Relatively few countries possess all the factors necessary to support a thriving information technology sector, but the United States, Japan, South Korea and the United Kingdom provide the strongest environments for IT competitiveness, a new study concludes.

As reflected in the Economist Intelligence Unit's "IT industry competitiveness index", these factors include an ample supply of skills, an innovation-friendly culture, world-class technology infrastructure, a robust legal regime and well-balanced government support, not to mention a competition-friendly business environment. Those countries possessing most of these “competitiveness enablers” are also home to high-performance IT industries: all but four of the top 22 countries in the Economist Intelligence Unit index are also among the world's top countries in terms of IT labour productivity.

On the strength of its unique combination of scale and quality in the key areas that promote IT competitiveness, the US tops the index table. Asia-Pacific countries are well-represented in the top tier, led by Japan, South Korea, Australia, Taiwan and Singapore. All, however, face stark challenges in the effort to remain competitive: chief among them are ensuring a steady supply of talent for the industry and securing the right level of support from government to promote competition and innovation.

These are among the major conclusions of a new study, The means to compete: Benchmarking IT industry competitiveness, written by the Economist Intelligence Unit and sponsored by the Business Software Alliance. The index and report are the first attempt to compare countries' performance in building an environment for IT industry competitiveness; 64 countries are covered across seven regions.

Other key findings of the research including the following:

Asia-Pacific leaders’ strongest suits are R&D and human capital development. The index model reveals a strong correlation between a country’s innovation environment and its IT industry performance. Japanese, South Korean and Taiwanese firms are prolific in patent generation and heavy investors in R&D—key innovation indicators in the index. The region also provides six of the top ten countries in providing skilled employees for the IT industry, another heavily weighted index category.

Few nations’ IT sectors can compensate for major environmental weaknesses. India and China have been able to parlay unique factors, such as workforce size, low wages or language attributes, into strong sector performance, compensating for glaring weaknesses in the business environment. Few other countries will be able to manage this feat. Moreover, India and China will need to improve on their enablers, as their cost advantages will erode.

Skills requirements are changing radically. Talented IT employees are in short supply everywhere, but the situation will get tougher, as the nature of skills needed is changing. In addition to technical knowledge, tomorrow’s IT employee will require expertise in project management, change management and business analysis, among other areas. Singapore and Australia are among a small handful of countries in which educational systems have made a firm start to adjust their training curriculums.

Skills-rich emerging markets are likely to move up the index table. Future rivalry to India and China will come from the likes of Russia, Brazil, Malaysia and Vietnam, as well as smaller nations such as Estonia, Lithuania and Chile. Most perform respectably in at least one aspect of IT competitiveness, and the skills base of each is improving. Carving niches in software development and services represents their best chance of moving up the table.

The legal regime is an important differentiator. Countries must balance open competition in IT with robust protection for intellectual property rights. The US and western Europe—thanks partly to the galvanising efforts of the European Union—stand heads above the rest in the degree of protection afforded. In Asia-Pacific, only Australia registers relatively high scores in IP protection, enforcement and online legislation. The region’s countries otherwise exhibit weaknesses in one aspect or another of the IT industry legal environment.

Eager governments must strike the right balance. Governments can do much to help create an environment in which IT firms will thrive, but it is a delicate balancing act. Through far-sighted policy, governments can help improve competitiveness. At the same time, they must avoid picking winners, among either IT firms or technologies. West European governments have generally done best to strike the right balance. Among Asia-Pacific governments, Singapore’s earns top marks for its efforts to create a positive environment for IT firms’ growth with minimal distortion to competitive conditions in the market.

"There is a strong link between the presence of IT industry competitiveness enablers in countries and the strength of their IT sector," confirms Tony Nash, Asia Director, Country and Economic Research with the Economist Intelligence Unit. "Governments and industry leaders must pay close attention to these enablers if they wish to boost the global competitiveness of their IT industries."

“More and more, information technology is a leading driver of economic and social progress worldwide,” says Jeffrey Hardee, Vice President and Regional Director for Asia Pacific of the Business Software Alliance. “These findings can serve as a roadmap for governments to capitalise on those factors which can strengthen their IT sectors and accelerate the benefits a thriving IT industry can deliver to the entire society.”

IT industry competitiveness index, 2007

Overall scores and ranks

Countries are scored on a scale of 1 to 100.

Source: Economist Intelligence Unit, 2007.

Editors' note

Methodology: How the scores were derived
The IT industry competitiveness index is organised into six distinct categories of quantitative and qualitative indicators, numbering 25 in all. The category and indicator weights were formulated by the Economist Intelligence Unit's modelling team using, as a guide, individual correlation coefficients of each indicator against a measure of IT labour productivity. The result is an overall index score and category scores for each country. The categories and their weights are: overall business environment (10%), IT infrastructure (20%), human capital (20%), legal environment (10%), R&D environment (25%) and support for IT industry development (15%).

Qualitative indicators are scored by Economist Intelligence Unit analysts according to specific scoring criteria. Quantitative indicators are normalised through the population set so that each country is measured from 0 to 1 by applying a formula to each data point. Each indicator is then converted into a score of 0-100. The composite score for each country is also based on an index range of 0 to 100, with 100 representing the highest and best possible score. The data used in the rankings are sourced from the Economist Intelligence Unit, the United Nations, the World Bank, the World Intellectual Property Organization, IDC, Pyramid Research and other organisations. For more information on the methodology, please refer to our white paper.

The means to compete: Benchmarking IT industry competitiveness is available free of charge at www.eiu.com/mtc or www.bsa.org/eiu

For further information please contact:
Economist Intelligence Unit
Joanne McKenna: +44 (0)20 7576 8188 or joannemckenna@eiu.com
Denis McCauley: +44 (0)20 7576 8237 or denismccauley@eiu.com

Business Software Alliance
Americas - Karen Dorbin: +1 (202) 715 1520 or karen.dorbin@dittus.com
EMEA - Harriet Rich or Andre Labadie: +44 20 7592 1200 or bsa@brands2life.com
Asia-Pacific - Nawaz Marican, Janice Lee Fang or Andrew Wong : +65 6220 2623 or nmarican@iconinternational.com.sg, jlfang@iconinternational.com.sg, awong@iconinternational.com.sg

About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of over 650 analysts, we continuously assess and forecast political, economic and business conditions in 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.

About the Business Software Alliance
The Business Software Alliance (www.bsa.org) is the foremost organization dedicated to promoting a safe and legal digital world.  BSA is the voice of the world's commercial software industry and its hardware partners before governments and in the international marketplace.  Its members represent one of the fastest growing industries in the world.  BSA programs foster technology innovation through education and policy initiatives that promote copyright protection, cyber security, trade and e-commerce.