Information and communication technology (ICT) is a sector that knows no global boundaries, has penetrated all industries, and consumers are readily embracing the latest devices, technologies and applications. All of these factors make the sector attractive and many countries are going out of their way to ensure they can benefit from the jobs, investment, skills and training that the industry brings. ICT is continually at the top of the charts for FDI performance in number of projects, capital investment and jobs created. fDi Markets' monitoring of global FDI patterns over the years shows that software and IT services, communications, electronic components, and consumer electronics are big performers in crossborder investment activity.
Going into the third quarter of 2010, the FTSE Software and Computer Services index continues to outperform the FTSE All Share index in the UK, foreign investment in the high-tech sector from China is expected to grow, while the Russian government is focusing on attracting nanotechnology to the Skolkovo region. In the US, technology companies accounted for more than 40% ($2.7bn-worth) of total venture capital investment (in all industries) during the second quarter of 2010.
Traditional methods of attracting innovative industries to a particular location have often consisted of tax incentives, which can take many different forms such as R&D tax credits, cost-effective incentives for intellectual property/patent revenues and 'tax holidays' or tax-free periods for new investments.
Governments can also have a key role to play in subsidising niche industries or investing heavily in their country’s future. For example in Russia, the Russian Venture Company (a federal state venture) has $560m to invest in the innovation sector. The South Korean government has announced that it intends to invest $84.5bn, or 2% of its GDP, in green technologies over the next five years, according to the Economist Intelligence Unit. It aims to create a nationwide smart electricity grid by 2030 which could create up to 500,000 new jobs and reduce South Korea’s power consumption by 3%.
Whether it is to get a foothold into new territories or new technologies, the ICT deals market is still an active international playing field. There have been a number of industry-defining deals to date in this year alone.
In May, Hewlett-Packard announced its acquisition of Palm, a provider of smartphones for $1.2bn. This deal will enhance HP’s ability to participate more aggressively in the fast-growing, highly profitable smartphone, and connected mobile device markets. In July, SAP announced the completion of the acquisition of business intelligence and database management company Sybase for $5.8bn. Through this transaction, SAP intends to accelerate the reach of its solutions across mobile platforms and drive forward the realisation of SAP's in-memory computing vision. In August, multinational IT solutions supplier Misys completed the sale of the company's healthcare subsidiary Allscripts, the largest healthcare software company in the US, which had been used to give the company a foothold into the US market. Also in August, Intel announced its acquisition of McAfee, a software security company, thus pushing software security alongside Intel’s two other main strategic pillars of energy-efficient performance and internet connectivity.
These are just a few examples of the big ICT deals grabbing the headlines, and there is also plenty of activity in the mid-market and smaller company segments too, as companies look for scale to extend their portfolios or more closely focus on valuable niche markets.
Ones to watch
Areas of ICT tipped to attract continued attention in the future include:
Cloud computing: As just one aspect, software as a service continues to gain momentum in the industry as customers begin to realise the benefits of adopting this approach to their operations, enjoying flexibility and reduced set up costs.
Mobility: The rise of smart phones is a key component in the increasing dominance of wireless mobility for workers and consumers. There are now more than 5 billion mobile phone subscribers in the world, which is more than three times the number of personal computers. Within this 5 billion, there are an estimated 1.2 billion smart phones, converging mobility and the internet.
Security: With much more data being created and with many more information and communication devices in action, the need for security is a major factor. A recent PricewaterhouseCoopers global State of Information Security survey found that for the second year in a row, increasing the focus on data protection is the single most common ICT strategy worldwide.
Green tech Businesses are becoming increasingly committed to seeking 'green' ICT solutions. A key area of focus has been energy efficiency, which has given rise to green data centres, for example. The challenge of power consumption is significant, and not only are environmental measures top of the agenda in current design but the focus is also on the next generation of server technologies that will provide a further leap in efficiency. This, of course, is just the tip of the iceberg, with the race being on to find the technology solutions that will provide sustainable energy for the future.
None of these areas can be looked at in isolation by businesses. For example, a business considering its environmental impact may look to cloud computing as a possible option, but then will also need to consider closely its security management. This is also highly relevant in the public sector, for example, if the UK coalition government pushes ahead with its 'Big Society' ideal (the electronic storage of public data by region). In an ever-changing world, how a business adopts, integrates and manages ICT could be the route map for its investment and location decisions, as well as the key to its success or failure.
Mike Curran is a director of PricewaterhouseCoopers and Douglas Clark is director of Techlocate.