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ICT in Serbia
At a Glance

January 2012
Picture

ICT in Serbia
At a Glance

January 2012
Published by:
Vojvodina ICT Cluster
In cooperation with
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH...
GIZ Consultants:
Jürgen Kappenmann

juergen.kappenmann@karer.com

Milovan Matijević

milovan@mineco.rs

January 2012

3

C...
Vojvodina ICT Cluster is a recognized partner in the development and application of new ICT products
and services with hig...
TABLE OF CONTENTS
TABLE OF CONTENTS

FOREWORD ...............................................................................
FOREWORD

Soon after its inception in 2010, Vojvodina ICT Cluster has emerged as one of the strongest Serbian
institutions...
INTRODUCTION

Information and Communication Technologies (ICT) undoubtedly constitute one of the key innovations
Informati...
GENERAL BUSINESS ENVIRONMENT
This chapter provides the following information:


overview of current business environment ...
T a b lle 2
Tab e 2

D iis c rre p a n c iie s b e ttw e e n Q u a lliitta ttiiv e a n d Q u a n ttiitta ttiiv e G C II II...
From the perspective of local companies operating in ICT sector, FDIs perception turns out to be more of
a threat than ben...
Finance (Demand and Supply)
Finance (Demand and Supply)
The expensive credit market in Serbia presents an obstacle for a c...
ASSESSMENT OF THE SERBIAN ICT SECTOR
A.

STATISTICAL OVERVIEW OF THE ICT SECTOR

This chapter provides basic information n...
F iig u rre 1
F gu e 1

S e rrb iia n IIT M a rrk e tt a n d G rro w tth R a tte s ffo rr 2 0 0 8 --2 0 1 2 .. ((% ))
Se b...
IT Services Structure
Table 5

IT service in Serbia - Market Value in 2010 and Forecast 2011-2012 [€ million]

IT Service
...
Strength and number of international vendors operating in the region and Serbia will increase and will
Strength and number...
IT Spending and Investments
Figure 5

10

IT Spending and Investments in Serbia

(%) IT spending as a Percentage of Revenu...
Why Information Systems?
Why Information Systems?

According to GDP, IT investments in Serbia are below 1% of GDP, while E...
Figure 6

IT Investment according to Economic S trength (GDP).

1400 1400

Sweden Sweden

1200 1200
United Kingdom
United ...
Why IT Investments in Particular?
Why IT Investments in Particular?

Investments are always important, especially in the c...
Overview of the Telecommunication Market
Informatics and Telecommunication in Serbia, as two separate segments of ICT Indu...
F iig u rre 8
F gu e 8

IIC T D e v e llo p m e n tt IIn d e x ,, IID II S ttrru c ttu rre
CT Deve opmen
ndex
D S uc u e

...
Serbian Internet Services Market in 2010
Total revenues earned from provision of Internet services reached 13.5 billion RS...
IT Industry
IT Industry
For the needs of this report the 2007, OECD ICT sector definition (ISIC Rev. 4) is used.
For the n...
Number of IT Companies in Serbia
In 2010, 1,614 active enterprises, which accomplished revenues higher than 400,000 RSD, f...
Workforce in Serbian IT Industry
Workforce in Serbian IT Industry
Serbian IT industry employed 13,816 workers in 2010. Thi...
Revenue in the Serbian IT Industry
Revenue (or turnover) of the IT industry represents the revenue of the whole IT sector ...
Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand
Source: Register of Financial Stat...
Figure 13

Share of the Value Added ( %) in Revenues of ICT Industry S ub-sectors

11%
11%
11% 11%
2%
3% 2%

IT Channels

...
IT Channels
IT Channels
IT Channels

11%
11%
11% 11%
1%1%11% 11%
1%
5%5%
5%

IT services
IT services
IT services

Software...
IT and Internet Usage
Since 2006, Statistical Office of the Republic of Serbia publishes annually statistics of ICT usage ...
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
ICT in Serbia - At a Glance 2012
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ICT in Serbia - At a Glance 2012

  1. 1. english ICT in Serbia At a Glance January 2012
  2. 2. Picture ICT in Serbia At a Glance January 2012
  3. 3. Published by: Vojvodina ICT Cluster In cooperation with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Program for Private Sector Development in Serbia ACCESS Vojvodina ICT Cluster GIZ/ACCESS Office Novi Sad Vojvodjanskih brigada 28 21000 Novi Sad Serbia Tel: +381 21 21 00 306 office@ vojvodinaictcluster.org www.vojvodinaictcluster.org Office Belgrade Makenzijeva 24/5 11000 Beograd Serbia Tel: +381 11 240 03 71 Fax:+381 11 240 03 70 www.giz.de 2
  4. 4. GIZ Consultants: Jürgen Kappenmann juergen.kappenmann@karer.com Milovan Matijević milovan@mineco.rs January 2012 3 CIP - Каталогизација у публикацији Народна библиотека Србије, Београд 004(497.11)”2010/2012” KAPPENMANN, Jürgen ICT in Serbia : at a glance / [Jürgen Kappenraann, Milovan Matijević]. - Novi Sad : Vojvodina ICT cluster, 2012 (Novi Sad : ABC studio). - 61 str. : graf. prikazi, tabele ; 24 cm Tiraž 200. - Str. 3: Foreword / Milan Šolaj - Terminology: str. 52-54. - Bibliografija: str. 57-59. ISBN 978-86-87737-50-1 1. Matijević, Milovan, 1960 - [аутор] a) Информациона технологија - Србија - 2010-2012 COBISS.SR-ID 190597900
  5. 5. Vojvodina ICT Cluster is a recognized partner in the development and application of new ICT products and services with high profit potential, and an important partner in the development of individuals, companies and regional businesses. The mission of Vojvodina ICT Cluster is to create conditions for ICT development through coordination of both our and our partners’ efforts towards a strong positive influence on the social and business environment. To our members, the cluster serves as the platform for cooperation and provides a portfolio of services, such as building capacities and competitiveness of its members through training and education at the Cluster Academy, building links with the education system, creation of new business opportunities, access to new markets, lobbying activities etc. The cluster also plays an important role in building tighter bonds in the triple helix Business – Education – Government. For further information on the Vojvodina ICT Cluster, please visit www.vojvodinaictcluster.org Working efficiently, effectively and in a spirit of partnership, we support people and societies in developing, transitional and industrialized countries in shaping their own futures and improving living conditions. This is what the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) is all about. Established on 1 January 2011, it brought together under one roof the long-standing expertise of the Deutscher Entwicklungsdienst (DED) gGmbH (German Development Service), the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH (German Technical Cooperation) and Inwent – Capacity Building International, Germany. As a federally owned enterprise, we support the German Government in achieving its objectives in the field of international cooperation for sustainable development. For further information on GIZ, please visit www.giz.de. ACCESS is a Program implemented by GIZ on behalf of the German Ministry for Economic Cooperation and Development (BMZ). It aims to promote the Serbian economic development and to facilitate the future membership of Serbia in the European Union (EU) by supporting the implementation of the Serbian “National Strategy for Development of Small and Medium Sized Enterprises and Entrepreneurship” as well as the “National Strategy for EU Accession”. ACCESS assists Serbian intermediaries in their support to SMEs in selected sectors to make better use of their production, employment and growth potentials and to explore new markets in South Eastern Europe as well as in the EU. The overall objective of the project is the improvement of the competitiveness of small and medium-sized enterprises and start-up companies in selected sectors and regions. The ACCESS project works with a diversified implementation structure (including public and private institutions). Consequently, the elements of the projects are (i) support to local and regional economies, (ii) support to industries, including associations and clusters, and (iii) creation of a climate favorable to business and investment. The support components include advising the Government and institutions, companies and groups of companies, as well as training of local labor through both international and national experts, and providing local subsidies for seminars, trainings and promotional activities. For further information on GIZ/ACCESS, please contact tobias.stolz@giz.de. 1
  6. 6. TABLE OF CONTENTS TABLE OF CONTENTS FOREWORD ....................................................................................................................................... 3 FOREWORD ....................................................................................................................................... 3 INTRODUCTION ................................................................................................................................. 4 INTRODUCTION ................................................................................................................................. 4 GENERAL BUSINESS ENVIRONMENT ................................................................................................... 5 GENERAL BUSINESS ENVIRONMENT ................................................................................................... 5 ASSESSMENT OF THE SERBIAN ICT SECTOR ......................................................................................... 9 ASSESSMENT OF THE SERBIAN ICT SECTOR ......................................................................................... 9 A. STATISTICAL OVERVIEW OF THE ICT SECTOR ...................................................................................9 A. STATISTICAL OVERVIEW OF THE ICT SECTOR ...................................................................................9 IT Market Value and Structure.......................................................................................................9 IT Market Value and Structure.......................................................................................................9 IT Spending and Investments ...................................................................................................... 13 IT Spending and Investments ...................................................................................................... 13 Overview of the Telecommunication Market ............................................................................. 17 Overview of the Telecommunication Market ............................................................................. 17 IT Industry ................................................................................................................................... 20 IT Industry ................................................................................................................................... 20 IT and Internet Usage.................................................................................................................. 27 IT and Internet Usage.................................................................................................................. 27 ICT Clusters and Support Organizations ..................................................................................... 29 ICT Clusters and Support Organizations ..................................................................................... 29 B. B. EDUCATION AND HUMAN RESOURCE DEVELOPMENT ................................................................. 30 EDUCATION AND HUMAN RESOURCE DEVELOPMENT ................................................................. 30 Overview of the ICT Labour Market............................................................................................ 30 Overview of the ICT Labour Market............................................................................................ 30 ICT and Tertiary Education.......................................................................................................... 31 ICT and Tertiary Education.......................................................................................................... 31 C. C. RESEARCH AND DEVELOPMENT .................................................................................................... 36 RESEARCH AND DEVELOPMENT .................................................................................................... 36 Current Situation Regarding R&D in Serbia -- in General and ICT Related .................................. 36 Current Situation Regarding R&D in Serbia in General and ICT Related .................................. 36 EU Support Dimension ................................................................................................................ 43 EU Support Dimension ................................................................................................................ 43 OUTSOURCING – Opportunities and Barriers for Serbian IT Companies on International Markets ...... 46 OUTSOURCING – Opportunities and Barriers for Serbian IT Companies on International Markets ...... 46 CURRENT SITUATION, TRENDS AND POTENTIALS ............................................................................. 48 CURRENT SITUATION, TRENDS AND POTENTIALS ............................................................................. 48 APPENDIX ....................................................................................................................................... 52 APPENDIX ....................................................................................................................................... 52 Terminology ................................................................................................................................ 52 Terminology ................................................................................................................................ 52 Abbreviations .............................................................................................................................. 55 Abbreviations .............................................................................................................................. 55 References and Key ICT Publications .......................................................................................... 57 References and Key ICT Publications .......................................................................................... 57 List of Tables ............................................................................................................................... 60 List of Tables ............................................................................................................................... 60 List of Figures .............................................................................................................................. 60 List of Figures .............................................................................................................................. 60 2 2
  7. 7. FOREWORD Soon after its inception in 2010, Vojvodina ICT Cluster has emerged as one of the strongest Serbian institutions in the field of ICT. Our strategic documents keep focus on long-term effects: Serbia as the place of choice for development of sophisticated software, Novi Sad as the hotbed of regional ICT, moving from pure outsourcing towards solution providing etc. Immediate focus, however, is distributed on several types of activities aligned together to help in achievement of those goals. This entire process requires positioning of our organization and seeking cooperation with multitude of different stakeholders. Among them, German Organization for International Cooperation – GIZ, stands out as the partner who recognized our potentials and made the strategic decision to support and assist us on a long-term basis. What you are reading now represents one of the results of this cooperation. The second edition of the study, ICT in Serbia – At a Glance, would have never seen the light of day without the engagement of GIZ, their consultants and the resources it committed to this project. ‘ICT in Serbia…’ is the only publication on the topic that comprises all relevant data in one place, saving a lot of time and research for those who want to learn more about the topic. Thus, it is already becoming the key reference for all interested in doing business in the ICT field in Serbia. Whether you are an investor or a scholar, a businessperson or a student – we hope that you will also find this study interesting and useful. We welcome your interest and look forward to seeing you in Serbia! Milan Šolaja Chief Executive Officer Vojvodina ICT Cluster milan.solaja@vojvodinaictcluster.org +381 21 21 00 306 3 3
  8. 8. INTRODUCTION Information and Communication Technologies (ICT) undoubtedly constitute one of the key innovations Information and Communication Technologies (ICT) undoubtedly constitute one of the key innovations of the last century. ICT are composed of a wide range of products and service technologies including of the last century. ICT are composed of a wide range of products and service technologies including computer hardware, software and services and a host of telecommunication functions. ICT strongly computer hardware, software and services and a host of telecommunication functions. ICT strongly influenced the fields of socio-economic development, international development and human rights. The influenced the fields of socio-economic development, international development and human rights. The basic hypothesis behind the approach is that more and better information and communication furthers basic hypothesis behind the approach is that more and better information and communication furthers development of a society (whether to improve income, education, health, security, or any other aspect development of a society (whether to improve income, education, health, security, or any other aspect of human development). of human development). Various studies define the ICT sector differently. OECD defines ICT sector as a combination of Various studies define the ICT sector differently. OECD defines ICT sector as a combination of manufacturing and service industries, whose products capture, transmit or display data and information manufacturing and service industries, whose products capture, transmit or display data and information electronically. In addition, “The production (goods and services) of a candidate industry must primarily electronically. In addition, “The production (goods and services) of a candidate industry must primarily be intended to fulfill or enable the function of information processing and communication by electronic be intended to fulfill or enable the function of information processing and communication by electronic means, including transmission and display” (OECD, 2007). This includes also production of electronic means, including transmission and display” (OECD, 2007). This includes also production of electronic components. components. In this report will be applied the traditional and simple definition of the ICT sector. According to this In this report will be applied the traditional and simple definition of the ICT sector. According to this definition, the ICT sector comprises two sub-sectors: telecommunications and information technologies definition, the ICT sector comprises two sub-sectors: telecommunications and information technologies (IT). Furthermore, the IT sub-sector comprises three segments, which are hardware, software and (IT). Furthermore, the IT sub-sector comprises three segments, which are hardware, software and services. The main reasons for choosing this definition are: whether a clear and simple review of the services. The main reasons for choosing this definition are: whether a clear and simple review of the particular sub-sectors (IT and telecommunications) which still have not significantly converged in Serbia particular sub-sectors (IT and telecommunications) which still have not significantly converged in Serbia is possible, and finally, since it is the focus of this study, to enable presentation of IT sub-sectors is possible, and finally, since it is the focus of this study, to enable presentation of IT sub-sectors (Hardware, IT Services, Software) characteristics. The chart below gives an overview of the (Hardware, IT Services, Software) characteristics. The chart below gives an overview of the segmentation described. segmentation described. T a b lle 1 Tab e 1 IIC T S e c tto rr D e ffiin iittiio n CT Sec o De n on Industry Sector ICT Industry Telecomunication Sector IT Sector Sub-sector IT Hardware Software IT Services With a two-digit annual growth in the years prior to the crisis, ICT is among the most vibrant and the With a two-digit annual growth in the years prior to the crisis, ICT is among the most vibrant and the fastest growing sectors in Serbia, which illustrates this sector’s development potential. However, the fastest growing sectors in Serbia, which illustrates this sector’s development potential. However, the economic crisis hit Serbia heavily, creating significant negative consequences to the ICT industry as well. economic crisis hit Serbia heavily, creating significant negative consequences to the ICT industry as well. In 2009 alone, the IT market in Serbia fell by 22.2%. Results from 2010 show that market value of €405 In 2009 alone, the IT market in Serbia fell by 22.2%. Results from 2010 show that market value of €405 million, which equals a year-to-year drop of 5%. After two years of decrease, in 2011, Serbian IT sector million, which equals a year-to-year drop of 5%. After two years of decrease, in 2011, Serbian IT sector shows all signs of stagnation. shows all signs of stagnation. This study presents an overview of the ICT sector in Serbia. The structure of this analysis consists of four This study presents an overview of the ICT sector in Serbia. The structure of this analysis consists of four thematic areas: General Business Environment, Assessment of the ICT Sector (Statistical overview of the thematic areas: General Business Environment, Assessment of the ICT Sector (Statistical overview of the Serbian ICT sector, Education and Human Recourses Development, Research and Development), SWOT Serbian ICT sector, Education and Human Recourses Development, Research and Development), SWOT and a review of the current situation, trends and potentials. and a review of the current situation, trends and potentials. The study with its analyses and information was designed to serve primarily companies interested in The study with its analyses and information was designed to serve primarily companies interested in business and investment related to the ICT in Serbia. business and investment related to the ICT in Serbia. 4 4 4
  9. 9. GENERAL BUSINESS ENVIRONMENT This chapter provides the following information:  overview of current business environment in Serbia  legislation framework – in general, and ICT related General Statistics         Population: 7.36 million Capital: Belgrade Territory area: 88,361 km2 GDP (absolute): €29.5 billion (per capita: €3,994) GDP - composition by sector: Manufacturing (18.3%); Real estate, renting and other business services (16.4%); Wholesale, retail and repairs (12.8%); Agriculture, hunting, forestry and water works supply (11.2%); Transport, storage and communications (8,1%) and Others (33.1%) Percentage of GDP spent on R&D: less than 0.8% (Government fund estimated on 0.5%) (EU10 average) Percentage of GDP spent on Education: 2.4% Percentage of GDP spent on Healthcare: 3.5% Current Business Environment in Serbia Ten years after democratic change, the Serbian economy is still in transition, having a roller coaster ride between years of growth and recovery and economic stagnation. Although Serbian economy grew healthily in the period 2004-2007 with an average GDP growth rate of 6.8% (with peaks of 8.4% in 2004 and 7.5% in 2007), it reached only 70% of the country's 1990 GDP. In the period of on-going economic crisis, (2008-2011) the Serbian economy has been mostly stagnating. According to World Bank estimates, even with solid annual GDP growth, it will take many years before Serbian GDP reaches the previous solid level. To overcome this situation, economic development policies in Serbia mainly focus on the attraction of FDIs. However, since achieving a maximum in 2005 with $5.47 billion USD, a dramatic reduction of FDI inflows becomes apparent. The main reasons are slow process of joining the EU and the global financial crisis. Among key reasons for not having more FDI in Serbia are bureaucratic and insufficiently reformed public administration and high level of corruption. Serbia has a problem with macroeconomic stability. The inflation rate is above 10% and unemployment is above 18%. Based on the Global Competitiveness Index (GCI) for 2010-2011, Serbia is placed 96th 14 (among the 139 economies), behind almost all European countries. This position of Serbia could discourage foreign investors. However, such a bad Serbian position should not cause concern that much since the reasons for it are mainly found in presentation of the weak qualitative indicators (source: Forum’s executive opinion survey) instead of quantitative ones (marked with * in Table 2, source: data from international organization and national sources). Significant discrepancies between qualitative and quantitative indicators highlight the criticism expressed by the surveyed, which could be perceived as a positive point, since the respondents wish the situation to be improved, but could also lead to wrong general conclusions. 5 5
  10. 10. T a b lle 2 Tab e 2 D iis c rre p a n c iie s b e ttw e e n Q u a lliitta ttiiv e a n d Q u a n ttiitta ttiiv e G C II IIn d iic a tto rrs s e lle c ttiio n D sc epanc es be ween Qua a ve and Quan a ve GC nd ca o s se ec on 1st pillar: Institutions 1st pillar: Institutions 1st pillar: Institutions 1.01 Property rights 1.01 Property rights 1.01 Property rights 1.02 Intellectual property protection 1.02 Intellectual property protection 1.02 Intellectual property protection 1.21 Strength of investor protection* 1.21 Strength ofofinvestor protection* 1.21 Strength investor protection* ndnd 22nd pillar: Infrastructure 2 pillar: Infrastructure pillar: Infrastructure 2.01 Quality of overall infrastructure 2.01 Quality ofofoverall infrastructure 2.01 Quality overall infrastructure 2.08 Fixed telephone lines* 2.08 Fixed telephone lines* 2.08 Fixed telephone lines* 2.09 Mobile telephone subscriptions* 2.09 Mobile telephone subscriptions* 2.09 Mobile telephone subscriptions* 5th pillar: Higher education and training 5th pillar: Tertiary education and training 5th pillar: Tertiary education and training 5.02 Tertiary education enrolment rate* 5.02 Tertiary education enrolment rate* 5.02 Tertiary education enrolment rate* 5.08 5.08 Extent ofofstaff training 5.08Extent of staff training Extent staff training 6th pillar: Goods market efficiency 6th pillar: Goods market efficiency 6th pillar: Goods market efficiency 6.02 Extent of market dominance 6.02 Extent of market dominance 6.02 Extent of market dominance 6.04 Extent and effect of taxation 6.04 Extent and effect of taxation 6.04 Extent and effect of taxation 6.05 Total tax rate* 6.05 Total tax rate* 6.05 Total tax rate* 6.07 Time required to start a business* 6.07 Time required to start a business* 6.07 Time required to start a business* Rank/139 Rank/139 Rank/139 7th7thpillar: Labor market efficiency pillar: Labour market efficiency 7th pillar: Labor market efficiency Rank/139 Rank/139 Rank/139 122122 122 7.01 Cooperation in labor-employer relations 7.01 Cooperation in labor-employer relations 7.01 Cooperation in labor-employer relations 111111 111 7.05 Redundancy costs* 7.05 Redundancy costs* 7.07 Reliance on professional management 7.07 Reliance on professional management 7.07 Reliance on professional management 7.09 Female participation in labour force* 7.09 Female participation in labour force* 7.09 Female participation in market development 8th pillar: Financial labour force* 8th pillar: Financial market development 8th pillar: Financial market services 8.01 Availability of financialdevelopment 8.01 Availability of financialservices 8.07 Soundness of banks 8.07 Soundness of banks 8.01 Availability of financial services 8.09 Legal rights index* 8.09 Legal rights index* 8.07 Soundness of banks 9th pillar: Technological readiness 9th pillar: Technological readiness 8.09 Legal rights index* 9.01 Availability of latest technologies 9.01 Availability of latest technologies 9th pillar: Technological readiness 9.02 Firm-level technology absorption 9.02 Firm-level technology absorption 9.01 Availability of latest technologies 9.04 Internet users* 9.04 Internet users* 9.02 Firm-level technology absorption 9.06 Internet bandwidth* 9.06 Internet bandwidth* 7.05 Redundancy costs* 59*59* 59* 122122 122 41*41* 41* 57*57* 57* 49*49* 49* 130130 130 138138 138 120120 120 9.04 Internet users* 46* 46* 46* 45* 9.06 Internet bandwidth* 45* 45* 135 135 47* 47* 128 128 59* 59* 128 135 47* 59* 111 111 115 115 111 20* 20* 115 20* 117 117 134 134 54* 54* 134 30* 30* 117 54* 30* Source: WEF, Global Competitiveness Index (GCI) for 2010-2011 Source: WEF, Global Competitiveness Index (GCI) for 2010-2011 As a measure for reducing the negative impact of the current economic crisis, the Government has As a measure for reducing the negative impact of the current economic crisis, the Government has increased a package for foreign companies interested in setting-up their businesses in Serbia. Besides increased a package for foreign companies interested in setting-up their businesses in Serbia. Besides having one of the lowest corporate tax rates in Europe (10%), the Serbian Government is giving nonhaving one of the lowest corporate tax rates in Europe (10%), the Serbian Government is giving nonrefundable grants reaching up to €10,000 per employee. Recently, these measures have also become refundable grants reaching up to €10,000 per employee. Recently, these measures have also become available to Serbian companies capable of investment in new factories. available to Serbian companies capable of investment in new factories. IT Environment, Drivers and Barriers IT Environment, Drivers and Barriers T a b lle 3 Tab e 3 K e y P a rra m e tte rrs ffo rr tth e S e rrb iia n IIT M a rrk e tt F o rre c a s tt,, iin Q 4 --2 0 1 1 Key Pa ame e s o he Se b an T Ma ke Fo ecas n Q4 2011 Factor Factor Power Power Economic and Political Factors Economic and Political Factors Factor Value Factor Value (Intensity) (Intensity) Modest growth in gross domestic product. Projected real growth of around 2% in Modest growth in gross domestic product. Projected real growth of around 2% in 2011. 2011. 3 3 25 25 50 50 75 75 Investments. The slowdown in foreign direct investments. Investments. The slowdown in foreign direct investments. 2 2 25 25 50 50 75 75 Exchange rate. Stable Euro-RSD exchange rate (around psychological boundaries of Exchange rate. Stable Euro-RSD exchange rate (around psychological boundaries of 100) 100) 2 2 25 25 50 50 75 75 Accession to EU. The slowdown in the accession process. Accession to EU. The slowdown in the accession process. 1 1 25 25 50 50 IT economy. The need for IT investment (yearly growth of at least 20% until 2015). IT economy. The need for IT investment (yearly growth of at least 20% until 2015). 1 1 25 25 50 50 Companies without a serious profit, postpone their investments and IT investments Companies without a serious profit, postpone their investments and IT investments 2 2 25 25 50 50 Governance and budget institutions may initiate several major tenders before the Governance and budget institutions may initiate several major tenders before the end of the year end of the year 1 1 25 25 50 50 IT replacement cycle. Annual delivery of more than 350,000 PC IT replacement cycle. Annual delivery of more than 350,000 PC 2 2 25 25 50 50 Company competitiveness decrease. SME IT players in escalating problems. Company competitiveness decrease. SME IT players in escalating problems. 2 2 25 25 50 50 Financing options (loans, leasing...) for investments getting weaker Financing options (loans, leasing...) for investments getting weaker 1 1 25 25 50 50 Consumers Consumers 75 75 IT Market IT Market 75 75 Source: Mineco 2011 Source: Mineco 2011 Legend: Factor Power 3 – very strong factor; 2 – strong factor; 1 – moderate factor Legend: Factor Power 3 – very strong factor; 2 – strong factor; 1 – moderate factor Examples for Factor Value: Examples for Factor Value: 25 50 75 25 50 75 Indicates a barrier for IT sales, which reached 75% of the maximum 100 % intensity Indicates a barrier for IT sales, which reached 75% of the maximum 100 % intensity 25 50 25 50 Indicates a driver for IT sales, which reached 50% of the maximum 100% intensity Indicates a driver for IT sales, which reached 50% of the maximum 100% intensity 6 6 6
  11. 11. From the perspective of local companies operating in ICT sector, FDIs perception turns out to be more of a threat than benefit, due to the limited human resources available on the market. Namely, foreign companies tend to attract good ICT experts with higher salaries, often putting national companies in the situation where they cannot compete. Although the quality of Serbian ICT infrastructure is not at the level of EU countries, it is getting better each year. Quality of the ICT infrastructure has improved impressively during the past few years. In addition, the quality of ICT infrastructure does not present a significant obstacle for doing business in Serbia since most of the ICT companies are concentrated in Belgrade, Novi Sad and to some extent Nis, where the quality of ICT infrastructure is much better than in other parts of the country. A general conclusion is that the demand from foreign partners importing from Serbia appears to drive the standardization of Serbian companies. Requirements for standardization also relate to the nature of the produced goods. For instance, embedded industry produces innovative goods in the field of medical appliances, which requires sector-related standards. Legislation Framework Doing business in the ICT field in Serbia is not easy. Although legislation has impressively improved in the recent years, remaining obstacles are still numerous. Due to out-dated regulations and bureaucracy, business operations in Serbia are still expensive. Conduct of business in telecommunications received better regulation than in the IT sector. In 2009, there was a harmonization of the new Law on Electronic Communication with the EU Regulatory Framework from 2002. Due to its size, the telecommunications sector has attracted some of the major multinational companies in that sphere (such as Telenor and VIP in terms of mobile phone providers). However, state-owned Telekom Srbija remains the major provider of public voice telephony services. The Republic Telecommunications Agency (RATEL), an autonomous national regulatory authority, regulates the telecommunication sector. RATEL developed into a strong agency with a strong reputation, among all actors in the sector. Since 2006, RATEL publishes an annual overview of the telecom market in Serbia, which presents a good source of information in this field. However, doing business in the IT sector has far more difficulties, mostly due to its small size, segregated/fragmented industry, lack of specialization, small turnover and many other issues, which mostly come from inconsistent appliance of regulations. Most misunderstandings relate to VAT and custom regulations. The old regulations, which cannot adequately resolve the IT sector issues, bring about uncertainties. Export of software has also not seen proper regulation since it is not yet clear whether the export of software is considered as export of goods or export of services (there is a significant difference in the tax base). All companies that calculate export of software as a service have to pay a significant tax penalty. Expectations are that the new regulation will be in line with best EU practices. The ICT sector also faces common business difficulties in Serbia. Difficulties in obtaining necessary state licenses (especially construction licenses), long trials at court and insufficiently transparent public procurement are only some of the numerous obstacles that cause harm to the business sector in Serbia. 7 7
  12. 12. Finance (Demand and Supply) Finance (Demand and Supply) The expensive credit market in Serbia presents an obstacle for a company dealing with wholesale of IT The expensive credit market in Serbia presents an obstacle for a company dealing with wholesale of IT hardware and software. However, due to the small scale of the ICT sector in Serbia, especially its IT part, hardware and software. However, due to the small scale of the ICT sector in Serbia, especially its IT part, this obstacle is not so significant for those companies that are focusing primarily on outsourcing. On the this obstacle is not so significant for those companies that are focusing primarily on outsourcing. On the other hand, for companies trying to increase the level or their operations obtaining the needed capital other hand, for companies trying to increase the level or their operations obtaining the needed capital this does present an issue. Developing, patenting and marketing of own products take not just the time this does present an issue. Developing, patenting and marketing of own products take not just the time but also the capital that Serbian IT companies are lacking. At this moment, there is no seed or early but also the capital that Serbian IT companies are lacking. At this moment, there is no seed or early stage capital available and there are almost no venture capital funds active in this market (especially stage capital available and there are almost no venture capital funds active in this market (especially focused on SMEs). focused on SMEs). That is why instead of developing products IT companies are focusing on outsourcing projects (which do That is why instead of developing products IT companies are focusing on outsourcing projects (which do not generate any IP/patent relevant knowledge or directly marketable product) and only the time left not generate any IP/patent relevant knowledge or directly marketable product) and only the time left between outsourcing contracts is used for work on their own products which is hardly sufficient. between outsourcing contracts is used for work on their own products which is hardly sufficient. Outsourcing is not an option of choice or following a well-defined strategy and business model but Outsourcing is not an option of choice or following a well-defined strategy and business model but rather a mechanism and necessity for pure survival. It is also symptomatic that clients looking for a rather a mechanism and necessity for pure survival. It is also symptomatic that clients looking for a Serbian company to do outsourcing do not ask for a specific reference list from a company. Instead, they Serbian company to do outsourcing do not ask for a specific reference list from a company. Instead, they ask for CVs of all personnel and select the programmers on their own, which is also kind of a constraint ask for CVs of all personnel and select the programmers on their own, which is also kind of a constraint for a company to build its image and profile as well as its field(s) of expertise. for a company to build its image and profile as well as its field(s) of expertise. Serbian companies aiming to develop their own product are in need of additional capital on all levels of Serbian companies aiming to develop their own product are in need of additional capital on all levels of the business cycle: from patenting the product, through market entry and finely maintaining the stability the business cycle: from patenting the product, through market entry and finely maintaining the stability of the company: of the company:  It takes about 5-7 years, sufficient funds provided, to prepare a company for IPO.  It takes about 5-7 years, sufficient funds provided, to prepare a company for IPO.  Work on development of a new product requires about 20 people/programmers.  Work on development of a new product requires about 20 people/programmers.  Companies such as DMS and Typhoon are already successful examples of Serbian companies  Companies such as DMS and Typhoon are already successful examples of Serbian companies developing and internationalizing their own products. developing and internationalizing their own products. 8 8 8
  13. 13. ASSESSMENT OF THE SERBIAN ICT SECTOR A. STATISTICAL OVERVIEW OF THE ICT SECTOR This chapter provides basic information needed for an insight into the Serbian ICT sector, such as:  Market value  Market structure  Geographical market dispersion  Number of companies, employees, income/turnover in Serbian ICT industry  IT spending and investment in Serbia  Usage of IT by households and business in Serbia IT Market Value and Structure After two years of decrease, in 2011, Serbian IT sector shows all signs of stagnation. Results from 2010 show that market value was €405 million, which is a year-to-year drop of 5%. In comparison with the year 2008, where market value reached its record of €545 million, IT sector shrank for one quarter! The structure of investments in this area remains the same: IT hardware dominates with 63% share, followed by IT services with 25% and software with remaining 12%. According to the European standards, this structure visibly illustrates the modest situation on the market that is still in the early stages of IT maturity. Table 4 Serbian IT Market Value in 2010 and Trends for 2011 -2012 [€ million] IT MARKET IT SERVICES - TOTAL IT services 2010 2011 2012 99,4 107,6 120,5 99,4 107,6 120,5 SOFTWARE – TOTAL 48,7 51,6 58,8 System software 22,3 24,1 27,0 Application software 26,4 27,5 31,8 IT HARDWARE - TOTAL 255,7 272,3 300,0 Server and Storage Systems 27,4 30,9 33,2 156,7 164,4 178,9 Peripherals 41,4 44,7 52,0 Networking equipment 30,2 32,3 36,0 403,8 431,5 479,4 Personal computers TOTAL Source: Mineco 2011 9 9
  14. 14. F iig u rre 1 F gu e 1 S e rrb iia n IIT M a rrk e tt a n d G rro w tth R a tte s ffo rr 2 0 0 8 --2 0 1 2 .. ((% )) Se b an T Ma ke and G ow h Ra es o 2008 2012 % Value (million EUR) Value (million EUR) Value (million EUR) 600 600 600 Growth Rate (%) Growth Rate (%) Growth Rate (%) 60% 60% 60% 545.5 545,5 545,5 474.6 474,6 474,6 500 500 500 423,8 423,8 423.8 400 400 400 403,8 403,8 403.8 50% 50% 50% 429,0 429,0 429.0 40% 40% 40% 300 300 300 30% 30% 30% 19% 19% 19% 200 200 200 6% 6% 6% 100 100 100 0 0 0 2008 2008 2008 -100 -100 -100 2009 2009 2009 2010 2010 2010 2011 2011 2011 20% 20% 20% 11% 11% 11% 10% 10% 10% 0% 0% 0% 2012 2012 2012 -10% -10% -10% -5% -5% -5% -22% -22% -22% -200 -200 -200 -20% -20% -20% -300 -300 -300 -30% -30% -30% Source: Mineco 2011 Source: Mineco 2011 Key observations: Key observations: Serbian IT market will most probably stay in the “tunnel” for almost 5 years in the period 2008-2013. Serbian IT market will most probably stay in the “tunnel” for almost 5 years in the period 2008-2013. IT Hardware 256 Software 49 After the two digit turbulences of +19% (in 2008) and -22% (in 2009), IT market growth has stabilized After the two digit turbulences of +19% (in 2008) and -22% (in 2009), IT market growth has stabilized IT Services 99.4 in 2011. This financial toboggan caused closure of a few hundred IT companies and significantly in 2011. This financial toboggan caused closure of a few hundred IT companies and significantly 24.6% 404 changed the order of the leading IT companies changed the order of the leading IT companies IT Market Structure IT Market Structure F iig u rre 2 F gu e 2 256 49 99.4 404 12.1% 63.3% S e rrb iia n IIT M a rrk e tt S ttrru c ttu rre iin 2 0 1 0 .. R e v e n u e a n d P rro ffiitt Se b an T Ma ke S uc u e n 2010 Revenue and P o IT Hardware Software 24.6% 24,6% 24,6% 24.6% IT Services 47 35 155 19,8%19.8% 19,8% 19.8% IT Hardware IT Hardware IT Hardware IT Hardware 237 12,1% 12,1% 12.1% 12.1% 47 35 155 237 63,3% 63,3% 63.3% 63.3% 14,8% 14,8% 14.8% 14.8% 65,4% 65,4% 65.4% SofSoftware Software Software tware IT IT Services Services IT Services IT Services 65.4% Source: Mineco 2011 Source: Mineco 2011 19.8% Key observations from the above figure: Key observations from the above figure: IT Hardware In the IT market structure – segment of the IT hardware with 63.4% share is still dominating in 2010; In the IT market structure – segment of the IT hardware with 63.4% share is still dominating in 2010; Software followed by IT services segment with 24.6% and IT Services 12% come from software distribution. followed by IT services segment with 24.6% and remaining 12% come from software distribution. remaining 14.8% 65.4% Although IT hardware drives the IT market in Serbia, profit margins of hardware companies are close Although IT hardware drives the IT market in Serbia, profit margins of hardware companies are close to zero and consequently their profit is very low. The biggest available capital (almost 2/3) to zero and consequently their profit is very low. The biggest available capital (almost 2/3) preserved the companies from the IT service segment. preserved the companies from the IT service segment. 10 10 10
  15. 15. IT Services Structure Table 5 IT service in Serbia - Market Value in 2010 and Forecast 2011-2012 [€ million] IT Service 2012 2010 2011 Hardware Support and Installation 28,6 29,8 31,7 Software Support and Installation 16,0 17,9 20,6 IT Training and Education 3,3 3,7 3,8 Network Consulting and Integration 9,0 9,3 10,6 Systems Integration 13,3 14,2 16,5 Outsourcing – nearshoring 3,7 4,0 4,8 Application Consulting and Customization 8,4 9,8 11,5 Custom Application Development 12,1 13,4 14,7 IT Consulting 5,0 5,4 6,3 99,4 107,6 120,5 Total Source: Mineco 2011 Figure 3 Structure of IT Service in Serbia and Compound Annual Growth Rate (5 year period) Value (million EUR) Value (million EUR) 30.0 30,0 28.6 CAGR (%) CAGR (%) 30.0% 30,0% 28,6 25.0 25,0 25.0% 25,0% 20.0 20,0 20.0% 20,0% 16.0 16,0 15.0 15,0 13.3 13,3 10.0 10,0 10% 10% 13% 13% 9.09,0 11% 11% 5.0 5,0 10.0% 10,0% 5.0% 5,0% 0.0% 0,0% 2% IT Training and IT Training and Education Education Outsourcing - Outsourcing nearshoring[1] nearshoring[1] IT Consulting Consulting and Integration Network Consulting Network and Integration Application Consulting Application and Customization Consulting and Customization Application Development Systems Integration Systems Integration Software Support and Installation Hardware Support and Installation 3.7 3,7 3.3 3,3 2% IT Consulting 0,0 7% 7% 6% Software Support and Installation 0.0 15.0% 15,0% 12% 12% 8.4 8,4 10% 10% 11% 11% Custom Application Development Custom 5,0 6% Hardware Support and Installation 5.0 12.112,1 Source: Mineco 2011 CAGR – [%] Compound Annual Growth Rate for the five year period (2006-2010) While the hardware support and installation market will see continued demand in the future, its share of the total services market is expected to contract. The four major vertical markets – Government, finance, manufacturing, and telecommunications – are likely to be the largest spenders on IT services in Serbia in the coming years. As Serbia continues to stabilize both economically and politically, it has the potential to increase FDI. As in other developing countries in the region, these four sectors have been the prime beneficiaries of the inflow of FDI, which has fostered spending on IT services. Significant part of IT services is internal (End-user companies rely on their own IT departments). These services are not included in the analysis. 11 11
  16. 16. Strength and number of international vendors operating in the region and Serbia will increase and will Strength and number of international vendors operating in the region and Serbia will increase and will have the following implications: have the following implications: Because service business requires more intricate and specific solutions, local services firms will have Because service business requires more intricate and specific solutions, local services firms will have Strength and number of international vendors operating in the region and Serbia international and will to form strategic partnerships with traditional product vendors or with will increase service to form strategic partnerships with traditional product vendors or with international service have the followingin order to meet customer demands. companies in order to meet customer demands. companies implications: Because service business requires more intricate and specific skilled employees and firms will have A number of local IT services companies are staffed with highlysolutions, local servicesthe acquisition A number of local IT services companies are staffed with highly skilled employees and the acquisition to form strategic can be a useful tool for international vendors or with international service of these companiespartnerships with traditional productvendor entry into one of the IT markets, of these companies can be a useful tool for international vendor entry into one of the IT markets, companies in order to meet customer CEE region. as it has already been seen all over the demands. as it has already been seen all over the CEE region. A number of local IT services companies are staffed with highly skilled employees and the acquisition Application Software Structure Application Software Structure of these companies can be a useful tool for international vendor entry into one of the IT markets, as it has already been seen all over the CEE region. F iig u rre 4 F gu e 4 P rro d u c tts iin S e rrb iia n S o ffttw a rre IIn d u s ttrry P oduc s n Se b an So wa e ndus y Application Software Structure Figure 4 Apps infrastructure 8% E-commerce 7% CAD/CAM 3% Products in Serbian Software I ndustry ERP 13% Acconnting 11% Portali 10% SCM 6% Business intelligence 10% Content management 10% Source: Serbian Chamber of Commerce 2009 Source: Serbian Chamber of Commerce 2009 Document management 9% CRM 11% In 2010, theChamber of Commerce 2009 application software reached the value of €26 million. ERP hold the In 2010, the Serbian market for application software reached the value of €26 million. ERP hold the Source: Serbian Serbian market for largest part, constituting nearly 13%, followed by Accounting, CRM, Business intelligence, Content largest part, constituting nearly 13%, followed by Accounting, CRM, Business intelligence, Content management, Document management and Portals -- everyone with a market share of around 10% management, Document management and Portals everyone with a market share of around 10% respectively. Serbian market for application software reached the value of €26 million. ERP hold the respectively. In 2010, the largest part, constituting nearly 13%, Accounting Accounting, CRM, Business intelligence, Content Local software producers dominate the followed by and ERP market in Serbia, given their flexibility in Local software producers dominate the Accounting and ERP market in Serbia, given their flexibility in management, Document management and Portals - everyone with a market share of around for a developing custom software applications. Custom application development represents an option for a developing custom software applications. Custom application development represents an option 10% respectively. of companies (particularly SMEs) seeking a software solution. large number of companies (particularly SMEs) seeking a software solution. large number Local software producers dominate the Accounting ready-made and custom developed packages – will Increasing demand for software applications – both ready-made and custom developed packages – will Increasing demand for software applications – both and ERP market in Serbia, given their flexibility in developing custom foundation market in the period 2011-2015. drive growth in this foundation market in the periodapplication development represents an option for a drive growth in this software applications. Custom 2011-2015. large number of companies (particularly SMEs) seeking a software solution. Increasing demand for software applications – both ready-made and custom developed packages – will drive growth in this foundation market in the period 2011-2015. 12 12 12
  17. 17. IT Spending and Investments Figure 5 10 IT Spending and Investments in Serbia (%) IT spending as a Percentage of Revenue (%) IT spending as a Percentage Employees (%) IT Emloyees as Percentage of Totalof Revenue (%) IT Employees as Percentage of Total Employees 10 5 10,0% 6.3 6,3 6.0% 6,0% 5 CAGR [%] CAGR [%] 2006-2010 in SRB 2006-2010 u SRB 10.0% 5.0% 5,0% 4.0 4,0 4.0% 4,0% 1.5 1,5 0.50,5 0 0.0% 0 (%) IT spending as a Percentage (%) IT Emloyees as Percentage of (%) IT spending as a (%) IT Employees as of Revenue Total Employees Percentage of Revenue Percentage of Total Employees World World Serbia Serbia 0,0% CAGR [%] 2006-2010 in SRB CAGR [%] 2006-2010 in SRB Source: Mineco 2010, Gartner – IT Spending and Staffing Report 2008 Serbian companies invest in IT round 0.5% of their revenue - significantly lower than the competitive international companies do. Taking into consideration that revenues of Serbian companies are low, the absolute amount of their IT spending looks even smaller. Similar situation is with IT employment. Diagram above shows that Serbian companies employ even four times less IT experts than their competition abroad. The growth rate of IT investments (6%) as well as the growth rate of IT employment (4%), are above the world average, so detected gap could be overcome, but quite a few years will be needed to accomplish this. It is a paradox that the backbone of the IT investments in Serbia is composed of households, entrepreneurs and micro companies followed by the Government and financial sector – when the medium and large business sector should be in the lead! In decomposition of this order lies the huge growth potential, although it is hard to believe that this goal will be achieved by 2012. The election year favors spending and causes a slowdown in short-term investments, especially in case of the coalition Government that has to stick to the populist agenda. The Government, with its relevant ministries and public agencies, has started the project of eGovernment Services development. Based on a UNDP study, current status of implemented eGovernment services is above the SEE average (UNDP 2010), with Serbia providing G2B at an average of 56,67% (SEE average 50,54%) and G2C at 41,88% (SEE average: 37,06%). However, development of eGovernment portals at the national and local level did not significantly improve market opportunities in Serbia, contrary to what the majority of local IT business had expected. As discussed above, the recipients of e-Government contracts were the international and Belgrade-based companies, leaving local companies behind the market. 13 13
  18. 18. Why Information Systems? Why Information Systems? According to GDP, IT investments in Serbia are below 1% of GDP, while EU standards are 2-3% of GDP. According to GDP, IT investments in Serbia are below 1% of GDP, while EU standards are 2-3% of GDP. High unemployment rate and modest purchasing power make the Serbian long awaited recovery more High unemployment rate and modest purchasing power make the Serbian long awaited recovery more uncertain. While the companies, which are IT end-users, were ready to invest in technology before uncertain. While the companies, which are IT end-users, were ready to invest in technology before economic crisis, at present they get involved into new information systems or similar infrastructure economic crisis, at present they get involved into new information systems or similar infrastructure projects very carefully. Although there is a need for this type of investment, every ROI (Return on projects very carefully. Although there is a need for this type of investment, every ROI (Return on Investment) analysis, in the conditions where the companies are working without a profit, provides Investment) analysis, in the conditions where the companies are working without a profit, provides additional reason for saving. Without serious profits, there will be no serious IT investments. additional reason for saving. Without serious profits, there will be no serious IT investments. Due to the economic crisis, IT purchasing power of Serbian companies drastically declined in 2009, Due to the economic crisis, IT purchasing power of Serbian companies drastically declined in 2009, though there were signs of a slight recovery in 2010. Running business in Serbia also troubles the low though there were signs of a slight recovery in 2010. Running business in Serbia also troubles the low payment of contractual obligations and debts, which maintains a high demand for money. Besides, most payment of contractual obligations and debts, which maintains a high demand for money. Besides, most companies have trouble with cash flow and liquidity. The business sector is waiting for a ‘miracle’ to companies have trouble with cash flow and liquidity. The business sector is waiting for a ‘miracle’ to happen and recover the economy. Whenever that happens, the IT sector will for sure continue with the happen and recover the economy. Whenever that happens, the IT sector will for sure continue with the two-digit annual growth. two-digit annual growth. However, it is certain that the recovery and transformation of Serbian society are not possible without However, it is certain that the recovery and transformation of Serbian society are not possible without transformation and huge development of information and communication technologies -- in all transformation and huge development of information and communication technologies in all segments/sectors. segments/sectors. Where is Serbia on EU Technological Map? Where is Serbia on EU Technological Map? The diagram of IT investment according to economic strength (presented by GDP), best illustrates the The diagram of IT investment according to economic strength (presented by GDP), best illustrates the economic competitiveness as well as the society organization and its transparency. economic competitiveness as well as the society organization and its transparency. 14 14 14
  19. 19. Figure 6 IT Investment according to Economic S trength (GDP). 1400 1400 Sweden Sweden 1200 1200 United Kingdom United Kingdom Netherlands Netherlands FinlandFinland 1000 1000 IT spending per capita [€] IT spending per capita [€] France France Austria Belgium Belgium Germany Germany 800 800 Austria 600 600 mediana Italy 400 400 Czech Republic Czech Republic Portugal Portugal Hungary Hungary Scroatia Scroatia Slovakia Estonia Slovakia Estonia Poland Poland Latvia Latvia Serbia Lithuania Serbia Lithuania Montenegro Montenegro Bulgaria Romania Bulgaria Macedonia Macedonia B i H Romania Albanija Albanija BiH 0 0 0 5 5 10 10 Italy Spain Spain Slovenia Slovenia 200 200 0 med ian a Greece Greece 15 15 2020 25 25 30 GDP per capita [000 €] GDP per capita [000 €] 30 35 35 40 40 Source: EITO 2007, Eurostat, Mineco 2010 Key observations for the above diagram: North and west European countries have strong economy and high IT investments (all significantly above average) in visible correlation. Mediterranean countries characterize strong economy but low IT investments. Provocative, pejorative acronym PIGS for these countries (Portugal, Italy, Greece and Spain) indicate that they belong to the “second league”. All the countries from EU 10 (10 new members, which joined the EU in 2004) are lagging behind: they are in the quadrant of weak economy and low IT investments. There is a few decades long technological gap between Serbia and its Northwestern neighbors. Serbia’s positioned in the root of the coordinate system together with Albania, FYROM, Montenegro, Bosnia and Herzegovina, Romania and Bulgaria. According to the key observations above and treating the IT investments as the early indicator of economic and social trends, the following hypothesis can be formulated:” If the IT investments in Serbia do not double in the following 5-year period, Serbian economy and society will descend to even deeper crisis. In order to “catch up with the EU train”, it is necessary to triple IT investments in Serbia in the period 2011-2015.” 15 15
  20. 20. Why IT Investments in Particular? Why IT Investments in Particular? Investments are always important, especially in the crisis. Since information technologies are in the base Investments are always important, especially in the crisis. Since information technologies are in the base of every optimization, the crisis is the right time for strategic investments. The main reasons are: of every optimization, the crisis is the right time for strategic investments. The main reasons are: (1) IT infrastructure is the important condition for economy, society and Government development; (1) IT infrastructure is the important condition for economy, society and Government development; (2) For taking part in global economy, IT industry requires significantly smaller resources than other (2) For taking part in global economy, IT industry requires significantly smaller resources than other industries; industries; (3) IT industry is significantly cheaper but more profitable than other industries; (3) IT industry is significantly cheaper but more profitable than other industries; (4) ICT industry development prevents the “brain drain”. (4) ICT industry development prevents the “brain drain”. Trends and Potentials - New IT Goals for the Period 2011-2015. Trends and Potentials - New IT Goals for the Period 2011-2015. T a b lle 6 Tab e 6 S e rrb iia n IIT M a rrk e tt V a llu e a n d S ttrru c ttu rre ,, 2 0 1 0 a n d P o tte n ttiia lls 2 0 1 1 --2 0 1 5 [[€ m iilllliio n ]] Se b an T Ma ke Va ue and S uc u e 2010 and Po en a s 2011 2015 € m on IT MARKET IT MARKET 2010 2010 Market Market 2015(v2) 2015(v2) 2015(v1) 2015(v1) Share (%) Share (%) Market Market Share (%) Share (%) Market Market Share (%) Share (%) IT Services IT Services 99,4 99,4 24,6% 24,6% 211,8 211,8 29,5% 29,5% 325,5 325,5 32,1% 32,1% System Software System Software 22,3 22,3 5,5% 5,5% 42,0 42,0 5,8% 5,8% 60,5 60,5 6,0% 6,0% Applications Applications 26,4 26,4 6,5% 6,5% 49,4 49,4 6,9% 6,9% 71,1 71,1 7,0% 7,0% Server systems and storage Server systems and storage 27,4 27,4 6,8% 6,8% 41,8 41,8 5,8% 5,8% 53,9 53,9 5,3% 5,3% Personal computers Personal computers 156,7 156,7 38,8% 38,8% 226,3 226,3 31,5% 31,5% 282,5 282,5 27,8% 27,8% Peripherals Peripherals 41,4 41,4 10,3% 10,3% 86,8 86,8 12,1% 12,1% 132,4 132,4 13,0% 13,0% Networking equipment Networking equipment 30,2 30,2 7,5% 7,5% 59,8 59,8 8,3% 8,3% 88,7 88,7 TOTAL TOTAL CAGR (%) Annual Growth Rate CAGR (%) Annual Growth Rate 403,8 403,8 100,0% 100,0% 717,9 717,9 12,2% 12,2% 100,0% 100,0% 1.014,5 1.014,5 20,0% 20,0% 8,7% 8,7% 100,0% 100,0% Source: Mineco 2011 Source: Mineco 2011 Key comments on the table above: Key comments on the table above: The potential of Serbian IT market is significantly higher than the realization shows. For the needed The potential of Serbian IT market is significantly higher than the realization shows. For the needed progress (double digit IT market growth of 20% CAGR (v2) -- CAGR (v2) -- Compound Annual progress (double digit IT market growth of 20% CAGR (v2) CAGR (v2) Compound Annual Growth Rate with which Serbian economy could catch up with EU countries), the basic Growth Rate with which Serbian economy could catch up with EU countries), the basic precondition is a yearly GDP growth bigger than 4%. precondition is a yearly GDP growth bigger than 4%. In the following five years (2011-2015) it is necessary that Serbian IT marked growth rate exceeds In the following five years (2011-2015) it is necessary that Serbian IT marked growth rate exceeds 12,2 % CAGR (v1) (CAGR (v1)- Compound Annual Growth Rate under which Serbian economy 12,2 % CAGR (v1) (CAGR (v1)- Compound Annual Growth Rate under which Serbian economy will fall deeper into economic crisis), or the Serbian economy is going to fall in even deeper crisis. will fall deeper into economic crisis), or the Serbian economy is going to fall in even deeper crisis. It is obvious that Serbian economy in 2011 and 2012 will be under this required level. It is It is obvious that Serbian economy in 2011 and 2012 will be under this required level. It is necessary to compensate whatever missed in the period 2013 – 2015. necessary to compensate whatever missed in the period 2013 – 2015. In their previous analysis, MINECO gave the projection of 17% CAGR (v2), for the period (2005-2010) In their previous analysis, MINECO gave the projection of 17% CAGR (v2), for the period (2005-2010) which did not materialize. Trend was good up to 2008, but the year 2009 was catastrophic for IT which did not materialize. Trend was good up to 2008, but the year 2009 was catastrophic for IT and influenced the average growth rate for period 2005-2009 to fall to modest 8,5% CAGR. and influenced the average growth rate for period 2005-2009 to fall to modest 8,5% CAGR. Stagnation in 2010 lowered this rate to 5.5% CAGR that is three times less than required in Stagnation in 2010 lowered this rate to 5.5% CAGR that is three times less than required in MINECO projections. MINECO projections. 16 16 16
  21. 21. Overview of the Telecommunication Market Informatics and Telecommunication in Serbia, as two separate segments of ICT Industry, have had different performances and trends: while IT characterizes a fragmented and liberal market with significant present of SME segmentation, more mature telecommunication sector practically consists of three big mobile operators and one cable operator. As this analysis has been obtained primarily from the perspective of potential investors in new ICT areas, the focus is on the SME segment and IT service companies. For that reason, the Telecommunication part has been reduced to a few key observations. According to RATEL’s data, the revenues from telecom services in 2010 amounted to €1.46 billion. The average annual growth rate of the telecom sector revenues in the period from 2005 to 2010 was 9.4%. The share of telecom sector revenues in GDP was around 4.98% (cf. 4.76% in 2009). The total investments in the telecom sector in 2010 amounted to €274 million. In terms of different services, in 2010, the largest share of total revenues, approximately 53%, went to the mobile market, whereas VoIP services with 0.2% represented the smallest share. Accordingly, investments in the mobile market had the largest share in the total revenues, 48% in 2010, whereas investments in VoIP only 0.1%. The structure of telecommunications sector revenues is provided below (Figure 7). Figure 7 Revenue and Investments by Telecommunicati on Services, in 2010 0,2% 0.2% 5,9% 3,4% 5.9% 3.4% 9,0% 9.0% Mobile Mobile 11,6% 11.6% Fixed Fixed 28.9% 28,9% Mobile Mobile Fixed Fixed 12,7% 12.7% Internet Internet 52,7% 52.7% 0,2% 0.2% 48.2% 48,2% Media contents Media contents distribution distribution Broadcasting Broadcasting Internet Internet 27.4% 27,4% VoIP VoIP Media contents Media contents distribution distribution VoIP VoIP Source: RATEL Telecom service baskets represent monthly expenditure per subscriber. The low usage basket shows the average monthly expenditure for basic telecom services, which include TV, fixed and mobile telephone services, whereas the high usage basket shows using Internet and CATV in addition to the basic package. In 2010, the cost of the basic package equaled 4.8% of the average monthly salary, and that of the extended package amounted to approximately 13%. ICT Development Index In 2007, the International Telecommunication Union (ITU) initiated the process of creating a single Index used in measuring the development of information society, the so-called ICT Development Index (IDI). This single IDI Index serves as a benchmarking tool for measuring the development of the ICT market in U N Member States, digital divide between the developed and developing countries; developmental potential of the ICT market. 17 17
  22. 22. F iig u rre 8 F gu e 8 IIC T D e v e llo p m e n tt IIn d e x ,, IID II S ttrru c ttu rre CT Deve opmen ndex D S uc u e ICT Readiness (infrastructure, access) ICT Development Index ICT Use (intensity) ICT Impact (outcomes) ICT Capability (skills) Source: RATEL Source: RATEL This Index combines 11 indicators divided into three sub-groups: (1) ICT Readiness (infrastructure and This Index combines 11 indicators divided into three sub-groups: (1) ICT Readiness (infrastructure and access); (2) ICT use (primarily by individuals, but also households and entrepreneurs) and the intensity of access); (2) ICT use (primarily by individuals, but also households and entrepreneurs) and the intensity of use; (3) ICT Capability (skills necessary for the effective use of ICTs). use; (3) ICT Capability (skills necessary for the effective use of ICTs). The value of IDI Index for the Republic of Serbia in 2010 amounts to 5.10, which shows a significant The value of IDI Index for the Republic of Serbia in 2010 amounts to 5.10, which shows a significant growth compared to 4.23 in 2008 and 4.80 in 2009. Considering the previous ITU data, we may growth compared to 4.23 in 2008 and 4.80 in 2009. Considering the previous ITU data, we may anticipate that, based on the IDI Index value, Serbia will secure a place among the first 40 countries on anticipate that, based on the IDI Index value, Serbia will secure a place among the first 40 countries on the list. the list. The fact that indicators for ICT access have significantly higher values than indicators for ICT usage is The fact that indicators for ICT access have significantly higher values than indicators for ICT usage is apparent and serves as an illustration of the disparity between the capacity of the existing apparent and serves as an illustration of the disparity between the capacity of the existing telecommunication infrastructure and its use in terms of services transmitted through such telecommunication infrastructure and its use in terms of services transmitted through such infrastructure in Serbia. The same applies to usage of broadband Internet services. On the other hand, infrastructure in Serbia. The same applies to usage of broadband Internet services. On the other hand, ICT skills indicators are of the appropriate value. ICT skills indicators are of the appropriate value. 18 18 18
  23. 23. Serbian Internet Services Market in 2010 Total revenues earned from provision of Internet services reached 13.5 billion RSD (around €135 million) in 2010, which represents a growth of 22% compared to 2009. Incomes multiplied six times in comparison to year 2006 when this trend was recorded for the first time. [See Terminology - no difference between income, revenue and turnover as used in this text] Figure 9 Incomes Earned from Internet (in millions of RSD) 16.000 16,000 Year on Year Growth140% (%) 140% Year on Year Growth (%) Internet Access in Households (%) Internet Access in Households (%) 13.527 14.000 13,527 14,000 12.000 120% 120% 11.108 12,000 100% 11,108 10.000 100% 8.762 10,000 80% 8,762 80% 8.000 8,000 60% 6.000 4,743 40% 40% 4.000 4,000 2.000 60% 4.743 6,000 2,166 2.166 20% 20% 2,000 0 0 2 2 2 2006 0 06 2007 0 07 20080 08 20 2009 09 20 2010 10 0% 0% Source: RATEL [Republic Telecommunication Agency] Internet Operators 192 Internet operators were registered in Serbia in December 2010, approximately the same number as it was in 2009. Table 7 Total Number of Internet Operators in Serbia Period 2006 2007 2008 2009 2010 Number of operators 109 159 197 199 192 Source: RATEL [Republic Telecommunication Agency] Internet Penetration: The number of Internet connections per 100 citizens was approximately 23 and the number of broadband Internet connections per 100 citizens was approximately 19. Broadband Internet Penetration: Unless 3G mobile network subscribers are taken into consideration, the penetration of broadband Internet access amounts to 9.2%, which is above the average in the SEE region (8.01%). However, the penetration of broadband Internet access in Serbia is significantly below the EU27 average (24%). Taking into consideration all relevant parameters, the Serbian Internet market has projected a constant growth in the following few years. Assumption is that the number of broadband connections per 100 citizens will reach the present level in developed European countries by 2013. 19 19
  24. 24. IT Industry IT Industry For the needs of this report the 2007, OECD ICT sector definition (ISIC Rev. 4) is used. For the needs of this report the 2007, OECD ICT sector definition (ISIC Rev. 4) is used. T a b lle 8 Tab e 8 O E C D IIC T S e c tto rr D e ffiin iittiio n OECD CT Sec o De n on ICT manufacturing industries ICT manufacturing industries 2610 Manufacture of electronic components and boards 2610 Manufacture of electronic components and boards 2620 Manufacture of computers and peripheral equipment 2620 Manufacture of computers and peripheral equipment 2630 Manufacture of communication equipment 2630 Manufacture of communication equipment 2640 Manufacture of consumer electronics 2640 Manufacture of consumer electronics 2680 Manufacture of magnetic and optical media 2680 Manufacture of magnetic and optical media ICT manufacturing industries ICT manufacturing industries 4651 Wholesale of computers, computer peripheral equipment 4651 Wholesale of computers, computer peripheral equipment and software and software 4652 Wholesale of electronic and telecommunications 4652 Wholesale of electronic and telecommunications equipment and parts equipment and parts 5820 Software publishing 5820 Software publishing 61 Telecommunications 61 Telecommunications 62 Computer programming, consultancy and related activities 62 Computer programming, consultancy and related activities IT industry IT industry IT Converged IT Converged industry industry Y Y PC Hardware PC Hardware Y Y Y Y Y Y IT Channels -IT Channels Wholesale and retail Wholesale and retail Y Y Software Software Y Y IT services IT services Software Software 631 Data processing, hosting and related activities; Web portals 631 Data processing, hosting and related activities; Web portals 951 Repair of computers and communication equipment 951 Repair of computers and communication equipment IT services IT services Y Y The IT industry in this study consists only from those companies whose real activities fall within the The IT industry in this study consists only from those companies whose real activities fall within the above presented NACE classes. This is not an easy thing to do in Serbia and presented analysis is excerpt above presented NACE classes. This is not an easy thing to do in Serbia and presented analysis is excerpt from the study “Serbian IT Industry 2010”, which treats this issue in detail. from the study “Serbian IT Industry 2010”, which treats this issue in detail. In order to get the precise insight of Serbian IT industry structure, in “Serbian IT Industry 2010”, IT In order to get the precise insight of Serbian IT industry structure, in “Serbian IT Industry 2010”, IT companies are grouped into four clearly defined categories, relying, at the same time, on new NACE companies are grouped into four clearly defined categories, relying, at the same time, on new NACE classes. Those categories are: (1) IT Channels -- Wholesale and retail, (2) IT services, (3) Software and (4) classes. Those categories are: (1) IT Channels Wholesale and retail, (2) IT services, (3) Software and (4) PC Hardware. All those companies that did not have clear product portfolio and by their size belong to PC Hardware. All those companies that did not have clear product portfolio and by their size belong to micro companies, belong into the category “Other -- unclassified”. This report also includes companies micro companies, belong into the category “Other unclassified”. This report also includes companies with noticeable dealing in information technologies but coming from the converging industries: with noticeable dealing in information technologies but coming from the converging industries: telecommunication, office equipment and consumer/home electronic. These companies are in the telecommunication, office equipment and consumer/home electronic. These companies are in the category “Converged industry”. category “Converged industry”. Characteristics of the IT industry in this report rely on non-consolidated publicly available data of IT Characteristics of the IT industry in this report rely on non-consolidated publicly available data of IT companies taken from their financial reports for 2010. The SBRA (Serbian Business Registers Agency) – companies taken from their financial reports for 2010. The SBRA (Serbian Business Registers Agency) – Register of Financial Statements and Solvency, provided the data contained in the report on Mineco’s Register of Financial Statements and Solvency, provided the data contained in the report on Mineco’s demand. Following is the presentation of Serbian IT industry through the number of IT companies, their demand. Following is the presentation of Serbian IT industry through the number of IT companies, their size, structure and number of employees. The terms: revenue, added value and net asset in Serbian IT size, structure and number of employees. The terms: revenue, added value and net asset in Serbian IT sector are used for the whole IT sector where all active IT companies revenues, added values and net sector are used for the whole IT sector where all active IT companies revenues, added values and net assets are summarized, respectively [see Terminology]. assets are summarized, respectively [see Terminology]. In 2010, 1,614 active enterprises, which accomplished revenues higher than 400,000 RSD, formed the In 2010, 1,614 active enterprises, which accomplished revenues higher than 400,000 RSD, formed the Serbian IT industry. Total number of employees was 13.816 and represented 0.9% of the total workforce Serbian IT industry. Total number of employees was 13.816 and represented 0.9% of the total workforce in Serbia. Average number of employees was 8.6 and average revenue and added value -- per employee, in Serbia. Average number of employees was 8.6 and average revenue and added value per employee, were €80,034 and €26,598 respectively. were €80,034 and €26,598 respectively. In their study on the Belgrade Service Sector, FREN claimed that productivity of ICT companies was 68% In their study on the Belgrade Service Sector, FREN claimed that productivity of ICT companies was 68% higher than any other business sector in Serbia and more than three times higher than the Serbian higher than any other business sector in Serbia and more than three times higher than the Serbian average (FREN 2007). They also found that ICT companies have the highest average gross wage. average (FREN 2007). They also found that ICT companies have the highest average gross wage. 20 20 20
  25. 25. Number of IT Companies in Serbia In 2010, 1,614 active enterprises, which accomplished revenues higher than 400,000 RSD, formed the Serbian IT industry. In comparison to 2009, the number of IT companies increased for 2.8%, where the share of software companies raised for 1 percentage point, similarly to the number of IT service companies. IT Channels - Wholesale and retail companies, decreased their share in total number of IT companies. IT Channels - Wholesale and retail IT services Software PC Hardware Other – unclassified Converged industry Total Total [%] 10 19 3 32 225 13,9% 4 36 2,2% 1 3 4 0,2% Total 25 102 52 14 15 244 336 253 355 146 1349 83,6% Big enterprises Medium enterprises IT industry sub-sector Small enterprises Micro enterprises Table 9 Number of IT companies in Serbia, 2010 according to the IT Sub-sector and Company size 51 368 391 267 355 182 1614 100,0% Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Key comments for the above table: Serbian IT industry has only four big IT enterprises (with more than 250 employees), three of them with international owners and defined corporate standards. A huge number of micro companies (1,349), which have low financial capacities, insufficient technological and managing skills, visibly characterize Serbian IT industry. In contrast, positioned in between, SME segment shows strong vitality. SME segment with 261 enterprises represents 16% of all IT enterprises. Almost half of companies from the SME segment have been active in IT services segment (121 of 261). Investments and support to SME segment could be the decisive factor in the fast development of IT industry. Figure 10 Structure of IT Companies in Serbia, 2010 11% 3% 11% 3% IT Channels IT Channels 23% 23% IT services IT services Software Software 22%22% PC Hardware PC Hardware 17% 17% Other - unclassified Other - unclassified 24% 24% Converged industry Converged industry Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand 21 21
  26. 26. Workforce in Serbian IT Industry Workforce in Serbian IT Industry Serbian IT industry employed 13,816 workers in 2010. This is a modest number in comparison to 1.45 Serbian IT industry employed 13,816 workers in 2010. This is a modest number in comparison to 1.45 million, which is the number of the entire workforce (without entrepreneurs). However, the estimate is million, which is the number of the entire workforce (without entrepreneurs). However, the estimate is that this number is just a smaller part of much bigger ICT work corpus of nearly 50,000 ICT specialists. that this number is just a smaller part of much bigger ICT work corpus of nearly 50,000 ICT specialists. Besides IT industry, the estimates indicate that around 35,000 ICT specialists work in Besides IT industry, the estimates indicate that around 35,000 ICT specialists work in telecommunications sector, end user companies (which are IT users) and entrepreneurial ICT sector. telecommunications sector, end user companies (which are IT users) and entrepreneurial ICT sector. In comparison to 2007 (a year before the crisis), all IT sub-sectors have increased the number of In comparison to 2007 (a year before the crisis), all IT sub-sectors have increased the number of employees which confirms the developing character of IT sector. employees which confirms the developing character of IT sector. IT Channels --Wholesale and retail IT Channels Wholesale and retail IT services IT services Software Software PC Hardware PC Hardware Other – unclassified Other – unclassified Converged industry Converged industry Total Total Total [%] Total [%] 102 102 1.018 1.018 1.160 1.160 818 818 575 575 619 619 4.292 4.292 31,1% 31,1% 570 570 2.391 2.391 1.031 1.031 314 314 0 0 635 635 4.941 4.941 35,8% 35,8% 893 893 1.811 1.811 289 289 0 0 0 0 333 333 3.326 3.326 24,1% 24,1% Total IT industry Big enterprises Medium enterprises IT industry sub-sector IT industry sub-sector Small enterprises Micro enterprises T a b lle 1 0 W o rrk ffo rrc e iin IIT iin d u s ttrry iin S e rrb iia ,, a c c o rrd iin g tto tth e IIT S u b --s e c tto rr a n d C o m p a n y S iiz e Tab e 10 Wo k o ce n T ndus y n Se b a acco d ng o he T Sub sec o and Company S ze 272 272 985 985 0 0 0 0 0 0 0 0 1.257 1.257 9,1% 9,1% 1.837 1.837 6.205 6.205 2.480 2.480 1.132 1.132 575 575 1.587 1.587 13.816 13.816 100,0% 100,0% Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Key comments for the above table: Key comments for the above table: The employment in IT service sub-sector increased significantly above average in 2010 and achieved The employment in IT service sub-sector increased significantly above average in 2010 and achieved the number of 6,205 employees, which is 44.9% of total IT sector work force. Following is the the number of 6,205 employees, which is 44.9% of total IT sector work force. Following is the Software sub-sector with 17.9% share in total IT sector work force. Software sub-sector with 17.9% share in total IT sector work force. SME segment in IT services sub-sector also shows a significant number of employees (4.202). More SME segment in IT services sub-sector also shows a significant number of employees (4.202). More than half employees from SME segment work in IT service sub-sector. than half employees from SME segment work in IT service sub-sector. Average number of employees in SME segment is 31.7 -- almost 4 times more than the IT industry Average number of employees in SME segment is 31.7 almost 4 times more than the IT industry average (8.6). average (8.6). Slightly more than 4% employees (314) from the whole SME segment work in the PC hardware subSlightly more than 4% employees (314) from the whole SME segment work in the PC hardware subsector. Micro enterprises are dominating in PC equipment sub-sector total employment. sector. Micro enterprises are dominating in PC equipment sub-sector total employment. F iig u rre 1 1 S h a rre o ff IIT IIn d u s ttrry S u b --s e c tto rr ((% )) iin T o tta ll N u m b e rr o ff E m p llo y e e s iin IIC T IIn d u s ttrry F gu e 11 Sha e o T ndus y Sub sec o % n To a Numbe o Emp oyees n CT ndus y 12% 4% 8% 4% 4% 13% 13% 12% 12% 13% IT ChannelsIT Channels IT Channels IT services IT services IT services 8% 8% Software Software Software PC Hardware PC Hardware 18% 18% 18% PC Hardware Other --unclassified Other unclassified 45% 45% Converged Other - unclassified Convergedindustry industry 45% Converged industry Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand 22 22 22
  27. 27. Revenue in the Serbian IT Industry Revenue (or turnover) of the IT industry represents the revenue of the whole IT sector - all IT companies revenues summarized. Compared to the value of IT market, IT industry revenue is typically two times bigger, due to the selling multiplications in the distribution channel, export and the non-IT part of companies’ business. Serbian IT Industry accomplished revenues of more than €1.1 billion in 2010. Based on previous researches, it is estimated that the revenues from the IT goods and services make around 80% of IT industry revenues (nearly €900 million), while the remaining 20% come from converging and non-ICT products. Table 11 Revenue in Serbian IT Industry [€ million], according to the Sub-sector and Company IT Channels - Wholesale and retail IT services Software PC Hardware Other – unclassified Converged industry Total Total [%] 14,1 52,3 34,2 62,4 14,7 34,7 212,3 19,2% 101,0 147,7 33,2 19,7 41,3 342,9 31,0% 302,5 104,9 9,1 20,3 436,8 39,5% 34,3 79,4 113,7 10,3% Total IT industry Big enterprises Medium enterprises IT industry sub-sector Small enterprises Micro enterprises Size 451,9 384,2 76,5 82,1 14,7 96,4 1,105,8 100,0% Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Key comments for the above table: In comparison with 2009, total IT industry revenue in 2010 went up by 5% - similarly to the entire IT market growth. The biggest revenue of 41% IT industry sector revenues were in the Wholesale and Retail sub-sector (€451.9 million). Following is IT service sub-sector with €384.2 million (35%). With the revenues of almost €780 million, SME gathered 70% share in total IT industry revenues. In the SME segment, the biggest revenues also came from the Wholesale and Retail sub-sector – more than the half of this segment revenue. Figure 12 Structure of IT Industry Sub-Sector (%) in Revenues IT Channels IT Channels 9% 1% 9% 1% 7% 7% IT services IT services 41% 41% 7% 7% Software Software PC Hardware PC Hardware Other - Other - unclassified unclassified 35% 35% Converged industry Converged industry 23 23
  28. 28. Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Added Value in the Serbian IT Industry Added Value in the Serbian IT Industry IT companies have accomplished added value amounting to €367 million, which is 33% of the IT industry IT companies have accomplished added value amounting to €367 million, which is 33% of the IT industry revenues. This amount makes 1.2 % of Serbian GDP. revenues. This amount makes 1.2 % of Serbian GDP. IT Channels --Wholesale and retail IT Channels Wholesale and retail IT services IT services Software Software PC Hardware PC Hardware Other – unclassified Other – unclassified Converged industry Converged industry Total Total Total [%] Total [%] 1,6 1,6 29,2 29,2 24,1 24,1 9,6 9,6 7,9 7,9 12,1 12,1 84,5 84,5 23,0% 23,0% 11,2 11,2 76,2 76,2 26,2 26,2 3,5 3,5 0,0 0,0 15,5 15,5 132,6 132,6 36,1% 36,1% 25,4 25,4 61,5 61,5 7,3 7,3 0,0 0,0 0,0 0,0 11,9 11,9 106,2 106,2 28,9% 28,9% 3,1 3,1 41,2 41,2 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 44,3 44,3 12,0% 12,0% Total IT industry Big enterprises Medium enterprises Small enterprises IT industry sub-sector IT industry sub-sector Micro enterprises T a b lle 1 2 A d d e d V a llu e iin tth e S e rrb iia n IIT IIn d u s ttrry [[€ m iilllliio n ]],, 2 0 1 0 .. Tab e 12 Added Va ue n he Se b an T ndus y € m on 2010 41,4 41,4 208,1 208,1 57,6 57,6 13,0 13,0 7,9 7,9 39,5 39,5 367,5 367,5 100,0% 100,0% Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Key comments for the above table: Key comments for the above table: IT services sub-sector with 57% share achieved the highest added value (€208 million), while the IT services sub-sector with 57% share achieved the highest added value (€208 million), while the shares of other sub-sectors were significantly lower. shares of other sub-sectors were significantly lower. The SME segment with a 65% share in total added value of the IT industry accomplished €240 million The SME segment with a 65% share in total added value of the IT industry accomplished €240 million in 2010. in 2010. In addition, In the SME segment the biggest part of added value came from IT service sub-sector. In addition, In the SME segment the biggest part of added value came from IT service sub-sector. Added value in SME segment was 8.5% higher than the IT industry average. Added value in SME segment was 8.5% higher than the IT industry average. The IT service segment began forming the most challenging market. System integrators and software The IT service segment began forming the most challenging market. System integrators and software companies who recognized the fast growing service market and became attached to it, achieved companies who recognized the fast growing service market and became attached to it, achieved success. Additionally, companies that collaborated with global vendors progressed rapidly thanks to success. Additionally, companies that collaborated with global vendors progressed rapidly thanks to their prestigious international experience and knowledge. their prestigious international experience and knowledge. International vendors significantly strengthened their local presence during the past few years by International vendors significantly strengthened their local presence during the past few years by establishing their own companies for global services. Microsoft, Cisco and Red Hat have set up their establishing their own companies for global services. Microsoft, Cisco and Red Hat have set up their development centers in Belgrade, one of the few in the world. development centers in Belgrade, one of the few in the world. International IT companies are advancing into the Serbian IT market attracted by its potential. Local International IT companies are advancing into the Serbian IT market attracted by its potential. Local companies will face a strong globalization effect, but at the same time, the global IT companies have to companies will face a strong globalization effect, but at the same time, the global IT companies have to localize – which means they will have to establish their own companies and local offices and employ localize – which means they will have to establish their own companies and local offices and employ local staff. local staff. 24 24 24
  29. 29. Figure 13 Share of the Value Added ( %) in Revenues of ICT Industry S ub-sectors 11% 11% 11% 11% 2% 3% 2% IT Channels IT Channels IT services 16% 16% IT services Software 3% Software PC Hardware PC Hardware Other - unclassified - unclassified Other 57% Converged industry 57% Converged industry Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Net Assets of the Serbian IT Industry Serbian IT industry continued to grow in 2010 despite the crisis with around €256 million of net assets [see Terminology]. Compared to 2006, when the IT industry net assets were round €150 million, the industry accomplished an impressive 58% growth. This trend is “spiritus movens” for the private sector, which dominates in IT industry. The high return rates on net assets will certainly attract foreign investors willing to take risk and use the opportunity for making a good profit. It is certain that IT services and Software sub-sectors have a good perspective. IT Channels - Wholesale and retail Total IT industry Big enterprises Medium enterprises Small enterprises IT industry Sub-Sector Micro enterprises Table 13 Net Assets of Serbian IT Industry [€ million], 2010 1,0 6,4 21,1 0,2 28,7 IT services 23,4 58,9 33,3 35,1 150,8 Software 10,4 18,0 3,7 - 32,1 PC Hardware 9,7 4,0 - - 13,7 Other – unclassified 2,8 - - - 2,8 Converged industry 9,0 12,6 6,3 - 27,9 Total 56,4 99,9 64,5 35,3 256,1 22,0% Total [%] 39,0% 25,2% 13,8% 100,0% Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Key comments for the above table: The highest volumes of assets, over €150 million, which form 59% of the IT industry net assets, own companies in the IT service sub-sector. With €164 million, the SME share in IT industry net assets in 2010 was 64%. Figure 14 Structure of IT Industry S ub-sector (%) in Net Assets 25 25
  30. 30. IT Channels IT Channels IT Channels 11% 11% 11% 11% 1%1%11% 11% 1% 5%5% 5% IT services IT services IT services Software Software Software 13% 13% 13% PC Hardware PC Hardware PC Hardware Other - unclassified Other -- unclassified Other unclassified 59% 59% 59% Converged industry Converged industry Converged industry Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand Source: Register of Financial Statement and Solvency, SBRA, prepared on Mineco’s demand When it comes to geographic distribution of ICT companies in Serbia, most companies are located in When it comes to geographic distribution of ICT companies in Serbia, most companies are located in Belgrade, Nis and Novi Sad. The vast majority of other municipalities have an insignificant concentration Belgrade, Nis and Novi Sad. The vast majority of other municipalities have an insignificant concentration of ICT companies. of ICT companies. IT Park Indjija IT Park Indjija Building of “IT Park” in Indjija began in July of 2011. In the first phase, 25.000 m22 of office space would Building of “IT Park” in Indjija began in July of 2011. In the first phase, 25.000 m of office space would provide jobs for 2.500 staff according to the plan. Completion of this investment, worth €50 million, will provide jobs for 2.500 staff according to the plan. Completion of this investment, worth €50 million, will probably be in the mid-2012. probably be in the mid-2012. There was an announcement for Project for building “IT Park” in Indjija, worth 600 million USD, in There was an announcement for Project for building “IT Park” in Indjija, worth 600 million USD, in September 2007, but it stopped due to the word economic crisis. The investor, Indian company September 2007, but it stopped due to the word economic crisis. The investor, Indian company “Embassy Group“, announced building of 250,000 m2 office space in the period of five years, up to “Embassy Group“, announced building of 250,000 m2 office space in the period of five years, up to 2013, making that space the Europe’s largest. The Park should provide housing to IT services and 2013, making that space the Europe’s largest. The Park should provide housing to IT services and technology providers employing up to 25,000 individuals (though not exclusively IT experts). technology providers employing up to 25,000 individuals (though not exclusively IT experts). Potentials of the standardization of Serbian companies Potentials of the standardization of Serbian companies When it comes to the standardization of Serbian companies, the general conclusions appears to be that When it comes to the standardization of Serbian companies, the general conclusions appears to be that the demand from foreign partners importing from Serbia drives it. However, one can conclude that, in the demand from foreign partners importing from Serbia drives it. However, one can conclude that, in many cases companies are not aware which set of standards they need to introduce, nor where or how many cases companies are not aware which set of standards they need to introduce, nor where or how they can get those standards. These issues significantly undermine the competitiveness of Serbian they can get those standards. These issues significantly undermine the competitiveness of Serbian industry. industry. Lack of specialization among Serbian IT companies has been recognized as a big issue. Serbian market is Lack of specialization among Serbian IT companies has been recognized as a big issue. Serbian market is not big enough, so IT companies do not have the incentive to specialize in any specific areas. In order to not big enough, so IT companies do not have the incentive to specialize in any specific areas. In order to survive, they need to cover a broad scope of activities. Many, if not most of micro and SME companies survive, they need to cover a broad scope of activities. Many, if not most of micro and SME companies tend to take the approach of being able to perform any kind of activity, even though some of them tend to take the approach of being able to perform any kind of activity, even though some of them might be doing that for the first time. Moreover, there is no local offer of human resources with might be doing that for the first time. Moreover, there is no local offer of human resources with specialization in particular areas since most of the IT professionals have a broad expertise. If companies specialization in particular areas since most of the IT professionals have a broad expertise. If companies need professionals with specialization in certain fields, they would rather train some of their existing need professionals with specialization in certain fields, they would rather train some of their existing staff than engage external professionals or companies with the specialization in the required field. staff than engage external professionals or companies with the specialization in the required field. 26 26 26
  31. 31. IT and Internet Usage Since 2006, Statistical Office of the Republic of Serbia publishes annually statistics of ICT usage in households and businesses (RZS 2006, 2007, 2008, 2009, 2010, 2011). The report for 2011 showed that 98,9% of households own TV sets, 82,5% have mobile phones, 52,1% personal computers and 15,5% laptop computers. Ownership of ICT equipment is mostly concentrated in the urban population with a monthly income of more than €600 (87,1%). The overall usage of computers in Serbia is still unsatisfactory, with 40.1% of the population having no access to computers. The number of users has increased by a solid 3.5% in 2011. Among different groups in the population, students are the most active in computer use (99.5%), followed by employees (74.2%). In real figures, more than 2.5 million people in Serbia use computers every day, which is about 200,000 more than in 2010. Internet access In Serbia has 41.2% of households, which is 2.2% more than in 2010. In Belgrade, 51.6% of households have Internet access, in Vojvodina 42.0% and in Central Serbia 36.3%. Digital divide (gap) in both economical and geographical spheres is apparent. Figure 15 Digital Divide. Households with Internet Connection, by Monthly Incomes L evel 100,0% 100.0% 56,0% 56.0% Monthly Monthly incomes incomes 31,4% 31.4% 12,6% 10,8% 10.8% under 300 € under 300 € 17,5% 17.5% 300 - 600 € 300 - 600 € 12.6% 10,5% 38,8% 38.8% Internet Connection Internet Connection 10.5% 600 € and All Housholds 600 € and more All Housholds more Source: Statistical Office of the Republic of Serbia The Internet is mostly accessed by DSL (ADSL) connections (50,6%), followed by other Cable/LAN connections (29,6%) and WAP/GPRS (24,1%). In 2011, Internet access through modem/dial-up connections has decreased by 7.8%, as a direct result of recent investments in broadband infrastructure. In Serbia, 1.9 million people use the Internet on a daily basis. Most of them use the Internet at home (86.4%). The survey estimates that more than 680.000 people use e-Government services in Serbia, which represents an increase of 330.000 compared to the data from 2010. Use of ICT within companies is more widely spread than in households, with 98.1% of companies using computers in running of business. All large and medium-sized companies (100%) own computers, while the percentage is a bit smaller within micro- and small-sized enterprises (98.0%). Among companies that use computers, 79.7% have Wire-based LAN, 57.3% Intranet, 46.9% Wireless LAN and 13.7% Extranet (RZS 2010). The majority of companies (97.2%) in Serbia have access to the Internet, using mostly DSL (xDSL, ADSL) as the connection (75.2%). The majority of companies that have Internet connection use e-Government 27 27

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