Global IT Spending Remains Robust

While the slowdown in the U.S. economy is affecting the current year’s technology spending growth, research by the Aberdeen Group indicates that global IT spending will remain robust through 2005.

Despite regional fluctuations, global IT spending is forecasted to grow at a strong compounded annual growth rate of 9.6 percent. North America, the world’s largest market for IT products and services, is forecasted to experience a near term growth rate of 8.5 percent between 2001 and 2002. The findings come from Aberdeen’s “Worldwide Technology Spending 2001-2005: Forecast and Analysis for Hardware, Software, and Services,” which contains a forecast and analysis of technology spending in 157 countries.

“Despite short-term fluctuations in major markets, global technology spending will continue to be robust, buttressed by strong demand in Western Europe, North America and Asia,” said David Wright, vice president of Aberdeen Group’s Private Equity Services division. “Spending on Internet infrastructure-related projects in the U.S., Western European and Asian markets remains healthy. Moreover, recent traction experienced in customer support and sales force automation segments will continue to be positive in the world’s top tier markets as organizations experience positive short-term return on investment.”

According to Aberdeen, the strongest IT growth opportunities are in emerging markets throughout Latin America, Asia, the Middle East and Africa. Healthy spending growth and the largest raw dollar expenditures will continue to be represented by North America, Western Europe and Japan.

Despite the economic uncertainty of Japan, whose market is expected to grow at a modest 5.9 percent in 2001, Asia Pacific Rim regional IT spending growth is forecasted by Aberdeen to exceed 11 percent. India and China are forecasted to have strong growth exceeding 20 percent of total annual hardware, software and services spending growth over the near term.

International Data Corp. (IDC) found that the demand for IT education and training has received a lift from the slowing economy. According to IDC, worldwide IT training revenue will increase at a compound annual growth rate of 13 percent, from $22 billion in 2000 to nearly $41 billion in 2005. The growth will vary greatly by region.

“It might sound counterintuitive, but as global economic growth slows, companies will be inclined to spend more on IT to cut costs from their bottom lines,” said Michael Brennan, senior analyst for IDC’s Corporate eLearning and IT Education and Training Services research programs. “Having professionals properly trained on the latest technologies is critical to companies that are reinventing their business models, executing Internet strategies, streamlining their supply chains and trying to alleviate what is often the cause of their IT department’s biggest bottleneck – the shortage of skilled labor.”

IDC found that the United States and Western Europe — where continued strong spending on software and services bodes well for IT training vendors — will remain the largest IT training markets. Together, these two regions will account for nearly 80 percent of IT training revenue in 2005.

In the United States, e-learning will overtake classroom-based instructor-led training as the primary delivery method in terms of vendor revenue by 2004. IDC believes e-learning will drive most of the growth in the IT training market as suppliers develop higher-quality offerings and more end users have sufficient access.

“E-learning removes barriers of time and distance, making it possible for end users to effectively learn when and where they otherwise could not. It offers international opportunities for vendors that possess flexible training solutions and can adapt to regional requirements,” said Cushing Anderson, program manager for IDC’s Learning Services research.

As for the theory that spending on IT increases profits or shareholder value, research by Paul Strassmann, an associate at the Butler Group, found there is no correlation between IT spending and profits. Strassman’s research found only a random correlation between IT spending per employee and return on shareholder equity.

“Spending money on IT guarantees absolutely nothing. The absence of a demonstrable relationship between profitability and IT spending should be seen as evidence that other influences, such as strategic advantages, competitive positioning and leadership’s effects are likely to be more decisive than information technologies,” Strassman said. “Technology has been overvalued by companies involved in an ‘arms race’ of IT spending, trying to match and outdo each other’s IT capabilities. But this all occurred without any direct relation to profits.”

The research also found that up to three-quarters of the potential decisive influences on profitability concern strategic choices that even very large investments in computing cannot address or solve; these include variables like market share, capital intensity and relative customer quality, which all display a clear correspondence with profits.

Related reading