Market Overview
BMI projects that Chile will be one of the region’s high growth IT markets during the 2008-2012 periodthanks to a combination of rising incomes, growing PC affordability, and favourable demographics.While only around 1/10 the size of Brazil’s IT market, the total value of Chilean domestic spending on ITproducts and services should pass US$2bn in 2008 and US$3bn by 2012. The overall economic outlook islikely to become more difficult in the near-term, but BMI’s view is that the fundamentals support asteady market expansion.
Spending on IT products and services is expected to grow at a compound annual growth rate (CAGR) of10% over the 2007-2012 period. Chile is one of the most IT literate countries in the region. Despiteregional leader rankings in many ICT infrastructure indicators however, a PC penetration rate of around18% indicates plenty of room for organic growth. Government programmes will also shape marketdevelopment in the next few years.
The government’s Digital Agenda 2.0 (for 2007-2010) groups together multiple initiatives to promotetechnology use in areas ranging from e-government to education and businesses. IT services are set to bethe fastest growing segment of the market, while new money to support informatisation for SMEshighlights another key opportunity. A number of risks pertain to our forecast scenario however, withmany of the government’s ICT development plans and programmes still in a nascent stage.
Industry Developments
The Chilean government plans to invest US$11.7mn in 2008 to help establish Chile as an offshoringservices location. In November 2007, the Chilean government established a new council to lead thiscampaign. The government’s National Innovation Council has identified the offshore industry as one areawith high growth potential for the next decade.
In support of its objective, Chile is likely to see changes to its intellectual property framework this year.Changes to Chile’s IP laws were made as recently as January 2007, but were widely consideredinsufficient. There is general agreement on the need for further reform, but new anti-piracy proposalscurrently under discussion have attracted criticism from IT companies for being too lenient.
Meanwhile, state development agency CORFO has launched a programme to provide funding for projectsthat implement ICT for local SMEs. SME informatisation appears to be a particular focus for CORFO atpresent.
Competitive Landscape
US PC giant Dell plans aggressive expansion in the Chilean retail segment. The plan is beingimplemented through new partnerships with retail chains and new product launches. In Chile last year,Dell launched a distribution agreement with local retailer Ripley. Starting in May 2008, the agreementwith Ripley was expanded to include a number of Dell’s Inspiron laptop models as well as a desktopmodel.
Turning to software, European giant SAP has said that it plans to focus more on Latin American Banksand the public sector. SAP’s share in the two verticals is below its position in other markets such asEurope and the Middle East.
The fastest growing segment of the IT market is expected to be IT services. In 2007, Chile’s largest ITservices company Sonda continued to win a series of large outsourcing tenders, such as the Transantiagometro system. However, the share of company revenues derived from the Chilean market has fallen. InQ108, Sonda’s Chile sales grew only 4.6% compared with 258% year-on-year growth in the Brazilmarket.
Computer Sales
BMI projects that Chile’s computer and accessories market will have a CAGR of at least 7% over the2007-2012 period, driven in part by falling prices. Computer sales in 2007 were put at US$753mn, andshould pass the US$1bn mark by 2012. The main drivers of growth in the PC segment are lower pricesand greater affordability. Prices have fallen around 20% since 2006. The fastest growing segment isnotebook sales, which were around 600,000 units in 2007 and already account for around 50% of themarket by value. Government announcements of new funding to subsidise internet coverage expansion in2008-2009 should bring support to the PC market. Broadband service provider VTR’s recent cooperationwith Lenovo on a triple play bundling agreement shows the potential here.
Software
Chile’s software market is estimated to have been worth US$289bn in 2007, and the figure for 2008 isexpected to come out at a little more than US$329bn. Software CAGR for 2007-2012 is projected ataround 11%. Software has opportunities for growth over the next few years, despite a relatively highsoftware piracy rate. Software piracy was estimated to account for 69% of software in 2006, but last yearthe government mounted a more sustained campaign to reduce this. Growth will be driven by a number ofparticular factors, but sources of opportunity in the near term are likely to be the introduction ofInternational Financial Reporting Standards (IFRS) in Chile as of January 1, 2009 and potential new antipiracylaws.
IT Services
Chile’s IT services market is estimated to have grown around 18% in 2007 to a value just aboveUS$720mn, with continued growth expected in 2008. For a developing market, the percentage of ITmarket revenues generated by services is currently around 37%, high by emerging market standards, butsimilar to other countries in the region such as Brazil. The majority of demand, around 75%, still comesfrom the large company sector, but smaller companies are also now becoming more sophisticated in theirdemand. Led by the financial, telecoms and retail sectors in particular, there is a trend towards biggermanaged service and outsourcing deals in the local market.
E-Readiness
Chile enjoys some of the best telecommunications infrastructure in South America and rates highly onmany regional e-readiness indicators. The World Economic Forum ranked Chile 31st in the world in itsmost recent survey of ‘degree of preparation to participate in and benefit from information andcommunications technology’; the highest ranking in the Latin America region. However, the reportconcluded that Chile’s e-development is held back by some familiar filings including an inefficientgovernment bureaucracy and over-regulation.
According to BMI estimates, internet penetration reached 34% in 2007 and is expected to pass 41% by2012. Broadband penetration is currently rather lower at around 8.7%, but the government is planning toincrease options by possibly auctioning 3G mobile and fixed wireless (WiMAX) spectrum in 2008. For2008-2009 the government has allocated US$80mn to support projects aimed at boosting internetcoverage. The telecommunications regulator Subtel is also planning to launch a new universal accessfund in 2008.
Chile IT Sector SWOT
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