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From Mines to Minds:

Western Australia in the Global Information Economy

 

Executive Summary and Recommendations

(The full report can be obtained from the TIAC website:

www.wa.gov.au/tiac

or by telephoning (08) 9470 3666)

October 1998

 

BACKGROUND

The Western Australian Technology & Industry Advisory Council (TIAC) has conducted a number of studies relating to the various aspects of the State's Information & Communications Sector. The last two reports titled Towards an Information Infrastructure Policy for Western Australia - The Business Aspect and Telecommunications Deregulation: Is Western Australia Prepared? contributed to the State Government's decision to establish the Office of Information and Communications Policy Advisory Council (ICPAC) within the Department of Commerce and Trade which reports to the Cabinet Standing Committee for Information and Communications Issues.

The Minister requested TIAC to participate in the Information and Communications Policy Advisory Council (ICPAC) and TIAC commissioned this report as part of its contribution to that process. The report presents a series of options for the development in Western Australia of a strong, sustainable, globally-oriented indigenous information industry which has been leveraged off the State's world class minerals & energy sector and includes recommendations on the action required to achieve these options.

For the purposes of this report, the term "information industries" covers a wide range of activities, including electronics manufacturing, computing and telecommunications platforms, office equipment, consumer electronics and information and entertainment services.

The preparation of the report and associated consultation with industry has taken place over the past nine months. During that time there has been a number of substantial initiatives undertaken by the State Government in this area, and several of the projects outlined in this report have already been, or are in the process of being, implemented.

 

VISION

To build an enterprising online culture in Western Australia as the foundation for an integrated and sustainable indigenous network of globally-oriented Information Industries

 

ABOUT THE TITLE - FROM MINES TO MINDS

The document argues that the mining and resource industries are already very heavy gatherers and users of information, at the same time being vital sectors within the State's economy. It is logical to use resource industry participants, as many companies already have, as the basis for global expansion of the State's Information Industries. Furthermore it is not intended to suggest that mining and resource applications should be the limit of this vision since the opportunity exists for generic technologies and techniques developed by going through "From Mines to Minds" are able to be applied elsewhere.

 

Executive Summary

Global Issues

Developed economies are moving strongly into the fastest growing sectors - information and knowledge-based industries and Elaborately Transformed Manufactures (ETM).

Globalisation is driving increasing levels of competition across all sectors in all markets.

Information and Communication Technologies (ICT) are significantly changing the relationships between regions; between centralisation and decentralisation.

The global information economy will be made up of big winners and big losers.

Management is becoming significantly more challenging as the "steady state" era ends and is replaced by far greater volatility.

These changes can be seen as a shift from the economics of transformation (epitomised by mass production) to the economics of transaction.

 

National Issues

Australia's Information Industries are dominated by MultiNational Corporations (MNCs).

Australia is a heavy consumer of (predominantly imported) Information and Communication Technologies (ICTs) which it does not use very productively. It has a massive trade imbalance in ICTs without always generating the productivity returns.

Australia has an extremely low level of Information Industry exports.

 

Western Australian Issues

Western Australia has a narrow economic base dependent on commodities. Its resources sector performs very strongly.

The value of resource commodities has been falling over time and continues to fall.

Western Australia is a significant exporter of highly skilled talent.

WA has a good track record of innovation…

…as with the rest of the country, it has an appalling record in commercialisation.

The State Government accounts for 40 per cent of WA's ICT consumption.

The Western Australian Information Industry is 0.1 per cent of the global industry.

 

Western Australia's Strengths

 

Driving Forces

To achieve the State's potential will require transitions on a number of fronts. These can be summarised under the following headings

Social and Economic

The transition from a provincial to a global perspective on the part of the business community and government

Technological

To reconceptualise the Resource Industries as heavy users of information and that this can become the foundation of a business(es) in its own right.

Environmental

Addressing the impact of ICTs on the State's physical isolation, in particular in relation to:

• the effect on various industries' value chain; and

• building online relationships for social and global business development.

Political

Encourage the Federal Government to reframe its Taxation and Industry Policies to take account of the Global Information Economy.

 

Summary Recommendations

 

The Current Global Environment

…new winners and losers will emerge over a period of five to ten years at most. We do not have the luxury of the 50 to 80 year period of adjustment experienced in the transitions to steam or electricity. … Government and business leaders must understand this urgency and grasp the challenge. Australia's future employment, growth and prosperity depend upon it.

The Goldsworthy Report

 

Introduction

In an increasingly global economy the parallels between Western Australia and a country town are close. The State has a narrow economic base - as most country towns do - is dependent on relatively few buyers to purchase its output and, although these sectors have been enjoying significant success in recent years, the prices they command have been declining steadily for the past few decades. As such they are amongst the least desirable areas of the emerging global economy. The country town metaphor applies in another important way: the emigration of many of our best and brightest. Where country towns lose many of their bright young people after high school, in Western Australia (or Perth’s) case this generally occurs after they have completed university.

 

Driving Forces

Through the latter half of this century a combination of powerful forces have contributed to massive economic and social changes. Information and Communication Technologies (ICTs); Market Liberalisation, Globalisation and the Growing Importance of Information in industries have each been powerful contributors to very different social and economic frameworks. Some of the effects which have flowed include:

• changing industry structures;

• social change;

• apparently "stubborn" unemployment;

• an hourglass society;

• low inflation;

• the rising value of knowledge;

• greatly increased value of brands.

• faster product development cycles;

• the online economy;

• greater competition;

• non-traditional competitors;

• lower transaction costs

Spectacular improvements in technology [1.1] have led to numerous new applications of Information and Communication Technologies (ICTs) [1.1.1]. Where computing has been the Cinderella industry for the past few decades, telecommunications is now coming to the fore with similar leaps in the power of its technology available at less and less cost [1.1.3]. The opportunity to network computing power cheaply and efficiently is adding another wave to the power of these technologies. Contributing further is the movement of more and more content to digital form [1.1.4].

This has enabled digital convergence [1.1.5], a very powerful and significant trend. Digital convergence can be illustrated as three circles, one representing computers, another content and the third telecommunications. These three circles are gradually merging and in time will become indistinguishable from each other. The World Wide Web on the Internet is one of the earliest and best known examples of this trend.

The arrival of these technological advances has coincided with a push through the western world for market liberalisation [1.2]. These forces have, in turn, encouraged much tighter links between economies, a crucial part of globalisation [1.3].

 

Features of Globalisation

• Simultaneous competition in each market between numerous new competitors from all countries, and sometimes from different sectors. This new competition demands, in numerous areas, extremely rapid structural adjustments;

• Internationalisation of production: multi-national origin of components, products, services and capital;

• Growing interdependence of the various levels of globalisation (trade, direct investment flows, technology transfers, capital movements etc.);

• High degree of cross-border activity by many organisations;

• The structure of international trade is becoming increasingly intra-industry or intra-product in nature;

• Inter-nation economic activities are far more tightly integrated than the "at a distance" mode most trading relationships have had in the past;

• Foreign direct investment has become a crucial factor in the worldwide process of industrial restructuring and the development of genuinely global industries;

• The financial sector is increasingly entwined with the industrial sector;

• Emergence of specific regional and cultural factors in response to globalisation; and

• Multiplication of regional free-trade agreements.

Only in the past decade have we seen these ideas become reality with the rise of major "information companies"; companies such as Microsoft, Yahoo, Intel and Cisco. These companies would fail traditional valuation tests based on tangible assets but which are valued extremely highly by the markets. [1.4]

The combining of computing power - until recently used mainly to mechanise traditional functions (typists using word processors, book keepers using spreadsheets etc.) - with telecommunications, opens up the possibility of very different organisational and industry structures. Where steam power harnessed unheard of power to be the catalyst for the Industrial Revolution (or Transformation Revolution) the invention of electricity mobilised this power enabling it to be applied in many more ways. Markets are beginning to place an ever higher value on information: a product/service as plentiful as human imagination and innovation.[1.5] The networking of computing power builds on this and is enabling another significant change: the Transaction Revolution.

Long held assumptions about transaction costs - the costs of finding, pricing and managing supply of goods and services - are also being radically recalculated under the weight of this networked environment. (For an isolated, small economy, such as Western Australia's these new dynamics appear likely to have an even greater impact than in other regions.) [1.5.2]

 

Markets and Hierarchies in a Network Economy

Williamson observed that firms have traditionally retained production of the components they require in-house. Even though going out to the market would generally mean lower prices they tended to ignore this due to the high costs of coordination, or interaction. They have built rather than bought. This led to the development of the vertically integrated firm and accounts for the dominant power of conglomerates over the larger part of this century. The general availability of inexpensive and efficient networking technologies have altered this logic. As coordination (interaction) costs drop, it makes far greater sense for organisations to get the best of both worlds and outsource more and more activities and reap the savings the market brings - a trend we are seeing increasingly today.

Malone and Rochart have added a third type of organisation to Williamson's model - the organisation using Online coordination mechanisms - to starkly illustrate the next likely wave of organisational systems; one in which both Production and Coordination costs are low.

These technologies and the practises they are enabling, are fuelling the enthusiasm for electronic commerce [1.6] and leading to suggestions that we are moving into a New Economy in which the link between rates of growth, inflation and unemployment are broken [1.7].

Globalisation is dramatically increasing the pressures on businesses with competition coming from different geographical directions and from completely different industry sectors. This is placing significant pressure on product development cycle times [1.8] and further driving the push for firms to move from being satisfied with merely optimising their methods to forcing them to innovate regularly [1.9].

Finally, the issue of ICTs and their impact on distance. Although many have predicted these technologies will bring about the death of distance, the reverse has often proven to be true. Changes in the finance industry over the past two decades which has seen the rise of New York, London and Tokyo as truely global cities through their domination of this sector are an early indicator. These cities and sub-regional centres, such as Sydney, Hong Kong and Singapore, have grown in importance and power through the extension of their control ICTs have allowed them. Peripheral regions, such as Western Australia, are facing the prospect in this environment of being forced further away from influence and control. As value chains are reconstituted through the increased use of ICTs those on the periphery without a clear strategic view of their future will be relegated further[1.10].

 

Trends

As in all advanced economies there has been a steady decline in Australia’s manufacturing sector and a growth in services over the past three decades. In fact, our manufacturing has declined faster than that of any OECD country. Within this trend has been a tendency in OECD countries for manufacturing sectors which make greater use of R&D to grow, both in terms of employment and revenue. This has not occurred in Australia. Our strongest manufacturing sectors - food and metal industries and resource-related manufacturing sectors - tend to have lower R&D intensity than many others. Australian manufacturing is overweighted with companies which are classified as low tech. [2.1]

One of the notable trends in world trade is the long term decline in the share of natural resource-based products vis-a-vis engineered products. Elaborately transformed manufactures (ETMs) including such things as consumer electronics, information and communication equipment have been the major source of growth in world trade for the past 50 years. And yet commodities still dominate Australia’s exports.…

Moreover, prices fetched in world markets for natural resource-based products are falling vis-a-vis those fetched by ETMs. As a result the things Australia is exporting are earning less and less on world markets, while the things we are importing are costing us more and more. Compared to the mid-1960s Australia now has to export 50 per cent more commodities (by volume) to be able to afford the same volume of manufactures.

The consensus of more than ten reports commissioned by various federal government departments and industry representative bodies over the past two years is that Australia is poorly positioned in a number of respects to face the new millennium. [2.3] In terms of Awareness and Leadership [2.3.1], Strategic Options open to us [2.3.2], the Leading Edge Application of new products and services [2.3.3], Venture Capital and Innovation [2.3.4] and Skills Development [2.3.6] significant shortcomings were identified.

 

The Information Industries

In terms of the Information Industries, the fastest growing segment of the world economy, Australia accounts for just two per cent. Australian companies generate about $50 billion across all Information Industry sectors. Western Australia generates five percent of this national figure, or 0.1 per cent of the global industry. Fortunately the nature of the industry means that Australia’s, and Western Australia’s, size are not necessarily a disadvantage. Much can be done from the existing base. The State's size does preclude it from some segments but nothing like the number ruled out in the Industrial Economy. The key will be in selecting the strategy best suited to our existing competitive advantages and then pursuing them determinedly, but flexibly to adjust to changing conditions, over time.

The industry is highly centralised with the vast bulk of this activity in NSW and Victoria; the two states account for more than 70 per cent of employees and almost three quarters of the industry’s revenues. [2.4]

Information Industry Employment by State and by Sector: 1995-96

Industry

NSW

Vic.

Qld

SA

WA

Tas

NT

ACT

Australia

Manufacturing

9,979

4,450

898

858

842

23

-

246

17,295

Wholesale trade

17,597

13,151

3,686

1,604

1,944

300

168

179

39,629

Telecom'ns Services

33,180

27,184

14,777

6,108

6,660

1,569

697

1,525

91,701

Computer Services

25,509

16,724

4,682

2,437

3,054

271

122

2,228

55,028

TOTAL

86,265

61,509

24,043

11,007

12,500

2,163

987

4,178

203,653

% of Aust total

42.36

30.20

11.81

5.40

6.14

1.06

0.48

2.05


Source:
Australian Bureau of Statistics; Information Technology, Australia 1995-96

 

Western Australia's Information Industry

Although a small section of the global industry, the Western Australian industry has developed a number of strong niche areas of expertise. In 1995-96 the local industry had revenues of just over $2.8 billion, more than half of this from telecommunications services. There are approximately 400 IT and multimedia firms in the state. Two of these - ERG and Intellect - were rated amongst the top fifty information industry exporters in 1995-96. ERG was ranked tenth with $91 million in exports and Intellect twentieth earning $5 million from overseas sales. [2.5]

The 400 firms in Western Australia "include multinational and local companies involved in the manufacture, development or wholesaling of equipment, software or services in which the primary product is the delivery of information processing, multimedia or communications". Of these about two thirds are locally owned, the remainder are either owned by overseas or east coast interests. Despite this, in 1995 the bulk of the revenue earned by the industry (52 per cent) was earned by non-Western Australian firms.

Non-Western Australia firms tend to have significantly more employees than the locally owned companies, but the discrepancy in mean turnover is even greater by a factor of three to one.

While no definitive data is available it is assumed that the bulk of the revenue in the largest sector, "Distribution of IT Products" is earned by non-WA companies. Although "Provision of Services through IT" is the smallest segment of the industry it offers very strong growth potential, particularly through capitalising on the potential of global distributed work (see TimeShift below).

The State Government accounts for 40 per cent of the local industry’s revenue. Resource, environment and land management software development (including mining, petroleum and mapping) are by far the dominant applications, followed by finance, banking and insurance software with telecommunications and utilities a close third. Compared to other Australian ICT companies, Western Australian firms tend to be more export oriented. As has been mentioned elsewhere, the MNCs tend to do little exporting from Australia. The few overseas sales which do originate from their Australian branches tend to be managed from either Sydney or Melbourne. Twelve per cent of the state industry’s revenues come from overseas sales, while the national figure was only 5.6 per cent. (Exports from ERG and Intellect alone during the year concerned accounted for about 4 per cent of the local industry's revenue or about one third of its export income.)

 

Industry Clusters

At the time of writing there was no current data available to conclusively identify major clusters within the local industry. However, it is clear that Western Australia has strong existing companies and research organisations working in imaging (for a variety of applications) and in aspects of communications, particularly wireless and broadband. Industry research undertaken in 1994-95 identified imaging, advanced communications and multimedia as areas of greatest interest to the Western Australia industry. (It should be noted that this research predates the surge in interest and activity on the Internet.) Much of the work being done in each of these areas within the State is globally significant with commercial and research links overseas. Other firms are recognised global players in niches within smart card and EFTPOS technologies, RF systems, security, phone traffic management, intelligent home systems and various other technologies. Further work needs to be undertaken, and updated on a continuing basis, to track these industry clusters and the international trends.

Distributors vs. "Locals"

The options canvassed here are unashamedly geared toward creating a supportive environment for locally-based, globally oriented, information industry companies. Taken at face value this goal appears non-controversial. But it is possible to view the industry as having two quite seperate segments, each with very different agendas. On one side are the distributors, dominated by the branch offices of the MNCs and nationally-owned companies, on the other the locally-owned producers and developers. There are also a substantial number of firms which fit between these two; locally-owned agents and systems integrators, to name two categories.

A difficulty for policy makers is that representatives from the distributors group tend to be the most consistent attendees at industry briefings and are more often in close contact with government. Their view of industry development usually revolves around government buying practises. These companies are unlikely to be conducting export drives from Western Australia. For this reason they are of less concern in the context of this study.

Nonetheless they are vitally important to this strategy. They can be, and have been in the past, essential players in the development of the local industry. Aside from the services they provide the Western Australian economy and society generally many have formed partnerships with local companies which have assisted them in expanding to other markets. In this role they can be of inavaluable service to achieving the goals outlined above.

 

Western Australia in the Global Information Economy

As the most global industry in a rapidly globalising world economy, any substantial and sustainable development of vigorous local Information Industries must have an international outlook. Despite the local industry's minuscule size, on a world scale, many segments are open, and will open, to well-focussed niche participants with a long-term strategic vision.

The options canvassed here are unashamedly geared toward creating the necessary environment which will build and expand locally-based, globally-oriented, information industries. Any other approach seems fruitless in the environment which exists today and which will apply for the foreseeable future. [3]

 

Western Australia's Competitive Advantages

Perth could be one of the most attractive suburbs in the global village.
Frank Blount, Telstra CEO,
addressing the Into Asia Conference, Perth, 1993

Western Australia’s advantages as an attractive location for industry have been noted regularly. Many of these advantages apply to the Information Industries, others are slightly different. Western Australia:

• shares the same time zone as many of the major centres in the region;

• has a time zone which is precisely eight hours, or one working day, ahead of the United Kingdom and 16 hours ahead of the west coast of the United States;

• has a strong export culture, within particular sectors;

• has good telecommunications and transport infrastructure with regular inter-state and international air services;

• has a highly skilled, innovative, predominantly English-speaking workforce, with skills surpluses in many information-based professions; and

• has an attractive physical environment. [3.1]

Its limitations include travel and distance [3.2.1], isolation and market size [3.2.2], loss of local autonomy within the state branches of many nationally controlled organisations and disappearing middle management [3.2.3] and narrow economic base [3.2.5].

While the State's dominant resource sector covers a declining segment of the world economy it has clearly been vital to Western Australia's considerable economic success over the past three decades. It can now also provide an excellent foundation on which to build a world-class Global Information Industry.

As a small regional economy, Western Australia cannot hope to mimic many of the better known success stories or expect to build firms across a wide range of Information Industry sectors. It has to pick its mark. Many of the State’s existing Information Industry companies have established themselves primarily through servicing resource companies. Much of the local Information Industry’s world-class expertise in various forms of imaging and mapping technologies, remote and mobile communications, for instance, can be traced back to on-going contracts from resource companies. [3.3]

 

The Resource Sector as an Information Industry

The massive size and scale of most resource sector projects conceals the fact that, as with many other industries, it has become a very sophisticated and heavy user of ICTs. No major resource project is considered without gathering, processing and analysing massive amounts of data.

The opportunity exists to build on Western Australia’s global competitive advantages in resource and resource service industries to create a range of information and knowledge-based companies and industries. This report does not propose a strategy built only on the resource industries but to use this existing strength as a launch pad on which to both expand and extend.

Both the resource companies and the service companies which have grown up around them have a proven record of world-class innovation and development. Achieving this record has required the continued development of efficient operational methods. According to McKinsey and Company the Australian mining sector - of which the Western Australia industry accounts for a disproportionately large amount - has by far the highest relative productivity of any sector in the national economy. Measured in terms of value added per employed person mining recorded 129 against the Australian national all-industry average of 75. The US all-industry average is 100. [3.3.1]

This combination of high productivity and global orientation make the resource industries and existing information industries servicing the sector the logical starting point on which to focus the State’s strategies in developing a strong indigenous Information Industry. There are already an impressive list of existing areas of expertise in:

• Imaging,

• Spatial Analysis,

• 3D Modelling,

• Process Control,

• Global Positioning Satellite (GPS) applications,

• Wireless communications,

• Specialised areas of Robotics and

• Consulting services

 

As has been said, the mining, oil and gas companies themselves are an integral part of this strategy. Even so its primary focus is on both the locally-owned Small to Medium-sized Enterprises (SMEs) already servicing these larger companies and extending this capacity. In both cases of the strategy proposes two interrelated goals:

• that existing Information Industry companies be assisted to expand, within their existing market niches as well as vertically and horizontally, through the innovative use of ICTs; and

• that the skills acquired through this expansion, particularly in dispersed project management, be leveraged into developing other knowledge-based industry opportunities for Western Australia more widely.

 

Mines to Minds is the vehicle, not the end…

As mentioned above, an essential part of this proposal is that the resources industry is used as a staging point for developing a strong Information Industry, not as an end in itself. The example of a number of prominent corporations - Honda, Canon and 3M - in adopting spin-off strategies which steadily build on their technological base to develop new markets are perfect case studies for Mines to Minds. [3.3.2]

…and not forgetting the Public Sector

In addition to Western Australia's expertise in geological imaging it has also developed significant expertise in Telehealth. At present there appears to be limited interaction between these two sectors but considerable potential for synergies, particularly with regard to the gathering, storing, manipulation and communication of highly complex and detailed images. [3.6.3.1]

This coincidence of applications is an excellent example of the potential to build "generic clusters" around various technologies which can then be further developed and applied in other areas as well as the resource industries and medicine themselves. In addition to the gathering and storing of images, interest is growing in techniques to manipulate and analyse them across a wide range of areas.

Communication

Another example of an extremely exciting and promising area of technological development in which Western Australia has strengths and in which synergies between these two sectors exist is thin client broadband communications networks. For resource companies and for the efficient delivery of Telehealth services there is a need for broadband capacity to move extremely large files. Developing a network to achieve this in Western Australia with its vast distances and thinly distributed population creates considerable cost and efficiency demands. Solving this problem in the Western Australian environment opens significant opportunities for application around the world.

 

Distributed Management

As with geological and Telehealth Imaging, Distributed Management is an area in which Western Australia has a clear incentive to develop appropriate technologies and techniques for local use and which can then be exploited elsewhere.

It is clear that even with access to some spectacular technologies there remain considerable human barriers to their application to distributed management and its implications to changing the way we work. For Western Australia, understanding these dynamics offers the potential to significantly improve the delivery of services (by both the public and private sectors) to clients/customers across the State. Potentially more important is the opportunity it presents to seriously challenge the "tyranny of distance" through a more measured and innovative application of these technologies. It opens up the possibility for the State's information workers to more fully engage with colleagues internationally and for business alliances and partnerships to be built (see TimeShift below). [3.6.3.2]

The public sector provides an ideal testbed for many of these opportunities. Making greater use of distributed work technology offers significant opportunities for the public sector to improve its level of service delivery cost effectively, particularly its delivery of services to regional and rural Western Australia.

A range of issues covering distributed project design, team selection, management protocols, multi-cultural issues, managing different values across distance, accountability in a distributed work environment, through to building trust, all need to be understood.

 

The Three Primary Sectors

This set of Information Industry options would provide a map of digital convergence with opportunities for short term benefit to the State and with significant longer term possibilities into other sectors.

 

TimeShift: The Move to the Next Level

In the next millennium, in the Information Economy, Western Australia's most significant natural asset may be its time zone.

TimeShift is the working title for a form of global distributed work linking with centres in Europe and North America to create a three shift, 24 hour work day for information work. By capitalising on Western Australia's time zone it becomes the "third zone", after Europe and North America.

TimeShift is a form of global distributed work which exploits:

• Western Australia's declining cost of telecommunications services;

• an increase in the availability and adoption of teamworking software;

• the drop in price, growing performance and availability of desktop video conference software and hardware;

• a shift in management culture in some sectors to a greater acceptance of contract and remote working;

• the high educational levels of the Australian workforce:

• Australia's multicultural workforce; and

• Australia's comparatively low pay rates for skilled workers in many industries.

Systems similar to TimeShift have operated for some years moving unskilled or semi-skilled work such as data processing from high to low wage countries or those with more favourable tax regimes. Data processing undertaken for US insurance companies in Ireland and Jamaica

is an example of this. A number of computer companies also move work around the world, between offices, to improve the service offered to customers. If a fault has not been rectified by the end of the day at the service centre closest to the client it is moved onto an office of the company in the next time zone and so on. In theory, by the time the client reappears for work the next morning an additional 16 hours work has been done toward solving his problem, or three weeks work in one.

Case Study: Singapore's New Straits Times

To reduce its operating costs Singapore's New Straits Times newspaper has established an office in Sydney from which twelve sub-editors work each evening to assist with the production of each edition of the paper.

The Singapore paper has had a long tradition of employing Australian journalists, particularly as sub-editors, but high staff turnover and the costs of relocating them to Singapore made the opening of the Sydney office an attractive and cost-efficient option. Reports indicate the newspaper has cut its total employment costs for these workers by almost half. The Sydney and Singapore offices are directly linked with high capacity lines which are capable of carrying raw newspaper copy in one direction and edited stories in the other.

 

Combined with the three projects above (Computer Imaging, Thin Client Broadband and Distributed Work Management) TimeShift offers an opportunity to expand into export markets. It can also be applied to many other information-based industries, some in the near future. The advantages and opportunities for clients and for Western Australia are:

Clients

Australia/Australian business and employees

Compresses project time

Expands employment opportunities

Offers employment flexibility

Higher wage rates in sectors with skills surpluses

Provides access to hard to obtain skills

Greater flexibility of location for business and employees

Cheaper employment costs (in select industries)

Presents the opportunity to address endemic regional unemployment, with appropriate (re)training

Globalisation of workforce skills, further enhancement of global perspective of business and employees

 

The Global Economy, ICTs and "Normal Business"

While this report is primarily concerned with the development of Western Australia's Information Industry these technologies are clearly having a significant effects through other sectors of the economy. It is also essential from an Information Industry point of view that it have well informed and critical customers close at hand to ensure it is getting regular, well informed feedback on the products and services it is marketing.

Electronic markets are rapidly developing in various industries and, less well recognised, chains of control are being reshaped by these technologies. Retail Internet-based Electronic Commerce has proven to be the area where there has been most enthusiasm but, with a few notable exceptions, greatest disappointment. At the beginning of last year the IT consulting firm International Data Corporation (IDC) predicted E-Commerce would increase to just under $50 billion during 1997. The generally accepted figure is about $10 billion. [1.7]

A recent report from the World Trade Organisation (WTO) is even more bullish estimating the value of electronic transactions at $US300 billion by 2000. It has also raised questions for its members on the implications of this change on international trade regulations. The Organisation says this shift presents some fundamental issues about the differences between goods and services; books versus the text for a book, for instance. Both the European Community and the US Government have proposals before the WTO arguing that the Internet should be free of tariffs, a move challenged by many developing countries fearful of the impact of such a decision. (See Appendix D.) [1.7.1]

Online sellers

Source: Microsoft and The Economist

Despite continuing concerns in some quarters about security on the Internet a number of products are building up substantial electronic sales. Not surprisingly, computer software and hardware has sold well over the Internet. Books and CDs have also been sold very successfully. It is generally accepted that markets in which the selection or range, information (particularly timely information) and price are critical, are the most suited to electronic selling. Being able to adequately describe the product is obviously also important. [1.7.2]

Industry expectations are that E-Commerce which links businesses has considerable potential and a faster growth curve than targeting retail customers.

The Internet has enabled alternatives to the mainframe-based, proprietary networks which have been a feature of Electronic Data Interchange (EDI) systems. Many companies have moved these older-style systems to the Internet and the lower costs have encouraged many smaller companies to also convert much of their purchasing to electronic format. (A leading computer network equipment manufacturer, Cisco Systems, says its purchasing department accounts for 18 per cent of its overheads. Across the US economy purchasing reportedly costs $US250 billion.) [1.7.3]

Business to Business E-Commerce in the US

The number of US. businesses with an online presence continues to grow. According to Computer Intelligence, the number of small businesses using the Web roughly doubled in 1997. The latest from Internet researcher Cyberdialogue shows 2.6 million US. small businesses (37%) now conduct business online. Another 1 million are expected to come online this year - at which time 50% of US. small businesses will be on the Web. Among those with Web sites now, more than a quarter credit their online presence with boosting sales. And half report improved customer service.

ZdNet News Service, 30 March, 1998

A feature of online markets, which is not easily available in the physical world is the capacity for customers to very easily (and cheaply) compare products from a wide range of suppliers.

If this becomes widespread practise it will place enormous cost pressures on all sections of the production chain but probably none more than retailers who can be easily by-passed or swamped by electronic superstores. This is likely to be the "killer application" for electronic commerce, not whether or not simply the issue of consumers' commitment to the social or entertainment attraction of in-person shopping. [1.7.3]

 

Conventional Purchasing and Electronic Tendering

 

 

Transaction Costs

The capacity of communication networks to extend networking practices and structures further and deeper into industries is important because it makes interactions between dispersed partners far more practical than they have been in the past. They have also led to significant reductions in transaction costs - the costs in searching, coordinating and monitoring - when we exchange goods, services or ideas. This has led some to suggest that we are entering an era where we will see the steady disintermediation (the removal of the middleman) of industries and the development of friction free markets. [1.6.1]

Share of Interactive Activities by Industry type, Percentage of Labour Costs, United States, 1994

 

Following on from Malone's work McKinsey and Co. estimate that these interaction costs account for more than half the labour costs in the US economy, the equivalent of more than a third of GDP. They say these figures are similar in other developed nations. According to McKinsey’s, the current and anticipated network technologies will enhance our capacity to interact by a factor of two to five times, depending on the industry. The significance of this change is heightened by the authors' belief that these changes in interaction patterns and costs will take effect over the next two to five years. If these predictions are carried through to the workplace the impact on employment levels will clearly be severe and swift.

 

Transaction costs and Western Australia

Research for this report has been unable to establish whether transaction costs account for a greater proportion of the Western Australia economy than other states or regions. Statistics which we have been able to access do not provide sufficient detail to draw any definitive conclusions. Discussions with a number of economists have confirmed our belief that transaction costs are likely to be higher in Western Australia due to distance than in many other regions. Those Western Australians working in retail, whole sale and distribution, in particular, are likely to be significantly affected by these changes.

Given the scale of the changes which are predicted it does seem important that additional work is done to ascertain whether or not there is a substantial difference in these costs in Western Australia and if so to prepare policies to adjust to these changes. [1.6.2]

 

Goals

The sectors within the Information Industry can be arranged around a matrix differentiating between Labour and Capital Intensity and between High and Low Processing (or skilled and unskilled labour). The matrix below is useful in identifying the sectors which should be encouraged and those which may have only marginal value, given our relative strengths and weaknesses. [3.4] This document assumes that neither the Virtual Sweatshop nor Automated Systems have much to offer Western Australia. The former because our wage structure makes us generally uncompetitive in this segment. It is also the least attractive because this sector tends to be made up of "footloose industries". Automated Systems are also a difficult segment for Australian regions to compete in due to our high wages. Another factor is the relatively low return to the economy as a whole from these ventures, particularly if they are foreign owned. Both Technologists’ Heaven and High Tech, Human Touch offer the greatest possibilities and the best "fit" with Australia, and Western Australia’s, competitive advantages.

Categorising the Information Industries

Setting short, medium and long term goals in this environment is problematic: should goals be structured in terms of the constraints of the existing planning cycle or the demands of the online world? Some observers speak of the current pace of change in the online world occurring in dog years and that many of the structures of this new economy will be in place within the next five to seven years. This dilemma underlines, once again, the urgency in initiating and implementing appropriate policy settings to claim a place in this new era.

 

Short term - 1998 to 2000

• Get 60 per cent of all Western Australian-owned businesses online by 2000

• That Western Australia’s share of Australia’s Information Industries grow 10 per cent per annum faster than the national industry to account for seven per cent of the Australian industry by 2000.

• That Information Industry exports increase by 30 per cent a year to account for 21 per cent of the sector’s revenues by 2000.

• That every Western Australia Government Department have developed a distributed management plan by 1999.

• That employment in Western Australia's Information Industries be 15,000 by 2000

 

Medium term - 2001 to 2007

• That Western Australia’s share of Australia’s Information Industries grow 10 per cent per annum faster than the national industry to account for 10 per cent of the Australian industry by 2005.

• That Information Industry exports increase by 30 per cent a year to account for 45 per cent of the sector’s revenues by 2005.

• That every Western Australia Government Department have implemented a distributed management plan by 2001

• That employment in Western Australia's Information Industries be 25,000 by 2005

• That Western Australia has established itself as a leading regional centre within the "3rd Zone"

Long term - 2008 and beyond

• That Western Australia’s trade in Information and Communication Technology products and services be in balance by 2010.

 

Policy Recommendations to achieve the Goals

The strategy also proposes separate, but inter-related approaches to develop technology manufacturing companies (ETMs). The priority in the first instance, in both service and product sectors, is to build companies (and encourage individuals) capable of:

• operating globally;

• expanding Western Australia's strengths in the resource and related industries;

• develop "spin-off" services and products drawn from the resource industry and other information industry companies which can be marketed to other sectors;

• identifying world class existing technologies, both "hard" and "soft", which can be applied to other industries.

 

Achieving these goals will require intervention in both Perth and regional Western Australia to:

• raise the awareness and information levels amongst politicians, public servants, industry leaders and the community generally of the global, online environment;

• highlight existing innovative demonstration sites and encourage their creation in a range of sectors;

• encourage the establishment of innovative online projects, primarily through the provision of appropriate support services;

• offer support through skill development and business opportunities to potential global workers and to global, information/knowledge-based company-builders;

• identify gaps in accessing infrastructure at a world competitive price and identify policies to remedy these;

• facilitate interaction between participants in the various information industries - telecommunications, information technology and content developers - both locally and globally;

• encourage the establishment of alliances with organisations nationally and internationally which offer synergies for Western Australian organisations;

• enhance the existing data on the industry to enable benchmarking and the further refinement of the State's Information Industry strategy; and

• the development of a strategy to lobby the Federal Government on issues outside the State government's powers. [3.5]

 

Policy Recommendations

Awareness and Demonstration Projects

Launch a Western Australia Online 2000 as an "umbrella" program to:

• raise education and awareness

• get businesses online

• develop industry by industry online cases studies

Establish an organisation to coordinate and support research, education and training in the Information Economy generally and the three primary areas (Broadband, thin client telecommunications; Imaging computing technologies; and distributed work technologies and techniques) in particular.

Establish an "Investment Ready" Program for small to medium sized Information Industry companies [3.6.1.4.]

Exploit the synergies between Geological Analysis and Telehealth for Imaging…

…and Communication [3.6.3.1]

Public Sector Distributed Management Project [3.6.3.2]

TimeShift [3.6.3.3] - Global distributed work

MicroTrading [3.6.3.4] - using ICTs to identify, communicate and establish trans national distribution channels for SMEs

High Bandwidth Serviced Offices [3.6.3.5] - aggregating the demand of several small information companies to one location to overcome telco pricing strategies to access high bandwidth telecommunications

Information Industry Business Incubator - as above with the addition of online business advise and support

 

Support

Facilitate the marketing and use of Information Brokers by all appropriate firms [3.6.2.1]

Online Process Reengineering [3.6.2.2.] - an AusIndustry-like program in which firms are subsidised to have consultants review their operations and recommend online alternatives which will increase their efficiency

Online Business Division within the Small Business Development Corporation [3.6.2.3.] - to provide advise to aspiring online companies and existing firms interested in developing an online presence

Investigate short comings in Western Australia’s seed funding market and examine potential strategies to overcome these difficulties [3.6.2.4] eg

• support the establishment of a Western Australian branch of a national Venture Capital firm; and/or

• establish a Western Australian branch to a foreign investment bank(s) and/or VC

 

Education and Training

Address the Skills/Enterprise Gap [3.6.1]

Global Information and Knowledge Industry Entrepreneurship Training [3.6.1.1] for

- high school

- TAFE and

- University level students

Develop appropriate policy initiatives to encourage young people to develop online enterprise skills [3.6.1.3.]

Infrastructure

Semiconductor Fabrication Plant [3.6.4.1] - it is recommended that while attempts to attract a plant continue a strategy to provide services to the industry be developed (possibly through TimeShift and other distributed work techniques) to:

- gain greater knowledge of the industry's dynamics;

- to generate short-term revenue;

- to better position WA for subsequent negotiations for a plant in the future; and

- as part of a wider campaign to encourage graduates to stay while continuing to develop their skills and to attract emigres back to WA.

Regional Telephone Companies [3.6.4.2.] - nurturing global information companies in a high cost telecommunications environment is an unnecessary additional hurdle. It is recommended that:

- a detailed study is undertaken as a matter of urgency to identify Western Australia's telecommunications priorities and needs

- a strategy be developed to address these needs and that potential partners be identified.

It is further recommended that Western Power be instructed to cease its underground cabling program until it has developed a suitable strategy for collocating telecommunications cables.

Short-run, Contract Manufacturing Plant [3.6.4.3.] - appropriate incentives be developed to attract an operator to provide this service for Western Australia's developing ETMs

Headworks Program [3.6.4.4.1.] - that the Department of Commerce and trade's Headworks Program be extended to include telecommunications services. This extension of the Program would not be as a further call on consolidated revenue but in supporting the development of the necessary legal, regulatory and business "tools" to enable communities and groups to establish and sustain their own telecommunications infrastructure.

Narrow Bandwidth WWW Standard[3.6.4.4.2.] - establish a standard for World Wide Web pages to be efficiently transmitted over narrow bandwidth links, require Government Agencies to conform to this to service regional and rural users.

 

Networks and Alliances

Facilitate Western Australian Information Industry exchanges [3.6.1.2.] and Wagon Wheel Bar and Grill [3.6.5.5.] - enhance links between the Western Australian telecommunications, computing and content industries

Western Australian Prodigal Sons and Daughters [3.6.5.2.] - develop a database of expatriate WA Information workers and develop strategies to attract them back to the State. If this is not possible examine ways of incorporating them into information networks for indigenous firms to use their knowledge.

Know Who [3.6.5.3.] - encourage the involvement of knowledgable new arrivals (to Western Australia) into local industry networks.

Feed-back Loops [3.6.5.4.] - acknowledge the difficulties distance and isolation pose for the State's Information Industry firms in remaining abreast of market intelligence in a fast-moving global industry and develop strategies to address these limitations.

Global Partnering [3.6.5.6.] - encourage the partnering of Western Australian Information Industry firms with complementary organisations overseas to enhance information flows

 

Data and Information

Identify opportunities for import replacement by Western Australian Information companies

"Map" the Western Australian Information Industries to identify clusters

Benchmark Western Australia’s online progress in comparison with other states and comparable overseas regions [3.6.6.1.] in terms of:

• online primary, high school and tertiary education programs

• telecommunications services and costs

• public sector online initiatives

• number of online business start-ups and their longevity

• management understanding of online threats and opportunities

Identify the Western Australian industries most vulnerable to the Global Economy and develop strategic approaches for them to counter this threat

Collect data to identify Western Australia's Skills Surpluses [3.6.6.2.]

Identify service industry clusters for TimeShift

Lobbying Initiatives

Lobby the federal government and industry groups for reform of:

- the existing capital gains tax legislation to support the establishment and development of fast growth Information Industry companies; and

- the current sales tax regime (in light of the general acceptance of developing world acceptance of the Internet as a tax free zone).

 

Appendix A

Purpose of the Study and Terms of Reference

Purpose

To enable the Technology and Industry Advisory Council (TIAC) to more effectively contribute to the Information and Policy Council (ICPAC) in terms of ICPAC’s major objective of developing a more significant role for Western Australia in the emergence of a global information industry.

The Federal Government has raised national debate on the Global Information Economy by the recent release of the Mortimer Report, the Goldsworthy Report and the Information Policy Advisory Council Report. Each of these reports approach the issues from different viewpoints and, as such, offer some variations in their recommendations to government. There is a need for the Western Australian community to consider both its position within this national debate, and its various options for participating in the National and Global Information Economy.

Terms of Reference

1. Briefly outline the current structure of Western Australia’s information and communication industry.

2. Using appropriate references identify the key issues and forces associated with a region such as Western Australia participating in the global information and communications market

3. Outline four broad scenarios for Western Australia’s participation in the global information and communications market.

4. Develop policy directions that the State would need to consider in order to achieve the outcomes in the scenarios described in 3. above.

 

Appendix B

TIAC Steering Committee for this report

Chairman: Mr Rob Meecham

TIAC Member: Ms Leslie Chalmers

TIAC Member: Mr Tony Tate

Dept. of Commerce and Trade Mr Michael Ashford

(Office of Information & Communications)

Executive Officer: Mr Earl White

 

Work on this study was completed by Peter Morris of Morris Moorhouse & Associates. He was assisted by Thomas Dickson in gathering much of the Western Australian economic data contained in the report.

The project was undertaken through the offices of Dr Lynn Wadley of Curtin University Consultancy Service.

The Goldsworthy Report, "The Global Information Economy, The Way Ahead", http://www.dist.gov.au/itt/golds/html/execsumm.html

This refers to the trend in many western countries for society to become increasingly economically polarised with an enlarged affluent class and a greater number of working and unemployed poor while the proportion of middle income earners declines.

Hatzichronoglou, T., "Globalisation and Competitiveness: Relevant Indicators", STI Working Paper No. 1996/5, OECD, Paris, 1996

Williamson, O.E., Markets and Hierarchies, Free Press, New York, 1975

Malone, Thomas and Rockart, John F., "How will IT Reshape Organisations? Computers as Coordination Technology" in Global Technology and Competition, ed by Bradley, Stephen, Hausman, Jerry and Nolan, Richard, Harvard Business School, 1993, p. 37

Marceau, Jane, Manley, Karen and Sicklen, Derek, "The High Road or the Low Road? Alternatives for Australia's future", Aust. Business Foundation, 1997, Overview Report, p.14

AEEMA, Submission to the Mortimer Review, AEEMA, March 1997, author's emphasis

Senator Richard Alston, at the opening of Alcatel's plant at Botany Bay, 10 December, 1997

Information technology - Australia 1995-96, ABS, Catalogue No. 8126.0

At the time of writing the release of industry statistics for 1996-97 is imminent.

ABS, ibid

"Spectator or Serious Player?", the Allen Report

" Information Technology Industry and Market Survey - Western Australia", Deakin Consulting, January 1995

"Information and Communications Technology Industry: Regional Capabilities and Advantages", Department of Commerce and Industry, March, 1997

" Information Technology Industry and Market Survey - Western Australia"

Also see Australia's positives and negatives in the Information Economy at section 2.2

While English speakers offer an advantage in many Information Industry jobs the State's non-English speakers are also an important asset in a global economy.

Skills surpluses exist in a region when the local demand for particular skills does not exist or is low. If these skills are information-based skills then it is often possible, using ICTs to move the skills, rather than the individual and market these skills on other markets. The upsurge in virtual aliens in the US is an example of this.

This refers to those professions whose output can be entirely or predominantly converted into digital form.

 

Footnotes:

from "Growth Platforms for a Competitive Australia: Incentives, Aspirations, Innovations", McKinsey and Co. Australia with the McKinsey Global Institute, 1995, p. 22

This refers to a network which is called upon to deliver large amounts of data, so a broadband connection is required, but the number of clients using the line is small - hence thin client.

"WTO seeks to rule the web", by Fred Brenchley, Australian Financial Review, Friday, March 20, 1998

http://www.zdnet.com/anchordesk/story/story_1941.html

As networks increase the connections between individuals and organisations the role played by agents , brokers or retailers becomes less important as the value of their knowledge and contacts falls as the networks spread.

Butler, Patrick, Hall, Ted E., Hanna, Alistair M., Mendonca, Lenny, Auguste, Byron, Manyika, James and Sahay, Anupam; "A Revolution in Interaction", The McKinsey Quarterly, 1997, No. 1, pp.4-23,

The idea that a dog's concept of time means it perceives seven years have passed in one "human" year.

Petrie, Daniel and Harrington, David, "The Clever Country"

"Online" in this case does not simply refer to firms having their own WWW site, in some cases this may be appropriate but in others establishing an EDI system or e-mail to handle particular functions may be the most useful application of the technology. The crucial issue is to begin to incorporate it into the operations of firms at as many points as is appropriate to demonstrate the technologies and to encourage employees to begin to think of other ways in which it can deliver efficiencies to the operation.

These firms do currently exist in WA but appear to be used in a limited way. This seems to be through a combination of limited marketing by the mainly small, home-based brokerage firms and lack of awareness of them by WA companies.

 


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