IT&C companies seek shelter from storm on external financial markets

Newsroom 06/10/2008 | 15:56

“As we could all see lately, the volatility of the national currency, the increase in the cost of the financing and the sharp drop in the price of shares floating on the Stock Exchange are just a few of the effects of the crisis,” Dana Iorga, chief operations officer at IT&S, (importer and distributor for brands such as Canon, Dell, Fujitsu-Siemens Computers, Nec, Transcend and SMC) tells Business Review. But the IT&C representative does not expect the company to be directly affected by the economic conditions on international markets.
So far, many industries in Romania, with the exception of the financial and real estate industry, have not been as hard hit by the crisis in a Romanian economy that is currently increasing apace. She predicts the international financial crisis will probably continue next year during which time Romania will be affected especially through a hike in loan prices and the difficulties of contracting loans that will of course affect consumption.
“The international IT companies have a dramatic influence on the local market through their branches. Definitely, this crisis will affect the business volume of large ITC companies, and this will be felt in Romania as well. So, the indirect effect is there, but I do not think it will be dramatic,” Dragos Manac, lead operations in System and Network Solutions tells Business Review.
Rating agencies are split between those who foresee a slower pace for the economic increase and those who foresee a sharp decline, “but any of these scenarios will undoubtedly affect the entire economy and consequently the IT industry,” says Iorga.

The effects that will be felt
“We will notice that large companies will cut down on the expenses they have for IT next year in order to deal with the financial situation. It is clear that the most important approach is caution, caution in predicting the turnover and sales, reorientation towards industries that have been less affected by the financial crisis and mainly downsizing costs,” says Iorga. Since estimates for this period did not incorporate the outbreak of the crisis, they should be reconsidered.
“I wish to point out that what happens in the last quarter of 2008 will be decisive in reaching the estimates made at the beginning of the year,” says Iorga. “From my point of view, in the coming year we will see a reorientation of IT investments towards durable products and solutions, that have more to do with necessity and less image.” Iorga quotes from a Gartner study which indicates that the financial-banking industry is an important client of the IT industry, as around 20 percent of the total expenses for technology are generated by this industry. “This is a period that should be approached with maximum caution and financial targets should be interpreted with maximum responsibility,” John Cusa, executive manager of Tornado Sistems, tells Business Review. “Our estimates are realistic, we are on schedule so far, but very many things depend on the evolution of the decisions made on the financial market internationally, which will affect the national economic climate but also the strategies of our principal partners who are more exposed in other regions of the world than in Romania,” he added. The company has initiated a restructuring process that targets the medium-term evolution of the organization so that investments started in 2007 will continue also during the coming period. Tornado Sistems estimates business of USD 221 million for the fiscal year 2008-2009, which would be a 30 percent increase compared to the same period of last year.

…and the implications we should expect
“We have to be aware that anything which relates to financing costs will increase – money will be obtained with more difficulty and at higher costs,” says Iorga. The aspects that will be affected will be relations with external partners “but only to the extent at which the performance of the Romanian partner is very low. What will act as a disturbing factor is that issues that the multinational partner will have to deal with on other markets can affect to a certain extent the performance of the partner in Romania, she says. “I think financial estimates will be the first to suffer from it and from here on, a chain reaction will take place. Some investments will diminish or cease, the R&D effort will be directed towards disruptive technologies and solutions and we can even assist in the downsize of local activities or the slowdown/cancellation of certain projects,” says Manac. He believes that companies should take steps to avoid the darker side of these effects through the creation of technologies that should significantly alter the current market, the reduction of costs through the aggregation of machines and services.
The shift will also be towards open source technologies and a significantly diminished TCO (Total Cost of Ownership). “I think this is a good opportunity for IT companies, since only those who are most flexible and efficient will surpass major crisis moments well,” says Manac. Iorga takes it as read that any domain that has to do with investments and financing development will be affected.
“I do not think we can any longer talk about large investment plans. Financial estimates will drop; almost all companies have revised to a certain extent their percentage of growth even starting from this year,” says Iorga. The financial crisis will also push companies towards mergers and acquisitions in order to be able to get through this difficult period.
It also depends on the target of each company – if it sells business-to-business or directly to the consumer. “Anyway, we must be cautious in evaluating our own strengths such as capital, assets, future sales, in choosing the industries with which we will collaborate, in contracting a loan of any nature and granting loans to our partners, but especially caution in administering costs,” says Iorga. John Cusa says “there is no special secret or winning formula.” Each ITC company in Romania has its own strategy for dealing with changes that have come up on the international financial market. It very much depends on how you use your resources, he says.

By Otilia Haraga

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