|
Benchmarking
IT: Reasons to Worry
By Michael Alan Hamlin
December 2002
Ever since the ICT sector didn't
get mentioned in the president's last State of the Nation Address,
those who work in the industry have been wringing their hands. That's
despite the fact that many companies in the ICT and ICT-enabled
sectors have continued to grow at an impressive rate despite the
economic downturn that has hurt high-tech hardware exporters and
traditional sectors. After all, the worrying goes, there's so much
competition for investment and jobs that taking the national eyeball
off its most promising sectors could set us back so far that places
like China, Vietnam, and Eastern Europe will race ahead.
There's good reason to worry. For
starters, the Philippines has regularly proven adept at letting
opportunity slide through its anemic economic fingers. Second, we're
already getting left behind by our principal competitors, India
and China. And not just left behind in basic technology exports.
India is in the process of making a major shift from low value-added
outsourcing center to value-added research and development hub.
China, meanwhile, is taking over the outsourcing business, like
software coding and testing, and racing to catch India. At the rate
China is teaching its citizens to speak American English, they may
be taking over contact centers before long, too.
Consider China first. As The Asian
Wall Street Journal recently put it, the place is awash in cash,
pulling in around US$45 billion in foreign direct investment annually
(For reference, the Philippines took in less than half a billion
last year.). Much of that investment is in the ICT sector. Microsoft
expects to invest US$750 million over the next three years. That's
dwarfed by Motorola, however, which expects to spend US$10 billion
by 2006 all on its own.
There are good reasons why. China
produces 600,000 engineers a year, and they come cheap. The U.S.
is educating even more Chinese engineers. "Last year, 54% of
engineering doctorates went to foreign students," according
to a recent report in Fortune magazine, and "Chinese engineers
are being put in place (in China) so the semiconductor design of
the future will take place there." China also intends to dominate
software. Craig Mundie, chief technical officer and strategist for
Microsoft told columnist David Kirkpatrick that "This year
China will be opening 35 special software universities."
The Philippines graduates around
250,000 baccalaureates a year, and, remarkably, no one is really
sure how many are engineers. Lots of potential investors are trying
to find out because those we do have are doggone good, but best
estimates put the number at somewhere around 25,000. Aside from
the reality that the labor pool is much smaller than China's, the
fact that we don't really have such basic indictors is one reason
potential investors worry about investing here. They want some reassurance
about supply.
Research firms provide some guidance.
For example, Gartner Research estimates that there are 290,000 "IT
skilled professionals" in the country, who generate about US$1
billion in exports, but that includes non-engineering jobs like
contact center reps and medical transcriptionists. It notes increased
private-sector investment in ICT education, but hasn't been able
to quantify that either.
Both China and the Philippines -
and most everywhere else - have a ways to go to catch up with India.
Its local version of Silicon Valley, Bangalore, graduates around
25,000 software and computer science engineers on its own every
year who are ready to go to work immediately. The country as a whole
produces 220,000 such engineers. Although a PhD can received up
to US$30,000 in annual pay, that's about one fifth a similarly qualified
engineer would receive in the U.S., which makes investment in India
much more efficient in terms of both outlay and return. A starting
engineer earns around US$12,000 a year. The fact that a Filipino
engineer is an even bigger bargain by comparison suggests that India
has more going for it than low labor costs.
Indeed, many Indian engineers, like
their Chinese counterparts, are returning home from the U.S. - where
they have already cut their teeth bringing world-class technology
to market - to take up senior positions in these new research facilities.
The results they are getting are impressive. India already exports
around US$8 billion in software services. The rapid growth of its
ICT sectors - Bangalore overall is growing at 10 percent a year
- is expected to boost software exports to US$50 billion in a little
more than three years.
These developments reflect a maturing
of the ICT sectors and a new direction for investment, which is
significantly more R&D focused than in the past. Intel has just
completed a new US$25 million R&D facility, it's largest outside
Portland, Oregon. SAP will soon move into a new US$100 million R&D
campus. Texas Instrument's (TI) three-hectare facility accounts
for 30 percent of the company's global R&D work, according to
a recent BusinessWeek report.
And these centers are producing original
research. The TI facility has produced 200 patents. Intel has chocked
up 62 in just three years. Already, 25,000 engineers work in Bangalore
alone, and the Indian software association, known as Nasscom, predicts
that number will jump to 65,000 as a result of a steady stream of
new investment.
As daunting as these developments
are for the Philippines and its own ICT development ambitions, what
drew my interest to these figures is not the uphill battle we face,
but the fact that ICT executives in the U.S. are just as worried
as we should be. Kirkpatrick noted that Intel CTO Pat Gelsinger
believes that both China and India are more committed to IT as a
national priority than the U.S. The potential result: "Maybe
we are headed for becoming a second-class citizen in the world of
IT," Gelsinger warned.
If U.S. ICT execs are worried about
their government's commitment to technology leadership in view of
the challenge of China and India, where does that leave us?
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001). He can be reached
at mahamlin@teamasia.com.).
Copyright © 2002 Michael Alan
Hamlin. All Rights Reserved.
|
