Globalization heats up network spending

A recent global survey conducted by the Economist Intelligence Unit (EIU) on behalf of AT&T has asserted the increasing significance of global reach. The data are meaningful in assessing trends; however, the methodology regarding the response base seemed more opportunistic, as opposed to one that might have held to a pre-set statistical model. Ideally, the study would have broken down regional response rates so that they approximated percentages of global economic activity.

Instead, the Economist Intelligence Unit conducted an online worldwide survey. In total, 497 senior executives participated, representing 20 industries in 49 countries. Over half of the participants were from large firms with greater than US$500 million in annual revenue.

Sounds impressive, but the statistical model makes it hard to get beyond the overall claims regarding the growth in globalization and the increased importance of India and China, hardly news. For example, if the respondent base reflected global economic activity, when asked “In which company are you personally based?”, it is unlikely that 18.2 per cent of respondents would be from Latin America and 8.2 per cent from Mexico, as is the case in the survey.

More worrying, in two charts The Economist has “Latin America” and “North America” defined as two separate places. It’s like a Venn diagram, with Mexico belonging to both sets. Sadly, it makes the data useless, because we can’t assume which of two impossibilities has occurred: have the Mexicans stopped speaking Spanish, or have they magically removed themselves from the continent?

Apparently “the majority of respondents came from Asia Pacific (31.8 per cent), Western Europe (23.3 per cent), and North America (20.9 per cent)”. Presumably, Mexico has been excluded from North America. This is more than a quibble: for those of us in NAFTA trying to figure out what’s going on, this makes the data suspect.

Nonetheless, the overall responses are real, and not insignificant. All in all the worldwide survey showed that 42 per cent of respondent companies will be deriving half or more of their revenue from foreign markets within two years. Presently, only 30 per cent of firms can make this claim.

David Denault, general manager of AT&T Global Services Canada, says that in his daily experience he is seeing the growth in the globalization. “Sometimes after exchanging notes with customers in the global marketplace we have to step back. Globalization is rapidly advancing. Within five years it is expected that China’s economy will significantly surpass the U.S.”

And there are data to indicate that global expansion is tied into increased investments in networks. In order to enable expansion, one in five companies intends to ramp up network investments by over 25 per cent. Another 43 per cent of the executives surveyed indicated that they would increase spending by between 10 per cent and 25 per cent.

For AT&T, a big part of the message is that the company can operate in highly regulated economies, like China’s, and therefore reduce barriers to entry for their customers.

“We need to talk more to customers, media, and analysts about the experience that we have dealing with suppliers and regulatory environments in 150 countries,” says Denault. “There is a significant investment in lawyers to understand how to get into a market, to make an effective use of that environment. For customers do this themselves would take a lot of time and money.”

Reinforcing Denault’s comments, 67 per cent of executives described global reach as an “important” or “critical” attribute of their network. As well, 40 per cent considered mergers and acquisitions part of their company’s international growth strategy over the next two years. Not surprisingly, perennial concerns regarding the business importance of security and network control also figured prominently.

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