Worldwide, the ICT sector is expected to grow at 6% in 2006, with growth more balanced across the OECD area than at the time of the 2004 Outlook when the United States led the recovery from the slump. With improved macroeconomic performance, aggregate investment is now increasing across the OECD area and ICT is a significant and growing share of this investment. Some ICT segments are very dynamic (Internet-related investment, portable and consumer applications), with the major share of venture capital continuing to flow into ICTs. Merger and acquisition (M&A) activity is high. Overall the prospects for continuing balanced and sustained growth at a relatively high rate are good, but a return to the unsustainable annual rates of 20-30% growth of the late 1990s is unlikely.

The overall outlook for the information and communications technology (ICT) sector, ICT investment and ICT markets has improved, with more balanced growth across the OECD area and dynamic growth in the rest of the world. Led by ICT services and software, the top ICT firms are growing strongly, and the semiconductor industry has shown strong growth and its market is growing very rapidly in Asia. Growth in ICT markets is likely to be accompanied by major restructuring of the supply side. Both open source (the “Linux effect”) and online delivery of IT services (the “Google” effect) are changing how technology is developed and delivered, and continuing merger and acquisition activity and restructuring are expected in IT services, telecommunications and digital content although current high M&A levels are probably not sustainable. ICT markets in China, India and Central and Eastern Europe are expected to grow strongly as they install the basic network and computing infrastructures to increase competitiveness.

This chapter examines recent trends in ICT trade and globalisation of the ICT sector. There is a significant global restructuring of ICT production activities, with the emergence of eastern European and non-OECD and developing countries as both ICT goods producers and new growth markets, and global shifts in ICT and ICT-enabled services production. This new wave of globalisation has largely been driven by efficiency-seeking competition, with firms taking advantage of continuing cost differences and the rapid development of goods and services production capabilities, complemented increasingly by the growth of new markets in rapidly developing eastern European and non-OECD economies, particularly China and India.

This chapter examines the globalisation of ICT-enabled services and business functions. OECD countries account for the bulk of ICT-enabled trade in services, but other countries, including the BRICS and other developing countries, are gaining in importance. Infrastructure and framework conditions in non-OECD services-exporting countries show that there is still a huge potential for these countries to expand exports. Quality of service is important for ensuring further growth and globalisation of these services. Operational strategies of Indian IT services firms, which have been particularly successful in becoming part of ICT-enabled globalisation, are examined in detail.

China has established itself as a leader in the production and use of information and communication technologies (ICTs). On the supply side, it has become one of the most important locations for the assembly and production of ICTs, mainly driven by foreign firms. Since 2004, it has been the biggest exporter of ICT goods and its strong ICT exports continued up until early 2006. China continues to import electronic components – now increasingly from other Asian countries – while exporting computer and related equipment. In spite of their relatively limited size and technological know-how, Chinese ICT firms are rapidly developing their production and export capacities (especially in the area of telecommunications equipment). On the demand and use side, China is the now the sixth most important global ICT market but still lags in the area of ICT services. PC penetration, Internet access and use (including e-commerce) are developing rapidly, albeit from low per capita levels.

Digital content is an increasingly important aspect of OECD economies as they shift their emphasis from manufacture of physical items to high-value intangibles. This chapter analyses developments in online games, music, scientific publishing, mobile and user-created content, discusses value chains and business models, analyses growth drivers, and draws horizontal lessons.

ICT skills and employment are driving forces for technological development and growth, but there has been relatively little consistent cross-country analysis. This chapter analyses recent developments in the supply and demand for ICT-skilled employment, with ICT specialists now making up around 4% of total employment and ICT users around 20%. The shares of both are increasing in almost all countries. Many business functions and services are increasingly location-independent, and the occupations potentially affected by ICT-enabled distance work and offshoring of services are analysed. Internet recruitment is also considered as it potentially has important implications for the efficiency of labour markets.

Many emerging ICT applications have major economic and social potential. Applications of ubiquitous networks (including RFID), location-based services, natural disaster prevention and warning technologies, the participative Web and the convergence of nano-, bio- and information technology are all growing and developing. Commercial applications and social acceptance and use will determine their long-term impacts.

OECD countries increasingly recognise ICT as a source of innovation and economic growth, and ICT policies are increasingly integrated into economic strategies and co-ordinated across government to improve productivity and strengthen competitiveness. This chapter outlines policy priorities and changes in countries’ policies. These focus on co-ordination and policy setting, using R&D for innovation and government applications, spreading broadband, increasing diffusion and use of ICT, raising ICT skills and employment, digital content and intellectual property rights. Policy assessment and evaluation remains an important weakness.

This annex describes the definitions and classifications adopted in Chapters 1 and 2 of this edition of the Information Technology Outlook. These definitions and classifications, and the data collected on the basis of these definitions and classifications, draw wherever possible on work by the OECD Working Party on Indicators for the Information Society (WPIIS) which seeks to improve the international comparability and collection of statistics and data on the Information Economy and Information Society.