Moving from a large American multinational to a local Australian company has given me an interesting insight into the support that our government provides Australian businesses in their purchasing policies.
There has been a tendency in government IT purchasing over the years to award contracts to the lowest compliant bidders. This frequently results in the business going to large international organisations, which are usually American.
Why? Because the US companies can price aggressively thanks to the strength of their revenue and profit streams abroad, and because they do not want to be too profitable in Australia due to the high taxation rates. By maintaining high transfer prices and management costs, US companies can ensure that minimum profits are achieved here, with most of the money being transferred overseas.
Compare that with the local Australian businesses that have to make a certain margin on sales to cover the excessive taxation rates. But are government agencies fooling themselves and causing significant problems for Australia? As the largest spending body in this country, the government can have a major impact on the success of local businesses as well as our balance of trade. Certainly it must be attractive to procure a large IT project for the cheapest price, but if most of that money flows overseas, where's the benefit? By awarding it to an Australian business, the price might be marginally higher, but part of that will be returned to the government in taxes and contribute to employment and the economy in general.
Granted, many Australian businesses still have to buy product from the international vendors, but often at a lower price to enable them to make the required margin (resulting in less money leaving our shores). Furthermore, they are able to charge for professional services and support.
How are we supposed to compete with multinational organisations that can take advantage of our own tax regime to compete against us, discounting prices and running at a loss locally, while declaring profits in their home base? They are squeezing out local companies that have to meet Australian tax obligations.
While the government has made a number of statements and initiatives that claim to support SMEs, this has mostly proven to be lip service, with just the bare minimum being done to comply with these guidelines. It would be interesting to see an accurate breakdown of how much of the total IT spend by the government has gone directly to international companies against local ones. I believe that would be an eye-opener for all of us!
What is required is more than a few pacifying statements from politicians. Executive management in government departments should be mandating and enforcing a "buy Australian" policy. The Bureau of Statistics says that in 1999, 63 per cent of workers in Australia were employed by small to medium companies. A purchasing policy that supports such organisations, giving them a fairer chance when competing for the business, would have a positive impact on job growth.
I recall recently that the CIO of one of the largest government departments informed me that he would only deal with the large international vendors directly, and warned that any Australian reseller that got in his way would be swept aside. What a great attitude from someone with political aspirations!
Dick Smith has the right idea. Here's a successful businessman who recognises the very real threat to this country if, as consumers, we do not support ourselves. What a pity that similarly sound business economics and practices are not taught to our government purchasing officers. A government purchasing strategy that truly supports Australian companies is critical to the success of the economy.
Perhaps we need to take a more radical approach and look to Mr Smith's recent branding techniques. Something along the lines of "Dick IT" should do the trick!
Steve Dixon is managing director of Kinetica. Reach him at email@example.com