Despite an abundance of talent, Australia's IT industry faces an uphill battle to prove it can play a serious international role. Spiralling skills shortages, difficult tax policies and scarce investment funding raises the question: will we sink or swim in the race to global market domination?
The one thing agreed upon by just about every observer of Australia's IT industry is that we have no problems when it comes to producing brilliant and talented people.
Our universities continue to churn out graduates with both the technical and business smarts to match any country in the world.
Yet, Australia appears to be in real danger of being reduced to technological minnows on the world stage.
According to a report released earlier this year by GartnerGroup, Australia's trade deficit in IT goods and services could reach a staggering $45 billion by 2005.
In fact, Gartner VP Bob Hayward has described Australia's performance as a producer of IT as "woeful".
What's more, while Australia is the most sophisticated user of IT in the Asia-Pacific region, neighbours like Singapore and Malaysia have outperformed us tremendously as an IT exporter.
How can Australia have such talented people and be such a sophisticated user of IT yet be such an under-performing IT producer? It's even harder to contemplate when you consider such factors as Australia's multicultural and multilingual nature, which makes us perfectly suited as a regional base, and our high quality of life, which should enable us to attract skilled labour and retain our own talented people.
However, according to LAN Systems' chief marketing officer Nick Verykios, a passionate supporter of the local IT industry, Australia is finding it increasingly difficult to hang on to our best people who are lured overseas by great opportunities and massive pay cheques.
"People are leaving this country because there's no incentive to succeed," he said.
Verykios, who built his distribution company 1World up from nothing before selling out last year, is, like a lot of people in this country, clearly disillusioned with Australia's tax policies.
"Why would I want to try and build a 1World again?" he asked. "I'm automatically lumbered with this partner who gets 50 per cent of all my profits and who takes another 50 per cent when I sell. Yet if I go bust, they get to bail out before I do. The Government doesn't take any risk. They weren't giving me anything back when I was running at a loss, they weren't doing anything to help me employ people and create jobs. Am I being critical of the Australian Government? Absolutely. They can say to themselves, 'Aren't we clever because we stuffed the industrial revolution with Menzies, and now we're about to stuff the technological revolution.'"In the face of such criticism, it seems that finally the Federal Government is seeing the light. Prime Minister Howard has publicly recognised that the Capital Gains Tax is a significant barrier to attracting investment in local high-tech companies and the Ralph Report has clearly recommended the abolition of the tax.
"The Federal Government is aware of the issues and they are moving ahead as fast as they can but it has to be remembered that they don't control the Senate," said IDC analyst Graeme Penn.
"The question is: is it going to be enough and soon enough? That's largely going to depend on how quickly other countries in this region move because we are definitely playing catch-up," he said.
Many in the IT industry don't just want to see the Government ease their tax burden, they are also looking for more encouragement and support.
"Rather than taking money out of the industry, it should be putting money back in," said Verykios.
"For example, there should be R&D credits where Australian companies are rewarded for investing in research and development.
"Where is the money that is going to enable us to build our own Silicon Valley?" he said.
"If anyone believes that's beyond us, they should go and take a look inside our universities. Go and look at the standard of student that is being produced at the University of Wollongong."
"I think fundamentally the quality of people in Australia is as good as anywhere in the world," said IDC's Penn. "What Australian companies need is a combination of vision and resources because you don't get far without both of those attributes."
Verykios argues that there are enough people with ideas and there are even enough people with the money to back good ideas.
"People aren't finding out about good companies until they've been sold overseas," he said.
Clearly there has been an increasing trend in recent years for global companies to buy into the Australian market by snapping up smaller local companies.
"That's the only way for an international company to break into the Australian market," argued Verykios.
While many in the industry cringe every time a top local company is acquired by overseas interests, not everyone thinks foreign buyouts are a negative thing for the Australian IT industry.
"What it does is release capital resources that can then be redeployed," according to Penn. "You are opening up the market to additional investment because people who have been bought out rarely go and sit on a beach. They generally jump back into the industry a little down the track with something new."
So where should Australian companies invest in order to best launch the country onto the world stage as a technology superpower?
"We've got to somehow sell our intellectual property," said Verykios. "We have the intelligent people so we have to focus on that. With the size of our market, we're never going to achieve the critical mass we need to be a big manufacturer but I think we can gain critical mass when it comes to ideas."
Penn agreed. "Unless we're adding value to a basic idea, then we're not going to do hardware manufacturing as well as other parts of Asia," he said.
"However, software is definitely for us and services is definitely for us. We're way ahead of Asia on both those counts and those capabilities can be rapidly developed here and exported."
The Gartner report similarly identified application development and services as big opportunities.
"Within the next several years, large numbers of Asian companies will be struggling with installation, implementation and operations management challenges with ERP solutions; Australian-based companies will be well positioned to provide services to help," said Hayward.
He also suggested that software developers and hardware manufacturers should forget about "reinventing the wheel", instead focusing on building niche solutions based on industry standards like NT and SAP.
Penn also believes that Australia should grab the opportunity to invest in other companies from other parts of our region. "Just like foreign companies can invest in our firms, we can do that in other countries. In effect, you're growing the entire pie and we should have the vision to do that as well."
If Verykios has one criticism of Australian IT companies it is that they sometimes suffer from short-sightedness when it comes to that type of vision.
"Too often I think Australian companies worry about protecting their own market share or trying to steal established market share rather than seeking out new markets and trying to grow the pie," he said.
Colin Daggar, general manager, sales and marketing, at Australian modem specialist Sirius Technologies, says the problem is that Australian companies are hampered by both steep tax and poor investment support.
"Technology stocks are busting to make a buck on the Australian Stock Exchange," he said. The answer, Daggar believes, is fostering an environment where investors can more easily make a financial return on local companies.
One of the biggest inhibitors is the cost of local manufacturing, which can see labour rates up to 30 times higher than those of our Asian neighbours.
Wayne Morris, managing director of Australian reseller Volante, agrees, but believes the problem is more acutely felt by startups than established companies. "There is not the sort of support around at the startup level as there is in the US," he said.
Fortunately for Volante, Macquarie Bank came to its investment party, giving it the financial and strategic advice needed to maintain annual growth of around 35 per cent. According to Morris, the key to success is finding a backer who offers sound business skills. "I think you need some good external advice," he said.
The difficulties have forced local companies like LookSmart and LibertyOne to seek financial backing from US tech stock-central Nasdaq.
So is there another way? One Australian company that is making a name for itself on the international stage is software developer Odyssey Development.
The company bit the financial bullet and opened a US office seven years ago to take its business into new markets off its own financial bat. Odyssey's flagship product is ISYS, a search engine for PCs and corporate LANs and WANs.
According to Ian Davies, the company's managing director, the only way to succeed is to plant your feet on the ground in the US, despite the financial risk. "You've just got to be a player," he said.
For Davies, the goal is simple. Build the business by generating exports. "There is no higher ideal," he explained, arguing every Australian company should focus on other international markets.
Another Australian company with a global mindset is children's Internet portal Kidz.Net. General manager Michael Fisher said the key to growth and export success is building economies of scale.
For Kidz.Net, half the exercise is simply producing a product that is relevant. "We have to be very careful to regionalise our product," he said.
As a result, it appears the road to Australian business bliss appears caught somewhere between an investor, niche product and a tax break.
Local or international success will be determined by a company's confidence in its ability to succeed.
Chris Leach, group manager, sales and marketing, at Australian IT services company Senteq, describes the local market as "extremely healthy".
While he concedes the country still has issues with poor infrastructure access and skilled staff shortages, Australia offers a wealth of opportunities.
"Players who go niche will do very well, players who go broad will do extremely well," he commented.
IOCOM, an emerging IT services and outsourcing outfit, also maintains a healthy outlook after redefining a niche for itself in the SME market it classes as companies with between 20 and 250 workstations.
Previously, IOCOM offered IT services exclusively to large companies, but has since discovered SMEs have largely been ignored. "They generally have no defined IT strategy," explained Phillip Walter, IOCOM's director of strategic consulting. With a new market essentially untapped, Walter is looking for methods of developing the business beyond its traditional self-funded roots. "We're getting to the stage where investment is needed to grow further," he said.
For growing Australian distributor BCN Technology, the key is knowing exactly what your business is trying to achieve. BCN's marketing manager, Maxim Bolkovsky, says he doesn't want to become "another Tech Pacific" with too many clients. "We want to stay personal with our customers," he said.
Or perhaps you will learn that your biggest claim to fame is simply promoting yourself as an Australian business. "I think it's a big advantage," Bolkovsky said. "People know your profits stay here."