It pays to stay local; Open procurement

by Chloe Gunn

Recent events may have you thinking about how we should be focusing on investing into our economy, you may be supporting your local cafés with takeaways and buying gifts from local artists – well this approach needs to be mirrored in our ICT industry.  There is a range of benefits from choosing locally-based ICT suppliers that benefit either the national economy as a whole or the government’s accounts, which should be taken into account in assessing the overall outcome of a procurement decision. 

The range of benefits include the efficiency benefits of local suppliers, the value of building a specialist cluster of companies that can be internationally competitive, the fiscal benefits from choosing New Zealand suppliers, the multiplier effect of local suppliers, and the impact on the balance of payments. 

Procurement, where there are evenly balanced potential suppliers, can properly recognise the value of helping to grow a more experienced group of local suppliers by encouraging adept companies to learn from each other’s success while simultaneously being incentivised to invest and innovate from the presence of strong local competitors.

If you want to get into the nitty-gritty knock-on effect of choosing overseas suppliers, as opposed to local, you can read this report from 2011, by Economics New Zealand Limited:BenefitsofLocal.pdf

If you don’t fancy reading the report - here are the main benefits of open procurement: 

  • The local ICT sector, with further support, has good prospects of being a successful ‘cluster’ (as was identified as far back as 20 years ago)

  • If the ICT sector were to grow to the same relative size as Australia’s, it would be a $4 billion industry rather than a $3 billion one

  • The government, with a $2 billion annual spend, can play a key role in the industry’s development

  • Local IT companies are cost-effective, with a 25-35% cost advantage over Australian companies and larger cost advantages compared to the US or UK

  • The multiplier and tax revenue effects of local procurement substantially reduce the net cost to the government of local contracts. As an example, the net cost of $115K (GST inclusive) contract reduces to around $67K

  • Local suppliers have untapped export potential and can also reduce our import bills. We already spend over half a billion dollars a year on imports of computing services and another $235 million on computing royalties and licence fees
     

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