IT spending took a big hit in the region and based on Pierre Audoin Consultants’  (PAC) preliminary estimates for H1 2009, the overall reduction in IT spending was much higher than the decrease in GDP.

Bucharest – 07 July 2009 – Expectations for the Eastern European IT market in H1 2009 have not been high since the end of 2008 and the financial, economic, and often political crisis, has frozen an important part of the IT market.

Business confidence worsened again and unfortunately, the Governments and National Banks have not been able to take the right decisions to stop the economies’ downward spiral. IMF and EU loans did somewhat help countries such as Hungary and Romania but the conditions imposed, particularly by IMF, are not going to leave much power and freedom for local Governments to stimulate activity in the industrial sectors, which are suffering from consumption reduction (both domestic, and international).

The few newly launched projects are very often 5-10 times smaller than the ones of the last couple of years and the competition is dominated by price pressure. The new investments in IT systems (hardware, as well as software and services) are under even tighter control – the CEOs and CFOs are much more involved in the final decision and at large multinational groups, the purchasing department is increasingly gaining decision power. Even the public sector is scrutinizing existing projects and rollouts.

Set against this backdrop, most suppliers are not prepared to react and, very often, the first move has been to cut costs on everything, especially payroll and other HR-related expenses, including training and internal events. Secondly, due to the crisis, IT suppliers have started to look more attentively to the public sector, increasing competition for EU-financed projects and State IT investments. Unfortunately, in most cases this has not yet brought results. The third reaction was to cut prices, resulting in an impressive decrease in margins and in some cases, even losses.

PAC expects that the second half of 2009 will bring new opportunities in the public sector, utilities (especially gas transportation and electricity), and in some countries, in telecommunications. However, the banking system does not have a clear picture of recovery and, consequently, continues to follow the drastic “cost cutting” policies, resulting in new IT solutions being postponed, even if they are very much needed in the region.

Solutions that are expected to sell better are BI & Analytics, Procurement, Governance & Compliance, Financial Risk & Debt Collection-related applications. On the other hand, customers are likely to externalize parts of their infrastructure, typically the least strategic. For 2010 – 2011, an increasing interest in externalization is forecast for Eastern Europe, particularly for infrastructure management, but also a slightly improved acceptance of application management.

Also, during the recovery, an additional demand for infrastructure optimization, and IT security solutions, consulting and auditing will begin in 2010 in almost all countries in the region, primarily in the banking, telecom, utilities and transport sectors.

Regarding IT suppliers’ strategies, there is a clear preoccupation of large multinationals to prepare the sales force and offerings for the recovery, putting short-term performance on the back burner. However, there is also an increasing aggressiveness to not only enter key accounts, but also to gain market share and keep occupancy rates at decent levels, without laying off engineers.

Looking at the nearshore/ offshore industry in this part of the world, 2009 is forecast as a stagnant year by PAC experts, with signs of slight decreases in generated revenues. In terms of employees, there will not be significant changes, but there will be a 5-12% decrease in rates used for external projects, depending on the profile (higher decrease for low-level people). However, profitability is not going down proportionally, as the local currencies decreased as well, and many companies used this opportunity to lower 60-70% of the salaries (which are not directly related to the euro).

Overall, during the crisis, the Eastern European IT markets are expected to suffer more than the economy in general. On the other hand, PAC forecasts higher growth rates in this region than in the rest of Europe for the post-crisis period, as a big gap in IT demand is yet to be met.

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

For information on the article, please contact:

Author:
George Mironescu
Senior Consultant
Tel: +40 21 410 75 82
g.mironescu@pac-online.com

Press Contact:
Claudia Nastase
Tel: +40 21 410 75 80
c.nastase@pac-online.com