04 Sep 2015

Prague, September 4, 2015 – IT services spending in the CEE region is bound to emerge from the prolonged stagnation and return to growth in 2015, according to International Data Corporation (IDC). The CEE IT services market (excluding Russia) will expand at a compound annual growth rate of 4.8% to exceed $11 billion in total IT services spending in 2019. Business confidence is returning, with the implication that a great many of the users are expecting to increase IT services spending compared with the previous year.

The current era of IT driven by digital transformation is also affecting companies in the CEE region. All areas of the organization are affected; processes, products, and services are becoming more digitalized and more IT driven, incorporating 3rd-Platform technologies and delivery models such as cloud, mobility, big data/analytics, social enterprise, and security. Although many end-user organizations see the value in new IT investments, they struggle with ways to merge technology solutions and business outcomes.

“This scenario represents a sweet spot of opportunity for IT services providers to help these CIOs connect their IT with business goals,” says Vladimir Kroa, head of IDC's IT Business Services and Solutions program in Central and Eastern Europe, the Middle East, and Africa (CEMA). “This will allow service providers to become more competitive and win repeatable business.”

Innovative projects replacing “keep the lights on” strategies

Support and training services represent about one quarter of total spending on IT services in CEE and remain a reliable source of revenue for technology vendors and channels, despite downward pressure diminishing the margins on these services. After years of stagnation, a new momentum is slowly building, as users are moving from a defensive, keep-the-lights-on stance to more innovative projects requiring new solutions. Project services currently represent more than a half of total ITS expenditures and will fuel future growth. Traditional outsourcing services account for 40% of total spending, with growth mainly driven by uptake of infrastructure hosting services; however, this market is being challenged by cloud delivery models.

The new era of IT services is becoming highly competitive compared to the pre-crisis period, as customers have become much more prudent about investments after realizing how much of past spending was not strictly necessary. On the supply side, new services vendors are emerging with unprecedented frequency, particularly in the area of cloud and 3^rd -Platform applications; at the same time, top-down consolidation is a clear market force, with global players acquiring local systems integrators (SIs). Furthermore, private equity investors have entered the IT services arena, typically with datacenter services as a market entry point.

At the end of the day, however, the services business remains a “personal” business, with deals often signed locally. In the CEE region, there are only few truly regional players; however, on a country level, local SIs remain competitive and vie with global powerhouses such as HP, IBM, Atos or Accenture.