Along Budapest’s main streets, above local coffee shops and strung from old-world buildings’ sculptured facades, signs of a new era are beginning to appear.
“HP” “Oracle” “Yahoo” and “LG” are sprinkling streets where only Hungarian accents used to be heard, advertising a new wave of IT investment in the country by vendors hoping to take advantage of Hungary’s preparations to join the European Union (E.U.) next year.
Hungary and nine other Central and Eastern European countries are slated to join the E.U. on May 1, 2004, offering a potential boon to IT vendors who hope to win lucrative contracts helping countries update and modernize their systems in preparation for E.U. accession.
Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia may be relatively small and developing markets, but they all must meet certain E.U. directives that require them to invest heavily in technology, and what’s more, they are receiving E.U. funds to help them put the programs in place.
Bulgaria and Romania are also hoping to join the E.U. by 2007, adding two more countries to vendors’ list of expanded E.U. target markets.
“These Central and Eastern European countries represent an enormous opportunity for HP and we plan to invest heavily in these regions,” said Jeff Clarke, executive vice president of global operations at Hewlett-Packard Co. (HP).
Clarke is in Budapest this week to attend an HP managers meeting for the Europe, Middle East and Africa region (EMEA). The fact that HP would summon 40 country managers to Budapest is a sign of HP’s dedication to the region, Clarke said.
But HP isn’t alone in its hopes for the expanded E.U. Oracle Corp. is also busy wooing the E.U. accession countries.
“We see a lot of opportunities in these emerging markets,” said Alfonso Di Ianni, Oracle’s senior vice president of the E.U. enlargement region.
Part of the draw is the prospect of winning key government contracts for programs such as e-government and updated health and education systems, which are being partially funded by E.U. money. According to Di Ianni, the E.U. is expected to invest more than US$40 billion in the accession countries over the next four years, US$2 billion of which is estimated to go toward IT investments.
What’s more, the accession countries are particularly attractive in that many do not have legacy systems in place, according to Di Ianni.
“Instead of spending 80 per cent of their IT money to support old systems and 20 per cent to invest in new ones, these E.U. enlargement countries can spend 80 per cent of their funds on new IT systems,” Di Ianni said.
Rudi Richter, HP’s public sector sales manager for Central and Eastern Europe, Middle East and Africa also sees this as an advantage.
“These countries are more or less starting from a green field,” Richter said. “It’s definitely ten times easier to put new IT infrastructure in place than to update an old system,” he said.
Additionally, many of these countries are able to leapfrog Western European neighbours because they are implementing brand new technologies, Richter said.
That’s exactly what Bulgaria did when it launched a program in 1998 to implement a system for the production of secure ID cards, passports and driving licenses. HP won a 10-year contract to help the Bulgarian government implement and manage the system under a public-private partnership and invested US$40 million into the project.
Now, Bulgarians can travel in the E.U. without passports, using the high-tech ID cards, and the system is being used as a backbone for the Bulgarian police.
“This was great for us because it’s the first time we could travel through Europe without a visa,” said Pavel Ezekiev, chairman of Bulgaria’s Foreign Investment Agency.
Ezekiev is working closely with vendors to spur more investment into his country and said that luring IT companies has not been difficult.
“We have E.U. endorsement and that plays a big role in establishing stability,” Ezekiev said. “I am very optimistic.”
The deal was also good for HP, which recouped the company’s US$40 million investment within three years.
Public-private partnerships are becoming a focus for HP in the region, as it looks for new ways to sell technology to these emerging markets.
“One way HP is differentiating itself (from other vendors in the region) is by offering financing,” Richter said. He added that sometimes E.U. funds are not enough to put projects in place.
Financing can be a key competitive advantage for major IT vendors in the accession countries who are finding that their rivals are not so much each other, as local suppliers. These local companies have government connections, cultural knowledge and a history in the country that can make them formidable rivals.
Richter compared competition in the region to the situation major telecom firms face going into foreign markets and competing with local powerhouses.
Both HP and Oracle said that their early inroads into many of these markets are helping them win confidence and contracts from local governments.
“Oracle has been in the region for 13 years and has employed local people. It was a good choice, looking back, because local relationships, language and culture is critical to being seen as a reliable partner,” Di Ianni said.
Oracle is not only using its local knowledge to win projects with governments, banks and telecoms, but its also positioning itself as a liaison between E.U. accession countries and other foreign vendors looking to enter these markets. Oracle is working with retailers, such as the supermarket chain Tesco, that want a tech partner established in the countries, Di Ianni said.
Likewise, HP is leveraging its 30 years of experience in Central and Eastern Europe.
“We didn’t come in yesterday,” said Kasper Rorsted, HP’s managing director in Europe, the Middle East and Africa (EMEA) and senior vice president of the Enterprise System Group for HP EMEA. “We established ourselves here and didn’t pull out when the times got tough,” he said.
The commitment seems to be paying off. According to Rorsted, HP has grown its public sector business in the Central and Eastern European region 15 per cent in the last year.
Just as major vendors are hoping to court accession countries, the countries themselves are trying to make themselves more attractive markets for long-term IT investments.
Ezekiev, from Bulgaria’s Foreign Investment Agency, noted that his country is a very small and low-income market but what it does have is human capital.
“Realistically, what we have is people. Fifteen per cent of our citizens have higher degrees so we offer a well-educated workforce,” he said.
Indeed, may of the E.U. accession countries have a lot to offer IT vendors in terms of well-educated citizens, previous technical development and savvy and solid government support.
But not all major IT vendors have woken up to the opportunities the E.U. accession countries pose, according to HP’s Clarke.
“Many of our competitors are asleep at the wheel,” Clarke said.
If initiatives like HP’s ID card system in Bulgaria, and Oracle’s support of banks, telecoms and supermarket chains in Central and Eastern Europe are any example, that may not be the case for long. As the E.U. enlargement approaches, a myriad of IT vendors may be looking to throw their hats from Hungary’s Gothic spires.
And this is a welcome prospect for Hungary’s Deputy State Secretary for Information Society Strategy P