SMBs in the Philippines to Spend US$1.3B on IT in 2007

Computing and Internet spending to account more than 70% of IT spending
by: Jerry Liao

Small and medium businesses (SMBs, or companies with up to 999 employees) in the Philippines are on track to spend US$1.3 billion on boosting their IT infrastructure this year, up some 19% over 2006. Much of this spending will be driven by computing— which includes PCs, printers, peripherals and servers—as well as Internet-related investments. These together will account for more than 70% of all IT spending. This comes from the latest study by New York-based Access Markets International (AMI) Partners, Inc.

“Most SMBs in the Philippines are boosting investments on computer hardware and Internet-related technologies as they build the basic blocks of IT infrastructure,” says Ruth Garin, AMI’s Singapore-based Research Analyst. “SBs (small businesses, or companies with up to 99 staff) will use up more than 80% of their IT budgets on computing and Internet connectivity, while MBs (medium businesses, or companies with up to 999 employees) will spend more than 50% of IT budgets on these two areas.”

The two key reasons for the increase in IT spending is awareness and realization that IT will help boost business, and that IT will improve delivery of products and services. “In addition, strong competition among IT market players offers wider technology opportunities for SMBs,” Ms. Garin says. “At the moment, the Philippines is one of the top five countries in the Asia-Pacific region outside of Japan, with the fastest IT growth rates.”

In the Philippines, end-user price is one of the major hurdles to IT adoption. Thus, bringing IT prices down to the level where budget-conscious SMBs can afford to buy, will ensure a healthy market uptake. “Besides computing and Internet spending, SMBs are also spending on boosting data security,” Ms. Garin says. “The market for data security solutions among SMBs is set to grow by almost 30% this year. Securing the data and network is similar to prolonging the life of an IT investment. More SMBs are becoming more aware of cyber-threats and want to take measures to protect their data.”

The majority of IT spending is coming from SMBs around the capital, also known as the National Capital Region (NCR) – composed of 17 major cities and municipalities. The NCR makes up more than 50% of the total IT spend this year. Being the center of major business activities in the country, NCR brings in the majority of IT investment. SMBs in this region are more likely to adapt faster to market needs.

Outside NCR, faster market developments are also happening in key cities in the CALABARZON and Central Visayas regions. Major cities in these two regions will account for up to 10% of the total IT spend with an annual growth rate of 13%. The development of the manufacturing industry and its expansion into these regions are boosting IT investment. Aside from this, growth in the retail industry is also encouraging.

“In a market as geographically dispersed as the Philippines, finding key markets and having a targeted approach will be key in identifying market opportunities. This will definitely provide a greater competitive advantage among market players and an effective way of channeling their resources,” Ms. Garin says.

In an earlier study, AMI also reported that small and medium businesses (with 1-999 employees) in the retail vertical across the Asia-Pacific region outside of Japan are on track to spend a whopping US$11.6 billion on IT-related investments this year. Computing – which includes PC and server hardware – and IT Services will be the top drivers of retail SMB spending in 2007.

Key countries in the region which will drive retail SMB IT spending for 2007 include Australia, China, India, South Korea and Taiwan. “While retail SMB IT spending in emerging markets such as India, Indonesia, Philippines and Vietnam are set to grow more than 15% year-on-year in 2007, spending in mature markets such as Australia and Singapore will grow less than 10% in 2007 over 2006,” says Nishant Dave, AMI’s Singapore based Research Director for the Asia-Pacific.

The IT revolution in the retail SMB segment is taking place at two levels in the region – on the one hand, retail small businesses (with 1-99 employees) are aggressively investing in basic computing infrastructure. On the other, retail medium businesses (with 100-999 employees) are looking closely at the services delivery platforms in addition to IT infrastructure to enhance their competitive edge. “Both types of companies will face the disruptive threat to their business models from larger retailers which will compel them to re-invent themselves using IT as a competitive differentiator,” Mr. Dave says.

Nearly 150,000 new retail SMBs in the Asia-Pacific region are planning to invest in basic PC infrastructure in 2007 as a means to better manage their business decisions by using simple productivity tools. Moreover, many of the current and new retail SMBs are also looking at connecting to the Internet through broadband and engaging with their ecosystem – especially future customers and expanding their reach to their suppliers.

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