Asia's public sector offers a sizable and lucrative market for IT vendors and service providers, but is it too hot to handle? Market watchers note that government projects can indeed be "very painful" for some to manage, but the revenue and market opportunities they offer cannot be ignored by others.
According to analyst projects, Asian governments are expected to up their ICT spending by an annual compound rate of 6.9 percent through to 2010.
Springboard Research
Last year, public sector IT expenditure in the Asia-Pacific region, including Japan, peaked at US$51.5 billion, Springboard Research said. IDC figures also show that e-government spending will exceed US$31 billion by the end of 2010, with China's public sector expected to account for 36.9 percent--or US$11.7 billion--of the region's government IT spend.
These big numbers carry good news for IT vendors and service providers, all of which are eyeing a piece of the lucrative pie.
An IBM spokesperson told ZDNet Asia that the public sector "continues to be a key focus" for the IT vendor. In an e-mail interview, the spokesperson said there are good growth opportunities in the government sector, along with the healthcare and education markets.
He added that IBM aligns its "client-facing teams" by vertical industries, and has a team of customer relationship managers, supported by consultants and brand specialists, who are specifically assigned to handle public sector projects. IBM is part of a consortium that is currently bidding for the Singapore government's Standard ICT Operating Environment (SOE) tender, the winners of which are expected to be unveiled later this month. The initiative aims to create a common ICT infrastructure to improve operational efficiencies and reduce government IT spend by 30 percent.
Can lead to business instability
However, the headaches that come with managing government projects may not make the returns worthwhile for some companies, particularly, smaller vendors.
Dane Anderson, CEO of Springboard Research, said some vendors see great success from their dealings in the public sector and depend heavily on such projects. This market also accounts for such a large component of overall IT spending, and is a great incubator of new technologies and services, that the biggest IT players cannot ignore the public sector.
However, Anderson noted, some small and midsize players tend to avoid this market--if they have enough revenues from other sectors--because it can be "a very painful market" in which to operate.
"The sales cycles are longer, the proposal requirements are incredibly stringent, competition for deals is intense and in spite of transparent bidding processes, in many countries the real factors for vendor selection can be opaque or overly relationship-oriented," the analyst said.
"Moreover, due to their size, winning or losing deals can lead to unsteady development for companies that scale up to support a deal and then need to potentially scale down," Anderson said. "These spikes in revenues and [fluctuating] cost structures can jeopardize the financial stability of firms in the long term."
But, government projects do not necessarily mean a death sentence for all IT vendors that have dealings in the public sector.
Phil Hassey, vice president for services at Springboard Research, said government projects generally have to be managed in a different way from the private sector.
Hassey explained that government deals have more transparency and politics, and as a result, components such as cost and offshore delivery have to be managed carefully. "It is not necessarily worse or better, but it is different," he said in an e-mail interview.
He added that service level agreements (SLAs) are not tougher to manage in government projects. However, they can differ when service provisions involve government departments such as welfare and healthcare, where client benefits are less likely to be measured in pure fiscal terms, Hassey explained.
Anderson stressed that success and failure will depend on a vendor-by-vendor basis and how each vendor handles the contract.
Hassey said: "It is really difficult to generalize that one market or the other is less transparent, so in general, if the culture of the firm is such that it can manage such projects, then in general it has the savvy to succeed."
Pointing to the Philippines' troubled ZTE broadband deal, he noted: "This is a good highlight for the need [on the vendors' part] to understand the local market, how involved is the government in [making] decisions, and how well is a contract respected."
Philippine President Gloria Macapagal-Arroyo ordered the national broadband network (NBN) agreement between the local government and China's ZTE to be suspended, following allegations that the deal violated Philippine laws and benefited government officials through commissions.
"Like the private sector, the greater the transparency, the greater the success for both paries in a deal," Hassey said. "[The Philippine ZTE controversy] would not happen in a market such as Singapore, Australia or Hong Kong, unless there was extreme incompetence."
Hassey added that issues can also emerge when vendors expand their operations beyond their local markets to other countries, or when new players enter the public sector space.
"It is not for better or worse [when government IT projects are concerned], but a degree of flexibility is definitely required, as well as a need to ensure that political considerations are managed," he said.
"If an organization has specifically focused capabilities, then it is no different to any other market. Understanding the clients is central in any environment."
