South African companies were given fair warning of the slump that has impacted the IT industry before the World Trade Centre and Pentagon terrorist attacks caused the biggest stock market collapse since the depression of the 1930s.
Those that have not made contingency plans could be even harder hit by the fallout from the turmoil and uncertainty surrounding world markets following these events.
This is the view of Chris van Niekerk, country manager of 3Com SA. He says the local IT industry should fundamentally realign its costs and asset structures to match the reality of the market as it exists after 11 September.
"At 3Com SA, we took advantage of the warning and the `window of opportunity` the local industry was given to reduce costs and target gross margin improvement in order to `weather the storm`," he says.
"The result is that 3Com SA is showing positive trading results in SA and is positioned for growth."
Commenting on predictions of a global recession, Van Niekerk says there were a series of events that pointed to a destabilised market before the WTC disaster. These included the US telecom deregulation act of 1996, Y2K, and then the Internet "e-phenomenon" - which created six years of higher than normal capital expenditure on technology.
"This buying spree was facilitated by accessible, low cost capital and was fuelled by hype from the industry on a global scale. As the business models necessary to leverage these technologies collapsed and capital became more costly and less available, a dramatic drop in demand hit the industry - at the same time as the manufacturing capacity to produce technology reached new highs.
"The result has been the most severe, broad-based decline the technology industry has ever faced," he says.
Addressing the changes being made by 3Com globally in the wake of the terrorist attacks, Van Niekerk says: "3Com has implemented a new organisational structure on a global scale. We have targeted three markets, and built a business around each of them. These markets were chosen because they are large, expected to grow, and most importantly, they are markets in which we have already demonstrated success.
"These target markets are service providers, covered by 3Com`s CommWorks subsidiary, enterprise networks targeted by our Business Networks company, and network access targeted by our Business Connectivity company.
"Each of these businesses has a unique business model tuned for the dynamics of its target market. They use those channels that make sense to reach their customers," he says.
Turning to the local market, Van Niekerk says local companies must develop business models that can profitably exploit advances in technology within the South African context.
"Enterprises of all types must adapt their business models in order to capitalise on the enormous potential of the Internet to reach new customers and reduce costs, particularly in developing and previously disadvantaged areas.
"The South African marketplace needs less `intriguing` applications and more compelling applications," he stresses. "These applications must increasingly leverage advances in new technologies such as wireless and broadband access."
Van Niekerk says that paradoxically, the local IT industry needs to simplify the use of technology. "Individuals and emerging businesses want the benefits of technology without the complexity that has traditionally come with it.
"That means the industry must be more enlightened about the need for interoperability, and we must challenge our channel partners to design for simplicity in every aspect of the customer experience, without compromising the functionality of the offering."
Van Niekerk adds that there is no doubt that the IT industry will once again become a growth engine for the South African economy and a great place in which to work and invest. It may just take some time to regain this status.
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