Computer services industry faces uncertain times in AU

The computer services industry in Australia faces uncertain times, with the further transfer of labour-intensive activities to "highly skilled cheaper labour countries" and government reaction to "cost or service promises not being met" potentially undermining growth, an analyst claims.

The computer services industry in Australia faces uncertain times, with the further transfer of labour-intensive activities to "highly skilled cheaper labour countries" and government reaction to "cost or service promises not being met" potentially undermining growth, an analyst claims.

In an independent report included in an information memorandum about Telstra's planned acquisition of local outsourcing provider the Kaz Group, Deloitte Corporate Finance said the industry's outlook remained uncertain despite current estimates for overall Australian information technology spending growth of 4 percent per year on average until 2009.

"Export market growth is anticipated from selected countries in the Asia-Pacific region, however, the industry is facing the increasing prospect of the further transfer of labour-intensive activities to highly-skilled cheaper-labour countries," Deloitte said.

"In addition, due to cost or service promises not being met, some government contracts are likely to be insourced and many federal government outsourcing contracts have been cancelled, put on hold or broken down into smaller contracts (selective outsourcing)".

The South Australian government in particular, which signed a massive whole-of-government outsourcing deal with EDS in 1995, is now adopting a "selective sourcing" stance designed to keep tighter control of costs, while another EDS client, the Australian Tax Office, has also broken up a whole-of-agency deal with the heavyweight.

Deloitte described the computer services industry in Australia as "highly fragmented and mature," with success tied to scale of operations, quality and service reputation and brand recognition. The industry employed around 65,000 people in 2002/2003 and generated revenues of AU$9,786 billion.

The top four companies in that year, including IBM Australia, CSC and EDS, accounted for around 38.5 percent of industry revenue.

The Deloitte report comes as Telstra and Kaz sell the telecommunications giant's bid to Kaz shareholders, with part of the agreement being that Kaz be operated as "a stand-alone ICT business of sufficient scale to be a ... leader in the ICT marketplace," according to acting chairman Peter Housden.

"While Kaz has had a history of strong and successful growth to date, over time, the convergence of communications infrastructure, networking services, IT services and [business process outsourcing] is driving customers to demand a full range of ICT solutions from their IT and telecommunications service providers," Housden said in the memorandum, released to the Australian Stock Exchange.