Q&A: Information Technology: An Engine for Global Economic Growth

SEATTLE, April 16, 2002 — Today at the Microsoft Government Leaders’ Conference, an annual gathering of more than 400 hundred government officials from 70 nations, the company announced the release of the IT Economic Impact Study, an independent analysis of global information technology spending and employment.

The new study, conducted for Microsoft by IDC, the international market research firm, projects that this year, worldwide spending for computer and networking hardware, software and services will for the first time exceed US$1 trillion, and will exceed $1.4 trillion in 2005. The study also found that worldwide IT spending grew by more than 10 percent annually during much of the past decade — a pace faster than the global economy overall. These results provide evidence that IT is not only a contributing factor in the success of U.S. economy, but that it has a significant and growing role in the global economy.

PressPass spoke with Jonathan Murray, Microsoft vice president of Global Accounts and Executive Sales, and John Gantz, chief research officer and senior vice president at IDC, to explore key findings of the study and to discuss the global impact of IT and the roles government and private enterprise can play to help create a successful, vibrant IT industry.

PressPass: How is IT an engine for growth in a country? By what means is this achieved, and what evidence is there to support this?

Gantz: Information technology is both an industry and a modernizing force. In most countries, IT spending grows at two to five times the rate of overall economic growth. To the extent that the spending is on locally produced products and services, the industry provides employment, tax revenues and a generally expanded industrial base. As a modernizing influence, the use of IT leverages investments in other capital, called “capital deepening” — such as human capital, production equipment, etc. This in turn can increase a country’s overall productivity and output per capita.

Building an IT ecosystem within a country relies on efforts both by IT suppliers and governments. Governments help to provide stable infrastructure within which an IT industry can grow, as well as education and skills development for the IT-using populace. The IT vendors bring new products to the local market, establish delivery channels, and service and support networks, usually employing nationals.

Evidence supporting the notion that IT is an engine for growth can be seen in the IT Economic Impact Study — which tracks IT spending and growth, IT-generated tax revenues, and IT employment in 28 countries. More academic studies — such as one produced by Dedrick, Gurbaxani, and Kraemer of the University of California, Irvine, last year — point to overwhelming evidence that IT deployment drives economic output and GDP (gross domestic product) growth for local economies.

Murray: And I think IT can really be a true engine for growth only through the help of technology partners. The synergy of these partners and their ability to help design, implement, and support solutions for customers are all critical parts of that engine and are certainly important parts of the IT ecosystem worldwide.

Microsoft currently partners with over 750,000 hardware manufacturers, software developers and service providers located in various regions of the world, and we provide them with expertise, training, software tools and other resources. Through the Microsoft .NET platform, our partners will be able to use our XML expertise to advance their own businesses. .NET embraces the principles with which we’ve always approached our partnership programs: promoting interoperability, consistently trying to maximize consumer benefits, helping our partners take advantage of unique opportunities, and fostering a sense of community and collaboration. Our partners that build on .NET will realize increased productivity, improved time to market, new revenue opportunities and the ability to quickly create customized IT solutions.

IDC estimates that revenue from hardware, software and services based on Microsoft products accounted for over $200 billion in 2001, which means that every $1 of Microsoft revenue generated $8 in purchases of software, hardware and IT services for these companies.

PressPass: What are the keys to a successful technology relationship between the public and private sectors?

Murray: First, a government can promote IT industry growth by enacting and enforcing strong intellectual-property laws, which provide critical protection for technological innovation — the lifeblood of the IT industry. Second, by investing in IT education and training. For the last 10 years, the demand for skilled IT workers has outpaced supply, and, according to the U.S. Bureau of Labor Statistics, over the next 10 years eight of the 10 fastest-growing occupations will be computer-related. Third, government should encourage commercialization of publicly funded research — in other words, make sure that the results of publicly funded research are made available to the private sector in a useful way.

The key is to provide opportunities for researchers, business leaders and entrepreneurs to work together, attracting technology businesses and building new industries to create high-quality, high-tech jobs for the 21st century.

PressPass: What does a strong IT industry provide to local communities and a country as a whole?.

Gantz: Besides the economic benefits I cited earlier — tax revenues, jobs, productivity improvement — a robust IT industry can help raise the skill base of citizens involved in the IT ecosystem, improve learning through use in schools and at home and add diversity of experience to citizens vicariously through computer networks and online activity.

IDC does an annual measure of the extent to which some 55 countries qualify as “information societies.” The components of the measure include both technology-related metrics (such as Internet usage, PCs per capital, cell phone and social metrics, such as literacy, press freedom, and education levels). While there may be no cause-and-effect relationship, the more-developed information societies tend to be both rich in technology and rich in those societal aspects that give citizens more opportunity and choice than societies with lower scores.

This is not solely a matter of wealth. Some countries with relatively low per-capita GDP are well advanced up the information-society ladder.

PressPass: How does Microsoft contribute to the development of the IT industry?

Murray: As an industry leader, Microsoft helps ensure innovation and growth within the technology industry, which in turns spurs complementary and competitive market activities. Our partner-centric business model has generated unparalleled opportunities.

Additionally, there are factors that can’t just be measured by statistics. Companies that invest in IT become more efficient, and their employees become more productive. This in turn has helped several nations achieve higher levels of real, non-inflationary growth and rising standards of living. This was demonstrated by another study Microsoft commissioned, in which Oxford Analytica, an international consulting firm specializing in economic and social research, analyzed four countries whose governments had made IT a focal point in their policy agendas.

PressPass: What does growth look like for the IT sector in the future?

Gantz: IDC estimates spending on computer software, hardware and services worldwide at $1 trillion in 2001. From this base, we believe the industry will grow an average of 11 percent a year between now and 2006, or — well over twice the expected worldwide GDP. By the end of the decade, the technology industry should surpass $2.4 trillion in spending on hardware, software and services. In other words, in the first 40 years of information technology, IT users spent $6 trillion on hardware, software and services. During the next decade alone, they will spend $15 trillion.

PressPass: Given IT industry growth around the world and continued projected growth despite the recent downturn in the economy, what challenges does this present to governments and to Microsoft?

Murray: Government needs to promote the proper regulatory environment. For example, the Oxford Analytica study I mentioned earlier, analyzed four countries whose governments had made IT a focal point in their policy agendas: Chile, Estonia, India and Ireland. Estonia benefited from the government’s early commitment to policies oriented around a competitive industry — this attracted foreign investment, which enabled Estonia to build a nationwide digital network. Privatization stimulated competition and lowered prices — helping to create a thriving market for Internet access services. Ireland, Chile and India all have similar success stories.

For its part, Microsoft needs to continue its commitment to open standards and interoperability. That’s why we’re integrating XML technologies into .NET — and we recently submitted two of our key .NET technologies, our Common Language Infrastructure (CLI) and our C# programming language, to ECMA, Europe’s leading IT standards body. ECMA ratified these specifications in December, which means that they’re now available for use and review by anyone.

In addition, government can become an important role model and leader through example by ensuring its operations and services are as efficient as possible. To that end, Microsoft has over 1,000 dedicated professionals around the world, specifically to help develop and deliver solutions geared towards the public sector.

PressPass: What are the key aspects to building a vibrant IT industry?

Gantz: IDC has been studying the computer industry for almost 40 years, and now monitors it in over 65 countries. Some of the common characteristics for a vibrant IT industry seem to be: One, an educated and willing workforce. Two, some key academic centers of excellence, such as universities and research labs. Three, a stable business climate. Four, strong and flexible communications infrastructure — now usually entailing telecom deregulation. Five, a good climate for investment for start-up activities — either venture, corporate, foreign, or government. With more and more of the industry now revolving around software and content products, reasonable intellectual property protection is also growing in importance.

But a country doesn’t have to be perfect. The IT industry is a high-growth opportunity, so investors and industry participants are willing to work within existing strictures in order to have access to markets. On the other hand, it is also a global industry, and suppliers will funnel investment to the countries within which they see the most return.

Murray: Smart use of IT can raise productivity levels, which has direct impact on the bottom line. Also, The Internet presents new opportunities to drive new businesses, create new models of governance, and help jump start the economies of even the least developed nations of the world.

What we found in the Oxford Analytica case studies was that the success of each nation’s IT industry, and the discrete sectors related to it, seems to have been significantly influenced by the surrounding public policy environment. These factors were: public funding for IT development, training and use; the ability to engage in open, barrier-free trade; the promotion of competition in telecommunications markets; and a regulatory environment that promotes competition and the ability to respond quickly to changing conditions.

PressPass: What about the human side? According to the IT Economic Impact case study, how many people will this affect?

Gantz: In the IDC IT Economic Impact Study, we sized the global employment market at 26 million worldwide. This includes employees at IT hardware manufacturers, software suppliers and services firms, as well as those involved in the delivery and installation of IT products and services. It also includes all the IT professionals working within enterprises to design, deploy, and manage IT applications.

Although 2001 was a flat year for employment — a product of the global IT recession — between now and 2005 we will add another 12 million people to the employment roster, almost half again the current roster.

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