Analysis: Is Victoria stealing New South Wales' ICT crown?

By Brett Winterford on Jul 13, 2010 6:59 AM
Filed under Strategy

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Cash payments and tax deductions offered as states woo IT investment.

NSW claims 43 percent of Australia's ICT industry and 37 percent of its ICT industry jobs but for how much longer? Brett Winterford reports on Victoria's drive to become Australia's ICT industry hub.

Eric Roozendaal, who wears two important hats as NW Treasurer and Minister for State and Regional Development, stood before the press last week and claimed that his state was still Australia's innovation capital, heralding the hire of 40 staff at Macquarie Telecom's flash new $5 million contact centre in the Sydney CBD.

It could not have been an easy speech knowing that standing by his side was Federal Communications Minister Senator Stephen Conroy - who had just flown in from Melbourne that morning after opening a facility that promises 500 technology traineeships at Sydney's rival for Australia's biggest city.

Senator Conroy has spent a lot of time in his native Melbourne of late owing to the sheer volume of new facilities to announce or open.

The week prior, he officiated at the announcement that Melbourne would host the network operations centre for NBN Co, an investment in the "10s of millions" that will employ 425 staff.

In Ballarat, Vertex announced an $11.5 million technical support centre that promises to hire 600 staff.

Data centres are being built in Clayton by Telstra and CSC, in Noble Park by Fujitsu (Noble Park extensions), while NextDC, E3, HarbourMSP and GreenEdge Data are building data centres in Port Melbourne.

VMware has opened a Victoria office, hiring 75 in Melbourne and telling iTnews it is negotiating the possible opening of a research and development lab in the Victorian capital. Enex TestLabs added 40 jobs to Melbourne.

Then there was the $10 million GreenIT cluster, an Alcatel-Lucent training facility to employ 22 and the opening of four offices by Indian IT services firms after Victorian treasurer and IT Minister John Lenders took a junket to the subcontinent.

Oh, and did we mention the $100 million IBM supercomputer coming soon to the University of Melbourne?

Lenders, who bore the brunt of the loss of 2000 jobs and $75 million investment when Mahindra Satyam bailed out of a planned investment in Geelong late last year has leaped at every opportunity since to pitch Victoria as a "global ICT centre".

Incentives

The Victorian Government has shown it is willing to go the extra mile to attract investment.

It offers cash to ICT companies to base themselves in Victoria or employ big numbers of workers.

Government sources told iTnews that it "often offers incentive payments" to companies on the basis of certain "milestones" around local jobs growth.

And it assigns account managers to significant developments to provide a single point-of-reference when they deal with the state. This account manager brings together the relevant bodies from Government departments to quickly tick the necessary boxes or resolve challenges.

A developer, who scoped the site of an aforementioned investment in Melbourne, said this made the process in NSW appear stone age.

Speaking on condition of anonymity, he said in NSW gains made by working with the Keneally Government can just as quickly be destroyed by a local council with anti-development attitudes. There are councils in Sydney, he joked, that are even opposed to developing industrial areas.

Rather than hand out cash, NSW attracts and retains ICT investment by offering tax rebates.

For example, iTnews can reveal that Macquarie Telecom was offered a payroll tax deduction for the 40 new positions created through the building of its customer contact centre.

"The incentive provided to Macquarie Telecom was in the form of payroll tax rebates against employment milestones for new positions established in NSW," a spokesman for Roozendaal confirmed in a statement.

Roozendaal's office is convinced that payroll tax rebates are a better incentive than cash payments.

"The NSW Government assesses each individual investment project on a case-by-case basis according to its particular set of circumstances," the spokesman said.

"Payroll tax rebates against employment milestones are a key element of the NSW Government's approach to assisting new and existing businesses to establish and grow in NSW."

Read on for an analysis of the size of the ICT market in both states, plus we talk to data centre builders about what incentives compel them to choose a new site...

Analysis: Is Victoria stealing New South Wales' ICT crown?

6 comments in this discussion

"@heavenlyhaloes the council is a good idea but it doesn't have to work in competition. In my talks with the likes of Craig Barrett, Steve Ballmer, Bill Gates, Jim Barksdale and others big US IT ..."

By nate.cochrane

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Comments: 6

Gall of it Jul 13, 2010 8:53 AM	Victoria is so far behind it will be a long time before a significant shift . These builds are just catch up as spare capacity is so low in Melbourne and need more large scale sites to give option and meet government demand.Most of the developments you mention have commited customers growth so will not open much much space in market. NSW may lose IT share because of power infrastructure is dicating industry growth via availability and cost levels (where you can build & and power costs )
BrettWinterford Jul 13, 2010 9:51 AM	@Gall - are you suggesting the grid is less reliable in Sydney than in Melbourne? I've always assumed the opposite was true, cheers, Brett.
nate.cochrane Jul 13, 2010 10:42 AM	It's interesting how these things swing in cycles. Melbourne kickstarted the modern IT industry when Trevor Pearcey's team built the world's fourth and Australia's first stored-program computer, CSIRAC, in 1949. Through the '90s and under the mantle of the world's first multimedia minister (later IT minister), Alan Stockdale, the Victorian government aggressively won over IT vendors and created Australia's first indigenous multimedia industry that included accommodation for startups at the Tea House in South Melbourne. This was orchestrated by the newly formed Multimedia Victoria, the first state government department that was a central point of contact for ICT investment. Today, the Game Developers Association of Australia is still based in that state with funding from its government. For years, Melbourne was home to research labs such as HP, Telstra, Ericsson, CSIRO (creator of CSIRAC), Nortel, Bureau of Meteorology, RMIT (now Enex) and NEC, fuelled by graduates from Monash and RMIT primarily and University of Melbourne to a lesser extent. Australia's early broadband decelopment happened in Clayton between NEC and Telstra Research Labs. NEC's cloud services grew out of that heritage and it was a necessary factor in NBN decisions announced recently. And some of Australia's most entrepreneurial IT startups such as Lindsay Cattermole's Aspect (created the Maxi billpay system, sold to Peter Kazacos' Kaz that was bought by Telstra), Domenic Carosa's Destra and the world's longest-running multimedia entertainment developer, Melbourne House (now Infogrames), built by Fred Milgrom and his wife Naomi (he now runs zazz.com.au) spawned in Melbourne. Later, when business process outsourcing became funky, world leaders from India such as Wipro and HCL were quick to buy into Victoria. First among the Indians was Infosys, which bought Gary Ebeyan's Melbourne developer Expert Information Systems to kickstart its Australian operations (it elevated Ebeyan into the CEO role). Research and science that generates opportunities for IT businesses and practitioners has long been of interest to the state. The Synchrotron is based in the ICT R&D hub of Clayton-Blackburn in the city's east. Biotech , a related field, was a focus and led to the cochlear implant and anti-flu medication, Relenza developed in the state. It wasn't all an upward curve for the state. Successive cutbacks in funds for international labs by their offshore parent companies saw many close down and the loss of thousands of jobs. At the same time, decisions by big customers such as Telstra cruelled the efforts by some of those labs. A flight of jobs following the demise of the Kennett government has only recently been arrested and the results are still patchy. But through all that about a third of Australia's ICT industry and fully about half its graduates have come from the southern state, with Monash long-recognised as the leading provider of skills in the nation. The danger that state governments have faced through the years is bidding against each other for overseas business. Big IT businesses travel the world looking for the best deals from governments and pitting them against each other. This was especially the case with Intel R&D and fab plants in the '90s, which Stockdale was keen to lasso for his state but never was able to bring home. A strategic approach with states specialising in particular areas and bidding as a national consortium for business would generate greater returns to taxpayers.
EMwyres Jul 13, 2010 11:56 AM	This is NOTHING to do with a "Sydney vs Melbourne" debate. If Sydney has a problem with contracts and deals Melbourne lands, do better next time. If Melbourne has a problem with contracts and deals Sydney lands, do better next time. Brisbane, Adelaide, and Perth, along with major regional centres should all be getting involved too - and they are of course trying. It's all about who wants it the most - clearly Melbourne/Victoria is doing a very good job of it at the moment. Instead of whining about it - work harder to make every possible location better. If you don't win one of the massive deals, the improvements you make might see you win two smaller deals, that you'd never have won without the improvements. This state-by-state parochialism does nobody any favours.
heavenlyhaloes Jul 31, 2010 12:41 AM	@Nate - my fears are that if we use a national consortium as an interface to international investors, we are putting red tape between our IT industry and investment. This is likely to scare away investors, as they prefer freer market conditions. Instead of being fearful of being played off against each other, it is more productive to implement a national IT development strategy that will improve the standard of our IT services and infrastructure nationally. Not only will this benefit all Australians, this will naturally attract more investment to Australia, and so create more tax revenue. Some smart cookies in Canberra already thought of this, and created the IT Industry Innovation Council (which is part of the the Department of Innovation, Industry, Science and Research) to work on and implement such a strategy.
nate.cochrane Aug 3, 2010 1:09 PM	@heavenlyhaloes the council is a good idea but it doesn't have to work in competition. In my talks with the likes of Craig Barrett, Steve Ballmer, Bill Gates, Jim Barksdale and others big US IT companies are more comfortable dealing with government than they are relatively small Australian businesses. They rove the world looking for the best deals from governments and they're biggest customers are public sector. What they don't like is the speed or frequency of change or being held to governments changing their minds. But the rise in PPPs should show that there's no shortage of big backers keen to take taxpayer dollars. What they would like with a national consortium is the sense of scale - organisations are always most comfortable dealing with other organisations that are about the same size.