it services in cee - efocus · china india japan south korea taiwan. impact of the recovery on the...

IT Services in CEE

Eugen SCHWAB-CHESARUPartner and Managing Director, PAC Central and Eastern Europe

Madalin DOBRE Consultant, PAC Central and Eastern Europe

Content

• IT Services in CEE

• IT Services in Slovakia

• Main changes and trends

• Global IT market overview

• PAC Business Overview

• Contact PAC

PAC Business Overview

PAC Business Overview (1)

www.pac-online.com4

Who is PAC ?

PAC supports IT decision makers & suppliers in the development and implementation of a successful strategy by providing them with a better understanding of the market, the competition and end-user behavior.

Paris Office 1976

Years our Offices Opened:

Munich Office 1992

Bucharest Office 1999

New York Office 2000

London Office 2002

Sao Paulo Office 2009

Pierre Audoin Consultants (PAC) was establishedby our founder Pierre Audoin in 1976 (Paris).

The only European Group with Global coverage: Strong local competences and global response.

The specialist for the Software & IT Services Industry:IT Services and Software suppliers, IT users, influencers and public bodies.

An integrated approach covering the whole value chain of our customers: off-the-shelf reports, marketing & consulting services.


www.pac-online.com5

Our top-down methodology relies on macroeconomics and market models built on a large set of statistics and referrals (demographic, geopolitical, economic,

technological, industrial, etc)

Our Methodology


www.pac-online.com6

Our Market SegmentationEach research project we undertake including custom projects refers to our single

market model that contains a high level of granularity. We update our segmentation every year, based on market evolutions.

Global IT market overview

Global IT Spending

www.pac-online.com8

Worldwide IT Expenditure vs. GDP

Crisis impact by Country

www.pac-online.com9

Impact of the Crisis on the SITS Market

0.0

1.0

2.0

3.0

4.0

5.0

6.0Austria

BelgiumDenmark

Finland

France

Germany

Italy

Netherlands

Norway

Portugal

Spain

Sweden

SwitzerlandUK

Czech RepHungary

PolandRomania

Russia

Slovakia

Canada

USA

Brazil

Mexico

Australia

China

India

JapanSouth Korea

Taiwan

Legend: from 6 = very strong negative impact to 0 = no impact

Recovery Impact - by Country

www.pac-online.com10

Legend: from 0 = no recovery to 6 = very strong recovery

Impact of the Recovery on the SITS

0.0

1.0

2.0

3.0

4.0

5.0

6.0Austria

BelgiumDenmark

Finland

France

Germany

Italy

Netherlands

Norway

Portugal

Spain

Sweden

SwitzerlandUK

Czech RepHungary

PolandRomania

Russia

Slovakia

Canada

USA

Brazil

Mexico

Australia

China

India

JapanSouth Korea

Taiwan

Impact of the Recovery on the SITS Market

Crisis Impact by Industry


Impact of the Crisis on the Software and IT Services

0.0

1.0

2.0

3.0

4.0

5.0

6.0Manufacturing

Banking

Insurance

Public

TelecomUtilities

Retail & Wholesale

Services

Transport



Recovery Impact by Industry

.com12

Impact of the Recovery on the SITS

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Manufacturing

Banking

Insurance

Public

TelecomUtilities

Retail & Wholesale

Services

Transport

Impact of the Recovery on the SITS Market


Crisis Impact by Products and Services



0.0

1.0

2.0

3.0

4.0

5.0

6.0Systems Infrastructure Software

Tools

Application Software Products

Hardware Maintenance

IT Consulting

Systems IntegrationIT Training

Application Management

BPO, Application Outsourcing, SaaS

Infrastructure Outsourcing

Complete Outsourcing



Recovery Impact by Products and Services


Recovery on the SITS Market by Products & Services

-1

0

1

2

3

4

5Systems Infrastructure Software

Tools

Application Software Products


IT Consulting

Systems IntegrationIT Training


BPO, Application Outsourcing, SaaS



Recovery on the SITS Market by Products & Services


Crisis Impact by Solutions


Impact of the crisis on the SITS Market

-1.0

0.0

1.0

2.0

3.0

4.0

5.0F&A

ControllingRisk Mgt

Performance Mgt

HR

MRP

SCM

CRM

SRM/ purchase

BI

ECM

groupwarecollabor.

CAD/CAMPLMSTI/ process auto.

embedded syst.

Compliance

SOA

Green IT

Security

High Avail.

Consolidation

Virtualisation

IT/ telecom conv.

OffshoreOpen Sour.



Recovery Impact by Solutions


Impact of the recovery on the SITS

0.0

1.0

2.0

3.0

4.0

5.0

6.0F&A

ControllingRisk Mgt

Performance Mgt

HR

MRP

SCM

CRM

SRM/ purchase

BI

ECM

groupwarecollabor.

CAD/CAMPLMSTI/ process auto.

embedded syst.

Compliance

SOA

Green IT

Security

High Avail.

Consolidation

Virtualisation

IT/ telecom conv.

OffshoreOpen Sour.


Impact of the recovery on the SITS Market

Software and IT Services Markets in Europe


3 816

5 673

1 636

4 7204 280

33 805

46 189

875

14 909

11 675

3 5042 649

2 064700

4 426

717

11 6047 014

7 184

44 496

5,6%

5,1%

6,8%

3,9%4,3%

4,5%

5,4%

5,7%

3,1%

4,3%

4,3%

8,3%

4,5%

11,8%

11,4%

6,8%

3,9%

4,7% 4,3%

3,7%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

Aus

tria

Bel

gium

Cze

ch R

ep

Den

mar

k

Fin

land

Fra

nce

Ger

man

y

Hun

gary

Italy

Net

herla

nds

Nor

way

Pol

and

Por

tuga

l

Rom

ania

Rus

sia

Slo

vaki

a

Spa

in

Sw

eden

Sw

itzer

land UK

Total SITS CAGR 10/14

IT Services in CEE

CEE IT Services (1)


General Overview

2009Czech

RepublicSlovakia Hungary Poland Romania

Population (in millions) 10.5 5.4 10.01 38.1 21.4

Area (thousands of km2) 78.9 49.03 93.03 312.7 238.4

GDP (Beuros) 140 63 93 308 116

GDP per capita (euros) 13,306 11,673 9,268 8,094 5,408

Total IT Expenditure (Meuros) 4,358 1,761 2,424 7,026 2,004

IT Services (Meuros) 1,099 476 572 1,651 394

Software Products (Meuros) 536 242 302 998 305

IT Exp. per Capita (euros) 415 325 242 184 94

ITS per Capita (euros) 105 88 57 43 18

SW per Capita (euros) 51 45 30 26 14

IT Exp. Per GDP 3.1% 2.8% 2.6% 2.3% 1.7%

SITS per GDP 1.17% 1.13% 0.94% 0.86% 0.60%

ITS per GDP 0.79% 0.75% 0.62% 0.54% 0.34%

SW per GDP 0.38% 0.38% 0.33% 0.32% 0.26%

CEE IT Services (2)


IT Services Spending

Poland27%

Czech Republic18%

Slovakia8%

Hungary9%

Romania5%

Rest of EE33%

IT Services Market 2009: Shares by Countries

CEE IT Services (3)


Verticals split

19% 17% 16% 18% 15%

18%19% 18% 16%

16%

7%5% 6%

2%3%

19%24%

30%

26% 28%

10% 9%

11%

10% 11%

7%10%

7%

8%9%

7%6%

3%

7%7%

7%7% 4%

8%6%

6% 4% 4% 6% 4%

0%

20%

40%

60%

80%

100%

Poland Czech Republic Slovakia Hungary Romania

Transport

Services & Consumers

Retail & Wholesale

Utilities

Telecom

Public Sector

Insurance

Banking

Manufacturing

IT Services in Slovakia

Services Market - Current Situation & Outlook (1)


IT services Overview (1)


20%

Project Services (PS)

68%

Outsourcing12%

Slovakia IT Services Market 2009: Shares by Segments

-5%

0%

5%

10%

15%

20%

08/09 09/10 10/11 11/12 12/13 13/14

Slovakia - IT Services Market 2008-2014: Growth Rates by Segment

Hardware Maintenance Project Services (PS) Outsourcing



Market influenced by five key factors:

Strong dependency on the manufacturing sector (especially automotive) which is linked to foreign demand

Adoption of Euro, brought less liquidity problems for the banks but has also taken away a part of revenues

Fierce competition between players resulting in a significant price drop Companies made use as much as possible of services to consolidate infrastructure and of

outsourcing in order to bring down the costs. Public spending helped massively to fill in the gap left by private sector

Growth drivers Infrastructure optimisation and consolidation; Virtualization More and more SMBs asking for new ERP solutions or extensions of already implemented

systems Public and Financial sectors Expand business from a country’s major cities (“economic hotspots”) to other regions Business Continuity - Disaster Recovery

Risks and inhibitors Weak economic recovery outside the Slovak borders Very little decision power is in the country

IT services Overview (2)



Project Services (1)

Process & Application-Related ITC

9%

Infrastructure-Related ITC

9%

Application-Related SI

39%

Infrastructure-Related SI

34%

IT Training9%

Slovakia Project Services Market 2009: Shares by Subsegments

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

08/09 09/10 10/11 11/12 12/13 13/14

Slovakia - Project Services Market 2008-2014: Growth Rates by Subsegment

Process & Application-Related ITC Infrastructure-Related ITCApplication-Related SI Infrastructure-Related SIIT Training



Today Public sector -> Local custom development often preferred since, theoretically it could provide

significant cost saving vs. best-in-class/best-of-breed packages Private sector -> is more and more heading towards best-in-class/best-of-breed packages ERP and automation of core operations in lethargy; few projects in execution Market negatively impacted by strong lobby power that influence buying decisions in

Government, local administration Competition-driven price pressure that pushes rates sometimes below a normal cost (dumping

effect)

Outlook Near term view:

o stabilization of consumption; the IT director will slightly regain some decisional power back, yet the CEO CFO remains the ultimate decider

o Demonstrable, short term ROI and “cost over quality” should prevail when buyingo Parametric/technical specs (infra-rel SI) more likely to win over application automation (apps-

rel SI) Mid-term view: Consolidation not likely to affect the LA arena (M&A more likely in the 2nd and 3rd

tier where players that serve the mid-market and below are present); pressure from global consultancies to gain market share increases

In the long run: Clients should return to their automation priorities: ERP, core operations. Yet all this will come only when the internal economy will show robust signs of growth




Growth drivers International projects: alignment to and compliance with IT systems in international

companies Cost cutting triggers incremental automation projects in operational areas but also in

infrastructure Large projects in central and local administration Need for better visibility within operations for competitive advantages The rationalization of the existing systems and the integration with new functionalities having

direct results in the end users' bottom line The implementation of pre-packaged solutions with concrete ROI The consolidation of end-users within the sectors

Risks and inhibitors Budget deficit and the strong commitment to cut it would affect spending Economic recession maintains IT end users in a highly cautious spending mode: Minimal spending

in SME and no discretionary spending by large accounts Weak foreign direct investments and low public confidence No significant recovery outside Slovak borders





(AM)4%

Business Process

Outsourcing (BPO)11%

Application Outsourcing

7%

Hosting11%


46%


21%

Slovakia Outsourcing Market 2009: Shares by Subsegments

Outsourcing (1)

0%

5%

10%

15%

20%

25%

30%

08/09 09/10 10/11 11/12 12/13 13/14

Slovakia - Outsourcing Market 2008-2014: Growth Rates by Subsegment

Application Management (AM) Business Process Outsourcing (BPO)Application Outsourcing HostingInfrastructure Outsourcing Complete Outsourcing



Today Local companies started to get accustomed to the idea of outsourcing as the pressure of bringing

down costs was high. New implementation/integration projects are signed to be continued with agreements in the

outsourcing spectrum It has to be mentioned an increasing interest in infrastructure managed services, but not very often

together with assets or people Complete outsourcing contracts are more visible Local suppliers do not focus in a serious manner on the outsourcing service

Outlook Near term view:

o Increasing number of deals around infrastructure support for 2-3 yearso Hosting services increasingly demanded, but usually with not a lot of added-value on topo Older deals that were covering the infrastructure area are slowly being transformed into

complete outsourcing

Mid-term view: SAP AM increasingly requested, also by SMBs, Data centers and Business Process Outsourcing

In the long run: On demand models / ASP / SaaS (pushed by services suppliers as well as by software vendors).

Outsourcing (2)



Growth drivers Increasing awareness of Outsourcing as a concept Local delivery within global deals (as part of international agreements executed locally) Desktop outsourcing - grows both in a difficult economic situation and in a growing economy. Focus for IT suppliers to increase the share of recurrent business with the total revenue,

based on bad experience with project-dependency during 2009-2010 Recovery in IT salaries’ growth starting 2011 and shortage in quality, skilled people Adoption of software solutions in SaaS mode or, at least, hosted by IT partners

Risks and inhibitors Local mentality of full physical control of any IT asset Lack of appropriate legislation for long-term IT outsourcing deals in public sector A young IT market with social sensitivity and conservative IT departments that lack IT culture,

visionary spirit Lack of strong references/examples of local end users adopting the concept Re-insourcing of IT subsidiaries as well as the implementation of internal shared services centers

are a serious competition for complete outsourcing as well as for the outsourcing market as a whole.

Fierce competition and declining prices due to the commoditization of various services.

Outsourcing (3)

Main Changes and Trends

Main Changes and Trends (1)


For the IT services suppliers, a strategic partnership with their customers becomes more and more important.

CONSOLIDATION !Increasing M&A in CEE due to the need for critical mass, vertical coverage, accelerated revenue and team growth, and visibility.



The SOA approach gets more and more relevance in the market, but the average deal size of these SOA projects is still relatively small.

CIOs’ role changed: for a few years they have been more involved in business problems and their function gains in strategic importance.



Nearshoring in Eastern Europe -still a good opportunity, due to a greater openness of the German customers towards nearshoring in Eastern Europe, compared to India or China.



Selected Hot Topics in Central and Eastern Europe

Public Sector Financial Services (especially Banking) Energy Sector ERP for medium-sized companies “Extensions” of already implemented large ERP systems by

adding BI, CRM, vertical modules, … CRM - both for large and medium enterprises BI - for large enterprises Infrastructure services for high-end servers Outsourcing - especially infrastructure-related, but also some

AM (mainly for SAP) Business Continuity/ Business Recovery solutions and

services

About Pierre Audoin Consultants (PAC):


PAC is a global market research and strategic consulting firm for the Software and IT Services Industry (SITSI). PAC helps IT vendors, CIOs, consultancies and investment firms by delivering analysis and advice to address a range of growth, technology, financial and operational issues.

Our 30+-year heritage in Europe – combined with our US presence and worldwide resources – forms the foundation of our ability to deliver in-depth knowledge of local IT markets, anywhere. We employ structured methodologies – undertaking thousands of annual face-to-face interviews on both the buy and sell side of the market, as well as a bottom-up, top-down approach – to leverage our research effectively.PAC publishes a wide range of off-the-shelf and customized market reports –including our best-selling SITSI® program – in addition to our suite of strategic consulting and market planning services. Over 160 professionals in 16 offices – across all continents – are delivering the insight that can make a difference to your business.

For more information, please visit our website at www.pac-online.com

Your Contacts:Eugen Schwab-ChesaruPartner & Managing DirectorCentral Eastern Europe

[email protected]: +40 (0) 21 410 10 33Mob: +40 (0) 722 630 248

Madalin DobreConsultantCentral Eastern Europe

[email protected]: +40 (0) 21 410 75 91Mob: +40 (0) 722 612 363

it services in cee - efocus · china india japan south korea taiwan. impact of the recovery on the...

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