SMEs face destruction in government spending cuts, not big IT suppliers

I blogged recently about the impact the government’s austerity budget could have on IT professionals. I wrote about the fact that IT projects could be cancelled putting IT supplier workers out of work.

I had a great response to this blog from a Kelvin Prescott. He talks about the real story being that while large IT suppliers might see profits drop SME suppliers could be wiped out.

Here is Kelvin’s comment in full. Worth a debate I’d say.

“I’m sceptical about the Guardian’s estimates of the numbers of jobs at risk – mostly because they underestimate how costly and time-consuming it will be to renegotiate the large contracts that comprise the majority of government ICT spend.

For me, the real story is the impact that the ICT moratorium will have on the small to medium sized enterprises.  It means that, for the next 3 to 9 months, pretty much no new ICT contracts will be signed. 

For smaller ICT providers, this has the potential to be fatal. A major cashflow hit is difficult to bear if your turnover is modest, and they lack the negotiating power to resist arbitrary price cuts from their biggest customer.

Larger providers are in a much better position, even if it doesn’t feel like it.  Their contracts are usually long term, with high termination costs, and they will generally have the financial strength  to survive a short cashflow problem.  They also tend to be delivering the most critical services – the ones that, for all the bluster, public sector customers simply cannot afford to put at risk.

So, when the negotiations start, it will be the smaller firms that are forced to accept blanket price cuts, reductions in scope and long delays before new orders are placed.  This will drive SME’s away from the public sector, or out of business altogether.”

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