Consolidate and conquer
But they have also cast an eye to opportunities outside of Poland, whether for building a capital group in the CEE region, winning tenders in new EU member states, or focusing on Western Europe and large corporations. Slowly but surely, the global market is opening to Polish IT firms.
Poland's IT market is experiencing phenomenal growth. According to PMR Consulting, the value of the market reached zł.17.8 billion in 2005. Although exact figures for 2006 are not yet available, PMR's IT-and-telecommunications- market analyst Mateusz Malicki believes that the predicted figure of zł.20 billion was reached. That would mean a 13-percent growth rate - twice as fast as the global average. PMR's research estimates that the market will further grow to zł.22.3 billion in 2007 and zł.24.6 billion in 2008.
Malicki is confident the market will continue to grow at the current rate. This is in spite of the fact that the market cannot count on the state administration providing it with multimillion- złoty tenders.
The lack of big public projects has caused a number of companies, like Computerland, Prokom and ABG-Ster Projekt (ABG-SP), to suffer. "Large companies live off state administration - those are long-term orders worth tens, if not hundreds of thousands of złotys," Malicki explains. He points out that the tenders for those orders usually last longer than normal tenders because losers frequently submit appeals and complaints (that often end up in court).
The other reason for the stagnation of public-sector tenders was, according to Malicki, that "last year, the needs of state administration seemed to have been forgotten.
Go forth and consolidate!
Mergers on the IT market have been the talk of the town over the past two years and last week saw another merging company reveal its plans. ABG-SP and Spin, which signed a merger agreement last October, have just unveiled their combined strategy. The new firm - ABG Spin, which will officially come to life by the end of H1 2007 - will be worth zł.780 million and will employ 1,200 people.
"By the end of 2008, we want to be among the top three companies in Poland as far as net profit is concerned," declares Dariusz Brzeski, the president of ABG-SP, adding that up to now his firm has been fourth or fifth.
The ABG-SP and Spin merger is just one of a series of mergers which have altered the balance of power on the Polish IT market. ABG-SP and Spin's October agreement was signed just a year after ABG acquired Ster-Project. Asseco Poland bought Softbank early last year, while Computerland and Emax began the process of joining forces in November. Consulting and IT-solutions firm Infovide acquired Matrix.pl prior to the former's WSE debut.
Beating the competition
Improving competitiveness is usually the key motive behind market consolidation. Computerland Emax's spokesperson Michał Michalski explains why his company found a partner: "The merger will strengthen the company's strategic and competitive position on the market … allowing it to win and carry out large projects." Michalski underlines that, as a result of the merger, the company will become "the undisputed leader" in providing IT solutions for the energy sector.
Malicki points out that mergers are a way to prepare Polish IT companies for competition with large players from abroad. "They would have had no chance if they hadn't merged," he states, but stresses at the same time that it is hard to speculate whether any foreign firms will enter the Polish market in the nearest future.
Organic growth
But while the big boys on the market are building up their muscles by merging with other players, Kraków-based Comarch is counting on its own resources. "We are not planning any acquisitions," the company's vice president, Rafał Chwast, declares. He underlines that Comarch has been growing rapidly over the last few years and that it is the market that has to chase the company, not the other way around. Comarch's revenue grew by 11 percent last year and its net profits surged by 89 percent, year-on-year, in 2006. "If we are growing, then why should we acquire smaller companies?" Chwast asks. He says that, "unlike big integrators," Comarch doesn't need to take part in the consolidation in order to offer new products or achieve net profit. "Organic growth is much safer and more stable than growing through acquisitions," he adds.
PMR's Malicki doubts whether any more large, spectacular acquisitions can be expected on the market. "It is hard to find any company to buy … We already have a couple of large capital groups," he claims.
Expansion abroad
Aside from the tendency to consolidate the market, Polish IT companies are also looking more confidently for profit outside of Poland.
Foreign expansion plays an important role in ABG-SP's strategy. The company has won a tender to implement the IACS system used to control the flow and distribution of EU subsidies for agriculture. ABG Spin will offer solutions for agriculture and telecommunications on the Ukrainian, Romanian and Bulgarian markets. Will the company open subsidiaries in those countries? "It depends on the size of the market and the project. Certainly we don't want to go in unprepared," ABG-SP's vice president, Karol CieĘlak, explains. "We have managed to win a big tender in Romania without having a subsidiary," adds Brzeski. The firm also wants to continue its cooperation with NATO agencies and institutions. Brzeski claims that revenues from these projects can grow between 30 and 40 percent annually.
Asseco Poland goes further than just offering products on foreign markets. It set up a subsidiary in Slovakia last year and took the daughter company to the WSE. This year Asseco will continue its expansion abroad by creating subsidiaries in other CEE countries. Asseco Romania, Asseco Czech Republic and Asseco Balkans will all be set up this year, and Asseco's strategy calls for the companies to debut on the WSE. "Our goal is to create an international capital group consisting of profitable companies producing and providing IT solutions," declares the president of Asseco Poland, Adam Góral.
Promise on the horizon
Góral also has his eyes on the East. "We are seriously thinking about expanding to Russia and Ukraine," he says. Asseco's president adds that in Russia the company is already holding advanced talks with a local firm.
Malicki applauds Asseco Poland's decision. "If Polish companies have a chance at foreign expansion, it is definitely in the CEE," he says, pointing out that success on these markets is easier due to the lower saturation level of IT solutions.
Computerland's Michalski says that exports still make up just a small percentage of Computerland and Emax's revenues. "But we want to gradually increase that share," he says. The merging companies are working on a number of projects abroad, most notably contracts for banks in Russia and e-ticket implementation in Lithuania.
West is best
But Góral looks way beyond expansion in the CEE region. "Next year we will start to study the possibilities of expanding the Asseco Capital Group into Western Europe," he says, explaining that the rich countries of the continent were always the company's target. Austria and Germany will be the first markets where Asseco will test its prospects for expansion. "I think that in 2009 our capital group will be present in the West as well," says Góral.
"It is a wise step. First gain international experience in the region and then move to the tougher, more demanding markets," Malicki thinks.
For Comarch, Western markets have also been a primary target. As Chwast explains, although the company is present on 10 CEE markets, its "focus is on Western Europe and the US. The biggest income can be achieved in these largest, most profitable markets," he says. Last year 20 percent of Comarch's sales revenue came from foreign sales. Chwast underlines that if the company's foreign shares and licenses were included, foreign activities would amount to around 30 percent. "This year, we want to increase it by five percentage points," he declares.
Isn't it hard for a Polish company to break into the demanding western markets? Chwast agrees that it is not easy, but as he explains, Comarch started its western expansion seven years ago, first with small contracts for small clients. Now it is doing projects for companies such as TMobile, Auchan and BP. "It is a matter of high-quality products and consistent work," Chwast sums up.
