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Avoiding getting locked in by one contractor or technology Research Department.

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Presentación del tema: "Avoiding getting locked in by one contractor or technology Research Department."— Transcripción de la presentación:

1 Avoiding getting locked in by one contractor or technology Research Department

2 Generating lock in is, in same cases, part of the vendors strategy

3 However, this is a rather unexplored issue in Chile´s public procurement

4 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra IT Lock-in: when it happens? When switching costs are important. Some are: Learning costs: When a changing supplier implies to learn a new technology. It may involve adjustments in HHRR. Transactional cost: When changing supplier implies additional payments to the current supplier or when changing supplier involves additional investments in equipment, infrastructure or others. Contractual or pecuniary switching costs: Examples include airlines frequent-flyer" programs, and loyalty contracts" that rebate a fraction of past payments to consumers who continue to patronize the firm. These pecuniary switching costs are a form of quantity discount or bundling.

5 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra Common knowledge tells that switching costs –due to lock-in- play a large role in IT markets competitiveness (Klemperer, 2005). Profitability in these markets appears to be driven by the size of the customer base and customer retention, which is at least partly determined by switching costs. IT Lock-in Router´s example

6 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra Lock-in consequences Less innovation Monopolistic profits Welfare losses Less competitive market Klemperer (2005, p 536)

7 Measuring lock in in public procurement Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra Categories: IT services, IT and telecommunication's supplies, Software Single vendor or producer Nature of the negotiation Contracting with intellectual wright's owners Trust Complementary goods with already owned equipment Related services What kind of purchases reveal in Chile, eventually lock-in? (exemptions to public tender):

8 Results * Figures are limited to specific types of direct awarding ** Figures are for 2010

9 Which vendors? (2010) Nombre Empresa Monto USD*Cantidad OC* Sistemas Oracle de Chile S.A. 7,209, TELEFONICA EMPRESAS 3,298, ESRI Chile 1,433,56574 ENTEL CHILE S.A. 1,255,12290 Microsoft Chile S.A. 1,022,28020 EVERIS CHILE S.A 980,7056 SYNAPSIS SOLUCIONES Y SERVICIOS IT LIMITADA 787,5324 Policomp S.A. 785,7061 Importaciones y Servicios Advances Computing Techn 752,76310 MSLI Latam Inc. 646,14510 Intersystems 587,5201 Adexus S.A. 518,65145 The Pegasus Group Company S.A 486,9265 SEGIC USACH LTDA. 455,14150 QUINTEC Soluciones Informáticas S.A. Casa Matriz 422,85221 CLARO SERVICIOS EMPRESARIALES S.A. 401,26753 SPSS Chile 328,73828 VIA56 SA 315,6853 S&A Consultores 312,2705 SONDA S.A. 309,80527 CAS-CHILE S. A. de I. 308, DP S.A. 294,5101 EFT Group S.A. 260,0002 MEDICAL TRENDS S. A. 254,7051 Advise Consultores Ltda. 214,7192 Servicios y Asesorías Héctor Hernán Alegría Melo E 193,1211 Tecnoimagen 188,59316 DICOM S.A. 188,44831 CRECIC S.A. 183,13152 VISIION LTDA 180,3824 DELL 176,02339 Top vendors contracted through direct contracting

10 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra How important is direct contracting to these vendors? Vendors nameDirect awardingTotal awarded%TD Sistemas Oracle de Chile S.A.7,209,0137,212, % TELEFONICA EMPRESAS3,298,85611,534, % ESRI Chile1,433,5651,594, % ENTEL CHILE S.A.1,255,1222,380, % Microsoft Chile S.A.1,022,2801,455, % EVERIS CHILE S.A980,7051,695, % SYNAPSIS SOLUCIONES Y SERVICIOS IT LIMITADA787,532912, % Policomp S.A.785,706943, % Importaciones y Servicios Advances Computing Techn752,7631,674, % MSLI Latam Inc.646,1452,174, % Intersystems587,5202,292, % Adexus S.A.518,65110,388,4515.0% Top 5 affects163 institutions Plus in this industry the use of partners is a very common behaiviour

11 Top buyers contracting through exemptions (limited categories and exemptions -2010) InstituciónMonto USD*Cantidad OC* Dirección de Presupuestos6,203,56732 Ministerio del Interior3,842, Tesorería General de la República2,741,34157 Policía de Investigaciones de Chile1,861,07843 Universidad de Santiago de Chile1,268, Dirección General de Aeronáutica Civil1,147,80427 Fondo Nacional de Salud - FONASA1,077,6419 Universidad de Chile1,076, Servicio de Impuestos Internos1,070,93919 Instituto Nacional de Estadísticas - INE934,40817 Ejercito de Chile921, Ministerio de Educación877,18729 Dirección de Compras y Contratación Pública852,98113 Servicio de Salud Metropolitano Central587,5522 ARMADA DE CHILE573, Defensoría Penal Pública559,50523 Carabineros de Chile543,43355 Ministerio de Vivienda y Urbanismo514,45530 Corporación de Fomento de la Producción - CORFO497,35024 Dirección General - MOPTT441,7577 INSTITUTO DE PREVISION SOCIAL402,89512 Servicio Agrícola y Ganadero384,55087 Dirección del Trabajo371,6379

12 Minimizing lock in risk

13 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra IT neutrality principle Non discrimination principle through proprietary formats use minimization Considering interoperability and portability standards Through procurement policy

14 Gobierno de Chile | Ministerio de Hacienda | Dirección ChileCompra Working with trade associations Which is the position of Trade Associations? How do trade associations interests relate to this issue? Are they able to help preventing this kind of practice? Which actions do TA take against lock-in? if any

15 The role of anti trust authorities In the TA guide (*) (August 2011) the FNE explicitly considers as a risk: Fixation of technical standards […] The settlement of technical standards by an TA can negatively affect competition if it hampers the entrance of new competitors […] (p. 29). Furthermore, FNE imposes a view in which TA must take a positive action, against non-competitive standards.

16 Conclusions The total amount awarded through procedures that may reflect some kind of lock in practices reach up to 14% for IT categories. Moreover, in some subcategories like software, this percentage can go up to 30%. For some vendors, direct awarding represents a significant proportion of their contracting with the public sector. Oracle (99.9%), ESRI (89.9)%, SYNAPSIS (86.3%), Microsoft (70.2%), EVERIS (57.8%), ENTEL (52.7%). In Chile, some actions have been taken from the procurement policy point of view. Recently antitrust authorities have been taking part in the discussion as well. Trade associations interests are unclear, they could have a more active role in this issue.

17 Diversification seems to a fundamental strategy to reduce any risk associated with this topic

18 Avoiding getting locked in by one contractor or technology Research Department


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