Open arms and purses for IT sweaters

By CHRIS BARTON


Auckland, IT sweatshop (with air-conditioning and gorgeous scenery) of the South Pacific. Yes, it's true - the forces of IT globalisation have reached our beautiful shores.

While Opposition politicians gave knee-jerk negative reactions to news last week of a $1.5 million Government grant to multinational EDS, they missed the bigger picture.

Act MP Rodney Hide labelled the scheme "corporate welfare".

National MP John Key said such incentives should not go to "just one or two of the chosen few".

And Green MP Ron Donald said he was "extremely unhappy" that a wealthy multinational should be getting the money when small New Zealand businesses needed it more.

They all need to open their eyes.

The EDS move to add 360 jobs to its NZ operation is symptomatic of a worldwide trend in "offshoring" - cutting costs by sending skilled, high-paying jobs overseas.

The destination is usually India, the Philippines or China but now New Zealand is on the map we should be crowing. The potential benefits of being a new source of cheap skilled IT labour are huge - not just in job creation and foreign exchange earnings, but also the rub-off effect of expanding our IT services industry.

The projected numbers are large. A Forrester Research report indicates about 3.3 million American jobs and US$136 billion ($245 billion) in wages will move overseas by 2015.

IT-related work is expected to be the vanguard of this trend, growing from 27,171 jobs in 2000 to 472,632 overseas jobs by 2015.

Other businesses, including call centre services, back-office accounting and legal services will follow.

Even if the numbers are exaggerated - and they probably are - getting even a small slice of this action has got to be good for the country.

It's not great to realise how far our average salary is behind that of the US. And that our low dollar makes us look even better. But every cloud has a silver lining.

Suddenly, when it comes to cheap IT labour, we look very competitive. We don't quite foot it with India, where top programmers earn about US$20,000 ($36,050) a year compared with US$80,000 in the US. And while our call-centre workers earn quite a lot more than the US$4000 to US$7000 of their Indian counterparts, most would be a long way shy of the US$35,000 to US$39,000 salaries of their American equivalents.

We also have a good climate, spacious offices and air-conditioning which puts us at an advantage over India.

The tropical climate, lack of air-conditioning in many offices and cramped spaces have led some to label India's IT industry a "data sweatshop atmosphere".

New Zealand's stable political climate, helps too. As does our location, which means our workers rise while much of the rest of the world sleeps - great for "follow the sun" 24-hour help desk facilities.

Our largely English-speaking and reasonably IT-skilled workforce is another plus - although some of the help desk and software development and support jobs are going to require multilingual skills.

So the Government's immigration policy is just the sort of thing multi-nationals like EDS want, not only to provide skills lacking in New Zealand, but also to cover a continuing shortage of IT staff.

Is this a good thing? It depends on your point of view. IT workers in the United Staes are not happy. The Washington Alliance of Technology Workers has called for a congressional investigation of IT "offshoring".

"We need to look much more closely at the ramifications of this disturbing trend - on US workers, the communities in which they live, and the future economic and technological security of this country."

But from EDS's point of view, its 16 Best Shores facilities are a great strategy to make 30 per cent to 40 per cent cost savings.

Ditto for IBM and Hewlett Packard, which have similar schemes but have not yet discovered that Kiwi workers are cheap.

Is it good for New Zealand? Undoubtedly yes.

Look at Indian technology services companies such as Infosys and Wipro, which have been largely responsible for creating this overseas competition.

In the past two quarters both increased their revenue by 26 per cent at a time when American companies face flat or falling sales.

More than 300 of the Fortune 500 firms do business with Indian IT services companies, says research company Gartner, which predicts that by next year, more than 80 per cent of American companies will have considered using overseas IT services.

And India's National Association of Software and Services Companies says the country's call centre and business process outsourcing industry grew 70 per cent during 2001-2002 to US$1.46 billion in revenue - a figure it believes will jump to US$16.94 billion by 2008.

If New Zealand could pick up just a fraction of this sort of market, our IT industry would be sitting pretty.

Which brings us back to the $1.5 million our Government has dropped in EDS's lap to help win this deal.

In the scale of this market, it's a paltry amount - especially when you consider the tax breaks, rates holidays and cheap loans other Governments are offering to win the favour of multinationals.

With such sums - refundable if the jobs don't eventuate - we're getting multinational investments on the cheap.

But one deal will not be enough to boost our tiny IT industry. If the Government wants to catch the "offshoring" wave, it needs to make more of these deals - and quickly.

And to really expand, the focus should be wider than just multinationals. I'm sure a number of local IT services firms such as Datacom and gen-i would welcome $1.5 million assistance to expand their operations too.

* Email Chris Barton