Mexico Information Technology Report Q3 2008 - www.companiesandmarkets.com adds new report.

2008-09-13 04:49:01 - Mexico Information Technology Report Q3 2008 - a new market research report on www.companiesandmarkets.com

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Market Overview BMI expects that the size of the Mexican IT market will increase from US$10bn in 2007 to around US$16.9bn in 2012. Mexico has plenty of room for progress on a range of ICT indicators, including computer penetration and e-government. IT spending as a percentage of GDP at less than 2% remains well below OECD

 

 

levels. Greater affordability, lower prices and expanding retail channels will act as strong drivers for the consumer segment. However, despite strong GDP growth recently, Mexico does remain vulnerable to the effects of a slowdown in the US. One uncertain factor for the IT market in 2008 is the government’s current austerity decree. Some vendors anticipate that this will mean fewer government IT tenders. In the longer term, however, BMI anticipates that the decree may promote more of an emphasis on service contracts rather than just sales. Government will continue to be important for the market, with substantial new funding announced for education, and for regional IT development. Meanwhile, demand for software is growing among SMEs, which also benefit from various informatisation programmes. Overall, the Mexican IT market is expected to grow at a CAGR of 9% over the 2007-2012 period, although with strong regional variations. Some deals which were postponed in the latter part of last year due to the US economic situation will be signed in 2008. Meanwhile, the IT services market is becoming one of the most dynamic drivers of IT-sector spending. Local companies are trying to use computing resources more effectively and integrate IT investments. Outsourcing is also becoming an important spur to growth for the IT services sector. Industry Developments The Mexican government’s Secretariat of Public Administration (SFP) announced that it saved some US$2.4bn in 2007 as a result of its austerity decree. The initiative set a target of cutting operational expenditures by 5%, with IT identified as a core area for potential savings. Technology reports have yet to come in from some government bodies, and so it was not yet certain whether the targets were met. The impact of the decree on the IT market has yet to be fully evaluated. There were reports of lower demand as the austerity decree encouraged the rent of technology rather than outright purchase. However, 2007 was a learning period for both vendors and government purchases, and some vendors are adapting their behaviour accordingly. The government is determined to increase IT exports from Mexico. The government’s software promotion body Prosoft received a 40% increase in its budget in 2008. Resources earmarked by the government for Prosoft were increased to MXN650mn (US$60mn). The government has said that nearly MXN40mn of the MXN650mn budget will be earmarked to promote companies in interactive media Competitive Landscape PC vendors are adapting their strategies to take advantage of growth in sales through resellers and retailers. According to local market data, sales through resellers and retailers grew 21% in 2007, and direct sales grew 16%. In HP’s case, indirect sales currently represent 90% of units shifted in the Mexican market. Meanwhile, Dell has signed an agreement with retailers, including Wal-Mart, to sell Dell Inspiron desktops and laptops, while Lenovo has also been recruiting new channel partners. The government’s austerity decree has caused some software vendors and channels to expect a reduced number of government tenders this year. The austerity decree, announced last year, aims to make savings in operational expenses, including IT. Mexican software distributor Capitec has said that it expects the private sector to account for 40% of revenues this year, compared with just 10% in 2007. Mexico is continuing to be an important destination for investment from IT services and BPO services providers. Among recent investments, Unisys is to invest US$50mn in the next three years to construct a new software development centre in Mexico. Meanwhile, IBM has established a Global Archive Solutions Centre in Mexico, with an initial investment of US$10mn. Computer Sales BMI projects that Mexico’s computer and accessories market will have a CAGR of around 9% over the 2007-2012 period. 2007 computer sales were put at US$3.9bn, and should pass US$6bn by 2012. Greater affordability combined with more credit options, lower interest rates and tax concessions have boosted sales. Growth is being driven primarily by consumer sales, especially of notebooks. The growing popularity of internet and broadband access also strong support, with Mexican telecoms company Telmex’s PC bundling offer becoming one of the biggest channels for PC sales. The biggest barrier to higher PC penetration remains low annual average incomes, of about US$5,000 a year, and financing has long been a bottleneck to faster growth of PC penetration. Distributors and retailers are becoming more flexible at devising new financing options, and this has resulted in them accounting for a larger share of the market in 2007. The financing bill options offered by Telmex have clearly unleashed fresh demand. Banks are also now offering more financing options, meaning healthier prospects for the consumer and SME segments. Software The total software market in 2007 was estimated at US$1.8bn. Imported software accounts for at least 80% of the total, which for 2008 is expected to come out at around US$2.1bn. Software CAGR for 2007- 2012 is put at around 12%, outpacing overall IT market growth. The software sector’s current high single- digit growth is being driven partly by increasingly strong demand for enterprise resource planning (ERP) solutions from SMEs. Lack of IT infrastructure is thought to contribute to the high failure rate among SMEs in many parts of the country. Investment by key verticals such as financial services, telecoms and utilities is also important. Another factor is Mexico’s growing significance as a provider of BPO and outsourcing services. As the government turns its attention to overcoming Mexico’s longstanding underinvestment in software, there should be more opportunities. IT Services The IT services market is estimated to have grown around 12% in 2007, to a value of around US$3.2bn, with similar or slightly higher growth expected in 2008 and throughout the forecast period. Indeed, the IT services sector has been increasing steadily for the last 10 years. The increasing number of multinational companies operating in the market is an important driver for spending. IBM has recently stated that it considers the Mexican market as one with high growth potential for installation and services. Growth opportunities also reside within the SME sector, where companies are trying to use computing resources more effectively. Meanwhile, Mexico is becoming an increasingly important hub for provision of BPO and outsourcing services, with Monterrey in particularly attracting significant investment. Special Focus: Financial Sector Mexican banks and financial services companies are among some of the country’s major IT spenders, with consolidation, competition and compliance with new international guidelines fuelling the trend. In recent years, several foreign-owned banks such as Spain’s BBVA and Canadian Scotiabank Inverlat have been operating aggressively in the market, spurring local competitors to ramp up spending on IT as they compete for customers. With a wave of hardware and infrastructure installations in the past few years, the focus is now shifting to software and services, as companies look to enhance productivity and improve offerings to customers. Compliance and risk management applications are among the top sellers, with the need to manage compliance with Basel II capital guidelines, and legislation tightening up corporate governance standards. Another trend is for banks of all sizes to outsource the hosting, management and maintenance of software and hardware. E-Readiness According to the Social Research Institute of the National Autonomous University of Mexico (UNAM), one in five people in Mexico now have internet access. This means that the ratio has doubled in a decade from one in 10 only 10 years ago. As ever, income is strongly correlated with access to internet. Eight out of 10 people defined as living in ‘marginal conditions’ do not have access to the web, according to the survey. The World Economic Forum’s latest annual survey found Mexico continuing to make steady progress on network indicators. The survey had Mexico climbing six positions in the rankings from 55th. The report attributed the improvement to the adoption of more efficient electronic strategies for digital networks and infrastructure connection both nationally and regionally. E-Government Recent state and municipal statistics have highlighted slow progress in the implementation of egovernment in Mexico at a federal and state level. In 2001 the government launched an e-government initiative which prioritised providing health, education and other government services online, as well as the development of e-commerce. Since then however, funding has rarely been sufficient for much progress to be made given the substantial task involved, and state and municipal governments are increasingly seeking to launch their own initiatives. Many states are seeking funding from the private sector to make good gaps in public funding. Patterns Of Internet And PC Usage In 2006 the Mexican Internet Association (AMPICI) revealed some results concerning patterns of internet usage in Mexico. Putting the number of users at around 20mn, AMPICI found that children and youths remain the most frequent users, with 39% of total users between the ages of 12 and 19. Around 19% of internet connections were from the office, with 39% from public internet access sites such as internet cafes, and 43% from home. Average time online was two hours per day. Recent figures from the National Statistics Institute (INEGI) claimed that the number of computers in the country increased 11.9% from 2001 to 2006, from 23.6mn to 26.6mn. Other data has revealed that 26.6mn Mexicans have access to a computer (60% in an educational context, 30% for work). The report, also from INEGI, says that IT is becoming increasingly central to Mexicans’ lives, even outside major cities. Looking at the business sector, the Mexican IT Association claims that 99.7% of the 2.8mn Mexican companies face serious limitations in information technology which affect their capacity to compete. The association recently called on the government to increase funding for SMEs to secure access to IT. Some 68% of Mexican internet users currently go online from places outside the home, such as schools, workplaces and internet cafes. One of the goals of the e-Mexico plan, announced in 2001, is to connect 98% of the nation to the internet, with co-operation from telecommunications carriers. Low disposable income and the related low PC penetration rate remain barriers to further expansion.

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