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21 April 2024

IT vendors to target emerging markets

By Karen Hart


A new research has revealed that larger manufacturing firms are deriving more than 60 per cent of their profit from outside their home region.

The worldwide survey says this revenue balance will help the industry offset any detrimental effects of an economic slowdown or potential recession in the US market.

“In last year’s predictions report, we discussed how the industry was entering the year with high expectations mitigated by high uncertainty,” said Bob Parker, Vice-President of Research at Manufacturing Insights, an IDC company, which focuses on independent research.

“As we enter 2008, it seems uncertainty has overtaken expectations as the industry girds against the prospects of a recession.”

Several factors are creating uncertainty, the annual Worldwide Manufacturing 2008 Top 10 Predictions report reveals. These include the sub-prime lending crisis, oil prices at the $100 per barrel level, and continued geopolitical instability and conflict.

However, there are several reasons to believe the pall of uncertainty will not entirely eclipse expectations for business success in manufacturing, said the report that examined macro industry trends, specific key process domains, and emerging business technology initiatives for manufacturers in 2008.

A recession in the United States no longer spells worldwide trouble, and many of the largest manufacturing firms in the US now earn more than half of their revenue and profit from outside the home market. In addition, a weak dollar means that goods manufactured in the US are price-competitive in foreign markets.

“The hope is that continued global growth will lift the performance of large manufacturing firms in the US, Western Europe and Japan,” Parker said. “This growth will allow these companies, and the smaller ones that depend on them, to expand the employment base and restore consumer confidence and spending.”


One of the main projections of the report is that large manufacturing firms will move towards a globally integrated business model and IT organisations will accelerate spending on collaborative decision environments and incubate multi-enterprise business networks.

Wall Street’s markets in Asia and Latin America, for instance, are growing more lucrative, and investment banks and asset managers are setting up shop overseas. But the firms’ information technology to support international business is still critical.

The Economist Intelligence Unit (EIU) predicts worldwide investments will double to more than $300 trillion (Dh1101trn) by 2015 and quintuple to $700trn by 2025. About 60 per cent of this growth is expected to come from emerging markets. Investment banks are setting up shop in previously inaccessible places, for example, the five top US Wall Street firms – Bear Stearns, UBS, Merrill Lynch, Goldman Sachs and Morgan Stanley – have created joint ventures in China.

Yet, a study released recently by the EIU and IBM confirmed that Wall Street firms’ technology and infrastructure are unprepared for globalisation. Nine out of 10 capital market executives surveyed said their firms are not ready for globalisation and do not know how to get there.

Currently, few investment management houses have conquered this situation from an operations and IT perspective, said Tom Secaur, Managing Director at consulting firm Citisoft. Many are striving to achieve a “pass the book” ideal, in which assets in a single portfolio can be traded anywhere in the world at any time of day with traders working off one system.

Getting in the way are the challenges of consolidating trading systems and a lack of good reference data tools at global asset management firms, Secaur added.

“Firms that have grown through acquisition are hurting in a lot of ways because when you cobble together a half-dozen $50-billion asset managers, they’ve got data marts, they’ve got a lot of different types of tools, but at the end of the day, they’re relying too heavily on their portfolio accounting systems,” Secaur said. “Pushing a global reference data solution where everything goes through a single source is a long, difficult project.”

In 2008, he said, firms will construct a single source of global reference data. And while many firms have used their portfolio accounting systems to handle reference data management and performance measurement, Secaur sees firms investing in a component-based architecture in which performance, accounting and reference data systems each do what they do best.

Secaur believes 2008 could be the year enterprise data management really happens in a significant way all over the Street. China, Dubai, Saudi Arabia and Kuwait are at the top of many Wall Street firms’ lists for 2008.


IDC, Manufacturing Insights’s parent company, has a similar outlook. IDC held a virtual brainstorming session among its nearly 1,000 analysts and forecast that, among others, IT vendors will double their investments in the emerging markets.

IDC sees a group of hyper-growth economies enjoying a growth rate of 16 per cent in 2008, collectively. Big IT vendors, fearing slower growth, will still be investing more aggressively in these financial racehorses in hopes of keeping their bottom lines healthy as a slowdown looms.

IDC points to a group of emerging economies it calls “BRIC+9.” This is the classic BRIC group [Brazil, Russia, India and China] along with Mexico, Poland, Turkey, Argentina, Columbia, Saudi Arabia, Thailand, the UAE, and Vietnam.

Additionally, vendors will announce initiatives in the SMB sector in both the developing and developed market, resulting in 8-10 per cent greater spending worldwide.

“Virtually all the large IT vendors have made big SMB plays this year, and 2008 is when they need to execute,” says IDC Senior Vice-President Frank Gens.


There is, however, an uncertain picture waiting to be unveiled. In contrast to 2007’s healthy 6.9 per cent growth in global IT spending, 2008 will see 5.5 to 6 per cent growth – or lower.

“Driving the significant drop in worldwide growth is certainly, in part, downside risk that’s building from the worsening US economic forecast,” said Gens.

The US IT spending could fall from six to three-four per cent, IDC predicted. Hardware will fall first, with software taking a hit over the next two quarters, and services seeing a more gradual downward impact.

IDC attributes the slowdown to disruptive forces that had for years been baying at the fringes of IT – everything-as-a-service, Web 2.0 applications and open development communities – and which burst into the mainstream during 2007.

Through a market adjustment in 2008 big tech companies will get serious about how to incorporate these changes into their business models, the report said.

“These technologies have been creeping into everything from enterprise software and hardware to consumer gadgets and telecom services, forcing vendors to rethink their offerings,” said Gens.

The many disruptions in the IT marketplace will make it imperative that vendors reinvent or refresh their product offerings and identities, IDC said.

For example, Apple recently changed its company name from Apple Computer to Apple, Inc. Salesforce.com has moved from being an on-demand software company to being a provider of on-demand business services, Gens observed.

“All of the business application players, including Oracle, Microsoft, SAP and IBM, will add business services, we predict, to their software-as-a-service platforms.”

Similarly, the boundary between business and consumer information technology will continue to blur, especially in terms of targeting the SMB sector.


“In 2008, we predict such consumer-focused players such as Google, eBay, Yahoo, Apple, and cable MSOs [multiple system operators] will accelerate their offerings into the SMB space,” Gens said.

“At the same time, business information technology players will adopt more consumer-inspired business models to be competitive in the SMB space.”

“In 2008, the era of experimentation will end as industry leaders get serious about transforming their products and services to take advantage of and meet the challenges posed by these new technologies and business models,” he said. “The status quo is about to change.”