growing steadily, and in the coming years its members will require medical services at increasing rates. According to the country's 2000 census, China has 132 million people over age 65, making up more than 10 percent of the population; the over-80 population, which numbers 10 million people, is increasing by 5.4 percent a year; and about 20 percent of all elderly people in the world live in China.

The elderly in China's rural areas face particular challenges in getting high-quality, affordable healthcare services, Fang explained. There are few clinics and hospitals in rural areas, and there is no government-sponsored health coverage for the elderly (like the United States' Medicare program) anywhere in China. All of these factors put China's rural elderly in a vulnerable position, especially those with disabilities or serious illnesses.

"This research will show the disparities that exist, and it will encourage a dialogue about policies to help rural elderly people in China," Fang said.

Fang plans to conduct his survey in the first half of 2005, analyze the data in the summer and fall, and return to Stanford in November 2005 to present the results. In each of the three provinces studied, the research team will recruit 500 households and will conduct interviews with all individuals age 65 and over who reside there, for an estimated final sample of 2,500 people.

The respondents will be asked for a variety of information, including their income and education, insurance status, health status, daily activities, social activity, mental health, utilization of healthcare services, and accessibility and affordability of medical care. The researchers will also interview community healthcare workers-including physicians, nurses, and administrative staff-to seek information on the health needs of the elderly and the barriers they and their healthcare providers face.

The China-U.S. Health and Aging Research Fellowship, administered jointly by

CHP/PCOR and the China Health Economics Institute (Beijing), aims to improve

healthcare quality and efficiency in China through an exchange program in which

selected Chinese health services researchers come to Stanford to study for six months to a year, and then return to China to conduct an original research project. The fellowship is funded by the National Institutes of Health's Fogarty International Center.

"I have learned very much from Stanford and this program," Fang said. "The classes I attended have given me very useful ideas." He noted that since health services research is still a young field in China-about ten years old-"we learn a lot from the United States, like how to ask the research question, how to get a grant, how to design a study."

One aspect of Stanford that particularly impressed Fang was its emphasis on interdisciplinary collaboration.

"This is a very good feature-the close relationship between different fields," he said. "In my country we are more focused on one narrow field."

Fang said he is interested in establishing research collaborations between Stanford and Tongji Medical College-an idea that he and CHP/PCOR's leadership will be exploring in the coming months.

There is much to admire about the U.S. healthcare system's emphasis on innovation and technology, Fang said. Still, he said, "I don't hope for China to follow the U.S. health system," with its heavy reliance on free-market principles. For one thing, "medicine here is very costly." He cited a personal example of how he fractured his arm in a minor bicycle accident, and how his emergency room visit for the injury, along with a follow-up physician appointment, cost more than $1,000. "I was surprised it cost so much," he said.

A review of the fellowship program conducted by officials at the China Health Economics Institute last fall concluded that it has been successful and valuable. Leaders at the institute said the trainees' Stanford experience has enhanced their intellectual abilities, their knowledge of research methodology, their leadership capacity, and their ability to collaborate internationally.