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U.S. IT Industry Yesterday, Today & Tomorrow: Trends and Policy Priorities to Watch
Anders Halvorsen, Senior Program Manager, ITAAOctober 22, 2003
Today’s Points The Current Spending Environment
Overall IT Picture Commercial Sector IT Public Sector IT
Public Policy Trends to Watch Business Immigration Offshore Outsourcing and Global Competition State and Federal Protectionism Political Climate
Summary
About ITAA Established in 1961 Over 400 Corporate Members
Plus global affiliate, WITSA Offices in Arlington, VA and Silicon Valley
Leader in Public Policy Advocacy IT Workforce and Education Specialty
Overview of U.S. ICT Industry
U.S. A World Leader in ICT Spending
Powerful Source of American Employment
ICT Creates 1/3 of U.S. Economic Growth
Current Economic Environment Department of Commerce reports:
Real GDP increased 3.3% in 2Q 2003 Previous quarter was 1.4% Strong increases expected to continue due
to defense spending through 2003 Equipment and software expenditures up
8.2% in Q2 2003—largest such increase since 2000
Wells Fargo chief economic officer predicts economic growth at close to 5% annual rate in 2H ‘03 (Source: Washington Post)
Current Economic Environment Job creation may be underway
Job creation always a recovery “lagging indicator”
Challenger Gray and Christmas finds pace of layoffs slowing – down 6% in August over July
August 2003 was fourth straight month of fewer than 100,000 cuts planned – not seen since 2000
Consumer spending and confidence up Spending rose 3.8% in 2Q – over 2% in 1Q
Commercial Sector IT Spending Improving CIOs plan to increase tech spending 6.4% over
next twelve months, up from 4.5% in July Highest projected increase since May 2002 9 in 10 CIOs report application backlog 30.5% of CIOs say they plan to increase
spending on IT Services – up from 27.7% in July Only 21.2% of CIOs plan decrease in IT Services
spending over 12 months, lowest in 2003– Source: CIO Magazine Tech Poll, 9-2-03
Commercial Sector IT Spending Improving IT demand will grow in 2H ‘03 2003 estimates for IT growth are 5-7% IT investments up 2.8% Q/Q in 2Q ’03 Software and services up .9% Q/Q in 2Q
’03 IT investments outgrow other cap-ex in 5
of the last 6 quarters
Source: Precursor Group, 8-1-03
Commercial Sector IT Spending Improving 12-Month IT Services Demand Outlook
Maintaining Moderate Up Tick Transportation and Federal Sectors Lead
in New Business Opportunities Billing, Wage Rates and Operating
Margins Flat for IT Services Firms Big 4 Consulting Perceived as
Competition by Twice as Many Respondents as Offshore
Source: ITAA/Input/Legg Mason Monthly IT Services Pulse Survey
Public Sector IT Spending Improving Federal IT spending will have CAGR
of 8.5% from 2003-2008 Public Sector IT services to grow
11% a year through 2007 Federal IT outsourcing will have
CAGR of 18% from 2002-2007 Source: INPUT
Public Sector IT Spending Improving FY 04 Federal spending decisions in
Congress now White House IT budget request was 14%
higher than FY 03 Spending bills have slowed and face
uncertainty in Senate DoD IT budgets are being cut in exchange
for weapons House cut $321M from DoD IT Senate would cut DISA funding by $100M
Public Policy Trends Business Immigration Backlash L-1 Visas under scrutiny
Isolated abuse cases spawn negative press Hearings in Congress ITAA issues guidance on “specialized
knowledge”
H-1Bs face criticism in current job climate H1-B Cap set to return to 65,000 on October 1 No push to raise cap in current climate
Public Policy Trends Outlook for IT Customer
Productivity Rates Booming Corporate Bottom-Line Cost Cutting
Trumping Top-Line Revenue Generation Pace of Technology Introductions
Slowing Global Sourcing Alternatives Growing Global Business Opportunities Opening
Public Policy Trends See, Understand, and Appreciate
Bigger Picture…Some Jobs are GoingConvergence of Demographic, Economic and Technological Trends
Evolution of Work and Logic of Outsourcing
Education of the American Public on Net Effect of Global Economy
Public Policy Trends Apply Logic, Not Emotion to Difficult Issue
Percentage of Work Going Offshore is Small Small but Growing “Emerging World” IT
Workforce vs. Vast, In Place “Developed World” IT Workforce
Market research predictions conflate “services” and IT jobs Outsourcing takes place across a range of
job categories, not just IT Forrester 3.3 million count includes less than
one million IT jobs
Public Policy Trends Apply Logic, Not Emotion to Difficult Issue
(Continued) Nine of Ten U.S. IT Workers Employed by Non-
IT Companies Statistics Show Most Firms Prefer to Keep
Work In-House Eight of Ten U.S. IT Workers Employed by
Small Firms Least likely Employment Cohort to Site Work
Overseas
Public Policy TrendsIT Jobs Remain among the Most Highly
Compensated
0
10
20
30
40
50
60
70
80
$Thousands
2001 Mean Annual Wages
Source: Bureau of Labor Statistics
Public Policy Trends Sophisticated IT Solutions are not Shoes or
Textiles Proximity and Domain Expertise Matter
for Many Complex Projects Full Economic Impact of Offshoring Still
Emerging Econometric Studies Needed Overseas Competitors will also be hit by
talent gap
Public Policy Trends Apply Logic, Not Emotion to Difficult
Issue (cont.) Benefits of Strategic Growth, Investment,
New Business Development Unknown Economic modeling required
Current “Jobless” Recovery will Relent Downward Pressure on Salaries Infusion of IT in New Domains Integration of IT in Other Fields of Study Investment Attracted Back to Emerging
Growth Opportunities
Public Policy Trends Realize that Demographics of Looming
Talent Shortage Remain Fixed Baby Boomer Generation Retiring Next Wave of US Knowledge Workers
will be Smaller Total Workforce Size will Plateau Skilled Worker Gap to Reach 14
million by 2020
Source: Business 2.0
Public Policy Trends Rise of Protectionism “Buy American” provisions added to
Congressional spending bills Outdated depression era idea applied to
sophisticated IT doesn’t work Country of origin requirements 65% made in USA doesn’t fit the US IT
business model Creates “unicorn”
Public Policy Trends Rise of Protectionism Anti-outsourcing bills in states NJ, MD, CT, Michigan and others
entertaining similar language Preventing state government
contractors from outsourcing Could spurn backlash against our
industry – China software policy
Public Policy Trends Political climate heating up Election year on horizon (presidential, 1/3
senate, house, many governors and state houses)
Jobs are major issue Jobless recovery thus far Congressional hearings on loss of white-collar jobs Unions and others engaged Political pressure to save/create jobs – steel and
manufacturing are examples
Public Policy Trends Political climate heating up Bipartisan interest Regulators increasingly interested in
offshore (national security/privacy/economic security)
GAO and CIA charged with studying economic, workforce and national security concerns related to offshore
Potential statutory restrictions on offshore
Conclusions Economic Indicators are positive Commercial IT spending predictions are
cautiously optimistic Federal IT spending continues to rise, but
uncertainty prevails for FY 04 Policy Trends will dictate some outcomes Offshore Outsourcing is a fact of global
competition Protectionism harms industry and creates
backlash in the long run Politics is about jobs
CONTACT
Anders HalvorsenSenior Program [email protected] www.itaa.orgwww.witsa.org