There are over 17,000 companies active in the Romanian the software industry today, nearly 3,000 more than in 2012. Last year, their turnover went up to EUR 4.9 billion, and this year it will exceed EUR 5.4 billion, according to an analysis conducted by KeysFin.
Compared to 2007, software business grew by 150 percent, and compared to 2016 by 5.4 percent, a sign that the market has matured.
“We are witnessing a business concentration, a maturing and streamlined industry, showing that the number of firms fell by 6 percent in 2017 as compared to 2016. The number of PFAs in this sector decreased by one third compared to the previous year to 11,000 in June 2018, and more than 4,000 companies have zero turnover,” analysts say.
The largest turnovers were obtained by foreign companies present in Romania, such as Oracle Romania (EUR 221 million/4.5 percent of the total), IBM Romania (EUR 195 million/3.9 percent) and Ericsson Romania (EUR 159 million/3.2 percent). Endava Romania (EUR 82.5 million / 1.7 percent of the total) and Atos IT (EUR 73.3 million / 0.9 percent of the total) completed the top 5. At the time the financial data was collected, in October 2018, there was no official information available about Bitdefender LLC (4th place in 2016). Based on KeysFin’s estimates, the player retained its position in 2017.
According to the analysis, the top 10 companies generated 21 percent of the total national turnover.
“Competition is the factor that has pushed Romanian software innovation to a competitive international standard. Romanian companies, whether micro, small or medium, have begun to adapt to the effects of globalization and the aggressive strategies of foreign players. They have focused their businesses on niche segments, on innovation and on the development of state-of-the-art software and less support activities, where large companies hold much of the market. In addition, it is worth noting the large number of startups, a sign that IT young people continue to trust that they can make it on their own in this area,” says Starbyte, one of the world’s most well-known IT companies with 100 percent Romanian capital, specialized in software solutions for the financial-banking system.
Geographically, the largest results were obtained by companies in Bucharest-Ilfov (EUR 3 billion), Cluj (EUR 723 million), Iasi (EUR 223 million), Timis (EUR 190 million) and Brasov (EUR 152 million). Together, they generated over 86 percent of the total turnover in 2017.
Micro-enterprises are the most profitable
According to the KeysFin analysis, the maturity of the market was also felt in the decline in profitability, which rose in 2017 compared to 2016 by 4.7 percent to EUR 630 million. This is after it had grown at record rates over the past ten years, by an overall 162.5 percent.
The most profitable player in the software market in 2017 was SAP Romania (8th in the ranking by turnover), with a result of EUR 20 million in 2017. The profitability ranking continues with IBM Romania, Atos, Logic IT and Misys. Together, the most profitable 5 companies generated 11 percent of the industry’s total profit.
“Interestingly, the largest net profit growth in terms of net margins has been recorded by micro-enterprises, with nearly 26 percent, with one of the highest levels of return on capital in the economy: almost 58 percent,” says the experts.
KeysFin statistics show that more than 106,000 employees were active in the software industry in 2017, up 5 percent from 2016 and 143 percent from 2007.
The largest employers were Oracle Romania (4,142 employees), IBM Romania (3,096), Comdata Service (2,812), Ericsson (2,179) and Atos IT (1,871 employees). By category, average-sized companies recorded the largest number of employees, over 44 thousand and 41.7 percent respectively. Interestingly, at the end of last year there were about 8,000 companies with no employees, that is, 46 percent of the total.
“The crisis in the labor market has also said made an impact in this area. The pressure on wages has made employment in this sector a challenge for the business world. Thus, the average cost per employee has advanced much faster than labor productivity, by 9.4 percent compared to 2016, reaching 21.300 euros per employee in 2017,” analysts said.
Even in the context of wage growth in the software sector, Romania continued to represent one of the best markets in the EU. The return on investment in this sector was higher than in the developed Europe or the US (with an average annual cost still low, of about EUR 12 per hour).
Advantages of the Romanian software sector
The quality of the human factor represents, for investors, the main asset of Romania. In an education system with major problems, sector-focused education is among the few types that are at a competitive level.
“Romania is constantly ranked 10th in the international competitions of mathematics or computer science. The 5 polytechnics in the country provide annually over 7,000 graduates with specific abilities that form regional sub-clusters: Bucharest (2,000 graduates with a rare mix of skills), Cluj (1,700 – Java, C #, .NET, PHP, Web), Iasi (500 – cloud and visualization), and Craiova (230 – automotive software and gaming), in the field of software development). Beyond the specialization – Romania has a number of engineers per capita superior to those in the US, India, China or Russia – it is worth noting that the workforce in this sector also benefits from a high level of knowledge of English, an asset fundamental in this area,” analysts say.
Another important advantage of the Romanian software industry is the specialized infrastructure developed in recent years: start-ups, venture capital funds, over 40 co-working spaces and national accelerators.
“The Romanian software companies are also distinguished by the level of innovation and, above all, by the high quality of services, recognized at international level,” the experts say.
Software: the future industry
Worldwide, American firms are the ones who set the tone in the software industry. Microsoft has become the most valuable company in the world, dethroning Apple. Oracle, Symantec, Vware, Finserv, or Adobe are other software companies that dominate the world’s industry-wide turnover.
At the European level, according to European Commission and CAP data, the software industry is projected to grow at an average rate of 1.8 percent per year to exceed EUR 280 billion in 2020.
SAP is positioned as an indisputable leader at European level, with revenues of EUR 23.5 billion in 2017. Next, players such as Wolters Kluwer, Hexagon, Dassault Systemes, Indra, Gemalto, Sage, Asseco Poland SA, in Central and Southeast Europe.
“The prospects of the global software industry, including Romania, are very favorable, and this sector will double its business in the next 10 years. In our country, in order for this sector to become an increasingly solid component of GDP, it is necessary to develop a mechanism to support the SME sector through fiscal facilities, by simplifying access to European funding, by developing investment parks, for example, the Israeli authorities. As I said in the previous analysis dedicated to this sector, support for innovation and technology must become a strategic objective for Romania, “analysts said.