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R&D commitment fails the test

AUSTRALIA’S information technology industry is in a bind.

While domestic organisations – private and public – are in many ways world leaders in information technology development, the continued progression of the broader industry is being challenged by factors that are both in and out of its control.

The industry faces increasing competition from other countries keen to develop their IT sectors. Coordinated and considered government industry development programs are lacking, and many fledgling companies have great difficulty transforming their ideas into something more than mere concepts.

WA Internet Association spokesman Kim Heitman, who is also the new executive chairman of Adultshop.com, described Australia’s IT sector as being “in the third world”.

He said US chip manufacturer Intel invested more in research and development than every organisation – universities, companies, and government – in Australia put together.

He said if Australia wanted to be a player in IT, serious money had to be invested in R&D. The tax deductibility of R&D had been toughened rather than relaxed, and Federal Treasury had become increasingly heavy-handed in its approach in this area, Mr Heitman said.

“I accept they have to watch for people buying flowers and calling it research, but they’ve come down far too heavily in recent years,” he said.

“If we are trying as a nation to be at the forefront of the IT industry, we’re pedalling in exactly the wrong direction.”

R&D investment is broadly regarded as the critical factor in ensuring Australian IT firms progress rather than stagnate. Since the dot.com crash in 2000, seed investors and venture capitalists – not to mention retail investors – have lost both faith and interest in IT.

QPSX CEO Graham Griffiths said companies that had matured in WA – Intellect, Commtech and Norwood, for example, were very innovative. Whether it was the lifestyle or the need for people to work beyond the big companies, innovation bred well in WA, Mr Griffiths said.

“But the whole process in WA with good ideas in technology and the process of funding from start-up to commercialisation is a tortuous path,” he said. “There are pockets of world-leading technology, but it’s a difficult task to go from technological innovation to get to the market.”

Despite this lack of domestic interest, Australia is an attractive place for overseas companies to set up their research operations, according to Commtech Wireless CEO Nathan Buzza.

Mr Buzza said the cost of R&D in the US had become prohibitively high. For technology businesses that turn over less than $US100 million per year, it was extremely cost-effective to establish themselves in Australia.

“We have an R&D group of five guys, and that would cost us about $450,000 per year – if you try to do the same in the US, it would be three times that figure,” he said.

Commtech invests 10 per cent of its turnover in R&D work, a relatively high figure, yet the company is still profitable. The danger for Australia, Mr Buzza said, was that the business relationship could be exploited by US firms.

Foreign companies were moving their R&D work here, but because of high business tax rates, those firms’ profits went back overseas.

“You don’t want to be subsidising R&D with the philosophy of making a clever nation and then having the benefits being rewarded overseas,” Mr Buzza said.

WA’s IT leaders agree that both State and Federal governments must be more willing to invest directly in IT or encourage investment in the domestic sector if companies are to compete globally.

Pretzel Logic’s Steve Pretzel said he believed government recognised the importance of the industry and the flow-on effects that resulted from a strong, robust IT industry, but it didn’t appreciate the need to maintain momentum.

The State Government, in particular, provided early support five to 10 years ago, but more recently it had withdrawn that support to a degree, he said.

“While they’ve been putting the finishing touches on SPIRIT and WA-MAID, there’s been a hiatus in other areas,” Mr Pretzel said.

“Some companies have gone bust or moved on, so by the time these programs get up, it’s too late for the local industry. The local industry will shrivel [and] in the past 12-18 months, a number of firms have given up.”

Australian Information Industry Association (WA) chairman Phil Foxwell said Australia was lagging behind the rest of the developed world because the nation didn’t have a properly developed structured program for industry development, particularly in the software industry.

Interstate government departments did not communicate at sufficiently high levels – senior bureaucratic or ministerial – for real progress to be made, he said.

If the State Government wanted to achieve genuine industry development, it should approach firms in other States and encourage them to shift to WA.

Such encouragement could take the form of tax holidays, the cancellation of council rates, and cash rebates on investment in R&D, Mr Foxwell said.

“Sure, it’s going to cost money at first, but it will pay for itself in the long run,” he said.

Not everyone has handed out brickbats to our parliamentary leaders, however.

In fact, governmental use of e-business is among the world’s best – perhaps trailing just Sweden and Finland – according to AeM Consulting director Ray Bayliss, who has worked for many years in Europe.

He said, for example, that compared with Australia’s online tax return system, the British tax office’s implementation of online tax returns was “pretty dismal” because it was too time-consuming and cumber-some.

“In terms of relatively straight-forward government services, we probably knock the socks off other countries,” Mr Bayliss said.

“In e-government we do very well; it’s down in the core of business where it’s the more practical, straightforward, mundane technologies that we need to push forward with.”

For all these negatives, many industry figures believe that, with the right support, WA’s IT sector could have a bright future. It is a matter of if that support comes though, not when.

If it does, factors such as good education levels, a spirit of entrepreneurship and globally competitive currency rates could truly make the State a home to the new economy.

“WA has an inherent ability to do more with less,” Mr Pretzel said. “We have lower budgets with which to do things, but people here have the same expectations as the rest of the country.

“Companies find better, smarter ways of doing things.

“The thing about WA is if you can make a business succeed here, you can do it anywhere.”

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