Seeds of arrogance?

Information technologies originating in the US are emerging as the engines of global economic growth in the 21st century. This deserves increased attention because IT is becoming one of the primary sources of US economic power. Yet it's quite possible that much of the rapidly surfacing resentment toward US political dominance in global affairs may, in fact, be a reaction to US primacy in everything related to IT.

Much of history can be read as tales describing the acquisition, holding or loss of economic power. Today, it's the possession of and control over information technologies that offer good clues about prevailing shifts in economic power. But any dominance can breed arrogance, and that can erode the IT industry's position in the US.

The most reliable sources of information about the current status of IT are the published reports of public IT corporations. For 1998 and 1999, I examined the financial results of 2272 global companies that have been classified as making up the IT sector of the economy. This includes companies that make computers, office equipment, software and electronic components and their accessories, as well as companies that provide IT-related services. Then I examined the companies' profits after taxes. This reveals an organisation's capacity to accumulate wealth that can be reinvested. I also included total revenues to show the relative importance of IT in the global and US economies.

The US companies, with 55.4 per cent of the global revenue, take in 95.9 per cent of all profits. Much of this can be explained by the structure of the IT industry. The US favours a diversified collection of companies consisting of many small and largely profitable corporations. In other countries, the industry is concentrated in large enterprises. These huge companies are relatively poor performers even though they rack up huge sales figures. A further breakdown of the numbers yields some revealing statistics.

The numbers show that that economic power - in the form of profits - has largely shifted from hardware toward software. But it's also worth noting that Microsoft and Oracle together account for $9.1 billion in software profits, or 68 per cent of the entire US software industry. Without these two companies, the US position in software would look much weaker.

It's also interesting that, with about half the global computer hardware market ($US303.9 billion), US computer makers report profits ($15.3 billion) that are greater than the total profits for the entire worldwide hardware industry ($11.8 billion). So, lumped together, the non-US computer makers actually lost money.

A study of industrial history shows that staying No. 1 in any market is impossible. The initial cause of decline always comes from self-inflicted wounds, attracting competitors who will assist in the demise of an already wounded leader. For example, the software industry - our current economic vanguard - has arrogantly leveraged its economic muscle to seek and obtain legal exemptions from accountability for faulty products by promoting the passage of the Uniform Computer Information Transactions Act.

If there's a single cause for anxiety about the continued prosperity of the US IT industry, look no further than the self-serving actions of overconfident companies that will cause global customers to seek other sources of supply. wFor supporting data of this analysis, see www.strassmann.com/d2. To comment on this column to paul@strassmann.com and david_beynon@idg.com.au

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