ICT manufacturing industry
Scope of the study
The ICTM industry,
as defined for the purposes of the study (2006), comprises
of two sub-sectors defined according to the NACE Rev. 1 classification.
First, the ICTM
I sub-sector produces office machinery, computers and computers’ peripherals.
Second, the ICTM II sub-sector produces electronic intermediate
goods and telecommunication equipment.
The ICTM industry emerges as the one with the highest
overall use of ICT and e-business among the ten sectors studied
by e-Business [email protected] in 2006 . There are structural reasons,
such as the prevalence of large companies, intensive competition, frequent
product changes and production dispersion, which drive the adoption of
ICT and business practices. Nevertheless, the level of e-business activity
differs with firm size. e-Business arrives in SMEs with a slight delay,
compared to large enterprises. Additionally, the ICTM I sub-sector is
a more advanced user than the sub-sector ICTM II.
Most important findings
regarding ICT diffusion and e-business activity in the ICTM sector are
more employees, on average, in ICTM companies have access to
the internet at
their workplace compared to other sectors.
the high ICT endowment, a large share of companies in the sector plan
sufficient use of standards causes interoperability concerns.
in all size-bands exhibit similar patterns with respect to internet
adoption as a selling/procurement platform.
auctions play a minor role: It is said that companies in the
ICTM sector were resistant to join trading networks, perceiving them
as a means intending to restrain competition and a way to drive down
resource planning (ERP) or supply chain management (SCM)
applications are characterised by large-scale effects and used by large
engaged in cross-border trading automate document and payment flows
more often than firms that trade locally.
pressure to electronically integrate the supply chain comes from the
bottom of the value chain.
to e-business may also lie outside of the IT-using industries:
Complaints regarding the lack of reliable IT providers, interoperability
and high technology cost might be a sign of restrained competition in
the IT market.
e-Business trends and implications
An analysis of specific ICT-related revealed various
topics that were found to be particularly relevant to the sector. The
of broadcasting, telephony and computing: Technological developments
have resulted in the convergence of infrastructures and services, which
have had some implications for the ICT industry. First, incumbent ICT
producers were late in adapting to the convergence trend. Thus, companies
might find themselves locked in old technologies. Second, the success
of the ICTM sector depends on users’ acceptance of new technologies,
which in turn depends on consumers’ skills and complementary products.
Lastly, regulation has an impact on the speed of development
and diffusion of new telecommunication services, which indirectly also affects
the ICTM industry.
enterprise: According to the e-Business Survey 2006, changing
economic conditions force ICTM companies to enhance their competitiveness
by joining efforts with other companies within the sector. This has
implications for the competitiveness of companies in the ICTM sector.
First, as the optimisation of information and goods flow reduces cost
of inventory and improves production planning, inter-organisational
integration has a positive impact on profits. Second, inter-firm cooperation
gives companies access to competitive
resources and information and enables them to spread the cost
and risk of R&D projects. This eliminates the problem
of efforts duplication and maximises the likelihood of introducing
major innovations. Third, as large companies frequently initiate
the process of supply chain integration and force their interests
and requirements down the value chain, the
economic position of SMEs might be weakened. Lastly, common
standards facilitate supply chain integration. Thus, it is necessary
that SMEs’ interests
are taken into account during the standardisation process.
and industry transformation: The ICTM sector is characterised
by a large extent of international specialisation. The use of ICT allowed
companies in the ICTM industry to disperse the production different
countries according to their comparative advantages. The results of
the e-Business Survey 2006 confirmed the substantial impacts of ICT
on the ICTM industry. First, because companies implement standardised
ICT solutions and business processes, company design in the ICT industry
seems to match the architecture of its products, i.e. firms are adopting modular organisational structures.
This makes cooperation between firms even easier. Second, the ICTM I
sub-sector, in particular the PC industry, has mastered the use of ICT
tools to streamline
the information exchange along the value chain and intern
the benefits of technological and organisational innovations. Third, the
main benefit of ICT deployment stems from the substitution of inventory
flow with information flow. Finally, a common infrastructure
and set of standards enables companies to benefit from the potential
of ICT without investing in private networks. However, insufficient standardisation still
hampers the electronic integration of the complete supply chain.
benefits from e-business? The e-Business Survey 2006 confirmed
that ICT is an important driver and enabler of innovation. However,
not all e-business technologies offer equally attractive payoffs. Firm
and industry factors also influence the final outcomes. First, though
large firms use ICT to innovate and increase profitability, SMEs exhibit
greater R&D intensity.
As both strategies yield equally positive returns, it can be stated
aggressive ICT strategy is not the only source of competitive advantage.
Second, out of all ICT applications, computer networks facilitating
inter-firm collaboration and e-procurement have the greatest
impact on company performance. Third, start-ups enjoy higher returns on ICT compared
to mature firms. As they are not locked into inflexible organisational
structures and have better ICT-skilled workforce, they might be perfectly
suited to exploit the full potential of ICT. Also, ICT investments
in service activities
exhibit higher ICT productivity gains compared to manufacturing
activities. Last, innovative technologies adopted by companies in
an industry are gradually becoming commodities and ICT-driven growth tapers over time.
The ‘intensive use - positive performance’ paradigm
seems to hold true in the ICTM industry. Thus, companies in this sector
are well positioned to benefit from ICT. By combining new tools with
adjustments in their product and marketing strategy, they have found
ways to offset the negative effects of some technologies on
company productivity and increased their competitiveness. For instance,
unlike other industries, the ICTM sector exhibits positive impact of
online sales on firm performance. The main observations on ICT use and
impact observed in the ICTM sector include:
transforms organisational structure and design of business processes.
and off-shoring affects employment and skills requirements.
in the ICTM sector do not expect that the role of ICT and its impact
on the way they work will lose any significance. In particular, they
anticipate that ICT will affect accounting, logistics and customer relationships.
- ICT intensifies
competition in the industry. The gravity of these changes has
been greater in markets in which SMEs operate.
is a pattern in the ICTM sector in the way ICT and competition interact:
more competition forces companies to use innovative ways of doing business,
increase efficiency and productivity. ICT helps them achieve these aims
while also increasing the pressure to stay innovative. The final outcome
seems to be positive since companies operating in the industry become
more efficient, productive and competitive on a global scale.
The e-business study (2006) revealed some policy implications
relevant to the development of e-business in the ICTM industry:
the necessity of co-inventions:
Greater market transparency and lower transaction costs resulting from
increased ICT use benefit companies that procure online and hurt
firms that sell online. Since the introduction of new processes,
products and applications, adjustments in the product and marketing
strategy can offset negative effects, it is important to emphasise "co-inventions" that accompany ICT implementation. For
instance, ICT enables firms to ‘leapfrog’ the value chain
to their final customers, reduce intermediaries and appropriate some
part of their value added.
model of the public sector: The share of government to business
(G2B) transactions conducted with companies from the ICTM sector remains
low. The use of ICT, internet and e-business applications in the public
sector can spur active use of these technologies in the private sector.
more important than ever: Despite the wide diffusion of ICT
applications in the sector, there is still potential for further productivity
increases through supply chain integration. This potential currently
remains underutilised due to interoperability problems. Public
bodies might help firms to overcome the market failure resulting form
the co-ordination problem.
in the IT market: Markets for advanced IT applications
are usually dominated by a few companies. Hence, competition might be
restrained. The potential lack of competition in these markets might
have serious implications not only for the IT-producing sector, but
also for the IT-using sectors and e-business development in general.
This issue calls for closer examination and, possibly, competition policy
measures securing competition in the IT markets.
innovation policies: Incumbents and start-ups follow various
innovation and ICT strategies. Thus, the evolution of technological
trajectories in the ICTM sector together with the ICT development patterns
pose a challenge for policy makers to customise innovation policy for
diverse company groups.
for innovation: Networking organisations get access to new
competencies lying within or outside of the industry enabling them to
build resources that are difficult to acquire otherwise. The policy
challenge is to encourage companies to support industry dialogue and
of telecommunication markets: Telecommunication regulation
has significant impact on companies operating in the ICTM industry.
Thus, regulatory initiatives should take a comprehensive approach and
account for externalities affecting other sectors. For instance, if
accepted, the new regulation on roaming fees would reduce prices and
increase the demand for mobile services, which in turn could increase
the demand for networks capacities.
Reference to earlier sector studies
The sector was covered as part of the "Manufacture
of electronics & electrical machinery" in sector studies of 2004
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