Offshore outsourcing is the only way the New Zealand IT industry will be able to meet its growth targets, says Simpl Group managing director Bennett Medary.
“The demand in the New Zealand market at the moment is stronger than it has been for three years, but it’s nowhere near the demand that the government would like or the local industry would like,” he says.
“My personal view is that the domestic market is not strong enough or confident enough to support the ambitions that I know most of the New Zealand IT outsourcing companies have. The New Zealand market cannot provide the levels of growth and earnings that the government would like or the local industry would like.”
Local IT firms are enthusiastic and innovative, but will compete with companies in countries such as Israel and India that are closer to world markets, Medary says.
He believes New Zealand companies need to develop products and knowledge to successfully outsource.
“We are more expensive than India in terms of our labour costs; we probably aren’t talking about selling commodity labour,” he says. “[New Zealand] can’t achieve its aspirations by selling time.”
Software produced for local use can form the basis for offshore sales, says Medary, and he’s keen to see the government play a leading role in purchasing software from local firms.
“We actually have some good New Zealand IT solutions which are very good, which work in New Zealand context, but scale well and could be used in other environments.
Large foreign-owned ERP vendors have done “spectacularly well” here because large organisations such as hospitals overlook local vendors, he says.
“Many of our corporations in addition to our government have spent a lot of money unnecessarily.”
Local firms are also “hugely hampered” by communications costs, Medary says. Communications technology and the infrastructure are readily available but not used to their potential.
“The whole thing is undermined because it costs a fortune to send some data down the pipe. It’s not the size of the pipe, it’s not the technology, it’s the cost. The solution has to be around getting genuine competition, getting these communications costs down.”