IT, Software and the Economy

by Raymond J. Keating

Information technology obviously is a major force in driving economic growth. It’s also an area where small business plays a big role.

A new study from IDC, and sponsored by Microsoft, titled “Aid to Recovery: The Economic Impact of IT, Software, and the Microsoft Ecosystem on the Global Economy” was just published on October 5.

The study offers some interesting findings on how IT fits into the current economy, and notable estimates looking ahead over the coming four years. It also shows how large firms like Microsoft wind up working with and being served by small businesses.

Specifically, IDC “studied the relationship between IT, software, the Microsoft ecosystem and the economies of 52 countries.” Those nations account for 98% of global IT spending. Among the findings:

• IT spending in 2009 will register $1.414 trillion, and is expected to grow to $1.7 trillion in 2013. The growth in IT spending is expected to run at three times the rate of GDP growth.

• Employment in the IT industry, and of IT professionals in IT-using organizations will register 35.6 million at the end of this year, and is expected to grow by another 5.8 million by the end of 2013. That’s a 3% annual growth rate, or three times the expected rate of growth in total employment.

• While packaged software accounts for 21% of 2009 IT spending, 51% of IT employment is software-related.

And what about the role of small business? Consider the following findings:

• “IT spending provides revenues for more than 1.2 million companies selling or distributing hardware, software, and services.”

• The Microsoft ecosystem encompasses nearly 700,000 companies. It is noted in the study: “This ecosystem is not only large but also diverse, ranging from large, name brand OEMs to small firms that build a few systems a year for a handful of customers, from the big application software companies to small, entrepreneurial companies writing applications in local languages, from multinational service firms to three-person shops selling value-added solutions into niche markets.”

It’s estimated “that more than two thirds of the companies in the ecosystem are small, local companies – often dealing with equally small, local IT using organizations.”

• Looking ahead, it is projected that the IT market “will drive the creation of more than 75,000 new businesses between now and the end of 2013. Most of these companies will be small and locally owned organizations.”

The IT industry has been and will continue to be a driver of economic growth. And small business has played and will continue to play a central role in that growth. Indeed, only misguided public policy – such as higher taxes, increased regulation, interference in market decisions, trade protectionism, and failures to protect intellectual property – could derail this font of innovation, dynamism and development.

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Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council.