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IDC's Overview of EMEA Market and Trends — a Talk with Steven Frantzen, Senior Vice President, EMEA Region

September 27, 2016 by Ewa Lis-Jezak

How does the economic and political environment impact the ICT market in EMEA?

Steven Frantzen

Economic and political developments have an important influence on ICT investment and spending trends throughout EMEA, and thus directly affect vendors and users alike, though their impact often varies depending on the maturity of a country’s economy and the sophistication of its ICT infrastructure. Moreover, the relationship between GDP trends and ICT spending trends is not always so apparent, as the introduction of new products (e.g., tablets, smartphones) may lead to sudden spurts of growth in ICT investment, even in a weak economy. And, importantly, a lot of other factors are driving transformation and growth in the ICT industry today, in particular the impact of technology transition and digital transformation, which together pose a challenge to the future of almost every organization and business in the world.

With respect to more developed economies and markets (e.g., the United Kingdom, Germany, the Netherlands) ICT spending trends tend to align closely with changes in GDP and capital investment, and so any economic shifts have a direct impact on the ability of our customers to invest in IDC services beyond our core data products (often considered essential), such as consulting and marketing services (often considered discretionary). As such, overall trends and business tend to be more predictable for both us and our customers. ICT demand, particularly in the larger European country markets, tends to weather economic storms much better than the more fluid emerging economies in EMEA. As a consequence, ICT vendors are increasingly doubling down on larger, more developed country markets, focusing on generating more net revenues and income, even with generally lower growth rates, and prioritizing investment in sales channels, marketing, and support, accordingly. More developed markets also tend to embrace newer technologies much earlier in the implementation hype cycle, thereby offering new sales’ opportunities for vendors, as well as for IDC in terms of covering new markets and supporting efforts to reach new customers. The latter is particularly important considering the broader uptake of new technologies like cloud, Big Data, IoT, and others among European enterprises, and this is positively affecting our business in Western Europe, given our reputation for thought leadership and expertise in supporting local go-to-market operations.

How do you see the different economic developments across countries and regions being reflected in ICT demand? How are local vendors reacting to these changes?

With the general demise of emerging markets over the past several years, due to increased economic and political uncertainty and lower demand, ICT vendors have been gradually retrenching in CEE and MEA regions — they have been reducing the number of offices and staff, simplifying management structures, prioritizing a smaller number of countries, and cutting back on sales and marketing investment, even to the point of scaling back data requirements. In reality, the hype around investing in emerging markets as part of a longer-term growth strategy is over for the moment. These trends have been detrimental to the ICT business in that the once very strong growth rates characteristic of these regions have slowed substantially. For example, ICT demand in Central and Eastern Europe has suffered since the worldwide financial crisis and has yet to fully recover, and this region now represents a lower priority for ICT vendors when it comes to market coverage and go-to-market services. Russia in particular, which only several years ago was hailed as one of the most dynamic emerging markets in the world, has experienced several successive years of ICT market contraction in the face of lower oil/gas prices and economic sanctions as a result of its policies in Ukraine, which has forced a lot of vendors to curtail operations and investment, and thereby affecting our local business. We now see a similar development underway in much of the Middle East due to the sharp drop in oil/gas and commodity prices, which has undermined ICT investments in many economic sectors and slowed the implementation of national development strategies, while the recent downturn has even been more dramatic for the economies and ICT markets of Africa. Political instability has also negatively affected the ICT industry in MEA, with Egypt and Turkey being the most recent examples. Nevertheless, while the IDC business has slowed in these markets, we still have the strongest position among ICT vendors and are increasingly competitive in the end-user business, particularly in the government sector. And, given technology trends, there are numerous opportunities to renew growth.

How is IDC adjusting to these changes in terms of its portfolio and customer support?

As we well know from our industry, the business world is on the cusp of a major period of disruption, transformation, and reinvention, ushered in by digital technologies. Given the critical importance of ICT to every industry today, I can see growth opportunities throughout EMEA for every line of business and at every geo level (by region, country, etc.). And despite the positive growth trends of the past several years, in many respects we are still under-sized compared to the overall opportunity and addressable market, even more so when end-users are added into the business mix.

While we are well entrenched among many of the larger ICT vendors, a lot of the future growth in our vendor business will stem from many of the new suppliers emerging on top of what we at IDC call the 3rd Platform (cloud, Big Data, mobility, social), as well as all of those new companies which are beginning to populate the evolving ecosystems around newer technology areas such as the Internet of Things (IoT), cognitive systems, robotics, 3D printing, artificial/virtual reality devices, etc. To this end, we expanding our activities and engagement with new logos and customer segments.

Along with sales, we are also investing heavily in new research coverage for both content and data to support longer-term business growth. In fact, when one considers our robust research methodologies and processes along with all of the potential new topics subsumed under digital transformation, we have a significant opportunity to continue growing our core research business through new coverage, even as the demand for some of our services around traditional ICT wanes. Over the past several years, we have launched a number of new content and data tracking services across all three regions covering the cloud, mobility, IoT, Big Data/analytics, robotics, 3D printing, and cognitive systems, while establishing specific research practices for security and channels. Moreover, we continue to refine and extend our current suite of data services by adding more detailed segmentation, new modules and new geographies, and we are currently evaluating the possibility of supplementing our portfolio with sales-out data tracking.

What other areas are you exploring?

A related source of future growth is consulting, which consists of single-client custom engagements to address specific customer requirements. Given our expanding research coverage, extensive consulting capabilities, and country office network, we are very well positioned to support ICT vendors in their various go-to-market activities across EMEA.

We have more recently added specific expertise and established practices in areas like sales enablement and business value to support our longer-term growth strategy for consulting.

Of course, events represent another integral part of our overall growth strategy and are an important differentiator throughout EMEA when it comes to our marketing services’ support for vendors. Given our capabilities, country office network, and expanding reach among senior ICT executives, we remain confident in our ability to continue growing this line of business, and we are regularly undertaking steps to maintain our competitiveness by diversifying the portfolio, adding new types of deliverables, offering new content and themes, and targeting new segments.

We also have high expectations for the regional implementation of IDC’s newer user advisory business — IT Executive Program (IEP).

Finally, I should mention the government segment as a growth opportunity, ranging from engagements with the European Union (EU) to activities supporting governments in CEE and MEA with their national development strategies. Our dedicated EU team is already undertaking efforts to scale up the number of annual project engagements with the EU, and our very strong track record in working with governments, particularly in MEA, gives us a solid basis for future projects around national skills development, economic diversification, ICT industry development, and more.

Can you give us a view of ICT in Africa? What segments are growing fastest, and are more IT vendors getting a foothold on the continent?

Of the many sub-regions in EMEA, Africa holds the greatest longer-term promise, based on population and economic growth trends. According to various reports on worldwide population trends, by 2050 Africa’s population will more than double and will account for 1 in 5 people in the world; Nigeria will surpass the United States in terms of population size, and Africa will be home to 7 of the largest 20 countries in the world.

Population, however, is not always a measure of economic destiny. While we can expect that demographics will drive long-term economic growth and go a long way in shaping ICT investment and trends in Africa, the reality of the region’s ICT market for the foreseeable future is a combination of lower per capita ICT outlays, lower ratios of ICT spending to GDP, and an enduring gap in technology usage and deployment in comparison to most other regions. This has to do with the dual structure of the African ICT market, which consists largely of consumer-type spending on large volumes of lower-end ICT equipment (e.g., mobile devices, handsets) along with pockets of more dynamic infrastructure investment in key sectors such as telecommunications and banking. Of course, the African ICT market will grow, and quite strongly in line with collective consumption, but higher, more sustainable ICT market development will only be possible with more balanced economic development across many sectors, greater capital investment in large-scale infrastructure projects, and a more stable business environment. Various challenges related to transparency, regulation, available capital, stable power and energy, and significant fluctuations in exchange rates (e.g., in South Africa and Nigeria), continue to plague the region’s business landscape and undermine its potential, including that for ICT investment. The flip side is that Africa is now home to some really interesting and unique ICT-based innovation, arising from these local challenges.

For ICT vendors, this means that Africa remains important, but it has begun to lose some of its attractiveness —the region is still a longer-term play. In fact, while there was a wave of high-profile investments up until 2015 by some of the larger ICT vendors, many are now scaling back their operations and reducing the number of offices and staff in the region, while refocusing resources on select opportunities and vertical markets. This said, some of the more far-sighted companies, including Google and telecom operators like MTN, are still placing bets on Africa’s longer-term potential.

You have been with IDC for more than 25 years. What’s kept you with the company all this time?

My initial plan was to spend a few years with IDC in Europe and then move on, quite likely back to the United States, but I quickly began to appreciate the opportunity to work in a very dynamic industry and for a company with a fairly flexible culture, and one that offered a lot of possibilities to grow and develop. Moreover, the past two or three decades have been a very exciting time to be in Europe (both East and West) and the Middle East and Africa, considering all of the major political and economic developments. I have a passionate interest in the intersection of politics, economics, culture, and technology, and I’ve been around to see the fall of the East Bloc, EU enlargement, introduction of the euro currency, economic development and transformation throughout MEA, among other events. And, rather unexpectedly, for the duration of my career, IDC as a company has offered me the right combination of autonomy, flexibility, and possibilities for personal development and growth, all within a global context and within an industry that continues to stimulate my intellectual curiosity. I should also mention our company’s culture and working environment, and the fact that I have had the opportunity of achieving some milestones alongside some really great people. Finally, despite racking up thousands and thousands of air miles over the years, I still enjoy the opportunities my job presents for travel.

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International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. With more than 1,100 analysts worldwide, IDC offers global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries. IDC's analysis and insight helps IT professionals, business executives, and the investment community to make fact-based technology decisions and to achieve their key business objectives. Founded in 1964, IDC is a wholly-owned subsidiary of International Data Group (IDG), the world's leading media, data and marketing services company. To learn more about IDC, please visit www.idc.com.

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