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Mexico Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2007 Product Code: R302-1338 Description Market OverviewThe Mexican IT market is expected to grow at a compound annual growth rate (CAGR) of 8% over the 2006-2011 period. This rate is nearly double expected GDP growth over the forecast period, although with strong variation between sectors and regions. Demand is growing in all sectors, especially among small- to medium-sized SMEs, which again will benefit from government initiatives. Generally healthy and sustainable economic growth over the forecast period, even if slightly below last year’s 4.8%, should provide a favourable context. While the generally low level of technological investment compared with other countries - particularly for software - acts as a restraint in some areas of the economy, other sectors are already increasing demand for more advance solutions and services. The Mexican market has maintained its high growth rate in H107, with unit sales trending above the regional average rate, driven by increasing demand from first-time computer buyers. The PC market is particularly strong. Current drivers include the growing popularity of broadband, high demand for notebooks, and improved access to finance - all supporting spending. In a relatively new phenomenon, many first-time buyers are purchasing laptops rather than low-priced desktops. Falling prices are also a factor. BMI expects that the total value of the IT market will increase from US$9.1bn in 2006 to around US$13.4bn in 2011. Despite recent progress highlighted by a World Economic Forum report, IT spending as a percentage of GDP remains well below OECD levels. An increasing number of federal and state government initiatives are looking to stimulate more activity. Various central and regional government plans to increase IT investment and improve ICT penetration will have an impact within the ‘e-Mexico’ framework. More creative financing plans and better access to credit will gradually assist penetration. However, the vendor push to penetrate the SME segment will mean lower prices. In the corporate and industrial sector as a whole, the slump in technology investment has left a series of relatively obsolete equipment that needs replacing, creating sustainable demand. Despite this, IT services will show the fastest growth over the forecast period, especially outsourcing. Industry Developments According to the Social Research Institute of the National Autonomous University of Mexico (UNAM) one in five people in Mexico now have internet access. However, Eight out of ten people defined as living in ‘marginal conditions’ do not have access to the web, according to the survey. In April, President Calderón announced a new programme whereby workers with incomes of less than twice the minimum wage level will be provided with a computer. The computers will cost the programme less than 4,000 pesos per unit and will be enabled with broadband. The Secretary of Labour is to coordinate the programme for the government. Other channels are also having success in driving computer penetration. Leading domestic telecoms operator Telmex revealed that in 2007 it became Mexico’s single largest vendor of computers. Telmex reportedly sold more than 1mn computer units, equivalent to nearly 60% of the 1.7mn computers sold in that year according to industry associations. Telmex has been bundling PCs with its Prodigy Infinitum ADSL broadband service. Competitive Landscape In August 2007 Lenovo revealed that it is to invest US$20mn in a new plant in Mexico which will be the biggest investment made by Lenovo outside China. Lenovo’s investment in the Northern Mexican state of Nuevo Leon indicates the strategic significance of the Mexican market for vendors. Annual production for the plant is expected to be five million units, mainly portable computers to be supplied to the North American and Latin American markets. The plant is expected to open in the second half of 2008 with an initial staff of 750. Meanwhile, HP also recently invested US$1.5mn in modernisation of its corporate building in Monterrey. Last year HP President, Mark Hurd, announced near-term plans for HP to invest US$2bn in Mexico, creating some 1,200 jobs in the country. Mexico is the most important country for HP in the Latin American region, ahead of Brazil and Costa Rica. The investment plan was said by HP to reflect the company’s confidence in economic stability in Mexico. Foreign brands have been strengthening their position in the local PC market from the end of last year. According to local newspaper reports, foreign brands entered the final quarter of 2006 with a 54% share of the market. This was a turnaround from a year previously when the domestic manufacturers had a 55% share. The main reason for the domestic market trend is the growth in laptops, an area where foreign vendors retain a competitive advantage compared with local vendors. Computer Sales BMI is forecasting that Mexico’s computer and accessories market will have a CAGR of around 6% over the 2006-2011 period. 2006 computer sales were put at US$3.7bn, and should increase towards US$5.0bn in 2007. The growing popularity of internet and broadband access is providing strong support for PC sales, with around 1mn of an estimated 1.7mn PC units sold in Mexico last year being purchased bundled with leading telecommunications company Telmex’s internet service. The biggest barrier to higher PC penetration remains low annual average income, of about US$5,000 per year, and financing has long been a bottleneck to faster growth of PC penetration. The financing and unified bill options offered by Telmex have clearly unleashed fresh demand. Banks are also now offering more financing options, meaning healthier prospects for the consumer and SME segments, and vendors are becoming more flexible at devising new financing options. Software The Mexican Institute of Intellectual Property (IMPI) recently claimed that Mexico loses over US$500mn annually to software piracy. The issue is one driving the progress of Linux and open source software in the open market. However this area is primarily dominated by larger organisations. Currently it is estimated that around 1/100 PCs and 1/10 servers are running on open source in Mexico. The total software market in 2005 was valued at US$1.6bn, with imported software accounting for at least 80% of the total, and the figure for 2006 is expected to come out a little below US$1.8bn. Software CAGR for 2006-2011 is put at around 9%, with sales outpacing general IT market growth. As the government turns its attention to overcoming Mexico’s longstanding under-investment in this area there should be more opportunities. The software sector’s current high single-digit growth is being driven partly by increasingly strong demand for enterprise resource planning (ERP) solutions from SMEs. A lack of IT infrastructure is thought to contribute to the high failure rate among SMEs in many parts of the country. The business intelligence sector is another strong performer and, looking forward, systems management and security software should provide opportunities in 2006, particularly security. In terms of verticals, public and financial sectors, healthcare, the chemical industry, utilities and SMEs are seen as the ones with the most growth potential. Spending has been rising in the financial sector as banks, insurance companies and other firms look to enhance productivity, and improve customer experience. The industrial and services sectors have also seen high growth. IT Services Indian IT Services giant Infosys has recently opened its first Latin American office in Monterrey, Northern Mexico. After starting operation in 2007 the new office will provide services to a client base in North America, Latin America and Europe. The Monterrey office will initially operate with 205 employees. However, this could increase to 1000 over the next three years as companies eye the growing potential market for ‘nearshore’ services. The IT Services market is estimated to have grown around 10% in 2006, to a value of around US$2.7bn, with similar or slightly higher growth expected in 2007 and throughout the forecast period. Indeed, the IT services sector has been increasing steadily for the last 10 years, with the increasing number of multinational companies operating in the market being an important driver for spending. IBM has recently declared its intention to expand its Mexico market business, stating that it considers the market as one with high growth potential for installation and services. Growth opportunities reside particularly within the SME sector, where companies are trying to use computing resources more effectively and integrate investments made in hardware and software. Special Focus: Financial Sector Mexican banks and financial services companies are among some of the country’s most significant IT spenders, with consolidation, competition, and compliance with new international guidelines fuelling the trend. In recent years, several foreign-owned banks such as Spain’s BBVA and Canadian Scotiabank Inverlat have been operating aggressively in the market, spurring local competitors to ramp up spending on IT as they compete for customers. With a wave of hardware and infrastructure installations in the past few years, the focus is now shifting to software and services, as companies look to enhance productivity and improve offerings to customers. Compliance and risk management applications are among the top sellers, with the need to manage compliance with Basel II capital guidelines, and legislation tightening up corporate governance standards. Another trend is for banks of all sizes to outsource the hosting, management and maintenance of software and hardware. E-Readiness The World Economic Forum’s latest annual survey found Mexico continuing to make steady progress on network indicators. The survey had Mexico climbing six positions in the rankings from 55th. The report attributed the improvement to the adoption of more efficient electronic strategies for digital networks and infrastructure connection both nationally and regionally. However, recent state and municipal statistics have highlighted slow progress in the implementation of e-government in Mexico at a federal level and the insufficiency of state funding. In 2006, the Mexican Internet Association (AMPICI) revealed some results concerning patterns of internet usage in Mexico. Putting the number of users at around 20mn, AMPICI found that children and youths remain the most frequent users, with 39% of total users between the ages of 12 and 19. Around 19% of internet connections were from the office, with 39% from public internet access sites such as internet cafes, and 43% from home. Average time online was two hours per day. Recent figures from the National Statistics Institute (INEGI) claimed that the number of computers in the country increased 11.9% from 2001 to 2006, from 23.6mn to 26.6mn. Other data has revealed that 26.6mn Mexicans have access to a computer (60% in an educational context, 30% for work). The report, also from INEGI, says that IT is becoming increasingly central to Mexicans’ lives, even outside major cities. Looking at the business sector, the Mexican IT Association claims that 99.7% of the 2.8mn Mexican companies face serious limitations in information technology which affect their capacity to compete. The association recently called on the government to increase funding for SMEs to secure access to IT. Some 68% of Mexican internet users currently go online from places outside the home, such as schools, workplaces, and internet cafes. One of the goals of the e-Mexico plan, announced in 2001, is to connect 98% of the nation to the internet, with co-operation from telecommunications carriers. Low disposable income and the related low PC penetration rate remain barriers to further expansion. Table of Contents
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