Economic Downturn to Slow Government Spending

When businesses start tightening their budgets in economic downtimes, solution providers start looking for customer alternatives. Often, that means targeting the government market.

But the timing couldn’t be worse, according to Bob Laclede, vice president and general manager of government and education sales at distributor Ingram Micro. Typically, solution providers set their sights on local and state governments, which tend to feel the pinch of economic downturns before federal agencies, Laclede says.

“The state and local markets are under economic pressure right now,” he says.

All is not lost, however. Solution providers may still find opportunities in the federal market by partnering with companies that already do business with the government. And though government IT spending is slowing down at all levels—from local to federal—there are potential opportunities in areas such as green IT.

Trying to sell to the federal government, however, takes a lot of preparation and adherence to stringent requirements, typically through a so-called General Services Administration schedule. Government contracts are complex, and large contracts involving multiple suppliers often require that some suppliers be small businesses, or minority- or women-owned companies.

“It requires homework,” says Laclede. “It’s not really easy to jump into the segment.”

One way to get around the obstacles is to partner with companies that already have a GSA schedule. Laclede says Ingram Micro facilitates partnering through the Zone, a social networking Web site the distributor maintains for its solution providers.

One of the groups of solution providers that use the site is the members of the GovEd Alliance, consisting of VARs and integrators that source technology from Ingram Micro to sell into the government and education market.

Through the Zone, solution providers can review the profiles of other GovEd Alliance members to spot potential partnering opportunities, says Laclede. The site also contains information on the companies that meet diversity and women-owned criteria.

This week, during a GovEd Alliance event in Colorado Springs, Colo., Ingram Micro is debuting its System Integrator Diversity Fulfillment Program, which helps large systems integrators identify partners that meet small-business and diversity criteria. “This makes it very easy for these partners to meet the market requirements and address the goals of smaller businesses throughout the United States,” says Laclede.

Large integrators with government contracts usually don’t know the solution providers that qualify as small businesses, so the distributor takes on the role of pairing them, says Laclede.

To support the matchmaking efforts, the distributor also has created a host of financing, marketing and configuration services that both sides can tap in fulfilling contract requirements, he says.

Laclede says federal government agencies typically feel the effects of an economic downturn at a slower pace than the private sector and state and local governments. That’s because federal agencies run on yearly budgets, and they already have the money to spend on IT projects, he says. 

But even federal agencies are likely to feel the pinch in the coming year. Market research firm Input, which specializes in federal spending, predicts the federal government’s spending on IT will increase at a modest 4 percent compound annual growth rate between now and 2013, from about $72 billion to $88 billion. That would be a historical low, when compared with the average 7 percent growth rate of the past two decades.

At the local government level, the picture is even more dire. Thirty-eight percent of local government IT budgets will decrease in the next two years as a result of the current economic slowdown, according to a survey by the Public Technology Institute and Input.

A potential silver lining in this economic cloud, says Laclede, is the ongoing effort to make technology more environmentally friendly. Government agencies will be looking to do more with less, and there may be opportunities for solution providers there, he says.

A recent major networking contract, Laclede says, went to a bidder whose proposed implementation would use 30 percent less power than the competition’s.

“Solution providers need to be helping end users with how to save money, how to deliver more services with less,” he says.

Laclede adds that the education sector also is under pressure, but only the schools that are publicly funded. Private schools, he points out, have the option of raising tuition so their spending is unlikely to change.