High-Level Seminar on E- Communications The development of the ICT sector during the crisis: International comparisons Information Technology Outlook Graham Vickery, OECD Prague16 April 2009

Outline What is the impact of the crisis on the ICT sector? How does it compare with other sectors? How does the crisis (so far) compare with the previous ones? What are economic implications? What are implications for policy?

Global overview: ICT supply side Rapid drop in ICT production linked with Q3-Q4 financial markets meltdown and global recession. But 2008 positive overall due to Q1-Q3 growth. Negative for 2009 Goods: US and Europe down. Asian countries collapsed. Services: Slowing but not collapsing. Questions for 2009, e.g. India services sourcing Turbulence with recession: IT investment is very cyclical (‘accelerator effect’ – telecommunications and business CAPEX dropping), personal consumption including services hit by ‘wealth effect’, unemployment 2007 – mid Growth balanced in OECD countries. E. Europe and non-OECD have grown much faster –ICT markets: Non-OECD countries (Russia, India, China) took 23 of top 25 market growth positions OECD share down % => % Drivers shifted from technology push => commercial and user-driven applications pull 3

ICT sector opportunities and threats OpportunitiesThreats Short- mediu m-term Restructuring and efficiencies ICT budgets hard to compress Restructuring in other sectors - more use of ICTs / outsourcing Public sector and emerging economies continue to invest Economic stimulus packages Declines in R&D and innovation Decreasing access to capital / VC IT budgets plunge all sectors / regions Consumer ICT spending plummets Fall in demand from emerging economies Longer -term R&D and innovation priorities Growth in digital content Green IT, health & aging drivers Consolidation / globalisation of back-office / information management Spending on ICT security up Long term stimulus packages Dropping R&D / innovation priorities Prolonged financing problems Slow development new business models Slow supply of ICT professionals skills Business / consumer spending falls Prolonged infrastructure underinvestment Effects on low-cost locations

Semiconductors falling. Asia gaining share Semiconductor market by region, Current USD billion USD billions, current prices Source: Information Technology Outlook partly estimated, 2009 projected from SIA data. 5

6 Utilisation semiconductor manufacturing

The challenge: ICT goods plunging with the economic crisis – Japan December 1999–January Year-on-year % change, volume index, seasonally adjusted, 3-month moving average Source: Information Technology Outlook database.

… but ICT services holding up - Japan Year-on-year % change, production indices, seasonally adjusted, 3-month moving average Source: Information Technology Outlook database.

Collapse is worse in automobiles - France December 1995 – December Year on year % change, volume index, seasonally adjusted, 3-month moving average Source: Information Technology Outlook database.

… and in the United States – employment December 2001–January Year-on-year % change, number of employees, seasonally adj. 3-month moving average Source: Information Technology Outlook database.

Global firms: crisis tough for IT equipment Quarterly revenue growth (year-on-year), Top-10 “IT equipment” 11 Revenues grew most of the year, Q4 decline greater than revenue declines in 2001 for same companies. Overall revenue drops same in both periods. Source: OECD calculations for top-10 IT equipment firms from OECD top-250 ICT firms.

Still relatively good for IT services.. 12 Top firms maintained growth through 2008, Q4 slowed a little. Driven by IT and Business Process Outsourcing (ITO/BPO) but financial market crisis slowing demand. Outsourcing revenue growth to decline in 2009? Source: OECD calculations for top-10 IT services firms from OECD top 250 ICT firms.

.. and software 13 Top software firms high growth Q1-Q2, dropped in Q3-Q4. Driven by business and consumer investment. Source: OECD calculations for top 10 software firms from OECD top 250 ICT firms.

China’s lead in ICT goods exports By region , USD current prices billions Source: OECD Information Technology Outlook,

Services trade and cross-border investment Trade in ICT services: growing strongly –IT services growing 15-20% p.a. –Ireland by far largest OECD exporter: 2007 USD 21 billion, surplus USD 20 billion –UK, US and Germany each around USD 10 billion exports –India largest world exporter: 2006 USD 30 billion, surplus USD 27 billion; 2007 and 2008 around USD 40 billion; 2009? High ICT and comms services share of FDI and M&As: Business cycle collapse –Shift to E. Europe and non-OECD. Non-OECD M&A investment has been up in numbers, less in values –2008 down sharply even more 15

ICT specialists growing rapidly in most countries Share of ICT specialist occupations in total employment,1995 and 2007 Source: OECD Information Technology Outlook, Classifications not harmonised: shares for European and non-European countries are not directly comparable. 16

Government ICT policy priorities 2008: The right policies for crisis and recovery? 1. Government online, government as model users 2. Broadband 3. ICT R&D programmes 4. Promoting IT education 5. Technology diffusion to businesses 6. Technology diffusion to households 7. Industry-based and on-the-job training 8. General digital content development 9. Public sector information and content 10. ICT innovation support Source: Information Technology Outlook 2008.