Why are global tech giants investing in Australia?

With Australia’s strong economy in mind, international companies have secured footholds in the country’s tech market.

For instance, Japanese tech conglomerate Softbank (OTC Pink:SFTBY,TSE:9984) began investing in Australia via the acquisition of artificial intelligence and robotics firm ST Solutions. ST Solutions' flagship robot, Pepper, can greet customers in 21 languages using emotional response analytics. Pepper is at the forefront of Softbank’s robot initiatives.

Similarly, Google (NASDAQ:GOOG) launched its inaugural commercial drone delivery system in North Canberra, Australia. The service — called Wing — delivers food, coffee and retail items by drone to residences. Orders are placed through a mobile app.

Further growing its market share in the country's tech sector, Google is slated to invest AU$1 billion in Australia through 2026, including in tech startups and a regional research hub in Sydney. "Australia can help lead the world's next wave of innovation, harnessing technology to improve lives, create jobs, and make progress," Google CEO Sundar Pichai said.

As these large tech companies invest in Australia, tech unicorns (startups with valuations of more than a billion dollars) have garnered attention. According to CB Insights, as of January 2023 there were eight Australian unicorn tech companies: Canva, Culture Amp, Immutable, SafetyCulture, Go1, Linktree, Airwallex and Pet Circle. These companies are primarily in the fintech or internet software and services sectors and have a combined valuation of US$54.4 billion.

Some of the biggest investors in Australia's tech startups include venture capital firms Sequoia Capital China, Blackbird Ventures, AirTree Ventures and Index Ventures.

What sectors are driving Australia's tech market?

Australia’s tech ecosystem is largely driven by advances in the core sectors of fintech, cleantech, healthtech and software.

According to Deloitte, Australia's fintech sector is both maturing and scaling at a steady clip, making it ripe for investment. In its Technology Fast 50 2022 report, the firm highlights "buy now-pay later" fintech firm Zip (ASX:ZIP,OTC Pink:ZIZTF) as a standout in enterprise growth and points to auto loan fintech company Driva as a rising star in Australia's technology sector.

When it comes to healthtech, medical cannabis healthcare platform Montu was the fastest-growing tech company in Australia in 2022. Many other healthtech companies rank in the top 10, including cannabis biotech firm Cannatrek, medical device company AirPhysio and Fresh Clinics, which offers a software program for cosmetic health professionals.

Emerging as a leader in the cleantech sector, Australia is making strides in renewable energy technology, such as wind and solar power, as well as energy storage. In Queensland, Genex Power began construction of its 250 megawatt Kidston pumped hydro project in 2021 with completion on track for 2024. The company secured a government loan of up to AU$610 million to move the project forward. Meanwhile, as part of a 10 year deal, members of the Melbourne Renewable Energy Project will purchase 88 gigawatt hours of wind power annually from Pacific Hydro; the deal has resulted in the creation of nearly 150 new jobs.

Looking to the emerging electric vehicle sector, Deloitte awarded its Technology Fast 50 2022 climate award to electric vehicle charging solutions provider EVSE Australia.

As Australia makes formative moves in cleantech, it is also showing explosive growth in the gaming and esports sectors. PwC reports that revenue for Australia’s games and esports market hit AU$4.92 billion in 2021.

Australia is home to a number of ASX-listed esports companies, including Mogul Games Group (ASX:MGG), Emerge Gaming (ASX:EM1), iCandy Interactive (ASX:ICI), PlaySide Studios (ASX:PLY) and SportsHero (ASX:SHO,OTC Pink:NIROF). The ASX also has an esports-focused exchange-traded fund, the VanEck Vectors Video Gaming and Esports ETF (ASX:ESPO).

In September 2022, Australian esports fans welcomed the country's first DreamHack festival, an international immersive gaming lifestyle experience first launched in 1994. The three day event took place in Melbourne and featured professional tournaments.

What's the outlook for Australia's tech industry?

The future of Australia's tech market looks bright, with various industries playing a role in progress.

This optimistic outlook has been building for years, with the capital markets recognising opportunities in the Australian tech sector early on. In mid-2019, ABC News reported that the ASX was aiming to become an epicentre for tech listings, and over the past few years it has focused on recruiting more late-stage tech companies to access greater pools of capital.

The major sectors Deloitte sees leading the way forward are on-demand video streaming services, gaming consoles, semiconductor chips, fixed wireless access, private 5G and wearable medical devices.

Looking ahead, PwC expects the Australian gaming and esports market to reach AU$7.3 billion by 2026.

This forecast growth is attributed to app-based games and in-app purchases in a market saturated with smartphone ownership and improved monetisation strategies for increased revenue from mobile games. Developing technologies including Web3 and the adoption of 5G will also serve as major revenue drivers in the years ahead.

For its part, the Tech Council of Australia states that the number of workers in the country’s technology field will need to increase by 650,000 to reach over 1.2 million employed by 2030 in order to support the industry's growth. Fortunately, the Australian government has committed to helping the tech industry reach that goal.

Of course, obstacles remain. While Australia’s economy recovered well following COVID-19 lockdowns, the global threat of a looming recession has slowed the pace of its turnaround.

According to the Organisation for Economic Co-operation and Development, “Elevated inflation is eroding households’ purchasing power and has prompted the Reserve Bank of Australia to raise interest rates at a rapid pace.” The organisation is calling for real GDP to grow by 4 percent in 2022, 1.9 percent in 2023 and 1.6 percent in 2024.

For Australia's tech investors it will be important to monitor the country's economic outlook in the year ahead, while also keeping an eye on the market's fast-moving subsectors.