Part 1 is here .
4 Factor Inputs
4.1 Labour Supply
Software Industry is dependent on very high-skilled technical workers, and demand for these high skilled workers, remains high. The U.S software sector employs almost 2 million people that pay 195% of the national average (Holleyman 2011). Unionization is rare and the industry represents younger workforce most, with large proportions of workers in the age range of 25-to-44. The labour force in software industry is not homogeneous, i.e., workers in this category are not identical in terms of productivity (Sloman, Hinde & Garatt 2010). Software industry employees wages are based on their talent, with software engineers having specialized skills earn more compared to software engineers with generic skills. Overall employees in the US software industry are paid much higher than the US national average.
US Software companies continue facing shortage of high-skilled technical workers . Wages are expected to increase by 30 percent between 2008 and 2018. US Software companies, have responded to the shortage of skilled technical workforce by off shoring to emerging countries, especially to India. This has put downward pressure on the salaries of the U.S. Software workers, however workers holding advanced degree and expertise in critical software field command a very high salary.
4.2 Capital Supply
Physical Capital :
Software Industry do not require large factories and heavy production equipments. Physical capital requirements is limited to office spaces and computing power, like mainframe computers and servers.
Financial Capital :
U.S Software Firms typically have a clean balanced sheet as they source funds primarily through selling of preferred stocks and common stocks. They have very little, if not no debt. Start-up software firm raise capital through venture capital funds where as large established software firms raise capital and long term funds by offering common stocks and preferred stocks to public and institutional investors. It is quite common for software firms to maintain a huge cash balances for their short term funding needs.
5 Globalization of US. Software Industry
The global expansion of the US software industry started around the 1980s towards the major industrialized economies . The OECD countries accounted for nearly 97% of the world software market in the early 1980s and U.S Software Firms dominated these markets (Correa 1990).The most obvious explanation for the international competitive position of U.S. Firms is that they enjoyed a first mover advantage in all of the software industry’s market segments.
The initial international expansion of U.S Software Firms was mainly to cater global market demand. The large US software firms opened up global offices and subsidiaries in other countries to serve those markets. In the late 1990's the term “off-shoring” got lot of attention. The driving factor in off-shoring movement was to reduce cost by access to lower waged software skills. The technological development in the Internet and telecommunication infrastructure made it easier to access technical talent around the globe thus enabling global distribution of software development teams. This has enabled U.S Firms to reduce costs by exploiting wage differentials while at the same gaining access to large pool of skilled workers in countries such as India and Ireland.
US Software Industry Export and Foreign Trade :
Almost 60% of revenues for the leading US software companies are generated outside the United States (Holleyman 2011). U.S software industry has been a significant contributor to the US trade balance. In 2008, US software exports contributed a $36 billion surplus $36.4 billion to US’s balance of trade in 2008 (BSA 2012). That said, the US software export faces few critical challenges which has undercut its ability to meet its full potential.
Firstly, U.S Software's export segment faces the strict export restriction placed by the U.S Federal government as part of the national security. Some of the export control laws are outdated and U.S. Software industry has been lobbying for years as they happen to harm the legitimate export prospects of US software firms. Because of these restriction foreign software firms have gained an advantage in reaching certain global market segment first.
Secondly, it faces the problem of copyright thefts and software piracy issues in foreign countries. In 2009, more than 50 billion dollars worth of software was used illegally. The enforcement of Patent and copyright laws varies greatly among different countries. And in some developing country software piracy is common occurrence. The emerging markets of BRIC countries-Brazil,Russia,India and China has software piracy rate of 56%, 67%, 65% and 79% respectively (Holleyman, 2011).
6 US Software Industry: Potential and Prospects
In 2015, the global software market is forecast to have a value of $356.7 billion, which is an increase of 34.4% since 2010. The United States software market is forecast to have a value of $125.9 billion, an increase of 25.2% since 2010 (Datamonitor 2010).
OECD economies still is an important growth market for US Software Industries, as the increased computer sales in the United States and other developed countries will increase software demands. But economic growth and industrial development within the BRIC countries offer tremendous prospect to the US Software Industry. For example, China is the world’s second largest market for personal computers reflects a significant market potential (BSA 2012). BRIC countries and other developing countries represents an unique opportunity to sell the well established software products with minimal additional development costs. Also the Software industry is a key example of knowledge production, as the countries around the globe are transitioning towards the knowledge-based economy, software industry will see tremendous growth as these countries will continue to invest heavily in information technology.
7 References
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