The correction we had to have

The correction we had to have

2001 may have left the global economy in tatters, but in the history books of IT, the year will be remembered for the correction we had to have.

While the market supported IT growth for the last 30 years, few would disagree that the industry, which has in the last decade grown by 30 per cent per annum, had to slow down eventually. Hit by diminished consumer confidence and the relegation of technology to the level of enabler, rather than strategic investment, the industry has been forced to rethink its modi operandi, leaving no one in doubt that the IT crisis is deeper than that experienced by the rest of the economy.

"If you look at the numbers coming out of IDC and other market analysts, you will see that the industry is going backwards for the first time since 1985," commented Kent Duston, CEO of Sydney-based application service provider Cavillon. "With PC shipments being down year-on-year and businesses ceasing to see the Internet as a commercial tool, it is obvious that confidence has left the economy."

Though part of the natural boom-and-bust cycle, the correction has left deep scars in the very fibre of IT - its distribution channel. Burdened by vendor-driven growth expectations and meagre financial rewards, the channel has experienced one of its toughest years -- unprecedented levels of layoffs, bankruptcies and mergers and acquisitions -- with distributors taking the biggest hit.

"There has to be enough money in the channel to make a dollar," said Duston. "By and large, the vendors here expect the channel to do a lot of work and to bring the customers through, but the financial rewards have simply not been there for the channel."

But according to Fiona Dicker, managing director of distributor Dicker Data, not all of this year's problems can be blamed on the bad economy or unrealistic vendor expectations -- the "easy-sell" attitude in the channel is equally culpable.

"I think we got used to selling higher volumes with Y2K and GST, [and if you look at] the US, they have had three quarters of negative growth, so I guess we're in for something similar," Dicker said.

She agreed, however, that while "the market is good for lower-ticket items like digital cameras, and bits and pieces, vendors' expectation of growing 20 per cent each year has not been possible for the first time this year".

Tony Prince, managing director of Sydney reseller ComPlus, echoed Dicker's sentiments, lamenting the channel's attitude, which has created a lot of mistrust among consumers.

"I've been in the industry for 30 years and we're slow learners," Prince said. "People on the lower end of the market still sell on price, and price alone, and don't offer support to their customers. That's why we're currently suffering from the used-car salesman fate."

Nevertheless, Prince believes the correction the industry is experiencing is a result of Australia's economic condition, rather than any intrinsic industry problems. "If you look at the cost of labour in Australia, it is a lot higher than anywhere else in Asia -- we simply price ourselves out of the market."

One thing is clear: when it comes to 2001, IT will be remembered as a falling star in the global economic constellation where services-oriented business will play an increasingly significant role.

"The IT industry is back in the place it should be in -- growing at 10 per cent per annum and servicing those customers it has sold technology to over the last few years," said Peter Brain, executive director of the National Institute of Economic and Industry Research.

"There has been too much capital, too much growth, and too many expectations in this industry, but the current situation is just a reflection of the boom that preceded it."

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