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A handful of entrepreneurs want to make Honolulu a hotbed for technology manufacturing and exporting

September, 2002

Hawaii may be best known for manufacturing two things: candies and aloha shirts, but a handful of local software developers want to alter that perception. They’re hoping Hawaii soon will become a hotbed for technology manufacturing and exporting.

“I think it should be the second-largest industry in the state after tourism,” says Don van Deventer, president and chief executive officer of Manoa-based Kamakura Corp. “Hawaii is the ideal software production site … since the transport cost of our product is now zero and telephone costs are sharply reduced or replaced by Internet-based communications.”

Technology may not be the state’s second-largest industry just yet, but computers, software, and other electronic products produced in the state are Hawaii’s second-largest manufactured export merchandise. According to the U.S. Department of Commerce, sales of exported technology products amounted to $66 million in 2000, or 18 percent of the state’s total merchandise exports.

Van Deventer says the Internet has increased efficiency and allows Kamakura Corp., which manufactures risk analysis software for more than 35 financial institutions and universities in nine countries, the luxury of being headquartered in Oahu. “Without the Internet, we’d be in a more conventional but less efficient location,” he says.

Kamakura’s software ranges between $100,000 and $1 million per installation, and the ability of clients to download Kamakura’s software from anywhere in the world keeps the company’s overhead relatively low. Marc Rapoza, chief executive officer of the Manoa-based billing-software development company, Inovaware, says decent profit margins are commonplace in the industry.

Inovaware, which markets its products heavily to Internet- and applications-service providers overseas, has been able to retain a healthy 10 percent to 20 percent profit margin. “Because we don’t physically export anything – meaning most of our software is downloaded by our clients over the Internet – Hawaii’s isolated location plays quite favorably for us,” Rapoza says. “Also, all license fees, including software licensing, are tax-exempt in Hawaii.” Most importantly, he says, Hawaii is a great focal point for penetrating foreign markets.

“Last year alone we had 25 percent to 30 percent of our revenue coming from Asia and another 15 percent or so coming from Europe, which was new for us,” Rapoza says. “And this year it looks like we’re going to have even more coming from Europe.” It’s those international sales of software and related technology products that developers hope will find a niche in Hawaii.

“Tech in general is not mainstream here. But there’s a lot of effort being put forth right now to focus on high tech, so there is definitely a potential to grow the tech-exporting market,” says Ken Tomi, manager of the Manoa Innovation Center. “Technology itself transcends space and time, and if you look at local companies like Inovaware and Kamakura, and see that they’re succeeding, that is solid evidence that it can happen here.”

Inovaware’s Rapoza says the key now is to foster an attractive environment to keep technology manufacturers in the state. He says most tech manufacturing companies that start off in Hawaii eventually decide to leave the state to be closer to their Mainland- and foreign-based clients. Case in point: Rapoza says that while he and the company’s chief executives have every intention of keeping Inovaware locally based for as long as possible, the most logical exit strategy would be an acquisition by a larger out-of-state company. As for Kamakura’s long-term objectives, van Deventer says, “Talking about an IPO, an increase in venture capital or a buyout, is like being on the cover of Sports Illustrated – it’s a jinx!”

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Jacy L. Youn