Market overview
The present added value of the IT&C sector to GDP reached EUR 9 billion in 2014. It has doubled up compared to 2011, and overpassed agriculture sector’s contribution to GDP, coming close to the one of the construction sector. In 2014, IT&C had the most rapid growth of all economic sectors, compared to 2013 and had the second largest contribution to the overall Romania’s economic growth of 2.9%.
Romania continues to be extremely well positioned for medium-term outperformance with the domestic IT hardware market, including desktops, notebooks, tablets, servers and accessories, set to grow at a compound annual growth rate (CAGR) of 5.4% 2015-2019 to reach a total of EUR 844 million.
Spurred by price erosion of notebooks and monitors over recent years, computer hardware sales are expected to outperform Romanian economic growth with negative impact on the margins of vendors.
Despite its strong growth, the software segment will continue to be the smallest segment of the IT&C market in Romania. It is expected that the software market will expand by 10% to a value of EUR 293 million in 2015, up from EUR 266 million in 2014.
The combination of intense price competition in the PC market and medium-term Romanian income growth is deepening the market to new segments of the population. The result is consisting in spending growth above the rate observed in Western European markets as vendors tap into the relatively low PC penetration rate. Many international companies (particularly hardware vendors) are positioning themselves to capitalize on this surge, setting up local offices and units in Romania, as devices penetration shows room for growth. Rural communities in particular will reap the benefits of EU funding, with broadband internet to cover a wider portion of the country.
Telecom operator promotions help catalyze demand as they seek returns on investments in fixed and wireless data networks. Competition between fixedline providers using DSL and cable technologies means Romania has one of the highest average connection speeds in Central and Eastern Europe (CEE), while LTE networks are being constructed by mobile operators.
The enterprise market began to recover some growth momentum in 2014 after a slowdown and lack of confidence due to domestic economic conditions and the wider Eurozone crisis. Indicators were already positive in early 2014. A survey carried out in February revealed that 45% of IT managers in Romania expected budget expansion from 2014-2017, with a further 17% expecting strong growth.
Talent pool
In Romania, there are over 95,000 IT&C specialists at national level. Technical education includes 5 of the top polytechnic universities, 59 domain-specific universities, and 174 private colleges. Romanian universities have been top 3 in the IEEE Design Competition every year since 2001. The number of engineers per capita is greater in Romania than the US, India, China, or Russia. 27% of IT bachelor and master students start obtaining technical certifications while in college. The country is in the top 10 globally in the number of certified IT specialists, while almost 90% of IT professionals speak English. This recommends Romania as a hot spot for IT&C sector rapid development over the next decades.
Bucharest occupies the first position in the Romanian IT&C industry, giving 67% of the country’s turnover, 56% of the number of employees and over 60% of the GDP contribution of all three subsectors – software and services, hardware and telecom. 27 of the 30 biggest companies in software and services are based in Bucharest; the city is home to local companies, integrators and solution providers, as well as support and R&D centers of IT multinational companies.
After Bucharest, Cluj-Napoca is the second city by the number of software and services companies based here. Corporations opened new R&D centers or expanded existing ones. Cluj-Napoca ranks amongst the first 31 world destinations for investments in the field of IT.
Among the key aspects that make the city a location of choice are: professional labor pool, attractive costs and geographic proximity. Hosting around 250 IT&C companies, with roughly 5,000 active software engineers, Cluj-Napoca’s software market has expanded by 48.8% in the last two years. Other important IT hubs are Timisoara, Iasi, Craiova and Brasov.
Romania is positioned to benefit from regionalization of the cloud computing market, due to its strong networking infrastructure, low cost and especially to the local labor skills base. A large percentage of IT specialists are software developers (47%), followed by technical support skills (21%) and quality assurance/ testers (16%). An additional advantage of the country is represented by the diversified and highly required programming languages Romanian experts own. PHP, .NET C#, Java and C/ C++ rank the highest in the top of programming languages and of expertise. Although Romania aims to be a regional IT hub, the pool of talents seems to not commensurate this goal. The over 7,000 IT&C graduates are insufficient to cover the needs of the market. This shortage may deepen over the longer term as qualified workers migrate to other parts of the EU in search of higher pay and better employment opportunities.
Industry segments & competitive landscape
A. HARDWARE
PC sales and outlook: Despite decline in the average selling price over recent years, the PC market in Romania continues to expand both in terms of volumes and value. It is estimated that 880,000 PCs were sold in 2012 (latest data available), including desktops, notebooks, netbooks and tablets. Latest estimations show the PC market is in course for sales of 700,000 units in 2014. PC sales reached 160,000.
Tablets: In 2014, tablets outperformed the sub-segment of the PC market, as particularly intense competition at the low-end of the market catalyzed strong volume growth. According to the latest data available, in 2012 it was estimated that local brands accounted for 40% of the tablet market by shipments. Local manufacturers such as Evolio, Allview, E-Boda and Serioux aimed squarely at the low-end of the market. The Romanian market is a price sensitive one and improving the specifications of low-cost tablets is expected to drive tablet penetration higher in 2014.
The EY survey on the utilization of mobile devices in Romania indicates that there is great proclivity of Romanian consumers for utilization of smartphones and tablets. These set the tone to switching to the mobile environment for businesses in terms of both publicity and advertising, but not only. The expansion of mobile tools for B2C and B2B, combined with the everrising appetence for cloud solutions, enables the local IT companies to product development for this environment.
B. SOFTWARE
Enterprise software: The majority of current demand, in functional terms, is for enterprise risk management (ERM) followed by supply chain management (SCM). In the ERP market, larger companies account for 80% of sales. Even so, the ERP segment has performed strongly, with annual growth estimated at around 20%, outperforming the general software market. There is also a shift from software to cloud services. Given the current focus on many businesses on controlling costs, the payon-demand Software-as-a-Service (SaaS) model should grow in popularity and spread beyond the initial core application area of customer relationship management (CRM).
Software-as-a-Service: In 2014, just 5% of Romanian non-financial enterprises with 10 or more employees had adopted at least one cloud service (this figure also includes infrastructure and platform services). In terms of SaaS adoption in Romania, office software was the leading application at 25%, potentially reflecting success for products such as Microsoft’s 365 Office suite. This was ahead of financial/ accounting SaaS applications, which were adopted by 33% of enterprises taking at least one cloud service.
C. IT SERVICES
The Romanian IT services sector is expected to grow by 7.5% to EUR 308 million in 2015, before increasing to almost EUR 473 million in 2019 at a CAGR of 11%. Due to continued growth in outsourcing and wider adoption of cloud computing services, IT services is expected to outperform other segments of the IT market over the medium term.
The updated version of the Digital Agenda includes a projection for a total of EUR 2.4 billion of IT&C investments, which is expected to translate into 13% GDP growth, employment growth of 11% and a decline in administrative costs of 12% during 2014-2020. Of the total IT&C investment, EUR 850 million is expected to be secured from the European Operational Program funding. Some EUR 495 million is allocated to broadband rollout, EUR 100 million to e-government and inter-operability, EUR 85 million for IT&C in education, EUR 50 million for IT&C in healthcare, EUR 30 million for cloud computing and social media, and EUR 15 million for IT&C in culture.
Opportunities and growth drivers
As part of the EU accession, Romania gained entry to EU IT&C programs and an inflow of funds, designed to assimilate the country into the EU’s broader Information Society. EUR 850 million is expected to be secured from the European Operational Program funding during 2014-2020. This will ensure continued support of structural funds for IT&C development over the medium term. Romania’s GDP growth will average 3.4% annually during 2015-2019, while real private final consumption is forecast to average 2.7% annually over the same period. The bullish growth outlook will boost the IT market via higher levels of consumer and business confidence.
Policy reform will be another important driver of IT market development, reinforcing the positive medium term outlook for the market. Deeper integration into the European policy umbrella is expected to facilitate growth not only in outsourcing, where Romania is a regional leader, but also in more advanced IT services such as cloud computing. Software will experience less stellar growth, with the ERP market only at an early phase of development, where larger companies and organizations are still the major driver. However, enterprise resource planning has reported 20% growth and looks set to remain a major opportunity as businesses invest in cost saving efficiency measures to modernize and compete at the European level.
