Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Abacus – Pakistan
Prepared by Syed Zahoor Hassan and George Foster
Abacus is a professional services firm providing management consulting, technology and outsourcing services. Based in Pakistan, Abacus is the largest firm of its kind in the country, both in terms of revenue and staff numbers, and one of the largest in South Asia. Founded in 1987 in a small two-room facility with two employees, Abacus has experienced exponential growth since. Today, the company has over 2,300 employees and 12 offices in Pakistan and in the Middle East, North Africa and South Asia. It serves clients on three continents spanning 22 countries. Abacus serves 23 out of 35 Fortune 100 companies operating in Pakistan, with 150 to 300 clients serviced each year. Abacus has over 400 subject area specialist consultants active in multiple fields, and a track record of more than 1,200 successfully completed projects to date. Administratively, it comprises four business verticals: information technology solutions, business transformation solutions, human capital solutions and strategy, and corporate finance and strategy. Abacus has had to adapt and survive in a tough and unfavourable economic environment. Having had to deal with some rather unique challenges, it has moulded itself to develop an “immune system” based on strategic diversification. The diversified business portfolio of Abacus has consistently comprised a wide range of integrated business areas that could be depended on at different cycles of economy or political climate.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
* Provisional, unaudited figures for FY13
“In the early 1980s, I had a well settled and established life in the Middle East, where I was acting as an adviser to several multinational companies and performing as a professional board member on corporate boards of many others. But personal and patriotic reasons compelled me to move back to Pakistan – a decision which was made easy for me because of the opportunity I could see in Pakistan to realize my childhood dream. While colleagues advised me against going back to Pakistan, I knew that a huge gap existed between local and international business standards in Pakistan, which, if bridged, could unleash immense value for local businesses, entrepreneurs and the economy at large. Business decisions were being taken on whims; every other person was jumping on the textile-boom bandwagon inspired by those who had struck it rich. Business acumen was getting rusty and outdated as practices were becoming run of the mill. So, even though the environment was challenging, the potential was huge, and I had to be there to capture it.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Khan: “Following the decision to go independent in 2003, the key leaders of Abacus reviewed its business model and put into action a new strategic plan. The new Abacus model was based on five fundamental principles that have underpinned Abacus’s rapid growth over the past decade:
“a) Firstly, building diversity in our business model and portfolio of service offerings based on ‘one-stop-shop’, with end-to-end solutions across the value chain that are compatible with the local market environment and commercially viable for us as well as the client.
“b) Secondly, equipping each business vertical with cutting-edge business solutions in an integrated fashion to ensure seamless service delivery to our clients. We offer a value proposition that has a deep scale, is industry focused and technology driven with a world-class delivery capability.
“c) Thirdly, having on board people of high integrity in key positions who are visionary, bold, open and accountable, who are able to focus on the future, lead, shape and inspire, and, last but not the least, who are compliant with our value system. This allows an efficient, high-quality delivery of our service offerings.
“d) Fourthly, remaining in close touch with our clients post-delivery. This demonstrates our commitment to be long-term partners for our clients.
“e) Fifthly, establishing strategic alliances and partnerships with leading global technology vendors (e.g. SAP, Sybase, Mercer, Fragomen and Oracle), which has elevated Abacus to a unique standing within Pakistan. This has enabled us to work for some of the most discerning clients on some of the most complex projects, and also paved the way for geographical expansion.
“It took us about three years to fully implement the model, and we began to realize the dividends from 2006 onwards. Some of the most rapid growth years were witnessed during this period, with 2008 demonstrating an annual growth of 286% (in PKR terms).”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Khan: “I believe the biggest entrepreneurial aspect that worked in our favour was the first mover’s advantage. At the time of Abacus’s establishment, there was no organized management consulting company present in Pakistan. The services we were offering in the first few years included corporate finance, financial management, business planning and HR services – which were either offered as an inadequately planned side service by accounting firms or not offered at all in the corporate sector. So, while it was initially challenging to develop the market and educate the client, once developed, a large proportion of the market opportunities came our way. These included projects for local as well as foreign clients, enabling us to establish a goodwill and positive repute in the market that stays with us to date.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Khan: “Over the past five or six years, lack of investment in the region has been the greatest challenge that we have had to face. An absence of investor interest means no new commercial or industrial projects and hence no business, which has led to many an entrepreneur’s economic demise. In my opinion, there are three key reasons for the lack of investment in Pakistan. Firstly, the endemic lack of security and law and order that began with the invasion of Afghanistan post-11 September 2001 and has grown deeper and more severe with time. Secondly, the political environment that has historically remained uncertain, with extended periods of martial law and rapidly changing civil governments resulting in frequently amended policy frameworks and a lack of investment predictability. And lastly, the persistent shortage of energy that has crippled the economy as it prevents entrepreneurs from running industry, meeting production orders and deadlines, and maintaining their bottom lines. Low interest in investment and diluted profits translate into a lower demand for business advisory. For a company less diversified and strategically secure than Abacus, this situation could be very dangerous.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Khan: “Up until 2003, as a member firm of PwC Consulting, Abacus was operationally integrated into the sub-theatre called MEP (Middle East-Pakistan), an integral part of the EMEA theatre comprising Europe, the Middle East and Africa. Thus, when Abacus went independent and we decided to extend our geographical boundaries and go international, it was only natural that we begin with the region we were already well acquainted with, had ground knowledge and experience of operating in. We used that knowledge to set up our first international joint venture in Dubai, United Arab Emirates.
“The next spurt of geographical expansion came after 2009. An office was established in Riyadh, Saudi Arabia, followed by a wholly-owned subsidiary in Dubai in 2011 and in Kabul, Afghanistan, in 2012. Efforts to open up for opportunities in Iraq also began in 2011. The impetus for this expansion came from the deep recession in Pakistan during the time begging the need to diversify and reduce dependence on the local market. Saudi Arabia was among the very few countries that had not been significantly hurt by the global meltdown, hence the choice. The selection of these other market destinations stemmed from the extensive demand for a wide range of technology services by multilateral and bilateral financial institutions working in these war-torn countries, and the competitive edge Abacus enjoyed in the area.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Khan: “Mobility has emerged as one of the biggest challenges in building international growth. Earlier, nationals of other countries had travel advisories against coming to Pakistan, which has had an extremely adverse impact on the country’s investment and tourism climate. However, of late, Pakistanis have also had to suffer because of problems in travelling to other countries. Immigration laws have been made harsh and visa policies more stringent in several countries in the Middle East – generally due to the aggravating global security environment, but in some cases especially targeting Pakistani nationals. This has made mobility a real challenge.
“Rather than going for a quick fix, we took the long but sure and correct route to resolve this issue. Establishing a legal entity in the country (or in the region, as the case may be) has alleviated the problem considerably, and ensuring regulatory compliance has helped the matter further by establishing trust with the authorities. This has been time-consuming and costly, but over the long run, we have found it to be more reliable, cost effective and efficient.
“The other big challenge in developing international markets is the need for a well-known and established brand name. While Abacus is a well-recognized and respected name in Pakistan, it requires greater selling abroad. We have countered this problem by leveraging our track record and our legacy, and, of course, through our performance, service quality, delivery and commitment to the client.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Khan: “Abacus has demonstrated positive growth in revenue over the years of its existence – with the post-2005 phase being a high-growth period. We passed the billion rupee mark in 2009 and our revenue for 2013 is estimated at PKR 2.3 billion. Even during periods of recession or difficult times for Abacus, business has generally experienced expansion. Interestingly, it was the company’s phenomenal growth during the global meltdown of 2007 to 2009 that won Abacus a place on Pakistan 25, AllWorld Network’s Fast Growth programme for emerging markets. Abacus has also won a place on Arabia 500 for all subsequent years to date.
“Strategic diversification is the key lesson that can be taken from Abacus’s evolution, and the recipe of our successful growth and development. Abacus’s growth strategy has been to constantly reinvent itself to adapt to the ever-changing business environment. The well-diversified business portfolio of Abacus has consistently comprised business units that could be depended on at different cycles of the economy or political climate. There have been times when one business vertical has subsidized the development of another to subsequently become dormant, and the previously inactive vertical waking up and booming due to a change in market dynamics.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Khan: “In hindsight, I would not deem it a negative phase or a dark moment, but I believe there was a defining moment in Abacus’s history. Stressful as it was, it is due to this episode that we stand where we stand today. Following the Sarbanes-Oxley Act in 2002, most global accounting firms, including PwC, separated their consulting arms from their audit divisions in an attempt to restore confidence in their audit product. PwC Consulting was to be sold to IBM, which implied Abacus’s sale as well. However, Pakistan was one of the few countries within the PwC network where the stocks were still held by the local equity partners. Hence, Abacus had a choice of going with IBM or going independent. We chose the latter. This decision was not an easy one because of fears that Abacus might not be able to sustain itself if it did not go with the sale. We lost clients and some of our key resources because of this decision. However, we proved our detractors wrong, and have witnessed exponential growth since then. It may have been a dark moment for Abacus at that time, but today I think it was one of the best decisions we made for Abacus.”