GST to force contract shakeups

GST to force contract shakeups

The onset of the GST next year is set to become the stimulus for enterprises to seek out skilled management of their IT infrastructure and applications in what appears to strengthen the standing of outsourcing's viability in Australia.

According to outsourcing and services companies contacted by ARN last week, the GST will force many contracts back to the negotiating table with the additional costs of the consumption tax driving some IT back in-house.

At the other end of the scale, governments are taking the lead on outsourcing, which means many of the traditional suppliers are expecting to see medium-to-large enterprises follow. That, they say, represents new opportunities for them to involve the channel.

According to Philip Heggie, managing principal, services, at Unisys Australia, the GST is causing some renegotiation of contracts. He said that every contract is different but outsourcing deals generally include clauses relating to tax system changes.

While he feels that "the business case has definitely changed", he said that it is not affecting growth or future potential.

"When [the GST] was first announced, everybody said it would be the death knell for outsourcing," Heggie said. "But we haven't seen that.

"Five years ago, the business case was very much driven by cost savings. Today there is much more emphasis on competitive advantage. The impact the GST will have today is far different to what it would have been five years ago."

Heggie said that "cost is a key consideration and it always will be" but he feels that people are starting to look for and expect competitive advantage.

Cris Nicolli, director Compaq professional services, agreed that the future is looking rosy for outsourcing despite the GST's potential impact on its cost. He said that it is not one of Compaq's core services but it has good deals with companies such as Optus and Freightcorp while he expects demand to increase and new opportunities to arise.

"It's a tough business," Nicolli said of outsourcing. "But we will continue to invest in some form or manner and we are looking for significant growth next year."

Nicolli said that most enterprises are accepting that GST compliance is an extra cost they will have to dig into their coffers for - just as they did for Y2K. This will also be the case for additional costs involved with new taxes on services that in many instances will just be passed on to the client's customers, even though the Government is attempting to stop that from happening.

"In a lot of cases, we [the average consumer] will be the ones who end up paying for it," Nicolli said.

Donna Bullock, Computer Science Corporation (CSC) Australia's marketing director, said that the outsourcing market generally is "tough, with intense pressure on profits".

However, she also said that recent growth in the Australian outsourcing market has been "phenomenal".

"The future is strategic outsourcing where value is the currency," Bullock said. "It is all about bringing value to the business. It is also about the virtual economy and real e-commerce and the Government is taking a leadership position on this technology here in Australia. It is about to explode and we think that it will very quickly become mainstream in Australian businesses."

CSC also claims it has a role for smaller niche players in its methodology as it expects to "see outsourcing featuring in medium-sized companies" because of increased desktop penetration. "CSC will work with medium-sized suppliers and resellers who deliver specialist and niche services in our industry," Bullock said.

Locally owned services and Integration Company Aspect Computing has developed a good revenue stream from application outsourcing as opposed to full IT infrastructure deals, according to business development manager Ed Murray.

He said that the GST is an element that proves the logic and value-add benefits of outsourcing. As an example, he pointed out that many businesses have not even started to think about how the GST is going to change their business and taxation reporting methodologies.

Those companies that are outsourcing financial and accounting applications - as are Aspect's customers - will be aware of the need to address the situation because their service partner will have advised them and got them organised for the changeover.

"Applications outsourcing is proving to be ideally suited to many medium-sized businesses and we are finding that our business in that area is increasing," Murray said.

"There is no particular industry that is seeing the benefits of outsourcing as far as I can see, but it does tend to be the traditional early adopting companies and the ones that have sophisticated IT environments.

"Cost will always be a major driver, but service levels are very close behind," Murray said of application outsourcing customer-buying motives. "If they can spend the same money and improve service levels, they will be interested. If there is a dramatic cost change they can be driven to just about anything."

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