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Romania - ICT & Electronics

UK exports of goods to Romania were worth £651.1million in 2007. After Poland, it is the second largest consumer market in Central and Eastern Europe. The UK is the one of the leading foreign investors in Romania with close to €3.5 billion of direct investment.

Since acceding to the European Union, Romania benefits from the advantages of structural funds and cohesion funds. Structural Funds and Cohesion Funds are funds allocated by the European Union for two related purposes: support for the poorer regions of Europe and support for integrating European infrastructure. Current programmes in Romania run from 1 January 2007 to 31 December 2013, with an €54.4 billion budget for Structural Funds, and €18bn for the Cohesion Fund. Romania is an EU market of over 20 million consumers, offering strategic location, a skilled work force, an emerging economy and major EU funding over the next decade.

Foreign direct investments in Romania have increased dramatically: Romania is the 2nd place in the Central Europe for FDI. Sectors of direct foreign investment: industry 38.4%; banking and insurance 22.2%; wholesale and retail trade 13.1%; production of electricity, gas and water 10.5%; transportation and telecommunications 9.2%. Foreign capital is attracted by skilled and relatively inexpensive labour, tax incentives, modern infrastructure, and a good telecommunications system. Romania has strength in information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals and jewellery.

Britain can help Romania meet the challenge of modernising its economy and infrastructure, by using its expertise in key areas like environment, water, railways and agriculture, as well as in IT, project management for structural funding.

Market Report

In recent years, the Romanian packaged software and IT services market was one of the fastest growing markets in Europe. It continued to expand with annual growth rates of over 30%, reaching $2,852 million in 2007 (+30%) and over $3,800 million in 2008 (+34%). However, in 2009, due to deteriorating economic conditions and postponement of public procurements, the IT market contracted. Nevertheless, Romania is the second largest telecommunications market in Central and Eastern Europe and has had significant growth in the fixed, mobile and Internet sectors in the medium to long term as a competitive market becomes established.

The IT industry drives a large amount of value creation and growth across Romania‘s economy. The public sector tends to dominate IT purchasing opportunities, as in many other sectors. One of the most ambitious projects is Romania‘s eGovernment project, eRomania, which is currently being initiated. In addition, verticals like utilities, government, retail, manufacturing and telecommunications will continue to grow significantly and represent the main end-users of IT industry.

Finally, Romania plans a number of projects, with important ITC components, financed from European structural funds that will be implemented in 2010-2013.

Market Demand

In 2009, the ICT sector (Information and Communication Technology) overall represented 3.20% of the country‘s GDP and just the IT sector represented 1.1%. The IT sector accounts for 45% of the total ICT revenue, the rest being represented by telecommunication services. The financial crisis has decelerated growth in the ICT industry, leading to a 25% decline in 2009, mainly because public sector institutions, which in Romania include state-owned companies, are the main customers, and were forced to reduce their budgets but the EU membership may slowly change this situation due to an increase of competition and larger foreign investments. The increase in the state budget for research is included in the current legislation, and Romania intended to achieve the target of 3% by 2010.

For 2010, the IT spending is forecast to increase 19.5% reaching a market value of approximately $1.7 billion. The CAGR (Compound Annual Growth Rate) is forecast at 10% for 2010 – 2014. By 2013, the IT sector is expected to contribute a greater share of GDP, reaching 1.6% of the total. The IT hardware sector is experiencing a growth of about 4.2%. Software services are set to see an increase of 14.2% in 2-3 years. By the end of 2013, the hardware segment is expected to be a $1.96 billion market, while software and IT services at $860 million.

To prevent stagnation in the domestic IT market and to stimulate investment, Romania pledged to use the prospect of EU structural funds to support the growth of the industry and has seen several foreign IT firms expand their existing investments as well as new entrants in 2010.

Despite the recession Romania‘s IT sector remains a priority for the government, because of its ability to attract foreign investment, employ graduates, and its power as an export revenue generator. Romania is developing a national IT policy in compliance with EU policies. The Digital Romania – eStrategy for an Information Society initiative and the National Broadband Strategy are the keystones of Romania‘s IT effort. From the total of over $530 million allocated, around 70% of the money earmarked for the Ministry of Communications and Information Society (MCSI) is to expand Romania‘s broadband communications infrastructure. According to MCSI these include a number of eGovernance projects in the fields of education, health, culture and tourism that will facilitate the access to public information. The National Broadband Strategy will value creation and stimulate the labour market by creating new jobs.

The development of high-speed networks is of great importance for a country such as Romania in that it facilitates the flow of communication between consumers and business, enhances productivity, and stimulates economic growth. Among the upper-middle income countries, Romania is ranked 10th in terms of network infrastructure and 59th in the World, based on The Network Readiness Index 2009 – 2010. In terms of Internet users, Romania has registered a considerable increase. In fact, since EU accession in 2007, Romania has boosted this number. In August 2010, Romania was declared first in Europe and the 4th in the world in terms of the average speed of broadband connection to the Internet. The government's medium-term goal is for the creation of a huge web portal that will provide nearly 600 online services. The government aims to use the portal to decentralize public services and increase efficiency in interactions between citizens and state institutions. The Romanian Government plans improved legislation and infrastructure projects to encourage investment and promote partnership between IT sector researchers and academic institutions.

In the last two years foreign direct investment in IT was concentrated in opening new R&D and Excellence Centres or developing the existing ones. The list of new Excellence IT Centres includes:

• Microsoft (Technical Support, created in Bucharest, February 2007)
• SAP (Global Consulting, Bucharest 2007)
• CapGemini (BPO Services, Iasi 2007 and extension in August 2009)
• Ericsson (Global Service Delivery, Bucharest 2008)
• Raiffeisen Informatik (IT Services, Bucharest 2008)
• Kaspersky (IT Services, Bucharest 2008)
• IBM (IT Services, Brasov 2009)
• Perot Systems (IT Services and Solutions, Bucharest, January 2009)

Market Data

In recent years, the Romanian packaged software and IT services market was one of the fastest growing markets in Europe. However, in 2009, due to the financial crisis and the collapse of the economy, the IT market slowed down.

Software represents only 12% of overall IT expenditure, and the market volume is still relatively low compared to other Central-Eastern European countries or with the EU-27 average. However, the Romanian software market is one of the fastest growing in Europe, fuelled by the requirements of infrastructure modernization aimed at aligning the public sector with EU standards and norms.

Hardware and software products are available, but at high prices, due to the weak purchasing power in Romania. The purchase of expensive computer systems (from $1000 and up) is impractical for the vast majority of individuals and businesses, despite the general drop in computer prices in the European market in recent years.

Imports cover more than 50% of the total software and IT services market. At the same time, local software companies are increasingly involved in packaged software development, especially in ERP/EAS, antivirus, e-health and e-learning areas. A number of Romanian software products have gained success on the global market, winning awards at an international level (BitDefender/Softwin security and antivirus product, Siveco's AeL eLearning platform, the Intuitext/Softwin e-learning suite or TotalSoft and Transart's ERP solutions). In the last three years, multinational IT vendors and foreign investment funds made a number of acquisitions and investments in Romanian companies. These include Siemens SBS' and Ness Technologies' acquisitions of IT service providers Forte and Radix, investment by Intel Capital in Siveco Romania, TechTeam Global's purchase of offshore development specialist Akela Informatique, Adobe's acquisition of InterAKT, investments by American and European funds in TotalSoft, UTI or Romsys and many others. Recently announced are the acquisitions by groups of investment funds and angel investors of minority participation in Axigen/GeCAD and BitDefender/Softwin.

By the end of 2013, the IT market will stimulate the creation of more than 200 new small and locally owned organizations. IT-related activities were envisaged to register a value of $424 million in taxes in 2009, which means $679 million in aggregate net new taxes over the next four years if spending will grow at 7,0% a year. This will increase the IT labour market by 65,000 jobs by the end of 2013, which represents a 7.4% yearly growth from now through 2013, which is more than fifty times faster than the growth of total employment.

Best IT Prospects

Recently, the government of Romania emphasized the strategic importance of the IT sector, indicating that even during the downturn, IT solutions have increased productivity, spurred innovation and played a leading role in economic health and national competitiveness on the long term.

IT for Energy

Sustainable healthcare through IT industry

There is an urgent need in the health sector for global standardization and interoperability of technical, security and semantic technologies. The application of IT solutions will enable the introduction of mobility to healthcare, which will in turn facilitate the sharing of best practices and improve patent treatments. Funding of projects that support the introduction of real-time access to information in the area of healthcare will enable the provision of eHealth or telemedicine services to remote areas, both in country and cross-border.

The deployment of eHealth technologies is expected to improve the quality of care, reduce medical costs and foster independent living, including in remote places. An essential condition for success is the fact that these technologies incorporate the right of individuals to have their personal health information safely stored within a healthcare system accessible online.

eGovernment

The effective usage of IT can significantly reduce costs and enhance the quality of public and eGovernment services:

• Offer a cost-effective route to better service for every citizen and business and participatory open and transparent government.
• Can reduce costs and save time for public administrations, citizens and businesses.
• Can also help mitigate the risks of climate change, natural and manmade hazards by including the sharing of environmental data and environment related information.
• Support streamlined administrative processes.
• Facilitate information sharing and simplify interaction with public authorities.

Intelligent Transport Systems

Intelligent Transports Systems (ITS) make transport more efficient, faster, easier and reliable. The focus is on smart solutions to integrate passenger and freight flows across transport modes and provide sustainable solutions to infrastructure bottlenecks affecting roads, railways, sky, sea and waterways. As Romania seeks to build basic transport infrastructure (road and rail) to catch up to West European standards, there is an opportunity to build-in ITS solutions.

Enterprise Application Solutions

The EAS market was worth $72 million in 2008. The top three vendors (SAP, local player Siveco and Oracle) captured 65% of the Romanian EAS market. The large corporate and the government sectors are still the biggest spenders on EAS, but the market is progressively expanding into the small and medium-sized businesses segments. The top-selling EAS modules are the resources management and core functionalities, but demand is increasing for more complex applications like customer relationship (CRM), supply chain (SCM), or business analytics, which are expected to grow rapidly in the next years. The largest vertical EAS spender in 2008 was the combined (process and discrete) manufacturing sector, followed by retail, and then medical and utilities.

Spending on content and documenting management solutions is largely confined to the government and financial services sectors. The security software market now dominated by Anti-Virus, and firewall/VPN software is changing with significant growth in the 3As (Authentication, Authorization, Administration) application sector. The market for applications related to technology management is still in an early stage of development. Therefore, the entrance conditions on the market are favourable for investments.

The ASWP (Application Software Products) was expected to grow by 20-25% with the business application segment the main contributor to this development. Together with its maturation, the ASWP market will see a deeper consolidation, and some local players may be forced to merge in order to remain on the market.

Higher spending on software applications is expected for the next two years, driven by economic growth and companies' efforts to improve business process efficiency and regulatory compliance as well as to compete in the EU marketplace. As mentioned previously, government implementation of planned large IT projects for information systems for public administration at both local and national levels, and the expansion of e-government and e-commerce. Functional markets providing the best opportunities include EAS, BI, CRM, SCM, IT security, e-health, and e-learning.

Telephony Market

Mobile telephony market has reached maturity with a penetration rate of 100% of the population (Ministry of Telecommunication and Information Technology, 2008).

The mobile telephony market is dominated by Orange Romania with 9.31 million users and Vodafone Romania with 8.579 million customers. In the third position is Cosmote Romania with 3 million users, 10% of market share in 2007 (12% of subscription users). In last place among top providers is Telemobil (Zapp) with little over 500,000 subscribers. In 2008, according to France Telecom estimates, Orange Romania had a 43.9 % market share, while Vodafone covers 95% of the Romanian population, 40% of market share.

In 2008 the Romanian market was valued at €300 million in terms of 3G services (high-speed transmission, global roaming and advanced multimedia access). RCS&RDS has selected Nokia as its WCDMA 3G core and radio network supplier. With Nokia's support the operator has entered the Romanian 3G mobile market and offers a wide range of services under the brand name Digi.Tel. RCS&RDS has recently launched its 3G service. Vodafone was the first to enter the Romanian 3G market in April 2005, and currently has some 400,000 users of this service. In order to develop its 3G network, Orange invested €22 million in the first phase, in June 2006. Three days after launching the service, the operator announced 25,767 clients, reaching 400,000 3G and EDGE users.

Best Telephony Prospects

Best prospects for Western European exports include wireless communication equipment, cable communication services, 3G mobile communications (CDMA) equipment and services, and Internet services (VoIP). The current climate of the telecommunication market and trends indicate that the sector’s major procurement is related to the following projects:

• Launch of wired telephony networks due to market deregulation
• Development of 4 UMTS/3G networks
• Expansion of the CDMA 450 MHz network
• Expansion of the SDH network of the National Radio Communications Company (SNR)
• Development of SNR`s wireless multipoint network in the 26 GHz band
• Modernization of SNR`s long, medium, and short wave transmitters network
• Upgrade of infrastructure for national TV channels
• Upgrade of the cable communications network to allow the supply of broadband Internet, VoIP, and digital
• TV
• Modernisation of infrastructure used by major ISP`s
• Expansion of pilot projects related to the development of e-government (e-procurement, e-tax, e-invoice,
• e-referendum, e-post, info-kiosk, etc.)
• Implementation of IT projects in public administration and education

Key Suppliers

More than 2,000 Romanian software firms export their services to the EU and North America. They also produce niche software, such as special telecommunications programs and industrial security systems. Imports satisfy the remainder of the market, of which 75% of such imports are American. Most of the major U.S. software companies are active in the market, led by Microsoft and Oracle.

The software systems and development tools segment of the market accounts for more than 50 % of all local software expenditure. Although it is dominated by US vendors Microsoft, Oracle and IBM, there is however plenty of room for additional players in this segment. Meanwhile the fastest growing segment of the IT market in Romania is offshore programming.

Prospective Buyers

The software and IT services market depends on corporate and public sector customers. The biggest purchasers of software and IT services are in production, telecommunication, banking, and public industries. Spending takes the form of licenses, consultancy, system integration, specific applications development, training, and external services.

Demand from verticals like utilities, government, retail, manufacturing and telecommunications will continue to grow significantly as the economic conditions improve.

Broadcasting

Romania has 7.2 million households with TV services (out of 7.32 million households), of which approximately 3.6 million are cable-based, 2 million satellite-based (DTH — analogue and digital signal) and 1.6 million analogue terrestrial. The cable market is run by more than 500 service providers, but the two major cable operators provide services to over two-thirds of cable subscribers. The main platform for broadcasting services is analogue cable. IPTV services are spreading, starting from the Bucharest area. Digital switchover is expected to be implemented by 2012,

Electronics and Industrial Automation

Romania is one of the fastest growing markets for electronics manufacturing in Eastern Europe. This trend has largely been driven by the fact that Romania offers one of the cheapest labour rates among EU nations therefore attracting key manufacturers to the country, especially in EMS segment. Romania’s leading position as outsourcing hub for EMS providers is expected to drive imports in the years to come.

Overall, the Romanian electronics and electrical engineering industry market is estimated at around €2.4 billion, approximately 0.15% of the world market while the population share is of 0.35%. The electronics market tends to exceed 50% of that and is recording a higher growing rate.

The opening of the internal market triggered a high demand for products specific to this industry that could not have been accommodated by the domestic production. This has lead to a significant increase in imports as well as to the constant loss of competitiveness by the domestic products on the internal market.

Over 80% of the domestic export is concentrated in the European Union (Germany, France, Italy, Holland, etc):

• domestic machines and electrical appliances;
• calculators and other electronic equipment;
• engines, electrical power generators and transformers;
• electrical distribution devices;
• wires and insulated cables;
• electrical lamps and illumination equipment;
• radio and television emitters;
• telephonic equipment and devices;
• optical and photographic equipments and instruments.

The main objectives and strategic actions directions in the electronics and electrical engineering industry for the current period are going to be:

• providing the internal market with domestic high performance products and reaching the average EU level of domestic outfitting; the efficiency upgrade of the electrical energy distribution infrastructure with such indigenous products, as power transformers, distribution posts, electrical energy transport grids, automation and control installations, electronic count;
• enlarging the communication network with telephone exchanges, telephony cables, etc;
• undertaking investments programs of approximately €350-400 million directed towards technological upgrades, environmental protection, products R&D and technological transfer;
• development of production of electronic modules used in personal computers, mobile phones, TV-sets, alarm systems, photographic equipment, etc., and assembly industry based on these modules;
• manufacturing of new products incorporating advanced techniques (fiscal cash registers and the afferent electronic equipment, automated tax collecting systems, digital tachometers for road transport vehicles, machines and special electrical equipments for industrial and domestic outfitting);
• creation of technological and industrial parks with the involvement of research institutes, local universities and administration.

Nearly half of the financing of the programs supporting the industrial branch in the digital reform process in Romania—technological upgrading, environment protection, research and development, implementation of the quality management system—will be carried out through funds attracted from the National Research and Development Programs.

The list of the European Directives transposed into Romanian legislation that apply to the electronics and electrical engineering industry covers low voltage equipment, electromagnetic compatibility, gas fuelled driven devices, energy efficient hot water tanks, noise emissions and energy efficiency of domestic appliances and industrial equipment, environment protection, electrical and electronic equipment waste (DEEE).