The software and IT services (SITS) market in Eastern Europe and Russia experienced a major mood swing in 2008. The market switched from an upbeat outlook and a promising pipeline in the first half of 2008 to a sluggish year end, dominated by uncertainty and caution.

Bucharest – 28 January 2008 – The combination of worsened business confidence and the strong interconnection with Western European economies had an inevitable impact on companies in Eastern Europe, many of which either frozen or cut their IT budgets.

Russia has been hit hardest in the region, as many of the country’s large industrial conglomerates and adjacent vertical sectors have put a hold on IT spending. This is in sharp contrast to a year ago when many Russian enterprises planned to accelerate investment. A severe slump in demand for Russian energy and industrial products, coupled with the plunge of prices had a considerable impact on the availability of funds for IT projects.

On a pan-regional level, PAC witnesses a clear shift in IT priorities and IT strategies. IT end users are turning towards cost savings and optimization of IT operations. Many companies are moving away from an quantitative, expansive strategy towards a more qualitative IT outlay, with a focus on redundancy elimination and short-term agility. In this context, PAC sees that many infrastructure integration projects are also on hold, unless they bring a rapid return on investment and tangible results in line with the strategies. At the same time, as cost savings become a priority, companies in the commercial sector are re-evaluating options to outsource parts of their IT operations, such as infrastructure management, and even non-critical application systems.

A higher emphasis on cost control is expected to affect local decision making, as international customers tend to accelerate the centralization and regionalization of purchasing.

PAC also expects lower demand for more commoditized services such as hardware maintenance and time-and-materials project work to expose suppliers to price pressure.

Given the uncertainties and the loss of traction in the commercial industries, the public sector becomes a key factor for the growth of the SITS industry in Eastern Europe during the economic downturn. The sector can prove a safe harbor in a lean economy for certain local heros and even for some international players. A lower penetration of IT in the public sector in tandem with state funding  – especially for the EU members – makes this vertical a key lever if economic conditions worsen further. Opportunities in the public sector may vary from EU compliance IT projects to e-government to infrastructure shipments and integration to ERP adoption. Nevertheless, as the public sector in Eastern Europe has always been a difficult vertical to approach, such opportunities come with their set of challenges, such as slow decision making, poor project commitment or opaque purchasing.

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.