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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.
There is a fairly even spread of technology business confidence across the world from North America, through Europe to Asia Pacific (APAC), but there are some interesting intra-region variations. For example, tech businesses in the developed APAC economies are expecting slower growth than their rivals in emerging economies across the region.
Traditional, low-cost electronics and component manufacturing bases such as Japan, Korea and Taiwan are feeling the pressure. This comes, not only from emerging rivals in China which often receive huge state backing, but also the rise of cloud computing, a phenomenon that has made the global economy far 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 are fairly positive about the next 12 months. Half expect revenues and profits to rise, while two in five are expecting exports to increase. This is the highest percentage globally and perhaps a sign of the diversification which is so important to the nascent regional recovery. Tech businesses in the UK and Ireland are particularly positive with regard to revenue and investment growth in 2014. The only downside is a lack of skilled workers in Europe which, despite unemployment running at record highs in some economies, is affecting well 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.