Analysis of the Sub-Sectors

The UK has considerable strengths in electronic chip design across a wide range of disciplines in wireline and wireless operations. It stands at the leading edge of development in mobile communications, including radio frequency and antenna design, digital radio and mixed signal design, embedded systems and system-on-chip technology. The applications for these components are enormous, ranging from sensors in industrial equipment to security tagging of high-value merchandise in retail environments and the display and functionality of the latest consumer gadgets.

The countries manufacturing mass hi-tech products for consumer or industrial use, such as Japan, Korea, China, India, Hong Kong, the US and Russia, are all therefore likely to be significant markets for UK companies in relation to communications technology. The UK is highly attractive as a market into which to sell hi-tech communications products – it represents around a quarter of the global broadcast and media technology market, with a value of about £1.4 billion. It is also a centre for high quality R&D, particularly for early-stage research, with the potential to move from universities into spin-off commercial enterprises. It has a strong communications R&D skills base, particularly in radio frequency (RF) and mixed signal design (analogue and digital), which is a major factor in attracting investment from overseas companies.

The UK maintains a 19 per cent market share of Foreign Direct Investment projects in communications. Targets for further inward investment will be well developed EMS countries such as the US and Canada, Japan, France and Germany.

The UK is a leading supplier of avionics and advanced instrumentation and control systems as well as complex fabricated parts requiring precision multi-stage manufacturing processes.

Key markets are therefore those which either are high volume manufacturers of industrial equipment or hubs for the production of components. Most prominent are Japan, Korea, Hong Kong, Singapore and the US. With an overall market in excess of €50 billion a year, the UK generally ranks in the top two in Europe for both market size and production in many categories in this sub-sector. There are over 8,000 industrial electronics companies in the UK and the sub-sector employs approximately 400,000 staff.

It is therefore an attractive market for inward investment from EMS countries with the capabilities to serve this demand, particularly Japan, Korea, the US, France

In addition, the UK is becoming a global leader in successfully implementing large-scale systems integrations. It therefore has tremendous opportunities to offer consultancy skills to highly developed economies that can profit from its expertise, notably the US, but also most other EMS and DMSP markets. The UK has a very large market for software products and services, hosting around 120,000 firms employing over 500,000 staff. UK IT professional services businesses generated £27.7 billion in 2006, which is expected to rise to £29.4 billion in 2007, with average annual growth of six per cent. The UK is also becoming a test bed for very large scale complex system integration with a range of demanding private and public sector projects. Overall, with an increasing need to improve the efficiency and effectiveness of operations in both the public and private sector, there is significant scope in this sub-sector for continued growth. Marketing of inward investment opportunities should therefore be focused on countries with skills meeting the demands of complex business organisations: pre-eminent are the US, France, Germany and Japan.

The UK is at the forefront of electronics design, especially low-power mixed analogue and digital designs for portable devices such as MP3 players and mobile phones. Given the manufacturing strength of Japan, Korea, China and the US, these countries offer the greatest opportunities for trade.

The UK is the largest consumer electronics market in Europe and UK consumers regularly follow technological advances and quickly upgrade their products. In the fast-growing computer games industry, the UK represents the third largest interactive entertainment market in the world. By 2010 the UK market is forecast to be worth around US$5.86 billion. In addition, the UK has the highest number of games development companies and publishers in Europe. Over the next five years the electronics sector is forecast to grow faster than any other major UK retail sector, with average annual growth of 4.4 per cent. Flat-panel TVs, games consoles and high definition DVD will continue to be a major source of growth as a result of the UK’s very high take-up of digital technologies in mobile communications and digital TV. Video equipment and games consoles are the most lucrative products, generating 80 per cent of the market’s aggregate revenues.

Overall, the UK consumer appetite for new technology has supported the growth of an extremely healthy and increasing marketplace for products supported by UKled cutting-edge design. The UK therefore represents an attractive market for inward investment from markets with strength in satisfying these consumer needs, notably the EMS countries of Japan, Korea, US, France and Germany.

The financial services value chain has been transformed by communications and information technology in recent years. London in particular has embraced technology, globalisation and its advantageous time zone position to become the leading international centre in a wide range of financial services. Proactively embracing the opportunities offered by technology, the sub-sector is at the forefront of global innovation and investment. Worldwide banking spend on ICT was estimated at US$222.7 billion in 2006. Banking represented 11 per cent of the overall worldwide IT market in 2005 and this is expected to have grown to 11.6 per cent in 2010. Worldwide insurance spending is projected to total US$136.8 billion in 2006, a 3.1per cent increase from 2005 spending of US$132.7 billion. The insurance market is expected to grow by 4.9 per cent to US$233.6 billion in 2007.

The UK’s considerable tradable expertise must therefore be attractive to markets which are themselves either major financial centres or are rapidly growing to become such centres, for example Tokyo, New York, Hong Kong and Russia.

The financial services sector is the largest contributor to the UK balance of payments and a major contributor to GDP and employment. As a major consumer of IT and communications services, it is also the leading application market for ICT. The UK is: the world’s largest single market for international bank lending the world’s leading market for international insurance one of the world’s largest markets for asset investment management the host of Europe’s largest banking sector the owner of the world’s largest trade surplus in financial services.

Nearly 500,000 people work in financial services and with IT spend averaging around £6,000 per employee, around £3 billion a year is spent on ICT in the sub-sector. This sub-sector is particularly attractive to inward investors from EMS countries with skills and expertise to offer – notably the US and Canada, France and Germany.

The UK’s strengths lie in integrating sets of disparate technologies to provide turnkey solutions. In-store wireless capabilities, for example, use radio frequency identification (RFID). Tagging of items offers muchimproved flexibility, for example in supermarkets/retail outlets, together with improved accuracy in inventory tracking and replenishment. In cold chain management, it allows logistics firms to check consignments from outside the cold store. RFID also plays an important part in anti-tamper technology.

Supply chain management in the food supply chain presents an important opportunity. For example, new technology can help track and trace the food supply chain in both arable and livestock farming, to help overcome health and safety issues that may arise in countries that do not have the same regulatory standards as the UK.

Near Field Communications (NFC) and mobile transactions and payments are key areas for the future of the sector. NFC is in effect a subset of RFID but providing a divergent benefit to the consumer for many applications. Data analytics is another area of opportunity for the sector. There is debate within the retail and logistics industry concerning consumer purchase data: how much information should be held, what may be done with it. Given the increasing importance consumers are placing on personal privacy and data protection, the need for technology which assures secure transactions is vital. The UK ICT sector has a potential advantage if it builds security considerations into product design, rather than adding it as an afterthought.

Some of the most advanced retail supply chains in the world are based in the UK and both national and international logistics operators are well represented. There is therefore great potential to export consultancy expertise.

Attractive markets are those with large or well-developed retail markets, such as France, Japan and the US; and countries such as China, manufacturing end products used in the sector, for which the UK ICT sector can offer important, differentiating components .

The UK market for ICT in retail and logistics is likely to become, and remain for some years, the largest in Europe and one of the largest in the world due to the drive for increased efficiency in our world-leading retail and logistics players. Retailers have become much more focused on solutions that enhance the basic customer experience and that drive revenue. This revolution will be focused on the store, but knowledgeable retailers will demand that technologies have a positive impact on the customer experience, as well as on productivity. The increasingly ‘customer-centric’ ethos of the retail and logistics sub-sector will drive continued growth to integrate solutions to drive down consumer costs whilst at the same time improving customer-facing applications. There is a strong UK appetite for novel technology products requiring secure tagging, especially wireless technology, low-power mixed mode devices and antennae technology.

EMS markets with large, successful retail and logistics operations themselves are likely to see attractive inward investment opportunities in the UK; and France, Germany and the US are felt to be highest on this list.

The UK government invests large sums in a healthcare system which is accessible to all. In order to deliver effective and efficient service to patients it has led the world in the development of enabling technology. Among UK general practitioners, 98 per cent use electronic medical records and practice management IT systems.

Key opportunities for healthcare are associated with the way information is captured, stored, analysed and then finally used; where the delivery of services is undertaken, in hospital or in the home; and the use of technology as a prevention mechanism as well as a means of speeding accurate diagnosis. All these applications and services are being enabled with ICT and are driven primarily by cost pressures in established markets and low health in emerging markets.

Many countries around the world are investing heavily in hospital, local, regional and countrywide healthcare IT projects. UK businesses could therefore look to expand the range of geographic areas in which they are active. Demand in more mature economies arises in the following areas: computer-based patient record systems personal health management tools (online applications that provide interactive functionality to assist consumers in managing their own health and disease processes) home health monitoring via telemedicine patient self-service kiosks (a computer device that enables two-way communication between a patient and a healthcare provider’s systems, that can include various input devices and sensors, such as bloodoxygen saturation, electrocardiograms and credit card readers) electronic prescribing (that allows physicians to send prescriptions to pharmacies online) wireless healthcare asset tracking (WHAT), via locator devices, such as radio frequency ID (RFID), attached to items such as intravenous pumps, wheelchairs and pulse oximeters.

Best trade opportunities are likely to be in EMS and EMO countries with well-developed healthcare systems –notably Scandinavia, France, the US, Japan and Hong Kong.

The UK is host to world-class research institutes and a strong science base. The provision of online training and continuous medical education is seen as a growth area. Potential inward investors see opportunities to sell their services within telemedicine, e-health and telecare. There is also potential for provision of online training, continuous medical education and RFID technology. Healthcare technologies investors will be drawn from EMS countries such as the US, Canada, France and Germany, all of which have established healthcare systems.

The UK government’s transformational agenda relies upon integrated and effective technology to support provision of public services; hence there is a great deal of investment in this sub-sector.

Under the UK government’s national strategy, Transformational Government, ICT is seen as a major enabler: a number of key government programmes made possible by ICT are under way, including the National Identity Scheme and National Programme for IT in the NHS (the world’s largest civilian IT project costing over £12 billion).

Expertise is exportable, but dependent on other countries having similar legal and institutional infrastructures. The London, East and South East regions of England host one of the two largest e-government clusters in the world; which in turn attracts one of the world’s largest ICT for e-government clusters, including headquarters and operations centres of many leading software and communications players. The UK’s second strongest cluster for e-government lies in Scotland, between Edinburgh and Glasgow.

This makes the UK attractive as an inward investment location to EMS countries with well-developed e-government systems themselves, notably the US and Canada, France and Germany.