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1 Special Thanks To Our Sponsors and Volunteers Benefactors SWBC USAA Information Technology In San Antonio Economic Impact in Friend Underwriter Southwest Research Institute Valero Energy Corporation Zachry Group Inc. Economic Development Council Mark Metcalfe, Chairman Information Technology Committee Gregory Lawler, Chairman IT Economic Impact Study Subcommittee Gregory Lawler, Chairman Thomas Anfuso Chris Cook Rene Cardenas Staff Marcel Johnson Vice President for Economic Development Sponsored By: The Greater San Antonio Chamber of Commerce 602 E. Commerce San Antonio, Texas (210) Providing Greater Advocacy for the Information Technology Industry

2 The Information Technology Industry Economic Impact Study was conducted by Richard V. Butler, Ph.D. Mary E. Stefl, Ph.D. both professors at Trinity University Highlights The Information Technology (IT) Industry has a significant presence in the San Antonio economy. Its economic impact in was $8 billion. The industry has grown 20% since 2005 and has doubled in size over the past decade. The industry paid $882 million in wages and salaries to 15,648 employees in. The average wage in the Information Technology industry was substantially higher than the average wage for all jobs in San Antonio. Information Technology s economic impact extends far beyond the companies whose primary business is in IT. A Chamber survey of San Antonio s largest employers found that approximately 4,800 additional IT professionals are employed at just 20 of the city s large non-it enterprises. Information Technology: FYI Computerworld s 2009 rankings of best places to work in IT included two SA companies among the top 20 in the country, and three among the top

3 Overview The Information Technology (IT) industry is both large and diverse. It includes IT and Internet-related service providers as well as industries that produce and sell information technology products. San Antonio is particularly strong in information security. According to the National Security Agency, San Antonio is a national leader in this vital field. The information security presence in San Antonio extends beyond the business activity captured in this study to include the headquarters of the 24th U.S. Air Force, a substantial share of the Air Force s information security operations, a large and growing National Security Agency presence, and the Institute for Cyber Security at the University of Texas at San Antonio. Though security restrictions make it impossible to describe this activity in detail, it is safe to say that San Antonio is home to some of the most sophisticated uses of information technology in the world. In recent years, San Antonio has also become a center of Internet-related businesses. Many of the nation s largest corporations, including Microsoft, Lowe s, and Valero have established data centers in the city, and San Antonio is also home to one of the world s fastest growing web hosting companies. This study is based on information obtained from the Texas Workforce Commission s (TWC) Covered Employment and Wages database. Following the same methodology used in The Chamber s previous Economic Impact Studies, the current study is based on the TWC s quarterly wage and employment data aggregated along the lines of business defined by the North American Industrial Classification System (NAICS). Details of the methodology are provided in the Technical Notes section of this report. continued on next page 4 5

4 The Information Technology Industry in Equipment Manufacturing Other 6.7% 2.6% Internet 16.9% Wholesale Trade 26.4% Computer 17.9% Retail & Publishing 26.4% Information Technology: FYI The IT Products sector includes manufacturers of computer and electronic equipment and components, wholesale trade (including business-to-business electronic markets), retail trade, and internet and software publishing. The IT sector includes digital reproduction services, providers of computer services and computer training, IT-related consulting, web hosting companies, and IT equipment repair services. And, there is more. These figures do not include some significant parts of the Information Technology industry. Obvious examples include the 24th Air Force, the Air Force Air Intelligence, Surveillance and Reconnaissance Agency (AFISRA) and the local operations of the National Security Agency (NSA). AFISRA and NSA alone employ thousands in San Antonio. The economic impact of these activities could not be included due to the limitations of the data sources on which this study is based (See Conservative Estimates, p. 20). In actuality, these institutions and their employees are an integral part of the local Information Technology industry. If they could be included, the industry s estimated economic impact would increase significantly. Texas has eight nationally designated Centers of Academic Excellence in Information Assurance. Two of these are in San Antonio. Information Technology also has a profound economic impact in non-it businesses. Every business must maintain an IT function. For many companies IT is an increasingly significant contributor to their success in the marketplace. This is demonstrated by the large number of IT employees at some of San Antonio s biggest businesses: just three of the leading companies in the region (AT&T, Valero and USAA) employ more than 2,800 IT professionals among them. 6 continued on next page 7

5 Overall Economic Impact The Information Technology Industry contributed a total of $8 billion to the local economy in. As already noted, this is a conservative estimate, both because data limitations prevented the inclusion of significant national security activity in the region and because it does not include the impact of information technology functions in non-it businesses. Billions $8.00 $7.00 $6.00 $5.00 $4.00 $4.00 Economic Impact $7.09 $7.09 $6.68 $7.39 $7.74 $8.00 Though the economic impact of Information Technology dipped slightly in 2005, it is still twice the size it was a decade ago, and it has grown 20% since Underlying the overall trend has been a decided shift in the relative importance of the two major sectors of the industry. The Products sector suffered from the closing of two large semiconductor plants in the city during the early 2000 s. While it has grown by about 70% since 1998, it still has not quite returned to its pre-2005 peak size. The sector, however, has seen impressive growth it is up 50% since 2003 and has nearly tripled over the decade. San Antonio s attractiveness as a location for major companies data centers due to its abundant supply of reasonably-priced electricity, its highly developed power and networking infrastructure and the region s low risk of natural disasters -- will surely accelerate this trend. Billions $6.00 Economic Impact of Industry Sectors $3.00 $2.00 $1.00 $5.00 $4.00 $5.09 $5.00 $4.53 $4.75 $5.05 $4.98 $0.00 SWBC $3.00 $2.00 $1.00 $0.00 $2.89 $1.10 $2.00 $2.09 $2.15 $2.64 $2.69 $2.98 Products continued on next page Information Technology: FYI San Antonio was listed #10 on the Apartments.com and CBcampus.com 2009 Top 10 Best Cities for Recent College Graduates for new grads who plan to expand their job searches beyond their college or hometowns. The list was based on the job market and cost of living in the most popular cities for young adults after college. 8 9

6 IT Employment A total of 15,648 persons were employed in the Information Technology industry in, slightly above the previous peak in 2003 and 44% above the employment level of a decade ago. Since bottoming out in 2005 the IT industry s workforce has grown 11%. Number of Employees 16,000 15,492 15,065 14,504 14,080 14,316 14,000 15,648 12,000 10,000 10,870 8,000 6,000 4,000 2, The reasons behind these employment trends can be seen more clearly when we examine the time path of employment in the industry s two major sectors. Mirroring the industry s continuing restructuring away from products and toward services, employment in the Products sector is now only slightly above its 1998 level, while employment in has risen 71% over the decade. As a result, the Products share of total industry employment has dropped from 44% in 1998 to 33% in. Employees by Sector 12,000 10,000 8,000 9,316 8,880 8,613 9,094 9,627 10,408 6,000 4,000 4,780 6,090 6,177 5,625 5,467 5,222 5,438 5,240 2, Products 11

7 A $ 882 Million Payroll The annual payroll in Information Technology has risen 28% since the 2005 depression. The payroll is nearly double the 1998 level. Millions Annual Payroll $ $ $ $713.1 $693.6 $688.6 $775.3 $815.1 $881.9 $ $ $447.3 USAA Home Office $ $ $ $ Annual Payroll by Sector 0 Millions $700 As might be expected, payroll in the Products sector declined from 2003 to 2005 and has risen modestly since then. Meanwhile, Payroll in the sector has risen steadily and significantly (up some 46% since 2003, and more than 2-1/2 times the 1998 level). $600 $500 $400 $ Information Technology: FYI $200 $ San Antonio is #2 in the nation for information assurance, behind only Washington, DC. (Computerworld magazine) Products It is important to note that these figures include only direct wage payments. Total compensation, which includes benefits, would be considerably higher

8 Information Technology: FYI In competition with more than 25 cities across America, San Antonio was selected as the site for the Air Force Cyber Command (24th Air Force) due to available infrastructure, an outstanding workforce, strong academic programs, excellent communications connectivity, and other defense-related cyber activities. An Annual Salary Far Above The San Antonio Average Annual pay in Information Technology has consistently been very high. $60,000 Average Salary $50,000 $47,823 $48,911 $46,027 $41,144 $40,000 $30,000 $56,359 $54,156 $54,103 $20,000 $10, Individuals employed in the Information Technology Industry in earned, on average, $56,359. This is 45% higher than the average of $38,983 for all workers in San Antonio. Salaries in the sector are considerably above those in the Products sector, though both pay significantly more than the average job in this region. These salaries are particularly attractive in light of the low cost of living in San Antonio. It is worth noting that $56,359 is the average salary of all employees at IT businesses in the San Antonio metropolitan area. Salaries of IT professionals are considerably higher than this average. Average Salaries $70,000 $60,000 $56,359 $61,077 $50,000 $46,988 $40,000 $38,983 $30,000 $20,000 $10,000 $0 All IT IT Products IT San Antonio Average 14 continued on next page 15

9 The large differential between IT salaries and those of the average San Antonio job is not a new phenomenon. The IT industry has been providing some of the best jobs in town for more than a decade. Average Salary vs. San Antonio Average $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 $41,144 $26,865 $46,027 $32,288 $47,823 $33,857 $48,911 $35,062 Information Technology $54,156 $36,716 $54,103 $38,219 San Antonio $56,359 $38,983 The IT Products Sector The Products sector includes a wide range of IT-related businesses. Within the sector there are three major groups: Equipment Manufacturing; Wholesale Trade; and Retail Stores and Publishing. Except for 2003 and 2004, the Wholesale group has been the largest of the three; since 2003 its economic impact has remained in the $2.1 billion - $2.3 billion range. Equipment Manufacturing, with the closure of the semiconductor plants (part of the industry s worldwide movement of such manufacturing to overseas locations), is significantly smaller than it was in However, the Retail sector, buoyed by the rise of electronic shopping, is now nearly four times its size of a decade ago. In 1998, workers in the Products sector earned slightly more on average than their counterparts in. As the sector has become more diverse, the number of high-skill, high wage jobs in that sector has mushroomed, and since 2003 the salaries have been higher. However, since 2005 salaries have leveled off while Products salaries have risen. $70,000 Average Salary by Sector Billions $3.00 $2.50 $2.00 $1.50 $1.00 Economic Impact of Products Sector $60,000 $50,000 $40,000 $30,000 $20,000 $43,008 $39,682 $45,022 $46,694 $42,866 $50,963 $38,649 $55,425 $41,585 $61,375 $45,058 $59,212 $46,988 $61,077 $0.50 $0.00 Equipment Manufacturing Wholesale Retail & Pub. $10,000 $0 Products 16 17

10 The IT Sector The sector includes four major groups: Reproduction ; Internet ; Computer, including IT consulting; and Training and Maintenance. The Computer group has historically been the largest of the four, but in recent years the real growth story has been in the Internet sector. From 2005 to the economic impact of Internet has grown from $694 million to $1.347 billion, a 94% increase over a four-year period. Millions $ $ $ $ Economic Impact: Sector $1,347.5 $1,427.2 The Computer group has also grown spectacularly over the decade. It is now 3.5 times its size in Millions $1,800.0 $1,600.0 $1,400.0 $1,200.0 $1,000.0 $800.0 $600.0 $400.0 $200.0 $0.0 $ Economic Impact of Computer $1,121.5 $1,019.6 $1,312.0 $1,658.4 $1, $1,427.2 The economic impact of Internet has also increased substantially, growing by nearly 2.5 times over the decade. $800.0 $600.0 $400.0 Economic Impact of Internet $200.0 $98.9 $108.9 Millions 0 Reproduction Internet Computer Training & Maintenance $1,400.0 $1,200.0 $1,347.5 $1,244.8 Information Technology: FYI $1,000.0 $ $ $ $552.5 $848.8 $839.4 $693.6 $827.7 $ San Antonio hosts the National Collegiate Cyber Defense Competition. College student teams from across the country convene here each year to demonstrate their skill in protecting a corporate network infrastructure and business information systems. $

11 While $8 billion sounds like a big number, this estimate of the economic impact of Information Technology in San Antonio is in fact quite conservative for the following reasons: There is substantial information technology activity in businesses whose primary product is outside the IT industry. Probably more than for any other function, Information Technology is an organic part of almost every business. If all of this activity were outsourced to firms specializing in IT, the Information Technology industry would appear to be vastly larger even though the same essential activity would be going on in the same places. To obtain a measure of the significance of internal IT activity, the IT Economic Impact Study Oversight Committee surveyed the biggest San Antonio enterprises, both private-sector companies and government agencies, asking about their employment of IT professionals in San Antonio and the salaries paid to these individuals. Twenty such entities responded: Accenture AT&T AT&T Government Solutions Bexar County CHRISTUS/ Santa Rosa Healthcare Capital Group Centech CSC Diligent Consulting Energy Transfer IBC Bank Linebarger Goggan Blair & Simpson Combined, these twenty entities alone employ 4,767 Information Technology professionals. All but two of them reported salary information, revealing an average salary in excess of $80,000. Needless to say, these are exactly the kind of jobs any city would love to have. And there are thousands more individuals in the community who are engaged in information technology activities in other companies or organizations. Some significant economic activity in the Information Technology Industry is absent from the TWC s database. For example, the information security activities at the National Security Agency and in various branches of the military are all excluded. Since the security entities have a large presence in San Antonio, this is a significant omission. Under the NAICS classification system, these employers are classified as national security facilities and are therefore grouped with all of San Antonio s military bases under a single industry code. Even if they were in an accessible NAICS code, the TWC collects employment and payroll data from military facilities only for the civilian employees who work there, so none of the thousands of uniformed military personnel working in information security in San Antonio could be included in the study even if these facilities were part of the TWC data set. 20 Conservative Estimates San Antonio Water System Security Service Federal Credit Union SWBC THI USAA U. S. Air Force Intelligence, Surveillance and Reconnaissance Agency UTSA Valero The importance of this activity, both to the local economy and to national security, is difficult to overstate. San Antonio is home to a large concentration of military and intelligence agencies charged with the missions of intelligence, surveillance and reconnaissance, information operations, and network defense, attack, and exploitation. Prominent activities in cyber warfare, high tech development, acquisition and sustainment, implementation, execution and maintenance are found among the Air Force Intelligence, Surveillance and Reconnaissance Agency, the Joint Information Operations Warfare Center, NSA/ CSS Texas, 67th Network Warfare Wing, the 688th Information Warfare Wing, the Air Force Information Operations Center and the Cryptologic Systems Group. Perhaps as many as 10,000 Department of Defense employees and national security industry contractors are defending our nation at these organizations. Naics Codes For The Information Technology Industry PRODUCTS Equipment Manufacturing 3341 Computer and Peripheral Equipment Manufacturing 3344 Semiconductor and Other Electronic Component Manufacturing Wholesale Trade Computer and Computer Peripheral Equipment Wholesalers Business to business electronic markets Retail and Publishing Computer and Software Stores Electronic Shopping 5112 Software Publishers Internet Publishing and Broadcasting and Web Searching SERVICES Reproduction Digital Printing Software Reproducing Internet 518 Data Processing, Hosting and Related Financial Transactions Processing, Reserve and Clearinghouse Activities Computer Custom Computer Programming Computer Systems Design Computer Facilities Management Other Computer Related Training and Maintenance Computer Training Computer and Office Machine Repair Communication Equipment Repair and Maintenance 21

12 In 2001, the Greater San Antonio Chamber of Commerce conducted its first Information Technology Economic Impact Study. At the time it was widely acknowledged that the Information Technology industry s contribution to the local economy was substantial, but there had never before been an attempt to quantify that impact. The present report is the second update of the original study. The IT Economic Impact Study Oversight Committee has employed an inclusive definition of the Information Technology industry. That definition includes not only manufacturers of computer equipment and providers of computer programming services, but also related products and services such as website hosting, electronic shopping, computer skills training and business-to-business electronic markets. Beyond this, the committee has tried to capture some measures of the impact of information technology in the broader economy. This is essential because the IT function is found everywhere and is a significant expense for many businesses. Those familiar with the study s previous versions may notice that the numbers reported here for 2005 and earlier years are different from those presented in the 2000 and 2005 studies. While some of the changes are due to refinements in the TWC s data, most are due to the changing composition of the IT industry over time. As new segments (like electronic shopping) have emerged, the committee has expanded the definition of the industry to include them. Information Sources As noted in the introduction, the primary information source for The Chamber s Economic Impact Studies is derived from the Texas Workforce Commission s Covered Employment and Wages database, which provides data on payroll and employment for the San Antonio Metropolitan Statistical Area aggregated into lines of business defined by the North American Industrial Classification System (NAICS) coding framework. This data is compiled from employers unemployment insurance reports to the state. It represents essentially a 100% sample of all the businesses with employees in each NAICS subcode. The specific subcodes chosen by the committee for inclusion in this study are listed on page 21. They cover both the products and services segments in considerable detail. Since the TWC is constantly revising its historical data in the interest of greater accuracy, the data for 2005 and earlier years used in this study reflect many small changes from the data upon which the previous IT Economic Impact Study were based. The figures in this report are based upon the latest release of the TWC data, so they represent the most accurate measure now available of the industry and its subsectors in those earlier years. In addition to the TWC s data revisions, NAICS coding system has been revised to reflect changes in the country s industrial structure. The evolution of the coding system has been especially significant in the IT sector. In a fast-developing industry like IT there are entire new industry segments now in existence that could hardly have been envisioned by the architects of the original NAICS codes more than a decade ago. One particularly significant addition for this year s study is the electronic shopping subcode, which now accounts for $740 million of economic impact. Selecting which NAICS codes to include is not a simple task. Often it is obvious that all (or virtually all) of the businesses classified in a given NAICS category are part of the Information Technology industry (for example, NAICS category , computer systems design services). In other sectors, however, IT-related businesses make up only a fraction of the activity included in that code. It is therefore a matter of judgment to determine which industries to include and which to exclude. The rule the Committee followed was to include any NAICS industry that in 22 Technical Notes San Antonio seems to include a high proportion of IT-related businesses and to exclude other categories for which only a small proportion of the included business activity is medically related. For example, the businesses in category (mobile communications equipment manufacturing) were excluded from the study even though they produce devices that provide some IT services since these devices have as their primary function something outside the IT industry proper. By following this rule, the overall estimates of employment, payroll and economic impact should be reasonably accurate even though some relevant activity has been left out and some irrelevant activity included. Studies using the TWC database will always be constrained to this sort of compromise. However, the database s advantages of near-100% coverage of employers, consistent collection procedures and ready availability are considerable. The TWC provides employment and salary information for each quarter of the calendar year. The employment figures for the four quarters in each year were averaged to obtain a representative employment level, and payroll figures were computed by summing the wages reported for each of the four quarters. Translating payroll information into economic impact involves two transformations. First, total sales or revenue for each NAICS industry is estimated from the TWC s payroll figures using the ratio of sales to payroll for the corresponding industry in the San Antonio MSA as reported in the most relevant economic census. Thus, conversion factors based on the 2002 Economic Census were applied to data from years 2003 to ; conversion factors based on the 1997 Economic Census were applied to the 1998 data. These figures are specific to each NAICS code, and ranged (in 2002) from a low of 1.95 for computer training to a high of for business-to-business electronic markets. This conversion factor simply translates payroll information into the estimated amount of final sales in each industry sector. The second transformation is necessary because the Information Technology industry sells a large share of its products and services outside San Antonio. When local businesses generate export sales, new spending comes into the San Antonio area. This spending generates a multiplier effect as the recipients of that spending use it to purchase other goods and services in the local economy. These individuals and businesses in turn have new income to spend on local goods and services. In short, revenues from export sales circulate in the economy, magnifying their original impact. To estimate the total economic impact of an export industry, it is customary to use an economic impact multiplier. This study employs the widely-used industry-specific multipliers from the RIMS II model for San Antonio estimated by the Bureau of Economic Analysis of the U.S. Department of Commerce. Since the BEA updates its multipliers frequently, we have used the figures estimated closest in time to each year represented in the study. For the most recent years, these figures range from 1.77 to 2.36 for the information technology industry sectors present in our region. Note that the multiplier can properly be applied only to export sales. While a large portion of the services and equipment produced in the Information Technology industry is aimed at external customers, it is also clear that some products and services are consumed locally. No aggregate data exists detailing the percentage of exports for the various components of the informational technology sector, so the IT Economic Impact Study Oversight Committee, representing a wide range of expertise, was tasked with determining the appropriate percentages. After careful deliberation, export figures (ranging from 0% for retail stores to 90% for semiconductor manufacturing and internet services) were assigned to each of the major Information Technology subsectors. The RIMS multipliers were applied, then, only to that proportion of each sector that was judged to represent export sales and services. Once economic impact has been estimated for each NAICS code, the estimates are summed to obtain the overall impact for the industry. 23