The International Computer Software Industry: A Comparative Study of Industry Evolution and Structure -- Book by David C. Mowery; Oxford, 1996

THE COMPETITIVE PERFORMANCE OF THE EUROPEAN SOFTWARE INDUSTRY
In 1992 the Western European market for information technologies was $157.2 billion (approximately 36 percent of the world market); in the United States it was $152.5 billion; and in Japan it was $75 billion. Software and services accounted for 41.5 percent of the total European information technologies market, against 59 percent in the United States and 40 percent in Japan (see Table 7-1).
In the European market, American firms such as Computer Associates, Microsoft, Lotus, and Ashton-Tate have a large market share in packaged software. In 1991 U.S. demand for software was 40 percent of the world market, and American firms had an 87 percent share of the world packaged software market. European firms accounted for 16 percent of world production of packaged software and consumed 41 percent. Japanese firms produced 4 percent of software packages worldwide and consumed 11 percent ( EEC 1993 ). Few European independent software houses specialize in software packages; those that do include Software AG ( Germany) and SAP ( Germany). Most European firms specialize in professional services and custom software rather than software packages; they include Cap Gemini Sogeti ( France), Finsiel ( Italy), Sema Group ( France, U.K.), and SD-Scicon (U.K.).
There are about 13,000 European software and services firms ( EEC 1991 ). American and European hardware manufacturers control about 50 percent of the European market for packaged software (IDC 1990 estimates). In the late 1980s European hardware manufacturers began to devote a large portion of their R&D efforts to Previous chapters note that the unique characteristics of software have given rise to significant differences between the development of the software industry and that of other high-technology industries in the industrial economies. But these chapters also demonstrate the importance of national influences on industry evolution. In the case of Russia, the evolution of the software industry cannot be divorced from the institutional and political context. A discussion of the Russian software industry must therefore include some consideration of the late-twentieth-century changes in Russia's economic and political systems.
In its early years ( 1960-85) the Russian software industry was especially vulnerable to the constraints imposed by the highly centralized Soviet innovation system in its dependence on intellectual property protection, user-producer interactions, human resources, and a broad hardware base. The pervasiveness of the Soviet militaryindustrial complex prevented extensive use of military R&D as a source of civilian software innovation. Only in the early 1990s did organizational and technological changes enable the Russian software industry to respond to an emerging business environment that was beginning to resemble those of other advanced industrial societies.

This chapter's discussion is organized chronologically. The following section provides a brief overview of the software industry's evolution under the Soviet economic system. Next we examine changes in the Russian market for software after perestroika and subsequent reforms. We then discuss the Russian software industry's new institutional structure and conclude with the outlook for the Russian software industry. The growing importance of intellectual property rights affects many industries. The questions raised by strengthening rights, and the increase in enforcement actions this brings, are not restricted to any industry in particular. But the questions seem especially acute in some industries--those in which the policies sought to be furthered by strengthening rights are most in doubt. For a variety of reasons, the software industry is one of these.

There is one well-known reason why intellectual property policy affects the software industry so much: because of the nature of software, firms cannot appropriate much of the benefit of product innovation without some form of legal protection. 1 Even with relatively strong legal protection, outright piracy still skims off several billion dollars in revenues in the United States alone. 2

But there is another reason why those concerned with the development of the software industry must worry about current intellectual property trends. Intellectual property may exert a subtle but important influence on entry into the industry and industry structure. If so, then to the extent that entry and industry structure affect the pace of innovation, intellectual property may in fact play a significant role in determining whether the industry will remain as vital and innovative as it has been so far. In addition, because software, like most goods, emanates from firms located in many nations, national intellectual property policy toward this industry will affect its success vis-à-vis its international rivals.

I begin with a brief description of what is known about the software industry, including the nature of the three major software markets, the United States, Europe, and Japan. Next I consider how past and current intellectual property rules--what I call "intellectual property policy"--may have played a role in the formation of industries with distinctive characteristics in each of the three major markets.