RP improves ranking in IT competitiveness

The Philippines has improved its information technology competitiveness ranking in the 2008 IT Competitiveness Study sponsored by the Business Software Alliance (BSA). From 11th in the Asia-Pacific region a year ago, it now ranks 10th. However, the country remains 47th in the worldwide ranking.

The study done by the Economics Intelligence Unit (EIU) assessed the IT industry environments of 66 countries to determine how technology sectors grow and how governments enable IT sector competitiveness.

Jeff Hardee, BSA vice president and regional director for the Asia-Pacific, said the EIU study is an important roadmap for the IT sector in every country and for governments as it explores the strengths and weaknesses of the industry and determine what would encourage it to grow further.

IT is a compelling driving force in an economy, said Hardee. A stronger IT industry leads to greater contribution to gross domestic product (GDP), job creation, and higher living standards.

“It employs 11 million people worldwide, 5.5 million in the Asia-Pacific. It pays about $900 billion in taxes,” Hardee said. “How and what will make it grow bigger is an important question for governments when it plans for the future.”

In coming up with the rankings, the EIU used a weighted scoring model with 25 indicators grouped in six categories — overall business model (10 percent), IT infrastructure (20 percent), human capital (20 percent), legal environment (10 percent), research and development (25 percent), and support for the IT industry development (15 percent).

Using quantitative and qualitative indicators, the countries obtained scores on each category on a 0-100 scale, with 100 being the highest score.

The Philippines’ overall index score, which retained it in the 47th slot among 66 countries in the worldwide ranking, is 29.8. This is slightly up from its 2007 score of 28.7, the difference being enough to move it a notch higher in the Asia-Pacific (APAC) ranking from 11th to 10th.

In this year’s study, the Philippines, according to the BSA, performed strongest in providing a favorable business environment (67.9), support for IT industry development (54.0), legal environment (50.5), and human capital (44.9). However, a very low score in R&D environment (0.1) markedly pulled it down.

If it is any consolation though, the country ranked higher than India in the ranking (overall rank: 48, Asia-Pacific rank: 11) and China (overall rank: 50, APAC rank: 12). It was also ahead of other Southeast Asian countries like Bangladesh (overall rank: 48, APAC rank: 11), Bangladesh (overall rank: 60, APAC rank: 15), Vietnam (overall rank: 61, APAC rank: 16), and Pakistan (overall rank: 62, APAC rank: 17).

Malaysia (overall rank: 36, APAC rank: 8) and Thailand (overall rank: 42, APAC rank: 9), however, were ahead of the Philippines.

Hardee explained that the Philippines’ score of a miniscule 0.1 in R&D was brought about by very low government expenditure on R&D at only $1.2 for every 100 people. Private sector investment is slightly higher at $4.2 per 100 people but still falls very short of expectations, especially when compared to high-performing countries like Japan with the highest R&D expenditure in Asia at $89 per 100 people, South Korea ($79), China ($20), and Malaysia ($6.7).

This low R&D spending has resulted in very few IT patents being registered in the country. In comparison, Taiwan, the top country in the APAC ranking and No. 2 worldwide, has one patent per 2,000 people. Other high-performing countries have equally robust patents — South Korea (one for every 2,764 people), and Japan (one for every 5,882 people).

In grading the R&D environment of each country, the EIU study took into consideration government expenditure (10 percent), private sector investment (10 percent), IT patents registered by residents each year (65 percent), and royalties and license fees received (15 percent) — for an overall score of 25 percent in this category.  

According to the EIU, dynamic innovation, supported by a strong R&D environment, is a major contributor to IT industry competitiveness.

“East Asian economies — Taiwan, South Korea and Japan — remain the index leaders when it comes to R&D environment for technology production. As well as the other category leaders, Sweden and the US, all are prolific generators of technology patents, and their firms are heavy R&D spenders,” the EIU said in its report.

The most competitive countries

Although the top 20 economies remained in the top slots from a year ago, nine countries moved up and 11 went down in the rankings. In fact, three countries in the top five are new: Taiwan, Sweden and Denmark.

Hardee said this only shows that a country’s IT competitiveness can move upward or downward very quickly.

“The ability of local governments and IT industries to deliver jobs and a better quality of life through information technology is strongly affected by how they handle the six drivers of competitiveness,” said Hardee.

Countries in the top 10 in the global ranking are the United States, Taiwan, United Kingdom, Sweden, Denmark, Canada, Australia, South Korea, Singapore and the Netherlands. The two most important shifts in the index are the rise of Taiwan from sixth to second place overall and Japan’s drop from second to 12th.

The EIU explained that Taiwan’s accomplishment was based primarily on its strong performance in the R&D environment, particularly in patents. In the same way, Japan’s steep drop in the overall ranking was also largely due to changes in its R&D and patent scores.

“For countries wanting to develop IT sectors that are sustainable in the long term, investment in local R&D is therefore essential,” the EIU said.

The EIU believes that patents “are an important indicator of innovative activity in an economy, in technology as well as other industries.”

It explained further in the report that the issue on patents was a heavily weighted indicator, as it has been found that patent data are strongly correlated to the measure of IT labor productivity across all countries.

“In 2008 we have attempted to estimate IT-related patent registrations by applying a ratio to the economy-wide figure for each country that equates to the share of IT output (the value of hardware and software production) in GDP,” the EIU said.

Other top gainers in the new study were Sweden and Denmark, which moved to fourth and fifth places, respectively, and Canada, which has risen from ninth to sixth place.

The EIU believes that globalization and the Internet will “liberate” R&D.

“Entrepreneurialism and IT innovation are closely intertwined, as exemplified in the shining example of America’s Silicon Valley. Similar ecosystems bringing together talent, technology, venture capital and good universities, supported by risk-taking ethos, will remain the best incubators of innovation,” it said.

On a bright note, Hardee disclosed that the Philippine government has expressed strong interest in the study as a roadmap for future action.