Get IT out of town: running a tech company in a regional area
- 12 January, 2009 11:28
Jeremy Attwood and Kannyn MacRae outside Belkin's head office on the NSW Central Coast, about an hour and 30 minutes north of Sydney.
The IT industry has been long associated with large cities and a fast-paced, modern lifestyle. But what about regional areas? What is like running a tech company outside the metropolitan rat race? TechWorld profiles three companies which have seen success by basing their operations on the NSW Central Coast, about an hour and a half north of Sydney.
Telecommunications and IP network cabling manufacturer ADC Krone is based in the Central Coast suburb of Berkeley Vale and employs some 200 people. Marketing manager Sarah Bishop said the company has been an Australian manufacturer for 25 years, but early on the business was based in Sydney's CBD as an importer of products from Germany.
“When the decision was made to manufacture locally, we established our production facility on the NSW Central Coast,” Bishop said. “There were a few areas considered both south and north of Sydney. Part of the reason that the Central Coast was selected was due to a government grant which offered a subsidy for businesses relocating to the Central Coast.”
Bishop is unable to quantify the cost differences between Sydney and the Central Coast for running an office and manufacturing facility, but believes freight costs are more expensive due to the greater distance to the regional transport depot.
ADC Krone owns its facilities rather than rents them which Bishop says is cheaper.
In terms of communications facilities, Bishop says ADC Krone is at a disadvantage compared to city-based businesses as there are not adequate fibre connections at a competitive cost. However, new businesses are being built on the Coast, some of which do have the new fibre links, and there are no problems with power.
As for finding staff in a regional area, ADC Krone gets no shortage of applications.
“We are often overwhelmed by responses to job ads, we think this is due to our relative proximity to Sydney,” Bishop said. “We have a wealth of candidates to choose from as they can choose not to commute to Sydney. We even find that individuals with higher levels of experience are applying for lower level jobs. It's about lifestyle versus career.
As for the disadvantages, Bishop says it can be difficult to access technical resources.
“We often are charged additional costs for travel for engineers. This does add some cost.”
Multinational IT product manufacturer Belkin has based its main Australian operations on the Central Coast after an acquisition of a local business eight years ago.
Managing Director Jeremy Attwood said a move from Gosford to Tuggerah (both on the Central Coast) in 2006 enabled the company to have a facility comparable to any found in the capital cities.
“Our 10,000 square foot warehouse could have been in Western Sydney, but we wanted to base ourselves in Central Coast,” Attwood said.
Belkin has 95 staff in Australia with 70 in Tuggerah.
Attwood is also unable to make a direct cost comparison between the regional Central Coast and a capital city, but he does not believe it would be a significant difference.
“It would be difficult to get a similar size operation in Sydney,” he said, adding the land cost on the Coast is cheaper.
Belkin has no problem with the facilities which are “no different to anywhere else” and its telecommunications links are with “large suppliers”.
“We have a direct link to Hong Kong and we are in Tuggerah Business Park so we have the facilities we need,” Attwood said. “There are probably areas around the Central Coast where it would be difficult. We run VoIP to our regional offices, but most telco costs are with mobile phones so it is the same cost as it would be in Sydney.”
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Regarding transport, most of Belkin's staff live in the nearby area so the typical commute is around 30 minutes.
“Compared to Sydney that is considerably less,” Attwood said. “We are just off the freeway so we can be in Sydney in 80 minutes or Newcastle airport in 60 minutes. It all adds up to a much calmer and more focused workforce.”
Belkin's marketing director Kannyn MacRae said Harvey Norman is a large customer so “it's not difficult for us to do business from here”.
“We use a local freight provider and in-bound freight is more expensive, but not significantly,” he said, adding with 135 car park spaces in our site parking is not a problem.
On skills, MacRae said searching for staff takes longer, but the company never had great difficultly recruiting and being based on the Central Coast means there are thousands of people who commute to Sydney looking for a job closer to home.
“So the time difference becomes compelling,” MacRae said. “There is about a 10 to 15 percent reduction in the cost of staff, and they accept that because they have a better lifestyle, but we try to pay normal market rates and we don't think just because we are on the Central Coast we can underpay people.”
“We have longer searches for good people and have to shuffle through more resumes.”
MacRae said the main disadvantage of being in a regional area is when the company invites people to come to its offices for a meeting it can be difficult.
“That's not to say that won't come,” he said.
Attwood said the question of why locate a tech company out of the city is asked a lot and one of the main reasons is one of the founders of the company purchased by Belkin lived on the Central Coast and it was less expensive to start a business in the area.
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What about the software industry? One company, Sterland Computing, has built a successful software business from the Central Coast without the need for big city office and sales staff.
A wholly Australian owned and operated organisation, Sterland Computing, started in 1981 and has established a client base of more than 400 businesses in Australia and New Zealand. Its core business is developing and selling business management solutions to the building supplies sector.
Sterland's general manager Greg Thomas said the company has around 30 employees operating out of it’s Erina offices across development, support, sales and administration.
Sterland has always been located on the Central Coast since it’s origins 40 years ago from Sterland Brothers Timber in Gosford.
“The major cost difference is in rent,” Thomas said. “We have always had modern and spacious facilities in our offices (certainly over the last 10 years) which means we can offer a comfortable and pleasant environment for our employees and visiting customers. In pure terms, comparing similar offices in North Sydney or even a little further North we are paying 50 percent less in rent.”
Sterland also has no problems with connectivity, but when it investigated hosting a version of its ProStix application it was not cost effective on the Central Coast because of limited hosting options and the cost of a large communications link. The SaaS version of its application is hosted out of Melbourne.
“For employees living on the Central Coast the benefits in terms of cost and lifestyle is enormous,” Thomas said. “Most of our employees live on the Central Coast although three (including myself) are based in Sydney. For us the travel to and from Sydney is, distance and cost wise, substantial; however, time wise there is little difference should we work in the city. It takes me an hour and 20 minutes to travel from Dee Why (on Sydney’s Northern Beaches) to the office leaving at 6:30am; leaving at 7:30am would take me the same time to get to North Sydney.
Air travel is a problem and the company is a heavy user of hire cars to get to and from the airports as it is the most cost effective and convenient method through the F3 freeway.
“Hiring is a problem, but retaining is not,” Thomas said. “The selection of technical staff is one of our core issues – we have used a combination of local papers, online and agencies and it takes a long time to find the right person and you have very few candidates.”
Sterland has been able to attract a few people looking for a “sea change” away from the city, but that is not something that is common.
“The trick in hiring on the Central Coast is to attract on lifestyle (stop travelling down the F3) and retain on opportunity and growth. I’ve found often when people join a company on the Central Coast after having worked in Sydney, they are almost in a semi-retirement mode and that takes a little while to beat out of them. Cost on average is around 25 percent less than Sydney although long-time employees are on equivalent salaries and conditions.”
In addition to recruiting, networking is an issue in the regional areas.
Thomas said the Central Coast has not developed as a regional business centre and “certainly not” as a regional technical centre.
“I look at areas like North Ryde (20km north-west of Sydney) and think 'why hasn’t that happened here' – it’s cheaper, there's a great lifestyle and it's not too far from the city. As a result, the ability to network with local business professionals is limited. There is a general feel that working on the Central Coast means you’re out of touch with the industry.”
Perception can also be a problem as “at times being out of Sydney or a major capital city sends a perception to the larger customer that we are not a suitable player for the market”.
“Alternatively, we have used that to our advantage when selling to the SME marketplace,” Thomas said.
“If regional centres take a leaf out of the US book and invest in the infrastructure, transport links (including Airports) and so on, places like the Central Coast would boom. I was approached by the University of Newcastle discussing employment opportunities on the Central Coast and highlighted to them the need for their support in growing a greater technical competency base in the region.”
Thomas said generation Y employees bring a completely new set of issues.
“We’ve found it very hard to keep the younger crowd as they demand unlimited opportunity and are less willing to put in the hard yards to achieve a base level competency,” he said. “As a result, I have an aging work force and I’m looking at means now to attract the younger worker.”