IBM’s Transformation to a Services

Company and the Growth of Digital Trade

Michael DiPaula-Coyle
IBM Governmental Programs

© 2013 IBM Corporation

IBM: A Globally Integrated Technology and
Consulting Company

 Founded in 1911 and now operating in 170 countries, IBM

develops and sells software and systems hardware and a
broad range of infrastructure, cloud and consulting services.

 IBM serves clients in sectors as diverse as manufacturing,

banking and financial services, insurance,
telecommunications, retail, utilities, and express delivery.

 While still a major manufacturer of ICT hardware, IBM has

repositioned itself as the world’s largest, IT services
company.

© 2013 IBM Corporation

IBM Business, IT and Outsourcing Services and
Solutions
 Application lifecycle management  Enterprise marketing management
 Asset management  Enterprise modernization Enterprise
resource planning
 Application infrastructure
 Expert integrated systems
 Big data and analytics
 IT Infrastructure services
 Business process management
 Procurement
 Business Analytics
 Product lifecycle management
 Cloud computing
 Security
 Commerce
 Service oriented architecture (SOA)
 Complex and embedded systems
 Smarter computing
 Connectivity and integration
 Social collaboration
 Data management
 Unified communications
 Data warehousing
 Virtualization
 Energy and Environment
 Web experience
 Enterprise content management

© 2013 IBM Corporation

IBM’s Transformation – Services & Software
IBM Worldwide Revenue - Percentage by Segment
70
64%
Services & software now account for
60 80% of IBM’s revenue
Hardware 56%
50
Percent

40 Software revenue exceeded

Services hardware revenue in 2008
30
Services revenue exceeded 24%
hardware revenue in 2001
16%
20

14% Software 17%

10
3%
6% Other
0
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20

20

20
Year
Source: IBM Financial Reports

© 2013 IBM Corporation

IBM’s Transformation – Services & Software
IBM Worldwide Revenue - Percentage by Segment
90
80%
80

70 64% Services & Software

60
Percent

50 Services and software revenue

exceeded hardware revenue in 1998
40
31% Hardware
30

20 17%
6% Other
10
3%
0
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20

20

20
Year

Source: IBM Financial Reports

© 2013 IBM Corporation

Wider Global Trends: Economic and Labor Changes: U.S.
Employment (2010)
Manufacturing and
Construction

12.4% Agriculture: 1.5%

78.8%
Services

© 2013 IBM Corporation

IBM is a Microcosm of the Global IT industry

 IBM’s transformation reflects wider trends in the

global IT industry over the past two decades.
 IT companies are moving away for traditional
hardware to focus on IT software and services.
 The most competitive IT companies are able to
provide integrated, end-to-end solutions across all
industry sectors.
 Hardware, software and services are more
integrated now than ever before.

© 2013 IBM Corporation

This Transformation is Driving the Growth of Digital
Trade
 Services increasingly being delivered electronically via the
internet and other networks: fueling the growth of “Digital
Trade”.
 16 million internet users in 1995; Today there are more than
2.4 billion.
 McKinsey Global Institute calculated that 75% of economic
benefits of the Internet accrue to traditional industries.
 In majority of OECD countries, more than 95% of companies
already use the Internet: “As the Internet evolves to become
basic infrastructure and adoption saturates, the Internet
economy will become increasingly indistinguishable from
the overall economy.”

© 2013 IBM Corporation

Evidence of Growing Role of the Internet in the Global
Economy

 Electronically Delivered Services: Knowledge- or content-

based services are increasingly digitized and delivered
electronically via the Internet or other networks (e.g. ICT
services, professional services, video services, online gaming,
music streaming).
 Digital Products: Content can be digitized for online delivery
(software, music, movies, books, video programming, financial
analysis, architectural schematics).
 E-Commerce in Physical Goods: Trade in physical goods
facilitated by the Internet or private networks.
 Operations of Global Companies: Global ICT Networks are
now critical to operations of global companies across all sectors.

© 2013 IBM Corporation

Potential Barriers to Digital Trade

 Cross-Border data restrictions

 Local Server requirements
 Market Access Restrictions for hardware, software
and services
 Regulations (behind-the-border barriers)
 Technical Barriers to Trade in ICT Products and
Services

© 2013 IBM Corporation

21st Century Trade Agreements Must Reflect New Trade
Realities

 The WTO’s General Agreement on Trade in Services (GATS) was negotiated before the
Internet was commercialized and does not adequately address digital trade.

 New Agreements are now focusing on this critical area:

Non-Binding
– U.S.-Korea Free Trade Agreement: Both parties will “endeavor to refrain from imposing or
maintaining unnecessary barriers to electronic information flows across borders.”
– U.S.-EU and U.S.-Japan Trade Principles for ICT Services
– OECD Principles for Internet Policy-Making

Seeking Binding Commitments

– Trans-Pacific Partnership: Negotiators are seeking to include binding trade obligations
related to digital trade and cross-border data flows.
– TISA: TISA will be a critical benchmark for protecting and fostering the growth of digital
trade.
– TTIP: Will a U.S.-EU Agreement adequately protect and foster the growth of Transatlantic
Digital Trade?

© 2013 IBM Corporation