A discussion on why Caribbean MSMEs might not be securing IT contracts to provide products and services


In an article in The Gleaner newspaper last week, immediate past president of the Jamaica Computer Society, Dean Smith, expressed  concerned that local IT companies (in Jamaica), especially micro, small and medium enterprises (MSMEs) were not being given a fair chance to secure contracts for the provision  of IT-related services and products. According to the paper, Mr Smith noted that there is a “tendency for organisations, both in the public and private sector, to purchase software from non-domestic companies is doing considerable damage to the local IT industry” (Source: The Gleaner). Further, he was of the view that

[t]his leads to flight of foreign exchange and takes away from local industries. This is so despite the recognition that local talent, knowledge, and expertise can produce equal, if not superior, products and services,

(Source: The Gleaner)

Although Mr. Smith’s comments were specifically focussed on the Jamaican experience, the sentiment of large corporates and foreign firms snapping up most of the IT business leaving MSMEs feeling marginalised, is likely to be a common experience across the Caribbean. Below are three reasons why MSMEs do not secure IT contracts.

 

1.  Donor agencies often dictate the procurement/tender rules used

In many instances and for large public sector projects and contracts, Caribbean government depend on funding from international donor agencies, such as the Inter-American Development Bank and the World Bank, in order to undertake those projects. However, those agencies tend to have very strict procurement rules that the countries must follow. Among other things, they tend to require open tender processes that are not restricted to local bidders only, but they may also stipulate that the bidders must be from a specific country (or group of countries) in order for their tenders to be accepted. Hence the prospect of ring-fencing certain opportunities for local MSME suppliers – especially when international funding is being used – may not be supported.

2.  Heavy competition in contracts market

Over the past few years, and those who have been in the trenches of the IT tenders and projects space in the region, may have observed that competition for those opportunities has become stiffer. Unlike previous times when large corporates and international firms were less likely to bid on what they may have considered small projects, i.e. with a project price of under USD 100,000 (or even USD 50,000), now, they are all scrambling with the MSMEs for those jobs.

Unfortunately, those larger firms tend to have a wealth of experience thus allowing them to more easily demonstrate  their competence. Also, should they be a recognised brand, and depending on the selection process and criteria being used, the evaluators may feel more confident in engaging a known (and hopefully reputable firm) instead of what could be an unknown MSME.

Least cost pricing selection can marginalise MSMEs

Finally, and especially with respect to public sector projects, many government tenders have been using some variation of a least cost selection approach to determine which bidder should be engaged. Essentially, the successful candidate tends to be the one that submits the lowest bid, which may not necessarily take into account the quality of the output that will be delivered.

Depending on the project, and perhaps more so for IT procurement opportunities, where larger firms may have established dealer or distribution relationships, they may be able to secure the required goods at a greater discount than smaller bidders. For contracts for service, MSMEs can struggle to meet the technical requirements threshold – that evaluates bidders on their experience and competence – and may not be eligible to proceed to the next stage where the financial proposals for a project is considered. Furthermore, should they get to that stage, others may have submitted lower bids than theirs, especially if they have the option to secure cheaper labour elsewhere.

 

In summary, MSMEs can have slightly higher costs compared with larger firms, which may be able to benefit from economies of scale and scope. However, many of those larger firms have also become more aggressive in chasing after opportunities – especially in these still difficult economic times across the region – and may also be discounting their fees and prices in order to secure contracts. Hence MSMEs may find themselves excluded from many of the more lucrative opportunities, as both the public and private sectors aim to spend as little as possible on the goods and services they must procure.)

 

Image credit:  Stuart Miles (FreeDigitalPhotos.net)

_________________