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Australia: a haven for IT outsourcers

Protectionism is on the rise, endangering the operations of global IT outsourcers, according to Ovum, but Australia is a haven that they can count on for growth.
Written by Suzanne Tindal, Contributor on

Protectionism is on the rise, endangering the operations of global IT outsourcers, according to Ovum, but Australia is a haven that they can count on for growth.

"Protectionism is becoming a substantial issue for a lot of the outsourcers," Ovum analyst Jens Butler said, adding that borders need to be opened to encourage the easy transport of intellectual property and resources, both in terms of equipment and manpower.

Since 2009, 17 of the G20 countries have imposed trade-restrictive measures to keep wealth in their own country, Ovum said, citing statistics provided by the World Bank. These measures include tariffs on imported goods and services, taxes on foreign entities extracting local resources, quotas and bans, exchange-rate manipulation and administrative barriers.

For example, in some countries, the numbers of working visas for foreign workers are being capped, and the costs of visas are on the rise. This has made it difficult for IT outsourcers trying to service their customers as it increases their costs, according to Butler.

In Australia, the issue of work visas has been running high, with mining magnate Gina Rinehart receiving support from the government to embark on an overseas recruitment drive for temporary skilled labour to use in mining projects.

The Australian Council of Trade Unions (ACTU) doesn't believe there is any evidence that there aren't enough Australian workers for the job, saying that Australians should benefit from the resources boom.

"While resources states such as Western Australia have very low unemployment, workers across the rest of the country are facing increasing rates of insecure work. In fact, the latest ABS figures show that employment in the construction industry is actually falling," ACTU president Ged Kearney said.

It seems that such sentiments are rife across the globe. Ovum quoted Global Trade Alert as saying that damaging protectionist measures rose to 430 in 2009 — over four times higher than they were in 2007.

Ovum believes that the effects of this change might take a while to manifest, given that the average length of a contract is four years. This gives source providers the time to change their services to cope with trade restrictions. These changes could, however, lead to higher prices.

According to the alert data, Russia is the chief offender, with 263 measures. Argentina, India, Brazil, the US, China and the UK followed behind, imposing between 184 and 116 measures.

Australia only has 42 measures against it, while New Zealand has about a quarter of that.

Because Australia is being less protectionist than others, IT outsourcers will see it as a place where they can achieve growth, Butler said. "It's a growth market; it's a safe bet," he said.

"A lot of the multinational IT services providers are investing here quite heavily," he said.

Numbers from Gartner said that the Australian outsourcing market has grown 6.4 per cent in 2010-11.

He said that customers are also more receptive if the companies have a generous footprint in the country, especially now, with the current financial conditions leading to a general risk averseness.

Although many might worry about money flowing away from Australia as these services are taken up, Butler said that they need to think about the investments that the firms will make if they decide to settle in Australia. Even if they only set up a 50-man operation, he said, it all adds up.

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