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Electronics Business
Prof. Ian Phillips
Principal Staff Eng’r,
in h
i the
ARM Ltd
ian.phillips@arm.com
ian phillips@arm com
UK Economy
Visiting Prof.
Uo Liverpool UK
Liverpool,

Contribution to Industry UKEA
Award 2008
London 7sep11

•This is not Electronic Systems work,
y ,
but should be extended to be so.
•Based on my work from 2004-8
•I am not an Economist
1

Engineering in 2011 ...
Details of Electronics, SW, etc ... Are Well Beyond Public Understanding

2

EIGT Report (2004)

UK Electronics ...
 Unknown Invisible
Unknown,
 Uncoordinated, Unfocused
 Unquantified
... But Internationally Respected

Source: “Electronics 2015”.
3 Published: DTI (HMG)

EIGT Report

Low?

UK Electronics ...
 9,400 enterprises
 Employing 250-500k people
 Contributing 2% of GDP
... Believed Conservative Estimates!
Source: “Electronics 2015”.
4 Published: DTI (HMG)

Engineering in the UK (2009)
Better!

60%!

...The Same Story across All Engineering
Source: Engineering UK 2009/10.
5 Published: EngineeringUK (pka: ETB)

101: Macro Economics ...
 Economics is an Art not a Science
 Gross Domestic Product (GDP)
 The sum of all known financial transactions in the UK
 The source of the (greater-part of) the UK Budget
 From which All Government Activities are paid for.
p
 There is no Buffer ... All is spent as it is Received.

 GDP figures obtained from ...
 Actual GDP from Tax Revenue
 GDP = Tax Income / 38%
... Up to 1yr after the tax-year
 Running GDP from several Economic Indicators ...
 Gross Value Add (∑GVA => GDP) (GVA) = Value of Output - Cost of Input
 Corporate Revenue (∑Revenue => GDP)
 Other business indicators
...These are Relationships, not Mathematic Equations!

Source: Engineering UK 2009/10.
6 Published: EngineeringUK (pka: ETB)

Undervalued Communities
 Research Groups
 Service Providers ...
 Inc Installation and Maintenance
 Inc IP and Know-How Providers
 National Operations of International Businesses
 Educators
 SMEs & Start-ups
p

 If the stats are correct, these represent more than 90% of the Operations
and 50% of the employment.
% f
 Probably represent more than 50% of the total GDP contribution from ‘this
sector
sector’
 Probably represent the division with greatest growth potential.

7

101: Tax Receipts ...
 In 2006, GDP for 2005-6 was projected as £1.2T

C3: Government Receipts By Function
2005-2006 (Projections)

Total Revenue ~£450B
 73% is Direct Tax on the Person (~38% of GDP)
 13% is Tax on Business
 14% ‘Other’
... I maintain: 100% is attributable to UK-Workers (It would be Zero without!)
Source: HM Treasury.
8 Published: http://www.hm-treasury.gov.uk/media/415/DC/psfmarch2006.xls

101: Government Spending...
B4: Government Spending By Function
2005-06 (Projections) Total Spend ~£490B
(
(~£40B Loans))

 No Current Account
 Spend above Tax Revenue is Deferred Tax ... justified by a 8%pa Economy Growth
Source: HM Treasury.

GDP/Working Population
 From this I argue : UK-GDP is the Working Population ...
 Doing its work (Including Sustaining Business) 27%
 Being Paid ...
 ... And Spending that Money 73%
 GDP/Working Head
GDP/Working-Head (2006) ...
 GDP = £1.2T
 Working Heads = 29.1M1
 Average Salary = £23,0802
... = 1.79 x Average Salary
 Sanity Check, shows this to be 'about right ...
about right'...
 “1” as Paid: “+1” as Spent (30% Income Tax, 70% Fund the Family) = 2
 +ve Var: Exports, Loans (esp for Houses and Cars) (Deferred Earnings)
 -ve Var: Imports, Spending outside of the UK, Savings (Deferred Tax)
 Summary:
 Workers are the Engine of a Nation's Economy! (Needs Businesses to Employ them)
 UK-Worker contributes 2x Salary to UK-Economy! (Simple Message)

1,2: Source: HM Treasury.

Analysis: UK Electronic Business
 What is one? (eg: Incl. of Electronics within Retail?)
 How Many are there?
 How much do they Contribute to the UK-Economy?
 Are the figures realistic/justifiable?
 What d th d ? (Wh t V l P
Wh t do they do? (What Value Prospect)
t)

Note:
 This work was done in 2008, and focuses on UK businesses actively in
Electronics ... Ignoring those involved in the wider Systems aspects.
 So th
S these quantifications are f a S b S t of th UK O
tifi ti for Sub-Set f the Operations active i
ti ti in
the life-cycle of Electronic Systems! ...
...These figures are Conservative

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What is an Electronic-Enterprise?
 No clean definition ... Electronics is a Service, not a Sector.
 I negotiated access to the 2008 EKTN Database
 Findlay's Data-Base (Advertising, UK, Electronic bias)
 EKTN Membership (Electronics bias)
 No input from other KTNs (Mathematics, ICT, Digital Coms etc)
(Mathematics ICT Coms,
 I created an SQL query and applied it to the Database
 SICCode search ...
 30010', '30020', '31200', '31620', '32100', '32200', '32201', '32202', '32300', ‘33201', '51701',
'52702', '52704', '52707', '52720', '64200', '72100', '72200', '72300', '74202', '72600'
 Key Words search in CompanyName or CompanyDescription ...
 'electro, 'semiconductor', 'semi-conductor', 'telecom', 'embedded', 'radio', 'audio', 'telephone',
'membrane', 'pcb', 'LED ', 'communication', 'loud speaker', 'avionic', 'receiver', 'recording',
'network', 'terminal', 'alarm', 'emergency', 'circuit', 'digital', 'automation', 'instrumentation', 'X-
Ray', 'lcd', 'micro', 'silicon', 'wafer', 'transducer', 'emc', 'asic', 'chip', 'data', 'compute', 'software'
 Note: Although software key words are included, only those enterprises with an ‘electronic
angle' are likely to be in the DB at all!
...

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How Many E-Enterprises?
 Of the 13,184 EKTN (2008) unique records
I identified 5,219 as Electronic-Enterprises (With addresses etc)
 I visually checked the result and found ~1% false counts ...
1%
 I put this into a spreadsheet and played with the numbers ...
 Reasoning: Whilst most of Large companies had been 'caught' many of the
g g p g y
Smaller and Micro-enterprises will have been missed.

...25k Enterprises; 500k UK-Employees (Half in biz. <100)

Source: EKTN 2008 DataBase
13 Published: Provided in confidence

The Contribution to UK GDP
 Playing with the same spreadsheet.
 The Direct Economic Contribution is ...

 GDP 2.55% (In line with EIGT expectation >2%)
 No of Enterprises 25,000 (in line with EIGT expectation >>10k)
 50% of Employees, and GDP Contribution in Operations <100 heads.
p y p
 Contribution is independent of Nationality of a Parent Company !

... The Indirect Contribution is more difficult to quantify, but it is 'easy to
believe' that UK Electronics Enables 10-20x this!
Source: EKTN 2008 DataBase
14 Published: Provided in confidence

Importance of Worker Accounting
 HMG/ONS tends to ‘invert’ the GVA equation (Thus GVA => GDP)
 GVA is not the source of the Tax Revenue, so is not GDP.
 Leads to initiatives to stimulate GVA
 Difficult to identify the part of the GVA which is ‘in the UK’
... This favours t ad t o a factory-based bus esses a d d sad a tages
s a ou s traditional acto y based businesses and disadvantages
knowledge-based enterprises.
 Worker Accounting
 V l
Values E l
Employment i th UK i
t in the UK, irrespective of role (R
ti f l (Research, d i
h design,
manufacturing, instrumentation, distribution, support, etc.) or ownership.
 Recognises the value of Higher Paid (Higher Skilled) jobs
 Recognises the value of Total Employment (not just in large businesses)
 Supports Globalisation and the UK operations that make business throughout
their life-cycles.
life cycles.
 Is easy to count for all businesses (~2x Salary or ~1x Payroll Costs)
... Will lead to stimuli to grow these 20C business models.
... I expect opposition from some ‘traditional’ businesses!

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Reliability of these Figures
 The limited Scope of the EKTN Database
 No Research, SW, Mec’tronic, Inst’n, Tools, Methods, Support, IT, etc
 Can be improved by getting access to other databases
 Other KTNs, Industry Associations, Government databases
... I believe t e results a e pess st c ... Maybe 100% so
be e e the esu ts are pessimistic aybe 00%
 The estimates of the % of businesses that are in the EKTN Database
 Can be improved by ‘fish counting’ methods (Statistics)
 Can be improved by bigger/better databases.
... I believe they are about right (and they are not very sensitive)
 The Economic Validity of linking GDP to Workers Salary
 Was a lot less happy about this than I am now ...
 Economics is an art not a science (Economists say-so)
 E Economic E
i Equations are I di t
ti Indicators and not algebraically manipulable.
d t l b i ll i l bl
 I have presented this to credible institutions/profs and nobody has turned a hair!
... I think that this may be difficult politically, but is justifiable
... Far more rigorous that anything I have been able to find for other sectors!

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What do Electronic Enterprises do?
 Lots more analysis of available data to do on this ...

 If.. 80% of E-Enterprises are 4 people or less
..&.. they are stable
..Then.. they must be doing Something Right !
y g g g

 I speculate..
 All are Delivering a Valued Service to a remote customer (or Larger
Enterprise); which may or may-not share a Corporate Identity
 This may be based on Advanced Knowledge
 Or may be based on Excellence of Delivery
 To be stable, they are supplying that Service Competitively
..vs.. the global alternatives available to their 'Customer'.
Customer .
 And they are adapting their role and delivery mechanisms continually in line
with evolutions in the Technical, Delivery, Legal and Business environments
in which they work
work.

17

How do they work?
 Deliver Valued Functionality/Service to a (remote) Customer, against
global competition ...
... I believe the UK roles are Frequently as Technical-Leaders
Technical Leaders

 The Value of the Function/Service (Fd) as delivered Includes the Costs
( )
incurred in the Delivery Channel.
Fd = Fa+Cd
 E t bli h a W ld C
Establish World-Competitive Functionality (F )
titi F ti lit (Fa)
 Reduce the Cost of Delivery toward Zero (Cd)

 For stability the Delivered Functionality/Service (Fd) must be...
 Appropriately valued (Not under-valued)
 Demonstrably better than an alternative ... sourced globally

... All Businesses work by maintaining their Delivered Value!

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Conclusions (UK Electronic Enterprises)
 Employed People are the Engine of the Economy
 Contributing ~2x their salary
 ~25k E-Enterprises employ ~500k people. They Contribute ~2.5% to the
Economy, with Indirect value ~10-20x this.
 50% o Employment and Contribution; from the 95% Ent's <100 head.
of p oy e t a d Co t but o ; o t e t s 00 ead
 80% of Enterprises are <5 heads.
 This is NOT the traditional model of Business.
 Most UK E-Enterprises are Delivering Knowledge Services
 Developing Knowledge is important (Relationships and Partnerships)
 Delivering Knowledge is important (Pre-Competitive Infrastructure)
(Pre Competitive
 Everybody is in Competition Globally
 'UK Divisions' are no less vulnerable to this
 Electronic Systems would be a better domain for this study
 More Inclusive and more easily Defined
 More easily Comprehended by ordinary folk (and Politicians)

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