Analysis of the Trends in the Information Technology Industry - Report Example

ECONOMIC Introduction 3 Analysis of the trends in the Information Technology Industry 3 Conclusion 6 References 7 Khosrow-Pour, M. (2006). Emerging trends and challenges in information technology management. USA: Idea Group Publishing. 7 Kudyba, & Diwan, (2002). Information technology, corporate productivity, and the new economy. USA: Greenwood Publishing Group. 7 Low, L. (2000). Economics of information technology and the media. Singapore: World Scientific. 7 Madura, J. (2006). Introduction to business. USA: Cengage Learning. 7 Tansey, S. D. (2003). Business, information technology and society. London: Routledge. 7 Bibliography 7 Baumol, W. J. & Blinder, A. S. (2008). Economics: Principles and Policy. 7 Casson, M. (2003). The entrepreneur: an economic theory. London: Edward Elgar. 7 Mankiw, N. G. (2008). Principles of Economics. USA: Cengage Learning. 7 Introduction Service sector is one of the most important parts contributing to the income of a nation at present. Among the most invincible segments which conform together to form the service sector is the IT industry. Information technology being the ultimate word in almost every conceivable aspect of daily life could be regarded as one of the supporting pillars irrespective of an economy. However, the influence of the industry is more intense in developing nations who often outsource their services to various organisations located in the developed world. Under such a scenario, trends in the information technology industry are one of the most vital areas worth of discussion. The present paper deals with the situation prevailing in the industry at present post a wage hike. It basically involves demand-supply analysis and the efficiency of market operations of the sector. In addition, since the industry is highly involved in outsourcing business, discussions about various features of international trade will also be included in the paper. Analysis of the trends in the Information Technology Industry Information technology companies hosted by India have been experiencing a substantial hike in employee wage, between the first and second quarters of 2010. This has affected the employers, especially of the medium-sized organisations, considerably given their sharp reduction in profit after tax figures. The adjoining table displays the extent to which personnel cost had surged up in five top-notch IT companies in India and the impact that they had over the profit after tax (PAT) figures of the employers. Such a trend however had been set by the bigger companies which decided to motivate their employees by inducing them with a bigger salary. However, the impact of the same had been negative upon medium sized companies belonging to the same industry as would be evaluated underneath.1 Demand and Supply Analysis The present section deals with the demand and supply analysis of the skilled labour market, i.e., those who are fit to work in IT firms. In most cases, skilled labour is priced high. The demand for skilled labour is quite inelastic given the fact that most employers are concerned about providing a good quality of service rather than curtailing upon the cost of operation. On the other hand, the supply of skilled labour is found to be upward rising and concave in shape. This suggests that skilled labour are reluctant to supply their services when offered a low wage, rather they prefer to stay unemployed voluntarily. However, they find almost no problem when offered a high wage.2 Thus, when the margin of wages increased, it was similar to a vertical shift of the supply curve schedule that implies the provision of same quantity of labour at a higher price. As the diagram shows, the consequence of a shift in the supply curve is that the point of intersection shifted above and to the left. Hence, the equilibrium amount of wage prevailing in the market rose from P1 to P2, while lowering the equilibrium quantity being demanded by the companies. It is clear enough from the above diagram that the rise in price is proportionately higher than the lowering of the quantity of labour. Such a situation would not have arisen had the demand curve been elastic as well. Elasticity implies the extent to which the quantity demanded or supplied of a commodity changes with change in price. If the absolute change is found to be less than 1, the demand or supply could be regarded as inelastic. On the contrary it is elastic in case that proportion of change in demand or supply is equal to or greater than 1 owing to a change in price. The present scenario is that of an inelastic demand for labour corresponded by an elastic supply of the same. This is the reason why a shift in the equilibrium results to a proportionately higher increase in wage rather than fall in the quantity. Market Mechanism Market mechanism is a term used to identify the forces that help in the best possible allocation of resources in an economy. They might or might not need government forces to suffice market mechanisms. The information technology industry however, being considered as one of the most supportive of all sectors in yielding income for a developing nation, had to be supported by the national governments of the respective nations. Following a widespread retrenchment of the employees, the national governments of the developing countries injected resources in these nations which was when the bigger companies got the resources to compensate their employees.3 Economic Efficiency of Information Technology Industry The industry for information technology might be regarded as one whose services are utilised by many industries today. From such a perspective, the economic efficiency of information technology industry might be considered to be quite high. By definition, economic efficiency implies the increase in value of goods and services being produced owing to the production of one particular product.4 This improvisation is reflected in the form of a downward shift in the marginal cost of production of other goods, hence resulting to a fall in the market price at which the commodity is available. In the adjoining diagram, this shift in marginal cost is represented by the darker blue line and the final price is represented by the point on the vertical axis, being touched by the dotted green line; this resultant price is found to be much lower than the original one at P2. International Trade Information technology is one of the industries that surmount international trade within its arena. Since the industry is highly involved in outsourcing business, concepts of international trade are highly associated with it. However, given the absence of barriers to trade, it is quite obvious that the result would be a tough competition among different domestic industries. In fact, this is seen as a common feature of the information technology market as companies around the world are found to be vying with one another to capture a larger share of the market.5 Conclusion The present paper dealt with the problems being faced by the employers of companies that deal in information technology. The main problem that had been pestering the employers is a rise in the wages of the employees being induced by a promotion in the pay-package offered by the bigger houses. In fact, this had been a crisis faced mainly by the medium-sized organisations which had to compensate their employees at the expense of their own profit margins. However, the IT industry might also be regarded as one of those that benefit other industries the most. This is reflected through a rise in the economic efficiency of many industries post the information technology revolution that eventually has led to better growth prospects of the nation. Moreover, given the industry’s high involvement in international trade, its chances of betterment have increased as well, thus pushing up the national growth prospects. References Issa, G. F., Hussain, S. M. & Bahadili, H. (2009). Economic Efficiency Analysis for Information Technology in Developing Countries. Journal of Computer Science 5 (10). ISSN 1549-3636. Khosrow-Pour, M. (2006). Emerging trends and challenges in information technology management. USA: Idea Group Publishing. Kudyba, & Diwan, (2002). Information technology, corporate productivity, and the new economy. USA: Greenwood Publishing Group. Kumaranath, K. V. (2010, November 18). Wage hikes leave IT firms with less profit. The Hindu: Business Line. Retrieved http://www.thehindubusinessline.com/2010/11/18/stories/2010111851750700.htm Low, L. (2000). Economics of information technology and the media. Singapore: World Scientific. Madura, J. (2006). Introduction to business. USA: Cengage Learning. Tansey, S. D. (2003). Business, information technology and society. London: Routledge. Bibliography Baumol, W. J. & Blinder, A. S. (2008). Economics: Principles and Policy. Casson, M. (2003). The entrepreneur: an economic theory. London: Edward Elgar. Mankiw, N. G. (2008). Principles of Economics. USA: Cengage Learning. Read More