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Global Economy Can Help/Hurt U.S. Tech Companies

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While there is plenty of angst about the transfer of some U.S. jobs to emerging economies, less attention is given to globalization's potential to save at least some American jobs by boosting the economic performance of vendors like IBM.

 

As Forbes reports, tech companies with lots of multi-national clients are better positioned to withstand a slowing U.S. economy than competitors that conduct the bulk of their business in America. The poster children for this trend appear to be Sun Microsystems and IBM.

 

According to Forbes, Sun managed to beat analyst expectations in 2007's fourth quarter while doubling its profits from Q2, largely because of strong sales in India, China and Eastern Europe. Sun earns some 60 percent of its revenues outside the U.S.

 

Similarly, IBM's Q4 2007 business growth in Asia outpaced domestic growth by 18 percent. IBM beat analyst estimates with a 23 percent gain in earnings and offered a bullish outlook on 2008. Like Sun, IBM's international business accounts for about 65 percent of its revenues.

 

IBM's CFO mentioned "a virtual gold rush" in emerging economies like China and India. This trend likely influenced IBM's decision to license some of its server technology to Hong Kong-based hardware manufacturer Lenovo.

 

It seems a safe bet that companies with a limited international presence, like Dell (which is featured in the Forbes story), will try to broaden their geographic horizons. I recently blogged about IDC's prediction that U.S. tech vendors would try to expand their reach in the so-called BRIC countries (Brazil, Russia, India, China), perhaps by making acquisitions of companies in those countries.

 

These rosy outlooks could change if foreign economies are hit by U.S. economic troubles. That may be what is happening in India, where financial markets are reeling, reports India Daily. The article mentions a loss of outsourcing jobs. Unlike the U.S. Federal Reserve, India's Reserve Bank is unable to lower interest rates because of inflation concerns.

 

Yet modernization projects in emerging economies are somewhat impervious to U.S. economic downturns, notes Forbes. The article offers the example of IBM's contract to update the State Bank of Vietnam's legacy IT infrastructure. Says a Gartner analyst:

The tech sector weathered a lot of recessions as it emerged in the U.S. in the 1980s. Similarly, lots of places around the world with older and outdated systems will still be looking to make big leaps forward.

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