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WHITE PAPER
THE ECONOMIC IMP ACT OF IT, SOFTW ARE, AND THE
MICROSOFT ECOSYSTEM ON THE GLOBAL ECONOM Y
October 2007
Sponsored by Microsoft
Global Headquarters: 5 Speen Street Framingham, MA 01701 USA
P.508.872.8200
F.508.935.4015
www.idc.com
EXECUTIVE SUMMARY
Economists have long recognized the important role information technology (IT) can play in a country or
region's development. To better understand that role, and to quantify the direct benefits to local
economies, in 2007 IDC conducted a study of the economic impact of IT in 81 countries and regions.
The study found that not only does IT drive significant growth in skilled jobs, but that spending on
software creates a disproportionate share of that job growth.
The study also found that companies selling products that run with or on Microsoft software, or that
service and distribute Microsoft software – here referred to as the Microsoft ecosystem – play a key role
in driving the IT industry's overall contribution to job growth and economic development.
Considering these countries and regions in aggregate, IDC found the following:
 Global IT spending in 2007 will be 2.5% of GDP, rising to 2.75% by 2011. Countries and regions
range from a high of 3.6% (Singapore, Denmark, Sweden) to a low below 0.5% (Pakistan, Nigeria).
The median is 1.5%.
 IT spending in 2007 for the 81 countries and regions covered in this study will be $1.2 trillion.
These countries and regions represent 99.5% of global IT spending.
 Global IT employment (IT professionals in the IT industry and IT-using organizations) will rise in the
four years between 2007 and 2011 by 7.1 million jobs, from a 2007 base of 35.4 million. The
country or region adding the most new IT jobs during this period will be China, followed by the
United States.
 Global spending on packaged software will be just 21% of total IT spending in 2007, but because
software drives activity in the services and distribution sectors, as well as in IT using organizations,
it will account for 50% of IT employment.
 IT employment is expected to grow 4.7% a year from 2007 to 2011, three times higher than global
non-farm employment. Software-related employment is expected to grow at a faster rate of 5.7%.
Of the 7.1 million new IT jobs created from 2007 to 2011, 4.6 million will be software-related.
 The IT market will drive the creation of more than 100,000 new businesses between 2007 and
2011. Many of these companies will be small and locally owned.
 The emerging economies are forecast to drive over 25% of the new IT jobs over the next four
years. These jobs will be driven by an evolving highly skilled labor force, an opportunity which is
extremely important in developing a competitive economy.
 The Microsoft ecosystem – more than half a million hardware, software, services, and channel
firms as well as end user organizations running Microsoft software – employs 42% of the global IT
workforce. These employees will pay more than $500 billion in taxes in 2007.
 In 2007, the companies in the Microsoft ecosystem will earn more than $400 billion in revenues,
and, in 2008, invest close to $100 billion in local economies.
 For every unit of revenue – dollar, euro, peso, etc. – that Microsoft will earn in 2007, other
companies will earn 7.79.
STUDY BACKGROUND
Since 2002, IDC has been conducting studies on the economic impact of IT, software, and the Microsoft
ecosystem and partner community on local economies. This impact comes in the form of job creation,
related tax revenues, company formation, and increased IT spending
This study extends that work to coverage of 81 countries and regions. For more information on study
methodology and definitions, see the document "Economic Impact Study Methodology and Definitions,
October 2007."
THE IMPACT OF INFORMATION TECHNOLOGY
Since the 1990s, economists have diligently studied the economic impact of IT on firms and on
countries and regions in terms of growing industrial output and improving productivity. Dale Jorgenson
of Harvard and Khuong Vu of the University of Singapore, for instance, showed in 2005 how
technology's share of world GDP growth has gone from 11% in the late 1990s to 15% in the early
2000s.1 In 2003, Erik Brynjolfsson and Lorin M. Hitt of the MIT Sloan School and the University of
Pennsylvania documented the importance of technology to productivity growth of 500 Fortune 1000
companies.2
Given these findings, growth of the IT sector is critical to the world economy and each of the countries
and regions we study. But what can we say about the IT sector and the global economy?
 Spending on IT, which will reach $1.24 trillion in 2007 worldwide, is expected to grow 6.1% a year
from 2007 to 2011. That growth is almost twice the expected growth of global GDP.
 IT spending is now 2.5% of GDP, up from a low of 2.3%. By 2011 it should be 2.8% of GDP. That
ratio varies by country and region, from a high of 3.6% (Denmark, Singapore, Sweden) to a low
below 0.5% (Nigeria, Pakistan). The median is 1.5%.
 IT spending provides revenues for more than a million companies selling hardware, software, and
services.
1
"Information Technology and the World Economy," Dale W. Jorgenson and Khuong
Vu, Scandinavian Journal of Economics, December 2005.
2
"Computing Productivity: Firm-Level Evidence," Erik Brynjolfsson and Lorin M. Hitt,
MIT Sloan School of Management, working paper 4210-01, June 2003.
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IDC Economic Impact Study, 2007
©2007 IDC
 Those companies, in turn, employ 35.2 million people in 2007, 14.7 million of whom work for
companies in the Microsoft ecosystem. Together, these employees and companies will pay more
than $1 trillion in taxes in 2007.
 The IT sector (IT-producing and IT-using companies) is expected to add 7.1 million new jobs
between now and 2011. The growth rate of the IT labor force is expected to be 4.7% a year
between 2007 and 2011, about three times the growth rate of the overall global labor force.
 This growth in the IT labor force will result in aggregate new tax revenues to governments between
2007 and 2011 that will add up to $592.4 billion.
The advantages of a growing IT sector are more subtle than the raw numbers alone suggest. IT jobs
tend to be higher skilled than most others, particularly in emerging economies. Countries and regions
with higher levels of computerization can be more competitive in world markets. During the 1997 Asian
financial crisis, for example, we saw that countries and regions with higher levels of computerization
were able to recover sooner. A strong IT sector is critical to competing in an integrated global economy.
Figure 1 compares the "IT economy" with the general global economy.
Figure 1
IT and the Global Economy
Growth Expected from 2007-2011
8%
6%
4%
2%
0%
GDP
IT Spending
Total
Workforce
IT Workforce
Source: IDC Economic Impact Study, 2007
THE ECONOMIC IMPORTANCE OF SOFTWARE
Just as IT is a critical contributor to the strength of the global economy, software plays an important role
in building the IT industry.
On a global basis, packaged software – operating systems, applications, and development tools for
everything from ultra portable computers to large mainframes – accounts for 21% of total IT spending,
although that percentage can vary from as high as 27% (the U.S.) to under 5% (Armenia and Vietnam).
©2007 IDC
IDC Economic Impact Study, 2007
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But that spending travels beyond software companies themselves. Because software is more complex
to sell, service, and support than hardware, dollar for dollar, software generates more downstream
economic activity than hardware.
IDC's analysis of the IT services market, for instance, shows that for every dollar of packaged software
sold, there is another $1.25 in revenue that goes to IT services firms. That software revenue and
additional services revenue also drive revenue in the distribution channel. These multiple revenue
streams pool to help fund employment.
As a result, the 21% of IT spending on software mentioned above drives 50% of IT employment, as
shown in Figure 2.
Figure 2
The Economic Impact of Software
IT Spending, 2007
IT Employment, 2007
Software
Vendors
Hardware
&
Services
79%
Software
21%
Channel &
Services
Firms
Software
Workers
63%
Hardware
Vendors
Channel &
Services
Firms
Non
Software
Workers
37%
$1.23 Trillion
35.4 Million
Source: IDC Economic Impact Study, 2007
The importance of software to the IT economy is clear in the following ways:
 Spending on software is growing faster than spending on IT overall – 7.9% a year between 2007
and 2011, compared to 6.1% for all IT spending.
 Software-related job growth during that time will, therefore, be faster – 5.7% – compared to overall
IT labor growth of 4.7%.
 Software's share of the new 7.1 million IT jobs to be created between 2007 and 2011 will be more
than 60%, amounting to 4.6 million jobs; an even higher percentage of the $600 billion in new IT
taxes to be generated will be software-related.
 Of those 4.6 million new software-related jobs, 1.2 million will be in Brazil, Russia, India, China, and
Mexico (BRICM) and nearly another million in the emerging economies in the rest of the world.
This growth in the highly skilled professional labor pool is especially important to developing
countries and regions.
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IDC Economic Impact Study, 2007
©2007 IDC
 The emerging economies will represent close to 60% of the new IT companies created from 2007
to 2011. Of these new companies, more than 25% will be software or services companies. Most of
the rest will be involved with IT distribution.
It is good news, then, that the countries and regions with the fastest growing base of software-related
employment are expected to be in emerging economies, such as Azerbaijan (number one), Russia
(number two), and Vietnam (number three). A third of the countries and regions studied should see
growth of their software-related employment between now and 2011 of 10% or more.
Figure 3 shows the addition of new IT and software-related jobs between 2007 and 2011.
Figure 3
Millions
Job Creation Worldwide
45
Other New
Jobs
40
SW Related
New Jobs
35
Between
2007 and
2011 there
should be
growth of
7.1 million
new IT
jobs
2007 Base
30
2007
2008
2009
2010
2011
Source: IDC Economic Impact Study, 2007
THE CONTRIBUTION OF THE MICROSOFT ECOSYSTEM
We have seen how software helps drive a strong IT industry; now we look at the role the Microsoft
ecosystem plays in building the software economy.
The ecosystem of companies that have product or service offerings involving Microsoft software is large
and diverse. IDC estimates that there are at least half a million companies in this ecosystem. For
example: Microsoft partners and OEMs sell PCs and servers running Microsoft software; software
vendors write applications that run on Microsoft platforms; retail outlets and resellers employ people to
sell and distribute these products; and service firms install and manage Microsoft-based solutions, train
consumers and businesses on Microsoft products, and service customers for their own applications.
Principal measures of the impact of the Microsoft ecosystem:
 The Microsoft ecosystem employs 42% of the people working in the global IT industry. Those
employees and companies will pay $514 billion in taxes this year.
©2007 IDC
IDC Economic Impact Study, 2007
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Figure 4 shows ecosystem investment by category.
Figure 4
Investment by the Ecosystem
Investments by the Microsoft ecosystem, including infrastructure, people, marketing
and business development, are expected to be nearly $100 billion in 2008
$100,000
$75,000
$50,000
$25,000
$0
Total IT
Ecosystem
Investment
Hardware
Investment
Software
Investment
Services
Investment
Source: IDC Economic Impact Study, 2007
 While the IDC research sized the number of employees in the Microsoft ecosystem, and not the
number of companies, IDC estimates that as many as two thirds of IT vendors offer products or
services that run on Microsoft platforms, or include Microsoft products among those that they
distribute and support. Most of these companies are small, local firms.
 The subset of the Microsoft ecosystem that excludes channel firms, whose revenues IDC does not
track, will generate $425 billion in revenues in 2007.
 Those revenues are expected to help fund $100 billion in investment by that subset of the Microsoft
ecosystem in 2008 for research, development, marketing, sales, and support for Microsoft-related
products and services. Most of this money will be spent in the country or region where the
revenues were generated.
 For every dollar (or other unit of currency) Microsoft will make in 2007, that
ecosystem subset will make $7.79.
REGIONAL VARIATIONS
The IDC study shows a diverse economic and IT industry landscape, from the high-growth but small IT
markets of Armenia ($32 million in 2007 IT spending, growing 26% a year) and Vietnam ($1.4 billion in
IT spending in 2007, growing 13% a year) to the slower growth but larger markets of Australia (IT
spending growing less than 4% a year) and the United Kingdom (an $84 billion market in 2007 growing
at 5.5% a year).
The countries and regions that make up the global regions included in this study are a mix of large and
small, emerging and developed. Asia Pacific, for instance, contains both the second largest market for
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IDC Economic Impact Study, 2007
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IT products and services outside the U.S. (Japan, $106 billion in IT spending in 2007) and the number
one growth country for new IT jobs (China, 1.5 million between now and 2011).
Figure 5 shows job growth by region.
Figure 5
IT Job Growth by Region
Growth Expected from 2007-2011
10%
8%
6%
4%
2%
0%
North
America
Western European Central &
Europe
Union
Eastern
Europe
Middle
East &
Africa
Latin
America
Asia
Pacific
BRICM
Source: IDC Economic Impact Study, 2007
The 81 countries and regions that this study covers can be clustered into four major groups:
(1) The large, developed IT economies, such as Japan, U.S., Canada, UK, France, Germany, and Italy.
These seven countries alone account for two-thirds of IT spending worldwide and three-quarters of
spending on packaged software (2007). They typically have large services sectors, sophisticated
applications running on computers even in small and medium businesses, and low software piracy.
Software and services together account for more than 80% of their IT spending. Software is already
critical to their economies.
(2) The large, emerging IT economies, most specifically Brazil, China, India, Russia, and Mexico, that
have large and diversified domestic markets, as well as large populations. These five countries account
for 9% of IT spending but less than 5% of software spending worldwide. As a result, for the group,
software accounts for only 12% of IT spend compared to the worldwide average of 21%. Software and
services account for only 46%. In these countries, there is a wide disparity between the computer
operations of the large multinational organizations and the smaller domestic-facing companies in terms
of computer sophistication, application deployment, and software piracy (which tends to be low in a few
sectors, but high in general). These economies are, however, growing in IT spending much faster than
the first group.
(3) Smaller developed countries, such as Denmark or Belgium, or countries and regions such as South
Korea, Taiwan, and Singapore. These countries and regions have either the computerization profiles of
developed countries or regions, or profiles that sit between the first two groups. But neither camp has
the population nor the economic heft of the first two groups. Many countries and regions are quite
©2007 IDC
IDC Economic Impact Study, 2007
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interesting here, such as Israel, with a strong export business and thriving venture capital, and Taiwan,
which in many respects is both group one and group three at the same time.
(4) Smaller emerging IT economies, that range from the fast growing Eastern European countries, to
some of the very small countries and regions in the Middle East and Africa, Asia, or Latin America. The
computerization profile of these countries and regions can vary widely, and can change rapidly, as IT
spending can be tied to specific modernization projects that come and go.
Table 1 provides a cross-region comparison on several data points:
SUMMARY
This study shows that the IT industry plays a critical role in economic growth throughout the world and
that the economic impact of the software sector is much greater than its proportion of IT spending would
suggest.
Microsoft-related employment is 42% of global IT employment. These professionals in the Microsoft
ecosystem are employed at 500,000 IT-producing companies as well as by end-user organizations that
work with Microsoft software in some facet of their business. These companies and employees are
significant economic contributors to their local economies through income and other taxes and through
local investment in sales, training, infrastructure, and business development.
Copyright Notice
External Publication of IDC Information and Data — Any IDC information that is to be used in advertising, press
releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country
Manager. Copyright 2007 IDC. Reproduction without written permission is completely forbidden.
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IDC Economic Impact Study, 2007
©2007 IDC