Tech MNCs look beyond Chindia
Maturing markets force them to shift focus to off-beat markets in Central Asia.
By Ritwik Donde, TNN |
MUMBAI: Sacha Baron Cohen’s portrayal of Borat, a crazy Kazakhstan resident travelling through the United States, may have made the central Asian country a laughing stock around the world, but Western technology companies are taking it more seriously.
As tech markets in developing countries like India and China start to mature, a host of multinational IT companies have now started to take note of off-beat markets such as Kazakhstan, Saudi Arabia, Sri Lanka, Bangladesh.
Take the case of global networking player Cisco for instance, which was chosen by KazakhTelecom, a domestic telephony carrier for upgrading its national networks. The thought of Kazakhs surfing the net at lightning speeds may come as a surprise to some. But Cisco is banking on such deals. It expects sales in emerging markets to explode to $10 billion in 2010 with a 30-50% contribution to the company’s topline.
Says Cisco’s president of emerging markets, Paul Mountford, “Countries like Russia or Saudi Arabia, that were not really known for their heavy IT investments, are now awash with surplus money but have not been able to diversify from main focuses. Now their governments want to do so, resulting in increased traction for IT majors like Cisco.”
While Cisco has been concentrating on markets in the Middle East, German software giant SAP sees new business opportunities in subcontinent countries like Sri Lanka and Bangladesh. S
ays Nagaraj Bhargava, vice president-marketing and business operations for SAP in the Indian subcontinent: “Countries like Sri Lanka present a first mover advantage for western tech companies. Also, since the IT adopters here have not been so exposed to highly-scaleable solutions as those in fast maturing markets like India and China, they present a greater opportunity for a global company like SAP to come and grow in these countries.”
The tech world’s sudden fixation on countries that were mere afterthoughts a decade ago is no mystery. Research firm IDC predicts that tech sales growth in the US is expected to come in at just 6% this year, while western Europe and Japan are even more sluggish, growing at 5% and 2%, respectively.
Compared to this, IDC expects India to grow at 25%, Russia at 17%, and China at 16%. Among the smaller markets, it pegs Turkey at 27%, Venezuela at 16%, and Saudi Arabia at 13%.
Most experts say the move in search of greener pastures for western technology companies is natural. Diptarup Chakraborti, principal analyst at Gartner, argues HP and IBM have a business of over $2 billion from India and China, while most others have a business of at least over a billion dollars in these two countries, which in the medium term would start offering only replacement business and not incremental business to the western giants.
As tech markets in developing countries like India and China start to mature, a host of multinational IT companies have now started to take note of off-beat markets such as Kazakhstan, Saudi Arabia, Sri Lanka, Bangladesh.
Take the case of global networking player Cisco for instance, which was chosen by KazakhTelecom, a domestic telephony carrier for upgrading its national networks. The thought of Kazakhs surfing the net at lightning speeds may come as a surprise to some. But Cisco is banking on such deals. It expects sales in emerging markets to explode to $10 billion in 2010 with a 30-50% contribution to the company’s topline.
Says Cisco’s president of emerging markets, Paul Mountford, “Countries like Russia or Saudi Arabia, that were not really known for their heavy IT investments, are now awash with surplus money but have not been able to diversify from main focuses. Now their governments want to do so, resulting in increased traction for IT majors like Cisco.”
While Cisco has been concentrating on markets in the Middle East, German software giant SAP sees new business opportunities in subcontinent countries like Sri Lanka and Bangladesh. S
ays Nagaraj Bhargava, vice president-marketing and business operations for SAP in the Indian subcontinent: “Countries like Sri Lanka present a first mover advantage for western tech companies. Also, since the IT adopters here have not been so exposed to highly-scaleable solutions as those in fast maturing markets like India and China, they present a greater opportunity for a global company like SAP to come and grow in these countries.”
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He expects off-beat markets such as Sri Lanka and Bangladesh to grow at nearly 20-30% annually in the IT sector. SAP currently has customers like Sri Lankan apparel maker MAS and Actel, domestic cellular operator in Bangladesh and like Cisco is banking on more such deals to improve its profitability.The tech world’s sudden fixation on countries that were mere afterthoughts a decade ago is no mystery. Research firm IDC predicts that tech sales growth in the US is expected to come in at just 6% this year, while western Europe and Japan are even more sluggish, growing at 5% and 2%, respectively.
Compared to this, IDC expects India to grow at 25%, Russia at 17%, and China at 16%. Among the smaller markets, it pegs Turkey at 27%, Venezuela at 16%, and Saudi Arabia at 13%.
Most experts say the move in search of greener pastures for western technology companies is natural. Diptarup Chakraborti, principal analyst at Gartner, argues HP and IBM have a business of over $2 billion from India and China, while most others have a business of at least over a billion dollars in these two countries, which in the medium term would start offering only replacement business and not incremental business to the western giants.
Therefore, the search for new markets to grow is a must for these companies, he says. “Moreover, these countries are now opening up their economic policies for foreign IT investments, hence we see a shift to non-BRIC markets like Ukraine and Sri Lanka; but basically it’s the same thing that happened to India 20 years ago.” he adds.
Interestingly, the global location survey by IBM also shows emerging economies such as Romania, Vietnam and Mexico are increasingly being viewed as attractive investment locations by western multinationals. The survey states that Vietnam managed to create more than 100,000 manufacturing jobs through investments from foreign companies, which is almost the same as what China did in 2006. It is closely followed by Mexico and Malaysia which managed to create more than 50,000 jobs in 2006.
Roel Spee, co-global leader at IBM Plant Location International, which helps businesses to evaluate and select locations for relocating and expanding business operations world-wide, says that apart from opening up of policies these countries are also being viewed as specialised locations for non-core activities by western companies.
“Take Morocco for example, which is increasingly becoming a customer service centre hub for French speaking customers of global companies. Or Israel, which is developing as the new R&D hub for IT companies,” he says.
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