NZ losing out on opportunity to outsource

Most New Zealand enterprises are not leveraging offshore tech skills to plug gaps, according to a new report from the University of Auckland’s Centre of Digital Enterprise.

Professor Ilan Oshri from the Centre of Digital Enterprise (CODE) which is part of the University of Auckland’s Business School, has launched The Current and Future State of Digital Sourcing in New Zealand report, examining the spending, interest, and attitudes of Kiwi companies on sourcing digital skills in the global market.

CODE was established 20 years ago and Oshri and his team took it over three years ago to reposition its focus on emerging technologies and sourcing. “Our purpose is to examine recent trends and practices in digital technologies, and to advise companies about best practices in the space of technology and their impact on individual teams and society at large.”

New Zealand has an acute tech skills shortage and currently the rate of producing local talent is falling behind demand, while importing skilled workers has its own challenges.

One hundred NZ organisations were surveyed, and the report found that most companies are not outsourcing, which came as a surprise to Oshri and his team.

“Only 30% are engaging in sourcing and the vast majority of them are engaging in local sourcing. This is quite surprising, considering the current pressures on the New Zealand economy, indicating that there should be more consideration to accessing skills [offshore],” says Oshri.

What’s even more puzzling, he says, is that this is happening at a time when local education institutions are also not producing enough new workers to plug the gaps.

 “We are facing one of the biggest crunches in terms of access to skills to start with. Universities [in New Zealand] are currently producing around 4,000 engineers per year and there is demand for about 40,000 software engineers across the tech space.”

And he points out that importing skills is not a panacea either. “In terms of immigration, from the figures that I’ve looked at there are about 5,000 visas that are attributed to the IT space. So there is a big gap here that I don’t understand how it is bridged, and obviously the third alternative [outsourcing] is not considered seriously by New Zealand enterprises.”

The report also highlights the benefit of using an advisory when it comes to outsourcing, which a lot of New Zealand companies also decide not to avail of when procuring services.

“The research that we have done has indicated that there is a very strong positive correlation between using advisory and success in outsourcing,” says Oshri. “New Zealand companies do not use advisory. There is a good explanation, broadly. It’s because 95% of the New Zealand enterprise landscape is smaller than 30 employees… But even within the large ones we see that there is a tendency of perceiving the approach to strategising sourcing and engagements based on their understanding of what sourcing will yield. Whereas if you approach [a consultancy firm] for advice you might discover pathways that you have not considered.”

Oshri stresses that New Zealand companies should consider outsourcing where possible.

“It’s not just outsourcing domestically but predominantly it’s thinking about accessing global skills. There is a problem here with the balance between local and international sourcing…

The solution should be a little bit broader. Most companies that we have looked at globally have a blend of international access to skills and those that they are using domestically.  This balance does not exist here.”

He added that New Zealand needs to think beyond Australia and the US when it comes to accessing international skills.

“South Asia Pacific has been very successful in offering services and has been doing that for the last 25 years, and I think that New Zealand companies should be considering that seriously.”

Other areas he is encouraging Kiwi enterprises to consider are AI-enabled services and data analytics.

“This is a growing trend around the globe. It will speed up the product to market cycle.”

A final note from Oshri was for companies to consider a combination of specialist and general service providers.

“Most companies in New Zealand are relying on specialist service providers, and they shy away from the generalist service providers. So, if you look at the specialist service providers, and you will look at the company that is specialising, for example, in robotic process automation. New Zealand companies, for some reason, are more comfortable with them versus working, for example, with the likes of IBM, Tata Consultancy Sevices, Microsoft, and others for large and small-medium size enterprises.”

A combination of both is ideal, according to Oshri.

“Having specialists but investing in one or two generalists produces the best outcomes when it comes to outsourcing.”