Australia is failing to develop its own software industry and is not positioning itself to take advantage of a global industry which will be worth $US541 billion by 2004.
In a detailed report on the state of the local software industry the Boston Consulting Group found Australia is lagging behind Israel, India and Ireland.
Last year Australia consumed $4.2 billion in packaged software but figures from the Australian Bureau of Statistics (ABS) show the nation actually produced less than $1 billion of software products, creating a $3 billion-plus trade deficit.
"If Australian software exports were comparable to the middle stages of industry development in Israel and India (five per cent of total merchandise exports) Australia would be exporting around $9 billion of software products and services in 2005," the report said.
"Israel is reported to have exported $US3 billion worth of software in 2000; up from $US135 million in 1992."
Pointing out the US has Silicon Valley, India has Bangalore and Israel has Silicon Wadi, the report recommends the creation of an Australian software coast and claims that at an industry level, companies should focus on products rather than services.
Products are more tradeable and scalable than services generating maximum "bang per engineer".
This is a tough challenge according to the report as Australia does not appear to be capturing much value in the software-product industry.
"Australia has relatively few large players, none would rank in the top 100 global software product companies and rarely are Australian software companies the target of international acquisitions."
Boston Consulting Group vice president, David Gilmour said 40 executives were interviewed for the report and surveys were received from 190 Australian software companies.
Gilmour said government-related initiatives play a fundamental role in the development of Australia's fledgling software industry and these issues have been addressed in a paper jointly prepared with the Business Council of Australia (BCA).
The report, which was released in March, identifies an agenda for business and government to pursue in the e-business arena. The recommendations are available at www.bca.com.au.