Gartner warns SMBs to err on the side of caution in 2009

By Neil McMurchy, Research Director | Feb 3, 2009

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The global economic downturn and its impact on the IT industry:

Our current view is that declining or negative growth will impact the IT industry broadly. The point of impact will be more determined by whether a vendor is relying more on supporting existing IT infrastructure as opposed to new IT investments. It is a reasonable assumption to make that new IT spending projects will likely suffer first and those projects could cover the entire range of IT vendors.

For the vast majority of organizations in Asia the greatest proportion of current IT budgets is spent on maintaining existing IT capabilities rather than adding new capabilities. Most Asian organizations have been working very hard to control existing IT costs so for many customers there really isn’t a lot of excess IT spend that is available to slash deeply which means that cost containment will fall heavily on new projects of whatever type.

But you have to be very careful about broad generalizations; for many Asian organizations particularly those with strong balance sheets and good sustainable cash flow the current environment may represent an opportunity to build new IT capability for distinct competitive advantage. In some other cases, new IT projects may be of such importance and of such competitive consequence that the projects will continue regardless.

Alternative IT delivery models such software as a service should be more attractive in tighter economic times as they represent a partial opportunity to avoid up-front costs compared to traditional acquisition models. We need to be careful however not to overstate the reality of this. For example the total costs of a properly implemented ERP application have a heavy consulting and training services component that far outweighs the software license cost ; so that a change on software licensing model may have much less apparent “cost saving” as it might appear. 

Gartner has been predicting a slow down for growth in the region.  In a worst case scenario, IT spending in Asia Pacific is forecast to grow 8.3 percent in 2009 to reach US$585.7 billion, compared to Gartner’s previous forecast of 11 percent growth.

According to data from Global Insights, most Asia Pacific nations are still expected to show reasonably healthy GDP growth rates in 2009 compared to other parts of the world – 2.3 percent in Australia, 7.8 percent in India and 8.9 percent in China. While growth in many countries in Asia Pacific is forecast to be down on 2007 levels, in contrast, GDP is expected to grow just 0.1 percent in the U.S. and 0.2 percent in the U.K. in 2009. So it means that you have to be more granular in your assessment as a vendor of your opportunities.

BIO: Neil McMurchy is a research director with Gartner, where he works in the IT Marketing and Channel Strategies group covering the topics of channel programs, sales strategies and SMB markets, both from a global perspective and with particular focus on Asia/Pacific and Japan. His areas of specialization include channel strategies and programs, SMBs, partner profitability and incentives, partner recruitment and coverage, go-to-market strategies, entry into emerging markets, and resolution of direct and indirect channel engagement.