UK in top four competitive IT economies

The US still offers the best environment for a thriving IT industry, but the UK takes the number four position in a new report from the Economist Intelligence Unit.

The IT industry competitiveness index, sponsored by the Business Software Alliance, measures 25 indicators covering the overall business environment, IT infrastructure, the legal environment, education and skills, research and development trends and government strategy and policy.

The UK scores well in most areas, with an index of 67 compared to the 77 scored by the US but failings in infrastructure and research and development put us behind Japan and Korea. "The US tops our ranking of competitive environments for IT," claims Denis McCauley, editor of the report. "In each of the index categories it ranks in the top five; uniquely it combines strength in infrastructure, research and development, human capital - all the areas that promote competitiveness - but it does have weaknesses."

Both Switzerland and Singapore beat the US on infrastructure but domestic spending on IT in the US hit $440 billion last year and by 2008 two thirds of all B2B ecommerce spending will come from the US, giving it a huge marketplace that makes up for poor broadband and mobile data services.

Although the UK scores well on the education and skills indicators, with only Singapore and gain the US doing better, McCauley warned that "the supply of talent is very tight and skill requirements are changing very rapidly. Increasingly we need not just programmers and producers of source code but IT specialists who can relate with customers and analyse business cases; so far only a few countries have begun to address this."

This will have an effect on the IT outsourcing market. He predicts that Russia, Brazil, Malaysia, Vietnam, Chile, Estonia and Lithuania could come to rival India and China and that overall costs could draw jobs closer to home. "Some companies argue vociferously that they find it cheaper to employ skilled labour in say, Germany and European countries than in China and India when you take all the different aspects into account. He also highlighted the need for better technology transfer from universities and research labs into the IT market.

The US and UK have the most effective legal regimes for IT development according to the index. "Open competition between IT firms has to be balanced with IP protection," says McCauley. "The extent to which companies generate patents, royalty and licence fees, the legal environment and the freedom to compete are critical, but so is enforcement of IP rights."

IT is often touted as offering strategic advantage for businesses; this index is designed to measure which countries have the right conditions to foster strong IT sectors. McCauley hopes it will drive debate on "how governments and business leaders should be looking at these things". IT is a major contributor to productivity growth and IT sector performance is increasingly important to national economies, he points out. Most countries that score well in the index have an IT sector contributing over 5% of GDP. For Ireland that's 10%, 15% for Singapore, 18% for Korea and over 25% of Taiwan's GDP comes from IT.

IT suppliers are keen to see governments recognise this contribution by making business easier. SAP's chief executive Henning Kagermann complained that "Europe's labour market regulation is designed for steel and coal, not for high-technology IT companies. And MEP Malcolm Harper suggested the report could provide guidelines for the EU: "this identifies the gaps for Europe as a whole, which is good for legislators."

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