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In the technology business, there are sometimes better ways to evaluate global opportunities than market size. For proof, look no further than Alcatel and its heavy investment in Australia – a country that is not only home to one of Alcatel’s most important customers, but is also a vital source of management talent, research skills and engineering prowess.

With 1,600 staff and revenue of $650 million a year, Alcatel’s Australian unit is one of the largest information technology and telecommunications players in the country. It is also one of its largest high-tech exporters and research groups. The company exports goods and services worth about $200 million each year, particularly undersea fibre-optic cabling manufactured in Sydney, and spends 9 per cent of its sales revenue on local research and development.

Given that Alcatel generates annual revenue of more than $US29 billion each year worldwide, Australia ranks as a small market. But its contribution to the company rests on more than sales.

The key reason for Alcatel’s scale in Australia is that it is home to one of the multinational’s top ten clients, Telstra Corporation, the largest telecommunications company in South East Asia. Alcatel has provided much of the equipment for Telstra’s 12 million-line Australian phone network and continues to play a major part in rolling out Telstra’s ADSL broadband Internet services as well as very high speed intercity fibre links, ATM and intelligent networking systems software. Alcatel also supports other carriers in Australia such as Cable & Wireless Optus and Vodafone.

“Australia from a size point of view is not a critical market for Alcatel, by any measure,” says Ross Fowler, the chief executive officer of Alcatel Australia. “However it’s a very good bellwether for their other markets. And if you’re successful in Australia, and in particular with Telstra, then you have a world-beating product.

“If you break into Telstra, you’ve got a first class reference – that’s why Alcatel treats Australia extremely seriously.”

Alcatel Australia employs 550 skilled engineers, of which 170 people work within its Network Management Solutions Development group. This is the largest such group within Alcatel worldwide and, according to Fowler, was placed in Australia in part because of the ability of the country’s engineers to think laterally.

“We are very good generalists,” comments Fowler, saying that this was important in network management technology which must work across multiple equipment types and territories. “[Australians have] an ability to look at a bigger picture and question the status quo.”

It may be this ability to take a step back that also has seen two Australians, Ron Spithill and Mike Quigley, become part of the nine-person Executive Committee at the top of the company. Quigley heads up Alcatel’s operations in the USA while Spithill is president of Alcatel Asia Pacific. Both graduated from the University of New South Wales in Sydney, which is located near Alcatel’s Australian headquarters and today works with the company on a range of research and

“Two out of the nine most senior people in the Alcatel Corporation are Aussies – so we’ve got to have something going for us,” says Fowler, adding that the head of Alcatel in Taiwan is also an Australian and that the company’s Asia Pacific operations under Spithill continue to draw heavily on the company’s 100 year old Sydney office for support in sales, promotion, market analysis and strategy development activities.

Why are Australian managers helping to lead Alcatel worldwide?

“We are as good as anyone but more easy going and not political,” says Paul Budde, Australia’s best-known telecoms analyst. “It’s not like having a problem with one country if you install somebody from another – so we have the clear advantage of being non-aligned.”

Those within Alcatel point to other factors, too – like Australia’s strong education sector and depth of management skill.

Australia is also proving its worth to Alcatel in research and development. The country’s combination of relatively modest wages, low dollar and high quality education has made it a cost-competitive centre for R&D. This was recently borne out by Alcatel’s decision to locate its new primary switching products research facility in Australia, after finding the country offered the lowest cost in the world when the full range of required skills were taken into account.

“In our switching business, the lowest cost centre for R&D in the Alcatel world is here in Australia,” says Fowler. “If you look at the straight labour costs it isn’t the cheapest but it’s the mix of labour cost and skills that gives you that sweet spot.

“If you look at pure labour costs, there are some development centres in India that are cheaper but to do that they have people in Germany doing all the detailed specifications... If they do it in Australia, they don’t need that step.”

In Australia as in many other parts of the world, the Paris-based company is shifting from the production of hardware to more intellectually based products and services. For instance, with a major network modernisation contract project with Telstra coming to an end in 1998, the company decided to sell its local switching equipment operations to Bluegum Technology, now owned by US contract manufacturing giant Solectron, as part of a three year, $250 million outsourcing deal that also saved 400 jobs.

In addition to its local R&D operations, Alcatel Australia has also gained a role in around-the-clock global customer support operations. The company is also investing heavily to create complex, multi-million dollar models of telecommunications networks in Australia that it regards as just as much a capital investment as new factories.

“The bulk of our capital investment now is in model equipment,” says Fowler. “Equipment that simulates the live network so when we’re developing software and testing it we can make sure that it functions adequately.”

www.alcatel.com.au

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“... the lowest cost centre for R&D in the Alcatel world is here in Australia,” says Fowler. “If you look at the straight labour costs it isn’t the cheapest but it’s the mix of labour cost and skills that gives you that sweet spot,” says Ross Fowler, chief executive officer, Alcatel Australia.

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This case study was commissioned by the National Office for the Information Economy.


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