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Turkey Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: September 2007 Product Code: R302-1344 Description Market OverviewThe Turkish IT market is set to be one of the fastest growing in the region over the next few years due to a large and predominantly young population and development of the Anatolian region. The young population provides a strong resource for PC sales in a market where penetration is still below the global average and the size of the Turkish IT market is expected by BMI to increase from US$4.7bn in 2006 to around US$7.2bn in 2011. With Turkey making solid progress on many ICT indicators and emerging as an increasingly important IT outsourcing location, the country’s IT market is expected to continue its rise over the next few years. Moreover, an increasing number of global IT companies are establishing IT facilities in the country to serve both European and Middle Eastern markets. Their presence is attracting major players from other industries who in turn provide additional demand for IT products and services. Despite the continuing uncertainty surrounding its EU destiny, Turkey’s cultural and geographical position as a hub between Europe and the Middle East region has only served to accentuate for IT vendors the significance already deriving from its large market size. Acer has recently singled Turkey out as ‘the country to focus on’, while in 2006 Turkey ranked as one of Microsoft’s top five growth markets. In the last 18-24 months, PC sales have been receiving a new momentum as the focus of demand shifts towards the Anatolian region, and this is expected to continue as the number of PCs per thousand population rises. Short-term economic conditions also look favourable going into the second half of 2007, with the prospect of a more stable lira likely to open the way for interest rate cuts. The IT sector enjoyed strong growth in 2006, and healthy economic prospects should mean that growth over the forecast period is likely to exceed that of the early part of the decade. IT is now playing an increasingly significant role in a wider range of industries, as well as in daily life. The government has set itself a target of creating a US$9bn IT industry, and wants to increase computer ownership to 51% and internet usage to 48%. To this end it has recently established a Universal Service Fund specifically to spread the adoption of IT across Turkey. Industry Developments The Turkish Ministry of Transport has announced a pledged to create a Universal Service Fund to promote IT across the whole of Turkey. By the end of 2007, the Fund is expected to reach a value of TRY500mn (US$385mn). A number of projects have been pledged support through the fund including the establishment of computer labs in schools, extending internet connection to provinces and towns, and providing telephone service to all villages as well as communications technologies for ships. Meanwhile, the flourishing growth of the IT sector, as reported by BMI over past quarters, is attracting an increasing number of companies from other sectors, such as Unilever, creating a virtuous circle of demand for IT products and services. Nortel’s recent decision to move its Global Operations centre to Turkey in a US$9mn investment highlighted the trend. Turkey is becoming an increasingly important centre for IT departments for companies from various sectors, providing an alternative to Eastern Europe. In recent years IT major such as Oracle, Siemens and Microsoft have selected Turkey as the location for IT facilities. Competitive Landscape Strong growth in the corporate sector, including medium sized companies is fuelling much of the growth in the software market currently. Earlier this year, Oracle implemented Oracle Business Intelligence Suite for Yesim Tekstil, which is one of the largest apparel and home textile manufacturers in the country. Like many of its industry peers, the company is moving towards fully integrated and highly automated manufacturing process, and Business Intelligence is set to be one of the fastest growing software segments over the next few years. Meanwhile, Microsoft recently announced the launch of Windows XP Starter Edition in a Turkish language version. Windows XP Starter Edition has become a central component of Microsoft’s strategy for competing in emerging markets and containing the threat of open source software. The move was welcomed by the Turkish Transport Ministry which said that the move would contribute to greater computer access and literacy. Number two local market PC player Acer has designated Turkey as the ‘country to focus on’. The Taiwanese vendor is expecting growth of over 100% in 2007 and the company expects Turkey to become the number one market in the region in the upcoming period. Computer Sales A rapidly-expanding PC and laptop market is driving increasing vendor competition. With the government’s ambitious goal of pushing computer ownership to 51%, and enterprise PC-utilisation to 95%, vendors are making plans to increase sales. Sales of computers including PCs, notebooks and accessories are expected to rise to a dollar value of US$2.5bn in 2007, up from US$2.2bn in 2006. Computer costs remain high relative to GDP/capita of around US$5,000, and consequently computer penetration in Turkey remains below the global average of 10%. However, the market is catching up fast, with the introduction of a number of campaigns to drive computer penetration in education, small- to medium-sized enterprises (SMEs), health, and other sectors. Most recently, Intel announced that it is extending its ‘Computer for Every Home’ campaign to the SME sector in collaboration with the Small and Medium Enterprise Development Organisation (KOSGEB). Computer sales compound annual growth rate (CAGR) for the 2006-2011 is forecast at 9%. Lower inflation and interest rates in 2007 should encourage greater demand for PCs, while generally improving economic conditions should boost household and small business confidence levels. Until a few years ago, demand for computers was mainly confined to big cities like Istanbul, Izmir and Ankara. Now, however, the fastest growth in sales is coming from Anatolia. The surge in sales has been attracting both foreign and domestic computer firms to up their operations there. Demand for laptops will remain the strongest growth area. Software The software market in Turkey was estimated at US$797mn in 2006, and is expected to rise to around US$896mn in 2007. CAGR over the forecast period (2006-2011) is expected to be 10%. However, much will depend on success in bringing down the rate of illegal software usage which, at 66%, is twice the global average. Around 20 large companies compete in the software market in Turkey. Software represents around 13-14% of total IT spending in the country. Strong growth in the corporate sector accounted for Turkey to rank as one of Microsoft’s top five growth markets in 2006. According to Turkish government statistics, Turkey imported legal software products worth US89.75mn in 2005, with the UK topping the list of origin countries followed by the US and Germany. In 2006 there were further moves to encourage the trial of open source software in public organisations, starting with the Ministry of National Defence, where Turkey’s domestically-developed ‘Pardus’ operating system will be utilised. Services The IT services market is expected to enjoy double-digit growth over the 2006-2011 forecast period, as enterprises look for more sophisticated support to get value from their IT investments, as well as outsourcing of non-core functions. Spending on all categories of IT services is expected to be around US$1.1bn in 2007, up from US$1bn in 2006. Sector CAGR is forecast at around 10% over the 2005-2010 period. While support remains the largest sub-category, other groups are growing particularly fast including outsourcing and training services. In the context of an increasingly competitive business environment there have been some larger deals, such as the one last year between IBM and Zorlan (see Competitive Landscape). The support services segment was estimated to account for around 50% of total spending, and managed services for around 12-15%. E-Readiness According to government figures, overall internet users have reached 16mn, of which ADSL subscribers reached 2.4mn. Turkey’s mobile phone penetration has also continued to rapidly increase, reaching 70% of the population. Internet penetration was estimated by BMI at 19% by year end 2006, representing around 14mn users, and this number is expected to grow to around 25mn by 2011. Broadband penetration was around 2%, and this is expected to double to 4% over the forecast period, by which time there will be around 3.2mn broadband subscribers. The OECD recently called for more initiatives to increase public utilisation of ICT, with research last year from the EU Statistics Office showing that Turkey is among the countries in which internet access is very low. The research found that only 39% of Turks had computers at home, and that Turkey was below the EU average in terms of both computers per household and internet access. Turkey is lagging behind its EU neighbours on many indicators, excepting e-government, where much progress has been made. In 2005, a new co-ordination unit was established within the State Planning Organisation (SPO), the Information Society Department, responsible for the overall co-ordination of ICT projects. To increase the participation and the level of success, an advisory board with 41 members has also been established. This consulting body gathers representatives from public institutions, NGOs and universities. In Q406, Turk Telekom and a group of partners launched a major new campaign to provide a high-speed internet connection and a computer in every home. The campaign has the ambitious target of providing joint computer and internet packages for as many as 20,000 households, with two different packages retailing for US$371 and US$481, respectively. Table of Contents
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