A key hallmark of the Great Recession was a deep dip in corporate spending on information technology. By the same token, an uptick in tech spending is heralding the economic recovery, with companies like Intel, Microsoft, Advanced Micro Devices, and IBM recently reporting surging revenues and profits.
That the IT industry is inextricably entwined with the fortunes of the economy is hardly a matter for debate. But for Dean Garfield, CEO of the Information Technology Industry Council (ITI), there are lots of things to debate, especially in Washington, where the trade group serves as an advocate for 45 of the world’s most important high-tech companies. Topping the list of issues: trying to stimulate growth of high-tech jobs in the United States, where most of the group’s members are based, and pushing for fair trade internationally.
As Garfield told CFO in a recent interview, the ITI is currently tapping the finance chiefs of technology companies to help out with its agenda. An edited version of that interview follows.
Intel’s CFO, Stacy Smith, recently opined to us that the United States is losing ground in the battle for high-tech jobs because, unlike other countries, it’s offering U.S. companies little in the way of grants and tax incentives to build their U.S. infrastructures and employ more workers. Do you agree?
Absolutely. Countries are competing hard for the attention of U.S. businesses, and certainly for the technology sector, which is an important engine for economic growth. Where companies locate their operations is largely driven by tax, infrastructure, and human-capital issues. On all those fronts, the United States could be doing a much better job.
Regarding tax, the United States is the only country in the world with a global tax system [as opposed to a territorial system, where only money earned within the country is taxed] that has a statutory tax rate greater than 30%. That puts the rest of the world at a competitive advantage.
As to investment in infrastructure and innovation, the R&D tax credit expired last year and hasn’t yet been renewed. That makes for a really unpredictable environment, which is something that CFOs don’t love.
Speaking of infrastructure, how important is the proposed National Broadband Plan that’s under debate in Washington?
It’s critical. The United States has the potential to do better than most countries in that area, but we’re not in the top 15 among OECD [Organization for Economic Cooperation & Development] countries in either broadband adoption or broadband speed. Better access to high-speed Internet will create real opportunities not only for the technology and communications sector, but for businesses generally.
Broadband has been such a boon to our economy. Right now the Internet supports over 1.2 million jobs directly, which is more than farming or the automobile industry, two traditional bedrocks of the U.S. economy. But the Internet and technology generally are the bedrock of the new economy. So we need to take all the steps necessary to make sure it continues to grow robustly.
You mentioned the importance of human-capital issues. The ITI seems very focused on that — your Website lists “spurring sustainable job growth” as your top-priority item for 2010. Why?
First, the United States is falling behind the rest of the world in preparing students in science, technology, engineering, and math. In the latest study by the U.S. Department of Education and the Institute of Education Sciences, U.S. eighth graders scored lower than those in 12 of the 48 countries measured, including Japan, the U.K., and Russia. We have to make the domestic pipeline stronger.
Second, we have immigration policies that simply don’t make sense. We attract and educate the best and the brightest, but we don’t create incentives for them to stay in the country. The current reality is that over 50% of the students who receive master’s degrees in the sciences at U.S. colleges, and 75% of those who receive PhDs, are foreign nationals. After coming to the United States and getting the best [college] education in the world, they are forced to leave. We argue for reforming that.
Your second-priority item is “increasing access to global markets.” What are you doing in that area?
Most of our member companies are U.S.-based multinationals, and most are earning more than half of their revenue internationally. The United States has 5% of the world’s population but 24% of its buying power. So we have to make sure markets are open to international companies.
What we do is work with the U.S. government to make sure trade agreements with priority markets are identified and advanced. Where there are barriers, we work with both the government and the private sector to knock them down. China is a prime example: there is rich potential there, and our companies have invested billions of dollars, but there are many barriers that don’t allow them to compete on an equal footing with Chinese businesses.
Is there a role for CFOs to play in these kinds of policy debates?
Yes. In fact, we’ve identified that we historically haven’t leveraged the expertise of our CFOs. So we had a meeting with some of them in Palo Alto about a month ago, and they decided they want to work to influence policy issues in Washington. It was a brainstorming session, and we also heard from [former Secretary of State] Condoleezza Rice and [former Bill Clinton chief of staff] John Podesta. We had an engaging conversation about how CFOs and companies make decisions on where to hire employees and locate new facilities. They agreed that for their next gathering it would make sense for them to spend some time in Washington talking to policymakers.
What is the role of CFOs in those discussions that’s different from what CEOs might provide?
CFOs bring a unique perspective and depth of knowledge around the analytics that go into making those decisions on resources. All the those at our meeting — including the CFOs of Cisco, Dell, Microsoft, NCR, Qualcomm, and Yahoo — had a very clear sense of how the U.S. stacks up against our global competitors in the key areas that impact their decision making. The second thing is, they have a sense of both the granular and the big picture. That distinguishes them from almost everyone else.
How would this event in Washington be structured?
It’s all to be decided, but the thinking is to make it a mix of meetings with Congress, the administration, and government agencies. The CFOs are interested in bringing different perspectives to the debate.
It seems like every conversation about corporate technology comes around to cloud computing sooner or later. One of the benefits about the cloud that’s always mentioned is lower IT costs. That means less revenue for your members, right?
No doubt. But one thing we know about technology is that it’s always driving down costs in some areas while creating new opportunities in others. So yes, you may be eliminating costs on the server side, but there are new opportunities for our members on the service side.
There are certain fundamental steps that need to be taken with cloud computing around data protection, international acceptability, and global standards, so that as you are traveling around the world, you aren’t confused about when and where you can access your data and what the rules are.
What would be your best advice for CFOs in terms of evaluating and selling technology vendors?
Become proficient in the language of technology, or at least don’t be afraid of it. CFOs and technologists are often perceived as speaking completely different languages and not interfacing well. So to CFOs I would say, jump in and learn.
That’s an interesting twist on a number of conversations we’ve had with people who took technologists to task for not speaking in the language of business.
It works both ways. Yes, it’s important that CFOs ask their technologists to speak in straightforward terms. But when you travel to another country, while you ask people to slow down when speaking, you also try to learn some key terminology. It’s the same thing with technology.