Economics 101

Why does the government source most of its consultants, and outsource a large portion of its software development and hardware purchases, from overseas companies?

Why does the government source most of its consultants, and outsource a large portion of its software development and hardware purchases, from overseas companies?

If it hires EDS, Unisys, IBM, Microsoft or any of the other big US consultancies to provide services, it's usually Kiwis providing them, but the profits go offshore and drain the economy of vital wealth. Some of the excuses I've heard are laughable, but I’ll repeat them nonetheless.

Government: We buy PCs/laptops from Compaq/HP/Dell/IBM/Toshiba because there are no native suppliers capable of supplying and supporting an organisation the size of the government.

Such a native organisation will never exist if the government continues to award the contracts to foreigners. It's a vicious circle. You can only supply the government if you have a history of supplying organisations the size of the government. The only organisation in New Zealand the size of the government is the government, and therefore you can only have experience of supplying to organisations of this size if you can already count the government as one of your customers -- but you can only supply to the government.

In contrast, large US companies have plenty of experience in this domain, so the government buys from them and they hire local talent to fill the support side of the contract, supplying the hardware from Asia. If the government hired a native firm the same thing would happen: local people providing support, hardware from Asia, but the main profits from the contract would stay in the country. This enriches the economy, but more importantly helps to create native companies that are capable of competing in overseas markets the way US companies do over here.

Similar arguments can be applied to the higher-margin activities of consultancy and software development. You will only be awarded a $10 million project if your company has a history of working on projects of this size and above. There are few native companies offering this level of experience, and they're competing with IBM, Unisys, EDS and others. Incis is forgotten -- success in projects of this size isn't a factor. All that seems to matter is that you are a large, preferably international organisation, and that you look the part.

If the government was to award contracts like this with a preference for native companies, the money they spend would, largely, stay in the economy but also help native companies prove to the international market they really are competing and aren't just lurking wannabes.

This isn't a case of sour grapes – I'm happily consulting to a government department at the moment and am in the envious position of having them really listen to me and act upon my suggestions. But the government needs to do something soon, before native IT disappears completely to be replaced by money-siphoning foreign concerns. What we really need is for the government to decide to procure all services and hardware from native suppliers.

Dollery is a partner at GreenPulse in Wellington. Send letters for publication in Computerworld to Computerworld Letters.

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