If ambition was sales – the unfulfilled dreams of the IT sector and how the export growth debate has moved on

This post started out focusing on the lack of ambition of our businesses and politicians, but noting one honourable exception – the Kiwi IT sector.

That led to BigCake wondering what has become of all this IT ambition. Unfortunately not much, from a national big-picture perspective anyway. For sure, there’s heaps of IT businesses whose results match their ambitions, but I’d guess there’s an equally big heap where reality has fallen short.

That sort of lead to the question: why’s that? Is our IT sector a bunch of dreamers or is something else going on?

And that got me thinking about how the debate regarding what’s holding our exporters back has changed in the last decade or so.

Anyway, as mentioned BigCake has been a bit obsessed by a lack of ambition around the Kiwi shop which just seems at odds with our pioneering past, though the more he thinks about it, not so much.

One group of Kiwis not so inhibited is the IT sector. What’s happened in this sector (with its abundance of dreams, energy and ideas) brings home the magnitude of the problems facing globally ambitious Kiwi companies.

If ambition was sales…

Latest export sales stats show the sector has been going backwards from $1.6 billion in 2006/07 to $1.4 billion in 07/08. Domestic sale increased a bit over that latest period.

As a result, you have to wonder whether our leaders have now given up on IT, and other high-value sectors, because they’re too hard and instead have gone and put most of our eggs back in the agriculture/commodity basket.

It’s the path of least resistance, but it’s also a risky one as the last 50 or so years have shown.

Back in 2003 the ICT taskforce came out with a set of targets for the industry to achieve by 2012, including:
• More than trebling the number of employees to 125,000
• More than doubling the sector’s contribution to gdp to 10%
• A 625% increase in the number of $100m plus IT companies to 116.

To get an idea of how big a leap the last one was, there were only 15 companies in the $50 – $100m bracket at the time. Just 16 had already made it. I think this target was later (sensibly) modified to be less focused on a number of companies and more on the 10% of gdp target.

Anyway, they’re not going to happen.

For the taskforce these targets were not aspirational – the collective wisdom of some of the brightest minds in the ICT sector (Peter Maire, John Blackham, Ian McCrae…) was that it could be done…provided there was a “serious commitment to change”. Which of course never happened.

The NZ Institute’s latest report “A goal is not a strategy” also goes into this issue of our inability to ‘walk the talk’.

It’s interesting to compare what the ICT Taskforce saw as the constraints back in ’03 with what the institute now sees as the problems holding back high-value sectors like IT (acknowledging they’re got different approaches).

BigCake sees the changed diagnoses as a sign of how the export support debate has moved on.

The issues, as the taskforce saw them, were:
1. The shortage of commercialisation skills and experience to go global
2. The supply of appropriately educated graduates. The taskforce was particularly worried about the need to “inspire and engage with tomorrow’s ICT talent”.
3. Celebrating our ICT heroes
4. The regulatory environment.

For sure, they were big problems back in ’03 and in the main, are still so today. However, in today’s debates on how to grow exports, the taskforce’s constraints seem a bit self regarding, internalised and maybe naïve.

Are they really the heaviest anchors on the ICT sector’s ambitions now, or even back then? Would a 2010 taskforce consisting of Rod Drury, Sam Morgan etc produce a completely different the set of constraints?

Dunno. Let me know.

In a “Goal is not a strategy” the NZ Institute has come up with alternative diagnoses for sectors like IT that reflect where BigCake thinks the export growth debate has gone in the last couple of years (or at least gone in his head).

I’ve posted on this shift, or the need for it, before while looking at the work of people like economic geographer Philip McCann.

The guts of what the institute is saying is this: “Much more effort is required by New Zealand to establish the basis for success of wealthy small countries; that is having large exports of differentiated products and services.” (eg. IT ones)

Its list of constraints on achieving this is:
• Size and distance – “Other countries have implemented policies to help domestic businesses overcome the size and distance barrier challenge. New Zealand has not pursued the range of policy initiatives that other countries have, and all of these countries have been more successful in growing differentiated exports.”

The institute has looked at the support countries like Singapore, Korea, Denmark, Australia and Israel give their exporters to overcome their size and distance problems. We give financial support, but not R&D tax credits or exemptions, skill development help and we don’t do industrial park development.

• Infrastructure – “New Zealand scores relatively poorly on measures of infrastructure development, placing 35th in the world with the quality of roads, railways, and electricity ranking worse than the OECD average.”
• Exchange rate policy – while a floating exchange rate provides commodity exporters with a natural hedge, it is not so good for sector like IT. “Exports are usually priced in the currency of the destination market so the consequence of the exchange rate rising and falling for non-commodity exporters is that earnings fluctuate.”
• Picking winners – encouraging the development of the kinds of economic activity that are regarded as more valuable including sub-sectors and individual businesses.
• Supporting cluster development.

Yeah, so things have moved. The perceived problems now are more external or structural and as such much more difficult to resolve, in part because we haven’t really acknowledged how big the issue is.

Most of the above get a mention in the taskforce report, but don’t make it to the list of top-line issues.

So if you were on a 2010 ICT taskforce, what would be your top three problems and the related fix?