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Feature Article - Foreign Ownership Characteristics of Information Technology Businesses in Australia
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.
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.
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
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
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
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.
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.
For more information about the foreign ownership of IT specialist businesses, contact Glen Malam on 02 6252 5040 or email <email@example.com>
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
TABLE 5: ANALYSIS OF UNKNOWN UNITS - ESTIMATED IT INCOME OF UNKNOWN BUSINESSES
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
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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