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Global Economic Review

Vol. 36, No. 2, 167182, June 2007

International Competitiveness in the ICT


Industry: Evaluating the Performance of
the Top 50 Companies
GEORGE EMM. HALKOS & NICKOLAOS G. TZEREMES
Department of Economics, University of Thessaly, Greece

ABSTRACT Given the importance of global competition in the information and communication
technology (ICT) industry and its contribution to national economies, this paper examines the
competitive structure of the global ICT market. By examining the effect of global strategies of the
top 50 ICT multinationals, benchmarks, performances and key characteristics of multinational
strategic behaviour in the ICT industry is established. The results indicate that there is higher
rivalry among the competitors in communication and electronics/equipment segments. Addition-
ally, the most efficient global strategies are adopted from the US and Japanese multinationals
imposing a ‘‘policy gap’’ on corporate governance between US, Japan and the European countries.

KEY WORDS: International competitiveness, ICT, market structure, multinational


corporations, DEA

Introduction
The economic importance of information and communication technology (ICT)
continues to grow. In the Organization for Economic Cooperation and Development
(OECD) countries ICT intensity, defined as ICT expenditures gross domestic product
(GDP), is rising. It is particularly high in English-speaking countries, Sweden,
Switzerland, Japan and the Netherlands. High-tech products and highly innovative
service sectors are the key elements for national productivity and competitiveness
(Windrum & Tomlinson, 1999). The strong growth of ICT is mainly driven by the
growth in telecommunications equipment and services. Firm-level data suggest that
the information technology (IT) industry (excluding telecommunications) continues
to undergo rapid restructuring; although hardware is still the largest segment, data
communications play an increasing role (OECD, 2000). Many traditional IT
hardware firms (like IBM) are moving towards services. However, Asian firms are
major players in many hardware segments. The rapid consolidation in the ICT
industry, particularly telecommunications, is having an impact on the competitive
structure of this sector. Due to the fact that the ICT sector generates innovation,
foster entrepreneurial behaviour and increasing the size of relevant markets, it is

Correspondence Address : George E. Halkos, Department of Economics, University of Thessaly, Korai 43,
38333, Volos, Greece. Tel: 0030 24210 74920; Email: halkos@econ.uth.gr

1226-508X Print/1744-3873 Online/07/02000167 16


# 2007 Institute of East and West Studies, Yonsei University, Seoul
DOI: 10.1080/12265080701374115
168 G. E. Halkos & N. G. Tzeremes

unlikely to reduce rivalry among competitors. In turn it intensifies dynamic


competition with the creation of new markets and products (Hemphill, 2003).
OECD countries account for more than 80% of the world ICT production, a share
that has remained stable. Within the OECD region and in market terms, the US
(36%) continues to drive growth.
However, in non-OECD countries, ICT market are growing at more than twice
the OECD, average, and the largest markets, Brazil and China, are growing rapidly
(OECD, 2000). The ICT market is a paradigm of a global market place which drives
the firms to compete globally in order to survive. Buckley and Ghauri (2004)
describe this phenomenon as a conflict between markets and management policies.
Globalization in ICT industry is driven by various factors. These include the
development and introduction of new and improved products through firm-level
investments in R&D and innovation, the ready availability of venture capital funds
for investments in ICT, the development and rapid growth of new products/services
segments and the general shift towards services. In that sense issues like competitive
structures and global business performance is essential to determine the ‘‘key
players’’ of the ICT sector. The US and the European Union (EU) in their main
concern regarding competition policies must recognize the ‘‘new’’ reality of the
global business environment and the ongoing innovation on the ICT sector
(Hemphill, 2003).
This paper taking into consideration the importance of the ICT sector and its
contribution to national economic growth tries to evaluate the competitive structure
of the ICT sector by evaluating the performance of the top 50 largest companies.1
Using Data Envelopment Analysis (DEA) it discusses the impact of the multi-
nationals’ global strategies by measuring their efficiencies. Moreover, the study
determines the efficiency scores of the companies considered, the target values of
inputs, giving attention to the source(s) of inefficiency.

Global Competition and Internationalization Strategies


For many years, the ICT-industry has been one of the fastest growing industrial
sectors. For example, the European Information Technology Observatory (EITO)
recorded double digit growth numbers in 1999 for Europe and they expected a similar
trend to continue (EITO, 1999). In this industry, all the major globalization drivers
(macro-environment, industry globalization and pressure for increased internal
efficiency) point in only one direction: global competition (Yip, 1989). Bartlett and
Ghoshal (1987) have found that multinational companies face a need for new
multidimensional strategic capabilities and suggested that many companies in the
ICT sector seek simultaneous global efficiency, national responsiveness, and world-
wide learning. Yip (1989), pp. 2930) has argued that globalization proceeds in three
stages, which are development, internationalization and globalization of the strategy.
Theories of foreign direct investment (FDI) aimed at justifying foreign expansion
and global competition strategies have constituted the core conceptual foundations
of internationalization-performance inquiry. Early FDI concepts focused on
beneficial foreign factors located outside the organization, arguing particularly
that imperfections in world factor and financial markets benefit the internationally
expanding company. At the same time authors with backgrounds in international
International Competitiveness in the ICT Industry 169

business and industrial economics emphasized cost advantages (transaction costs,


labour costs, material costs) and economies of scale or scope (monopoly advantage
and risk diversification, respectively) stemming from internationalization (e.g.
Buckley & Casson, 1976; Caves, 1971; Dunning, 1979; Hymer, 1976; Porter, 1985;
Vernon, 1966).
Specifically, scholars of financial economics underlined portfolio diversification
theory (exploitation of national or regional divergence of factor price levels, tax
systems, and capital sources) and its implications on risk-return performance (e.g.
Errunza & Senbet, 1984; Hirsch & Lev, 1971; Lessard, 1973, 1976; Levy & Sarnat,
1970; Morck & Yeung, 1991). However, this focus on reactive exhaustion of external
opportunities as the sole source of benefit shifted once FDI and international
management researchers began to examine the organization itself and take into
account the proactive development and exploitation of internal advantages. For
example, Fayerweather (1978) suggested that the transfer of managerial and technical
know-how on a worldwide scale can equip multinational companies (MNCs) with
comparative advantages not available to firms operating purely domestically.
Likewise, the resource-based view of the firm (Prahalad & Hamel, 1990;
Wernerfelt, 1984) underlined intra-company global competencies as promoters of
superior performance development. For instance, cultural heterogeneity in the
workforce and at management level was argued to trigger innovation and
technological advancement (Barkema & Vermeulen, 1998; Hitt et al ., 1997). Finally,
the theory of operational flexibility (Kogut, 1985) proposed that firms operating in
multiple environments are flexible enough to generate both arbitrage (e.g. informa-
tion transfer) and leverage (e.g. cross-subsidization) opportunities.

ICT Industry and Multinational Performance


In the high technology industry in general and in the ICT companies in particular, it
may be assumed that the globalization drivers are especially strong for a number of
reasons. Firstly, the market needs become more similar across countries, and global
or at least regional customers and channels are often present. Secondly, in high
technology and in the ICT field particularly, competition is very intense and
companies often operate on a worldwide scale. Finally, the latest development in the
ICT industry has meant that global competition has increased both vertically and
horizontally. This has increased the importance of cooperation in the horizontal
direction (Gabrielsson & Gabrielsson, 2003, p. 131). Andras and Srinivasan (2003)
argue that generally, manufacturing firms in order to compete in such a competitive
global market need to optimally utilize their inputs (such as R&D activities), which
in turn will have a positive impact on their performance.
Firm performance is often seen to relate to the match between the firm and its
environment (Johnson & Scholes, 1993; Powell, 1992; Hrebiniak & Joyce, 1985;
Thompson, 1999). The environment carries needs and expectations, i.e. market
opportunities, which the firm tries to respond to with its resources and capabilities.
The better the matching the better the success (Kay, 1995, p. 271). For example,
according to contingency theory (Burns & Stalker, 1961), firm performance is the
result of a proper alignment of firm design with the context it operates in. There is no
better way to organize and the contextual factors should be taken into account
170 G. E. Halkos & N. G. Tzeremes

(Pfeffer, 1982). In the configurational approach (e.g. Miller & Friesen, 1984)
successful firms are considered to be aligned in a small number of typical patterns.
However, as the environment of many firms is changing all the time, there is a
continuous need for adjustment of the fit between the firm and its environment. Firm
performance in the market is based on its competitive advantage. The interaction
between firms and their competitive environment can be seen as market- and
resource-dependency. Sources of competitive advantage are often bound with the
firm’s environment. A firm can attain competitive advantage by satisfying the needs
of customers of some market segments better than its competitors do.
More intensively in the ICT sector (as in any industry), the rules of competition are
embodied in five competitive forces: (1) the entry of new competitors; (2) the threat of
substitutes; (3) the bargaining power of buyers; (4) the bargaining power of suppliers;
(5) the rivalry among existing competitors (Porter, 1985, pp. 4 5). The external forces
of industry influence firms relatively, because they influence all firms in the industry.
Firms’ abilities to get on with the factors influencing the industry are not the same in
all firms. The strength of competitive forces influences the industry concentration. The
number of firms and business size structure indicate the concentration or fragmenta-
tion of industry. Industry structure consists of several factors, such as entry and exit
barriers, changes in industry growth, innovations, etc. (Porter, 1980, pp. 200 221).
In that respect, it is essential to measure the performance of all the major ‘‘players’’
constituting such a dynamic sector. Berger et al. (1993) claim that there is a need for
use of profit functions, DEA and other methodological techniques in order to study
and evaluate the determinants of efficiency. This investigation will allow the
prediction of groups or individual firms which are likely to survive and cope with
the increased future competition. Adopting this methodological view, the DEA
technique is used here in order to determine the performance of the largest
companies competing in the ICT sector.

Measuring the Efficiency of Global ICT Corporations


DEA is a non-parametric method of measuring efficiency that relies on mathematical
programming. Charnes et al . (1978) introduced the method of DEA to address the
problem of efficiency measurement for decision-making units (DMUs) with multiple
inputs and outputs in the absence of market prices. They denoted the phrase
‘‘decision-making units’’ in order to include non-market agencies like schools,
hospitals and courts, which produce identifiable and measurable outputs from
measurable inputs but generally lack market prices of outputs (and often of some
inputs as well). In this paper, DMU is regarded as synonymous with ICT companies.
DEA can be either input- or output-orientated. In the input-orientated case, the
DEA method defines the frontier by seeking for the maximum possible proportional
reduction in input usage, with output levels held constant, for each enterprise.
However, in the output-orientated case, the DEA method seeks the maximum
proportional increase in output production with input levels held fixed. The two
measures provide the same technical efficiency scores when a constant returns to
scale (CRS) applies, but are unequal when variable returns to scale (VRS) is assumed.
In this paper an output orientation has been selected as it is believed that it would be
fair to assume that, companies usually attempt to maximize output from a given set
International Competitiveness in the ICT Industry 171

of inputs rather than the converse. DEA has a number of advantages namely: it can
incorporate multiple inputs and outputs and it can calculate technical efficiency,
requiring only information on output and input quantities (not prices). This makes it
particularly suitable for analysing the efficiency of global strategies and possible
sources of inefficiency as well as efficiency levels. By identifying the ‘‘peers’’ for
development which are not observed to be efficient, it provides a set of potential role
models (reference ICT companies) that a firm can look to, in the first instance, for
ways of improving its operations. This makes DEA a potentially useful tool for
corporate strategy, benchmarking and change implementation programmes.
However, like any empirical technique, DEA is based on a number of simplifying
assumptions that need to be acknowledged when interpreting the results of DEA
studies. DEA’s main limitations include the following. Being a deterministic rather
than statistical technique, DEA produces results that are particularly sensitive to
measurement error. If a company’s inputs are understated or its outputs overstated,
then that company can become an outlier that significantly distorts the shape of the
frontier and reduces the efficiency scores of nearby companies. In regression-based
studies, the presence of error terms in the estimation tends to discount the impact of
outliers, but in DEA they are given equal weight to that of all other enterprises. DEA
only measures efficiency relative to best practice within the particular sample. Thus,
it is not meaningful to compare the scores between two different studies because
differences in best practice between the samples are unknown. DEA scores are
sensitive to input and output specification and the size of the sample. Increasing the
sample size will tend to reduce the average efficiency score, because including more
companies provides greater scope for DEA to find similar comparison partners.
In order to see how the efficiency frontier works a simplified case of a company is
considered which uses one input and a single output. Figure 1 indicates such a case,
where points A, B, F, L, and C are the locations of companies in input (X ) and
output (Y ) space. Relying on the available data, the unit with the highest efficiency is
regarded, i.e. the maximum output to input ratio. In Figure 1 company at point B has
the highest efficiency as a line drawn from the origin to the observed points has the
greatest slope in B. In this case line OE passing through point B determines the
efficiency frontier. All the other points are inefficient because their efficiency
(productivity) is lower.
Assuming the observation(s) on the efficiency frontier (in this case B) to be fully
efficient, it is given an efficiency score of 1 (or 100%). Observations below the
efficiency frontier are inefficient and the degree of inefficiencies depends on the
extent to which their productivity is below that of point B. The efficiency score for
company B can be determined as the ratio of the efficient use of input X to the actual
use of input X , i.e. XD/XC, keeping output constant. Assuming that variable returns
to scale holds, the efficiency frontier takes the form of a curve passing through points
A, B, F, and L. Taking output as given efficient use of input X for company C is
obtained at point N at the efficiency frontier. Accordingly the efficiency score for
company C is obtained as XN/XC.
Mathematically, the efficiency score of company c , assuming that companies
minimize the use of inputs given outputs, is determined by solving a linear
optimization problem (Charnes et al ., 1978). Considering n companies where
company f uses the amount of Xif of input i and produces the amount of yof of
172 G. E. Halkos & N. G. Tzeremes

Output Y
E

L
F
D
YC C
N
B

XD XN XC Input X

Figure 1. Efficiency frontiers under the assumption of CRS and VRS

output o. It is assumed that xif ]0, yof ]0 and that each company uses at least
one input to produce at least one output. By denoting the input weights by bi
(i 1, . . . , m) and output weights by mo (o1, . . . , s) the optimization problem,
assuming constant returns to scale, can be formulated as follows:
X
s
max wc  mo yoc (1)
m:b 01

X
m
s:t: bi xic 1 (2)
i1

X
s X
m
mo yof  bi xif 50; f 1; . . . ; n (3)
o1 i1

mo ; bi ]f; o1; . . . ; s; i 1; . . . ; m (4)


where f is a small positive constant.
The maximizing problem is called the multiplier problem and determines the
efficiency score of a company c by maximizing the sum of its weighted outputs
(equation (1)) so that the sum of its weighted inputs equals one (equation (2)) and so
that the weighted outputs minus the weighted inputs of all companies is less than or
equals zero (equation (3)). This setting implies that companies are either at the
efficiency frontier or below it and the efficiency scores vary between 0 and 1 (or
between 0 and 100 in percentages).
By denoting the input weights of a company c by u and the input and output
weights of other companies by lf (f 1, . . . , n) the dual of the maximizing problem
can be written when constant returns to scale hold as follows:
X
s X
m
min t uf
  c
s
o f s
i (5)
o;l;so ;s1
o1 i1
International Competitiveness in the ICT Industry 173

X
n
s:t: lf yof s
o yc ; o1; . . . ; s (6)
f 1

X
n
uxic  lf xif s
i 0; i; . . . ; m (7)
f 1

lf ; s 
o ; si ]0 (8)

The variables s0, si are called slack variables measuring the excess of inputs and
outputs. The small positive constant f guarantees that inputs and outputs are
positive and that the slack variables do not influence the target function tc . The
minimizing problem is called the envelopment problem and determines the efficient
use of inputs for company c (equation (5)) so that the outputs of company c equal to
the sum of weighted outputs of other companies (equation (6)). In addition, the
weighted inputs of company c must equal the weighted inputs of other companies
(equation (7)). The optimal value of parameter u in equation (7) determines the
amount company c should reduce its use of inputs in order to be at the efficiency
frontier. Positive values of lf determine those companies that dominate company c ,
i.e. form its comparative set. If it is assumed that variable returns to scale exist in the
production, another restriction is needed to be added to the envelopment problem,
which will ensure that the efficiency frontier is a convex hyperplane:

X
n
lf 1 (9)
f 1

In Figure 1, pure technical efficiency of company c is given by the ratio XN/XC KC.
The degree of scale efficiency is computed as zC uC/KC, where uc XD/XC and as
stated earlier represents the pure technical efficiency. By construction KC exceeds uC.
If the value of zC is 1 the company is scale efficient. If scale inefficiency exists, it can
be due to either increasing returns to scale (IRS) or decreasing returns to scale
(DRS). To differentiate IRS from DRS, the same linear programming problem is
solved again with the additional restriction of:

X
n
lf 51 (10)
f 1

which allows for non-increasing returns to scale (NIRS). In Figure 1, this case is
represented by the ABFL frontier. For company c located at point C, the efficiency is
given by fC XD/XC, which also equals uH. By construction, 8C ] uC and 8 C 5KC,
if 8C KC and scale inefficiency exists, then it is due to DRS. If KC "8C, then the
scale inefficiency is due to IRS. If the results indicate CRS then a company will be
overall efficient i.e. its combination of inputs and outputs is scale efficient. If a
company is observed to have DRS, then inefficiency is caused by a too big an output,
whereas when there is IRS it means that a firm is scale inefficient because according
to its capabilities it can achieve a bigger level of output.
174 G. E. Halkos & N. G. Tzeremes

Variables and Empirical Results


This study analyses 50 ICT companies as has been provided from the dataset of
OECD (2004) for the year 2003. Moreover, in order to calculate efficiency scores and
determine the performances of the companies, five variables in the form of inputs and
outputs have been used. Firstly the three inputs that have been used are the number of
employees, the R&D expenditure and the market capitalization. The latter is defined
as the total dollar value of all outstanding shares and it is calculated by multiplying
the number of shares times the current market price. Finally, the two outputs that
have been used are the revenues and the net income.
Looking at the chart of Figure 2 it can be observed that the largest amount of
companies (36% and 34%) are operating in the telecommunication and in the
electronic and components industries, whereas IT equipment consists of only 12%
and communication equipment 10% of the 50 largest companies.
Looking at the graph of Figure 3 the country of origin of the top 50 ICT
companies can be observed. Specifically, 18 of the companies are from the US,
whereas 13 are from Japan. Korea has only three companies, whereas France, the
UK and Germany have two companies each. Porter et al . (2001) in their study
investigating the changes in national technological competitiveness indicate that US
and Japan are remaining the leading countries of technological competitiveness.
In this study (as indicated previously), this can be observed by the fact that the
majority for the ICT companies are in fact US and Japanese.
According to the derived results from the solution of the model, it emerges that the
efficiency ratios of the ICT companies under consideration range from 0.1764 (or
17.64%) to 1 (or 100%). Twelve companies are considered to be efficient for the case
of overall efficiency (OE) and 14 for the case of pure technical efficiency (PTE) (see
Table 1). Specifically, as can be seen from Table 1, efficient companies are considered
to be those with efficiency ratio equal to one (U* 1 or 100). The most efficient
companies are NTT, Hitachi, Vodaphone, Dell Comp., Mitsubishi El., BT, Sprint,

ICT industries
Software
Comms equipment 2%
10%

Services
6% Telecommunications
36% Telecommunications
Electronics & components
IT equipment
12% IT equipment
Services
Comms equipment
Software

Electronics &
components
34%

Figure 2. The industries in which the largest ICT companies are operating
International Competitiveness in the ICT Industry 175

ICT companies’ countries


20
18
18
16
13
14
12
10
8
6
3
4
2 2 1 1 1 2 1 1 1 1 1 1 1
2
0

s
y
K

SA

Au re

na

Sw y

n
en
an

Be ia

a
ce

an

nd

l
ud

ad

an

ai
re
U

Ita
l
o

ra
an

hi

ed
p

Sp
ap

Ko

rla
rm

an

nl
Ja

C
st
Fr

er

Fi
ng

he
C
G
Si

et
N
Countries

Figure 3. Country of origin of the 50 largest ICT companies

KDDI, Tech Data, Qwest, Flextronics, Telstra for the case of overall efficiency and
all the previous plus Emerson El. and HP for the case of pure technical efficiency.
The first columns in Table 1 represent the rankings of the companies according to
their overall efficiency, the second, third and fourth columns represent the company
names, countries, of origin and industry characteristics, respectively. The fifth, sixth
and seventh columns represent the overall, pure technical and scale efficiencies
scores. Finally the last column represents the reference set for the inefficient
companies compared to the efficient ones. The same column shows us how many
times the efficient companies constitute a reference and comparison criterion for the
inefficient companies. That is, how many times the specific company appears to be a
member of the reference set.
At this point it is worth mentioning that a company which appears to be the most
times in the efficient frontier for the less efficient companies is considered to be the
global leader. By counting how many times each company appears to be in
the reference set (Table 1, column 9), it is noticed that Hitashi is the most efficient
in the case of OE and PTE because it appears 34 times (more than all the other
efficient companies) to be part of the reference set.
As it can be seen from the mathematical formulation, the feasible target for the
improvement of every ratio is achieved by summing up the products of the weights
and the respective ratios. The financial ratios that are used for each company’s
efficiency as well as the feasible target for improving any ratio are shown in Table 2. It
is noticed that for the companies that form the efficient frontier, there is no difference
between the real ratios and the feasible targets. However, there is a possibility of
improvement for all companies whose efficiency, according to Table 1 is less than 1.
It is worth mentioning that Table 1 must be read along with Table 2, as both tables
refer to the case of OE. For instance, the company IBM is examined looking first at
Table 1 it is noticed that the reference set of IBM is Hitashi, Dell and Mitshubishi.
So, as is shown in Table 2, the feasible target for the respective IBM’s ratios will be
given as the sum of the products of the respective weights for the reference set
(Hitashi, Dell and Mitshubishi) multiplied by the matrix-columns that include the
176
Table 1. Rankings, company names, county of origin, industry and efficiency scores of the companies

Rankings Companies Country Industry OE PTE SCALES Benchmarks

G. E. Halkos & N. G. Tzeremes


1 Hitachi Japan Electronics & components 100.00 100.00 1.00 CRS 34
1 BT UK Telecommunications 100.00 100.00 1.00 CRS 19
1 Vodafone UK Telecommunications 100.00 100.00 1.00 CRS 11
1 Flextronics Singapore Electronics & components 100.00 100.00 1.00 CRS 11
1 Mitsubishi Electric Japan Electronics & components 100.00 100.00 1.00 CRS 10
1 NTT Japan Telecommunications 100.00 100.00 1.00 CRS 8
1 Del Computer USA IT equipment 100.00 100.00 1.00 CRS 8
1 Tech Data USA Services 100.00 100.00 1.00 CRS 5
1 Telstra Australia Telecommunications 100.00 100.00 1.00 CRS 5
1 Sprint (FON & PCS USA Telecommunications 100.00 100.00 1.00 CRS 2
consolidated)
1 KODI Japan Telecommunications 100.00 100.00 1.00 CRS 2
1 Qwest USA Telecommunications 100.00 100.00 1.00 CRS 0
2 Emerson Electric USA Electronics & components 97.90 100.00 0.98 IRS BT, Flextronics, Telstra
3 Hewlett-Packard USA IT equipment 90.10 100.00 0.90 DRS Hitachi, Del, Mitsubishi
4 Canon Japan Electronics & components 79.66 82.82 0.96 DRS Hitachi, Mitsubishi, Sprint
5 Bel South USA Telecommunications 79.44 86.15 0.92 IRS Hitachi, Mitsubishi, Sprint
6 Fujistu Japan IT equipment 77.64 100.00 0.78 DRS Hitachi, Flextronics
7 Toshiba Japan IT equipment 75.98 77.27 0.98 DRS Hitachi, Flex Tronics
8 Accenture Bermuda Services 73.82 78.05 0.95 IRS Vodaphone, BT, Flextronics,
Telstra
9 IBM USA IT equipment 73.31 100.00 0.73 DRS Hitachi, Dell, Mitsubishi
10 NEC Japan IT equipment 73.19 73.93 0.99 DRS Hitachi, Flextronics
11 Korea Telecom Korea Telecommunications 69.09 71.13 0.97 IRS Vodaphone, BT, Flextronics,
Telstra
12 Sony Japan Electronics & components 66.34 73.98 0.90 DRS NTT, Hitachi, BT
13 Matsushita Electric Japan Electronics & components 65.75 79.63 0.83 DRS Hitachi, Flextronics
14 Xerox USA Electronics & components 61.52 61.90 0.99 IRS Hitachi, Flextronics
15 Samsung Electronics Korea Electronics & components 58.75 71.73 0.82 DRS NTT, Hitachi, BT
16 Ricoh Japan Electronics & components 57.90 61.20 0.95 IRS NTT, BT, Flextronics
Table 1. (Continued )

Rankings Companies Country Industry OE PTE SCALES Benchmarks

17 AT & T USA Telecommunications 57.82 63.71 0.91 DRS Kitachi, Mitsubishi, KDDI,
Tech Data
18 France Telecom France Telecommunications 58.15 74.56 0.75 DRS Hitachi, Mitsubishi, Tech Data
19 Verizon Communications USA Telecommunications 53.23 87.38 0.61 DRS Hitachi, Vodaphone, BT
20 Sharp Japan Electronics & components 52.23 58.20 0.03 IRS NTT, Hitachi, BT
21 Deutsche Telecom Germany Telecommunications 49.50 70.68 0.70 DRS Hitachi, Mitsubishi, Tech Data
22 SBC Communications USA Telecommunications 49.06 68.52 0.72 DRS Hitachi, Vodaphone, Dell, BT

International Competitiveness in the ICT Industry


23 Sanyo Electric Japan Electronics & components 48.38 50.17 0.98 DRS Hitachi, Mitsubishi, KDDI,
Tech Data
24 Siemens Germany Electronics & components 47.05 95.19 0.49 DRS NTT, Hitachi, Flextronics
25 China Mobile China Telecommunications 43.83 46.34 0.95 DRS Hitachi, BT, Telstra
26 BCE Canada Telecommunications 42.06 42.92 0.98 IRS Hitachi, Vodaphone, BT
27 Microsoft USA Software 39.23 58.52 0.69 DRS Hitachi, Telstra
28 3M USA Electronics & components 36.08 40.38 0.89 DRS Hitachi, Vodaphone, Dell, BT
29 EDS USA Services 35.46 38.77 0.96 DRS Hitachi, Tech Data
30 Philips Electronics Netherlands Electronics & components 35.35 38.93 0.91 DRS NTT, Hitachi, BT
31 Nokia Finland Comms equipment 35.19 45.30 0.73 DRS Hitachi, Dell, Mitsubishi
32 Alcatel France Comms equipment 33.22 33.25 1.00 IRS NTT, Hitachi, KDDI,
33 LG Electronics Korea Electronics & components 32.88 34.31 0.96 DRS Hitachi, Vodaphone, Dell, BT
34 Motorola USA Comms equipment 28.11 32.27 0.87 DRS NTT, Hitachi, Flextronics
35 Cisco Systems USA Comms equipment 27.30 28.46 0.96 DRS Hitachi, Dell, Mitsubishi
36 Intel USA Electronics & components 20.02 37.37 0.54 DRS Hitachi, Vodaphone, Dell, BT
37 Telecom Italia/Olvetti Italy Telecommunications 19.61 40.90 0.48 DRS Hitachi, Vodaphone, BT
38 Ericsson Sweden Comms equipment 18.67 20.67 0.90 DRS Hitachi, Vodaphone, BT
39 Telefonica Spain Telecommunications 17.64 35.64 0.49 DRS Hitachi, Vodaphone, BT
Note: OE  Overall efficiency; PTE  pure technical efficiency.

177
178 G. E. Halkos & N. G. Tzeremes

ratios of the reference set companies. Specifically, the feasible target for every
inefficient company can be calculated as:

X
N
Yi  l+n Ri (11)
n1

In a similar way, for each company the rest of the feasible efficient target ratios can
be calculated as shown in Table 2. For instance IBM in order to be competitive and
thus to increase its performance, needs to efficiently use its resources. But due to
scarce resources and inefficiencies it has to reduce the employees by 49%, reduce its
R&D expenditure by 52.49% and to increase its market capitalization by 116.98%.
As can be seen the methodology provides the competitive posture of the companies
(top 50) competing globally in the ICT sector. Moreover, as can be observed from
Table 1, most of the efficient companies (7 out of 12) are operating in the
telecommunication industry. Furthermore, four of the efficient companies are US
companies, four are Japanese and only two are from a European country, the UK.
The other two efficient companies are from Australia and Singapore.

Conclusions and Policy Implications


In this study applying DEA to the top 50 companies operating in the ICT sector, the
efficiency scores and the optimal output (ratios) levels for the inefficient companies
are obtained. DEA provided an overall objective numerical score, ranking, and
efficiency potential improvement targets for each one of the inefficient units.
The results provide a clear view of the efficiency and the performance of the major
competitors in the ICT sector. This study is an important tool for strategic planning,
comparisons between the main competitors in the ICT competitive structure and the
effect of different control systems on companies’ performance and competitive
posture. In strategic planning the managers of the corporate centre believe that they
should participate in and influence the development of business unit strategies. They
use flexible performance targets, which are reviewed within the context of the long-
term strategic process. DEA provided such performance targets by measuring the
DMUs’ efficiencies giving the competitive position of every DMU.
However, it is important to recognize that the scope of decision-making defines
what can be regarded as choice variables and the criterion function has to be
appropriately formulated. The obvious payoff from efficiency measurement is that it
provides an objective basis for evaluating the performance of a DMU. The outcome
at the highest level of efficiency provides an absolute standard for management by
objectives. Furthermore, comparison of efficiency across DMUs at the same level
provides a basis for differential rewards. In this way, one can assess the impact of
various institutional and/or organizational changes or new product/service develop-
ment by analyzing how it affects the efficiency.
The results indicate clearly that most of the companies are US and Japanese.
Telecommunications and electronic components are the main ICT segments with
intense global competition. However, the huge segments created by ICT markets
raise the challenges for new firms to compete globally. Furthermore, they raise the
challenge for new firms to compete globally. Furthermore, they raise the challenge
Table 2. Actual, targeted and percentage changes of input values of the inefficient companies

Companies Employees R&D Market cap Companies Employees R&D Market cap

Actual values IBM 207363.00 3300.00 31747.00 Telefonica 153760.00 6548.31 47180.00
Targeted 105776.94 1567.95 68885.36 153937.35 6547.23 47270.41
Percentage change 48.99 52.49 116.98 0.12 0.02 0.19
Actual values Siemens 417000.00 6938.66 53873.00 Motorola 178610.00 3811.00 23947.00
Targeted 418301.36 6956.75 54047.72 178286.30 3812.36 23895.35
Percentage change 0.31 0.26 0.32 0.18 0.04 0.22
Actual values Hewlett-Packard 23000.00 3654.00 59228.00 Canon 5400.00 5244.61 42202.00
Targeted 23035.40 3660.10 59308.89 5523.40 3646.27 42295.37
Percentage change 0.15 0.17 0.14 2.29 30.48 0.22

International Competitiveness in the ICT Industry


Actual values Verizon Communications 229500.00 3896.89 99159.00 Bell South 6500.00 6036.01 41612.00
Targeted 229458.14 3894.88 99034.64 6498.40 3937.41 41878.76
Percentage change 0.02 0.05 0.13 0.02 34.77 0.64
Actual values Sony 161100.00 3693.00 33785.00 EDS 143000.00 3135.00 10608.00
Targeted 161352.16 3691.61 33818.96 31803.00 3139.78 10619.28
Percentage change 0.16 0.04 0.10 77.76 0.15 0.11
Actual values Matsushita Electric 288324.00 4128.11 21745.00 Sanyo Electric 12000.00 2343.86 19306.00
Targeted 142100.00 4124.76 21707.71 12031.80 2370.44 19351.55
Percentage change 50.72 0.08 0.17 0.26 1.13 0.24
Actual values France Telecom 43000.00 4563.22 24140.00 Cisco Systems 34000.00 3135.00 133215.00
Targeted 42865.80 4548.15 24020.29 33792.80 3127.80 34511.62
Percentage change 0.31 0.33 0.50 0.61 0.23 74.09
Actual values Deutsche Telekom 33000.00 4998.34 47260.00 Alcatel 56000.00 2532.18 13203.00
Targeted 100.00 100.01 100.00 56315.82 2545.38 13275.36
Percentage change 99.70 98.00 99.79 0.56 0.52 0.55
Actual values Toshiba 165776.00 2810.06 13679.00 LG Electronics 78000.00 1334.11 74802.33
Targeted 79400.00 2796.28 13637.63 78420.48 1351.76 75584.70
Percentage change 52.10 0.49 0.30 0.54 1.32 1.18
Actual values Samsung Electronics 204993.00 2511.00 40404.00 3M 100000.00 1083.00 56129.00
Targeted 205543.68 2509.84 40485.52 99857.71 1091.21 56298.39
Percentage change 0.27 0.05 0.20 0.14 0.76 0.30
Actual values SBC Communications 175400.00 2511.00 67703.00 Emerson Electric 122000.00 200.58 22757.00

179
Targeted 176334.71 2531.61 68414.17 92570.48 203.02 22873.36
180
Table 2. (Continued )

G. E. Halkos & N. G. Tzeremes


Companies Employees R&D Market cap Companies Employees R&D Market cap

Percentage change 0.53 0.82 1.05 24.12 1.21 0.51


Actual values NEC 145807.00 2511.00 12080.00 Sharp 46633.00 1279.00 11433.00
Targeted 69000.00 2521.73 12132.75 46777.63 1273.29 11451.55
Percentage change 52.68 0.43 0.44 0.31 0.45 0.16
Actual values Fujitsu 157044.00 2381.00 9226.00 Xerox 116821.80 908.00 7544.00
Targeted 55657.00 2728.62 72334.48 74900.00 903.70 7543.74
Percentage change 64.56 14.60 684.03 35.89 0.47 0.00
Actual values Nokia 52714.00 4616.95 74012.00 China Mobile 103771.60 1054.04 40508.00
Targeted 53015.60 4638.00 74425.18 104023.92 1063.81 40567.84
Percentage change 0.57 0.46 0.56 0.24 0.93 0.10
Actual values AT & T 25428.67 6852.91 18297.00 BCE 77671.20 1153.96 17993.00
Targeted 30362.20 12618.15 31349.88 77152.00 1157.20 17706.86
Percentage change 19.40 84.13 71.34 0.67 0.28 1.59
Actual values Telecom Italia/Olivetti 106620.00 7795.85 45812.00 Ericsson 64621.00 3592.64 23844.00
Targeted 106335.37 7784.32 45864.39 65211.35 3582.47 24400.17
Percentage change 0.27 0.15 0.11 0.91 0.28 2.33
Actual values Microsoft 55000.00 4659.00 285413.00 Ricoh 74600.00 708.00 13997.00
Targeted 55097.58 4673.29 21233.18 71216.19 689.08 13625.43
Percentage change 0.18 0.31 92.56 4.54 2.67 2.65
Actual values Philips Electronics 104060.00 3681.09 21471.00 Accenture 75000.00 266.90 19691.00
Targeted 103715.05 3688.30 21428.19 75184.92 266.13 19943.54
Percentage change 0.33 0.20 0.20 0.25 0.29 1.28
Actual values Intel 128910.00 4300.00 177332.00 Korea Telecom 62842.80 235.00 30734.33
Targeted 128857.34 4300.88 176652.02 63884.05 238.65 31141.19
Percentage change 0.04 0.02 0.38 1.66 1.55 1.32
International Competitiveness in the ICT Industry 181

for governments and public policy to capture important value added segments for
local producers. EU countries’ policy need to be restructured and frameworked using
basic elements of the US and Japanese models. They need to be effective in shaping
the patterns of demand in ways that advantage local suppliers over their global
competitors.
Two factors can be the fundamental pillars for policy evaluation and restructuring
for domestic demand: the regulatory policies for entry or competition and the
structure of demand in domestic markets. Especially the latter involves the effect of
government ownership, legal requirements and the general pressure for buyers to buy
from national suppliers. Thus it is expected that governments from EU countries and
local firm(s) to pursue joint strategies of entry into global information and
communication technology or market preservation in local ICT. Such private/public
partnership will draw on the firm(s)’s technological capabilities on connection to
local complementors or customers and on linkages to international complementors
or customers.

Note
1
The justification and classification of the top 50 worldwide companies has been conducted by OECD
based on their revenue levels.

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