The British Computer Industry

Crisis and Development

Tim Kelly

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351204378
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Originally published in 1987, this book explores the history and geography of the computer industry in Britain and the evolution of the market leader firms, STC ICL and IBM (UK). It also examines the rising rate of new firm formation in the 1980s and the technology policies adopted by successive governments and analyses how well the industry is placed to cope with the challenges of technological change and increased international competition.

Chapter One

INTRODUCTION

1.1  Crisis or Development?

High technology industry, and particularly the technology-based new firm has, in the last few years, emerged as an increasing focus for government policy. In November 1981, Norman Lamont MP spoke on behalf of the Department of Industry when he declared that, along with regional policy, high technology industry is “the sector to which we now devote the greatest resources in aid to private industry”. Concern is founded on the potential of high technology industry to create wealth, employment and, in the long term, to generate industrial revival. It is clear too that the consequences for British industry of failing to adopt new technology may be a loss of international competitiveness.

High technology industry may be defined according to a variety of criteria, such as the level of innovation, the occupational composition of the workforce or the dynamics of production and employment growth (Kelly, 1986, chapter 4). By whatever definition chosen, one industrial sector stands out as exemplifying the popular conception of ‘high tech’, and that is computer electronics. Between 1975 and 1983, when production in British manufacturing industry as a whole declined at a rate of 1.1% p.a. compound, the computers and office machinery sector (AH 330) grew by 12.3% p.a. Similarly, while manufacturing employment was falling by 4% p.a. over the same period, employment in computer manufacturing grew by almost 4% p.a. In both indices of production and employment, the computer industry has been the top performer in the British economy over the last decade.

In the light of this apparent success it may seem strange to talk of a ‘crisis’ in the British computer industry, and yet that is precisely the title of a recently published NEDO report on the state of the industry (NEDO IT SWP, 1983). The crisis reflects the crucial point that the growth which has occurred has not matched that of Britain’s international competitors. The short-term outlook in the electronics sector is for market rationalisation, job loss in the older-established firms, and for a permanent trade imbalance due to the failure to maintain sufficient productive capacity. The software industry is not immune from this crisis. A recent report from ACARD (1986) concludes that “if the UK industry does not more vigourously compete in the world market …. then within 10 years only MoD-supported firms will remain”. The report goes on to predict that by 1990 the UK will have a trade deficit of £9 billion in Information Technology of which £2 billion will come from trade in software products. Only the new firms sector offers prospects for a brighter future, and even here there is evidence that the growth firms of the early 1980s are struggling. The two shining lights of the microcomputer revolution, Acorn Computers and Sinclair Research, have both experienced highly publicised financial crises and have both been taken over, by Olivetti and Amstrad respectively.

This book takes the computer industry as an example of a high technology sector and explore its recent development in Britain. In chapter two the emphasis is on technological development and the way this has shaped the competitive structure of the computer industry. The chapter also uses statistics from the government and other sources to provide a background to the evolution and present structure of the industry.

In chapter three, the origins of the computer industry are traced with reference to specific firms, focussing on the two market leaders in the UK, IBM (UK) and STC International Computers Ltd. The chapter covers the period from 1948, when a stored-program computer was used successfully for the first time in the world at the University of Manchester, until 1979. Chapter four covers the period from 1979 to the present day and charts the growing crisis in the British computer industry and the governments response to it.

The choice of the year 1979 is significant for several reasons. In political terms it marked a shift in government away from the industrial interventionism of the Wilson-Heath- Callaghan years to the free market Conservatism of the Thatcher Government. In economic terms 1979 saw the onset of a global industrial recession which paralleled that of the 1930s in its severity. In the specific case of the computer industry, 1979 marked the start of job-shedding and ultimately financial collapse of Britain’s only major indigenous computer manufacturer, ICL.

The year 1979 was significant too because it was the high-water mark of the wave of new firm formation which had been apparent in the computer industry since 1975. In chapter five it is argued that higher rates of new firm formation are intimately connected with the advent of microelectronics and the subsequent development of the microcomputer. It is shown that between 1975 and 1984 more than 300 independent and currently surviving new firms were created and their impact on the industry is assessed.

The themes of the historical development of the computer industry, the rationalisation of ICL and new firm formation are brought together in chapter six which surveys the current ‘geography’ of the industry. This chapter uses national employment data from the EITB, the Department of Employment and original survey research carried out at the University of Cambridge to examine recent changes in employment. The contrasting fortunes of two areas of computer industry concentration, in Scotland and around Cambridge, are examined in more detail.

Finally chapter seven returns to the title of the book and asks whether ‘crisis’ or ‘development’ depicts more accurately the current state of the computer industry in Britain. The answer varies according to what part of the industry, and what part of the country is under consideration. However, the conclusions which are drawn are highly critical of the neglect for industrial policy which has characterised recent governments. It is argued that the growth of high technology industry in Britain has been hampered by a defence sector which is out of all proportion to Britain’s current status, and which has ‘crowded out’ commercial research and development.

1.2  A functional definition of the computer industry

Under the 1968 Revised Standard Industrial Classification, the manufacture of computers is classified to M LH 366 which is defined thus:

Manufacture of digital, analogue and hybrid electronic computer equipment and systems (except those which are not separable from industrial process control systems). This heading includes the manufacture of computer sub-assemblies and peripheral equipment.

Under the 1980 revised Standard Industrial Classification, MLH 366 is combined with MLH 338 (Office Machinery) to create a new classification, AH 330, for the ‘Manufacture of Office Machinery and Data Processing equipment’. This is divided into two sections:

3301	Office Machinery – Manufacture of typewriters, duplicating machines, adding machines, calculating machines, cash registers, electronic desk calculators, non-electronic data-processing and handling equipment, mail-handling machines, ticket-issuing machines and other machines for office use.
3302	Electronic Data-processing equipment – same definition as MLH 366 (see above).

Further clarification of this definition is provided in the ‘Indexes to the Standard Industrial Classification Revised 1980’ (CSO, 1981) which provides a list of industries covered by AH 3302:

Analogue computer, manufacturing

Central processor unit, computer, manufacturing

Computer, electronic, manufacturing

Computer, peripheral equipment, manufacturing

Computer system, manufacturing

Converter (for computers), manufacturing

Data-processing equipment, electronic (other than electronic calculators) manufacturing

Digital computer, manufacturing

Hybrid computer, manufacturing

Memory store, computer, manufacturing

Peripheral equipment, (including card punches and verifiers) for computer uses, manufacturing

Printer, computer, manufacturing

Store, computer, manufacturing

Tape reader, computer, manufacturing

Terminal unit, computer, manufacturing

Visual display unit, computer, manufacturing

In the compilation of the company database which was used as the basis for the national postal questionnaire, an attempt was made to include all identified establishments in these categories. However, those firms involved only in the marketing, installing, retailing and repairing of computers, in the process of which no manufacture is carried out and little value is added to the product, were excluded. The Computer Services sector was formerly classified to MLH 865:

Typewriting, duplicating, document copying, translating, employment agencies (not government), computer services and other similar business services.

Under the 1980 revised classification, this becomes AH 839 with computer services represented by AH 8394. The ‘Index to the SIC revised 1980’ shows that this includes:

Computer Services

Computer consultancy

Software house

Time hire (computer)

In the Cambridge University survey, a slightly narrower definition of computer services was used. This definition includes firms which might be said to ‘generate wealth’ and therefore contribute to the local industrial base, but excludes firms which purely offer business services. Thus companies involved in software development for ‘package programs’ and for custom or ‘turnkey’ projects are included, but computer bureaux (time sharing), recruitment agencies and retail/distribution outlets are excluded. A fuller description of the computer industry and the format of the Cambridge University survey can be found in Kelly, T. (1986) ‘The location and spatial organisation of high technology industry in Great Britain: Computer electronics’, unpublished Ph.D thesis, Cambridge University library.

Chapter Two

TECHNOLOGICAL CHANGE AND MARKET STRUCTURE

2.1 Technology cycles

This chapter provides a general background to the history of the computer industry in Britain which is presented in later chapters. In section 2.2 there is a short review of technical change in the electronics sector and in sections 2.3 and 2.4 a description of the market structure and general characteristics of the British computer industry.

The precise connection between technology and the evolution of market structure is complex, but in general terms it is hypothesised that technological change will impact market structure in three particular ways. Firstly, technical change may alter the competitive structure of an industry. For instance, the optimal size of operating units may increase or decrease and the ‘barriers to entry’ for new firms or market entrants may be lowered or raised during the course of a product cycle. The tendency towards structural concentration or deconcentration will typically be marked by a parall...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of tables
• List of figures
• Acknowledgements
• 1. Introduction
• 2. TECHNOLOGICAL CHANGE AND MARKET STRUCTURE
• 3. The Origins of the British Computer Industry
• 4. The Growing Crisis and the Response of the Government
• 5. New Lamps for Old: New Firm Formation
• 6. The Geography of the British Computer Industry
• 7. Conclusions: Crisis and Development
• Bibliography
• Index