Overview BMI expects the total size of the Croatian IT market to increase from US$1.1bn in 2007 to around US$2.2bn in 2013, as spending grows at a rate well above that of the economy as a whole. Strong recent growth in PC sales showed little sign of slowing in early 2008, despite the global slowdown which had an impact in more mature markets such as neighbouring Slovenia. Croatia IT market compound annual growth rate (CAGR) is projected at 11% between 2008-2013.

This reflects the relatively undeveloped nature of the Croatia market, where household PC penetration was just 41% in 2007. A fundamental equation of rising incomes combined with low levels of computer penetration represents a growth opportunity for vendors. In the business segment, large enterprises still provide strong demand for enterprise resource planning (ERP) software. BMI does expect growth to start to slow during the latter part of 2008. However, in the long term the economic fundamentals should support IT market expansion as income per capita expands to US$17,173 in 2012 from US$11,373 in 2007, as a result of eurozone recovery and continued convergence with the EU.

With the state still owning a wide range of companies across sectors like transport, telecoms, media, oil and gas, and insurance, the prospects for more rapid IT market growth are directly correlated to the success of economic reform. Modernisation of ports and other transport hubs is planned. Telecoms, together with financial services, account for a substantial portion of IT spending, and so further liberalisation of these sectors should be an important element.

Industry Developments The Croatian government will continue to invest in IT as part of its drive to improve the competitiveness of Croatia’s economy and narrow the gap with EU partners. Building on the e-Croatia 2003-2007 programme, the government plans to complete the computerisation of the education system and networking of government systems, and bringing key services like health and justice online.

Croatian Prime Minister Sanader has said that his cabinet is determined to make Croatia a ‘society of knowledge.’ In the 2008 national budget the government earmarked HRK15.8bn for investment to create a more competitive economy and society. Specific targets for spending included information technology infrastructure, making business more competitive, as well as judicial reform and anti-corruption measures.

Another key area for modernisation is e-government, where the National Office for e-Croatia is coordinating government efforts with technical support and financial assistance from the EU. A number of factors have combined to hold back the progress of e-government so far. However, Croatia achieved a creditable placing for use of information and communication technology (ICT) in public administration in the latest World Economic Forum ranking, of 26th out of 127 countries.

Competitive Landscape The leading distributor of computers in the Croatian market is supplier HG Spot which has a chain of retail stores throughout Croatia, as well as online shops. The company set aggressive growth targets of HRK850mn in 2008 and HRK1bn by 2009. The best selling brand names on the Croatian computer market include HP, as well as Lenovo and Dell. For notebooks, in addition to HP, Acer, Fujitsu Siemens and local company M San Grupa are among the leaders.

Microsoft dominates the software segment. In August 2008 the government signed a framework licensing agreement with Microsoft partner King ICT to purchase licenses for Microsoft software for use across government. The value of the agreement was expected to be worth at least US$4.4mn in the first year, and as much as HRK74mn overall, including computer licenses, training and maintenance.

Microsoft does not sell directly in Croatia but works with a network of partners like King ICT Leading Croatian systems integrator Combis, one of the top three IT services companies in the market, saw pre-tax profits rise about 20% over last year to US$3.3mn. As the Croatian IT market continues to grow, IT services are becoming a more important opportunity for multinational and local vendors.

Leading vendors like HP Services, Span, S&T Hermes Plus, In2, SV Group and Combis are all promoting outsourcing offerings.

Computer Sales A total market value of around US$566mn was estimated for PC sales in 2007, including notebooks and accessories. CAGR for PC sales will be around 12% through to 2013, with close to 1000 units a day sold in 2008. The trend towards notebooks is continuing, with notebooks accounting for more than 50% of new sales by early 2008. There is still plenty of room for growth in the consumer segment, with PC penetration at just 41% of households. 95% of businesses use computers, and as companies increase their understanding of the potential competitive gains from IT, this will drive further investment.

Software Total licensed software sales were estimated at around US$68mn in 2008. Software spending is expected to increase faster than for the IT market as a whole with the fastest-growing sectors being telecoms, government and home users. The most important verticals for enterprise applications are manufacturing and wholesale, with basic modules such as supply chain management remaining the most popular. The software industry has grown mainly through implementations from larger enterprises. While high at 54% (and well above the EU average of 35%), the software piracy rate is lower than some of Croatia’s Central European neighbours.

Services The Croatian IT services market was worth US$340mn in 2007 according to BMI estimates, and is expected to be the fastest growing IT market segment over the forecast period. Following some major projects in recent years, demand slowed somewhat in 2007, with market growth being fuelled more by hardware. There are a number of potential drivers of market growth including privatisation and modernisation in many industry sectors, Outsourcing is a fast growing area and currently accounts for around 17% of IT services spending, or about US$68mn in 2008.

E-Readiness Croatian government statistics reveal a disparity in the level of e-readiness in household and business sectors. According to September 2008 data published by the Central Bureau of Statistics, (the data relates to 2007), less than one third of Croatians used a computer every day, and less than half once a week. The survey found that computer and internet use were only common among the younger population (below 24). E-skills were judged low, and only 7% of those surveyed had purchased anything on the internet within the past year. By contrast nearly all enterprises used computers and had internet access, according to the survey, while more than 81% of enterprises conducted at least some financial business on the internet. However, the survey indicated considerable room for development, with less than 20% of enterprises involved in e-commerce, and only a limited number having extranets. The survey also reported that enterprise online interactions with government were limited to basic activities such as obtaining information and downloading forms.