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Mexico Information and Technology Report Q1 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: February 2008 Product Code: R302-2429 Description Market OverviewWith Mexico having plenty of room for potential progress on a range of ICT indicators, includingcomputer penetration and e-government, BMI expects that the total value of the IT market will increasefrom US$10bn in 2007 to around US$16.9bn in 2012. IT spending as a percentage of GDP at less than2% remains well below OECD levels and an increasing number of federal and state governmentinitiatives are looking to stimulate more activity. Demand is growing in all sectors, especially among SMEs, which again will benefit from governmentinitiatives, and Education, where substantial new funding has been announced. However, in the currentglobal economic climate, Mexico’s overarching reliance on benign external factors, particularly in theUS, presents a significant downside risk. Overall, the Mexican IT market is expected to grow at a CAGRof 9% over the 2007-2012 period, rather faster than GDP growth over the forecast period, although withstrong variation between sectors and regions. Industry Developments In December 2007 the Ministry of the Economy launched a new tender for a project to develop the IT andIT enabled services (ITES) industry in Mexico. The World Bank will be involved in the project thatspecifies as its primary goal to develop the indigenous IT industry. A particular focus in on attractingoutsourcing companies to Mexico and obtaining offshoring investment and opportunities.Meanwhile, in September 2007 the Mexican government asked congress to approve a budget of US$445to expand a programme to integrate federal education resources. The IT programme, which is calledEnciclomedia, is run by the education ministry and aims to integrate resources such as text books andvirtual content and activities. The requested 2008 funding represents a rise of 39% from the 2007allocation of MXN3.55bn. Competitive Landscape In 2007 foreign brands generally strengthened their position in the local PC market of which they havenow have a market share of more than 50%. The gains came at the expense of local products which asrecently as 2006 were still accounting for the majority of sales. The main challenge for domestic firmssuch as Lanix, Smitel and Texa is to strengthen their performance in laptops. However, foreign vendorsare not sitting still, with leading US vendor Dell announcing a shift in focus towards more aggressiveexpansion in the retail sector Mexico Information Technology Report Q1 2008 Turning to IT services, the major Indian vendors are on the rise in the Latin America region and inMexico are mounting a strong challenge to US giants like IBM and EDS, which in 2007 was awarded amajor IT services contact by Mexicana de Aviación to optimise light planes. Indian giant TCS recentlywon a US$200mn+ contract with the Social Security Institute of Mexico (IMSS) in a deal which ahsbeen described as the largest of its kind in Latin American. Computer Sales BMI is forecasting that Mexico’s computer and accessories market will have a CAGR of around 9% overthe 2007-2012 period. 2007 computer sales were put at US$3.9bn, and should pass US$6bn by 2012. Thegrowing popularity of internet and broadband access is providing strong support for PC sales, with around1mn of an estimated 1.7mn PC units sold in Mexico last year being purchased bundled with leadingtelecommunications company Telmex’s internet service. The biggest barrier to higher PC penetrationremains low annual average incomes, of about US$5,000 a year, and financing has long been a bottleneckto faster growth of PC penetration. The financing and unified bill options offered by Telmex have clearlyunleashed fresh demand. Banks are also now offering more financing options, meaning healthierprospects for the consumer and SME segments, and vendors are becoming more flexible at devising newfinancing options. Software The total software market in 2007 was valued at US$1.8bn, with imported software accounting for at least80% of the total, and the figure for 2008 is expected to come out at around US$2.1bn. Software CAGRfor 2007-2012 is put at around 12%, with sales outpacing general IT market growth. As the governmentturns its attention to overcoming Mexico’s longstanding under-investment in this area there should bemore opportunities. The software sector’s current high single-digit growth is being driven partly byincreasingly strong demand for enterprise resource planning (ERP) solutions from SMEs. A lack of ITinfrastructure is thought to contribute to the high failure rate among SMEs in many parts of the country. IT Services The IT services market is estimated to have grown around 12% in 2007, to a value of around US$3.2bn,with similar or slightly higher growth expected in 2008 and throughout the forecast period. Indeed, the ITservices sector has been increasing steadily for the last 10 years, with the increasing number ofmultinational companies operating in the market being an important driver for spending. IBM hasrecently declared its intention to expand its Mexico market business, stating that it considers the market asone with high growth potential for installation and services. Growth opportunities reside particularlywithin the SME sector, where companies are trying to use computing resources more effectively andintegrate investments made in hardware and software. Mexico Information Technology Report Q1 2008 Special Focus: Financial Sector Mexican banks and financial services companies are among some of the country’s most significant ITspenders, with consolidation, competition, and compliance with new international guidelines fuelling thetrend. In recent years, several foreign-owned banks such as Spain’s BBVA and Canadian ScotiabankInverlat have been operating aggressively in the market, spurring local competitors to ramp up spendingon IT as they compete for customers. With a wave of hardware and infrastructure installations in the pastfew years, the focus is now shifting to software and services, as companies look to enhance productivityand improve offerings to customers. Compliance and risk management applications are among the topsellers, with the need to manage compliance with Basel II capital guidelines, and legislation tightening upcorporate governance standards. Another trend is for banks of all sizes to outsource the hosting,management and maintenance of software and hardware. E-Readiness According to the Social Research Institute of the National Autonomous University of Mexico(UNAM), one in five people in Mexico now how internet access. This means that the ratio has doubled ina decade from one in 10 only 10 years ago. As ever, income is strongly correlated with access to internet.Eight out of 10 people defined as living in ‘marginal conditions’ do not have access to the web, accordingto the survey. The World Economic Forum’s latest annual survey found Mexico continuing to make steady progresson network indicators. The survey had Mexico climbing six positions in the rankings from 55th. Thereport attributed the improvement to the adoption of more efficient electronic strategies for digitalnetworks and infrastructure connection both nationally and regionally. However, recent state andmunicipal statistics have highlighted slow progress in the implementation of e-government in Mexico at afederal level and the insufficiency of state funding. In 2006 the Mexican Internet Association (AMPICI) revealed some results concerning patterns ofinternet usage in Mexico. Putting the number of users at around 20mn, AMPICI found that children andyouths remain the most frequent users, with 39% of total users between the ages of 12 and 19. Around19% of internet connections were from the office, with 39% from public internet access sites such asinternet 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 inthe country increased 11.9% from 2001 to 2006, from 23.6mn to 26.6mn. Other data has revealed that26.6mn 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 majorcities. Mexico Information Technology Report Q1 2008 Looking at the business sector, the Mexican IT Association claims that 99.7% of the 2.8mn Mexicancompanies face serious limitations in information technology which affect their capacity to compete. Theassociation 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 connect98% of the nation to the internet, with co-operation from telecommunications carriers. Low disposableincome and the related low PC penetration rate remain barriers to further expansion. Table of Contents
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