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Policy to Encourage Software Development Needed

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Tuesday 15 May 2001

John Ridge

A recent Boston Consulting Report highlighting Australia's $3 billion trade deficit in sales of packaged software comes as no surprise to the ACS, which has long been calling for more intentional strategies to support and grow our local software industry.

According to the report, Australia has missed the boat when it comes to developing its own software industry and lags behind Israel, India and Ireland in this area.

Prepared for the Business Council of Australia, the report revealed that Australia purchased packaged software worth $4.2 billion last year, but actually produced less than $1 billion in software locally.

It said that if Australian software exports were comparable to the middle stages of industry development in Israel and India (five per cent of total merchandise exports), we would be exporting around $9 billion of software products and services by 2005.

The report called for the creation of an Australian software coast along the eastern seaboard to compete with California's Silicon Valley and India's Bangalore, and recommended that local IT companies focus on products rather than services since they have the potential to deliver greater return.

It also highlighted the fact that government-related initiatives play a fundamental role in the development of our domestic software industry by driving innovation, accelerating rapid adoption of e-business technologies, growing a skilled labour force and developing world class infrastructure.

Of course, none of these strategies are new. Past policy papers and strategy documents have consistently pointed to the important role that government must play in preparing Australia to take full advantage of the digital economy.

Therefore, we are encouraged to see that in the last month both the Government and the Federal Opposition have announced policy documents that seek to arrest the shortfall.

In late April, Senator Richard Alston released a new Industry Development Framework for IT Outsourcing which seeks to create opportunities for small-to-medium-sized enterprises (SMEs) to participate in federal outsourcing contracts.

This was followed in early May by a Labor policy statement which detailed a comprehensive plan to use Federal Government purchasing to stimulate growth in the ICT sector.

Both policy documents recognise what most of the industry has known for some time - that the existing approach to government outsourcing has failed to deliver the desired results in the area of industry development.

One of the biggest disappointments in the implementation of the previous outsourcing policy was the way it failed to effectively foster the growth of Australian SMEs, despite incorporating strategies designed to encourage the inclusion of smaller players in large government tenders.

This is yet another case where a carefully-planned policy had significant potential to achieve results but failed in the implementation.

It is particularly frustrating to note that the Federal Government employed a number of very highly paid American and Australian consultants to monitor the industry development component of its major outsourcing contracts.

What did these consultants do for their money? It has been a major flaw in the operation of past outsourcing tenders that the so-called experts who were contracted to deliver on the government's industry development agendas have been largely ineffective. One criticism has been that imported consultants simply applied American solutions to an Australian context that required a different approach.

Surely, if outsourcing contracts are to rely on people such as these for the success of their industry development aspirations, then there should be some kind of expectation in terms of their performance or perhaps penalties for non-delivery.

Many of the Federal Government's more recent initiatives, such as the Building on IT Strengths (BITS) program and the incubator program seem to show more promise in terms of developing Australian talent from the ground up.

We as a nation need to increase our local consumption of Australian-developed IT products and services rather than automatically choosing the multinational branded product.

While some might see the current economic downturn as a time to batten down the hatches and weather the storm, we believe this is more of an opportunity than a threat. Australia should to be trying to soften the impact of the downturn and seek to improve our competitive position.

In particular we encourage the Government to bring forward some of the key initiatives outlined in the Prime Minister's Innovation Statement as a way of rapidly boosting our ICT sector.

At the same time, it is essential that we also get the process right with regard to government outsourcing. Australian SMEs wanting to break into international markets need the runs on the board with Australian government contracts to provide both the credibility and the financial stability for their ventures offshore.

Both the Howard Government and the Labor Party claim their latest policy releases will result in an outsourcing environment that favours Australian SMEs far more than in the past.

The proof will be in the implementation.

John Ridge is President of the ACS.

To contact the ACS, call on (02) 9299 3666, email: info@acs.org.au or visit the ACS Web site