Asif Peer is serving as the CEO, MD and Member, Board of Directors, at Systems Limited, Pakistan’s leading software house. After receiving his Bachelor in Computer Science from NUCES and an MBA from IBA Karachi, Asif started his career with Systems Limited as software developer in 1996. He later moved to the United States; where he worked for 13 years and went on to serve as COO of Visionet Systems (2008-12). He came back to Pakistan in 2012 and returned as CEO at the same firm where he started his career. Currently, Asif is a member of the executive committee of the American Business Council; he is also a member of Pakistan’s President’s emerging technology committee; and he also sits on the Parwaaz ICT panel on “Closing the Skills Gap in Pakistan” (a partnership between the World Economic Forum and Punjab Skills Development Fund).

Below is the transcript of BR Research’s recent interview with the Systems CEO, where the discussion focused on the impact of COVID-19 on Systems Limited in particular and the local IT and IT-enabled services industry in general.

BR Research: Starting off, how challenging has it been for you to lead an export-oriented company during a global pandemic?

Asif Peer: It is definitely a challenging environment, and unprecedented times, where nobody has long-term visibility into what is going to happen. However, I have seen a great opportunity for Pakistan and Systems Limited in particular from an export perspective. People now understand the work-from-home concept, so a lot of people have become comfortable with offshoring and outsourcing; they understand that it doesn’t matter where a person is sitting. We expect that this will improve our export remittances during the ongoing pandemic and beyond. The pandemic has forced many businesses to explore digital transformation, cloud services, disaster recovery, and so on, bringing technology to the forefront. That has also opened up opportunities for information technology companies like Systems Limited to grow. The fortunes of all global technology companies have risen during the pandemic because of the digital transformation journey that is taking place.

BRR: The Systems Limited (consolidated) performance came in particularly strong in the Jan-Mar quarter. How much have the fundamentals changed for your firm in the wake of coronavirus?

AP: We’re looking very strong so far. The first two quarters are strong so far because the coronavirus hasn’t affected us as severely. The main reasons for that is our robust sales pipeline from the previous year and healthy, long-term business relationships with our clients. Our business is also much diversified. We operate in many global markets, including North America, Europe, the Middle East, and Pakistan, which shields us from localized economic downturn. Many industries that we serve like Pharmaceuticals, Consumer Goods, Telecommunications, and Food Distribution have seen their volumes rise.

From a brick-and-mortar perspective, most retailers have opened up to e-commerce digital transformation. Businesses have asked us to implement their e-commerce stores in 4 to 6 weeks and we have responded by creating a “Digital in a Box” offering that can be deployed quickly, no matter where in the world the customer is. The solution covers traditional e-commerce and many more aspects of digital transformation for modern businesses. We expect this model to assist us in global customer acquisition.

BRR: How have your major revenue segments and geographic markets held up three months into the pandemic?

AP: While it’s true that brick-and-mortar retail has experienced a decline due to people staying at home, our business has been able to make up for those effects by increased interest in e-commerce and other digital services. Even so, we are monitoring the situation closely; if a more severe second wave of COVID-19 occurs, then there could be serious consequences.

BRR: You had recently cast the crisis as a golden opportunity for Pakistan’s IT industry. What kind of business opportunities have come up for Pakistan-based firms and how successful has the industry been in capitalizing on them?

AP: We are capitalizing on the situation because we have call centers, BPO capabilities, and other digital services. All of these opportunities are booming. The pandemic has shown the world that no region is immune to such global events, and this has leveled the playing field to some extent. Systems Limited is pushing more business from a growth strategy perspective, and other firms need to do the same. I really believe that whereas large companies are already taking advantage of the situation, smaller companies need to do the same to showcase their services globally and acquire more business.

BRR: What could the government have done, or what can it still do, to facilitate the IT industry in these times?

AP: I must highlight the fact that when the IT industries of India and The Philippines were down owing to lockdowns, Pakistan’s industry got an exception from the government in that we were treated as an essential service and allowed to operate by following the COVID-19 SOPs. This was crucial because BPO and call center business cannot be done from home and you need to have employees work at the dedicated workstations. This was the one thing that really helped: we did not close down and no cases were reported. We used that as our marketing campaign to buyers and customers that when the world was closed, our government was behind us and we were able to deliver. We were open for work.

Going forward, we expect the Government of Pakistan to provide support in the form of branding and marketing activities. They should also perform precise market-sizing studies. Special attention should be paid to attracting outsourcing work from multinational companies. Many organizations do business in Pakistan, but are unaware of Pakistan’s capabilities as an outsourcing destination. The government needs to promote awareness, attract investment, engage in capacity planning, and provide appropriate infrastructure in the form of IT parks and other facilities. Local skillset development is another area in which the government can assist the industry.

The government needs to heavily leverage the private IT sector to accelerate the digitalization of Pakistan. We have the capacity to design, develop, and test new ideas, services, and solutions among our large local population, and then prepare them for global consumption. In addition, government bodies should not compete with local IT Industry.

One major challenge for government initiatives is the existence of silos in the form of dozens of separate boards, agencies, committees, and subcommittees trying to promote the IT industry. Without any coordination of efforts across these entities, there is a lot of inefficiency and lack of a consistent agenda. Consolidating these government bodies and their budgets will provide clarity, consensus, and efficiency across all industry-wide efforts.

BRR: What sort of fiscal measures do you expect or want to see in the upcoming budget?

AP: We would like to see measures that will help the IT industry increase exports, like an increase in Export Refinance Facility (ERF) limits and provide financing to IT companies without fixed assets. The government should synchronize provincial and federal sales tax rates on goods and services; there are currently a lot of anomalies, and there should generally be a reduction in provincial sales tax rates. There needs to be rationalization of minimum tax on services, and a provision to carry forward minimum tax.

BRR: Let’s zero in on what the government can do about increasing IT exports, as the country desperately needs to make up for shortfall in traditional exports.

AP: There are several areas. One is the foreign investments in subsidiaries. For increasing exports, IT companies need to explore other markets. This has been a challenge due to restrictions in remitting funds outside of Pakistan to establish subsidiaries or support subsidiaries in their working capital requirements. It is recommended that IT companies should be allowed to make foreign investments in a subsidiary as per some limits. New exporters should be allowed to remit up to $100,000 directly through authorized bank. For existing exporters, if value of export remittance is between $1 million to $5 million, they should be allowed to remit up to $500,000 directly through the authorized bank. And if exports are over $5 million, investment should be allowed up to $1 million directly through the authorized bank. These limits should be allowed once a year; provided the company continues to be an IT exporter.

Another issue concerns cross-border guarantees. Foreign subsidiaries usually are liaison offices and are unable to secure direct financing from banks to meet their working capital requirements due to not having the required collaterals to secure the financing. To resolve this issue, SBP should allow local banks to issue cross-border corporate guarantees to their foreign branches to the extent of 20 percent of export remittance of the parent company. This will help the foreign subsidiaries to avail banking facilities backed by the parent company’s position.

Moreover, there is a need for an export refinance facility without collateral. IT exporters are allowed to obtain ERF to the extent of 50 percent of the export remittances received during a certain tax year. Currently, most of the companies can hardly utilize it because banks require hard collateral (fixed assets) to extend the facility. Hence, there should be at least 20 percent of value of export remittances that should be allowed under ERF without any collateral. This will ensure that even small IT setups can avail the facility to further grow their businesses.

Additionally, while IT companies are allowed to retain 35 percent FCY from foreign remittances received, this money is only allowed to be used in paying commissions, sales or marketing activities or procurement of hardware or software. However, companies face challenges in meeting some other foreign expenses, for which there are no legal payment channels, e.g. employee TA/DA, hotel payments, foreign trainings/conferences, and subscriptions such as LinkedIn, GoDaddy and Dropbox. Hence, for ease of doing business, avenues for utilization of 35 percent retained funds should be expanded and authorized banks should be allowed to pay other categories as per some of the examples mentioned above. To ensure compliance, SBP can forbid spending on loans, capital investment and prohibited expenses.

Furthermore, Pakistani IT companies at times need to acquire companies in the target markets so that they can shift their work offshore. The publically-listed IT companies in Pakistan will often use their shares as equity swap to acquire target companies. Hence, these companies should be allowed to swap equity for investment up to 25 percent of their average export remittances of last three years.

And lastly, our Industry’s remittance number has always been debatable, where SBP’s reported number and the industry’s number are off by at least 100 percent. If small, undocumented players can be incentivized to get the rebate or better exchange rate, then they will be encouraged to remit. This will increase foreign exchange remittance and bridge the gap between undocumented and documented industry.

BRR: A crisis is a terrible thing to waste, they say. What kind of general business climate reforms should happen?

AP: Much of the discussion about facilitating the IT industry during this crisis has been around the supply-side and building capacity. I think that the conversation should shift to demand generation and innovation. Nurturing innovative startups will benefit our market valuation immensely, which will in turn attract global business.

BRR: Pivoting to your business in particular, what is the look and feel of the two SYS subsidiaries – the Pakistan-based EP Systems and the Dubai-based TechVista? Has there been any corona-induced shift in corporate strategy for these firms?

AP: EP Systems recently received an electronic money institution (EMI) license from the State Bank of Pakistan, and has also received major funding from the International Finance Corporation. We will leverage these two advantages and adopt a growth strategy moving forward. For TechVista, we’re taking a consolidation approach by working with a majority of high-quality clients. At the moment, the pandemic has shifted the market’s focus to cost control. Most of our clients used to prefer our teams to work on-site, but now that has seen a dramatic reversal. The same clients are asking us to shift operations offshore to Pakistan to reduce operating costs. While there will be a drop in topline revenue, this shift will improve our profitability, stickiness, and sustainability. The move from onshore to offshore has been something that we’ve championed from the get-go to increase employment opportunities in the local market; now we’re having more success executing on this plan.

BRR: The local banking and telecoms sectors seem to be faring better than other services sectors. Has this situation created local business opportunities for the software firms?

AP: Yes. Both the banking and the telecom sectors are a source of growth for local IT firms these days, as the pandemic has created local opportunities for the local IT industry. We are one of the beneficiaries of this growth.

BRR: Back in March, as the virus started growing in Pakistan, there was this perception that contactless services – such as digital financial services, online shopping, and home delivery, among other on-demand economy services – had finally gotten their lucky break in a country where the bulk of the population is financially and digitally excluded. Have you seen any data or trend to that effect?

AP: Yes, this has been on rise as well due to COVID-19 right now. The pandemic has pushed the minds of retailers towards digital change. We are connected with some of the big retail clothing brands and they soon realized that going online was the only way to make sales in these times. Everyone has jumped onto the e-commerce platform and some brands that were already present online have doubled their virtual sales. Besides B2C sales online, companies are now also realizing the value of digital B2B platforms. Having said that, “last mile” continues to be a challenge, because the logistics and delivery services were not geared towards meeting the surge in demand.

Now the real test will be to sustain and grow these numbers post-COVID-19 and if we are able to change the mindset during current time it will definitely grow the digital business and contactless services. If the on-demand economy can retain even 30 percent of the newly-acquired customers post-corona, it would be an achievement.

BRR: Has the pandemic taken the lid off of any more sectors or services that had previously eluded digital disintermediation?

AP: Consumers and producers have never been as closely connected as they are today. Many of the digital solutions that we offer are working to help businesses establish and grow their direct-to-customer channels. Yes, there are common examples like banking and food supply chain, but there are some surprises, too. For example, the pandemic has created the need for greater transparency in the beauty services industry. We’ve begun to address this need with our GlamUp platform, which connects salons directly to interested customers in their area.