Who’s shopping on the local market?

Newsroom 18/09/2007 | 16:06

Specialists predictions for 2007 are optimistic with expectations that international firms will invest in research and development as well as in other creative IT activities. EU accession will determine the cost increase for software development and will dent the profits of traditional companies which develop low value added software. Another EU effect will be the accelerated increase of the market for at least two years due to important projects that should reduce the technological gap between the local administration and companies and those in the European Union. The country's image is expected to improve too, which will attract more acquisitions and greenfield investments in the IT sector.
The telecommunications market is expected to consolidate in 2007 with new names entering. Rumors of the possible sale of the winners of the last two 3G licenses, RCS&RDS and Zapp of Telemobil, have always circulated. Analysts say that up to now CaTV operator RCS&RDS has increased its value through its aggressive campaign to attract more clients and through the acquisition of the 3G license, which was a total surprise for the entire local telecommunications market. The CDMA mobile telephony operator Zapp also became an acquisition target when getting its license. Daniel Weissman, country manager for TASC Strategic Consulting, said at that time that he had clients who made acquisitions and strategic partnerships offers for both the operators.
In the opinion of Bogdan Constantinescu, country manager of Cisco Romania, new telecommunication operators will begin activity on the local market and the acquisition processes will be very dynamic.
“Each company is an acquisition target; it could be Romtelecom, RCS&RDS, Zapp, neighborhood networks or cable operators. The local telecom market will further consolidate this year,” said Constantinescu. This trend will be generated by the ambition and need of the operators to offer triple-play services as well as access to mobility. This trend will generate mergers and strategic partnerships between the existing local firms. After triple-play the next step for the development of a company is offering quad-play services, where besides fixed-line telephony, internet access and cable or satellite television, the operator adds mobile telephony, too.
It is well trumpeted that the small companies with three or four employees will disappear, but their specialists will integrate into the teams of large corporations on the market. The bigger local companies will have to reorganize, change and invest in new marketing and sales policies to maintain their competitiveness. The post-accession funds are meant to support infrastructure and informational projects like e-government. These funds should be invested in telecommunication systems and traffic control for roads, which would act as a catalyst for the services and consultancy markets, said Dan Mihai, lawyer for Ensight Management Consulting.
Usually, companies which decide to enter a market as mature as the Romanian one prefer to take over an existing structure. The fact that companies can operate on the local market without establishing a unit in Romania should be taken into consideration, too.
Pierre Audoin Consultants (PAC) partner and managing director Eugen Schwab-Chesaru expects at least two or three important acquisitions in the IT sector this year and next. “I can assure you that there are several important names from Western Europe and from the region, too, that are studying the market or even negotiating their entrance,” he said.
These companies are interested both in start-ups and acquisitions, depending upon the immediate needs and the compatibility of the companies from the local market. The most attractive local firms for international onlookers are business solutions integrators with vertical competencies, added value software developers with specific technologies and the owners of innovative technologies that could be suitable for more complex applications.
George Haber, a Romanian operating several successful businesses in the US, expects the local IT&C market to reach wages and cost structures similar to greater Europe in two or three years, which will disappoint the companies that entered Romania for the “low cost” businesses.
In his opinion new investments or companies will hit the local market in the next two or three years. Based on the “time is money” saying, the companies that already have local contacts will prefer shopping on the market to establishing start-ups.
Radu Georgescu, GECAD Group's president, believes that the “Made in the EU” brand that the local products acquire through EU accession will sell better and increase their credibility. “Europeans have a certain patriotic feeling towards the European Union and would rather buy EU-made products than those made outside the union. We should not expect sudden changes though; we won't sell 10 times more tomorrow than last year just for being part of the EU now,” he said.
Accession should generate an increase in software licenses, communication and IT security solutions sales on the local market in order to adopt the European standards and cope with the increased competition.
In Georgescu's opinion, besides important international companies interested in the local market, the investment funds are expected to invest more in the IT&C domain. Unfortunately, many of them are interested in portfolio rather than strategic investments.
Constantinescu believes that among the newcomers the systems integration companies will have an important role, especially those who follow their international customers to offer them support on the Romanian market too.
There are many ways to establish the value of a company. Its current profitability and the prospective profitability of its core activity are among the most important aspects to be taken into consideration.
In the opinion of the PAC specialist, the recently-launched branding campaign for Romania comes very late and has no use in 2007; the current biggest problem for the country is the number and quality of its specialists compared to an increasing and more and more sophisticated demand.
The GECAD Group's president does not believe rumors about the great internet giants coming on the local market. “It was said that Google would enter the market. The same was said about Amazon some time ago. Finally Amazon has employed some programmers in Iasi and that's about all. I don't think Google will open a subsidiary on the local market this year, and neither will Amazon,” he said.
Unfortunately, the most attractive local element is the cheap labor force, as promoted by the government for the last 10 years, so foreign firms will continue to open call centers or support centers.
The second interest point for multinationals would be to open marketing and sales offices. Investment in research, which should be the top interest, is in third place when it comes to what the local IT&C market has to offer, Georgescu added.
The companies developing multimedia applications for mobile phones, PDAs and other mobile devices should raise interest too.
In the same way the interest for the companies operating online businesses should increase at the same pace, with the growth of the local internet sales.

Roxana Mihul

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