Does Asian IT growth threaten Europe?

The explosion of the IT sector in Asia could be a boon for European firms, but it could also spell trouble in the long run

The European IT market is seeing fresh challenges from the fast-growing Asian market as Europe recovers from the slump of the early 2000s.

Asia-Pacific is the star in IT growth these days, with the market expected to grow 7 percent annually compared to 4 percent in Europe, according to a new report from KPMG Consulting titled Convergence Gathers Pace.

The reports quotes figures that Asia will have spent $650bn in 2004 on software, hardware, IT solutions and communications services — and this figure will rise to $800bn by 2007.

Asia is seeing rising numbers of mobile and broadband users as well as upward investment trends in communications networks, with 10 million new mobile subscribers each month, the report says.

Convergence of fixed and mobile telephony and of voice and data are already well underway in Asia — a trend KPMG predicts should only continue.

It's the outsourcing of IT services, though, that's really giving the region a kickstart, especially to India and China. Asia faces some challenges here, however, with costs rising and service providers needing to give more value to customers and win high-margin work as opposed to just call centres and other low-end work.

Crispin O'Brien, KPMG's head of technology, told ZDNet UK sister site silicon.com: "People are driving costs down by outsourcing to Asia-Pacific. But we're seeing that's not sufficient for the Asian market. They're looking to move up the value chain."

He cited Chinese company Lenova buying IBM's PC business as an example of this. Though PCs and notebooks are viewed as low-margin businesses by the West, "it's a different proposition to have a maker of one of major brands based in China", he said.

While Europe is facing the threat of increased competition from Asian IT companies, there's also an opportunity for European companies wanting to sell consumer technology into this large arena.

But O'Brien warns it won't necessarily be easy. "The challenge is to understand what consumers want at some level," he said. "Nokia and Vodafone have learned it's not enough to have one global product offering... The products need to be tailored to each market."

Separate research shows that though European IT growth lags behind Asia, it has at least recovered from the IT slump of the early part of the decade.

According to European Information Technology Observatory (EITO) 2005 edition, the European IT market is expected to grow by 4 percent in 2005, up from 3.3 percent in 2004 and 0.9 percent in 2003.

The UK is just outpacing the rest of Europe and the US with predicted growth of 4.6 percent in 2005 compared to 3.9 percent in the US.

Yet according to a third set of research from analysts Ovum and Indepen Consulting released earlier this month, all is not well for Europe. Though its IT market growth rate may be slightly ahead of the US, its spending on technology is 20 years behind.

If this continues, Ovum and Indepen warn, European productivity levels could fall below US and even some Asian countries. In addition, low levels of IT investment could damage the region's ability to compete globally and put jobs and market growth at risk.