Starting our weekly series of presenting the structure of the…
When talking about the IT industry in Australia and for the purpose of this article we include Computer Sales, Software, IT Services and E-Readiness. The market is still showing growth signs despite a robust performance in the previous years. This growth is driven by consumer, government and business sector opportunities.
The ICT industry provides 4.6% of Australia’s total GDP and 4.9% to Gross Value Add, contributing in a larger scale than mining, education, defense, agriculture and the individual manufacturing sectors. There is great diversification in the ICT sector and it is characterized by three layers:
Large enterprises (mostly multi-national) that account for the bulk of revenues.
Small companies (mainly domestic) that are creating proprietary technology and innovative products for export purposes.
A big (and becoming larger) product variety from software and media content companies to electronics manufacturers.
As it is typically in other international markets as well, the Telecommunications are generating more than 40% of the industry’s total revenues.
There many different organizations, associations, state & federal policy formation groups and research institutions that are in general involved and shape the bigger picture of the domestic industry.
Below are the main activities that are involved in the ICT industry and what is included in our data analysis and in the attached diagrams:
- IT services, systems integration and software support
- Internet services and telecommunications
- Software and digital content development
- Wholesale and retail distribution of software and hardware
Manufacture of ICT products and components
Despite the broader belief, information, media and professional services along with the education sector (the “Knowledge Industries”), are among the largest contributors to the local economy.
|GDP March 2007||GDP March 2013||Economic growth||Growth %|
|Knowledge Industries:Information Technology, Professional services, Education, and media||$25,320||$33,938||$8,618||34.04%|
|All other industries, (including Agriculture and Mining)||$38,696||$49,538||$10,842||28.02%|
|Wholesale and retail sales||$18,173||$22,830||$4,657||25.63%|
|Health Care and Social Assistance||$26,881||$32,966||$6,085||22.64%|
|Finance and Insurance||$48,221||$54,018||$5,797||12.02%|
|Transport, Postal and Warehousing||$23,950||$26,610||$2,660||11.11%|
|All other services||$16,511||$18,267||$1,756||10.64%|
|Public Administration and Safety||$33,834||$36,464||$2,630||7.77%|
|ICT Industry Revenue CIIER Model Revenue by ICT Industry Sector||Dec-09||Dec-10||Dec-11|
A breakdown of each sector and the total revenues.
|ICT companies by revenue groups|
|Taxable revenue by industry sector31||Telecoms/ISPs||Software and service/wholesale trade||Computer Manufacture||Total|
|$1 – $499,999||2,498||28,745||31,243|
|$500,000 – $999,999||202||2,475||2,678|
|$1,000,000 – $4,999,999||272||2,712||2,984|
|$5,000,000 – $9,999,999||44||353||397|
|$10,000,000 – $49,999,999||39||272||311|
|$50,000,000 – $99,999,999||9||35||44|
|$100,000,000 or more||17||41||840||897|
Although Australia is ranked 54th in the world by population, it is the 14th largest ICT market globally and the 5th largest in the Asia-Pacific region, after Japan, China, India and Korea, with an estimated worth of over A$120 billion.
Some key figures and facts about the market:
- From the total A$120 billion, Telecommunication services accounted for $34.9 billion, computer wholesaling for $20.7 billion and computer consultancy services for $19.5 billion.
- The ICT industry directly accounts for about 4.6% of Australia’s GDP and it outperforms most of the traditional sectors like mining etc.
- The Australian ICT exports have surpassed the $5 billion mark, with $3 billion exported goods and over $2billion in services. Among the major export markets are the US, UK and ASEAN. The imports on the other hand are around $26 billion, with $22 billion being goods and $3 billion in services, while the biggest importers are China, ASEAN and the US.
- According to the ABS and DEEWR there are approximately 400,000 people employed in ICT related position with nearly 90%of these people being employed full-time.
Australians are among the most tech savvy and sophisticated people in the world who are always open in adapting new products and services. That, among with the language factor, makes it a test friendly market that large international enterprises embrace to develop and trial their new applications. Some of the most common issues that are tested are the system interoperability, the security of the product and the contribution in productivity gains. The governmental framework that encourages new technological solutions, the legislation to protect privacy and prevent spam, are some key factors for business to go to Australia and develop applications which will be deployed globally.
Some of the well-known international companies that have established a presence in Australia and offer their products locally and also globally include: EMC that Australia hosts one of the four worldwide support centers and Red Hat that it’s continuing the expansion of Regional Engineering and Support HQ in Brisbane.
Many research and industry experts have provide information about the current and future trends in the IT industry.
In the hardware section there will be a decrease in sales and the refresh cycles are about to get longer. CIOs are very careful when evaluating new products in the PC, server and storage verticals and try to minimize the costs and thus causing slower sales.
Software seems to be holding on the growth mode but at a slower rate. Verticals such as database, CRM and ERM are expected to continue to grow. As buyers are very reluctant on hardware spending and looking to minimize their expenses, investments in virtualization are the most common factor that will still be increasing.
A field that has benefited from the past crisis and still holds is IT services. The mid-market spending in outsourcing services is expected to grow even more while the total sector is in growth mode. Especially, offshore outsourcing to low cost countries such as India and China has shown an increase for infrastructure management and application services.
Telecommunications globally seem to be unaffected by recessions and the same is true for the domestic market in Australia. The increase demand in video conferencing and similar tools and also the spending in mobile solutions will continue to grow, given also the fact that the local competition has kept the prices to affordable levels for business usage.
At last, the demand for IT professionals will remain in high levels as companies are looking to recruit more skilled quality professional to tackle the new challenges.
Proximity to Asia
One of the best assets that the domestic market can exploit is its strategic geographical position and the close proximity to Asia. The combination of the English language along with the geo-position means that Australia is a perfect place for multinational companies that want to have a presence in the region and have the best conditions and environment to quickly set up activities there. Microsoft for example has established a regional hub to service the Asia-Pacific.
Apart from being one the most tech friendly nations, the Australians were among the first to realize that IT products can significantly increase productivity. The synergies between the government, the industry as a whole, universities, institutions and private organizations have a great impact in the research and development of products and processes.
Intellectual property framework and patents are critical factors for many businesses to thrive and keep investing in research and development. Australia’s patent and copyright enforcement regime is ranked eighth in the world and with 1,100 registered patent and trademark attorneys.
The demand of government tenders will still play a major role in spending in the forthcoming years. The regulation framework in the financial sector means that banks need to continue spending and the competition in the retail industry is boosting the spending in customer relationship management (CRM) and back-office products and solutions.
As mentioned before, Australia is a great market to test global products. This happens due to a combination of many factors such as the size of its market, the innovative character of its customer base and the sophistication of domestic users among others make it an ideal location to develop and test new IT products and services.
Most of the software products that are developed domestically are rolled out globally if there is a satisfactory adaptation from the local environment. On top of that, the workforce is another advantage for companies looking to invest in Australia, there is an extensive domain-level knowledge and technical expertise, especially in architecture and integration.
As a result, many innovative IT products have their origin in Australia for a wide range of industries and verticals. The software industry especially has benefited from the low costs in development along with the highly skilled workforce and has in turn attracted strategic investments from ICT companies like IBM, Canon, Citrix, EDS, Google and NEC that have built major software development facilities in Australia.
Resources: Industry groups and organizations
The main organization for the high tech sector is the Australian Information Industry Association (AIIA). Some of its activities are setting the strategic direction of the industry, influences public policy makers and provides members with productivity tools, advisory services and market intelligence to accelerate their business growth. Find more information about the organization here: http://www.aiia.com.au
Other significant bodies are the Technology Industry Development Council (TIDC) that represents the views of the Technology Industry sector and the Australian Interactive Multimedia Industry Association (AIMIA) representing the Interactive Media and Digital Content sectors.
Australia’s SWOT analysis
Finally, we close this post with an analysis of the strengths, weaknesses, opportunities and threats (SWOT) of the domestic market.
- Strong Education system
- Early adopters of technology
- Highly skilled work-force
- Proximity to Asia
- Good infrastructure (but can be better)
- Low risk environment
- First world legal and administrative systems
- Cultural affinity with America, Asia and Europe
- Local IT firms lack critical mass, international presence
- No Australia ‘ICT’ branding
- Too easy to be comfortable just in Australia
- Tax system relatively unfriendly towards innovation
- Low profile of tech industry, declining graduate intake
- Few role models outside of sport, celebrity
- Geographic isolation from US and Euromarkets
- High labor costs relative to Emerging Asia
- Curriculums vs lateral think, questioning education
Extremely weak R&D by Australian business
- Industry, academic and government collaboration
- IT Services, BPO & KPO
- Potential for NBN to inspire
- Consumer-oriented web/mobile-based offerings
- Vertical and niche software solutions
- Exploit FTA opportunities
- Services-based experiences for Asia
- Leverage huge funds under management
- Competition from emerging economies
- Currency volatility/rise against others
- Exclusion from regional trading blocs
- Risk of global and regional instabilities
- Continual brain drain (Australians adapt well)