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8126.0 - Information Technology, Australia, 2000-2001  
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  • Foreign Ownership Characteristics of Information Technology Businesses in Australia (Feature Article)

Feature Article - Foreign Ownership Characteristics of Information Technology Businesses in Australia


SUMMARY

As part of an initiative to expand the data available on economic globalisation issues, the ABS has embarked on a series of studies of the economic activity of majority foreign-owned businesses in Australia.

The most recent study examines the foreign ownership characteristics of specialist Information Technology (IT) businesses in 2000-2001 and updates a previous study of IT businesses for 1998-1999. Majority foreign-owned businesses continued the dominance of the IT components of the wholesale industry that was identified in the 1998-1999 study and have significantly increased activity in the IT components of the manufacturing industry to the extent that by 2000-2001, they dominated that industry also. In the computer services industry, both Australian-owned and majority foreign-owned businesses have increased economic activity by roughly the same amount so that, as with the 1998-1999 study, majority foreign-owned businesses provided a similar level of employment to Australian-owned businesses, but they accounted for more than half the income.

As with the 1998-1999 study, majority USA-owned businesses had the largest economic activity of foreign owned businesses to the extent that they rivalled Australian-owned businesses in terms of employment and exceeded Australian-owned businesses in terms of income.


INTRODUCTION

Economic globalisation is not a new phenomenon: Countries have conducted trade for centuries. However, the intensity of international activity and interdependency of economies gathered pace rapidly over the 1980s and 90s, and has given rise to economic, social and environmental issues which need to be taken into account by policy makers and economic analysts.
The OECD draft Manual on Economic Globalisation Indicators outlines three sets of indicators necessary to measure economic globalisation:

    • Indicators relating to trade.
    • Indicators of foreign direct investment and the structure and activities of multinational firms.
    • Indicators of the international dissemination of technology.

The ABS has for some time compiled traditional economic indicators for foreign trade and foreign direct investment. While these data give some structural information, the ABS has not regularly compiled data for the economic activity of multinational firms, nor the international dissemination of technology. The ABS has therefore been producing a series of case studies deriving activity data for foreign-owned businesses and indicators of technology dissemination by blending data from a number of sources. Studies have already been undertaken of new capital expenditure by majority foreign-owned businesses, the economic activity of majority foreign-owned businesses in the mining industry, the economic activity of majority foreign-owned businesses specialising in the information technology industry, and research and experimental development activity of majority foreign-owned businesses1.

This study addresses the economic activity of multinational firms in the IT industry by updating the 1998-1999 study in respect of the 2000-2001 financial year.


DATA SOURCES

This study uses data collected by the ABS in the 2000-2001 Information Technology Survey, published in Information Technology, Australia 2000-2001 (ABS cat. no. 8126.0). Businesses in that survey were linked to the foreign ownership characteristics from the ABS Survey of International Investment for those businesses included in both surveys and in scope of this study. For other businesses, a number of other sources were used, with most ownership data compiled from extensive internet searches.


INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS SPECIALISTS

The Information Technology Survey covers the main industries involved in the production and distribution of information technology and telecommunications (IT and T) goods and services. Within these industries, there is a subset of businesses that specialise in IT and T. These businesses are the main focus of the survey, and therefore the main focus of this study.

Businesses are classified as IT and T Specialists if their IT and T income is 50% or more of the total income of the business.


SCOPE OF THIS STUDY

While the Information Technology Survey includes the Telecommunications sector, this study excludes that sector because the split of data between Australian and foreign-owned would have breached ABS confidentiality requirements.

For businesses in the IT sector, their predominant economic activity relates to IT goods and services, however minor activity relating to other goods and services may also take place. Where this activity relates to telecommunications, it has been kept in the calculation of IT income for this study.


RESULTS

The 2000-2001 study shows that domestic (ie. Australian resident) IT specialists experienced a period of strong growth between 1998-1999 and 2000-2001. Employment increased by 30% (to 161,246) and IT income grew by 33% (to $43.9b). In terms of employment, the growth was dominated by an increase in the computer services industry (up 32% to 97,565), supported by significant increases in the wholesale trade of IT goods industry (up 30% to 50,983) and the IT manufacturing industry (up 17% to 12,699). In terms of IT income, all industries showed strong growth, with the wholesale trade of IT goods industry experiencing the largest increase (up 33% to $26.3b), followed by the computer services industry (up 35% to $13.9b) and the IT manufacturing industry (up 25% to $3.7b).

In both the 1998-1999 and 2000-2001 studies, foreign-owned businesses made a strong contribution to the economic activity of the domestic IT businesses (see Table 1). This contribution kept pace with the strong growth experienced in the IT industry during that time, to the extent that the contribution of foreign-owned businesses to the activity of the domestic IT industry remained about the same. As with the 1998-1999 study, the key feature of the 2000-2001 study is the dominance of foreign-owned businesses in IT income, total income and wages and salaries. In 2000-2001, foreign-owned businesses employed nearly 72,000 (44% of all employment in IT specialist businesses), had IT income of $28.2b (64%), total income from all sources of $29.8b (65%) and paid wages and salaries of $5.3b (56%). By comparison, businesses which were positively identified as Australian-owned provided employment of over 49,000 (31%), IT income of $11.0b (25%), total income of $11.4b (25%) and wages and salaries of $2.5b (27%).

Economic activity was also undertaken by businesses for which we were not able to determine ownership characteristics from available sources (25% of employment, 11% of IT income, 11% of total income and 17% of wages and salaries). These businesses tended to be smaller in size and we expect most of them to be majority Australian-owned. The relative dominance of foreign-owned IT businesses would be reduced, particularly in respect of employment, if the ownership of "unknowns" was predominantly Australian. This is discussed further in the Appendix: Analysis of Businesses with Unknown Ownership.

TABLE 1: BROAD INDICATORS FOR IT SPECIALIST BUSINESSES BY OWNERSHIP GROUP

EMPLOYMENT AT END JUNE

IT INCOME
TOTAL INCOME
WAGES AND SALARIES
IT Income per person employed
Average wage/salary per person employed
no.
%
$m
%
$m
%
$m
%
$m
$m

1998-1999
Australian
35,030
28
8,632
26
9,031
25
1,678
26
247
48
Foreign
54,679
44
20,149
61
22,823
63
3,555
55
368
65
Unknown
34,409
28
4,220
13
4,328
12
1,273
20
125
38
Total
124,118
33,001
36,182
6,506
267
53
2000-2001
Australian
49,192
31
11,018
25
11,412
25
2,522
27
224
51
Foreign
71,740
44
28,199
64
29,760
65
5,257
56
393
73
Unknown
40,314
25
4,723
11
4,841
11
1,631
17
117
40
Total
161,246
43,940
46,013
9,410
273
58



IT income per person employed in foreign-owned businesses is higher than in Australian-owned businesses ($393,000 compared with $224,000), with the average wage/salary per person employed also following this pattern ($73,000 compared with $51,000)2. This result is consistent with the 1998-1999 study and a recent OECD study that found that foreign controlled manufacturing firms tended to pay their workers more (OECD Observer No. 220, April 2000).

TABLE 2: BROAD INDICATORS FOR IT SPECIALISTS BY BROAD INDUSTRY BY OWNERSHIP GROUP

EMPLOYMENT AT END JUNE

IT INCOME
TOTAL INCOME
WAGES AND SALARIES
IT Income per person employed
Average wage/salary per person employed
no.
%
$m
%
$m
%
$m
%
$m
$m

MANUFACTURING 1998-1999

Australian
4,339
40
1,313
45
1,375
41
188
38
301
43
Foreign
4,667
43
1,291
44
1,687
50
247
50
277
53
Unknown
1,814
17
313
11
325
10
63
13
173
35
Total
10,820
2,917
3,387
498
269
46

MANUFACTURING 2000-2001

Australian
3,384
27
954
26
1,010
24
160
21
282
47
Foreign
7,452
59
2,452
67
2,871
69
519
69
329
70
Unknown
1,862
15
249
7
272
7
70
9
134
37
Total
12,699
3,655
4,153
749
288
59

WHOLESALE TRADE 1998-1999

Australian
9,085
23
4,475
23
4,733
21
392
17
488
43
Foreign
25,789
66
13,422
68
15,625
70
1,719
75
518
66
Unknown
4,353
11
1,888*
10
1,927*
9
179
8
432
41
Total
39,227
19,785
22,285
2,289
501
58

WHOLESALE TRADE 2000-2001

Australian
15,805
31
6,284
24
6,394
23
705
23
398
45
Foreign
27,541
54
18,167
69
18,995
70
2,092
69
660
76
Unknown
7,636
15
1,893
7
1,934
7
254
8
248
33
Total
50,983
26,344
27,323
3,050
517
60

COMPUTER SERVICES 1998-1999

Australian
21,606
29
2,844
28
2,923
28
1,098
30
133
51
Foreign
24,223
33
5,436
53
5,511
52
1,589
43
225
66
Unknown
28,242
38
2,019
20
2,075
20
1,031
28
73
37
Total
74,072
10,299
10,509
3,718
141
51

COMPUTER SERVICES 2000-2001

Australian
30,003
31
3,780
27
4,008
28
1,656
30
126
55
Foreign
36,747
38
7,580
54
7,895
54
2,647
47
206
72
Unknown
30,815
32
2,581
19
2,635
18
1,307
23
84
42
Total
97,565
13,941
14,538
5,610
143
58

* Relative Standard Error (RSE) for this cell is between 25% and 50%.


Between 1998-1999 and 2000-2001, foreign-owned IT businesses experienced a significant increase in their relative contribution to the IT manufacturing industry (see Table 2). In 2000-2001, foreign-owned businesses in manufacturing provided 59% of the employment (up from 40% in 1998-1999), accounted for 67% of IT income (up from 44% in 1998-1999), 69% of total income (up from 50% in 1998-1999) and paid 69% of wages and salaries (up from 50% in 1998-1999). For the wholesale trade and computer services industries, growth in the activity of foreign-owned businesses kept pace with industry growth, with the relative contribution of foreign-owned businesses in 2000-2001 remaining similar to their 1998-1999 levels. The one exception to this is the employment provided by foreign-owned businesses in the wholesale trade industry, where the number of persons employed by foreign-owned businesses remained relatively unchanged between 1998-1999 and 2000-2001, while Australian-owned and unknown businesses increased their employment levels by 74% and 75% respectively.

Table 3 presents indicators for countries with significant investment in the domestic IT industry. Although approximately a quarter could not be classified to a country (see Appendix) it shows that in both 1998-1999 and 2000-2001, businesses with majority ownership from the USA and businesses which were specifically identified as Australian-owned were the most significant providers of employment (47,000 and 49,000 respectively for 2000-2001). Businesses with majority ownership from the USA derived more IT income than businesses which were specifically identified as Australian-owned ($19.0b and $11.0b respectively for 2000-2001).

TABLE 3: BROAD INDICATORS FOR IT SPECIALISTS BY COUNTRY OF MAJORITY OWNERSHIP

EMPLOYMENT AT END JUNE

IT INCOME
TOTAL INCOME
WAGES AND SALARIES
IT Income per person employed
Average wage/salary per person employed
no.
%
$m
%
$m
%
$m
%
$m
$m

1998-1999

Australia
35,030
28
8,632
26
9,031
25
1,678
26
247
48
USA
32,320
26
10,651
32
11,731
32
2,193
34
329
68
European Union
10,190
8
4,753
14
5,369
15
667
10
467
65
of which
UK
2,450
2
638
2
818
2
155
2
260
63
Germany
1,790
1
627*
2
805
2
137*
2
350
77
Netherlands
1,871
2
1,667*
5
1,870*
5
103
2
891
55
Japan
8,377
7
3,824*
12
4,416*
12
483
7
454*
57
Other Foreign Countries
3,792
3
922
3
1,306
4
212
3
243
56
Unknown
34,409
28
4,220
13
4,328
12
1,273
20
125
38
Total
124,118
33,001
36,182
6,506
267
53

2000-2001

Australia
49,192
31
11,018
25
11,412
25
2,522
27
224
51
USA
46,881
29
18,973
43
19,532
42
3,452
37
405
74
European Union
15,319
10
5,286
12
5,919
13
1,099
12
345
72
of which
UK
5,919
4
1,028
2
1,186
3
403
4
174
68
France
2,972
2
1,193
3
1,211
3
206
2
402
69
Germany
2,267
1
698
2
1,079
2
183
2
308
81
Japan
4,871
3
2,390
5
2,647
6
367
4
491
75
Other Foreign Countries
4,669
3
1,551
4
1,663
4
340
4
332
73
Unknown
40,314
25
4,723
11
4,841
11
1,631
17
117
40
Total
161,246
43,940
46,013
9,410
273
58

* Relative Standard Error (RSE) for this cell is between 25% and 50%.


Businesses with majority ownership from the European Union made a significant contribution across the board in both 1998-1999 and 2000-2001, providing employment of over 15,000 in 2000-2001 (10% of all employment) and IT income of $5.3b (12%). Within the EU, the contribution of businesses with majority ownership from the United Kingdom increased significantly between 1998-1999 and 2000-2001, with employment rising from 2,000 to 6,000 and IT income rising from $0.6b to $1.0b. Japan remained the most significant contributor to the estimates from the Asian region, however the contribution of businesses with Japanese majority foreign-ownership fell significantly between 1998-1999 and 2000-2001, with employment falling from over 8,000 to less than 5,000 and IT income falling from $3.8b to $2.4b.


OTHER STUDIES


Several globalisation case studies were undertaken prior to this exercise, to examine the foreign ownership characteristics of businesses in other areas of interest.

The study of businesses in the mining industry in 1997-1998 showed that foreign-owned businesses made a larger contribution to industry turnover than Australian-owned businesses (56% and 43% respectively), but a lower contribution to industry employment (40% and 59% respectively) and capital expenditure (34% and 59% respectively). Foreign-owned and Australian-owned businesses contributed similar amounts to expenditure on wages and salaries by the mining industry (50% and 49%).

A study of the ownership of businesses undertaking capital expenditure for the 1998-1999 financial year showed the lower contribution of foreign-owned businesses to capital expenditure was not restricted to the mining industry, with the capital expenditure by foreign-owned businesses across all industries estimated at $11.5b (26%) and capital expenditure by Australian-owned businesses estimated at $27.9b (62%).

A study of research and experimental development expenditure for the 1999-2000 financial year found that majority foreign-owned businesses spent almost as much on R&D as Australian-owned businesses (42% and 58% respectively). Majority foreign-owned businesses dominated R&D activity by wholesale and retail businesses, both in terms of R&D expenditure and human resources devoted to R&D. The manufacturing industry contributed more than any other to total R&D activity, and this contribution was shared evenly between foreign-owned and Australian-owned businesses.

A further study is underway to investigate the foreign ownership characteristics of domestic businesses across all industries in respect of the 2000-2001 financial year.


FURTHER INFORMATION

For more information about the foreign ownership of IT specialist businesses, contact Glen Malam on 02 6252 5040 or email <glen.malam@abs.gov.au>


REFERENCES


Balance of Payments and International Investment Position, Australia , cat. no. 5302.0
Foreign Ownership Characteristics of Businesses Undertaking Research and Experimental Development Activity in Australia, published in Australian Economic Indicators, cat. no. 1350.0, August 2002
Foreign Ownership Characteristics of Information Technology Businesses, published in Australian Economic Indicators , cat. no. 1350.0, March 2002
Globalisation and Foreign Investment special article in Australian Mining Industry, 1998-1999, cat. no. 8414.0
Information Technology, Australia 2000-2001, cat. no. 8126.0
Manual on Economic Globalisation Indicators OECD, Paris, in progress
OECD Observer No.220, April 2000
Ownership Characteristics of Businesses Undertaking Capital Expenditure in Australia, 1998-1999, published in Australian Economic Indicators (cat. no. 1350.0), July 2001
Research and Experimental Development, Businesses, Australia, 1999-2000 (cat. no. 8104.0)


APPENDIX - ANALYSIS OF BUSINESSES WITH UNKNOWN OWNERSHIP


When conducting this study, it was not possible to establish the ownership of a significant number of units, as shown in the preceding tables. In some cases the contribution of these unknown units was quite large, but insufficient to challenge the conclusions reached in this paper.

An analysis of these unknown units, classified by employment size of the business, is provided in Tables 4 (employment) and 5 (IT income). Employment for those businesses with unknown ownership is dominated by businesses in the computer services industry (76% of employment for unknown businesses), with unknown businesses in this industry contributing 55% of total unknown business income. Businesses with 0-4 employees in the computer services industry accounted for 55% of total unknown employment, and 38% of total unknown IT income.

TABLE 4: ANALYSIS OF UNKNOWN UNITS - ESTIMATED EMPLOYMENT OF UNKNOWN BUSINESSES

Detailed Industry (ANZSIC)
EMPLOYMENT SIZE
0 - 4
5 - 19
20+
Total
no.
% of all unknowns
no.
% of all unknowns
no.
% of all unknowns
no.
% of all unknowns

Manufacturing
596
1
927
2
339
1
1,862
5
Wholesaling
3,205
8
3,988
10
444
1
7,637
19
Computer Services
22,001
55
6,838
17
1,976
5
30,815
76
Total
25,802
64
11,753
29
2,759
7
40,314
100


TABLE 5: ANALYSIS OF UNKNOWN UNITS - ESTIMATED IT INCOME OF UNKNOWN BUSINESSES

Detailed Industry (ANZSIC)
EMPLOYMENT SIZE
0 - 4
5 - 19
20+
Total
no.
% of all unknowns
no.
% of all unknowns
no.
% of all unknowns
no.
% of all unknowns

Manufacturing
88
2
129
3
32
1
249
5
Wholesaling
833
18
979
21
81
2
1,893
40
Computer Services
1,787
38
595
13
198
4
2,581
55
Total
2,708
57
1,703
36
311
7
4,723
100



Considering the nature of the computer services industry, it is thought unlikely that businesses with 4 or fewer employees would have majority foreign-ownership. Accordingly, the data were recalculated assuming that all unknown computer services businesses with 4 or fewer employees were majority Australian-owned. The results are presented in Table 6. The broad conclusions from Table 1 generally remain valid: Foreign-owned businesses would still dominate the economic activity of the IT industry in terms of IT income, total income and wages and salaries, but Australian majority owned businesses would then employ approximately the same number of people as foreign-owned businesses.

TABLE 6: ANALYSIS OF UNKNOWN UNITS - BROAD INDICATORS FOR IT and T SPECIALISTS IF COMPUTER SERVICES BUSINESSES WITH 4 OR FEWER EMPLOYEES WITH UNKNOWN OWNERSHIP CHARACTERISTICS ARE ASSUMED TO BE AUSTRALIAN OWNED

EMPLOYMENT AT END JUNE

IT INCOME
TOTAL INCOME
WAGES AND SALARIES
IT Income per person employed
Average wage/salary per person employed
no.
%
$m
%
$m
%
$m
%
$m
$m

2000-2001

Australian
71,193
44
12,805
29
13,213
29
3,439
37
180
48
Foreign
71,740
44
28,199
64
29,760
65
5,257
56
393
73
Unknown
18,313
11
2,936
7
3,040
7
714
8
160
39
Total
161,246
43,940
46,013
9,410
273
58



ENDNOTES


1. Hereafter the word ‘majority’ is omitted but it is implied
2. This crude comparison ignores any compositional difference between the two populations in terms of the distribution of businesses by industry, size or other characteristics.

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