ARN report: Channel looks to expand in tight economic climate

IT industry representatives remain upbeat about prospects in the short- and long-term and are planning to expand their businesses, a new ARN survey has found. But many admit the global economic climate has taken its toll on customer spending and profits.

According to the results of ARN’s first-ever Business Index survey, 65 per cent of respondents were in either the same or a better financial position in December than they were a year ago, with 41 per cent reporting their financial situation was stronger. Sixty-two per cent also expected to be in a better financial position next year.

Several of those experiencing improved trading conditions said they had optimised and/or evolved their business models to adapt to the new economic climate, trimmed expenses and increased their focus on profitability. Several attributed growth to expansion into other states or complementary product areas.

However, the volatility of the Australian dollar against international currencies has seen costs rise and revenue and margins are tightening.

“Look at business and consumer confidence: Credit is tough, cash is king, capital projects are being pushed out. ERP projects are a big loser – no one is willing to add intangibles to their balance sheet now. It is false economy but these are the times we're in,” one respondent said.

“We are only just entering the downturn; there are some people with the misguided belief that this will all be over in the next six months and have hidden under a rock hoping it will pass,” another claimed. “These people will not be in business in 12 months’ time. We are preparing our business for very difficult trading conditions to carry into 2010 and have re-forecast accordingly.

“If the turnaround happens before then, it will be far easier, profitable and positive to build than to continue to have the cloud of negative announcements, trickling redundancies and blind hope hanging over our heads.”

The ARN Business Index is based on a standardised list of five questions sent to a broad cross-section of the IT industry and channel each month. Although many of those surveyed were positive about their own businesses, 56 per cent expected the Australian IT economy would be worse over the next 12 months. Just 15 per cent predicted it would improve.

“The IT industry is somewhat shielded from tough economic times, however I believe the downturn will be so severe that even IT will suffer, albeit less than many other industries.

"Once people realise that the economy here is in good shape compared to those in the US and Europe, confidence will return and business will be strong,” one company representative claimed.

Others saw more local job cuts driven by the US and predicted more competitors would fall as margins dropped.

Despite the short-term challenges, the majority of those surveyed were optimistic about Australia’s economic environment down the track. Eighty per cent said they expected good economic times in five years’ time.

“The next two years will be bad in a similar degree, then should turn better as consumer confidence will resume gradually and eventually,” one said.

While customers were kerbing capital expenditure, services around maintenance and support are more in demand. Technologies which helped customers to increase IT and productivity efficiencies, such as virtualisation, cloud computing and unified communications, as well as managed services, are also expected to continue growing in popularity.

As a result, 57 per cent of Business Index respondents were expanding their businesses and said they would look to acquisitions and staff hires to drive growth.

“We need to get the most out of what we have, not shrink in size nor grow in numbers of staff or overheads,” one company said. Another planned to hold out for 18 months then expand to avoid “the next IT rush”.

“Competitors are cutting back. Our aim is to gain share versus our competitors and be well positioned for the next upswing,” another organisation said. “Acquisitions will cost much less since higher geared companies are struggling with overheads and flat growth. Scales of economies are more relevant.”

If you’d like to participate in ARN’s Business Index, please send an email to nadia_cameron@idg.com.au.