The most conclusive insight from the study shows that a combination of macro- and micro-economic activities stimulate innovation.

Business Week recently released its annual IT competitiveness report, titled How technology sectors grow: Benchmarking IT industry competitiveness 2008, which ranked 66 countries based on the following criteria:

• Overall business environment: 0.10
• IT infrastructure: 0.20
• Human capital: 0.20
• Legal environment: 0.10
• R&D environment: 0.25
• Support for IT industry development: 0.15

Some findings are not surprising, such as having the US at the top of the heap with 74.6 points, and that the top 20 in the list are composed of developed economies while the bottom 20 are mostly emerging markets. It is interesting to note, however, that the highest-ranked countries or territories are headquarters of popular tech hardware companies. For example, Taiwan (2nd place with 69.2 points), South Korea (8th place with 64.1 points), and Finland (13th place with 61.5 points) are homes to Asus personal computers, Samsung mobile phones, and Nokia, respectively.

On the other hand, the countries or territories that make up the second and third groups are the most popular IT offshore outsourcing destinations, save perhaps for the bottom five (Pakistan, Azerbaijan, Nigeria, Algeria, and Iran). It is also interesting to note that India, Russia and China did not fare so well in the survey at ranks 48, 49, and 50, respectively, considering that these countries have the biggest share of the outsourcing pie.

According to the study, to be competitive in IT and offshore outsourcing, a country must invest in human capital. Analytical and “soft” skills rank among the highest capabilities that companies look for in sourcing talent. And thanks to the expansion of training and economic opportunities, many IT workers decide to establish careers in their home countries or return from assignments based in developed economies.

Broadband availability enables IT sectors to increase market share, as well as exchange information that result in tech innovations. Because technology lies at the heart of outsourcing, “fast, reliable and secure internet access” should be made available to businesses and individual users. Initiatives in infrastructure development are sponsored by private companies, proving that competition among telecommunications firms bolsters industry earnings, benefits consumers, and improves the overall local IT business. Most importantly, governments should support IT initiatives through financing of local firms and R&D projects, as well as establishing laws that promote free trade, protect intellectual property and prevent cybercrimes.

Eastern Europe is traditionally popular among Western European firms because of proximity, growth prospects, and technical know-how. For example, Ukraine, one of the leading outsourcing destinations in the region, has seen its economy grow on an average of 7% since the 1990s. A 2006 study of 127 countries by EIU ranks Ukraine at 63, emphasizing its competitiveness in the technology domain, particularly in “new technology development, quality of research institutions and their activities, and quality of exact science education.”

The study was conducted by the publication’s Economist Intelligence Unit by interviewing senior executives of IT firms and experts in the industry, as well as a comparison of countries “on the extent to which support the competitiveness of information technology (IT) firms.” The most conclusive insight from the study shows that upgrading skills, financing IT initiatives of local companies, and improving infrastructure all help in stimulating innovation.