Will businesses be paying more for their IT services in 2023? Yes, here's why
There’s no arguing that the last few years have been tough for businesses, big and small. And with much of the news at the end of 2022 heavily focused on inflation, Reserve Bank hikes and a looming recession (not to mention a significant shortage of skilled employees) - the feeling in the room, as we begin 2023, is guarded.
And just like practically every other industry across the board, the IT sector is also seeing its fair share of price increases, with pressure coming from all angles.
Inflation and a recession
As the ‘messenger’ for the Reserve Bank, Adrian Orr was a busy man in November and December, and no doubt will be over the next 12 months or more. The Reserve Bank Governor has had to make many tough calls for New Zealand, treading a tight balance between the need to slow spending, but not stop it all together.
The last OCR basis-point rise was 75 on the 23rd of November, taking it to a rate of 4.25%. But the peak is expected to be much higher than this, with some saying it will reach 5.5% and ANZ Bank hedging their bets at 5.75%. And as for the R-word? Orr says the new year could bring two or three-quarters of a ‘shallow recession’.
More recently, the annual CPI rate for the December quarter held stable at 7.2% - the same as in the September quarter. While there was no movement, this does indicate that any immediate relief is unlikely and inflationary pressure is expected to continue.
The tech industry has never been a stranger to skilled worker shortages, but the last three years have certainly compounded this issue for New Zealand. From engineers to architects, the demand outweighs supply, with many in the sector bidding ‘good luck’ to those hoping to find one of those absolute rarities.
We simply haven’t been able to pick up the pace to where it needs to be and trying to catch up from two and half years of border closures is proving extremely difficult. Which, of course, acts as a precursor to the subject of salaries.
Salaries continue to increase
Recruitment firm Robert Walters surveyed 1000 candidates and employers in their latest salary survey, and the overall narrative was that white-collar workers would be looking for a new job if they didn’t get a pay rise that beat inflation. This obviously puts businesses in a difficult position, especially when the labour market is already extremely competitive. And it appears that a salary stand-off may be a reality for many in the very near future.
“65% of candidates said they expected their employer to consider the rising cost of living when determining salary increases and bonuses over the next 12 months. However, seven in every 10 employers participating in the same survey indicated they wouldn’t be meeting that expectation,” said Shay Peters, Managing Director of Robert Walters New Zealand and Australia.
In New Zealand, there’s the worry of losing young professionals overseas too. And while OE’s are a long-running tradition for our corner of the world, an experienced workforce exiting NZ could spell even more trouble for employers.
For those in the IT sector who have any number of job opportunities to choose from, it will likely come down to those who can not only provide a great working environment, but the most attractive salary package too. And when you consider that the average salary rise over the last year is up 16% (across the ditch in Australia, Seek has technology salaries up anywhere from 12% to 21%), it will no doubt mean IT businesses will have to pass on some of those increases to their customers.
Is inflation the antidote to Moore’s Law?
Moore’s Law has long been a ‘rough’ guideline followed by those in the tech industry, originating as a prediction from Gordon Moore in 1965 that the number of transistors on a chip doubles every two years. Or in other words, as technology advances and products get better, faster and more powerful, the cost to produce them diminishes.
But over the last few years, supply chain disruptions have meant that inflation is now hitting the manufacture and production of computers, and as a result, electronics will cost more in 2023. This ultimately means IT companies will have to factor these rising costs into their supplier process.
Other factors impacting pricing in the tech sector
It’s also worth noting a few other factors that are affecting price increases in the tech sector. These include things such as the foreign currency exchange rate as well as shipping and tech insurance, which are all putting pressure on IT costs for businesses. In fact, as Public Cloud Companies price in USD, you’ll see that some of that is already being reflected in the prices customers are paying.
‘Acts of God’
We’ve had to deal with our fair share of pretty catastrophic events in recent years. From a global pandemic to the economic impacts mentioned above, and some rather significant ‘Acts of God’ too - and protecting people will always be the number one priority.
What happened in Auckland and surrounding regions during the last seven days will always require short-term emergency spending from businesses, insurers and the government (at a local and national level), but will result in long-term cost recovery - which ultimately comes at everyone’s expense.
A few final words
IT is a necessity for every modern business. And while it is an area that typically requires a large amount of investment, what’s absolutely crucial is understanding whether you have the right provider supplying you with the right systems that meet the needs of your organisation. When it comes to IT and technology, proficiency, functionality, and reliability is key.
Yes, outgoing IT costs will increase for businesses in 2023, but that doesn’t have to result in a negative outlook - particularly if the technology is able to ensure your organisation is not only surviving, but thriving in these tumultuous times. When your IT infrastructure performs to the best of its ability, so does your business.