Increased FDI and Government Spending Push Czech IT Services Market Well Beyond the $1 Billion Mark in 2005

IDC: IT services spending in the Czech Republic jumped 15.3% in 2005 to reach nearly $1.15 billion. In local currency terms, the market grew a more modest but still respectable 7.5% due to the appreciation of the Czech koruna. The Czech economy has entered a period of solid growth characterized by increased foreign direct investment (FDI) and the strong performance of the manufacturing sector. Coupled with the establishment of specialized professional centers in the country and an inflow of EU structural funds, this has boosted demand for IT services and should continue to do so for the next few years.

Seven international players took top 10 spots in the IT services vendor rankings in 2005. IBM, HP, LogicaCMG, Accenture, and SAP topped the list of international players in the Czech Republic and collectively accounted for just under a quarter of spending last year. Nevertheless, Czech and regional Central European players are very much in the game, with the top 5 local or CE-based vendors (CEZData, PVT, Unicorn, AutoCont CZ, and Adastra) securing more than 12% of IT services spending. Even with the market expanding, organic growth is not sufficient for some vendors, with emerging regional operations, and ambitious local players are using mergers and acquisitions as a means to increase their market share.

Hardware installation and support remained the single largest services segment in the Czech market in 2005. Systems integration ranked a close second and software support and installation was third. Together these three areas represented more than 42% of spending. The market is nevertheless shifting towards application-centric services. Most of the IT services areas related to applications development and management are expanding anywhere from twice as fast to four times as fast as hardware and software support and installation. Furthermore, the long-awaited outsourcing deals have started to have an impact on the Czech market. The combined outsourcing market was the most dynamic year on year in 2005, indicating that perhaps the attitude to outsourcing in this country is finally changing.

The combined finance sector was the largest market for IT services in the Czech Republic in 2005. Traditionally exhibiting strong demand for back-office services, IT infrastructure, and core banking applications, the sector has started shifting to services related to payment cards, credits and loans, and mobile solutions. The combined manufacturing sector was number 2 in IT services spending and the combined government sector was number 3. The government sector was also the most dynamic, increasing spending on IT services by more than 21% with a combination of upgrading, EU compliance, and information society projects. Together, these three sectors accounted for more than half of IT services spending last year.

IDC expects the Czech market for IT services to expand at an annual average of just under 10% over the next five years. Both external and internal factors will drive spending on IT services in the Czech Republic. The disbursement of structural funds, compliance issues, as well as the pressure to implement EU directives will have a positive impact on IT services spending, as will internal factors such as the need to cope with growing competitiveness in the commercial sector.

IDC's study Czech Republic IT Services 2006–2010 Forecast and 2005 Vendor Shares Publ 20060718