Global Development of Software

Everyone who has had an economics course knows that success attracts competition and software development is no exception. Many countries are predicting large growth in employment in software development. Country after country expects to utilize software development as a key industry in hopes of accelerating job growth and positively impacting the entire economy.

It is not just a few countries making software anymore. The idea of software development begins simultaneously in several countries. In the middle of the 1990’s most software was created in only seven countries Canada, France, Germany, Italy, Japan, United Kingdom and the United States. These seven countries are known as the G7. Based upon published government reports I estimate employment in software development in the G7 was about 2 million in 1990. The current number employed in software development in G7 countries is now around 5 million.

No one knows the exact number of those employed in software development worldwide. The current employment levels in software development in India are around 1.5 million, and in China, they are around 1.3 million. The remaining world (Eastern Europe and South America) about 2.2 million employed in software development. In 2007, there were about 5 million employed in software development outside of the original G7 countries and about 5 million in the G7 countries. Based upon all these official, government reports I estimate it to be around 10 million.

The G7 countries went from 100 percent of the software development industry in 1990 to 50% by 2006. Right now it is a tie game, but most of the G7 countries are predicting steady 5 to 7 percent growth rates while India, China, and Eastern Europe are predicting 20 percent growth rates. In less than twenty years 70 percent of software will be developed outside G7 countries. Only about 15 percent of software will be developed in the USA.

Automobiles

The software development industry parallels the auto industry in many ways: automotive industry saw a rapid growth, a period of no grow and then a decline.

At the end of the World War II (around 1946), the USA was the dominant automobile manufacturer and produced nearly all of the 6 million cars made in the world. Fourteen years later, in 1960, there were about 15 million automobiles made in the world, and 10 million of those were in the USA. The USA automotive market share went from 100 percent in 1946 to 60 percent by the mid 1960’s. The decline continued for decades; and in 1990, there were 45 million automobiles made worldwide and 10 million of those were made in the USA. In sixty years, the USA auto industry went from 100 percent market share to 18 percent.

When foreign competition started hitting the shores of the USA, both management and labor unions yelled, “Foul!” Unlike the autoworkers, software developers do not have a powerful union to lobby Congress. Software developers have no power to lobby Congress or to go on strike since they are not an organized group. On the other hand, management, the core business, is eager to offshore software development work to reduce operation costs. The decline of the software development industry will happen faster than the automotive industry.

The same is true with wine. For most of the 20th century, the wine industry was dominated by France, Italy, and Spain. While the world has seen an increase in the production of wine, the amount of wine produced in Western Europe is declining.

Technological advancements have allowed countries such as Chile, Argentina, South Africa, and Australia to produce competitive wines. These same countries are experiencing triple digit growth in wine exports. French and Italian wine producers still maintain their wines are of a higher quality, but the market suggests otherwise. “The surge in new world wine production and sales highlights the need for EU wine producers to become more competitive.” The surge in “new world” software development highlights the need for Western economies to become more competitive. Technological and intellectual advances are allowing Asian and Eastern European countries to develop software too.

The wine, steel and automotive industries ran to the government in hopes of securing protection of their jobs and markets. The agricultural industries of the West have many government subsidies. There will be no such protection in the software industry, and nor will there be any subsidies. Even if governments wanted to protect these software jobs, they are not capable of it. They were not successful at preventing the loss of jobs in the steel, automotive, and agricultural sectors.

Software is unique in comparison to wine or cars. Software does not have to be put onto a ship and transported across an ocean. Countries have established import fees (duties) on many goods and services. This will not be possible with software. Software can be moved from one side of the world to the other in a blink of an eye. Software does not have to stop at shore’s edge and be counted. Even if it did stop at shore’s edge what would inspectors count? How would they size the amount of software crossing a border? It is easy to count the number of cars, tons of steel, or bottles of wine.

There are many countries developing software and I want to go into some depth country by country.