Companies and Markets project that Mexican IT spending will grow again in 2010 to around US$12.6bn, despite current economic uncertainties, and a decline in private sector credit growth. In a challenging economic climate in H109, consumer sentiment reached an all-time low, and business IT spending fell further, with hardware updates particularly vulnerable to cuts.
While Mexico’s economy faces a rocky ride in the near term, some fundamental drivers including low PC penetration and growing PC affordability, and US corporate demand for IT outsourcing, should ensure continued opportunities. IT spending as a percentage of GDP at around 1.4% remains well below OECD levels, and we project that per capita IT spending will rise from US$116 to US$167 by 2014. In 2010 businesses and consumers are expected to maintain a cautious attitude to IT investments due to economic uncertainty, but there could be a boost, particularly in the second half of the year, from computer purchases delayed from 2009. Despite the difficult trading environment, there should still be opportunities in key IT verticals such as financial services, telecoms and government, with other growth sectors set to include healthcare, utilies and small and medium-sized enterprises (SMEs).
Industry Developments
Total government IT spending was budgeted to increase in 2009 by around one-third in local currency terms, although in Q309 the government launched an austerity drive. Vendors expect government to provide more opportunities in 2010 at both federal and state levels.
Areas of spending at the federal level include integrated enterprise resource planning (ERP) and back office systems and e-services platforms and interfaces. However, it is unclear to what extent continuing tight credit conditions and fiscal pressure will ultimately impact on government IT spending should the economic recovery falter.
Fiscal pressures were behind a federal government proposal last year to end financial assistance for companies that end in technology. The proposal, heavily criticised by Mexican IT association Canieti, threatened to eliminate the provision of federal funds to cover 30% of companies’ investments in innovation and technology development.
Competitive Landscape
In 2009,Chinese PC giant Lenovo launched a new plant at Apodaca (Nuevo Leon) with 1,500 employees. The company plans to spend US$40mn to manufacture laptops in Mexico. The plant is reportedly the biggest investment made by Lenovo outside China and indicates the strategic significance of the Mexican market for PC vendors. Lenovo has also expanded its Mexican retail sector presence by recruiting new channel partners through its principal wholesalers in Mexico: Ingram Micro, CompuSolociones, Avnet and Exel. Software market leader Microsoft hopes that the launch of its Windows 7 operating system will boost its local sales this year. Following the launch, in October 2009, Windows 7 was available at retail outlets nationwide, preloaded on a selection of PCs from major vendors. Early signs were promising, with more than 1.2mn downloads of the beta version of Windows 7 in the Latin American region, over five times higher than the downloaded beta version of predecessor Windows Vista. In early 2009, many software vendors in the Mexican market responded to the global economic crisis by adjusting their strategies and client focus. SAP announced plans to target its existing installed base of large customers in Mexico with the May launch of its Business Suite 7. Meanwhile, local software vendor Softtek identified the economic crisis as an opportunity to enhance its position as nearshore services provider for US firms.
Computer Sales
Mexico’s computer hardware sales are projected at US$5.7bn in 2010 and are projected to reach around US$8.3bn in 2014. Sales dipped in 2009, as the effects of the crisis hit consumer and business confidence. In H109 there were reports of some companies deferring replacement purchases as tighter margins and flagging export margins increased a focus on the bottom line. Growing broadband penetration, including 3G mobile, will drive the PC market. Netbooks will remain a growth driver here, with their main attraction for price-sensitive consumers and small businesses being their low cost relative to fully featured notebooks, although this advantage is being reduced. The SME segment is expected to be a significant opportunity for netbook vendors. Most netbooks currently retail in Mexico in the US300-US$500 price range, however, adding to pressure on average PC prices.
Software
The Mexican software market is projected to reach US$2.4bn in 2010, from US$2.2bn in 2009, with imported software accounting for at least 80% of the total. Last year the recession led some companies to cut IT budgets or look to defer systems updates, with most spending coming from existing clients, and an emphasis on maintaining existing applications. Overall, however, business software was one of the IT market segments less affected by the slowdown.
Software compound annual growth rate (CAGR) for 2010-2014 is put at around 11%, outpacing general IT market growth, as the government turns its attention to overcoming Mexico’s long-standing underinvestment in this area. In 2009 the most popular applications remained basic ERP, and supply chain management (SCM) solutions, while business intelligence and security software should provide growth opportunities, including more spending on networked security solutions.
IT Services
The IT services market is projected at around US$4.5bn in 2010. In 2009 there were reports of IT managers in various sectors reviewing IT spending plans. Despite near-term economic exigencies, the market should ultimately grow at a CAGR of 11% through 2014. In 2010, however, much will depend on the speed and sustainability of global economic recovery. The increasing number of multinational companies operating in the market is an important driver for spending. Opportunities also reside within the SME sector, where companies are trying to use computing resources more effectively. Meanwhile, Mexico is becoming an increasingly important hub for provision of business process outsourcing (BPO) and other outsourcing services.
E-Readiness
The World Economic Forum’s latest annual survey found Mexico continuing to make steady progress on network indicators. The survey had Mexico climbing six positions in the rankings from 55th. The report attributed the improvement to the adoption of more efficient electronic strategies for digital networks and infrastructure connection nationally and regionally. The potential for new broadband technologies to take hold in Mexico is high, with the energy utility owning fibre-optic infrastructure and WiMAX licences expected to be auctioned in 2009. With Cofetel taking a more combative stance to Telmex, we believe that there is a good chance that new operators will enter the market and be responsible for strong growth.
E-Government
The 2008 UN e-government survey found that Mexico had the most advanced e-services development in Latin America, due to a strong national government portal’, which encouraged online consultations between government and citizens.
Recent state and municipal statistics have highlighted gradual progress in the implementation of egovernment in Mexico at a federal and state level. In 2001 the government launched an e-government initiative that prioritised providing health, education and other government services online, as well as the development of e-commerce. Since then, however, funding has rarely been sufficient for much progress to be made given the substantial task involved, and state and municipal governments are increasingly seeking to launch their own initiatives. Many states are seeking funding from the private sector to make good gaps in public funding.
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