Mexico Information Technology Report Q3 2011

We project that Mexican IT spending will grow by about 15% in 2011 to US$14.4bn. Government spending will be one area of opportunity in 2011 with a substantial information society budget and the rollout of national and local projects that had been delayed by an austerity drive. Interest in cloud computing should continue to grow after many of Mexicos large companies conducted cloud pilots last year.

Mexicos IT spending is forecast to grow at a compound annual growth rate (CAGR) of 10.2% over 2011- 2015, but with strong variation between sectors and regions. Mexico City and its surrounding area accounts for at least 50% of total IT spending in the country, but Mexicos underpenetrated south east and Pacific regions are expected to offer growth opportunities over our five-year forecast period. IT spending is forecast to outpace GDP growth, with drivers including rising PC penetration and growing affordability, as well as US corporate demand for IT outsourcing. IT spending as a percentage of GDP of 1.4% remains well below OECD levels and We project that per capita IT spending will rise from US$132 to US$192 by 2015.

Industry Developments

In 2011, the majority of the MXN86.4bn annual budget for Mexicos Communications and Transport Ministry is expected to go towards its information and knowledge society division. According to the federally approved budget, in the first 30 days of 2011, 52.3% of spending was allocated to information and knowledge society initiatives.

Areas of spending at the federal level include integrated enterprise resource planning (ERP), back office systems, e-services platforms and interfaces. Key national government IT spending areas include solutions to improve tax collection efficiency, improve health services, promote trade and enhance security.

In April 2011, Mexicos Tax Administraion body, the Servicio de Administracion Tributaria (SAT,) announced that it had implemented a plan to bring its federal tax collection and invetigation systems online. The new system will centrally manage the identities for nine million taxpayers and 35,000 employees. The government has also introduced a new mandate requiring companies to integrate with SAT for real-time approval of electronic invoices.

Competitive Landscape

Taiwanese giant Acer said in 2010 that it was looking for new partners to help it achieve better results in government tenders. Acer already works with around 60 distributors focused on the key government sector. Meanwhile, Chinese giant Lenovo has said that it would increase the number of its local distributors from 3,000 to between 8,000 and 10,000 in the medium term.

Vendors are focused on opportunities in the small- and medium-sized enterprise (SME) sector. In 2010, leading enterprise software vendor SAP said SMEs were its fastest growing segment for its Mexico and Central American division. Meanwhile, Dell has said that around 30% of its Latin American region revenues now comes from SMEs. In June 2011, Dell announced a partnership with CIT Vendor Finance to launch a preferred partnership financing program in Mexico.

One result of the economic crisis may have been to accelerate adoption of cloud computing solutions such as Software-as-a-Service (SaaS). The Chilean unit of Microsoft has a target of more than 1,000 companies using its Microsoft Online Services offerings within the next year. European corporation SAP has also targeted SMEs with its online delivery solution Business All-in-One Fast-Start as part of a partnership with HP.

Computer Sales

Mexicos computer hardware sales are projected at US$6.7bn in 2011 and are projected to reach around US$9.7bn in 2015. There remains considerable potential as the current level of computerisation is low, with PC penetration estimated at less than 25%. Growing broadband penetration, including 3G mobile, will drive the PC market.

Significant growth opportunity now exists in provincial areas and second-tier cities, where multinational vendors are now trying to strengthen distribution. Mexicos under-penetrated south east region is expected to offer growth opportunities over our five-year forecast period, particularly in the public sector.

Software

The Mexican software market is projected to reach US$2.7bn in 2011, from US$2.3bn in 2010, with imported software accounting for at least 80% of the total. One of the biggest trends in the SME segment in 2010 was standardisation of back-office processes. A combination of enterprise objectives such as cost reduction and greater efficiency should drive more adoption of cloud services in 2011.

Software spending should have an upwards trajectory as the government turns its attention to overcoming Mexicos longstanding underinvestment in this area. The most popular applications remained basic ERP and supply chain management (SCM) solutions, while business intelligence and security software should provide growth opportunities, including more spending on networked security solutions.

IT Services

The IT services market is projected at around US$5.0bn in 2011. Despite continued economic uncertainties, the market should ultimately grow at a CAGR of 10.6% through to a value of US$7.6bn in 2015. Sectors like government, telecoms and financial services will provide the greatest opportunities for vendors over our forecast period.

The increasing number of multinational companies operating in the market is an important driver for spending. Opportunities also exist in the SME sector, where companies are trying to use computing resources more effectively. Mexico is also becoming an increasingly important hub for provision of business process outsourcing (BPO) and other outsourcing services.

E-Readiness

The World Economic Forums annual survey found Mexico continuing to make steady progress on network indicators. Mexico has climbed six places in the rankings to 49th. The report attributed the improvement to the adoption of more efficient electronic strategies for digital networks and infrastructure connection nationally and regionally.

The potential for new broadband technologies to take hold in Mexico is high, with fibre-optic infrastructure and WiMAX licences being auctioned since 2009. With the telecoms regulator, Cofetel, taking a more combative stance towards Telmex, we believe there is a good chance that new operators will enter the market and be responsible for strong growth.

E-Government

The 2008 UN e-government survey found that Mexico had the most advanced e-services development in Latin America, with a strong national government portal that encouraged online consultations between government and citizens.

Recent state and municipal statistics have highlighted the gradual progress made in implementing egovernment in Mexico at federal and state level. In 2001, the government launched an e-government initiative that prioritised providing health, education and other government services online, as well as the development of e-commerce. Since then, however, funding has rarely been sufficient for much progress to be made given the substantial task involved, and local governments are increasingly looking to launch their own initiatives. Many states are seeking funding from the private sector to plug gaps in public funding.

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