Challenges in the Technology Industry - Essay Example

Risk Factors and Challenges in the Technology Industry Majority of the technology-related sectors share nowadays several common risk factors. They include: Increasingly competitive environment; Rapid technological development and consequent rapid product obsolescence; Influence of the economic fluctuations, the exchange rates changes, and the political factors in the international marketplace etc. However, there is also a wide range of the sector-specific challenges that are faced by the technology-intensive industries. Non-exclusive list for the several chosen sectors is provided below. 1. Information Technology: Decline in customers' spending on IT and decreasing budgets : After spending more than $1.2 trillion in the US alone on information technology products and services during the late 1990s, companies are slashing their IT budgets (Mattern 4). Pressuring competition and increasing sophistication of customers' needs: More customized solutions and additional services, including IT consulting and technical support are required by the market. Client companies require IT technology that is in alignment with their overall business strategy. Increasing importance of the security issues: companies specializing in information technology should prove that their products are able to provide sufficient level of security. Moreover, business enterprises are very concerned about "outsider" company having access to the sensitive commercial information. Escalating complexity of the products and solutions: It is hard to test all the scenarios for the applications involving extremely lengthy and complex code, which sometimes leads to "bugs" and malfunctioning. Intellectual property issues: protection against unauthorized use of the company's protected assets requires substantial financial and organizational effort. Growth of in-house IT: Many non-computer firms joined the industry by adding divisions or by acquiring computer services companies. Banks, publishers, airlines, and telecommunications companies were among those whose information technology divisions were involved in this industry (SIC Computer Related Services n/p). Issue of legacy systems' presence and integration with offered solutions. Flawed perceptions: Often the IT organization is considered just a support function. 2. Communications and Networking Changes in the industry-related regulations: For example, adoption of the Telecommunications Reform Act of 1996 greatly influenced operations of the telecommunication industry players. Standardization and adoption of new protocols. Emergence of many competing formats, offering lower costs and improved services to the customers: for example emergence of PCS systems as strong competition to wireless phone systems. Integration of different services (e.g. mobile phones with PDA -functions, text and multimedia messages services, WAP-internet access). Transformation of the industry structure: mergers and acquisitions in the industry (for example, recently approved acquisition of Skype VoIP-operator by the EBay Corporation). Reaching saturation in the developed-countries markets and challenges of global expansion. Dependability on the readiness of the customers to engage in electronic interactions or networking: Value of network grows in line with the number of participants. If the market does not successfully adopt the new technology on a wide scale, it will not exist long. 3. Electronics and Computer Hardware: Temporary slowdown of early 2000s in the technology spending in both corporate and private sectors caused by economic conditions and changes in the consumer behavior: The wave of year-2000-related new equipment purchases that took place at the end of the 1990s, as well as the availability of quality used equipment from bankrupt Internet companies in the early 2000s, had a negative impact on the corporate market for new electronic devices and computers. (Electronic Computers n/p) High R&D costs and consequently high break-even volumes. Increasing competition of low-cost Asian electronic components and systems. Severe price competition in the industry can be illustrated by description of the situation in the PC and laptop sectors: From 1998 to 2000, reported IDC, average PC prices worldwide skidded 18 percent, to $1,543 a machine. According to IDC, average desktop system prices fell 12 percent in 1999, 7 percent in 2000, and almost 10 percent in 2001. By late 2002, all leading computer manufacturers offered complete systems that cost less than $1,000. For example, Dell offered a desktop system with an Intel Pentium Four processor, a 1.8 GHz processor, and a 15-inch flat panel monitor for $699 after a mail-in rebate. Price competition also was fierce in the market for laptops, where good values also could be found for less than $1,000. (Electronic n/p) Increasing demand for customization. Shortening of the product life cycles and growing perception of the electronic devices and computers as commodity goods. For component producers selling their products to other manufacturers: unawareness of the final customers of the component brand and low loyalty of the manufacturers which leads to threat of easy replacement by another supplier. 4. Semiconductors: Short life cycles of the products determined by the rapid technological development and innovations and leading to increasing pricing pressures. Noticeable cyclical fluctuations in the industry: After worldwide semiconductor sales grew 40 percent in 1995 to nearly $150 billion, sales dropped in 1996 and were flat through 1998. Sales reached record levels in 2000, totaling $204 billion. However, they fell sharply the following year, dropping to $139 billion as the industry experienced the worst year in its history. In the wake of 2001's dramatic decline, tens of thousands of industry workers lost their jobs. However, the industry rebounded during the next few years. After remaining relatively flat in 2002 and 2003, in 2004 the industry reported year-on-year growth of 28 percent, posting record global revenues of $213 billion. (Semiconductors and Related Devices n/p) Dependability on other cyclical industries, in particular computers, automobiles, and consumer electronics. Industry structure: Domination of just a few companies in the U.S. and global computer microprocessor market. Extremely high R&D costs: According to the SIA, about 17 percent of U.S. semiconductor industry revenues are spent on research and development- the most of any U.S. manufacturer and several times the average. Costs for new semiconductor fabrication facilities are a major capital consideration for many companies. (Semiconductors and Related Devices n/p) With expansion to different markets outside of the traditional computer manufacturing, increased need in customization of the products. Strong competition, cases of the illegal dumping practices, and breach of the intellectual property rights by foreign competitors. Outsourcing of certain production functions, in particular water fabrication, to other facilities with spare capacity: with increase in demand spare capacity is no longer available. 5. Software: Escalating complexity of the products and solutions: It is hard to test all the scenarios for the applications involving extremely lengthy and complex code, which sometimes leads to "bugs" and malfunctioning. Decreasing times before launching the new product to the market: higher "patching" costs that need to be incurred later on. Intellectual property issues: protection against unauthorized use of the company's protected assets requires substantial financial and organizational effort. Controversy over software patents. Low explored potential for licensing the technologies to other companies. Emergence and fast growing popularity of competing open-source free software. Extensive but controversial national and international regulation of the industry; standardization of particular software products. Rising security issues concerns. In software, unlike other industries, competitiveness originates largely not from cost or quality of resources used but from design. Software can be thought of as an "industry of the mind"-where knowledge, intelligence and human creativity are the crucial inputs. (Horwitz 3) Therefore, software industry companies are crucially dependent on qualified and talented working force. 6. Internet Related Businesses: Still considerable Dot.com crush gloomy effect: both customers and potential investors are less optimistic about Internet related business models. On average, low entry and exit barriers: to start click-and-click business required capital investments are relatively low. As a result, threat of new entrants is very high and many firms can implement the successful concept. Underdeveloped national and international regulations of the industry. Vulnerability to the disruption of vitally important business processes (sales and customer care, online processing etc.) and unauthorized access to the commercial information due to the viruses, worms, DoS attacks and other security breaches. Vertical and horizontal integration in the industry through mergers and acquisitions. 7. Biopharmaceuticals: Research and development-intensive industry: Even applied research and development studies require both extensive funding and long period of time. Long and complicated process of obtaining regulatory approval for product candidates and successfully commercializing them. Various legislative regulations and different regulatory bodies and procedures for entering particular national markets. Very high uncertainty about product approval outcome with the FDA or with regulatory authorities in other countries: Data obtained from pre-clinical and clinical tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. It may take us many years to complete the testing of a product candidate and failure can occur at any stage of this process. Negative or inconclusive results or medical events during a clinical trial could cause a delay or terminate the development efforts. (Keryx 24) High influence of the enrollment of patients on the clinical trials process: potential products of the biopharmaceutical industry if aimed at curing a particular illness can not be tested on healthy people; voluntary enrolled patients suffering from this illness should be involved. Competition from other companies developing similar-purpose drugs is highly likely: Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved for this indication. . . Trials are subject to delays stemming from patient withdrawal and from lower than expected event rates and may also incur increased costs if enrollment is increased in order to achieve the desired number of events (Keryx 24). In case of the companies licensing the proprietary technologies from other parties, termination of the license contracts can curtail the product development process. Manufacturing often outsourced by the research-oriented companies to third parties: As a result, difficulties often faced with regard to the quality control, qualification of the personnel, conformity with FDA and other regulations, production costs and process controls: Contract manufacturers are be subject to ongoing periodic, unannounced inspections by the FDA and corresponding foreign governmental agencies to ensure strict compliance with, among other things, current good manufacturing practices, in addition to other governmental regulations and corresponding foreign standards. (Keryx 26) Due to the nature of the product and diversity of components used in the industry, high sensitivity to raw materials availability, especially in cases of low-volume sole supplier. Dependence on the market acceptance subject to: perceptions by members of the health care community, including physicians, of the safety and efficacy of the product; the adoption rates for the products amongst medics as well as the target populations; the potential advantages that the new product offers in comparison with already existing treatment methods; the comparative cost and effectiveness of the new product; government or insurance-company reimbursement; known or potential side effects or unfavorable publicity concerning the product or existing one which is similar to it . (Keryx 24) 8. Medical Devices and Equipment: Extensive regulation of the industry sector and time- and financially-intensive approval procedures. Increasingly dynamic market. Technological advances and scientific discoveries have accelerated the pace of change in medical technology. Companies of varying sizes compete in the global medical technology field. Some are more specialized than others with respect to particular markets, and some have greater financial resources than others (Beckton, Dickinson and Company 3). Changes in the industry structure: New companies have entered the field, particularly in the areas of safety-engineered devices and in life sciences, and established companies have diversified their business activities into the medical technology area. Other firms engaged in the distribution of medical technology products have become manufacturers of medical devices and instruments as well. Acquisitions and collaborations by and among other companies seeking a competitive advantage also affect the competitive environment. (Beckton, Dickinson and Company 4) High sensitivity to raw materials availability, especially in cases of low-volume sole supplier. Rapid changes in the healthcare practices leading to shorter equipment product life cycles. Increasing pricing pressures. Influence of the government and third-parties, including private clinics, insurance companies and NGOs. Works Cited "Semiconductors and Related Devices." Encyclopedia of American Industries. Online Edition. Thomson Gale, 2006. Retrieved on January 31, 2006 from http://www.referenceforbusiness.com/industries/Electronic-Equipment-Components/Semiconductors-Related-Devices.html Beckton, Dickinson and Company. Annual Report 10-K. Retrieved on January 31, 2006 from http://phx.corporate-ir.net/phoenix.zhtmlc=64106&p=irol-secselection Mattern, Frank. Transforming IT. The MCKinsey Quarterly. 2002 Special Edition: Technology. Pp. 4-5. "SIC Computer Related Services." Encyclopedia of American Industries. Online Edition. Thomson Gale, 2006. Retrieved on January 31, 2006 from http://www.referenceforbusiness.com/industries/Service/Computer-Related-Services-Elsewhere-Classified.html "Electronic Computers " Encyclopedia of American Industries. Online Edition. Thomson Gale, 2006. Retrieved on January 31, 2006 from http://www.referenceforbusiness.com/industries/Machinery-Computer-Equipment/Electronic-Computers.html KERYX Biopharmaceuticals. Quarterly Report 10-Q. Issued Nov 04, 2005. Retrieved on January 31, 2006 from http://www.shareholder.com/keryx/edgar.cfm Horwitz, Jay. Human Capital & Software Sector Growth. April 2004. Retrieved on February 1, 2006 from Carnegie Melon Software Industry Center site http://www.softwarecenter.cmu.edu/WorkingPapers.htm Read More