July 8, 2008 ASBIS in Media

IT Europa: Survey of IT Channel in Slovakia, Croatia and Slovenia

Slovenia, Slovakia and Croatia are good examples of how emerging regions can be viewed differently from the mature markets of western Europe. Distribution has been very fragmented; and while the big names are at the top of the PC brands tables, there is still a weight of locally assembled units. But also, while the big global customers (outside of some manufacturing and car plants) are absent, it is the time for the local small and mid-market to set the pace. And there has been the usual consolidation among distributors….

A look at the tables of PC brands reveals the classic emerging region picture: while the top brands are present and appear at the top, there is a long tail of local VARs, PC assemblers and others who make most of the PCs. These sales can be expected to be absorbed into the main brands market as the maturing process continues. In Slovakia, arguably the longest established PC market, this has already happened, and Dell and HP are the fast rising brands as PCs become commodities.

Annett Jump, Research Director at Gartner characterises the markets as Slovakia – similar to the Czech Republic; Slovenia – a relatively small country, and Croatia a big battleground, particularly between Intel and AMD. The key is notebooks sales, now rising fast, and displacing the old local assembler⁄supplier market, she says.

Distributor Avnet has been working in Slovakia for several years and usually it achieves something like a 20% growth and it is probably the same this year. Slovak Republic country manager, Andrej Buchamer says: “We are on target and doing well. In the next few years I expect to do more in the public sector. The reason is the adoption of the euro, which will mean a lot more government spending on areas such as e-learning and education, including all high schools and basic schools, and the healthcare investment means that next year the main growth will be in government spending on IT.”

This is European money from the EU, he explains. “The planning is done and we're just waiting on the work to start. I think this is not too dependant the exchange rate either, the Slovak Crown has been increasing in value steadily and so the final rate will be positive.”

Slovakia may have benefited, particularly in the manufacturing side, by having relatively low wage rates. “Yes, the average wage rate has been low by European standards but this is changing, and certainly around Bratislava, the pay has been rising sharply.” There has been a lot of real estate investment in the area, as a result.

The next investment the country needs is in better infrastructure – in roads and highways, he says. This may help move the work and the IT investment around the country more, but at present some 70% is around Bratislava.

And lots of new factories have opened: Volkswagen has the biggest factory in Europe near Bratislava. “We expect that this will force government to build up the infrastructure. And this will be affecting the average wage as well.”

Avnet has reseller customers in the whole of Slovakia, but some 70% is in the Bratislava region or managed from Bratislava, he explains. And the more advanced solutions also tend to be in these areas.

“We've spent the last two years or so developing the SMB sector, building up the knowledge and developing services and solutions for this market. We have seen that these small and medium size resellers now understand they need to provide the services on a good solid platform – from someone like HP or IBM rather than the self-assembled and home-made PCs and servers.”

This is happening now in SMB and the midmarket, so the commerce growth rate of 25% seen last year will be seen next year as well. “We are investing to train and d evelop these partners to catch that opportunities.”

And with the preponderance of smaller business, Cisco has also been busy recruiting partners to address this space. The number of top level (Gold and Silver) partners in the region has not changed much, so it really has been growing together with its partners at this level.

Peter Bako, Marketing Director at distributor ASBIS Slovakia, says the Slovak IT market will be growing for at least two or three years at a pace of 12%-15% per year. Retail segment is the fastest growing, he thinks.

But this rate of growth can be expected to use up the available skills base, so education and training is becoming an importance consideration. Cisco says developing talent is a key requirement to serve the increasing customer base and in the past three years the number of CCIE-qualified staff in the region has been doubled thanks to joint efforts from Cisco, Partners and its Networking Academies.

It still needs that SMB focus, which is being encouraged through the Cisco SMB Select programme. “There is a lot of interest and success at this level, and partners are building their experience levels,” says Cisco's Beat Umbricht.

Cisco's Networking Academies have been in place for a while, with the company itself celebrating ten years in Slovenia this year. “Talent remains a critical element for the channel to profit and a way to build the business.”

An idea of the relative position of the three countries can be seen from the Cisco Networking Academy statistics. The numbers reflect more the size of the countries rather than relative position – Slovenia has a much smaller population than the other two countries. One interesting fact: the Cisco Networking Academy has been a huge success story in Slovakia, where the number of networking academy students per size of population is the highest worldwide Croatia has 17 academies, 1,680 students currently in the pro gram; Slovakia: 56 academies, 5,287 students currently in the program; Slovenia: 5 academies, 597 students currently in the program. Expect to see announcements on the first Cisco Entrepreneur Institute in Slovakia later this year. These have proved very successful in Hungary, Poland and Turkey, helping build the skills of local small business entrepreneurs.

Distribution is still very fragmented, he says; “We expect consolidation, but the main objective at present is to bring in new capabilities, and to develop more capability through experienced management. Joint ventures may be becoming popular with larger external organisations.”

Avnet, unusually, supplies Cisco in this market as well as its usual HP, IBM and Sun, so is in a good position to compare the growth markets. Communications and networking is the main area of growth in Slovakia: “We see the most increase in growth in networking. Cisco is doing a really good job and from my view they have the best channel and business policies in his channel – no direct business, and they support the channel. We are cooperating together on the developments.”

There are a few more resellers but generally the numbers are the same, so it appears that the channel companies are growing their businesses to meet demand. And the technology is building up in the coming year using the industry standard servers – Intel based. The storage market is another very exciting area with all the archiving of information taking place, and the spread of TV companies forming who want to work digitally. And the new government spending on e-learning and euro investment will help this. It should be a good period in IT. But it is important in any case to work on this locally, at a Slovak Republic, not at a European level.

Peter Bako, Marketing Director, ASBIS Slovakia, says that the most important change in the last year or so has been the consolidation in distribution market. “By this we mean the acqu isition of number one and number three of Slovak distributors (BGS Levi and Euromedia) by Czech number one – eD system. This acquisition we consider as a big opportunity to increase our market share on the expense of these two companies.”

2007 was a successful year for ASBIS, he says. “We increased our turnover by 12.8%. We achieved a reasonable margin, we added to our distribution portfolio with Sun and EMC products, we confirmed our position as the best IBM distributor and increased our market share in HP distribution in Slovakia.” But ASBIS has a product range which encompasses consumer as well as SMB and enterprise. The product groups which are in highest demand in these countries now are notebooks and GPS systems.

And unlike in the rest of Europe, ASBIS sees retail as the fastest growing segment, while he agrees with the earlier sentiments that the government segment will be growing in the next few years due to huge investments of “40 billion crowns” from EU funds. The SMB segment will be more and more important because Slovakia is the fastest growing economy in the EU and this segment largely contributes to this growth, he concludes.

Tomislav Kovac, sales director, ASBIS Croatia, reports a similar pattern: ”The most important changes we see are no growth of PC component sales and locally assembled computers, almost no interest on the part of system integrators in assembling their own brand notebooks despite initiatives from largest manufacturers, primarily Intel; significant erosion of average sales prices.

The highest growth rate is observed in consumer segments as well as at new points of sale – retailers are overtaking traditional resellers; he reports. But he warns of a lack of large enterprise and governmental tenders; coupled with a drop in general consumer spending heavily impacting ICT spending.

OUR ANALYSIS

Anyone looking for a place to set up in Europe who wants growth could hardly do better than look closely at the SMB markets in these three countries. With the prospects of adopting the euro and the model of Slovenia to follow, Slovakia would be the one to watch. Although the uncertainties over Croatia may, as ASBIS' local sales director points out above, cause short term set-backs, the prospects must be good.