Impacts of globalisation on the IT Sector WTO Information Technology Symposium Impacts of globalisation on the IT Sector Growth and market dynamics in OECD countries, China and India Graham Vickery OECD www.oecd.org/sti/ito graham.vickery@oecd.org Wednesday, 28 March 2007

Overview – ongoing restructuring Growth in the ICT supply side is sustained and expected to continue across all segments Growth more balanced across OECD. ICT supply growth more sustainable than late 1990s. Highest in Internet-related applications and support systems Non-OECD and Eastern Europe supply and markets growing much faster and taking larger share Drivers are shifting from technology push => commercial applications and new uses. User-driven applications increasingly important Challenges for ICT policy to build competitiveness

IT industry - developments and outlook Recent developments Output and markets robust in the US. Now stronger in Japan and Europe. Other Asian countries growing rapidly ICT markets: OECD share down 2000 89% => 2006 83% Non-OECD countries (incl. Russia, India and China) took 13 of top 15 market growth positions 2000-2005 Top 250 ICT firms (over ½ of global ICT industry) Growth across the board. Revenue growth 2000-2005: Total 250 firms 23.5%, OECD 20%, India 680%, Chinese Taipei 200%, Singapore 132%, Hong Kong-China 100%, South Korea 28% China and India increasingly important. Their growth currently driven by foreign investment and sourcing

Structural change and adjustment Structural change in the ICT sector Late 1990s 20-30% annual OECD growth 2000s slower. Many products => commodities Rapid growth: new / niche products, software and services, and Emerging Markets (E. Europe, Asia) ICT R&D dynamic although signs of slow-down Major adjustment pressures Open source (the “Linux effect”) Online delivery of IT services (the “Google” effect)

ICT sector increasing share of GDP Share of ICT valued added in business sector 1995 and 2003, percentages 2 4 6 8 10 12 14 16 18 Finland Korea (7) Ireland (7) United Kingdom United States New Zealand (1,4,6) Hungary Netherlands Sweden OECD 25 Austria Norway Denmark France Portugal (1,7) EU 14 Belgium (7) Australia (2,3) Canada Japan (5) Germany (5,7) Italy Spain Czech Republic (5,7) Greece (5,6,7) Slovak Republic (5,7) Mexico 2003 1995 % Source: OECD Information Technology Outlook 2006, SNA compatible

Top 250 firms rebound Performance trends 2000-05 Current USD, index 2000 = 100 Source: OECD Information Technology Outlook 2006

And they increase R&D intensity Top 250 ICT firm R&D intensity by sector, 2000-05 R&D spending as a share of revenue, percentages 2000 2005 Software Comms equipment Electronics & components IT equipment Services Telecommunications 2 4 6 8 10 12 14 16 Source: OECD Information Technology Outlook 2006

The shift to Asia World semiconductor market 1990-2005 USD billion, current prices 50 100 150 200 250 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 North America Japan Europe Rest of Asia Source: OECD Information Technology Outlook 2006

ICT globalisation and trade New wave of global restructuring of ICT production Global restructuring of ICT production ICT sector a leader in international trade and M&As 9% of business VA, 13% of goods trade, 20% of M&As Trade in ICT goods: new highs Trade in ICT services: growing strongly Ireland leader in computer and information services exports (still number 3 in packaged software) ICT FDI and M&As high: Business cycle effect M&As: ICT and comms services continued high share Some shift to Eastern Europe and non-OECD

ICT goods trade has tended to increase Share of ICT goods in total goods exports, 1996-2004 Percentages 0% 5% 10% 15% 20% 25% 30% 35% Korea Hungary Ireland Mexico Japan Netherlands Finland United States Czech Republic United Kingdom Sweden Luxembourg Germany Portugal France Denmark Austria Slovak Republic Turkey Poland Spain Canada Belgium Italy Switzerland Greece Australia New Zealand Norway Iceland 1996 2004 Source: OECD Information Technology Outlook 2006

And grow in all segments OECD trade in ICT goods, 1996-2004 USD billion, current prices Communication equipment IT & related equipment Electronic components Audio & Video equipment Other ICT related goods 1 800 1 600 1 400 1 200 1 000 800 600 400 200 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: OECD Information Technology Outlook 2006

With new trade competition ICT goods exports 1996-2004 Current USD, 1996 = 100 China Mexico and Eastern Europe Other OECD 1 000 900 800 700 600 500 400 300 200 100 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: OECD Information Technology Outlook 2006

New sources of trade – ICT-enabled services Exports of computer and information services and business services Percentage of world totals Source: OECD Information Technology Outlook 2006

Exports of computer and information services and business services Billion current USD and share of GDP Source: OECD Information Technology Outlook 2006

Employment potentially affected by ICT-enabled services offshoring Share of employment 1995-2004 Source: OECD Information Technology Outlook 2006

China and ICTs China increasingly important in production and trade in ICT goods and services Strategy: Host foreign ICT firms or third-party contract manufacturers (unlike Japan and Korea) Chinese ICT firms developing rapidly despite relatively limited size and technological know-how. Investing overseas to obtain technology, brands and distribution ICT industry must make transition from low-cost manufacturing to higher value-added products Services high potential, but not yet

China biggest ICT goods exporter in 2004, and increasing Imports and exports, billion current USD . Although OECD trade data for 2005 for ICT goods is not yet available, the Chinese Monthly Customs Statistics for January to December 2005 and the first two months of 2006 show a continued strong upward trend for ICT-related imports and exports. China’s growing ICT trade in 2005 was bolstered by its elimination of tariffs on ICT products in January 2005 following its obligations under the WTO’s Information Technology Agreement. While only complete data for 2005 will allow for thorough analysis, the adjustments in July 2005, with revaluation of the Chinese CNY by about 2% against the USD, do not seem to have significantly affected Chinese ICT exports. According to MOFCOM, China's exports of computer products in 2005 amounted to USD 104.8 billion. Exports of telecommunication in 2005 amounted to USD 72.3 billion (up by 37.8% from 2004) and exports of electronic products to USD 24.5 billion (up by 32.7% from 2004) (MOFCOM, 2006b, 2006c, 2006d).[i] This trend has continued in the first two months of 2006, led by mobile phones and ICT goods mostly manufactured with imported integrated circuits.[ii] While growth in Chinese imports of all goods was nearly halved to 11.5% from 2004 to 2005, its imports of computers, telecommunication equipment and electrical machinery continued to rise significantly (WTO, 2006). Source: OECD Information Technology Outlook 2006

China imports components and exports computers, telecoms, audiovisual equipment Trade balances, billion current USD 80 60 1996 1997 40 1998 20 1999 2000 -20 2001 Audio&video equipment 2002 -40 Other ICT goods equipment Telecommunication equipment Computer&related 2003 . Although OECD trade data for 2005 for ICT goods is not yet available, the Chinese Monthly Customs Statistics for January to December 2005 and the first two months of 2006 show a continued strong upward trend for ICT-related imports and exports. China’s growing ICT trade in 2005 was bolstered by its elimination of tariffs on ICT products in January 2005 following its obligations under the WTO’s Information Technology Agreement. While only complete data for 2005 will allow for thorough analysis, the adjustments in July 2005, with revaluation of the Chinese CNY by about 2% against the USD, do not seem to have significantly affected Chinese ICT exports. According to MOFCOM, China's exports of computer products in 2005 amounted to USD 104.8 billion. Exports of telecommunication in 2005 amounted to USD 72.3 billion (up by 37.8% from 2004) and exports of electronic products to USD 24.5 billion (up by 32.7% from 2004) (MOFCOM, 2006b, 2006c, 2006d).[i] This trend has continued in the first two months of 2006, led by mobile phones and ICT goods mostly manufactured with imported integrated circuits.[ii] While growth in Chinese imports of all goods was nearly halved to 11.5% from 2004 to 2005, its imports of computers, telecommunication equipment and electrical machinery continued to rise significantly (WTO, 2006). -60 2004 Electronic components -80 2005 -100 Source: OECD Information Technology Outlook 2006

China deficits with Asia, surpluses everywhere else Trade balances, billion current USD . Although OECD trade data for 2005 for ICT goods is not yet available, the Chinese Monthly Customs Statistics for January to December 2005 and the first two months of 2006 show a continued strong upward trend for ICT-related imports and exports. China’s growing ICT trade in 2005 was bolstered by its elimination of tariffs on ICT products in January 2005 following its obligations under the WTO’s Information Technology Agreement. While only complete data for 2005 will allow for thorough analysis, the adjustments in July 2005, with revaluation of the Chinese CNY by about 2% against the USD, do not seem to have significantly affected Chinese ICT exports. According to MOFCOM, China's exports of computer products in 2005 amounted to USD 104.8 billion. Exports of telecommunication in 2005 amounted to USD 72.3 billion (up by 37.8% from 2004) and exports of electronic products to USD 24.5 billion (up by 32.7% from 2004) (MOFCOM, 2006b, 2006c, 2006d).[i] This trend has continued in the first two months of 2006, led by mobile phones and ICT goods mostly manufactured with imported integrated circuits.[ii] While growth in Chinese imports of all goods was nearly halved to 11.5% from 2004 to 2005, its imports of computers, telecommunication equipment and electrical machinery continued to rise significantly (WTO, 2006). Source: OECD Information Technology Outlook 2006

Rising to the challenge? IT policies for growth and competitiveness Co-ordination and priority setting Promoting ICT R&D and innovation Increasing business use (and improving government efficiency via e-government) Expanding ICT skills and employment (education) Digital content Enhancing network infrastructure (broadband) ICT business environment (IPRs)