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Special Article - Foreign ownership characteristics of information technology businesses
This article was published in Australian Economic Indicators (Cat. No. 1350.0), March 2002
SUMMARY
As part of an initiative to expand the data available on 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 1998-1999, with the results showing a strong contribution by majority foreign-owned businesses. Majority foreign-owned businesses dominate the Wholesale Trade of IT goods, both in terms of employment and income. In the Computer Services industry, they provide a similar level of employment to Australian-owned businesses, but they again account for more than half the income. Foreign-owned businesses involved in the manufacture of IT goods have a similar level of employment and income as Australian-owned businesses manufacturing IT goods, however this industry experienced significant decline between 1995-1996 and 1998-1999 and was a minor contributor to the IT "industry" as a whole.
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
This article outlines the results of a study of information technology businesses in the 1998-1999 financial year and presents estimates of income, employment, and wages and salaries for Australian resident businesses specialising in IT goods and services, classified by whether they are majority Australian or majority foreign-owned1 (hereafter the word 'majority' is omitted but it is implied). It also shows a breakdown by broad industry and by country of majority ownership.
Work is currently underway on studies of the IT industry in the 2000-2001 financial year.
DATA SOURCES
This study uses data collected by the ABS as part of the 1998-1999 Information Technology Survey, published in Information Technology, Australia 1998-1999 (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.
For other businesses, a number of other sources were used, with most ownership data compiled from extensive internet searches.
SCOPE OF THIS STUDY
While the Information Technology Survey included the Telecommunications sector, this study excludes that sector because the split of data between Australian and foreign-owned would have breached ABS confidentiality requirements due to the fact that the Australian-owned businesses are dominated by one corporation.
IT&T SPECIALISTS
The Information Technology Survey covers the main industries involved in the production and distribution of information technology and telecommunications (IT&T) goods and services as defined by international standards. Within these industries, there is a subset of businesses that specialise in IT&T which are the main focus of the statistics in Information Technology, Australia 1998-1999 (ABS Cat. no. 8126.0), and therefore the main focus of this study.
Businesses are classified as IT&T Specialists if their IT&T income is 50% or more of the total income of the business.
RESULTS
The 1998-1999 study shows that domestic IT specialists had experienced a period of strong growth between 1995-1996 and 1998-1999. Employment increased by 12% (to 124,874) and IT income grew by 15% (to $33.4b). In terms of employment, the growth was dominated by an increase in the computer services industry (up 35% to 74,395), which outweighed a significant fall in IT manufacturing employment (down 39% to 10,542) while employment in the wholesale trade of IT goods industry remained virtually unchanged (up 1% to 39,936). In terms of IT income, both the computer services and wholesale trade industries showed strong growth (up 32% to $10.3b and 21% to $20.2b respectively), more than offsetting a significant fall in IT income for the manufacturing industry (down 36% to $2.9b).
In 1998-1999, foreign-owned businesses made a strong contribution to the economic activity of the domestic IT businesses (see Table 1), employing nearly 54,000 (43% of all employment in IT), having IT income of $20.1b (60%), total income from all sources of $22.7b (62%) and paying wages and salaries of $3.5b (54%). By comparison, businesses which were positively identified as Australian-owned provided employment of nearly 36,000 (29%), IT income of $8.8b (26%), total income of $9.2b (25%) and wages and salaries of $1.7b (26%).
TABLE 1: INDICATORS FOR IT SPECIALIST BUSINESSES BY OWNERSHIP GROUP, 1998-1999
|
| Ownership Group | Employment at end June 1999 |  | IT Income | | Total Income | | Wages and
Salaries | IT Income per person employed | Average wage/salary per person employed |
|
| |
| |
| |
| | |
| no. | % | | $m | % | | $m | % | | $m | % | $’000 | $’000 |
|
| Australian | 35,869 | 29 | | 8,760 | 26 | | 9,174 | 25 | | 1,723 | 26 | 244 | 48 |
| Foreign | 53,969 | 43 | | 20,144 | 60 | | 22,710 | 62 | | 3,511 | 54 | 373 | 65 |
| Unknown | 35,035 | 28 | | 4,531 | 14 | | 4,649 | 13 | | 1,295 | 20 | 129 | 37 |
| | | | | | | | | | | | | |
| Total | 124,874 | 100 | | 33,435 | 100 | | 36,533 | 100 | | 6,528 | 100 | 268 | 52 |
|
Economic activity was also undertaken by businesses for which we were not able to determine ownership characteristics (28% of employment, 14% of IT income, 13% of total income and 20% of wages and salaries). These businesses tended to be smaller in size and we expect most of them to be majority Australian-owned. The 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.
IT income per person employed in foreign-owned businesses is higher than in Australian-owned businesses ($373,000 compared with $244,000), with the average wage/salary per person employed also following this pattern ($65,000 compared with $48,000). This result is consistent with a recent OECD study that found that foreign controlled manufacturing firms tended to pay their workers more (OECD Observer No. 220, April 2000).
Foreign-owned IT businesses in manufacturing (see table 2) accounted for 44% of the IT income derived, while those in wholesale trade accounted for 67% and in computer services 51%. IT income per person employed for manufacturing and wholesale industries showed relatively little difference between Australian and foreign-owned businesses, but in computer services the foreign-owned businesses had significantly higher IT income per person employed.
TABLE 2: INDICATORS FOR IT SPECIALISTS BY BROAD INDUSTRY BY OWNERSHIP GROUP, 1998-1999
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| Ownership Group | Employment at end June 1999 | IT Income | Total Income | Wages and Salaries | IT Income per person employed | Average wage/salary per person employed |
|
|
|
|
| | |
| no. | % | $m | % | $m | % | $m | % | $’000 | $’000 |
|
MANUFACTURING |
|
| Australian | 4,396 | 42 | 1,337 | 45 | 1,404 | 43 | 189 | 39 | 304 | 43 |
| Foreign | 4,306 | 41 | 1,291 | 44 | np | np | 233 | 48 | 300 | 54 |
| Unknown | 1,841 | 18 | 314 | 11 | np | np | 64 | 13 | 171 | 35 |
| Total | 10,542 | 100 | 2,942 | 100 | 3,306 | 100 | 486 | 100 | 279 | 46 |
|
WHOLESALE TRADE |
|
| Australian | 9,020 | 23 | 4,412 | 22 | 4,669 | 21 | 396 | 17 | 489 | 44 |
| Foreign | 26,129 | 65 | 13,638 | 67 | 15,844 | 70 | 1,739 | 75 | 522 | 67 |
| Unknown | 4,786 | 12 | *2,189 | 11 | *2,239 | 10 | 197 | 8 | 458 | 41 |
| Total | 39,936 | 100 | 20,239 | 100 | 22,752 | 100 | 2,332 | 100 | 507 | 58 |
|
COMPUTER SERVICES |
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| Australian | 22,454 | 30 | 3,011 | 29 | 3,100 | 30 | 1,138 | 31 | 134 | 51 |
| Foreign | 23,534 | 32 | 5,215 | 51 | np | np | 1,539 | 42 | 222 | 65 |
| Unknown | 28,409 | 38 | 2,027 | 20 | np | np | 1,034 | 28 | 71 | 36 |
| Total | 74,395 | 100 | 10,253 | 100 | 10,474 | 100 | 3,711 | 100 | 138 | 50 |
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TOTAL |
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| Total | 124,874 | 100 | 33,435 | 100 | 36,533 | 100 | 6,528 | 100 | 268 | 52 |
|
| * Relative Standard Error (RSE) for this cell is between 25% and 50%. |
| np not published due to confidentiality |
Table 3 presents indicators for countries with significant investment in the domestic IT industry. It shows that businesses with majority ownership from the USA provided almost as much employment as businesses which were specifically identified as Australian-owned (32,000 and 36,000 respectively), and derived more IT income ($10.5b and $8.8b respectively).
TABLE 3: INDICATORS FOR IT SPECIALISTS BY COUNTRY OF MAJORITY OWNERSHIP, 1998-1999
|
| Ownership Group | Employment at end June 1999 | | IT Income | | Total Income | | Wages and
Salaries | IT Income
per
person
employed | Average wage/salary per person employed |
|
| |
| |
| |
| | |
| no. | % | | $m | % | | $m | % | | $m | % | $’000 | $’000 |
|
| Australia | 35,869 | 29 | | 8,760 | 26 | | 9,174 | 25 | | 1,723 | 26 | 244 | 48 |
| USA | 31,797 | 26 | | 10,506 | 31 | | 11,588 | 32 | | 2,152 | 33 | 330 | 68 |
| European Union | 10,290 | 8 | | 4,797 | 14 | | 5,414 | 15 | | 675 | 10 | 466 | 66 |
| of which | | | | | | | | | | | | | |
| UK | 2,448 | 2 | | 636 | 2 | | np | np | | 155 | 2 | 260 | 63 |
| Germany | *1894 | 2 | | *673 | 2 | | np | np | | *145 | 2 | 355 | 77 |
| Netherlands | 1,871 | 2 | | *1,667 | 5 | | np | np | | 103 | 2 | 891 | 55 |
| Japan | 8,456 | 7 | | *3,920 | 12 | | *4,513 | 12 | | 487 | 8 | *464 | 58 |
| Other Foreign Countries | 3,426 | 3 | | 921 | 3 | | 1,195 | 3 | | 197 | 3 | 269 | 58 |
| Unknown | 35,035 | 28 | | 4,531 | 14 | | 4,649 | 13 | | 1,295 | 20 | 129 | 37 |
| | | | | | | | | | | | | |
| Total | 124,874 | 100 | | 33,435 | 100 | | 36,533 | 100 | | 6,528 | 100 | 268 | 52 |
|
| * RSE for this cell is between 25% and 50%. |
| np not published due to confidentiality |
Businesses with majority ownership from the European Union made a significant contribution across the board, providing employment of over 10,000 (8% of all employment) and deriving IT income of $4.8b (14%). Japan was the most significant contributor to the estimates from the Asian region, with businesses with Japanese majority ownership providing employment of over 8,000 (7%) and IT income of $3.9b (12%).
FURTHER INFORMATION
For more information about the foreign ownership of IT businesses, contact Glen Malam on 02 6252 5040 or email glen.malam@abs.gov.au.
FOOTNOTES
1. Businesses are determined to be majority foreign-owned if more than 50% of their equity is held by foreigners.
REFERENCES
Balance of Payments and International Investment Position, Australia (Cat. no. 5302.0)
Foreign Ownership of Equity, published in Australian Economic Indicators (Cat. no. 1350.0), January 2002
Information Technology, Australia 1998-1999 (Cat. no. 8126.0)
OECD Observer No. 220, April 2000
Ownership Characteristics of Businesses undertaking Capital Expenditure in Australia, published in Australian Economic Indicators (Cat. no. 1350.0), July 2001
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. An analysis of these unknown units, classified by employment size of the business, is provided in Tables 4 (employment) and 5 (income). Employment for those businesses with unknown ownership is dominated by businesses in the computer services industry (81% of employment for unknown businesses), but unknown businesses in this industry only contributed 45% of total unknown business income. Businesses with 0-4 employees in the computer services industry accounted for 56% of total unknown employment, and 28% of total unknown IT income.
TABLE 4: ANALYSIS OF UNKNOWN UNITS-ESTIMATED EMPLOYMENT OF UNKNOWN BUSINESSES, BY EMPLOYMENT SIZE
|
| Detailed Industry (ANZSIC) | 0 - 4
| 5 - 19
| 20 +
| Total
|
| no. | % (a) | no. | % (a) | no. | % (a) | no. | % (a) |
|
| Manufacturing | 244 | 1 | 699 | 2 | 897 | 3 | 1,841 | 5 |
| Wholesale Trade | 1,703 | 5 | 1,551 | 4 | 1,532 | 4 | 4,786 | 14 |
| Computer Services | 19,685 | 56 | 6,086 | 17 | 2,638 | 8 | 28,409 | 81 |
| | | | | | | | |
| Total | 21,632 | 62 | 8,336 | 24 | 5,067 | 15 | 35,035 | 100 |
|
| (a) of all unknowns | | | | | | | | |
TABLE 5: ANALYSIS OF UNKNOWN UNITS-ESTIMATED IT INCOME OF UNKNOWN BUSINESSES, BY EMPLOYMENT SIZE
|
| Detailed Industry (ANZSIC) | 0 - 4
| 5 - 19
| 20 +
| Total
|
| no. | % (a) | no. | % (a) | no. | % (a) | no. | % (a) |
|
| Manufacturing | *35 | 1 | *114 | 3 | *166 | 4 | 314 | 7 |
| Wholesale Trade | **946 | 21 | 439 | 10 | 804 | 18 | *2,189 | 48 |
| Computer Services | 1,277 | 28 | 518 | 11 | 233 | 5 | 2,027 | 45 |
| | | | | | | | |
| Total | 2,258 | 50 | 1,071 | 24 | 1,202 | 27 | 4,531 | 100 |
|
| (a) of all unknowns |
| * RSE for this cell is between 25% and 50%. |
| ** RSE for this cell is greater than 50% |
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 fewer than 5 employees were majority Australian-owned. The results are presented in Table 6. The conclusions from Table 1 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 - INDICATORS FOR IT&T SPECIALISTS IF COMPUTER SERVICES BUSINESSES WITH FEWER THAN 5 EMPLOYEES WITH UNKNOWN OWNERSHIP CHARACTERISTICS ARE ASSUMED TO BE AUSTRALIAN OWNED
|
| Ownership Group | Employment at end June 1999 | | IT Income | | Total Income | | Wages and
Salaries | IT Income
per
person
employed | Average wage/salary per person employed |
|
| |
| |
| |
| | |
| no. | % | | $m | % | | $m | % | | $m | % | $’000 | $’000 |
|
| Australian | 55,554 | 45 | | 10,037 | 30 | | 10,474 | 29 | | 2,413 | 37 | 181 | 43 |
| Foreign | 53,969 | 43 | | 20,144 | 60 | | 22,710 | 62 | | 3,511 | 54 | 373 | 65 |
| Unknown | 15,350 | 12 | | 3,254 | 10 | | 3,349 | 9 | | 604 | 9 | 212 | 39 |
| | | | | | | | | | | | | |
| Total | 124,874 | 100 | | 33,435 | 100 | | 36,533 | 100 | | 6,528 | 100 | 268 | 52 |
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