Marine Musheghyan
10 Feb 2014
The technology industry is synonymous with innovation, fuelled by investments and a continual focus on research and development (R&D). By its very nature it is at the forefront of change. Those businesses which fail to keep up with technological change and stay current with consumer requirements are left behind. I was pleased to see that business leaders in the technology sector are expecting a robust year of investment, R&D activity, and change according to the Grant Thornton International Business Report (IBR).
The corporate landscape is littered with the carcasses of companies which were not as agile as they needed to be. Look only to former category leaders, Blackberry and Nokia, once the most powerful mobile handset producers for business and personal users respectively, for examples. The ongoing transformations in social, mobile, and cloud and the “internet of everything” threaten other current category leaders if they do not innovate.
According to the IBR, net 30% expect to increase their spending in this area in 2014, compared to 21% of businesses globally. And despite, or perhaps because of this extra investment, technology businesses are more bullish as regards both revenue (65%) and profit (51%) growth compared with the global average.
Technology business confidence is fairly evenly spread across North America, Europe, and Asia Pacific (APAC), but there are intra-region variations. For instance, tech businesses in developed APAC economies expect slower growth than those in emerging economies. Traditional low-cost electronics and component manufacturing bases like Japan, Korea, and Taiwan face pressure, not only from emerging rivals in China, which often receive substantial state backing, but also from the rise of cloud computing, which has made the global economy less hardware-dependent.
The proportion of developed APAC businesses expecting a lack of orders to dampen growth prospects in 2014 is around three times the global average, while forecast exports are three times lower. By contrast, emerging APAC businesses are ten times more likely to invest in R&D activity in 2014 and they are more confident about profit growth than any other region.
Silicon Valley, home to the highest concentration of hi-tech businesses in the world, has helped to fuel the burgeoning recovery in the United States – and businesses there are optimistic for 2014. Three in five tech businesses expect to see their profits improve, and employees are likely see this feed through into their pay. 87% of technology business leaders expect to offer pay increases over the next 12 months, compared to 67% of all businesses. This extra income should help further boost consumer demand in those areas of high technology industry concentration.
Despite the ongoing Eurozone crisis, technology businesses in Europe remain optimistic about the next 12 months. Half expect revenue and profit growth, and two in five foresee an increase in exports, the highest percentage globally, possibly indicating regional recovery through diversification. Tech businesses in the UK and Ireland are especially positive about revenue and investment growth in 2014. However, a shortage of skilled workers, despite record-high unemployment in some economies, is affecting over a third of businesses across the region.
The follow on effects from this momentum in the technology industry should add further impetus to the global recovery. Technological progress has the potential to boost productivity, not only raising growth prospects but also helping to develop innovative solutions to pressing challenges such as climate change and resource scarcity. The good news for the global economy is that tech businesses are stepping up to the challenge.
Steven Perkins is global leader for technology at Grant Thornton.