Optimistic Growth Predicted by Software and IT Services Sector, Despite Credit Crunch

Intellect survey shows SMEs expect double digit growth, bucking economic trends

Full survey results are published today along with the report. Click here to download the report.

SMEs in the software and IT services sector are challenging gloomy economic projections according to a survey from Intellect, the UK technology trade body. With 53% of respondents forecasting double-digit growth for 2008 compared to 49% that predicted double-digit growth last year, the mood amongst SMEs remains bullish, despite the global financial squeeze.

The Intellect survey, now in its second year asks software and IT services companies operating in the UK about their current and future performance. The SME software sector, in particular is an important contributor to the UK economy, and the survey aims to understand better the key challenges and opportunities of companies developing and selling software in the UK.

The overwhelming majority of respondents (83%) were SMEs and it was these who were most bullish about the year ahead. Businesses expecting 15% or greater organic growth were largely in the smaller end of a 0-20m turnover range, and there were no companies larger than this expecting such high growth rates. Some of the sectors most likely to generate this growth, according to the respondents are Services, Telecoms, Public Sector and Banking.

These predictions are, however, tempered by the amount of activity companies are reporting in the Public Sector and the Financial Services sector. Growth estimations have not matched up with the reality of market activity. From 2006-2007 the percentage of respondents servicing the two sectors dropped from 28% to 27%, and 35% to 27% respectively.

It is possible that SME software companies are adding value through becoming more specialised in certain sectors, or that their size enables them to be more agile in operations, providing quality of service and flexibility that larger companies may have trouble matching.

Commenting, Nigel Hartnell, Chairman of Intellect’s Software Group and Executive Director of software as a service company FFastFill Plc said:

“The results from this survey show that in today’s current economic climate, some SME software companies are finding their size an advantage, not a hindrance. Agile SMEs have the ability to respond to market changes and customer needs more quickly than large companies. Through innovation and intensive customer focus, many respondents believe they will generate impressive levels of organic growth.”

The survey, which contains case studies, as well as a variety of questions on performance, activity, pricing and development strategies, also shows that SMEs are embracing globalisation. In last year’s survey, 59% of respondents identified globalisation as having a neutral or negative impact on their business. In 2007 respondents showed a marked turnaround in attitude, with 57% of respondents seeing globalisation as having a positive or very positive impact on their business. SMEs are today working on a global stage, identifying opportunities in the global market rather than focusing on home markets.

Outsourcing and offshoring is also on the rise, but it appears that Asia is becoming less popular as a destination. The percentage of respondents outsourcing to Asia dropped to 44% from 55% in 2007. In contrast, both Western and Eastern Europe have seen an increase in R&D outsourcing. As Chris Barling, Chief Executive Officer of Actinic, a company profiled in the report said, “We are currently saving about 40% in costs by developing overseas – mostly in Eastern Europe. We decided on Hungary because of the cost and quality benefit.”

The Intellect Software and Services survey will be conducted annually to establish whether these findings are trends or blips, helping establish the most comprehensive overview of the SME software sector currently available.

Source: Intellect

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