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Mexico Information Technology Report Q4 2010
Business Monitor International, Oct 2010, Pages: 60
Mexico Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Mexico's information technology industry.
Market Overview
BMI projects that Mexican IT spending will grow by about 11% in 2010 to US$11.9bn, despite continued economic uncertainties and a decline in private sector credit growth. Government spending was a relatively strong area in H110, with the rollout of national and local projects delayed by an austerity drive in H209. PC sales also bounced back to solid growth following a sharp contraction in 2009.
Mexico's IT spending is forecast to grow at a compound annual growth rate (CAGR) of 11% over 2010-2014, but with strong variation between sectors and regions. Mexico City and its surrounding area accounts for at least 50% of total IT spending in the country, but Mexico's underpenetrated south-east and Pacific regions are expected to offer growth opportunities over BMI's five-year forecast period. IT spending is expected to outpace GDP growth, with drivers including rising PC penetration and growing affordability, as well as US corporate demand for IT outsourcing. IT spending as a percentage of GDP of 1.4% remains well below OECD levels and BMI projects that per capita IT spending will rise from US$110 to US$166 by 2014.
Industry Developments
Government spending is expected to grow in 2010 but individual projects will continue to be affected by budget uncertainties. One priority in 2010 is spending on equipment such as PCs, software, electronic blackboards and projectors for schools. In August 2009, the government launched a wave of austerity cuts forced by the economic downturn, with US$6.4bn in cuts made in that month alone.
Areas of spending at the federal level include integrated enterprise resource planning (ERP), back office systems, 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
PC vendors are focused on opportunities in the small and meduim-sized enterprise (SME) sector. Dell has said that around 30% of its Latin American region revenues now comes from SMEs. The company has launched new models in its low-cost Vostro line aimed at the SME segment, as well as government and educational institutions. Through Dell Financial Services, it has also attempted to help smaller businesses overcome capital outlay constraints to investment in IT.
One result of the economic crisis may have been to accelerate adoption of cloud computing solutions such as Software-as-a-Service (SaaS). The Chilean unit of Microsoft has a target of more than 1,000 companies using its Microsoft Online Services offerings within the next year. European corporation SAP has also targeted SMEs with its online delivery solution Business All-in-One Fast-Start as part of a partnership with HP.
Many Mexican market computer hardware vendors have adapted their strategies to take advantage of increased sales through resellers and retailers. The Mexican market is dominated by a number of IT wholesalers that are mainly active in the larger regional markets, while less developed regions are served by smaller local distributors.
Computer Sales
Mexico's computer hardware sales are projected at US$5.6bn for 2010 and forecast to reach around US$8.2bn in 2014. There remains considerable potential as the current level of computerisation is low, with PC penetration estimated at less than 25%.
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 compared 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 for US300-500, however, adding putting pressure on average PC prices.
Software
The Mexican software market is projected to reach US$2.3bn in 2010, up from US$2.0bn in 2009, with imported software accounting for at least 80% of the total. In 2009, 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. A combination of enterprise objectives such as cost reduction and greater efficiency should drive more adoption of cloud services in 2010. Demand should grow as vendors and service providers, including new market players, roll out a greater variety of service offerings.
Software spending should have an upwards trajectory as the government turns its attention to overcoming Mexico's longstanding 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$4.0bn in 2010. Despite short-term economic needs, the market should ultimately grow at a CAGR of 13% through to 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 exist in the SME sector, where companies are trying to use computing resources more effectively. Mexico is also becoming an increasingly important hub for provision of business process outsourcing (BPO) and other outsourcing services.
E-Readiness
The World Economic Forum's annual survey found Mexico continuing to make steady progress on network indicators. Mexico has climbed six places in the rankings to 49th. 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 fibre-optic infrastructure and WiMAX licences being auctioned since 2009. With the telecoms regulator, Cofetel, taking a more combative stance towards Telmex, BMI believes 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, with a 'strong national government portal' that encouraged online consultations between government and citizens.
Recent state and municipal statistics have highlighted the gradual progress made in implementing egovernment in Mexico at 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 local governments are increasingly looking 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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