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Competing on StrengthsThe Challenge for Europe’s IT firms

INFORMATION, COMMUNICATIONS & ENTERTAINMENT

TECHNOLOGY

303-771 EIU Survey_v3 6/2/07 10:56 Page 1

Competing on Strengths 1

Produced in co-operation with theEconomist Intelligence Unit, the aimsof the study are twofold: to identify the major opportunities and challengesfacing Europe’s information technologyfirms, and also to advance steps thatindustry leaders and policymakers cantake to foster greater competitiveness.

In our previous study on Europe’stechnology sector A Wake-up Call forEurope we suggested that, in globalcontext, the region’s IT suppliers arelosing competitive ground to rivals in the U.S. and Asia, particularly inmarkets outside of Europe. In theEuropean market, as made clear in thisnew analysis, the situation is brighter:Europe’s IT managers retain a strong

preference for purchasing from localsuppliers, and believe the latter areimproving their performance in anumber of areas. Price competitivenessis not one of those areas, however, andit remains imperative for European ITproviders to address pricing if they areto make inroads into overseas markets.

Some of the challenges facingEurope’s technology sector are of amore fundamental nature – ensuring a continued flow of talented ITprofessionals into its firms, andfostering the entrepreneurial skillsnecessary to help smaller IT providersgrow to sufficient scale. It is here thatpolicymakers can make a tangible

difference, provided the EuropeanCommission and national governmentschannel their energies wisely.

KPMG’s Technology Practicecontinuously aims to provide clientswith informed perspectives on criticalindustry issues. The following analysisnot only highlights the depth ofindustry knowledge available fromKPMG member firms, but alsodemonstrates an on-going commitmentto turning knowledge into value for the benefit of our clients, our people,and the capital markets.

Introduction 1

Executive summary 2

Finding the opportunities 4

Competitive strengths and weaknesses 8

The policy challenge 14

Appendix

Survey results 16

Introduction

Contents

Frederic QuelinChairmanEMA Technology Practice

On behalf of KPMG’s Technology practice, I am pleased to introduce the second annual review of Europe’s technology sector.

303-771 EIU Survey_v3 6/2/07 10:56 Page 3


• Poor price competitiveness,highlighted in the previous study,remains a major stumbling block forEuropean suppliers. Nevertheless,the growth of offshoring and thedevelopment of alternative methodsof delivering and pricing softwareand services give vendors newways to tackle this problem. Centraland eastern Europe, for example,provides attractive “nearshore”locations with which vendors canmore cost-effectively deliver IT toclients in the west.

• Price is not everything. IT managersrate European suppliers highly forthe technical excellence of theirproducts and their close attentionto local needs. In this year’s survey,42 percent believe Europeanvendors are improving on technicalexcellence, while another 44percent say they are at leastholding their ground. And nearly 40 percent of respondents believelocal vendors are getting better atcatering to local needs.

There are a number of areas whereEurope’s policymakers can helpimprove the competitiveness ofEurope’s home-grown IT firms, albeitover time. Above all, 77 percent ofrespondents cited the need forgovernments to increase investment in education, in order to foster the growth of IT skills and to ensure anadequate supply of talented people forthe technology sector. The competitiveedge that European IT companiesenjoy in quality and technicalexcellence hinges on it.

2 Competing on Strengths

This is among the major findings of aresearch programme conducted byKPMG, in co-operation with theEconomist Intelligence Unit, into thecompetitiveness of Europe’s IT sector.

Our previous study, A Wake-up Call forEurope published in December 2005,found that the weaknesses of Europe’stechnology firms* vis-à-vis overseasrivals outweighed their strengths,particularly in the area of pricecompetitiveness. This remains aweakness, particularly for Europeanfirms looking to tap demand in foreignmarkets. This year’s research, however,based on a survey of over 100 EuropeanIT managers and in-depth interviewswith leaders of some of the strongesthome-grown IT firms in Europe, findsnew opportunities and challenges close to home.

Key findings from our analysis includethe following:

• Growth in IT spending by Europeanfirms is moderating, but the goodnews is that faster growth pocketsexist where European suppliersperform well in comparison withoverseas rivals - IT services, mobiledevices and enterprise software.Over half (51 percent) of ITmanagers in our 2006 survey plan to boost IT services spending withlocal suppliers; 44 percent say thesame in regard to both enterprisesoftware and mobile devices.

• Public sector IT in central andeastern Europe is anotheremerging area of opportunity forlocal vendors. It is a market wherelocal knowledge still counts for alot; hence it is attractive for smallerspecialised suppliers. Nevertheless,US vendors will be strongcompetitors in this new market.

• European customers also display a high degree of regional loyalty.Nearly nine out of ten IT managersin the survey would prefer to utiliselocal suppliers for at least some ITproducts and services. A relativelyhigh percentage (29 percent) saythey have had unsatisfactoryexperiences with overseassuppliers, and less than one-thirdplan to boost their spending with suppliers from Asia’semerging markets.

• The most significant area ofimprovement for Europe’s IT firmsappears to be in their level ofinnovation. More than half of ITmanagers in the survey believeEuropean firms are improving theirability to introduce innovative newproducts and services.

Executive summary

*European IT firms are defined here as suppliers of IT hardware, software and services whose birthplace is Europe. Country or region of origin is important to this analysis as, in our view, it is the business environment which determines the ability of entrepreneurs and their firms to emerge and grow.

The 2006 survey on Europe’s IT competitiveness

In September 2006, KPMG and the Economist Intelligence Unit polled 109 CIO’s, IT managers anddirectors in Europe for their views on the competitiveness of Europe’s IT firms. This is the second yearthat this survey has been conducted: our 2005 survey polled technology managers worldwide, while in2006 we opted to focus our research exclusively on executives in Europe.

The survey covered more than 20 countries, with the UK, Germany, Italy, Switzerland, Spain and theNetherlands providing the largest number of respondents. A range of sectors is represented, withfinancial and professional services, technology, manufacturing and also the public sector accountingfor the majority of respondents. The companies represented in the survey were of substantial scale:63 percent earn more than €500 million in annual revenue, and 45 percent earn over €1 billion.

European suppliers of IT can take heart: despite a modest growth in spending, theircustomers are loyal and believe that local suppliers retain a competitive edge in keyareas of performance.

303-771 EIU Survey_v3 6/2/07 10:56 Page 2

Europe’s IT industry can take somecomfort from knowing that IT spendingis running ahead of the region’s GDPgrowth, which the EconomistIntelligence Unit expects will come in at 2.8 percent for 2006. In 2007,moreover, IDC predicts IT demandgrowth to accelerate to 5.3 percent,creating greater opportunities forsuppliers, particularly of services and software.

The European IT managers in oursurvey broadly agree with this outlook.While 17 percent say they plan to keep to their current spending levelover the next two years, 53 percentplan to boost their expenditure.

Europe’s IT market is not homogeneous,and as the European Union (EU)enlarges so too does the divergencebetween IT spending among itsmember states. Germany, France and Italy are mature IT markets with

below-average growth. Spain andBenelux are the most buoyant marketsof the traditional EU-15 members, withgrowth rates of over 5 percent. The UKfalls between the two growth extremes.

The emerging economies of centraland eastern Europe (CEE) offer thecontinent’s best growth prospects. IDC predicts that IT spending in CEE

will reach $54bn in 2009, more thandouble the figure for 2004. Thecombination of public sector reforms,increased foreign direct investmentand major efforts to meet internationalstandards has spurred businesses topump money into IT in the region’snew EU member states includingBulgaria and Romania, the latestentrants.


After a 2004-2005 recovery in spending, the growth of Western Europe’s market forcomputer hardware, software and services is moderating. Spending is likely to expand4.1 percent in 2006 – slightly down from the previous year – to reach €280 billion,according to technology research firm IDC.

In western Europe, too, public sectorreform is also driving IT spending, withtrends such as decentralisation, sharedservices and e-government providingstrong business for vendors. “Publicsector IT is a good business to be in,particularly the local government andhealthcare sectors,” says MassimilianoClaps, a senior research analyst at IDC.

In the UK, for example, sharedservices have become a focal point for boosting government efficiency.“Among governments of the major EU nations, the UK’s is the mostadvanced at leveraging technology,”says Pierre-Yves Cros, director ofglobal strategy for IT services firm Capgemini.


Finding the opportunities

Western Europe IT market size and growth, 2006-2008 (US$bn)

More than10% increase

Up to 10%increase

No change

Up to 10%decrease

More than10% decrease

Don't know

19%

38%

15%

16%

9%

3%0

50

100

150

200

250

300

350

400

450

200820072006

+4.1%+5.3%

Hardware+6.4% Software

Services

Source: KPMG/Economist Intelligence Unit survey, September 2006 Source: IDC market forecasts, November 2006

How is your company’s overall spending on IT likely to change over the next two years?

303-771 EIU Survey_v3 6/2/07 10:56 Page 4


Germany’s SAP continues to dominatethe enterprise software market inEurope, and its huge presencesustains an extensive “ecosystem” of systems integrators and smallersoftware firms who benefit frompartnering with the German giant. Onesuch firm is Autonomy, the UK searchengine specialist. The association with

SAP works well, according to MikeLynch, the firm’s Chief Executive, as Autonomy customers often buyboth vendors’ products together.(Autonomy recently acquired its mainrival, the US firm Verity. “We are a veryrare example of a European softwarecompany buying a US company,” saysMr Lynch.)

The more numerous and successfulthe giants, the more successful theecosystem. However, Europe’stechnology sector has few such giants,and European IT firms appear to find it more difficult to scale up than theirUS counterparts.


Pockets of growth

Against a background of modestEuropean increases in IT spending,pockets of faster growth exist whereits suppliers are strong; namely in IT services, mobile devices andapplications, and enterprise software.

Over 50 percent of our 2006 surveyrespondents predict an increase intheir spending with European ITservices firms over the next two years.In our 2005 survey, by contrast, only35 percent of respondents said theyplanned to spend more with EuropeanIT services firms in the subsequenttwo years. Notwithstanding this, the pressure on service providers toreduce their cost base through greateruse of offshore outsourcing willcontinue. It also means thatconsolidation is likely. “Europe’s ITservices market is still very fragmenteddespite the attempts made toconsolidate,” says Soumitra Dutta,Professor of business and technologyat Insead, a European business school.

Two other promising growth areas forEurope’s IT industry, according to thesurvey, lie in mobile devices andenterprise software. European vendorsestablished an early lead in mobiledevices in the 1990s and, in anindustry now characterised by intenseprice competition and relentlessinnovation, Europe’s mobile market continues to offer opportunities bothfor giants like Nokia and the smallermore specialist vendors. “Mobiletechnology is an area where Europe

is still ahead of the US,” says Jon vonTetzchner, Chief Executive of OperaSoftware, a Norwegian firm thatproduces browsers for mobile devices.Opera is supplying its browser to,among others, T-Mobile for the latter’snew mass-market mobile web service.

Among IT managers in our survey, 44 percent say they plan to boostspending with European suppliers ofmobile devices, including PDAs andsmartphones. (IDC predicts growth of European spending on smartphonesof nearly 40 percent per annum overthe next two years.) And 39 percentsay they will spend more on mobile applications.

Enterprise software is anotherrelatively buoyant IT market and onewhere European suppliers continue tocount, although recent years have seenseveral of Europe’s smaller vendorsacquired by North American rivals.While 44 percent of IT managersexpect to maintain the same level of spending on European enterprisesoftware, the same number say they plan to increase it.

0

20

40

60

80

Desktopsoftware

Storagesystems

Hardware(computers,

servers,peripherals)

Mobile applications

Enterprisesoftware

Mobile devices

(phones, PDAs)

IT services

SubstantialincreaseSmallincrease

No change

SmalldecreaseSubstantialdecrease

How is your company’s IT spending with European suppliers likely to changeover the next two years in the following categories?

Source: KPMG/Economist Intelligence Unit survey, September 2006

303-771 EIU Survey_v3 6/2/07 10:56 Page 6


This is regretable, as poor pricecompetitiveness vis-à-vis Asian andNorth American rivals is by far thebiggest negative issue facing Europeanvendors. In our 2005 research, 82 percent of global IT managers rated Asian suppliers as “competitive”or “superior” in terms of pricecompetitiveness, while 44 percent saidthe same of North American suppliers.Just 18 percent of respondents saidthis of European suppliers. Thedifference in assessments was almostas stark when it came to suppliers’ability to deliver value for money.

Asian competitors, with their lowercost base, are perceived to have muchgreater flexibility than European firmsto reduce contract prices. But manylarge US vendors also have suchflexibility. Mr Claps at IDC cites theexample of a consortium led by a USsoftware and services firm thatreportedly submitted a bid for agovernment contract in Europe thatwas 50 percent lower than the base price. So low, in fact, that it triggeredan investigation to check the

consortium could really do the work atthat price. The group, which includedseveral local players, was ultimatelyawarded the contract, beating offcompetition from European rivals.

Local quality matters

The good news for European suppliersis that, among European IT managers,price is not everything. Nearly nine outof ten participants in the 2006 surveywould prefer to find local or regionalsuppliers for at least some IT products and services. “Despite the consolidation we have seen in IT services, there is still room for local heroes,” says Mr Claps, addingthat this is particularly the case with IT contracts in local and centralgovernment where software often has to be customised.

Less than one-third of European IT managers say they plan to boost their spending with suppliers fromAsia’s emerging markets, despite the latters’ typically lower prices. Overall, European firms report mixedexperiences in dealing with overseas IT suppliers, whether from Asia, North America or elsewhere: while 39 percent of survey respondentsdescribe their experiences withvendors from distant regions assatisfactory, a relatively high 29 percent say their experiences have been unsatisfactory.


In general, European IT firms are at a disadvantage in this area incomparison to US and Asian rivals, and it reflects on their pricecompetitiveness. As highlighted in the 2005 study, price competitivenessremains a major stumbling block forEuropean suppliers, particularly when it comes to penetrating marketsoutside of Europe.

Almost 40 percent of IT managers inthis year’s survey say the pricecompetitiveness of European ITsuppliers is “poor” or “below average”. (44 percent rate it as“average”.) This represents adeterioration from the assessmentprovided in 2005, when 31 percent of survey respondents said the same.

Indeed, more IT managers believeEuropean firms’ performance in thisregard is deteriorating as opposed tothose who say it is improving.

Competitive strengths and weaknesses

0

20

40

60

80

Attention to local

needs/tastes

Customer service/productsupport

Scope forcustomisation

Technicalexcellence

InnovationPricecompetitiveness

Above averageor superior

Below averageor poor

How would you assess European suppliers of IT hardware, software andservices against the following criteria?


Scale affords IT providers greater opportunities to achieve cost economies, whetherthrough stronger bargaining power with their own suppliers or geographic reach toexploit lower cost sources of labour.

303-771 EIU Survey_v3 6/2/07 10:57 Page 8

Please indicate whether you agreewith the following statements:

We are likely to increase our ITspending with suppliers from Asia’semerging markets

Source: KPMG/Economist Intelligence Unitsurvey, September 2006

On balance, our experience in using ITsuppliers from distant regions hasbeen unsatisfactory

Source: KPMG/Economist Intelligence Unitsurvey, September 2006


Achieving this type of edge, of course,requires skilled people – not onlyengineers and applications developerswith advanced technical knowledge,but also entrepreneurial individuals andmanagers who can help commercialiseinnovations. European businessleaders - in all industries, not justtechnology - observe that the skills tomatch the requirements posed by newtechnologies and business models arein increasingly short supply. Should thisskills shortage prove to be sustained,many European IT firms will find itdifficult to maintain their edge. As we will discuss below, they look to governments to take long-termmeasures to address this problem.

Addressing the cost structure

So, all things being equal, Europeanbuyers will favour European suppliers.But other factors rarely are equal, least of all price. This is a problem that will not go away, particularly asEuropean firms attempt to compete inoverseas markets. Indeed, two- thirdsof IT managers in our survey expect tosee further reductions in the price of IT over the next two years. How canEurope’s IT industry respond to thepricing challenge?

Increasing the use of offshoring is oneapproach. North American IT firms areenthusiastic outsourcers of softwaredevelopment, service delivery andother functions to India and other low-cost countries. “In the last three or four years, our US clients have been able to move ahead by sendingmore IT work offshore and achievingsignificant savings,” says Mr Cros of Capgemini.

Europe’s IT firms have been muchslower to embrace offshoring, oftendue to cultural and political constraints.According to IDC, European IT serviceproviders still have a lower share oftheir workforce offshore than their USand Asian competitors. The picture isbeginning to change, at least amongthe largest suppliers. Capgemini, forexample, recently announced that itwill acquired Kanbay, a US-listedoutsourcing company that has most of its workforce in India. The deal willalmost double Capgemini’s headcountin India to 12,000, around 16 percentof its global workforce.

Offshoring is nevertheless seen asdouble-edged sword by manyEuropean vendors. They need to do it to remain competitive but if takentoo far, it can lead to coordinationheadaches - particularly for smaller ITfirms and those with limited resourcesto manage outsourcing providers – and customer complaints that theirlocal European vendor is no longer that local.


Disagree50%

Don’t know18%

Agree32%

Disagree39%

Don’t know32%

Agree29%

Pricecompetitiveness

Customer service/product support

Scope forcustomisation

Attention to localneeds/tastes

Technicalexcellence

Innovation

No change Deteriorating Improving

37%10%

53%

44%14%

42%

54%7%

39%

54%11%

35%

52%18%

30%

38%33%

29%

In your view, how is the performance of European suppliers changing againstthese criteria?


In 2005 IT managers – in both Europeand other regions – rated Europeanvendors on a par or better than North American and Asian rivals on the technical excellence (and quality) of their products and their degree ofattention to local needs (customisation).In the 2006 survey, 44% of EuropeanIT managers believe Europeansuppliers are at least maintaining theirperformance in the area of technicalexcellence, while another 42 percentbelieve they are improving on it. Just under 40 percent of Europeanrespondents in 2006 believe localvendors are getting better at cateringto local needs. (54 percent say therehas been no change.)

The most significant area ofimprovement for Europe’s IT firms,however, appears to be in their level ofinnovation. More than half of ITmanagers in the survey believeEuropean firms are getting better atintroducing innovative new productsand services. Altogether 47 percentrate European firms as “average” atinnovation, while another third believethey are “above average”.

Mobile software firm Opera and searchspecialist Autonomy may be seen as examples of such innovationemanating from Europe’s smaller ITfirms. Autonomy’s search technologywas borne out of research atCambridge University, and ChiefExecutive Mike Lynch believes thefirm’s success is down to its marketingof the technology rather than asoftware solution. “If you are aEuropean company, you have to have a fundamental technology, not just a nice piece of software,” he says.

303-771 EIU Survey_v3 6/2/07 10:57 Page 10

Competing on Strengths 1312 Competing on Strengths

“Proximity is important in this businessand our customers want to be able totalk to us face-to-face,” says PascalBrosset, Head of Market Strategy at SAP. He and SAP believe theoptimum solution is to split workequally between high-cost countrieslike Germany and low-cost ones like India – not that India is the only option.

Because of a shortage of high-calibreIT staff and rising costs back home,Indian offshoring firms are locating“nearshoring” centres in easternEuropean countries with a plentifulsupplier of skilled and relatively cheapIT workers. Satyam, for example,opened a centre in Budapest in 2004.

Western Europe’s IT firms are doingthe same. Logica CMG operates a“nearsourcing” centre in Prague, and Capgemini has a similar operationone in Krakow, which it acquired in2003, just before Poland’s accession to the EU. There are also localoutsourcing players emerging fromcentral and eastern Europe, such asthe Russian-US firm EPAM or Prague-based IBA. Among European IT managers, 39 percent say their firms are likely to begin or increase the outsourcing of IT services toproviders in the CEE region.

Creative pricing

Europe’s technology firms may or maynot be able to improve their coststructure – and price competitiveness– through outsourcing, but greaterflexibility in the structure of contractpricing could make a difference. One ofthe clearest findings from our survey isthat customers are dissatisfied withtraditional pricing and delivery modelsand would like to see more innovationfrom vendors on this front.

Almost three out of every fourEuropean IT managers in our surveyexpect to see significant changes inhow suppliers structure pricing in thenext couple of years. When asked tosuggest the most effective measuresEuropean software vendors could taketo improve their competitiveness, top of mind is the offer of pricing forapplications based on the level ofdemand or usage. Third on their listcomes the offer of revenue-sharingarrangements, whereby softwaresuppliers forego an up-front fee for ashare of revenue from the software-enabled service.

Europe’s mainstream vendors are oftwo minds when considering changeto established business models. “On-demand is the way to go, and itreflects the maturing of this industry,”says SAP’s Mr Brosset. “However,” he adds, “we also have to offerflexibility to our customers, and on-demand would require them to use software that is morestandardised than they are used to. It’s a two-way street.”

Outsourcingbusiness processes

to third parties

Offeringrevenue-sharing

options

Relocating parts ofthe business

to lowercost locations

Offeringon-demand

(pay as you go)pricing for applications

48%

37%

29%26%

In your view, what would be the two most effective measures that Europeansoftware suppliers can take to improve their price competitiveness? (Top responses)


303-771 EIU Survey_v3 6/2/07 10:57 Page 12


Third on the list is the need forimproved financing mechanisms forEuropean technology companies,particularly young firms. To address thisproblem, the European Commissionrecently announced measures to helpsmall and medium-size businesses geteasier access to external financingwhen they are starting up. Theobjective is to triple investment inearly-stage firms from €2 billion to €6 billion by 2013. This, it hopes, will help seed a stronger Europeaninvestment culture.

Professor Dutta observes, however,that more than financing is needed tohelp Europe’s small providers grow.“Access to capital is not a major issuefor start-ups,” according to ProfessorDutta. “The real problem they have istrying to scale up. European firms havedifficulties when it comes to takinginnovations to market.” Entrepreneurialskills are as much in demand as ITskills in helping technology firms grow.


European policymakers have longworried that IT investment in the US isconsiderably higher than in the EU, andthat US firms are more effective inusing it to boost productivity.

By consistently spending more on IT,US businesses tend to adopt newtechnologies quicker which, in turn,leads to greater productivity gains.“Studies by the European Commissionhave shown that a major part of theproductivity gap between Europe andthe US is down to the different rates of take-up of technology,” saysProfessor Dutta.

The demands that US firms place ontheir software, services and hardwareis one important force driving USsuppliers to innovate continuously.Partly in recognition of this link, theEuropean Commission and nationalgovernments have actively promoted – through the eEurope, i2010 and otherinitiatives - the adoption of digitaltechnologies by European individualsand businesses in order to foster a“knowledge economy”.

Take-up of enterprise broadbandtechnologies has increased in manyEuropean countries as a result, butexecutives recognise that policymakersneed to take the long view in strivingto improve conditions on the supplyside of the market. There are severalsuch areas where policymakers canhelp improve the competitiveness of Europe’s home-grown IT firms,according to survey respondents.

First and foremost is education.Mindful of the looming skills shortagein Europe that will affect businesses inthe technology and other sectors, overthree-quarters of IT managers in oursurvey believe that governments needto increase investment in education tofoster the growth of IT skills. TheCommission appears to be taking thisconcern on board in its promotion ofdialogue on skills among EU, nationalgovernment, academic and enterprisebodies; it is formulating a long-termstrategy to foster “e-skills forcompetitiveness, employability andworkforce development” to beunveiled in 2007.

Another area where government canhelp is supporting private-sectorresearch and development (R&D). A central aim of the Commission’scurrent strategy is to encourage an 80 percent increase in R&D spendingin Europe’s high-technology sector by 2010, but firms wonder if theCommission is using the right mechanisms to achieve this. Surveyrespondents would like, for example,to see more tax incentives toencourage investment in R&D byEurope’s hi-tech firms. Respondents are lukewarm, by contrast, about theefficacy of investing more publicmoney on R&D projects, another plank of the Commission’s strategy to boost innovation.

The policy challenge

Increase public funding forR&D in high technology

Work to improve financingmechanisms for European

technology firms

Increase tax incentivesfor investment in R&D

by high-tech firms

Increase investment ineducation to foster the

growth of EuropeanIT skills

77%

63%

45%

41%

In your view, what are the most important measures European policymakers cantake to help improve the competitiveness of Europe’s home-grown IT firms? (Top responses)


It is no accident that the country which spawns the world’s largest and mostcompetitive IT firms – the United States – is also where enterprise use of technology is most widespread.

303-771 EIU Survey_v3 6/2/07 10:57 Page 14

CIO 8.3%

CTO 4.6%

IT director/manager 51.4%

Technologydirector 11.9%

Other, pleasespecify 23.8%


Appendix: Survey results

1. Which of the following bestdescribes your job title?

Aerospace and defence 1.9%

Automotive 0.0%

Chemicals and petrochemicals 0.9%

Construction and real estate 2.8%

Consumer goods 0.9%

Electronics and electrical equipment 0.9%

Energy and natural resources 4.6%

Entertainment, media & publishing 1.9%

Financial services 22.2%

Government/public sector 11.1%

Healthcare, pharmaceuticals and life sciences 7.4%

Information technology 15.7%

Logistics and distribution 1.9%

Manufacturing 0.9%

Professional services 8.3%

Telecommunications 6.5%

Transportation, travel & tourism 6.5%

Other, please specify 5.6%

2. What is your company’s primary industry?

€500m or less 36.7%

€500m to €1bn 18.4%

€1bn to €5bn 18.3%

€5bn to €10bn 3.7%

€10bn or more 22.9%

3. What is your company’s global annual revenue in Euros?

Substantial Small No Small Substantialincrease increase change decrease decrease

Hardware (computers, servers, peripherals) 9.17% 45.87% 22.94% 19.27% 2.75%

Enterprise software 24.31% 39.25% 27.10% 8.41% 0.93%

Desktop software 6.42% 27.52% 51.38% 11.93% 2.75%

Storage systems 16.51% 44.04% 28.44% 10.09% 0.92%

IT services 14.68% 43.12% 29.36% 10.09% 2.75%

Mobile devices (phones, PDAs) 10.09% 46.79% 34.86% 7.34% 0.92%

Mobile applications 11.11% 37.96% 45.38% 3.70% 1.85%

5. How is your company’s IT spending likely to change over the next two years in the following categories?

More than 10% decrease 9%

Up to 10% decrease 19%

No change 16%

Up to 10% increase 38%

More than 10% increase 15%

Don’t know 3%

4. How is your company’s overallspending on IT likely to changeover the next two years?

303-771 EIU Survey_v3 6/2/07 10:57 Page 16


Agree Disagree Don’t know

All things being equal, we would prefer to find local or regional suppliersfor at least some IT products and services 86.24% 9.17% 4.59%

We are likely to increase our IT spending with suppliers from Asia’semerging markets 31.82% 50.00% 18.18%

We expect to begin or increase the outsourcing of IT services to providersin central and eastern Europe in the next two years 39.09% 47.27% 13.64%

On balance, our experience in using IT suppliers from distant regions has been unsatisfactory 29.36% 39.45% 31.19%

We are happy with global consolidation of IT suppliers 54.55% 28.18% 17.27%

11. Please indicate whether you agree with the following statements about IT suppliers in general.

Agree Disagree Don’t know

We expect to see reductions in the prices of IT over the next two years 67.29% 28.04% 4.67%

We expect to see significant changes over the next two years in howsuppliers structure the pricing of software and services 69.45% 15.74% 14.81%

We expect to see substantial global consolidation among IT suppliersover the next two years 52.78% 29.63% 17.59%

10. Please indicate whether you agree with the following statements about the supply of IT hardware, software and services.

Select two options

Offering on-demand (pay as you go) pricing for applications 48.15%

Relocating parts of the business to lower cost locations 37.04%

Offering revenue-sharing options (where the supplier foregoes an up-front fee for a share of revenue from the software-enabled service) 28.70%

Outsourcing business processes to third parties 25.93%

It is nearly impossible for European suppliers to improve their price competitiveness vis-à-vis North American and Asian suppliers 21.30%

Providing extended contract periods 18.52%

Using cheaper domestic labour 7.41%


9. In your view, what would be the two most effective measures that European software suppliers can take to improvetheir price competitiveness?

Improving Deteriorating No change

Innovation 53.21% 10.09% 36.70%

Technical excellence 41.67% 13.89% 44.44%

Attention to local needs/tastes 38.53% 7.34% 54.13%

Scope for customisation 34.86% 11.01% 54.13%

Price competitiveness 29.36% 33.03% 37.61%

Customer service/product support 29.36% 18.35% 52.29%

8. In your view, how is the performance of European suppliers changing against these criteria?

Please rate on a scale of 1 to 5, where 1 = Poor and 5 = Superior

Poor Below Av. Average Above Av. Superior1 2 3 4 5

Innovation 0.91% 17.27% 47.27% 32.73% 1.82%

Technical excellence 0.91% 10.00% 45.46% 37.27% 6.36%

Attention to local needs/tastes 0.00% 6.42% 31.19% 47.71% 14.68%

Scope for customisation 0.91% 5.45% 49.09% 40.00% 4.55%

Price competitiveness 3.67% 35.78% 44.04% 14.68% 1.83%

Customer service/product support 2.73% 16.36% 34.55% 40.00% 6.36%

7. How would you assess European suppliers of IT hardware, software and services against the following criteria?

Substantial Small No Small Substantialincrease increase change decrease decrease

Hardware (computers, servers, peripherals) 2.73% 29.09% 49.09% 17.27% 1.82%

Enterprise software 10.90% 32.73% 43.64% 10.91% 1.82%

Desktop software 2.83% 16.04% 71.70% 8.49% 0.94%

Storage systems 8.25% 22.94% 61.47% 6.42% 0.92%

IT services 13.08% 38.32% 36.45% 7.48% 4.67%

Mobile devices (phones, PDAs) 7.34% 36.70% 44.96% 9.17% 1.83%

Mobile applications 7.34% 32.11% 53.22% 5.50% 1.83%

6. How is your company’s IT spending with European suppliers likely to change over the next two years in the following categories?

303-771 EIU Survey_v3 6/2/07 10:57 Page 18


Germany 19.63%

France 8.41%

Italy 0.93%

Spain 7.48%

United Kingdom 28.97%

Ireland 14.95%

Netherlands 4.67%

Belgium 0.00%

Sweden 5.61%

Finland 9.35%

12. In your opinion, which of the following European countries offers the best growth environment for home-grown IT suppliers?

Select up to three

Increase investment in education to foster the growth of European IT skills 77.06%

Increase tax incentives for investment in R&D by high-tech firms 63.30%

Work to improve financing mechanisms for European technology firms 44.95%

Increase public funding for R&D in high technology 41.28%

Strengthen intellectual property laws to discourage IP theft by competitors 15.60%

Raise European tariffs on IT imports 2.75%


13. In your view, what are the most important measures European policymakers can take to help improve thecompetitiveness of Europe’s home-grown IT firms?

303-771 EIU Survey_v3 6/2/07 10:57 Page 20

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Executive summarygraphics.eiu.com/ebf/PDFs/Competing_on_strengths_FINAL.pdfClaps, a senior research...

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