ITP Techblog

Can the tech sector help fill the gap in offshore income created by the (temporary) demise of international tourism? A comparison between the two sectors is made by TIN (Technology Investment Network) Managing Director Greg Shanahan in a statement about the impact of Covid-19.

"In 2019, tech exports came in at just under $9B and grew at 11% per annum, while international tourism was plateauing at just over $11B. In the face of a global economic downturn, irrespective of the cause, the tech export sector is likely to be less affected than other sectors - so it's fair to say that in the coming year these sectors will trade places in terms of global revenue brought to New Zealand," Shanahan says in a statement released by TIN.

He notes that New Zealand tech companies tend to be in the 'business to business' (B2B) space, which provides advantage such as providing essential operational infrastructure and 'locked in' recurring revenues.

Shanahan suggests ways in which the tech sector's momentum can continue to build economic growth for the country. These include backing healthcare tech and he calls for the Government to "help fast track and support commercial trials in the NZ healthcare ecosystem". Meanwhile, the industry itself can "collaborate on sales introductions for Kiwi companies offshore, host virtual and actual events for decision-makers."

While buoyant on the prospects of the tech sector, Shanahan sounds a note of caution. "Tech exporters will not emerge unscathed from a COVID-19 recession, but it is a more mature, diverse and stronger sector than that which faced the start of the GFC over a decade ago."

This is echoed in the Start-up Genome's global report released this month on the impact of the Covid-19 pandemic. It's based on a survey with 1070 respondents from over 50 countries, including New Zealand.

"An overarching problem for startups as a whole, and the economy in general, is the significant drop in demand-and thus revenues. Since the beginning of the crisis 74% of startups have seen their revenues decline. The most common type of change in revenue is a relatively modest decline-one out of every four startups saw their revenue decline by less than 20 percent. However, a sizable share of companies were very heavily hit: 16% of startups have seen their revenue drop by more than 80%."

But unlike Shanahan's assertion that B2B companies are in a better position, the Start-up report claims that it is 'business to consumer" (B2C) start-ups that are ahead.

"The hurt and the growth are not evenly distributed. On the positive side, B2C startups are about three times more likely to be in industries experiencing growth in the face of the COVID-19 crisis when compared to B2B startups. On the negative side, B2B startups serving Large Enterprise clients are more likely to be in industries adversely affected by the crisis than both B2B startups serving Small and Medium Enterprises and B2C startups; and are the least likely to be experiencing an increase in sales."

Of course they may well both be right - New Zealand isn't specifically highlighted in the Start-up Genome report, so we don't know how many contributed to the survey, and it focusses only on early stage companies while TIN is referring to companies of all sizes. What they both agree on is that the tech sector is a good place to during the current crisis.

"Tech startups are uniquely situated to continue operating even in lockdown scenarios. Unlike many traditional businesses, 96% of startups responded that they have continued working during the crisis, even if there is significant disruption."

You can read the TIN statement here.

You can check out the Start-up Genome report here.