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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 4, 2003 SPECIAL REPORT: EMERGING TECH MARKETS Going East for Tech Growth While Western markets are far larger, they're barely expanding. For that opportunity, U.S. giants are now aiming at China, Russia, India...
Veritas doesn't break out sales in individual countries. But its strategy might well be described as "Go East, young man!" Last year it opened an office in Poland, another fast-growing Eastern European market, and its business is expanding in Hungary. Its Eastern emphasis is understandable in light of the projected growth of those markets. Tech tracker International Data Corp. in Framingham, Mass., estimates that tech spending in Russia will grow 12% in 2003, to $5.1 billion. In Poland, IDC anticipates a 13% increase, to $3.5 billion. That compares to a projected 4.4% rise in U.S. tech spending this year. Besides Eastern Europe, Veritas and other tech companies are looking to Asia, where China, India, and South Korea all expect low double-digit growth in tech spending this year. "We see a lot of legacy transformation, where [companies in those countries have] technology they haven't invested in for a number of years, and now they are," says Kerrie Holley, chief architect for IBM's eBusiness integration unit. Holley, who works regularly in the Asia-Pacific region, says businesses from banks to manufacturers are boosting their tech capabilities there. UPBEAT OUTLOOK. Holley says IBM's (IBM ) people in Asia see few signs that the tech malaise that has hobbled the U.S., Japanese, and Western European markets will touch the East's less mature economies anytime soon. Other observers echo this take and emphasize that the rising tide of economic development is easily overcoming any downward tug from stagnant economies in the developed world. "The big factor is clearly underpenetration. There's a need for automation in those economies as they start to become more competitive," says Philippe de Marcillac, a senior vice-president at IDC. The reason for the upbeat tech outlook varies some from country to country, of course. In Russia, oil money and strong economic growth is pushing the dial. In China, efforts to automate manufacturing are driving sales, as is a growing consumer market. In India, the software and outsourcing markets have boomed, creating 160,000 jobs, a 25% increase, in just the past 12 months. Although more mature than other emerging markets, South Korea is enjoying stellar growth, thanks to a boom in broadband demand. A keeping-up-with-the Joneses mentality there, plus a zeal for education has prompted parents to buy computers and other tech devices to ensure that junior becomes tech-savvy. Likewise, Korean schools use computers and the Internet extensively in homework assignments. Winning business isn't a slam dunk for U.S. companies seeking to enter those markets. For instance, many American tech giants are trying to sell services such as system integration and software customization, but find that difficult because of cultural barriers. According to IBM's Holley, one of the key reasons Big Blue bought tech consultancy PricewaterhouseCoopers last year was its 300 consultants on the ground in China. Further, profits from service deals are generally lower when paid for in local currencies -- at much lower hourly rates than in Western Europe, the U.S., or Japan. HIGH-END EDGE. Then there's the hometeam effect. De Marcillac notes that significant chunks of revenues in emerging tech markets go to local players who sell PCs and cell phones. In China, local company Legend has a big lead in the market for PCs, and U.S. behemoths Dell (DELL ) and Hewlett-Packard (HPQ ) remain comparative laggards. The same is true in cell phones, where Korea's LG and Samsung are the market-share leaders in Asia's most wired country. That said, the further up the technology ladder you look, the more likely that U.S. companies hold a bigger share of emerging-market sales. "In China, local players have 75% of the PC market but only 10% of the server market," says IDC's de Marcillac. That gives the U.S. and other Western companies the lion's share of many high-profit products in emerging markets, such as complex software and powerful servers that run databases. Indigenous companies are rapidly climbing up that ladder, though. In India, Wipro (WIT ) and Infosys (INFY ) once happily banged out low-level software code modifications. Now they compete with IBM and others for international clients in customized software. South Korea's Samsung is making waves with its cell-phone technology. STILL SMALL POTATOES. And in late February, Chinese researchers at Shanghai Jiao Tong University in Shanghai announced that they had designed several digital signal processing (DSP) chips -- the first ever in China. These complex devices are used as the brains inside everything from cell phones to digital cameras in the fast-growing consumer electronics markets. To date, Texas Instruments (TXN ) has dominated the DSP market, which was worth $3.9 billion worldwide in 2002, according to research firm In-Stat. Thus far, emerging markets have mainly provided incremental sales for tech giants. The U.S. market for handheld devices alone is larger than the entire Polish technology market, according to IDC. And China's $20 billion in annual technology spending pales in comparison with the $483 billion that IDC expects in the U.S. for 2003. "There are very few companies for whom India, China, and Russia represent such an incrementally large opportunity that they're likely to have a big effect on earnings estimates," says Arnie Berman, chief technology strategist for investment bank SoundView Technology Group. But with the East rising steadily as the West struggles, the importance of these emerging markets will clearly increase over time. And more companies will follow the lead of Veritas, seeking gold where before there was none.  By Alex Salkever, Technology editor for BusinessWeek Online Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | MARCH |
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