The South African IT market is starting to mirror those in first world countries, where services account for the largest share of the market.
Developing a service capability is critical for vendors in order to ensure survival and to improve revenues in a commoditised market where margins are continually squeezed. Technology services are services specifically related to the planning, implementation and on-going support of IT platforms rather than other professional services such as HR, management services and so on.
During 2004 the fastest growth rate in the IT industry was experienced in the hardware market - spurred on by favourable exchange rates and refresh cycles. Although the PC volumes shipped grew by 32.7% and servers by 47.0%, this did not do much for revenue that grew a mere 14.7% by comparison. For the second year running, hardware vendors had to work extremely hard to meet their revenue targets.
The exchange rate has had a significant impact on the IT market, which is highly sensitive to imported components, especially hardware. The rand strengthened 15% against the US dollar in 2004, from R7.56/$ to R6.46/$. Overall the rand has gained about 120% against the greenback since it hit a record low of R13.85/$ late in 2001, averaging gains each year except during 2001 when it experienced a loss of about 60%.
The continued strengthening of the rand made imported hardware and software more affordable, giving buyers more freedom with their available budget. Most companies have made use of the opportunity provided by the lower rand/dollar exchange rate to refresh equipment, to the detriment of locally produced hardware.
In general, the South African IT market is maturing and evolving to a services-based industry. Services accounted for 40.9% of the revenues in 2004, software accounted for 19.4% of the revenues, while hardware accounted for 39.7% compared with the 2001 revenue shares of 18.1% for IT services, 38.5% for software and 43.4% for hardware.
It is expected that IT expenditure will move increasingly towards a services-based model as software and hardware products become commoditised and services offer the only means of differentiation for many vendors.
With corporate IT budgets sitting at about 3% of turnover and being constantly scrutinised, combined with continued consolidation in the local IT industry, the African continent has become more attractive to local players - whether as a launch platform for local suppliers or as a support service hub for large users.
In a recent survey by BMI-T entitled, "SA Corporate IT User Trends, 2005", business issues such as compliance, customer intimacy, cost control, process improvement and competitive differentiation emerged as areas of focus in the IT environment. Voice over IP, wireless LANs and mobile data are the most relevant emerging technologies. The research indicated that the main driver for choosing these technologies is cost savings.
Change is the price of survival. In order to assist companies in their quest for innovation, vendors and service providers require an understanding of both business and IT issues. In light of this, service providers have continued with the verticalisation of their go-to-market strategies in order to deliver in-depth understanding and possible innovation to their client`s business models.
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