Office of Industries Vern Simpson, Director Project Manager Lori Hylton Brown Principal Authors Lori Hylton Brown Christopher Johnson William Warlick Services, Electronics, and Transportation Division TABLE OF CONTENTS Page Executive Summary . v Chapter 1: Introduction . 1-1 Purpose of study . 1-1 Approach . 1-1 Competitiveness defined. 1-1 Data sources . 1-3 Scope of study . 1-3 Organization of study . 1-6 Chapter 2: The computer software and service industries . 2-1 Introduction . 2-1 Industry evolution . 2-1 Size and growth of the global software and service markets. 2-4 Competitive position of U.S. industry. 2-8 Global trends in the software and service industries. 2-11 Trends in the software industry . 2-11 Technology in transition. 2-11 Pricing pressures and signs of industry maturation. 2-12 Trends in the computer service industry. 2-14 Applying complex technology to vertical markets. 2-14 Corporate restructuring trends fuel growth in outsourcing services . 2-16 Chapter 3: External factors influencing the software and service industries . 3-1 Introduction . 3-1 Government regulations and policies. 3-1 Intellectual property protection. 3-1 Importance of IPR protection. 3-1 Global anti-piracy efforts. 3-4 Telecommunications regulations. 3-9 Private networks . 3-9 Voice telephony . 3-10 Computer outsourcing firms’ and users’ policy proposals. 3-10 Export controls on software with encryption capabilities. 3-12 U.S. and foreign controls. 3-12 Current effects and proposed changes of U.S. export controls. 3-13 Government research programs. 3-13 Government policies affecting small businesses. 3-19 Education . 3-23 United States . 3-23 Europe . 3-25 Japan . 3-27 TABLE OF CONTENTS-Continued Page Chapter 4: Competitive assessment . 4-1 Introduction . 4-1 The competitive assessment framework. 4-1 Applications software firms. 4-3 Introduction . 4-3 Factors affecting competitiveness. 4-4 Revised sales and marketing strategies. 4-4 Innovative product development techniques. 4-7 Alliances and standards. 4-8 Outlook . 4-9 Systems software firms . 4-10 Introduction . 4-10 Factors affecting competitiveness. 4-11 Alliances and acquisitions. 4-11 Responsiveness to customer needs. 4-12 Outlook . 4-14 Systems integration firms. 4-15 Introduction . 4-15 Factors affecting competitiveness. 4-16 Employee skill bases and alliances. 4-16 Cost management skills. 4-17 Outlook . ..