Adam Gifford: US$15 billion pie vanishing fast

COMMENT

Gartner's $200,000 report on the prospects of New Zealand grabbing a slice of the US$15 billion global outsourcing pie has plenty of flattery to make inhabitants of these shaky isles puff up their chests.

There is the OE, or overseas experience rite of passage, which "puts New Zealand businesses at an advantage in working in the global market".

We also have a "can-do attitude", perhaps stemming from the early days of settlement, which helps Kiwis "look across a broad set of solutions" to a problem.

Add political stability, no obvious regional risks (besides earthquakes) and the talent pool, which, while small, is strong in both legacy systems and the latest technologies.

Labour is cheaper and productivity higher than in the United States and Britain, mainly because of the broad skills found among IT professionals here.

Feel stroked enough? Here is the small print. The race for the global outsourcing dollar is over. India won it ages ago. Two dollars in every three spent when IT-related processes are sent abroad is spent in the subcontinent. That was US$10 billion last year.

India spent the 1980s and 1990s pumping out hundreds of thousands of programmers and engineers. They spoke English. They spoke Cobol. They spoke C. Some of them, as you would expect, were very, very smart. A lot got visas to study and work in the United States.

Then Y2K came along and the world's companies had to undertake the unproductive task of making sure their systems wouldn't break down. To do this low-value work, Indian companies were able to offer factories as radical and low cost as Henry Ford's original Highland Park assembly line.

Outsourcing is all about relationships, and those 900-plus Indian software export companies such as Infosys and Tata have been able to build on those relationships to take advantage of the world's epiphany that technology and technology-driven business processing could be done elsewhere, cheaper, in the same way as manufacturing jobs.

Even the Ministry of Social Development, responsible for paying the dole to unemployed New Zealanders, uses Indian outsourcing giant Tata for database and desktop support and some software development.

Okay, says Gartner, a global firm of IT industry analysts, New Zealand can't beat India head to head, but there are high-value niche IT disciplines where the assembly line doesn't work. Go there.

But be warned. There is only a "keyhole" of opportunity for New Zealand to establish itself as a viable location for delivering IT services to the global market.

If it is not done this year, "it will be increasingly difficult to gain traction in a market where most of the countries will have already established their place in the Global Delivery Value Chain".

For now, we are not even in the "challenger" group, with countries such as Canada, Ireland and Russia. We are a step down with "up and comers" such as Belarus, Egypt, Estonia and Venezuela.

Gartner's advice is to throw everything into a consortium, based in Britain, targeting organisations there for high-value niche work to be fed back to member companies in New Zealand.

New Zealand companies have already experienced a hard enough time sourcing work across the Tasman, let alone across the world.

Gen-i went into Australia on the back of Ansett, lost that customer, and has slogged hard ever since to build up a successful business.

The largest New Zealand-owned services company, Datacom, also expanded into Australia on the back of major customers, but it took years and considerable management time building up to a 600-strong organisation - and it has nowhere near the market presence or depth it has in New Zealand.

That is in a market only three hours' flight away.

Still, the consortium appeals to many Information Technology Association (Itanz) members who are conscious of the high cost of doing overseas business development on their own, but feel compelled to try because of the limited opportunities here.

Synergy, the services company led by Itanz chairman David Irving, reported in its last financial year that it got 19.4 per cent of its business outside New Zealand. It made a $664,000 profit on revenue of $33 million - a relatively slim return for the amount of work.

Selling services is more about selling bodies than intellectual property (such as a product), limiting the amount that can be earned.

Itanz itself is planning an "Outsource2NewZealand" campaign, which Gartner suggests should be tied in with an official attempt to build a "NZ Inc" brand.

The trouble is Trade and Enterprise New Zealand, which paid for the Gartner study, has become involved in this area only recently and is unlikely to take a lead in promoting the IT industry.

Relying on service-provider-led industry associations, as the Russians did with Russoft, leads to slower progress than when Governments get behind their software export industries with tax breaks, export guarantees and other supports.

Government organisations such as India's Nasscom and the Irish Development Authority also served as a single point of reference for information on the software market in that region and gave potential customers confidence to shift mission critical systems.

Gartner judged the New Zealand Government's support for the industry as only fair, and said its advocacy of local software was weakened by its perceived preference for buying its own IT from multinationals.

New Zealand IT companies need foreign customers to fuel growth. The right NZ Inc brand should help that - "clean and green" doesn't sell software. The Government needs to be a lot smarter, and by Gartner's projections, a lot faster, in coming up with such a brand.

* Email Adam Gifford