Reports of the death of European IT sector are greatly exaggerated

Date: 25/06/1998

By Chris Johnstone

EUROPE's information technology sector may not be matching the performance of its US counterpart in booming exports, expanding employment and low inflation, but compared with other areas it is still the place to be.

The sad tale of Europe's IT pioneers, such as Italy's Olivetti and France's Bull, has given the exaggerated impression that the sector is, literally, in terminal decline.

The decision of Siemens-Nixdorf earlier this year to combine its semiconductor future with that of Taiwan's Acer was seen as symbolic evidence that the sun was setting on a key industrial sector.

In fact, western Europe's information and communications technology market remains strong.

Its turnover totalled 356 billion ecu last year, or 4.9&percent; of gross domestic product, with 8&percent; growth in 1997 set to move up to 8.2&percent; this year. This compares with US growth of 9&percent; in 1997.

For the first time, most of the recent expansion has been fuelled by the information technology sector rather than telecommunications. This reflects the fact that the effects of the electronic commerce and Internet revolution are already beginning to be felt.

The EU's success in preventing new taxes or regulatory barriers being imposed on the Internet has helped it to take off.

But sectoral problems still persist. Even the optimists will concede that the US has at least a two-year head start on Europe in key areas of information technology, and the gap does not appear to be closing.

“The gap is too wide now for Europe to catch up with the US,” said Mike Cranna of US hi-tech research consultancy IDC. “Rates of growth there are still much higher. There will be enormous growth in Europe, but not compared with the phenomenal growth in the US.”

The EU is still running a trade balance deficit in information technology and telecommunications which widened to 18.2 billion ecu in 1996.

The hardware side of information technology has shed workers, although the services side is stable with skills shortages on the horizon.

Europe's problems were underlined by the European Commission's April 1997 communication on the competitiveness of the European information and communication technologies.

It highlighted broad areas for action, such as better education and training, improved use of research and development funds, boosting electronic commerce and reaping the rewards of lower telecommunications tariffs.

The widening of tariff reductions on information technology components, the take-up of IT by administrations, encouragement for small and medium enterprises and the exploitation of enlargement were also identified as priorities.

Clearly, not enough time has elapsed since the communication appeared to witness dramatic results.

The identification of areas for action was always complementary to the main thrust of EU policy based on liberalising its local telecommunications sector, encouraging a flourishing market for electronic commerce and fostering the small start-up firms which could develop into the Microsofts of tomorrow.

If anything, the communication is now acknowledged to have underestimated the problem of skills shortages in the sector. “All companies across Europe are saying they cannot get the right people,” said one official.

In the UK alone, industry needs 30,000 information technology recruits while only 10,000 computer science and informations systems graduates are coming out of universities every year.

“There is a shortage of skilled people for today's two crucial issues: the millennium time-bomb and the euro,” said Bruno Lamborghini, president of EUROBIT, the European IT manufacturers' lobby. “The problem will worsen over the next few years and could become a major obstacle to the development of the information society and to job creation.”

The main research weapon to boost the sector, the Fifth Framework Programme for Research and Development, will combine what were three separate funding lines but will not take effect until next year.

Electronic commerce is one of the key areas it will focus on, together with tele-medicine, tele-education, and multimedia.

Funding over the programme's life should be slightly higher than the Fourth Framework allocation of 13.7 billion ecu.

On the EU's doorstep, central and eastern Europe continues to represent one of the largest information technology opportunities in the world. However, it is a market which the EU has still to make its own.

Combined IT spending in the Czech Republic, Hungary, Poland, Russia and Slovakia totalled only 6.8 billion ecu in 1997. Only the Czech Republic has an information technology spending level per head of population, at around 139 ecu, which begins to approach that of EU countries.