IT Giants Fumble But Win Is Certain

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IT Giants Fumble But Win Is Certain

There's no reason to believe that history will bypass the many small companies that sell information technology to state and local governments.

In all other sectors of the economy, information technology is spawning Wal-Marts that gobble up the smaller companies. This has happened to mom and pop stores on Main Streets across the nation, and it is happening to automobile dealers, and also will happen in the computer industry.

Some call it the "winner-take-all economy," others call it the efficiency of the networked economy.

That's the backdrop to the congressional fight that has been raging for the past several months over "cooperative purchasing," a 1994 law that a wide array of small companies are set to kill, following decisions by the Senate and House appropriations committees.

The final outcome is likely to occur this fall, when U.S. lawmakers return from their summer recess. Sometime thereafter, President Bill Clinton is expected to sign the measure.

Although never implemented because of short-term curbs by U.S. lawmakers, the 1994 law was intended to let state and local governments bypass local vendors and instead buy products from the online catalogs established by the General Services Administration.

The local vendors also stand to lose if government-backed institutions are allowed to start using the GSA. Thus universities, schools, utilities, hospitals and various other government-funded organizations would reduce their local spending by purchasing via the schedules.

Despite this impending congressional victory, it seems inevitable that the nation's large systems integrators - IBM Corp., Electronic Data Systems Corp., Digital Equipment Corp. and their large suppliers - Dell Computer Corp., Compaq Computer Corp., Gateway 2000 - will gradually take over the state and local business by offering low-cost and easy-to-manage solutions needed by harried and underfunded officials.

Already, several larger states such as California, Florida, Ohio and Texas are using the General Services Administration's schedules to set pricing for their own IT purchases. But, before making GSA schedule purchases, many states would have to repeal prohibitive local laws.

Meanwhile, many states including California, Connecticut, New Jersey, Pennsylvania and Texas are trying to outsource major slices of government activities and their associated information technology work.

Local politics will slow this trend as state officials in Connecticut and Texas can testify. After all, unions oppose outsourcing, while local politicians craft procurement laws to steer local dollars to nearby merchants.

Dubbed "favorite son" laws, they were created for a perfectly good reason; They create local companies, jobs and goodwill.

Twenty-seven of 50 states and U.S. territories operate under bid requirements that would significantly limit GSA schedule purchases, according to the U.S. General Accounting Office.

The National Association of State Purchasing Officials found in a 1992 survey that 45 states require sales and services to be handled by local dealers, and 31 states had laws either mandating in-state vendor or product preferences.

The benefits flow to local politicians, company owners, employees, as well as their families and all the businesses that depend on the families' spending.

Of course, there's a price to be paid for these benefits; less technology is bought for more money.

Perhaps we'll see the major vendors persuade additional state legislatures to allow local procurement officials to buy off the GSA lists.

Perhaps the major vendors will split the difference by hiring local companies to market and resell their GSA-listed products and services.

As the trend continues, local businesses won't get wiped out. They'll merely get converted into niche marketers, resellers and fronts for the major vendors.

Local politicians and business leaders won't be able to stop this trend, but they likely will be able to slow the trend enough for them to retire before their they feel the pain of the new networked economy.

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