The technology sector is a broad category that includes industries such as computer hardware, Internet information providers, IT services and consulting, semiconductors, software, and communications equipment. The sector has been expanding through catalysts such as big data, mobile communications ubiquity, the Internet of Things (IoT), web application richness and chip design improvements. Geographic revenue exposure in the technology sector is highly correlated to economic activity and disposable income. Currency fluctuations have been the most significant driver of changing exposure, with central banks around the world implementing different policies.
Geographic Exposure in 2015
For the full year 2015, the global technology sector's revenue was 40.3% exposed to the United States. Japan followed at 13.7% exposure, and China contributed 8.4%. The United Kingdom, Germany, France, Canada and South Korea completed the top eight revenue sources, in that order, for the sector in 2015, with exposures ranging from 4.8 to 1.7%.
Gross domestic product (GDP) plays a clear role in determining revenue exposure, with all of these countries ranking among the largest economies in the world. General economic activity is going to be highly correlated with technology revenue, because technology occupies an important role in nearly every facet of productive and consumptive activity. Disposable income also appears to be an important factor, with China being the lone emerging market economy among the top eight sources of technology revenue. Consumer preference in Japan and the United States is likely a driver of the disproportionate exposure to those two countries. Business consumption of technology products may also play a role, as many multinational firms are headquartered in the United States.
The Americas were the heaviest contributing region in 2015, at 42.6% of revenue. Asia Pacific followed at 30.6%, and Europe's exposure was 23.1%. Africa's and the Middle East's contributions were much lower at 3.6%. These regional trends mirror the country-specific data, and it is clear that a handful of large contributors are dominating global technology revenue. The importance of discretionary income and business investment is also apparent, since relatively more developed regions hold a disproportionate share of exposure. Developed economies supplied 79.8% of technology sales in 2015, and emerging markets contributed 16.5%. Frontier economies combined to generate less than 2% of sales, highlighting the importance of disposable income.
Growth and Outlook
Japan experienced the largest year-over-year exposure decline among the largest contributors in 2015, falling 13.9%. The Japanese economy staggered along in 2015, with uneven GDP growth across the quarters and rapid currency depreciation as the Bank of Japan tried to encourage investment and spending. China, France, Germany and South Korea also experienced year-over-year declines, though these were more modest, ranging from 4.8 to 1%.
The United States experienced the fastest growth in technology revenue contribution, expanding 7.6% in 2015 to extend a positive three-year trend. The United Kingdom also exhibited strong revenue contribution growth, accelerating to 5.2% year-over-year. Both economies were relatively strong in 2015, with better employment and GDP growth than many developed economies in continental Europe and East Asia. The Federal Reserve and Bank of England pursued relatively hawkish monetary policy, leading to currency appreciation that supported the revenue contribution growth.
The Americas are expected to experience the largest increase in revenue exposure among the global regions, with a 320 basis increase to 45.8% forecast. This increase in share reflects reductions from the other large regions, with Asia Pacific falling 260 basis points to 28% and Europe falling 60 basis points to 22.5%. The three largest contributors from the Asia Pacific region are experiencing currency depreciation and sub-standard growth, negatively impacting consumption, business investment and currency adjustments. Some parts of Europe are experiencing similar conditions, though there is substantial variation among countries in the region. The relative split in exposure between emerging and developed economies is expected to remain constant in 2016.
