The information technology industry has grown by leaps and bounds in recent years, fueling the American economic boom of the 1990s and subsequent growth and development. In the process, it has become a part of business in nearly every major industry, from textiles to banking, from furniture to biotech. As globalization gathers speed, IT is also rapidly gaining ground around the world, as more and more people and places connect every day to the global information network. Yet with all the excitement of millions of new Internet users, however, many neglect to understand the dynamics of the industry. While the spread of IT provides tremendous market opportunities, the industry faces renewed challenges of industrial competition, regulation, and resources that it must overcome to succeed.
In this section we introduce the key sections of the website, including the structure of the industry using a value chain framework, an overview of the industry across multiple areas including the labor market, international trade and policy, and the key trends and dynamics that are shaping this industry now and in the future. In each section the past and present trends in the industry are analyzed from the perspective of North Carolina, the United States and North Carolina’s footprint compared to other states.
Information Technology Value Chain
The information technology (IT) industry can be broadly defined as the sector of the economy providing the means to transmit, store and process data in electronic forms. In practice, the industry can be hard to define, in part because some products in the industry (for example, semiconductors) serve as inputs to multiple segments of the industry and to other industries. In other cases, voice data (as in telecom) and electronic data (as in computer information) are considered to be separate. The IT value chain on this website can be divided into the following three sectors:
- Hardware: covers all hardware assembly (including personal computers, servers and workstations), along with manufacturing of peripherals, networking equipment, and semiconductors. Semiconductors encompass the development and production of a variety of chips that serve as inputs for the hardware assembly and telecommunication industries, and also serve as components of a variety of non-IT consumer durables.
- Software: This sector includes the development of general operation systems and application software, along with more customized, business-specific IT solutions.
- IT Services: establishments in this sector primarily engage in providing IT-related expertise through one or more of the following activities: (1) writing, modifying, testing, and supporting software to meet the needs of a particular customer; (2) planning and designing computer systems that integrate computer hardware, software and communication technologies; (3) on-site management and operation of clients' computer systems and/or data processing facilities; and (4) other professional and technical computer-related advice and services.
Overview of the Industry
North Carolina enjoys a modestly strong position in the IT industries. Employment grew very quickly in these industries between 1992 and 2002, with a more modest upward trajectory between 2002 and 2012. These industries represent about 3.3% of total employment in North Carolina, which is slightly higher than their share of total U.S. employment (1.8%). Like in the rest of the United States, most of this employment is concentrated in the hardware/software services segment of the chain. Relative to the rest of the country, North Carolina’s position is strongest in the magnetic media manufacturing & reproduction and computer & peripheral manufacturing industries, though these have been losing employment and establishments since 2002. Both in North Carolina and nationally, the only industries which have seen employment growth since 2002 are software publishing and hardware/software services.
Among the U.S. states, North Carolina is not among the most important importers or exporters of IT products. It is the 15th biggest exporter of IT products to the rest of the world, accounting for 1.5% of overall U.S. exports, and the 11th biggest importer of internationally produced IT products, accounting for 1.7% of U.S. imports. Like the rest of the U.S., North Carolina is a net importer of IT products (that is, imports exceed exports), spending about twice as much on imports as it sells in exports. This is not unusual, given the highly consolidated nature of the IT industries – particularly the hardware segments – in East Asia. (Reliable trade data is not available for trade in services, including software licensing, which is a major component the IT industries. It is likely that the position of both North Carolina and the U.S. would appear stronger if such data were available.)
Considering that North Carolina is the 10th most populous state in the U.S., representing 3% of the national population, North Carolina does not appear to be an especially large (or small) player in the IT industries. Meanwhile, Texas has been rapidly growing in prominence as a major exporter of IT products from the U.S., surpassing even exports from California in 2012, due primarily to a rapid increase in exports of computer equipment to the rest of the world.
North Carolina’s export position compared to other states is strongest in the semiconductors product category, where it is ranked 11th; North Carolina accounts for just over 2% of semiconductors exports from the U.S. With respect to imports, North Carolina is ranked most highly in the computer equipment category, where it is ranked #6 (3.1% of overall U.S. imports in this product category).
Whereas most U.S. exports are destined for the NAFTA partners Canada and Mexico, North Carolina’s largest export partner is Hong Kong. The NAFTA countries, in fact, have been declining in importance for North Carolina as export destinations, perhaps indicating that the state is becoming more strongly embedded in the large electronics value chains anchored in East Asia. Like the rest of the U.S., more than half of North Carolina’s imports of IT products (which, in both the U.S. and North Carolina are concentrated in the computer equipment product category) come from China alone. This is not surprising, given China’s position as a major exporter of IT products and other electronics. China occupies a prominent position in electronics industries as an assembler and exporter of final products, which are sourced from other countries such as Japan, Korea and the U.S. through highly coordinated value chains (10).
Currently, there is a nice mix of hardware assembly, software publishing and services IT-related companies in North Carolina. In 1980, at the same time that the North Carolina Biotechnology Center and the North Carolina Rural Center were launched, the State of North Carolina passed legislation to create the state-funded, not-for-profit organization the Microelectronics Center of North Carolina (MCNC) to serve as a catalyst for technology based economic development in the state. The organization helped to develop the state’s broadband network and helped to shore up technology-based research and teaching capabilities at universities throughout North Carolina, helping to create the fertile labor market that currently exists in the state for high-tech enterprises. In subsequent years, the state developed strong competencies in software publication and systems integration, concentrated primarily in the Research Triangle region.
During the last three decades as the IT industry has experienced substantial growth, North Carolina has been increasingly successful in attracting investments from a variety of IT firms differentiated by size, geographic reach, and technical function. In doing so, North Carolina has carved a unique niche within the southeastern portion of the US, that has and continues to generate significant economic growth, as well as new to the world innovations and patents. Through a number of available state-issued subsidies, IT firms of all sizes have access to numerous financial mechanisms to grow their businesses in North Carolina. Essential to North Carolina’s ability to successfully attract and retain IT firms has been the state’s continued development of its Research Triangle Park (RTP). Through its attractive its high-tech cluster model, IT firms of all sizes (from small start-ups to large multinational corporations) are attracted to RTP for the enhanced opportunity RTP offers to leverage collective efficiencies and promote firm competitiveness. Further unpacking these important elements this section sheds a more thorough light on the successes of North Carolina’s IT industry.
Trends & Developments
IT is an extremely diverse industry, including both manufacturing and services, and the production of both consumer and highly-technical machinery like satellites and solar panels. While great diversity in production and application exists, there are at the same time important characteristics widely shared across the industry that have led to key trends and developments across the IT sector:
- Innovation has been crucial for the industry, much of which has experienced technological progress at killer rates: that is, by a factor of 10 or above per decade. Per-unit computational power and communication costs have fallen dramatically as well, leading the way for a productivity boom throughout the economy. Therefore, R&D will remain critical at both industry and firm level.
- Globalization has much stronger effects on IT than on many more traditional sectors. Many IT products have very low weight-to-value ratio (e.g., critical semiconductor microeconomic components, computer hardware), do not have physical containers (e.g., computer software code), or are services that can be detached from geographical setting due to low data transfer costs. This allows the relatively easy global relocation of segments of the production chain to exploit the comparative advantages of different regions. It is not accidental that IT helped to lead the trend of "outsourcing" of white collar jobs, sending advanced manufacturing processes and service operations to East and South Asia.
- While IT was a major beneficiary of the high-tech boom of the late 1990's, it also suffered severely from the burst of the dot-com bubble. All segments declined in 2002, some much more than others. There has, however, been at least a partial recovery in most sectors, for even in a downturn, IT plays a critical role in enhancing business productivity, which has grown at phenomenal rates over the last two years.
Trends in Semiconductors
In semiconductors, leading firms in North Carolina and elsewhere are eager to reduce costs, primarily through adoption of more efficient technologies and more streamlined value chains. In particular, all have taken ample advantage of both outsourcing and offshoring. These have the potential to affect the industry as it exists in North Carolina, with especially severe impacts on workers.
Next Generation Power Electronics Innovation Institute (2014)
In January 2014, President Obama announced that investments of $140 million were to be made in North Carolina to establish a cutting edge semiconductor research center, the Next Generation Power Electronics Innovation Institute (NGPEIT) – making it the single largest grant the state of North Carolina has ever received (1). As an already well-established leader in the research and development of innovative energy technologies, North Carolina State University (NCSU) was selected as the primary organization tasked with spearheading the multi-actor consortium of more than 25 industry actors; including: seven universities and labs (NCSU, University of North Carolina, Arizona State University, Florida State University, University of California at Santa Barbara, Virginia Polytechnic Institute, and National Renewable Energy Laboratory); plus involvement from 18 firm actors (ABB, APEI, Avogy, Cree, Delphi, Delta Products, DfR Solutions, Gridbridge, Hesse Mechantronics, II-VI, IQE, John Deere, Monolith Semiconductor, RF Micro Devices, Toshiba International, Transphorm, USCi, and Vacon).
The primary purpose in establishing NGPEIT was to crucially drive the development of what are known as wide-bandgap (WBG) semiconductors from theory into a tangible and commercially replicable device. WBGs have the potential to be more than 10 times faster than currently produced silicone semiconductors, in addition to offering drastic efficiency gains in the transmitting and storing of energy, while improving the reliability over existing technical capabilities and decreasing component size (1; 2). The U.S. Government’s interest in promoting WBGs has clearly been to promote national competitiveness in its high-tech and manufacturing industries as well as to bolster U.S. jobs (3). Importantly, North Carolina’s government, industry associations, universities, research labs and IT firms are likely to become principle beneficiaries of innovations and applications of WBGs stemming from this unprecedented commitment to the advancement of semiconductors.
Trends in Hardware
Hardware manufacturing has undergone dramatic swings over the last decade. Through much of the early to mid-2000s, the industry showed various signs of maturation as the number of new entrants into the market dwindled and industry concentration has increased (8). Moreover, much of the U.S. based hardware manufacturing firms that have been able to remain competitive in the industry commonly utilized outsourcing of component production to Asia (9). These have all contributed to the employment losses evident in the tables.
However, the hardware industry has witnessed sings of resurgence in growth in production and new products in the aftermath of the recent financial crisis (end of 2010), spurred primarily by the continued proliferation of progressively more portable electronic devices and a consumer culture that has continued to demand accessibility, interconnectivity and functionality in its hardware (4; 5). New forms of production such as 3D printers have challenged the traditionally capital intensive way in which hardware has been designed and prototyped. In addition to this, improved software systems have reduced the costs for experimentation in hardware design, and have created new room for startup companies to realistically become competitive players in an industry long dominated by lead firm giants, like Sony and Panasonic (4).
Trends in Software
Software fares better among the two major service segments of IT. Software was indeed hit hard by the tech bubble crash at the end of the 1990s and sharp decrease in PC sales in 2000, but the software industry has improved dramatically through the 2000s (6). Reasons for this upward trend include: sector-wide corporate investments in various software technologies to improve business performance, continued growth in PCs, mobile devices and tables, and an increase in the demand for internet security solutions, to name a few (7). The increasingly important potential of web services software (especially cloud storage, software applications and business analytical software) has continued to provide a positive outlook for the sector going forward. As the world becomes increasingly digitized and as the varied manners in which consumers and organizations demand to be able to interact with their environments continues to grow, IT software will continue to innovate (7). With a significant presence of the world’s leading software companies with operations in North Carolina, the state is advantageously positioned to capitalize on the software industry’s expected future growth.
- Semiconductor Today (2014). US DOE selects NCSU to lead $140m Next Generation Power Electronics Innovation Institute. Retrieved March 28, 2014.
- The White House (2014). Wide Bandgap Semiconductors: Essential to Our Technology Future. Retrieved March 28, 2014.
- The White House (2014). President Obama Announces New Public-Private Manufacturing Innovation Institute. Retrieved March 28, 2014.
- Goggin, G. (2012). Driving the internet: mobile internets, cars, and the social. Future Internet, 4(1), 306-321.
- Wertz, B. (2013). Five Trends Driving the Hardware Boom. Retrieved March 28, 2014.
- Riolli-Saltzman, L., & Luthans, F. (2001). After the bubble burst: How small high-tech firms can keep in front of the wave. The Academy of Management Executive, 15(3), 114-124.
- PWC (2014). PwC Global 100 Software Leaders: The growing importance of apps and services. Retrieved March 28, 2014.
- Macher, J. T., & Mowery, D. C. (2004). Vertical specialization and industry structure in high technology industries. Advances in Strategic Management, 21, 317-355.
- Sturgeon, T. J. (2002). Modular production networks: a new American model of industrial organization. Industrial and corporate change, 11(3), 451-496.
- IDE-JETRO. (2011). Trade Patterns and Global Value Chains in East Asia: from Trade in Goods to Trade in Tasks. World Trade Organization (WTO): Geneva, Switzerland.