Europe needs to build up a profitable and technologically-innovative IT industry and public buying will play a significant part in this.
Imagine Europe in 2000. Its 350 million citizens are using at least 100 million personal computers. Unrecognisable to today's computer buffs, these new machines will understand human speech and reasoning, hang on walls and fit into a top pocket. Whether at work or at home (which will be increasingly the same in future), the PC will be as indispensable to the new Europe as coal, iron ore and the railways were in the nineteenth century.
By the millennium, the whole information technology industry will account for some 10% of world economic activity - a doubling of the 1990 figure - so displacing the automotive industry as the engine of growth. Work in the Europe of the year 2000 will range from software and the production of the increasingly powerful PCs (which will be more sophisticated than most of today's mainframe computers) to adapting their number-crunching powers for a host of other businesses and applications. Virtually every industry will require information to be processed or transmitted by way of information highways of fibre optic cable.
In many ways, the future has already arrived. Some 60% of Europe's working population now depends on information technology in at least some aspect of their work. European companies in the IT sector employ around 1.1 million highly skilled people directly (against just 155,000 employed in the EEC's deep coal mines) and their output is reckoned to make up a quarter of the world's IT turnover (1990 figures) of £500 billion.
Yet getting to this electronic nirvana will be no easy task. Currently, the European computer industry is gripped by a deep malaise, which is only partly the result of the world recession. Trying to get the European computer companies to agree common standards so that their machines can work together is "more difficult than getting the Bosnians and Serbs to sign a real peace accord", says one industry observer in despair.
In addition, the European industry is still highly fragmented. Despite a recent wave of mergers and acquisitions, there are still hundreds of computer hardware companies in Europe. And the number will simply keep on rising if the British experience is anything to go by. "Every six months some 400 new companies are formed to supply the business computing market," says Marek Vaygelt, research director at Romtec, the respected computer research group.
The result is vast over-supply at a time when customers are cutting back. Company IT departments have had their budgets slashed and there is widespread user dissatisfaction caused by the failure of computers to deliver promised productivity improvements. In the 1990s, particularly, computers failed singularly in the office environment (ask any clearing banker for his thoughts on computers and the reply will probably be unprintable) compared with their earlier successes in manufacturing plants.
In an effort to win customers, suppliers are currently engaged in a ferocious price war, eroding their margins and leading to huge losses. Ironically, virtually the only major European computer company to be consistently profitable is ICL, once the crown jewel of the British hi-tech industry, but now 80%-owned by the Japanese giant, Fujitsu.
Out of all this chaos, the EC has to create a profitable and technologically-innovative IT industry capable of competing globally with the US and Japan into the next century. The extent of the difficulties should not be underestimated. As the middle table below shows, Europe's trade deficit in information technology, particularly in relation to the Japanese, more than doubled to reach £22 billion in the three years from 1986 to 1989, while its share of the IT market would appear to be falling.
Looking at the ranking of the world's top electronic companies Europe can only muster 10th position in components, eighth and ninth in computers and second, sixth and 10th in consumer electronics. The others are either American, Japanese or Korean companies.
As large-scale users with big pockets, public services can do much to foster the growth of the European computer industry. But this need not be in the old anti-competitive tradition of preferential procurement. A far more effective way of keeping Europe's IT industry healthy would be in the early indentification of the imminent changes in the procedures and applications in government agencies across the EC. To survive they will need to compete in the public sector right across Europe, as US-owned companies are already doing.
"In most of the public sector there are very few Europe-wide applications," says Ron Nissen, Unisys Europe's vice-president for government marketing. Of course, at a process level there are similarities. And in terms of technology there are parallel trends worldwide towards, for example, open systems, smaller computers (downsizing) and contracting out of computer project or installation management.
"But government applications are driven by regulation and legislation," says Nissen. "This still varies greatly from country to country, and it is difficult to find application areas to sell in multiple countries across Europe."
In some areas, however, the single market will simply not be able to function without this parity of information. The setting up of the the Common Agricultural Policy (CAP) illustrates this point. The agreement requires an information infrastructure between member states and the Commission where central databases are held on market management, structural policy, guidance and guarantee funds.
Originally delivered on paper, by hand, or post, the information flows - estimated at 200,000 messages a year - progressed to telexes, fax and now to interactive electronic data entry using international standards. Pilot "national server" computers for handling agriculture and other messages have now been installed in five member states (Denmark, France, Greece, Luxemburg and the UK) to support the growing workload. One area on which they exchange information is animal and plant health. Controlling this at Europe's external frontiers becomes vital with the abolition of internal borders.
But change is afoot, at least in terms of assessing the challenge of what needs to be done. One of the driving forces behind the shake-up is Jacques Delors who, together with his mandarins at the European Commission, sees the opportunities provided by IT as the road to the third great revolution after agriculture and industry.
They aim to harness the IT spending power of the EC member countries in the manner that the famed (and feared) Japanese Ministry of International Trade and Industry, or MITI for short, marshals the resources of the various Japanese industries for all out assaults on the world markets. There is indeed considerable clout in Europe, with government spending power estimated at $10.7 billion in 1991, by CAC, a research company which has studied central government IT applications throughout Europe.
To co-ordinate the European response, the Commission has set up a number of committees within its DGXIII (computer and telecoms directorate). It has also inserted a clause in the Maastricht Treaty calling for the formation of a giant administrative network dubbed the European Nervous System (ENS).
The Commission is also acutely aware of the need to support research and development out of its own resources. The trick, of course, is to get value for money with that research - no mean feat in an organisation with its own well-known penchant for building bureaucratic empires, particularly when it spans several different countries and languages.
There is a long way to go to catch up with the competition. The US devoted 2.8% of GDP to research in 1991 and Japan 3.5% compared to 2.1% in the EC. "The Community RTD (research and technological development) policy plays a pivotal role in enabling European industry to become more competitive," says Filippo Maria Pandolfi, the vice-president of the European Commission. Action speaks louder than words and, as a result, the proportion of the Community's budget devoted to R and D has already increased from 2.6% in 1988 to 3.8% this year.
Funding is agreed in five-year "Framework" programmes. The current one lasts until 1994 and is worth around £4 billion. Three of its 15 areas have a specific hi-tech application: the Esprit information technology programme is worth just under £1billion, the Race comminications programme is worth around £350 million and a telematics project exploring information-sharing over networks is worth over £270 million. In July, the Commission proposed that resources for its research and technological development policy should be increased from the sum of £1.7 billion to £3 billion in 1997.
While companies are reluctant to bite the hand that feeds them, there is widespread scepticism about the EC-funded programmes. "If you're using R and D to redress a trade imbalance, then you have to understand what the customer wants," says George Hall, ICL's external relations manager. And he should know what he is talking about as last year ICL spent some £233 million on R and D. He warns "to redress a trade imbalance of the magnitude Europe faces with R and D alone, you'd need a truly enormous programme. It would have to provide products very close to the market, and they would have to be deliverable in short time scales. The resulting products would have to be so good that customers felt they simply had to buy them, rather than choose from what was being produced in the US or Japan. It doesn't sound like the real world to me."
Similar scepticism comes from Rainer Burchett, chairman of LBMS, a London-based software company (and exactly the sort of small-to-medium business that the Commission seeks to encourage): "If you think about it, you can see it's doomed to failure. Either you were going to do it anyway, in which case they're wasting public money, or you are funding research that companies would not do themselves, because they believe it is not worth doing. Taking also into account the EC requirement that the research be done by a multinational consortium of universities and companies, plus the rules of cost analysis, and it's not actually worth it, if companies play by the rules. If anything useful did come out of it, I suspect it would be siphoned off and treated as commercial-inconfidence."
As an alternative approach, Burchett cites LBMS's experience in developing for the British government a standard method for systems-analysis and design (called SSADM). Having a common method for analysis and design of computer systems is critical for an efficient IT services market, as Britain and other countries have found. The European Commission has since 1988 been addressing the same challenge on a pan-European basis.
"The Government spent a year evaluating 47 different proposals. We won, put our best people on it and charged the full commercial rate. Within four months we had a product up and running. Within 18 months it was a mandatory standard, backed by a competitive market in training and consultancy. It was a straightforward client-supplier thing, and that's the way to do it," Burchett claims.
Undeterred, the Commission is planning to establish its fourth Framework programme for 1995-1999, and even intends to broaden the scope of its R and D funding. The Maastricht Treaty extends the scope of the funding from simply improving industrial competitiveness (its aim since 1985) to anything supporting the other areas covered by the treaty (article 130f.1). This means that issues including the environment, training, social sciences and possibly culture could be included in the R and D remit. The treaty also provides for more involvement by the European Parliament in deciding R and D allocation. This may improve democratic control but it will add to the delay and complexity of the operation.
Furthermore any European Commission involvement in funding R and D is viewed with intense suspicion by competitors on the world stage, particularly the Americans and Japanese. To fend off American and Japanese complaints that efforts at harnessing smacks of anti-competitive tendencies, the Eurocrats accuse the US of favouring its domestic suppliers with huge Pentagon research and defence contracts which give preferential treatment to American companies, and applying Gatt rules on opening up public markets selectively. They also maintain that Japanese public-authority IT markets are virtually closed to foreign companies and protected by the structure of conglomerates which are supported by public authorities.
In theory, the creation of the single European market should lead to huge opportunities for computer companies, especially from government departments - traditionally the earliest and biggest customers for new machines. US companies who manufacture supercomputers have benefitted greatly from the British Ministry of Defence and Met Office's appetite for these powerful machines. However, American manufacturers are now facing increasing competition from Japan in this area.
The services governments provide depend on processing huge amounts of data and departments such as the Inland Revenue have been at the cutting edge in terms of using computers to deal with business problems.
The abolition of Europe's trade boundaries at the end of this year will create a huge incentive for computerisation. There are databases to be formed and communications links to be set up with local government, health services and environmental bodies,through to pan-European policing. Many government-funded organisations in member countries will need to exchange information with each other and to standardise the way data is stored; they will also 106e have to ensure the right communications structure is there to send it quickly and with proper control.
Planning an administrative communications strategy for Europe would be a difficult project for even the most capable task force. Europe simply does not have a central team to identify the needs. Most difficult of all is that in many areas, from defence and foreign affairs to social security and the environment, the political requirement for administrative interworking is not yet defined. It has already proved difficult enough to get public authorities to fall into line with the clear European directives designed to open up public markets.
The point is well illustrated by one (anonymous) British local authority official. When asked why he had not gone out to open tender when spending £6 million on hardware and software to run a new local tax system in 1989, he said gruffly: "What the hell has Europe got to do with us? Who's going to do anything about it, anyway?"
Three years later, Britain has once again changed its local tax system and the same local authority has still not advertised on a pan-European basis for the new system. This time it is spending over £1 million.
Europe's police forces tell a similar story. For the criminal entrepreneur the prospect of a Europe with no - or considerably reduced border controls - and internal frontiers, must be particularly enticing. The long common borders between European countries already make it difficult, if not impossible in some cases, to carry out policing.
Added to this is the massive increase in recent years of traffic through sea and airports, and the considerable restraint it has placed on manpower resources. There is an urgent need for enhanced policing and sharing of data between security forces, yet initiatives in this area have been slow to get under way.
Even health information is badly co-ordinated, despite the fact that accidents and disease (notably AIDS) have no respect for national boundaries. Ubiquitous problems such as smoking and cancer, are inadequately represented on international data-bases. The World Health Organisation provides a framework for some European collaborative research. But this project is relatively modest in expenditure terms compared to the amount allocated in each European country for emergency hospital services, even though it has great potential for the saving of lives.
Britain's NHS is in a position to reap tremendous benefits from a degree of standardisation in the development and buying of its information systems, because its structure allows a great deal of centralised control to be exercised in how money (total budget is £19.3 billion this year) is spent. Nevertheless, so far, its IT investment 110e does not reflect the quality or value for money available, although there are local exceptions. Health computing experts are confident that a valuable wider European opportunity remains. For instance, by sharing resources and pooling expertise under the auspices of EC-funded research programmes, Europe's hospitals would have the chance to apply purchasing pressure through a new market for cost-effective, standards-based hospital systems. This would provide enormous benefits for health services throughout the European Community.
With regard to computer-co-ordination in general some progress has been made. One example of this is open systems inter-connection, or OSI in computer speak. OSI has been under discussion since the 1980s, first by national governments, in particular the US and UK. Then, in 1987, Europe as a whole decided to only buy systems that conformed to the OSI specifications.
"Government policy on open-systems interconnection was absolutely essential," maintains Nic Hopkins, head of systems and advanced technology for CCTA, the British government's computer purchasing arm. "We set out our stall and said what we wanted. Only then did international standards become a reliable basis for long-term investment in an IT infrastructure." Similarly, Britain, France and Italy are all using a consistent approach to the method used in the analysis and development of complex computer applications, entitled SSADM (mentioned previously) in Britain.
Each EC member state now has a central body co-ordinating the user and buyer requirements for information systems in public administration. France, Greece, Luxemburg and Belgium have high-powered committees or ministers reporting directly to the prime minister on computerisation or modernisation of public administration. Germany, Spain and Holland have centres of expertise within their interior ministries, while in Denmark, Italy, Ireland, and Portugal the function is part of the finance ministry or Treasury.
The national government bodies are acting increasingly together in groups under the DGXIII umbrella. Their most ambitious project is the European Nervous System, which concentrates on promoting the inter-connection and inter-operability of national networks in the framework of an open and competitive market.
Another initiative is being handled by the Public Procurement Group (PPG), formed by DGXIII to pursue projects that ensure governments are provided with good systems and good value for money. In April 1992, it launched its European Procurement Handbook for Open Systems (Ephos), a pan-European version of the earlier national efforts to define open systems clearly enough to be able to specify them in an unambiguous contract.
A third project, Euromethod, established in 1988, is equally ambitious. Originally intended as a pan-European, systems-development method to blend the best available, it aims to provide a framework to which half a dozen preferred methods, such as SSADM, can refer. Projects like these are continuing governments' policy of helping other IT users by helping themselves.
However, Japanese giants such as Fujitsu (who recently unveiled a market-winning supercomputer) are unlikely to be greatly troubled by Europe's response.
% of IT and telecoms production
1980 1984 1989 1990
United States 46 47 38 37
Japan 15 21 27 24
Europe 26 21 22 24
Other countries 13 11 13 14
Source: EIC 1990
IT global trade balances (bill ecus)
1986 1987 1988 1989
Europe -14.5 -18.9 -28 -31
United States -7.6 -6.3 -4.4 -7
Japan +50.3 +47 +56 +57
Rest of the World -28 -21.9 -20.5 18.8
Source: EIC 1990 currency: ECUs (bn) (£1 = 1.38 ecu)
THE WORLD'S TOP ELECTRONICS COMPANIES
Ranking Components Computers Consumer
1991 1991 1990
1 NEC IBM Matsushita
2 Toshiba Fujitsu Philips
3 Intel DEC Sony
4 Motorola NEC Toshiba
5 Hitachi Hewlett-Packard Hitachi
6 Texas Instruments Hitachi Thomson
7 Fujitsu Unisys Sanyo
8 Mitsubishi Siemens-Nixdorf JVC
9 Matsushita Olivetti Sharp
10 Philips NCR Bosch
One of the areas most fundamentally affected by the single market is customs, whose work will take on a new Community-wide dimension. Foreign goods will be able to move freely throughout the EC once cleared by one of its customs administrations. Maurice Walker is head of the IT unit in the Commission's Customs directorate (DGXXI) and is responsible for seeing that information exchanges are put in place.
The first plank, Taric, was installed three years ago and provides standard integrated European product tariff details to every member state simultaneously. Exchange of information for VAT control has been another area of intensive development for customs, says Walker. "All the signs are that it will be in place in time."
Another area where the development of Europe depends on successful exchange of large amounts of information from national governments is policy development. The EC's statistics office, Eurostat, has developed a system for collecting intra-Community trade statistics. John Ludlow, head of Britain's Central Statistical Office's (CSO) information branch says, "We've been sending national statistics to Europe electronically (using X25 international packet-switching) for four years now. At present, the requirement is mostly for statistics from us to Eurostat in Luxemburg, but we're curious to see whether after 1993 there will be the growth in direct inter-state exchange of statistics. "A study into possible structures for a distributed statistical information system is now being conducted by Logica; results will be discussed by the heads of Europe's national statistical agencies in November.
Convinced that a major set of requirements was emerging (and concerned also that European companies be well-placed to meet them) the Commission in 1989 first suggested work towards a vast administrative European Nervous System (ENS). The ENS idea reappears in the Maastricht Treaty as part of the commitment to develop trans-European networks in transport, telecoms, and energy infrastructures. Their purpose, according to the agreement, is "promoting the inter-connection and inter-operability of national networks in the framework of an open and competitive market." Priority is given to setting up electronic data transmission links between governmentsand border controls, covering customs, indirect taxation, statistics, veterinary and plant-health controls.
Meanwhile the Commission had started a series of ENS pilot projects from its R and D funds. These are looking, for example, at the issues involved in setting up a European Business Register based on national registers; provision of information about ships carrying hazardous goods; efficient communication between Europe's traffic and transport licensing operations; better postal service control; and exchange of social security information.
One ENS environment pilot study examines how a pan-European approach would work in Rhine pollution alarm, coastal monitoring and air quality.
The Commission's ENS studies will be reporting back at the end of 1993.
As the barriers come down, crime across Europe is exploding. In the UK alone, Home Office figures show that in 1990 there were more than 4.5 million offences recorded by the police, compared with 3.8 million registered in the previous year.
In an effort to fight back, some joint police force initiatives are already under way. One started out as an agreement, signed in June 1985, between the former West Germany, France and the Benelux countries to co-operate and co-ordinate surveillance, hot pursuit, mutual assistance and information exchange. Known as Schengen, this project came about primarily because the countries share long land borders and have similar judicial systems.
Spain and Portugal joined Schengen last June, and Italy signed up last November. Greece has observer status which means it can sit in on meetings but cannot vote. The Schengen partners intended to harmonise their legal systems by 1990, but have found this task harder than expected. For example, Dutch policy does not view drug addiction as a criminal activity, and unlike other member countries does not believe soft drugs lead to hard drugs. It also has very different policies on the possession of firearms by civilians.
Schengen has spawned a joint automated electronic data transmission system of criminal records. The idea is that each member country will set up its own information system based on national systems run by the responsible organising bodies. The result should be eight common databases. Data categories, such as those already developed by the Dutch for wanted persons covering matters such as extradition, surveillance and security risks, will need to be agreed.
But Schengen has already run into a number of problems. Data protection laws prevent information being exchanged that might be useful for tracking down money launderers, drug dealers, fire-arms trafficking and so on. Moreover, a number of countries will not have installed appropriate hardware and software by the time the barriers come down at the beginning of 1993.
Another initiative is Europol, which is aimed largely at catching the drug traffickers. Europol is an agreement between member states solely to collect and disseminate information and intelligence. The idea is that each member state has its own national criminal intelligence service, which would have a computer system. To be known as NICS in the UK, it will be modelled on the national Drugs Intelligence Unit based at Scotland Yard in London. Eventually all these systems will get together to form a European Information System (EIS).
Next year Europol will establish a central data-base which will give access to a wealth of police intelligence.
Meanwhile, Trevi, an organisation made up of ministers of member states who meet regularly on security issues, especially drug smuggling, is in the process of installing some 360 computer terminals at airports, seaports and border checkpoints.
The terminals will give instant access to a pool of information, particularly on drug smugglers and terrorists.