Tech firms primp in anticipation of single market

By Timothy Sifert

As the country expects an influx of new IT contracts following European Union accession, local and international tech and tech-related firms are beginning to kick-start the business plans that their executives have been recently devising in anticipation of the spoils of joining the union.

When citizens go to vote in the EU referendum this weekend, they will be deciding the meaning of accession personally, professionally and culturally. According to the pro-EU camp, one key component that could positively affect all three of these areas is the expected increases in IT investment within the country's various public and private institutions.

Expecting a Yes vote, many technology executives have spent the last year or so preparing for a new market. They bank their optimism on estimates that the country's IT spending is €51 per capita, while some EU countries record as much as €595 per head. Thus there's money to be made.

IBM plans to invest €84.9 million ($100 million) in Poland, the Czech Republic, Slovakia and Hungary over the next four years. As part of that strategy, it will also add 100 new staffers in Poland this year. All of IBM's direct investment in the Visegrad countries should be directed to Poland.

Local systems integrator Ster-Projekt is also about to unfold an acquisitions strategy, which could be funded by a stock offering that would raise as much as €18.2 million (zł. 80 million).

And international consultancy Accenture, which targets IT-related consulting, is planning to add to its local team in anticipation of more projects.

These expansion plans, and many others like them, contribute to a positive outlook for IT among executives and investors alike.

"We have been taking a lot of steps to get ready for the EU. Since mid-last year we've been working on business (plans)," said Grzegorz Tomasiak, general director of IBM Polska.

Big Blue is using the lessons it learned in transforming operations to meet the changing needs of the post-accession economies of Spain and Ireland, Tomasiak said. As Poland, the Czech Republic, Slovakia and Hungary join the EU, they "will take up the benefits of what will happen to the economy," he added.

The expected rewards for stepped-up investment are quite lofty.

In Poland specifically, Tomasiak said, his goal is to double IBM's current revenue by 2006, though he declined to state the company's present revenue for the country. IBM's capital injection plans are targeted for across-the-board improvements.

"We made the decision to invest in (increasing) resources, (building) sales channels, (increasing) business partners and distribution and (having) more active marketing," he said. The company has already added some 60 new staffers in the country, and plans to add 100 more.

Ster-Projekt recently hired a pair of consulting firms to craft an EU-ready strategy. Piotr Smólski, president, described the company's findings in the report prepared by the firms.

"One thing we have to consider in this sector is competition," he said. "Companies need more resources to compete."

He said that besides improving technology offers and increasing the client base organically, the crowded state of the local IT market also makes it ideal to improve Ster-Projekt's range of products and services via acquisitions.

Smólski explained that the company has identified five target firms that would augment its competitiveness. At the same time as vetting these companies, it is talking to potential investors. "The question is how much we need (to raise)," he said of the company's financing options.

Ster-Projekt is interested in snapping up local companies to gain technology, people and clients. In particular, it is considering companies with technological capabilities in telecoms, security software and electronic payment systems. Smólski said recent research indicated these were areas of potential growth.

IT market momentum has also caused some equity investors to be bullish on the entire sector.

"I don't think that one single company will be able to grab all the EU-related contracts," said Adam Chełchowski, asset manager at Credit Suisse Life and Pensions Fund. "It's rather more spread out. Many companies will take part."

Many Warsaw Stock Exchange-traded IT companies therefore become "very interesting," he said. He declined to say whether he plans to increase his fund's exposure to IT companies in the near future.

"Of course, Prokom and ComputerLand are the largest," Chełchowski said. "But today they are involved in a few big contracts. Those large projects are not tied in with the EU. I heard that many medium-sized companies are needed to take up these (EU) projects. Not (only) the biggest companies are going to benefit. It should have a positive effect on the whole sector."

Chełchowski's sentiment dovetails with IBM's plans. IBM's Tomasiak said that partnerships with small local players are also a large part of the company's strategy.

"We are looking at aligning with some of the other players," he noted. "With small companies we are focusing on building a business partnership channel. I don't want to try to compete with them."

For the time being, however, IBM is focusing on two projects of about €8.5 million ($10 million) each for this year.