Asia will feel impact of credit crisis

Businesses in the Asia-Pacific region will be relatively cushioned from the U.S. financial crisis, but they will feel its effects as buying slows down next year, analysts cautioned.

Research firm Gartner said in a statement that companies in the region are expected to delay spending on hardware upgrades and new equipment, opting instead to rechannel efforts toward clients.

A "worst-case scenario" will see IT spending in the Asia-Pacific region grow 8.3 percent next year to reach US$585.7 billion, Gartner estimated, after revising its previous growth forecast of 11 percent.

Worldwide, IT spending will increase 2.3 percent in 2009, down from an earlier projection of 5.8 percent. Gartner expects the hardware sector to be hardest hit, followed by the IT services sector.

Software spending growth "will remain strong" at 8.6 percent, the research firm noted.

Gartner's managing vice president Matthew Boon, said organizations will likely raise barriers to IT spending, requiring IT heads to seek higher levels of approval and justification for decisions.

"CIOs in the Asia-Pacific region are being pulled in different directions," Boon said. "On the one hand they are being asked to grow the business to take advantage of market opportunity, and on the other hand to cut costs."

As a result, IT spending patterns will be increasingly unpredictable and tech vendors will not be able to rely as much on customer loyalty to brands, he explained.

Boon advised businesses not to be "afraid" to postpone investment. "Decide what needs to be spent, not what needs to be cut", he said, adding that companies should also explore "modern" tools such as virtualization and cloud computing concepts.

"Use vendors with a clear understanding of returns on investment in your business... Prepare a contingency budget approximately 20 percent [lower than] the current year," he said.

Bad and good news for telcos
Fellow analyst firm Ovum also issued a statement forecasting a "challenging" 2009 for the Asian region, including its telecommunications industry.

David Kennedy, Ovum's Asia-Pacific research director, said: "Ovum does not expect the crisis to hit Asia as hard as the United States, but declining U.S. domestic demand will certainly affect Asian exporters, and hence, the rest of the economy. That includes telcos."

Kennedy said telecommunication players will need to employ a number of different tactics to tackle the upcoming challenge.

In the short term, dipping revenues will prompt these companies to cut costs, he said. Beyond that, telcos will also have to plan for a permanently lowered cost base.

"This will require more spending on IT systems and new network technologies in the medium-term," he explained, noting that telecommunication players should also generate clear business cases for investment and develop strong execution skills.

However, Kennedy said there is good news for market players. The increased reliance on telecommunication services across the rest of the world, due to reduced transport budgets, will help telcos and "advanced telecommunications services" such as mobile and broadband. Once regarded as "discretionary" by consumers, these advanced services are now increasingly deemed to be essential, he said.

To capitalize on this trend, Kennedy advised telcos to focus on addressing different customer segments through pricing strategies. Multi-play packages offering a scope of services will help lock in "choosy and price-sensitive consumers", he said.

However, he noted that growth of mobile data traffic is expected to take a hit. Due to slower mobile phone replacement uptake, he said the number of users switching to higher-end models that offer more data-intensive features will flatten.