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COMPUTERWORLD | Articles | Market Analysis
05 Mar
2012
 
 

South Eastern Europe – Unlocking IT's Potential

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SEE TOP 100 Ranking, Edition 2011 and IT sub-ranking

The SEE TOP 100 annual ranking made by business intelligence consultancy and news agency SeeNews is the only ranking of private and public companies, banks and insurers from the ten South Eastern European countries - Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Serbia, Macedonia, Moldova, Romania, Montenegro and Slovenia. The 2012 edition will be published in October for the fifth consecutive year. Predominantly using annual non-consolidated reports, we rank companies by total revenue, banks - by total assets and insurers - by gross written premiums. The initial pool of companies exceeds 1,200 every year.

The telecommunications sector, represented in the 2011 ranking by 13 companies, established itself as the fourth most prosperous business generating a combined revenue of EUR 9.7 bln in 2010.

By comparison, IT firms are lagging behind telecoms specialists. Unfortunately, last year's SEE TOP 100 ranking did not include representatives of the IT segment. The best performing IT player in 2010 in terms of total revenue generated some EUR 150 mln below the bottom of the SEE TOP 100.

To fill the gap, we have compiled a ranking of the top 200 IT companies in SEE, derived straight from the initial pool of companies. The list by no means claims exhaustiveness or comprehensiveness for the whole region, but it certainly includes the major companies in the IT industry. Depending on data availability in the different countries, the ranking features software and hardware providers, ITO companies and IT traders. To allow comparison, all local currencies in the ranking have been converted into euro using the respective central bank’s official exchange rate on the last working day of the year.

SEE TOP 200 IT Companies is topped by Croatian distributor of IT products and consumer electronics M San Grupa with a total revenue of EUR 229.2 mln in 2010. The company was established in 1995 and operates in former Yugoslav countries through a network of subsidiaries and affiliated companies.

In 2010 the leading 200 IT companies in SEE generated a combined revenue of EUR 4.67 bln and employed more than 37,300 workers. Romania reported the highest value – EUR 2.4 bln, followed by Croatia – EUR 741 mln and Slovenia – EUR 600.7 mln.

Similar to the SEE TOP 100 per capita ranking, Slovenia is also at the lead of the corresponding ranking in the IT sector with EUR 298, followed by Croatia with EUR 167, and Romania with EUR 113 ranks third.

The results of our ranking also find confirmation in the IT Industry Competitiveness Index 2011, issued by The Business Software Alliance (BSA) and The Economist Intelligence Unit. Only four SEE countries managed to enter into the Index - Slovenia (25th), Romania (37th), Croatia (40th) and Bulgaria (43rd). The index, measuring five indicators, showed improvement in the positions of Slovenia and Bulgaria, while Romania and Croatia stepped back in 2011.

Based on our analysis of the IT market in some of South Eastern European countries in the last few years, we have identified the following trends in the region:

  • IT products and services remain outside the top 20 exported items;

  • The backbone of the ICT market is the Telecommunications sector, generating more than 70% of the revenue of ICT sector in SEE;

  • Outsourcing is the IT segment of strongest presence;

  • Very low level of IT companies’ participation on stock exchanges;

  • As a whole, the level of the foreign language knowledge in the region is high;

  • In SEE, the IT sector consists of many, but small companies;

  • Almost all IT giants have entered SEE countries, attracting young professionals, training them and sharing knowledge, as well as boosting competitiveness;

  • Legal regulations in the IT industry in SEE lag behind the European legislation;

  • There is shortage of highly-qualified personnel on the local market.

Forecasts for 2012 – from slight to flat growth

Most of the market analysts expect the IT market to register growth in 2012. Some of them are optimistic, expecting between 10% and 15% increase in different countries, however our forecast is for a slight increase, following the main economic trends.

The major consumers and drivers of IT products and services will include the public sector and EU cohesion funds. According to data published by Erste Research, in 2011 Romania obtained EUR 252 mln in EU funds for ICT projects and Croatia - EUR 750 mln for the period between 2007 and 2011. Serbia received a EUR 200 mln EU pre-accession assistance , Montenegro – some EUR 35 mln, and Kosovo – EUR 70 mln.

Amid other growth drivers for the next year is the focus on innovation and cloud technologies, and the tool that has been in use since the beginning of the crisis: lower costs > higher efficiency.

Be smart - to be outsourcing destination or to outsource?

The SEE IT market is still small and young, but it offers an opportunity for the development of outsourcing services and shows a considerable potential for growth in the short-term. It is no coincidence that Bulgaria and Romania are included in A.T. Kearney's Global Services Location Index for 2011, which consists of the best countries for outsourcing activities. In the Index Bulgaria holds the 17th place, between the UK and the USA, and Romania stands on the 25th place, but both countries lose four places compared to the previous year.

IT companies in SEE are to tackle the question whether to remain traditional outsourcing companies, to combine ITO, BPO and value-added services, based on innovative technologies or to outsource part of their activities to companies in the smaller countries such as Macedonia, Kosovo, Montenegro and Albania.

For the snap-shot of IT market in some SEE countries, we have used a pile of data sourced by statistical offices, Eurostat, country's IT associations, governmental bodies and news providers. Due to the lack of explicit information about the Information Services sector in some countries, it is very difficult to quote the exact figures.

Romania’s IT Sector Grows Driven by Outsourcing

The IT sector in Romania grew much faster than the country’s GDP in 1998-2008 (some 25% annually). Despite the slight decrease in 2009, growth resumed in 2010 and 2011 and the sector still performs better than the economy as a whole. The Romanian Institute for Computers (ITC) reported the growth rate of the hardware and electronics segment at 43% and that of software and IT services at 9.3% in 2010. Outsourcing is the fastest growing subsector of the IT industry.

The Romanian Association of Software and Electronics Industry (ARIES) claimed that in 2009 the IT industry ranked third in terms of exports among all sectors of Romanian economy, surpassing even the oil industry.

Romania is considered as the IT and outsourcing leader in CEE and one of the top 5 outsourcing destinations in the world. Its comparative advantage is based on the highly skilled labour force, geographical and cultural proximity to Western Europe and the welcoming business environment (there is no salary tax for software developers). Romania is first in Europe and sixth in the world in terms of number of IT certified specialists per capita, according to U.S. IT certifications provider Brainbench.

French PAC consultancy group sees Romania as a country with great potential in IT industry with emphasis on infrastructure outsourcing, business process outsourcing, hardware maintenance and network-related project services.

The structure of the revenue by segments in 2011 was expected to be as follows: 50% generated by the hardware and electronics subsector, 27% by the IT services subsector and 23% by the software subsector. As reported in the survey, the IT market should recover from the slump in 2009 and 2010. However, annual growth rates would be slower than before the crisis – 5.5% in 2011 and 7.0% in 2012. The driver of the growth would be the software and IT services segment, and above all outsourcing. There are significant differences in the geographical structure of the subsectors – while Bucharest gives 67% of the total revenue of Romanian IT industry, Cluj County is the country’s centre of hardware and electronic production with more than half of the revenue in this segment.

Export

Exports of the IT industry increased by 10% in 2009, in contrast to the 17% fall in overall Romanian exports, and by 30% in 2010. The huge share in IT exports growth belongs to the hardware and electronics subsector, which almost doubled its exports in 2010 (EUR 2.990 bln) compared to 2008 (1.578 bln). Analysts estimated the share of IT industry in the total exports of the country at 8.4% in 2010, which is two times higher than its share in 2005. In 2011 the value of the IT services and software export was estimated at 1.0% of the country’s GDP.

ANIS expected growth in software and IT services exports by approximately 10% in 2011.

IT sector forecasts for 2012:

  • The IT sector will continue to grow faster than the overall economy of Romania at a projected rate of 11%.

  • The growth of the sector will be driven mainly by software development, while hardware production has uncertain prospects.

  • Romania will be among the countries with the fastest growing IT spending in the region, but will still remain under the average level for central and southeastern Europe in terms of IT spending as percentage of GDP and IT spending per capita.

  • The imbalance between stagnant local market and thriving exports of both software and hardware will continue to increase.

  • A sharp shift in the structure of IT exports will occur following the withdrawal of the country’s dominant hardware and electronics exporter Nokia, which will lead to substantial increase of the share of software in IT exports.

  • Romania will strengthen its position as preferred European destination for outsourcing.

Serbian IT Market – The New Old Star

In 2011 Serbian IT market declined by 24.8% to EUR 410 mln from its peak in 2008, amounting to EUR 545 mln, shows the survey of local market research company Mineco Computers.

There are some disadvantages, which affect the domestic IT market such as poor IT infrastructure, high unemployment (23.7% in November 2011) and the low average salary in the country. On the other hand, Serbia has introduced a lower level of VAT of 8.0% for computers instead of regular 18% VAT aiming to encourage the IT sector.

The revenue of the IT industry in 2010 stood at RSD 2,402 mln (EUR 22.8 mln), down by 3.14% from the previous year according to Serbian Chamber of Commerce (SCC).

Export

The export of IT services and software grows each year. According to Informatics association of Serbian Chamber of Commerce (SCC), export of IT services and software reached USD 200 mln in 2011.

Serbia exported computer, electronic and optical products for EUR 143.2 mln in 2011, up 2.3% from the previous year according to Statistical Office of the Republic of Serbia.

Forecasts

Analysts from Business Monitor International (BMI) expect Serbian IT market to grow at a Compound Annual Growth Rate (CAGR) of 15% in the period 2012-2016. The forecasted growth of services is 19%, of hardware - 14% and of software – 12%.

To stimulate employment and to prevent brain drain, the government announced its plans to exempt from taxes the salaries of employees in the IT sector in 2012, following the good practice of Romania. The good business environment including the acceleration of economic reforms and privatisation has to result in an increase of spending on IT products and services, too.

Serbia could become an operation centre of IT industry in South Еastern Europe, especially for the neighbouring countries like Macedonia, Montenegro and Bosnia and Herzegovina.

Slovenia’s IT Sector Resumes Operations

The Slovenian IT sector managed to record growth in 2010, unlike in 2009 when it slumped by 6.6% year-on-year. The combined revenue of the 4,229 companies operating in the sector reached EUR 1.478 bln in 2010, compared with EUR 1.372 bln in 2009, according to data of the country’s Statistical Office (SORS).

According to other data – released by market research company IDC Adriatics (IDC), the total expenditure for hardware, software and IT services in Slovenia was USD 873 mln (EUR 659 mln) in 2010. In USD terms the market went down by 4.4% compared to 2009 but in EUR terms it grew by 0.3%. In 2010 the sharpest increase was registered in the demand for IT services and computer hardware, while software sales remained unchanged in comparison with 2009.

The main challenges faced by the Slovenian IT market were the lack of funding for IT projects and the downtrend in prices, according to IDC.

The average per capita expenditure for IT in the country stood at EUR 322 in 2010, IDC data showed. It remained far behind the figure in the leading country – Denmark with EUR 1,514 per capita. In 2010 the average per capita expenditure for the Adriatic region1 was EUR 72. Slovenia’s share in the total value of the IT market in the region stood at 27.5% in 2010.

Services

The Slovenian IT services market was estimated at USD 319 mln (EUR 240 mln) in 2010, according to IDC Adriatics. The market went down on an annual basis by 7.0% in USD terms, and by 2.0% in EUR terms. The downtrend in the demand for IT services that began in 2009 spread in 2010 as a result of the economic instability. However, the decline slowed down in 2010, with interest in IT outsourcing and cloud computing services growing.

The market of cloud computing services in Slovenia was worth EUR 9.0 mln in 2010, IDC data showed. The local market was larger than in Romania (it accounts for 65% of the Slovenian market) and in Bulgaria (9.0%), but lower than in Slovakia (118%), Russia (230%) and the Czech Republic (314%). The leading provider of cloud computing services to public clients in Slovenia was Ljubljana-based Xlab d.o.o., while the local unit of U.S. IT giant IBM was top provider of cloud computing to private clients.

The major clients of cloud computing services were manufacturing and financial companies and institutions. They accounted for more than 70% of the total expenses for cloud computing services in Slovenia in 2010, according to IDC.

Software

Slovenia is considered to have a mature software market compared with other countries in Southeastern Europe. Nearly 80% of the biggest employers in the country are already using Enterprise Resource Planning (ERP) systems and the software vendors should focus on other products to maintain growth. Demand for enterprise application software (EAS) continues to be dominated by large companies but more than 64% of the newly installed EAS is in small and medium-sized enterprises (SMEs), according to market intelligence company Business Monitor International (BMI).

The country’s software market was expected to post single-digit annual growth and to reach USD 215 mln in 2011, BMI data showed. The volatile economic situation pushed many companies to review their spending on IT products and services, which had a negative impact on the market in 2010. BMI expects that software sales will grow faster than hardware sales and the software market will experience a compound annual growth rate (CAGR) of 6.0% in the period through 2016.

Hardware

In 2010 computer hardware sales in Slovenia continued to grow in the retail segment and to fall in the wholesale segment. The retail trade went up by 12.4% year-on-year in 2010 to EUR 135 mln, while the wholesale trade decreased by 7.4% to EUR 797 mln.

In 2011 a total of 180,000 personal computers were sold in Slovenia, which is by 2.5% less than in 2010, according to IDC data. Hewlett-Packard strode atop in terms of PC sales with more than 60,000 units sold for a market share of over 33%. Sales of laptops continued to outpace demand for desktop computers.

Exports

Slovenia's export of computer, electronic and optical products followed the trend of the national total in the period 2008-2010, SORS data showed. In the first eleven months of 2011 the share of the export of computer, electronic and optical products in the country’s total exports continued to shrink and at year’s end its value is expected to have remained below the level in 2010. There were no exports recorded in the IT service activities segment in the period from 2008 to November 2011, according to official data.

IT sector forecasts for 2012:

  • The sector will register growth of up to 3.0%;

  • The total number of IT companies will continue to grow;

  • Growth of cloud computing services will boost revenue in the IT services segment;

  • The software market will start growing with the software developers diversifying their products and focusing on SMEs;

  • The computer hardware segment, especially sales of desktop PCs, will experience a difficult year. However, demand for laptops and tablet computers is expected to rise;

  • Export of computer, electronic and optical products will remain at the 2011 level;

Growing demand for highly-qualified IT specialists, especially in the IT services and software development segments.

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