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2011: Steady Growth of the Romanian IT Market

The first quarter of 2011 sealed the experts’ cautious forecasts that Romania is heading   towards a shy economic expansion, by 2.1% over the current year. Global rating agencies have improved their overall country ratings for Romania.  New investment activity was observed in the second half of 2010 and continues in the first half of 2011.  In such context, all domestic IT market estimates show steady growth for this year.

The trend on the Romanian IT market slightly changed: IT Services and Software Development gained terrain. The explanation resides in the growing demand for IT outsourcing from global players that chose to saveguard their business value by lowering operating costs. Even if there was history of bankrupcy on the hardware domestic market, this segment keeps dominating the market by 50% share of the total value.  Internal demand for all segments is recovering, while new institutional projects, related to technological updates and modernisation have been the only constant domestic demand. The best margins were generated in the IT Services and Software Development segments.

As presented in the table below, in 2010 the total IT maket did record a contraction, but not as dramatic as in 2009. On the national market, IT spending was reduced: first, due to the chain reaction of all businesses facing the general recession; secondly, due to the VAT increase up to 24% in June 2010, a measure that affected all domestic consume indicators.  Based on the IT Services and Software Development Exports contribution to the total volume, and on the fact that some previous IT investments did meet their breakeven point, Romanian IT sector enters 2011 on an ascending trendline, with hopes to increase by a one digit market expansion.

The geography of Romania’s IT Market in 2011 will be similar to the previous year. However, we expect that Cluj-Napoca and Braşov meet greater financial values and higher efficiency rates.

The Merger&Acquisition activity seems also to reshape the market structure. Difficult to be predicted, due to the confidentiality of these operations, we still have to note that in 2009-2010 the M&A operations occurred mostly within IT retailers and distributors. One of the most active buyers was Asesoft Distribution. In the recent history of Romanian IT M&A, please note among the first investors: Adobe Systems and Siemens Business Services. Currently Romania is being targeted by investors from the EU and Asia. Due to the IT landscape and the human resources Romania disposes of, investment in the sector is likely to be attractive.

Finally, specific forecast shows a stable exchange rate for the US dollar and the European Currency, an optimistic GDP growth, a lesser mismatch between imports and exports. Hot money is unlikely to return in the country, therefore we can expect a more solid base for real growth and a better wages control – two key factors which affect the decision of global players to outsource to Romania.

Uncertainity may be still a major characteristic of the CEE Region, and definitely the IT Market in Romania cannot escape the general landscape. On the other side, this region may also be the nest of many opportunities: prepared work force, good price, skills pool, government support, open culture.  We will try to explore these opportunities for you, in our next Market Reports edition.

Fig. 1: Country Essential Data and Forecasts / source: Business Monitor International, April 2011