Get Ready For A Rebound In Asia
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The year has gotten off to a bad start with a period of slow sales, weakened consumer confidence, departure of suppliers and companies' bankruptcies. However, a mild recovery in IT spending growth rates will begin by the end of the third quarter of 2002, said Dion Wiggins, research director at Gartner.
According to Wiggins, "Major market forces will include globalization, external service provider model maturation and client focus on technology optimization and business value.
A rebound will first start with the financial services sector in the late second half of the year. The IT markets will quickly follow this in the third quarter.
Explosive Potential For Web
Despite dampened market demand and widespread consolidation among IDCs and ISPs, Gartner predicts that the Asia Pacific hosting market for Web applications will show steady and sustainable growth over the next five years, increasing at an annual rate of 40 percent from US$766 million in 2001 to US$2.9 billion in 2005.
This will be accompanied by robust growth of the Internet across the region as many Asian countries roll out infrastructure to support the growing demand for Web services delivery.
By end of 2002, Gartner expects that approximately 80 percent of all platform vendors will support Web services architectures, which will represent the next generation of platform middleware (0.8 probability).
Web services will be seen more and more in applications and by end of 2002, more than 40 per cent of all Internet-oriented interactions will leverage Web components from multiple enterprises (0.7 probability).
Another area that is growing significantly is the mobile communications market, especially in China where its mobile connections grew by 60 percent to 130 million making it the largest mobile market in the world.
"For many, a mobile device will be their first exposure to the Internet. Combine this with the proliferation of Web services, the potential for the Web in Asia is explosive," said Wiggins.
IT Services Bucking The Trend
"Despite a general economic slowdown and recession in some countries, the IT services sector has continued to experience growth in demand - slow growth generally, but still growth," said Rolf Jester, Gartner's chief analyst, IT Services Market, Asia Pacific.
"That is despite a fall in expenditure even on many IT products. The outsourcing business has actually fared better than other segments of IT services. While users have been cutting back on many IT projects, to the detriment of the consulting, development and integration services segments, outsourcing is not typically a discretionary item. What we term 'IT Management Services' is typically about maintaining essential IT and business operations and processes. Expenditure on that continues in all but the most severe downturn."
According to Jester, there are two reasons why enterprises tend to favor outsourcing expenditure over other costs during uncertain economic times.
First, outsourcing is an expense item rather than a balance sheet item. Capital equipment purchases may indeed be curtailed, but if essential operational assets can be used and paid for via recurring expenses, then that is an advantage in troubled times, and less risky.
Second, enterprises prefer the use of external resources over the recruitment of permanent staff during uncertain times. Again, risk minimization is the goal, and external service providers are consequently finding growth in demand across the market as a whole.
That is not to say that all vendors have fared equally. Some have indeed enjoyed the growth in the market. Others have not. The problem is not the overall market, but the particular strategies and execution of the individual services vendor.
Channels Prefer 'Moving Boxes'
Gartner said that with the steady growth of vendor direct business, many would assume the only way hardware channels would survive is to expand their services business. However, the results of a recent survey conducted across 11 countries in Asia showed the channels are still more than happy for vendors to manage the after sales service themselves.
"Clearly the channels are still interested in moving boxes while leaving low end/high volume services to the vendors," said Martin Gilliland, senior industry analyst, Gartner Asia Pacific.
The specific survey results for Singapore showed that channels placed 'After-Sales-Service' as the third most important vendor support activity, suggesting that they prefer the vendors to handle this high dollar business themselves.
The top five vendor support attributes as ranked by the channels for Singapore are product availability; profit margin; after-sales service; credit terms; and price protection.
"Despite the problems faced in the telecom industry, the Asia-Pacific fixed public network services market will continue to grow at a healthy rate," said To Chee Eng, principal analyst, Telecommunications, Gartner Asia Pacific.
Revenues in Asia Pacific will grow from US$61.2 billion in 2001 to US$87.2 billion at a CAGR of 7.4 percent. Growth will be led by data, Internet and Internet Protocol (IP) services, with a CAGR of 14.6 percent. High growth sectors are broadband access, hosting, and IP virtue private networks (VPNs).
Voice telephony will see a decline in revenue and share of the total market, but it will continue to be the main revenue stream for operators during the forecast period. However, margins are declining rapidly due to competition, increasing deployment of Voice-over-IP (VoIP), and lower international settlement rates.
A Healthy PC Market
Gartner suggested that PC vendors should now be planning to get the mind share of end users as pre-Y2K systems are gradually replaced and companies look to move forward and prepare for the Asian rebound.
PC sales in the region will maintain the momentum of 2001 and record steady growth this year of 12.42 per cent. However real growth will pick up in 2003 and 2004 when the economic environment and Y2K replacement rates start to materialize.
"The Asia Pacific market is still relatively healthy compared to other geographical regions around the world. Asia Pacific still managed to record a year-on-year growth of 11.9 percent in 2001 despite a slowdown in IT spending across the board," said Andy Woo, PC analyst at Gartner.
Potential of CRM
Gartner believes that many enterprises will still consider customer relationship management (CRM) critical to corporate strategy in 2002, but will retreat from enterprise wide initiatives due to disillusionment over the lack of credible results. Pragmatism will be at a premium.
"While there is an element of bad press about CRM as it passes through the peak of the hype cycle, it is still a business strategy that will bring many benefits as business in Asia takes off again," said Kristian Steenstrup, research director, Business Applications, Gartner Asia Pacific. "As the hype dies down, it will be easier to see the true benefits through the smoke."
Based on the insights gathered from recent Gartner studies conducted with respondents from seven countries across Asia Pacific including Singapore, it revealed that while 70 percent of corporations believe they run a well-managed contact center providing good customer service, only 46 percent of their clients report being satisfied with the service.
Gartner predicts that throughout 2002, enterprises that properly implement e-service solutions that enable their customers to get better, easier access to information through more channels will increase customer satisfaction by between five and ten percent.
Disk Storage Systems
In a 24 x 7 connected world, more information is being created digitally and Web pages and email need to be stored and secured. An additional driver for storage growth is availability and security.
The events of September 11, 2001 have caused many organizations to refocus on Disaster Recovery (DR) and Business Continuity (BC). Storage systems are seen as a major enabler for DR and BC and maintaining multiple copies of data both onsite and offsite for security and availability needs have pushed up the need for additional storage.
"Storage hardware pricing is eroding between 30 percent and 40 percent per annum, but the positive news for vendors is that the rate of storage growth in most organizations continues to exceed that of the erosion in storage prices," said Matthew Boon, principal analyst, Research and Advisory Services, Gartner Asia Pacific.
"The desire by organizations to improve the efficiency of their storage offers opportunities for vendors. They need to be able to capitalize on their software, services and know-how to improve the efficiency and management of storage for their customers," he added.
Gartner said that storage capacity in Asia Pacific will grow at a CAGR in excess of 75 percent, from around 20,000 terabytes in 2000 to nearly 350,000 terabytes in 2005.