So for part two of this I’d like to discuss a different aspect of IT in Southeast Asia. One of the things that defines most IT industries is their financial environment. This is true both vertically, and horizontally across the industry. For example, if we look at IT in the manufacturing industry we can clearly see that smaller operations are operating with less-than-optimal IT systems. While the larger corporations like GM, or Fujitsu have very advanced systems and a very mature IT environment.
So if we take that perspective over to the world, and countries are our organisations, then we can see that financial stability and capability dictate the IT industry. This is perhaps more true of the IT industry than most. There is aid available from other countries for medical supplies, food, sanitation, education, and other social systems. But the US, Europe, etc. don’t have aid programs for IT. There are some private companies that do such as Microsoft, IBM, and Cisco, but nothing on the scale that the social aspects have. Now some would argue that IT isn’t as critical to the country as social resources, but they might want to re-think that.
IT in today’s world is critical when it comes to trying to grow a countries’ economy, improve industry, and improve it’s ability to function smoothly. All of these things reduce unemployment, raise the level of capability and in general increase the quality of life for the citizens of the country. So isn’t this core enabler a critical part of the countries’ infrastructure? Probably so.
So why don’t these countries just invest the money and increase their IT capabilities? Well that’s because the cost of IT implementation is relative. With all the major players in the IT industry based in the US, Europe, Australia, and Japan, we can see that their idea of a ‘fair and equitable market price’ is a bit different than say, Vietnam. While I was over there we had a discussion about this very topic.
An average developer in a developed country like the US, makes between $80K and $100K a year. Providing them with a computer, and the software to do their job costs around $1000 a year (don’t quote me on the exact number it works for this example). So if we look at that, it costs between 1.25% and 1% of that developers salary to keep them productive. This really isn’t too bad from a developed industry’s perspective.
So let’s look at Vietnam for example. In Vietnam a developer makes between $8000, and $10,000 US Dollars a year. Yet because they have to pay the same price for software as developer in the US do, it still costs them about $1000 US Dollars a year to provide that developer the tools he needs to do his job. So in this case, it’s between 12.5%and 10% of the developers salary. Profits in Vietnam have trouble sustaining this kind of overhead.
So what are the ramifications of this? The biggest one is software piracy. If private companies, computer shops, and businesses can reduce that huge overhead just so they can squeak by with a meagre profit, they will. It only makes sense that for them to be successful they have to find a way to reduce costs. Pirated software provides them that ability.
Now, before someone goes off and starts saying that I said Piracy is ok, IT IS NOT! I do not advocate software piracy at all.
I’m just saying that developing countries that are struggling to try and find a foothold in the global economy are reaching for any straw they can to make themselves competitive. This leads them to do whatever they think it will take. What we need to do in order to stem the tide of piracy is make it not so attractive.
To do this, perhaps IT corporations should consider how they price products for different regions. They do this to some extent now, but for example Australia pays much more than the US for software because of exchange rates, tariffs, and shipping costs. But I’ll talk about Australia in another instalment of this series. Software is priced at the US level, and modified for exchange rates plus applicable taxes, etc. To someone in the US, a $100 OS upgrade isn’t much. But to someone in Vietnam, that is almost 1 month’s salary. $100 US will feed a family of 4 in Vietnam for weeks.
This problem doesn’t stop with the actual software though. Another real problem is services. To get an IT consultant to go to Vietnam to help them get started down the right path is very expensive for them. It costs something around $3000 to send a consultant there for 3 days from Australia. A bit less if they come from Singapore and a bit more if they come from the US. Either way, that is costly. This doesn’t even include the hourly rate that a customer would have to pay on top of just getting them there. So the services need to be regionally priced as well.
But how do we work it? Consultants get paid a certain rate. You can’t just lower their salary because they are currently working in Vietnam. If that was the case, no one would take the jobs over there. Perhaps IT companies should invest in training local resources to the level that their western counterparts are trained. This would be a bit of an investment on the IT company’s part, but it could mean the opening of a market that has formerly been untapped.
Try to find a way to lower the costs of producing software locally in the countries that are affected. Provided local service resources with advanced training. Perhaps subsidise the IT efforts going on in these developing countries.
I’m not an economist, accountant, or even a business manager, but I think these ideas are sound enough. The problem is the return on investment. Most companies think of profit first. This isn’t’ necessarily a fault, after all a company exists to make money, that is it’s sole purpose. However, that purpose always gets in the way of benevolent acts. Countries like Vietnam are trying to become players in the IT Industry. They don’t have a lot of factories for hardware, but they have very smart people. People that can certainly develop software.
Maybe they will be the India of the software industry, but perhaps that’s a topic of another post.