analysis While it would be inaccurate to say that the ICT industry in Australia talked itself into a recession, the slowdown didn't need to be as abrupt as it was. But it wasn't entirely the doing of the local market.
In our role as analysts focused on the Australian and near-shore economies we consistently see an over-reliance on US-based brands
According to a presentation by the Commonwealth Bank's Craig James in late July at an economic development luncheon in Brisbane, the three countries that provided the heftiest super stimulus packages for their economies were the US at 5.5 per cent and Korea (5 per cent), followed by Australia at 4.5 per cent (as a percentage of GDP).
Yet each still slipped into the red. When it comes to conversations regarding world economics, future super powers, and global saviours of the economic crisis, most pundits revert to the common belief that India and China will drag the world up by its boot straps into a long and prosperous recovery. And it is a fair assumption given that while both countries have been experiencing economic slow downs, they have still managed to maintain GDP growth in excess of 5 per cent.
This is certainly significant for Australia, where it is well documented that the hunger for primary resources to feed these economies is a major driving force for the local economy.
Yet for the ICT industry directly, it is quite difficult to get too excited about booms in the mining and manufacturing industries as they struggle to feed these hungry nations. In a comparative measure of other industries, both mining and manufacturing actually feature well down the list of high-spend targets. After all, at the end of the day a new mine site simply represents a new line item or more physical assets to manage within an existing ERP system, or maybe deployment of a remote wireless network requiring a manageable amount of new Cisco kit ordered from a pick list and deployed with regional professional service implementations.
For evidence of this one needs to look no further than Australia's own Mincom, which has operated for 27 years providing ICT solutions to the global mining and engineering industries. Mincom now operates in 13 countries, partners with all the largest international vendors, and still barely exceeds AUD$200 million in annual revenue; a figure little more than twice Oracle's consulting fees in Australia alone.
But despite mining and manufacturing being traditionally low ICT spend industries, the confidence factor that these industries bring to the wider economy does have wider industry implications for ICT.
Unfortunately, the resource-driven confidence that is returning to the economy based on the economic success and stability of India and China does not translate into Australian ICT economy confidence because as an industry we are tied too closely to US ICT companies. Australian companies can improve the impact of future economic downturns with regards to ICT by considering how they can do more business with Indian and Chinese technology and solution vendors as a percentage of their international ICT portfolio spend.
In our role as analysts focused on the Australian and near-shore economies we consistently see an over-reliance on US-based brands that sit prominently in the top quadrant of various foreign market analysis methodologies. Ironically, those same quadrants often become the starting point for conversations with clients struggling to find market relevance and vendor support in this part of the world.
While this is not an argument to necessarily further the cause of geographically local technology companies, Australia certainly needs to do more to de-couple itself from an over-reliance on the boom or bust impacts that the US ICT Industry brings to Australia's own ICT industry. In the case of the latest recession, under-confidence in the US is still bleeding into Australia despite a much healthier outlook here, as well as in China and India.
The fact is that US-based ICT firms have a much greater reliance on the US economy than they do in their countries of operation and as such many of them are now re-focusing on balancing their own internal portfolios to address this shift.
For example an IBM restructure in the past 12-months saw the establishment of a Growth Markets Unit which covers multiple, geographically dispersed regions. Make no mistake that in terms of North American budgets, these geographies represent the fringe of investment priority.
Top Chinese and Indian ICT alternatives for
Australian and near shore companies
(Credit: Longhaus)
In 2005, one of Longhaus' first research studies started with the hypothesis that Australian companies wanted to know more about and do more business with Australian and near-shore ICT companies and service providers. It was a hypothesis neither confirmed nor denied in practice. Yet over four years of qualitative interactions we can say that little to no consideration is given to local procurement nepotism or bias.
We now suspect that such parochialism is purely rhetoric and therefore in most subsequent interactions with companies have challenged this notion as a true driver for procurement. In fact many bilateral free trade agreements (FTAs) actually prevent such practice both in theory and execution. In that sense, the barriers to the increased adoption of Indian or Chinese ICT vendor products and solutions are emotive and intangible. They are subject to the standard buyer behavioural modelling of early through late adoption and at this stage there has not been enough early adoption momentum to start the wave.
That being the case, then the continuing rise of the eastern vendors is simply a function of time seeking a catalyst for an economic tipping point. Longhaus believes that the current economic crisis could be one such tipping point. A quick comparison between major US, Indian, and Chinese ICT brands (see Table 1) which are capable of providing solutions in thismarket highlights that access is not an impediment for strategic procurement relationships with these companies.
The opportunity for the end-user organisation is to consider the economic benefit of stability that a global risk management approach to ICT procurement within the ICT vendor portfolio can offer. The Australian government's role should be to cautiously carry the canary in the cage down the mine through encouraging trade missions to Australia's alternative ICT hot spots in north Asia, in order to build confidence in the acceptance of eastern technology providers.
Australia has already lost the main battle to Singapore to secure the construction of regional cloud computing centres for all the major US multi-nationals. The focus should now shift to attracting the next wave of global heavy-weights before those battles are also forgone.
Without due consideration, and as Australia continues to mature as an ICT consumer, continuing reliance on an under-confident primary supplier such as the US will present itself more dramatically during future down-turns regardless of the current fortunes of the local ICT industry.
Until today, global recessions have always highlighted the sales and marketing focus of multinational operations in Australia. Spending reduces considerably, event and other public momentum retract, and fiscal decisionmaking reverts without exception to overseas spreadsheet managers. Despite protestations, the end result is that all context is lost about actualities in the local market.
At present the market share of the Indian and Chinese ICT vendors in Australia is barely noticeable and therefore a discernible level of activity that is different from their US competitors cannot be gauged. But suffice to say that a more balanced source of technology solutions would go some way to increasing confidence when more of the nations ICT sentiment is shared with Australia's near shore neighbours rather than shackled to the discretion of a North American marketer identifying cost-reduction centres across a global portfolio within a Growth Markets Unit.
Quite simply the only way to attract such companies is to engage with them through a local presence which also provides local economic value such as the campus-style investments of the Indian service companies. Given a comparative lack of interest to date it seems that local presence by these firms is a prerequisite to Australian interest which in itself will support a more stable ICT economy into the future.
This article is by Peter Carr, managing director at Queensland-based ICT analyst firm Longhaus. It first appeared in the company's journal Longview and is published on ZDNet.com.au with Longhaus' permission.
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Sorry, what does this even mean?
"Yet over four years of qualitative interactions we can say that little to no consideration is given to local procurement nepotism or bias. We now suspect that such parochialism is purely rhetoric and therefore in most subsequent interactions with companies have challenged this notion as a true driver for procurement."
There has to be a better way of expressing whatever this was supposed to say.