12/03/2007

AT THE MERCY OF THE MONEY GODS

I've just come back from a fascinating visit to China which I'll write more about in following posts.

I love visiting China and seeing the remarkable developments underway there. My time spent at the massive Huawei technology headquarters in Shenzhen really brought home the extent of China's advances in the telecoms equipment market. The old European guard (ie: Nokia, Ericsson, Alcatel and Siemens) are being outgunned by a Chinese company barely 19 years old.


It comes down to the fact that China is a cheap place to do research and development and that China has some of the best engineers and researchers in the world. Huawei spends 48 per cent of its budget each year on R&D and the investment is paying off. It's rapidly gaining market share in the key mobile infrastructure and fixed line broadband categories.


However this visit to China also shed some light on the darker side of the economic revolution - the widening gap between rich and poor, the intensive competitive pressures on the Chinese to advance themselves, the inherent corruption in the Chinese system and the frankly grotesque and dysfunctional aspects of Chinese society. I came away from China, impressed as usual by the scale of industry there, but feeling very uneasy about where the country is heading. In many ways, China represents a number of the things that are plaguing the world, in particular, the obsession with money that seems to underpin everything the Chinese do.


As I stood in a grimy, crowded street in Hong Kong's Mongkok district, I watched a massive screen showing some Chinese actors dancing around in costume. I asked a Chinese friend what they were doing. "They're praying to the money god," she said. That figures.


And as I arrive back in this green and pleasant land, I read the disconcerting news that the local development arm of one of our best IT companies is to be shut down all in the cynical pursuit of profit.


We are selling off our best bits of land, our best companies, our prize resources, because, like the lead proponets of the new world order, we too are greedy and short sighted. The country is literally being sold down the river and in 20 years time is likely to be unrecognisable as a result.


The closure of Navman's Christchurch development centre and the break up of the satnav operation by its US owners is symptomatic of the ugly flip side of globalisation I wrote about in the 2003 column below which was published as Navman was sold to the Americans. I feared the thing would be carved up, sold off and wound down back then, despite attempts by Brunswick executives to sweet talk me into thinking differently. Now my fears have come to pass and the trend is worryingly similar everywhere you look...


Peter Griffin: Global forces batter our IT plans
by Peter Griffin


George Buckley seems like a nice guy. He has a relaxed, casual way about him as if the responsibility of running a multibillion-dollar company employing 21,000 people doesn't weigh on his mind too much.Maybe it's the calming influence of being in the South Pacific away from the bustle of his Illinois head office.


Or the fact his company Brunswick Corporation has just picked up 70 per cent of technology darling Navman - for a mere $56 million.If the timing was different he may have paid something ridiculous.Buckley is dismissive of the niggling concerns I have about ownership of our most innovative technology companies passing into foreign hands.


He calls Navman's founder Peter Maire a "visionary" and a man who will continue to head Navman, despite the shareholding changes."If the Americans are coming, it's to learn from the New Zealanders," he said with a smile. It's not to strip them of their intellectual property, plunder the brains trust and move on.


I hope Buckley sticks to his word. But the reality is that the future of Navman may be out of his hands almost entirely.The force of globalisation that brought Brunswick to our shores, has the power to giveth and to taketh away.As Investment New Zealand's director Ross Campbell said, globalisation can't be a one-way street for New Zealand.


If we want to grow a large and profitable IT industry we have to get used to the fact that offshore investors will finance it and tap off the bulk of the profits for some time to come.Campbell is confident that we'll reach the ICT Taskforce's target of 100 new $100 million IT companies by 2012, contributing to 10 per cent of gross domestic product in the process.


But of those companies, a proportion will be wholly foreign-owned multinationals or New Zealand companies with majority foreign ownership. At the rate we're going nearly all of them will be.


His argument is that the mere presence of these companies on New Zealand soil generates jobs, research and development activity, and most importantly, the management expertise that will allow New Zealand to build its own world-class IT companies - and reap the dividends.


He has a good point. Many of the multinationals based here don't pay much tax. In fact some of them have accrued significant tax losses. They use inter-company transfer payments of marketing costs and software royalties to knock out the bulk of their profitability and therefore their taxability.


But the key value in having the multinationals here is the money they pump into the service industry and the jobs and expertise they generate.The country managers of the Intels and Hewlett Packards of this world have gone on to pour their experience and ideas into local companies.The former Microsoft New Zealand guys doing their stints in relatively senior roles at Redmond soak up the Microsoft way of doing business, which ultimately has been damn successful.


They will also tell you they want to work back in New Zealand - eventually.But the lesson of the last depressing chapter in the history of the IT industry is that nothing is safe, especially when you sell. The shifting sands of the industry can bury old companies, ideas and trends just as quickly as they uncover new ones.At the moment New Zealand, with the IT multinationals taking a shine to us, has the opportunity to win some US work.But we aren't the most attractive place to be. Other Governments give lucrative incentives, as Brunswick well knows.


New Zealanders have developed some innovative technology, but once ownership of it passes into foreign hands, so does the control of its destiny.The worst thing that could happen would be for New Zealand to become the country that hatches good ideas, only to watch them all sail away.The truth is, there are enough local examples to show that foreign-funded IT partnerships can be fleeting in nature.The Ericsson Synergy partnership didn't work and Intel's Dialogic lab has been shut down.


This year Ericsson sold its data systems division, which made highspeed internet products. Despite generating revenue of around $100 million over the past three years, it was sold to Australian company Tennyson Networks, "part of an international strategy to narrow down to its core businesses," said Ericsson.Then there's IBM's ICMS phone billing system. Developed locally, the system was built for Telecom and was to be sold all around the world.Those plans changed and some 140 staff at IBM's development laboratory at Petone lost their jobs.


Today it is hard to hold onto anything, unless you own a big chunk of it.The trend of globalisation, which America played the largest part in kicking off, is starting to bite it in the bum.


Its citizens are getting increasingly annoyed at the thousands of jobs going offshore in outsourcing projects, largely to cost-effective India and China.The manufacturing base went decades ago, from the 1960s, when the likes of Intel opened chip plants in Asia.Now it's the relatively skilled jobs - programmers and designers, that are being displaced.It's a time when software developers around the world swap code they are working on in a big game of "pass the parcel" - much as the Kiwi musicians do on that Telecom advert.


This is all hard to stomach for the tens of thousands of American tech workers who have picked up pink slips over the last couple of years.The Washington Alliance of Technology Workers (www.washtech.org) is fighting against the "offshoring" of IT work, and the influx of the so-called "H-1B" visa holders, foreigners given the authorisation to come and work in the US.States such as New Jersey, Connecticut and Washington, have legislated to prevent Government funding being issued to those companies sending work overseas.


The likes of Brunswick will no doubt become sensitive to these political moves at some stage.As far as Peter Maire is concerned, it seems Buckley's word is good enough.But what happens when those two sail into the sunset of retirement - on a Brunswick-built boat of course?Will anyone be there to pound their fist on the boardroom table and demand Navman stay put? Will anyone care?

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