Robust economies and open borders fuel surge in IT investments in central and eastern europe, says IDC
PRAGUE – CZECH REPUBLIC – MARCH 13, 2006 – The IT markets in six key nations of Central and Eastern Europe show no signs of slowing as economies expand and major vertical sectors reap the benefits of increased investment in the region.
According to a new IDC study, IT spending will surpass $40.5 billion in 2009, nearly double the 2004 total of $20.4 billion. Healthy GDP and growing demand from small and medium-sized businesses will fortify the markets along with the greater availability of PCs and packaged software in large retail outlets and shopping centers.
"The open borders and political stability engendered by EU membership have been important contributors to the region's success," said Steven Frantzen, group VP of IDC CEMA and general manager for research, IDC EMEA. "For the four new member states and Croatia, the combination of public sector reforms, increased FDI, and major efforts to meet international standards has spurred businesses to pump money into IT. For Russia, high oil prices and its strong and expanding economy have driven purchasing."
Infrastructure upgrades and various IT initiatives have made government the single largest vertical market investing in IT hardware, software, and services. Declining prices, product bundles, and the increased presence of IT hardware in retail outlets have made the home segment the second largest. Although process manufacturing was third in 2004 and 2005, the banking sector is growing faster, and the revenue it generates should surpass that of process manufacturing by the end of 2006. Together, these four verticals represented more than 46% of IT revenue in 2004 and 47% in 2005.
"Across the region, smaller, previously underperforming sectors like healthcare and education have also picked up," said Frantzen. "Badly needed back-office systems are finally being installed and hardware upgrades implemented. Although these sectors are not as big or growing as fast as the largest sectors, the rise in IT investments reflects the overall economic health of the region and vendors would do well to allocate some of their sales and marketing teams to these sectors."
PCs represent the largest share of IT revenue and will be the fastest growing technology segment through 2009. Although a number of verticals are making the transition from hardware to software and IT services, demand for notebooks in offices is soaring while the continuing decline in prices has made desktops a possibility for many middle and lower-income home users.
Nevertheless, the second fastest growing segment is IT services and the third software, as many enterprises already have hardware in place and are now expanding their IT tools, integrating systems, and outsourcing IT projects and tasks.
"Notebooks are the future for enterprises and will power IT market growth," said Frantzen. "They have become important components in many business development plans. Notebooks increase efficiency by letting people take work with them on business trips or home for the weekend when major deadlines approach. They provide flexibility by allowing people to 'bring their office with them' on sales calls. And when used in conjunction with current and near-future wireless technology and services, notebooks set the stage for a mobile workforce, where integrated systems can include field agents and branch offices in remote locations."
Of the six counties in IDC's study, Russia is the largest IT market, representing more than 45% of revenue. It is also the fastest growing, and this year IDC expects it to overtake the other five to account for more than half of revenue. Representing more than 17% of the country's IT investment, the rapidly growing government sector was Russia's largest vertical market in 2004 and the second largest in 2005, losing ground to the home vertical. The fastest growing segment for IT revenue is communications, where operators are already looking past the current period of rapid growth to the time when they will need a product portfolio that includes complete business and personal solutions.
At just over a fifth of revenue, Poland is the second largest IT market and one of the most aggressive in creating incentives for IT development.
Manufacturers in particular have been taking advantage of the various programs, with process manufacturing (around 13%) accounting for the largest share of the country's IT revenue and discrete manufacturing (10.5%) the second largest. The communications, banking, and government sectors were close behind.
The Czech Republic is the third largest market in terms of IT revenue, followed by Hungary, Slovakia, and Croatia. In all four markets, SMBs have ramped up investments in IT, recognizing that it is no longer a tool for obtaining a competitive edge but rather an essential part of business today.
With the exception of the transportation vertical, IDC expects annual IT revenue growth in CEE to stay firmly in the double digits for all industrial sectors over the next few years. The home, communications, government, and banking sectors will all be among the largest and fastest growing sectors, providing vendors with ample opportunities to create tailored solutions for each vertical market.
"In the recent past, a lot of the CEE IT markets were growing fast because they were starting from small bases," said Frantzen. "Now they are growing fast because the strong economies and increased international businesses in the area are ramping up IT to compete on the regional and international stage. It's a good time to be in the market."
IDC's study, Central and Eastern Europe Vertical Markets 2005-2009 Forecast (Doc #EV01M), provides a detailed overview of IT spending trends and forecasts for 17 vertical markets (or industry sectors) and 10 product categories including hardware, packaged software, and services across six Central and Eastern European countries (Russia, Poland, the Czech Republic, Hungary, Slovakia, and Croatia). The study also includes tables detailing IT spending by vertical market for each product over the 2005-2009 period.
Analysis is based on continuous research and monitoring of user IT spending and emerging purchase patterns, and supply- and demand-side research.
IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.
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