United States. Congress. Senate. Committee on the.

The Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) online

. (page 45 of 140)
Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 45 of 140)
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such decisions ;

To submit to the Council, by the end of 1975, a report on developments
to the data processing sector in the Community in relation to the world
situation.



5334

Exhibit 2. — Council of Ministers of European Communities document re back-
ground information pertaining to resolution re common industrial
policy

Commission of the European Communities

SBC (73) 4300 final „ ,

Brussels, 21 November 19 iS.

Community Policy on Data Processing

(Communication of the CommissioD to the Council)

Contents

Document I

Introduction

A — Building a strong European-based industry

Central processors

Perii)herals

Electronic components

Software bureaus and consultancy
B — Applications : serving the needs of the user

Opening public purchases and coordinating procurement policy

Collaboration on applications

iData banks

(Data Communication

iHealth and medicine

Industrial applications
C — Complementary measures

Standardization

'Support for leasing

lEducation and basic research

(Structure of employment

Protecting the citizen
D — ^Community action
Document II

Draft Council resolution
Document III

Annex I — Economic data on the computer market
Document IV

Annex II — ^^Summary of document I

DOCUMENT I

Introduction

Communication of the Commission to the Council

J. Community Policy for Data Processing

1. The Summit Conference called for the progressive and effective opening of
public sector purchases and for the establishment, in the advanced technology in-
dustries, of competitive companies at European level. In few industries are these
objectives more relevant than in data-processing. Now the third largest world
industry after chemicals and cars, growing at some 15% per year in the U.S.A.
and 20% per year in Europe (see Annex point 1 for details), it penetrates in-
creasingly virtually every walk of life, transforming management and adminis-
tration, education and science. The very structure of society may be determined
in the future by the way it uses information systems. As hibour-intensive indus-
tries move towards developing countries, Europe needs to develop, rapidly, in-
dustries requiring concentrated skills of a high level ; of these data-processing
is a classic case.

2. Yet though European minds conceived many of the basic concepts of the in-
dustry and Europe still has a powerful intellectual and technical potential in this
field, it has yet to transform it into effective industrial strength. Over 90% of
the computers installed in Europe are based on American technology. Some 60%
of the world of EuroiJean market is held by a single dominant firm based out-



5335

side Europe (IBM). Though this company has made and continues to make a
massive contribution to the commercial application of data processing, its posi-
riou enables it to determine the pattern of prices and standards, to dictate the
pace of commercial innovation and the p:ittern of the market. In no other key
industry is a single firm so dominant in l>orh Europe and the world. The Com-
mission, in accordance with its oltligations under Article 86 of the Treaty estab-
lishing the European Economic Community, will be vigilant to ensure that there
is no abuse of such a dominant position.

3. The most effective guarantee of good I)eliaviour is, however, the existence
of strong and viable competitors. Competition is at present provided hy other
international companies ba.sed outside Europe and operating within it (see Annex
point 2), but there is no certainty that tliey will remain in the competitive race
and the social, political and economic importance of this industry are such that
Europe cannot afford to opt out altogether.

4. A flourishing European data processing industry must include strong Euro-
pean liasod companies in belli hardware and software side by side with the
imi>orrant companies controlled from outside Europe. In an expanding market
there is room for l)oth.

."). Tlie leading world position of the American companies owes much to com-
mercial skill and good management, but much, too, to the fact that the United
States first provided a rich Continental market for the commercial applications
of data processing, while in the last twenty years the Federal Government has
provided a huge, sophisticated market for the TT.S. industry and stimulated its
growth by development contracts ( See Annex point 3) .

Any siipport needed in the next few years by the infant Industry in Europe
nmsr not be seen as a form of permanent protection, but as a mean of redressing
tliis imbalance by providing comparable opportunities to the European-based
companies so that they too can acquire continental, indeed world dimensions,
and stand competitively on their own feet.

A Community policy for data processing must include two main types of ac-
tions : to develop the capacity of the European-based industry and to promote
the effective use of data-processing. These main thrusts of activity need to be
complemented by a limited number of background measures. This communication
will examine the problems in this order concluding with proposals for Com-
munity action.

A. Building a Stkoxg Euuopean-Based Indt stry

CENTRAL PROCESSORS

0. At the strategic heart of computing systems is the central brain or processor
(IBM's 370 series, ICL's new range, Unidata's new X series from CTI, Philips
and Siemens for instance). Europe's most evident industrial problem in com-
puters is to develop a viable structure capable of competing with the dominant
producer in the development, production and marketing of such a range.

7. In pui'suit of this objective, at least tliree Governments (the British, French
and German) have, in the past ten years, supported national computer companies,
by means of financial support for computer development and preferential pur-
chasing policies, details of which are given in the Annex, Point 3. The share
of world markets of the four leading European computer companies (ICL,
CII. Siemens and Philips) together is, however, approximately Q%. or roughly
e(pial to the smallest of the remaining American competitors with the world
leader. Both the losses made by certain European companies in the past and
much evidence (See Annex point 4). suggest that separately, European-based
firms v»ill have great difficutly in attaining the minimum necessary scale to be
economically viable on their own without permanent Government subsidy. The
breakneck speed of growth in the market (some 20% per year) means that
companies have to work hard to maintain oven their existing market .shares. A
regrouping of the industry which respects tlie rules of competition under the
Treaty is the only route to a major jump in relative size.

5. To be fully successful and competitive, a computer company should pene-
trate and have access to the major advanced markets of the United States and
•Tapan. Collaborative agreements with non-dominant companies outside Europe
offer one mean of acquiring this, and of tapping new technology and capital
resources. But such partnerships can only bring their full benefits to Europe if
they are based on a real equilibrium between the partners and not on an open



5336

or disguised absorption of the European firm. A regrouping of the major
European based firms must be seen as a key objective, making it easier not harder
to find balanced relationships with firms outside.

9. It is for the companies concerned to seek out and negotiate with compatible
industrial partners and subject always to a more thorough examination of the
terms of the agreement, the Commission welcomes the formation of Unidata (by
Siemens, CII and Philips) and the discussions going on with a view to further
regrouping. Governments and the Community also have an important part to play
by ensuring that procurement policy does not obstruct such moves and by pooling
the financial resources with which they support the industry. It must be a legiti-
mate concern of the Community and of Member States to rationalize and control
public financial support for the data-processing industry in favour of the strong-
est possible indiistrial groupings.

10. Even if all the major European based companies grouped into a single entity,
there would be no danger of monopoly or market domination given the incom-
parably greater size and strength of IBM. Such a combination is however unlikely
in the immediate future, given the existing plans of the key companies : in the
next three years the two major groups of companies may continue to coexist com-
peting witli each other in the marketing of separate series of computers.

11. In this situation, Community policy for the support of the industry can
usefully be seen in two phases : in the short run. at least a limited collaboration,
falling short of a full merger or combination, should be encouraged, both to
achieve ends useful in themselves and to prepare the way for a further industrinl
combination later. Steps by the industry toward such a combination woidd facili-
tate the development, in a subsequent phase, of a more coherent and complete
Community programme for the support of the data processing industry and its
applications. Success in the second phase will largely depend on the effectiveness
of collaboration in the first. Here a look at the other sectors of the industry —
peripherals, electronic components and software — is necessary, for they too are
essential to a strong industry.

PERIPHERALS

12. What has been loosely called "Peripheral equipment" comprises more than
half the value of the hardware in new systems, and this share is growing, for
computing systems increasingly involve an ever-widening range of terminals for
transmitting and receiving information linked by networks to a central brain or
brains, as well as a number of functional units (eg. memories, storage capacity,
which are essential to, but detached from, the central processor). In the produc-
tion of terminal peripherals and small computers, a number of specialised Euro-
pean firms have already proved successful. Some of these are small; some, like
Olivetti, the largest European firm in this field, or Nixdorf, are comparatively
large. Yet the "near-in" peripherals which form an essential part of all systems
(disc-units tape decks etc.) are dominated by external producers and the overall
picture is of a growing payments deficit and technological dependence in a key
sector of the industry.

13. In terminal equipment, there are good commercial opportunities for a vari-
ety of European companies to enlarge their market share, and the most appropri-
ate general form of public support at Community level for innovation appears to
be the proposed Community Contracts for Industrial Development.' At the same
time, if the European based manufacturers of central processors are to become an
effective force, they may need to pool research, production and marketing capa-
bilities for certain "near-in peripherals". Further examination at Community
level is needed to see whether a specific limited programme of joint support for
such development is needed in the form of "programme-oriented" development
contracts.^



iThe Commission's current proposal on Community Contracts for Inchistrial Dp-
velopmont [Doc. COM (72)710 final .Tuly 18721 Is rtesismed to support collaborative
Innovations of small to medium/size proposed by companies from any sector of industry

2 A diflferent form of development contracts which may be called 'prosrramme-oriented
development contracts" will be needed to support collaborative developments in the
framework of specific sector programmes such as data processinir.Tn such cases tlip
Council, on the basis of proposals from the Commission would decide the objectives ok
a programme and allocate the appropriate funds.



5337

ELECTRONIC COMPOXENTS

14. Components form a third major element in the computer industry ; this too
grows in relative importance as the manufacturers learn to group hundreds of
electronic circuits upon a tiny chip (see Annex point 5). Here the first need of
the computer manufacturer is to have access to the latest technology at the
lowest possible price. In part this need may be met by purchasing from outside
companies, including companies based outside Europe. Some internal capability
is however needed, both to make use of tlie latest component technology in system
design, and as a guarantee that companies have access to the most advanced
technology.

15. The overall problems of Europe's semiconductor industry, now entering the
crucial pluLse of developing Large Scale Integration, wall be discussed in a sepa-
rate paper from the Commission. More special to the computer industry is the
}ieed to participate in the latest memory technologies (LSI, Bubble memories,
holography and so on) any of which may prove later to have great industrial
imiiortance. These fields I'equire an important effort of research and development,
if the European based computer industry is not to run the risk of being left behind
by radical new developments in the latter years of this decade. Here again a joint
<levelopment effort involving the main computer companies would be essential
and could be started now, using programme-oriented development contracts.

SOFTWARE BUREAUS AND CONSULTANCY

IG. Buying the "Software" the programmes by which the information and
needs of the outside world are translated into computer language — costs as much
to rhe user, in most computer systems, as the hardware ; and a strong industry
is equally important for Europe (for details, see Annex point 6).

17. The develoi)ment of the software industry has heen led from the United
States because of the strength of the American hardware industry and because
the market for new applications is both larger and tends to develop there first.
Bur because size of firm and investments are less important, the European indus-
try is less at a di.-^advantage than in hardware and in those fields where Euro-
pean firms are active and well managed they can provide programmes and services
competitive with those in the United States.

18. Certain weaknesses, however, might be usefully redressed by Community
policies. Despite the formal "unliundling" introduced by IBM, which is far the
largest software company, a great many user software programmes are in fact
tied to particular types of hardware, or adapted, at a cost, from programmes
designed for them. There is a need to develop a real "market" in user software in
which applications programme packages are easily transferable from one type of
machine to another. There will be an incentive to develop such transferable
packages if public users jointly commit themselves to use them. There is also a
case for u.sing programme-oriented Community development contracts to support
the development of "Bridgeware" programmes wiiich make it possible to transfer
existing applications from one machine to another. Further study is also needed
to define means of protecting property rights of software products.

19. There is also a need to stimulate European capabilities, particularly in the
public sector, by joint applications development programmes, which will place
the European producers well for serving future public needs. Such programmes,
if carried out by consortia or associations of European software and if necessary
hardware companies, would act as a spur for the regrouping of an industry parts
of which are too fragmented. The great defence and military projects which
have been an immense stimulus to the American industry, need a realistic Euro-
pean equivalent designed to serve civilian needs. Here the needs of the industry
rejoin those of the user. It is a theme to which we shall return in Section B below.

B. Applications : Serving the Needs of the User

20. Xo less important than building a strong industry is a second Community
objective: to promote the effective application of data proces.sing to the needs of
the European user, in particular those of the pulilic u.ser and tho.se which have an
international or European character. There is much ground to make up, for in
all too many organisations the use of computers is in its infancy.



5338

OPENING PUBLIC PURCHASES AND COORDINATING PUBLIC PROCUREMENT POLICY

21. Public users of information systems liave an interest, not merely in pnr-
cbasing from the cheapest and most efficient supplier of systems, but in pooling
their requirements, sharing in the solution of their common problems and thereby
reducing costs and achieving more eflBcient answers.

22. The American industry has benefited greatly from the immense and
sophisticated demands of the U.S. federal Government (see Annex point 3).
State and city Governments and universities also have a number of cooperative
arrangements for developing and purchasing systems together and thus saving
public funds.

23. The power of procurement is already used today in several member states
as a mean of promoting a national industry. That weapon, used nationally, not
only infringes the Treaty but may increase costs to users and inhibits the Euro-^
pean industry from working on a Continental scale.

24. In response to the ned for the progressive and effective opening of pul)lie
sector purchasing, expressed at the Paris Summit, the Commission has already
proposed a series of legal measures concerned with the coordination of tendering
procedures in these markets.*

As a complement to these measures, the time has come to move on from national
procurement policies to a close collaboration at Community level in procurement.
This must be designed to support rationalisation and standardisation, to achieve
greater economies for the user, through joint purchasing and development and the
construction of common networks or services. It must also be designed to redress
the competitive balance by providing opportunities to European-based industry.
A systematic joint analysis of future requirements should make it possible to
identify well in advance areas where users can usefully collaborate on applica-
tions and benefit from joint procurement.^

COLLABORATION ON APPLICATIONS

25. European Governments are devoting growing resources to computer ap-
plications (see Annex point 3). How can they best collaborate to pool and save
scarce public funds, providing a stimulus to the European industry at the same
time? Collaboration on three links could bring benefits.

a. Common international projects

26. Certain types of public application have an inherently international charac-
ter. Environmental monitoring, meteorology, air, sea and land trafiic control.
customs and trade statistics, international technological information systems are
examples. For such applications, international development and management
are becoming not merely desirable, but essential. The Commission lielieves tliat
the best way to fulfill a real public need and stimulate the technological capa-
bility of the industry soon is to plan and implement a small number of such
projects on a common basis now. It has commissioned the first part of a study
designed to help identify priority projects of this nature. It asks the Council
to support such projects and will make proposals during 1974 with a view to-
decision by the Council before the end of the year.

b. National needs common to several ileniber-States

27. Sucli inherently international projects are not the only applications whert
benefits could flow from pooled resources. Many national or local public applica-
tions are common to different member states and savings could flow from collab-
oration or even joint development and procurement. Central Government admin-
istration, social security systems, health and hospital systems, education are
examples.

Two meetings of the data processing subcommittee of the PRP^ST group ha\e
already usefully helped the Commission to identify areas wliere collaboration
or joint action would be useful; a continuous further process of coordination
and confrontation will be necessary in the future to expose areas for cooperation
or common development.

c. Coordinittion

28. In certain fields, coordination ouglit to be started now :



'• Sfe dociiiiipiit on indiiKtrinl .ind tpchnologionl policy SEC (73) 1090.
* See document COM/73/459.



5339

DATA BANKS

29. Large banks of data are now being established for a widening range of
public and private users (for details see Annex point 8). A growing proportion
of these banks in both the public and private sector will liave an international
character (banking, technological information systems, healtli, or police records),
while in other cases (local Government, taxation, censuses), the difficult prob-^
lems of managing the information are being tackled in parallel by many public
authorities throughout Europe. Economies and greater etficiency will result if
public users can jointly develop new methods of programming and managing
this information (Data Base Management Systems), standardise the many fea-
tures which are necessary to facilitate communication between tliem, coordinate
the planning of their introduction, and identify technical problems where studies
and development work might benefit from Community support.

DATA COMMUNICATIONS

30. The problems of data-communication, which may match the volume of voice
telephone traffic in Europe within ten years (See Annex point 9), are increasingly
a Community concern. The Conmiissiou is preparing wider proposals on tele-
communications policy, but these will take some time to implement and in the
meantime it is important that new data-communication networks develop as
European systems and do not engender new technical divergences harmful to
the user. The COST project 11, though a useful pilot research scheme, does not
deal with the practical problem of the systems that are actually being installed.
A procedure for the joint planning and management of data networks is needed.

HEALTH AND MEDICINE

31. A further area in which coordination can usefully start now is the field
of health and medicine, an area of public spending growing in all member states.

INDUSTRIAL APPLICATIONS

32. Outside the public sector a more effective application of data processing
to a range of industries important for Community policy (shipbuilding, aircraft,
textiles) could raise productivity and enhance the capability of the European
computer industry. As in the public sector, judicious development contracts for
applications technology could be a means.

C. Complementary Measures

33. To provide a favourable environment for the twin policies of building a
strong European industry and supporting the more effective application of com-
puter systems certain additional measures are needed :

standardization

34. For both the user and the computer industry the development and effective
application of common standards in hardware and software is an urgent pri<n-ity.
At present users are often tied to a particular company by the language and
form of the programmes they use. If a real exchange of methods and a genuine
market in software which could liberate the user is to develop, users, industry
and standardisation organisations need to agree on and put into use common
high level languages, for example for real time applications.

35. The manufacturers of peripherals also need standard interfaces which will
make it easy to plug independent peripherals into larger systems. Standards are
talked about in many international fora. The main need at Community level is
to put a few key agreed standards into practice through coordinated procurement.

support for leasing

36. In addition to the need for support for development, the European based
hardware industry faces severe problems in financing the leasing of computers.
Small companies lack the immense inward cash-flow enjoyed by companies with
a large existing customer base. Moreover, a company attacking'a market lield by
an established firm, with a new range of computers, may run higher commercial
risks and find it difficult to lease on terms equivalent to the market leaders.



5340

Detailed proposals may be made by the Commission after discussion with inter-
■ested parties. One possible form for support might be a European leasing com-
pany to back the industry.

EDUCATION AND BASIC RESEARCH

37. Neither a strong industry nor effective application of the computer sciences
by users can be achieved without a continuing basic research effort and a strong
•educational effort designed, in particular, to raise standards, end tlie shortage



Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 45 of 140)