Forrester: Canadians to spend more on IT in 2004

A report released this month by Forrester Research Inc. indicates that Canadian firms will increase their IT spending this year, targeting their dollars at networking equipment and Internet and e-commerce initiatives.

According to the market overview paper entitled Canadian IT Spending Up 3% In 2004, the Canadian IT market will be approximately nine per cent the size of that in the U.S. While Forrester estimates indicate that IT spending in Canada was approximately $89 billion in 2003, that figure will grow to $92 billion in 2004.

Top areas in spending for 2004 include e-commerce and outsourcing, according to the findings. Of the Canadian firms surveyed by Forrester, 42 per cent indicated they will increase their spending on e-commerce initiatives and 39 per cent said they would increase spending on network gear. Less than 15 per cent plan to cut spending in these areas, the report said.

A term not often heard anymore, “e-commerce” is defined as various online activities, in the case of this study. According to Andrew Bartels, a research analyst with Forrester and the author of the report, respondents included things such as business-to-business (B2B) activities under this description.

Several factors are driving this interest and investment, Bartels said. “One has been the overall growth in both B2C (business-to-consumer) and B2B sales online,” he noted. “We’ve certainly seen that in the B2C side, where a growing proportion of sales — still probably less than 10 per cent but still growing year by year — are being done online and even more in B2B, where we’re seeing a growing proportion being done online.”

The second factor has been the success of companies such as and eBay, which have turned out to be profitable companies. That, Bartels said, is “causing a lot of companies, particularly retailers, to say, ‘Hmm…there’s something tot his channel. We’re really interested several years ago, and we’ve gotten skeptical about it, but now it looks like there’s real meat here.'”

The final factor, Bartels said, has been the “loosening of the purse strings.”

“When belts were tightened in technology in the last few years, one of the things that was put on hold was this Internet/e-commerce stuff. [The thinking was], ‘It’s something we have got to do, but we have more important priorities.’ But now that budgets are loosening a bit, they’re saying, ‘Well, those e-commerce and Internet activities, we’ve had on the shelf because we didn’t have the resources but now is the time to do something with it.'”

Other areas that will see increases include workstations and PCs, which the report attributes to lower prices and a stronger Canadian dollar. Thirty-five per cent of surveyed companies indicated they would be increasing their spending in this area.

Meanwhile, spending on servers, storage, IT services and application software will only be “lukewarm,” according to findings. This is, according to the report, in part due to the fact that companies are not looking to upgrade their core systems or bring in new applications as there are currently less pressures in the area of competition. Large Canadian companies are not feeling the need to expand into new industries or segments, the report said.

However, when it comes to specific software plans, portals are the spending area of choice. Of the companies surveyed, two-thirds indicated they would be making new investments in portals this year. Forty-one per cent of respondents included security and systems management in their spending plans, with 30 per cent also citing content management as an area of interest for their dollars.

Surprisingly, 60 per cent of those surveyed said with certainty they would not make any other software investments this year. This includes supply chain management, CRM, procurement and sourcing and application integration.

On the government side of the equation, growth in IT spending has been seen in the last few years, fuelled by e-government initiatives. However, this growth will in the future be strongest in the local, municipal and regional areas of government, where Bartels said there is a critical need to do replacement and upgrades. Spending at the provincial and federal levels, however, will likely slow down, especially with the recent controversy surrounding the Department of National Defence (DND)’s contract with Hewlett-Packard Co.

In March, IT World Canada reported that the DND had reportedly been taken for millions of dollars in a computer contract scheme. The contract was originally held by Compaq Canada and later by HP when it acquired Compaq in 2001. At that time, Doug Drever, a spokesperson for the DND, said that no one was sure of the exact amount of money that had been lost, but he added that the department was demanding HP to remit $159 million or documentation to substantiate that goods and services for that amount were delivered to the DND.

“(This controversy) is now, we believe, going to probably cause the review of other contracts,” Bartels said. “As a result, the federal government in Canada is probably going to spend more time having to review and explain existing contracts…and Paul Martin’s government is going to be cutting back on spending in certain areas, and so our feeling is that technology may be one of the ones that gets sliced a little bit.”

Government spending overall will grow by seven per cent in 2004 according to Forrester’s findings, up from three per cent in 2003.

– With files from Lindsay Bruce, IT World Canada

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