Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
NetSol Technologies – Pakistan
Prepared by Syed Zahoor Hassan and George Foster
NetSol Technologies Inc. is a global provider of enterprise IT solutions, with a core focus on asset finance, wholesale finance and leasing software. NetSol was founded in 1995 by three brothers: Salim Ghauri, Najeeb Ghauri and Naeem Ghauri. Having started with humble beginnings in the city of Lahore, Pakistan, NetSol soon grew to a sizable business with operations in Australia, China, Pakistan, Thailand and the United Kingdom, and headquarters in California, USA.
Automation has become an important means for growth in this industry to deal with increasing volumes. In the more mature markets of the US and Europe, leasing practices and legal requirements are well understood. Accordingly, there are several firms competing in these markets with mature enterprise software to run the leasing operations. In Asia Pacific, on the other hand, the leasing environment is still emerging and requirements vary. In this sense, offering enterprise software in these markets is more complex and challenging.
NetSol is one of several global companies offering leasing enterprise solutions, but it stands out on account of the maturity of its offerings and its vast experience in the Asia Pacific. It has several implementations of its solutions around the globe, with several Fortune 500 clients like Daimler, BMW, Nissan and Toyota. The company has targeted markets in Europe and the Americas as well as in the Asia Pacific (APAC) region. For APAC, NetSol offers the NetSol Financial Suite (NFS). It has successfully launched NFS in China, Japan, Thailand, Taiwan and Singapore.
Ghauri’s leadership role extends to various business and diplomatic spheres. He is the Honorary Consul of Australia for Punjab, President of the American Business Forum, and President of The Indus Entrepreneurs (TIE) Lahore Chapter.
Sajjad Kirmani is the Founder and Chief Executive Officer of INFOGISTIC. He won the CIO of the Year Award in 2010 for his work as Executive Vice-President and Director of IT & Operations at NetSol Technologies. During his 14-year tenure with the company, he was instrumental in carrying out several ground-breaking initiatives, including the company’s achievement of CMMI Level 5.
Prior to joining NetSol, he worked for the Coca-Cola Corporation for six years as Information Systems Manager for their South-West Asia Region, spanning five countries in Asia Pacific.
Kirmani holds a Master’s degree in computer sciences from the University of London, with a specialization in database management and information systems, along with an MBA from IBA, University of Punjab. He is the President of IBA Alumni Association and has been the Vice-President of the Pakistan Software Houses Association (PASHA).
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?
Ghauri: “Our initial idea was to create an IT services/outsourcing company based on the Indian model. However, we realized that competing in the outsourcing world would not bring the growth we desired. It became clear to us that we would eventually become a software product company. We were fortunate that this opportunity was provided to us by a customer, Mercedes Benz Taiwan in 1997. It took 12 years to evolve from this small product development opportunity to offering our own enterprise lending application.
“NetSol Technologies started out opportunistically by looking at a broader market. We experimented with various domains including healthcare and information security, as well as public sector automation projects. However, over the years, our approach became narrower and more focused. Today, we are a lending enterprise software company. We started out as a service company and then became a product company. We now like to think of ourselves as a solutions provider.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Ghauri: “NetSol’s major growth accelerators can be explained as follows:
“1. Timing: The first four years were very exciting, as it was the peak of the global IT industry and it was much easier to attain IT services contracts.
“2. Narrowing focus: Our company was severely affected by the dotcom crisis in 2001. This downslide helped us narrow our focus from offering broad IT services to software. It eventually led to our growth and strong position in the global financial enterprise software industry.
“3. Quality focus: During the lean period (2001 to 2004), we remained focused on quality. NetSol went on to attain the ISO 9001 and ISO 27001 certifications in 1998 and 2008 respectively, and in 2006 we achieved CMMI Level 5 certification, a distinction shared at the time by fewer than 100 companies worldwide.
“4. Entry into China: Our entry into China in 2005 paved the way for several implementations. NetSol has a leading market share in the captive auto-finance segment in the Chinese market.
“5. Human-resource-driven cost advantage: By leveraging the low-cost human resource in Pakistan, NetSol was able to out price international competitors. It helped us win business in the initial years. Eventually, as we became more established and recognized, we were able to position our solutions as premium and mature offerings. NetSol dedicated considerable resources to training and developing its IT professionals. An elaborate training programme was followed to train resources both in the technical aspects of its complex software and the vast business domain that it served.”
Kirmani: “Our first contract in China was an important breakthrough. The customer, Mercedes Benz Finance China, was headed by the same person who oversaw procurement and implementation of our solution at Mercedes Benz Finance Taiwan. He became a champion and a supporter, as the choice for them was either to go with us or develop their in-house system. One of the customer’s concerns was whether our solution could handle the volumes they were expecting. They decided to invest in us. NetSol gained an important new market entry and our solution became China-ready, compliant with local requirements. More business followed. We soon decided to set up our sales representative office, which was later upgraded to a higher status in accordance with Chinese law, to allow further hiring.
“We have conducted intern development programmes to train fresh engineers to our exact requirements. We also encouraged and incentivized engineers to seek professional certification. The exposure that our professionals gained from working at customer sites helped them acquire a better understanding of different cultures and work environments.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Ghauri: “Founders of NetSol Technologies were entrepreneurial and risk takers. While most IT businesses looked towards the developed Western world, we decided to focus on the APAC market, which was easier to access from our base in Pakistan. Pakistan also provided access to a high-quality resource pool at low cost.
“NetSol benefited from being a publicly listed company, as this gave us the opportunity to raise funding/financing through stock markets. Being a US listed company also gave us access to advisers in US, including those on the company board.
“The company benefited immensely from the favourable regulatory framework and infrastructure in Pakistan, as it allowed tax exemptions on Software exports. NetSol’s location of its global delivery centre at Lahore is an important component of its business model, as the city is a centre of learning and education in the country, with an emerging infrastructure. The cultural and societal support and respect for entrepreneurship in Pakistan has contributed to NetSol’s growth. Pakistanis are very entrepreneurial, as many people chose self-employment in the face of unemployment in the urban areas.”
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.
Ghauri: “The key aspects of the entrepreneurial ecosystem that created the greatest challenges were: limited funding, a lack of opportunities in automation, and security challenges. There are very limited funding opportunities available in Pakistan. But public listings in the US and later in Pakistan helped us finance our growth.
“Both the government and the private businesses have been slow in the uptake of information technology. This has affected the growth of the IT sector in the country. Security challenges in Pakistan have affected countrywide business activity. NFS, our enterprise solution for our global financial customers, is mission critical to them. Given such dependence, we often see an initial reluctance to invest in our product. They fear that the country’s security challenges could affect our ability to serve them round the year.”
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?
Ghauri: “From 2005 onwards, we started acquiring companies internationally. In 2005, we acquired CQ Systems in the UK, and in 2006, McCue Systems in the US. Later, we set up offices in Thailand, China and Australia. In 2009, we formed a joint venture with the Atheeb Group of Saudi Arabia to create Atheeb NetSol Limited.
“Once we had established a mature software product, we felt we were ready to expand internationally. Initially, we chose markets based on accessibility and similarity to the markets where we were already operating. In mature leasing markets like the US and UK, we decided to acquire companies to avoid additional challenges associated with start-up companies.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Ghauri: “Pakistan’s image was a big challenge in building growth internationally. Obtaining travel visas for our staff to visit customer locations was often difficult. It was almost remarkable how NetSol was able to overcome such challenges by emphasizing its international quality certifications, strong infrastructure, experienced team of professionals and growing customer base.”
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?
Ghauri: “China was just opening up to lending around the time we entered that market. This created opportunity as well as complexity in dealing with them. Language and cultural barriers posed real challenges.”
Kirmani: “Our entry into China went very smoothly, as we were able to leverage our credentials from an implementation for the same customer in Taiwan. However, further growth brought out new challenges in dealing with Chinese customs and language. We originally put a British manager from our UK office in charge of our China office, assisted by a senior Pakistani project manager. However, we continued to face difficulties in working with local clients and other contacts. Eventually, we put a new team in the office consisting of Chinese nationals to conduct the front office and first-level contact with locals and Pakistani technical staff in the back office.
“Dealing with our multinational customers in China from the captive auto-finance segment was in some ways easier, as they already had international exposure. The high point came when we won business with the second largest bank in China for automating their big-ticket project financing business. By that time, our growing ability to follow Chinese customs and language became useful in our negotiations with the Chinese customer, and we were able to carry out this challenging implementation successfully.”
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.
Ghauri: “The high moment in seeking international growth was in 2000 when we were awarded a US$ 2 million contract to build a complex contract management system for our customer in Australia. This was a significant development for a relatively new company. The project helped us gain knowledge of end-to-end enterprise software development, and thus helped us establish our own application.
“The dark moment was in April 2001 when there was a shareholder takeover attempt in the US that shook the company and took a great deal to fight off. It was the time when our company had been affected by the dotcom crisis and our share price had fallen from US$ 79 to 10 cents. As if that was not enough, one fine morning we found that a group of shareholders had broken into our US office and taken control. They prevented us from entering. We had not expected events to unfold in this manner, and we were left shocked and disappointed. However, we decided to fight back, and after a legal battle that lasted several months, we won a court decision to regain control of the company.
“Those were tough times. The company was completely cash strapped. We had to sell some family property to keep the business going. The company had to face major layoffs, but we stuck around and eventually the business revived. In hindsight, I feel that we took some bold measures and remained very watchful, but did not overreact.”
Kirmani: “The hedge fund shareholders in the US called a meeting on their own when the share price fell drastically. In their attempt to take over the company, they appointed their own chairman and forcibly took over the company office by breaking the locks. The founders had to fight a court battle that took over one year before they got a favourable court ruling and were able to restore control. In the meantime, the office in Lahore went through a very tough time with major cutbacks in staff. The company’s business was primarily services and the product was in its very early stage at that time. NetSol also lost a major service contract with a client in Europe because of this situation that constrained it financially. It was the resolve of the founding team (the three brothers) that helped pull the company through that difficult period.”