With the Australian market ripe for the picking, home-grown Kiwi IT services companies are experiencing significant growth opportunities, according to this year’s TIN100 report.
“The IT services companies are the growth story of the TIN REPORT this year,” says Greg Shanahan, publisher of the report. “They had revenue growth of 11 percent year over year, which is about $95 million in revenue. The largest part of that growth was selling into the Australian market, so increasingly the IT services sector is becoming Australasian.”
The report, now in its eighth year, is published by Shanahan’s Technology Investment Network, this year in association with Industrial Research Limited, a Crown Research Institute. The report highlights key data from New Zealand’s 200 largest globally focused technology companies and benchmarks their performance.
While IT services companies have been included in the report in the past, their performance this year may signal a maturing market that adds to New Zealand’s goodwill as a services export economy.
Datacom, Optimation, Fronde, Intergen, and Revera were joined this year by Catalyst IT, as part of the overall ICT segment of the report. According to Shanahan, companies in the ICT sector grew their revenue by 9 percent, as opposed to manufacturing which grew at a near flat .1 percent.
“The list is increasingly not Fisher & Paykel plus a few startups anymore,” Shanahan say. “It’s a growing number of sizeable sophisticated companies and ICT companies are showing us that we’re getting parity in terms of a level playing field, and we compete very well.”
Still, the overall picture was promising. Total TIN100 revenue increased by 2.2 percent to $7.28 billion from last year’s report, with export revenues increasing by 2.3 percent to $5.18 billion, led by strong growth in Australia.
“There’s a combination of a favourable exchange rate movement, but generally a lower cost structure among New Zealand companies,” Shanahan says. “We do things more efficiently with fewer heads, and a leaner organisation structure. You get a lean structure and a favourable exchanges rate and a market five times the size of New Zealand, it’s a natural opportunity to grow your business.”
Shanahan says the ICT companies all experienced double-digit growth in revenue, as many of them expanded into Australia through partnerships or acquisitions. Shanahan pointed to Optimation’s purchase of a majority interest this year in Barbador, an Australia-based Google specialist, while Intergen expanded on its relationship with Microsoft.
Economics plays an obvious role in the growth.
“Outsourcing is driven by recessionary climate and if we get better at delivering those efficiencies, then we have a competitive advantage,” Shanahan says.
This year’s list includes more companies worth over $50 million and more worth over $100 million than last year, while the minimum threshold for companies to be included went up $500,000 to $13.45 million.
Shanahan says the Datacom story attracts him because the company continues to grow despite having no formal marketing department, indicating there are “smart people running Datacom”. And because they are not a household name are “understated, but not lacking in confidence.”
Shanahan adds that these companies pave the way for continued export growth, although New Zealand needs to improve the lowly status of IT in education.
“The biggest thing we’re hearing from Datacom to Orion Health is the dearth of graduates with IT training,” he says. “It seems to me it’s criminal that we have an education system that is not servicing a need that is a high growth need and people are complaining about employment worries in the future.”
“In the curricula today, it has the status of wood shop or cooking,” he says. “It’s like an alternative subject but not serious enough to be a career you’d pursue. So somewhere, something has been lost in translation in terms of the needs of the economy and what’s going on in the education system.”