Out of Service?

Out of Service?

KAZ Computer Services' recent acquisition of Aspect Computing created a 2500-employee IT services firm which has the resources to compete with the largest of the international tier-one players. But can KAZ, or indeed any of Australia's homegrown service providers, compete for large contracts on a playing field that is not always level?

Many of the most lucrative contracts sought after in the IT market are for the supply of products or services to the regional offices of large multinational corporations. But getting your foot in the door for these contracts is not an easy task for even the most competent local services company. A growing trend in the IT services/outsourcing market is for large multinational corporations to try and extract price value through deals with service providers that have global presence.

A former CSC employee now working for an Australian services supplier said the international players tend to "lock in" global customers. He said even if the Australian office of an international customer wanted to go with a local services company, in many cases the cost of migrating its hardware from the existing supplier's data centre to the local supplier's is prohibitive. "Even if they wanted to, they just throw their hands up and say it costs too much," he said.

John Grant, CEO of ASX-listed services company Data#3, said in an increasingly globalised economy it is a fact of life that Australian services companies will have to contend with global deals being struck overseas.

The pragmatic answer, according to Grant, is either "do your damnedest" to work with the large international services companies on a sub-contracted basis or target customers that you can win.

David Evans, managing director of Volante Solutions, agrees that it is important for any service provider to know where its market is. While it is necessary to have ambitious plans for growth, large multinational companies, which tend to sign international deals, are not always worth pursuing. "You work incredibly hard to get a reputation for doing an outstanding job for your customers," he said. "If you pitch for a huge deal and can't manage it, you are only going to do harm to your good name."

While some large international services companies have a significant presence in Australia, Grant said it is unlikely they will be able to meet all the service-level agreements specified in global service contracts in the local market. As such, considerable revenues can be garnered from sub-contracting to international services companies without assuming the full financial responsibility inherent with being the prime contractor.

There is a consolation for Australian services companies excluded from international deals, according to Grant. The magnitude of these contracts as well as their geographic diversity often results in deals brokered on extremely thin margins. So while the dollar figure sounds impressive, the cost of tendering for the business combined with the cost of fulfilling the agreement does not equate to large profit margins, Grant said.

KAZ's managing director, Peter Kazacos, is confident that attitudes are changing in regard to large outsourcing deals and he is adamant the newly merged KAZ/Aspect business will compete with the largest international service providers. He said there are a number of multinationals that have abandoned international deals to ensure that each office gets served by the best provider in that geographical area.

"There are a number of multinational clients that we provide services for in Australia," Kazacos said. "Organisations should be looking at the best service provider in the region rather than who is servicing them in Europe or the US.

"From a services perspective I see no reason why you would choose anybody but the best provider in your area.

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