IT spend of S'pore SMBs less affected

The current unprecedented downturn has, no doubt, affected the way organizations in Singapore spend their IT dollars this year. However, their smaller counterparts are likely to be less affected by the economic climate, according to a research firm.

Vu-Thanh Nguyen, research analyst at Access Markets International Partners (AMI-Partners), noted that while the current hard times will force small and midsize businesses (SMB) in Singapore to cut back on their ICT budget, the rate at which they spend is still expected to be positive. In a worst-case scenario, IT spending in this market segment will see flat growth in 2009, he said.

According to AMI-Partners, SMBs in the Asia-Pacific region are expected to spend some US$153 billion in ICT this year. In Singapore, these businesses are projected to invest some US$3 billion in 2009, Nguyen said.

As organizations ponder over their spending, Ang Chye Hin, Asean director of sales at SonicWall, said in an e-mail: "We have seen companies cutting their budget and being more cautious with their IT investment decisions."

Greg Russell, Telstra International's senior vice president for Asia, said many of its customers are realigning their business priorities and rethinking capital programs. "Typically, this is with a view to identifying new ways of optimizing business opportunities cost-effectively," Russell told ZDNet Asia in an e-mail interview.

"As organizations seek to streamline day-to-day operations and look for ways to drive strategic value, we are likely to see a continued shift toward Opex (operating expenditure)-oriented projects vis-à-vis Capex (capital expenditure)-intensive ones," he explained.

Bill Lee, managing director of Singapore and emerging markets at SAS, said in an e-mail: "We expect companies to rein in their IT budgets and get back to basics with an increased focus on cost management and business optimization."

Regardless, Lee said the business intelligence software company continues to see strong growth from the banking and financial services industry, as well as the telecommunications sector. It is also seeing stronger growth from the public sector in Singapore.

Png Kim-Meng, general manager of Datacraft Singapore, said in an e-mail interview that the majority of its clients in the island-state have not cut their IT budgets too drastically.

"They recognize that spending on IT is essential in sustaining their business operations and competitiveness," Png said. "We are seeing more local companies buying into converged communications, WAN (wide area network) optimization and virtualization solutions, as well as multi-sourcing, in a bid to cut costs."

According to Stree Naidu, regional vice-president at Tumbleweed Asia-Pacific and Japan, opportunities continue for IT security vendors in Singapore.

"Data leakages in an organization will be disastrous for business credibility," Naidu said in an e-mail interview. "Hence, there is a real need for companies to stay vigilant against incoming and outgoing threats. Regulatory compliance is set to be a major focus for enterprises in Singapore and we expect continuous spending in this area."

SonicWall's Ang said "the silver lining" to the current economy is that more companies are looking for lower-cost, yet, effective security services. "We've also seen an increase in demand for solutions that promote secure telecommuting," he said.

Nguyen added that Singapore's SMBs are looking to spend on cost-cutting technologies that include voice over Internet Protocol (VoIP) and video communications, as these tools can help reduce spending on travel and telecommunications. VoIP, for example, is fast becoming a cheaper and better alternative to traditional telecommunication services.

Datacraft, said Png, is seeing increased demand for converged communications, especially video communications. However, he added that most companies are paying too much for bandwidth and not maximizing what is available.

"To help our clients in these tough times, we've introduced an enhanced service called 'Network Optimization Assessment' that allows us to evaluate a company's network requirements and usage, and fine-tune the network accordingly, for maximum efficiency and cost reduction," he said.

A Singapore-based IT services provider, Datacraft also introduced a "utility model" that lets clients pay for only what they need, he added.

Nguyen said: "Vendors that can offer better and cheaper solutions to the SMB marketplace will win."

Agreeing, Telstra's Russell noted that as companies relook at resource allocation and assess travel expenses, the use of next-generation IP networks for communication and collaboration across geographical boundaries will increasingly be considered. This, therefore, provides IT and telecom players in Singapore "an opportunity for sustained growth", he said.

"One exciting area that should continue in 2009 will be growth in Ethernet services, which have become one of the hottest forms of carrier data services," he said, noting that researcher Ovum predicts the global enterprise Ethernet service market to reach at least US$24.8 billion by 2012.

As for Telstra, in August 2008, it launched its Ethernet private line service in 15 countries. "Singapore will continue to be a springboard to Telstra International Asia's customers in Southeast Asia, as the bulk of the work here supports the region," Russell said.

Source: AMI-Partners

Helping businesses through tough times
The Singapore government recently announced various measures to help businesses, including those in the local IT sector, to ride through these difficult times.

To encourage innovation, the government will set aside S$180 million (US$118 million) over the next two years for the Core Innovation Fund (CIF) that facilitates collaboration between private companies and the government as they develop public services.

Tan Yen Yen, chairman of the Singapore IT Federation (SITF), said: "With the CIF and collaboration opportunities with government agencies, the scheme can potentially help our ILEs (infocomm local enterprises) be better-equipped with new innovations and improved capabilities that can be capitalized on when the market recovers."

It is imperative for ILEs to continue building their competencies, explore new technologies and undertake research and development to develop innovative offerings, Tan said in an e-mail.

Nguyen said: "Providing the impetus for SMBs to collaborate directly with government agencies will give local IT companies a better chance to succeed. Government spending on IT will, at the very least, give local IT companies a small lifeline to hang on to."

Dane Anderson, CEO and research executive vice president of Springboard Research, said: "This initiative is important in name because it signals that the government is going to support the local IT industry and it is willing to use its wallet to do this."

However, Anderson noted in an e-mail interview, that while "sending this message" helps the market, "it is unclear whether, financially, this will provide a short-term boost".

He added that much of the impact will depend on how quickly the government can get the money out to local companies, as this will help determine how quickly this can provide benefits.

"There will definitely be long-term benefits through this fund, and this investment by the government can help spur innovation and the local ecosystem, [but] it might just take longer than this year to really see the effects of this," Anderson said.

Nguyen said: "I think the CIF will make a positive difference for a small number of innovative companies that leverage this package, but it will not boost the rest of the local IT industry in a significant way."

Meanwhile, media and digital entertainment (MDE) content providers are also getting some help through the accelerated "writing down allowance" for the acquisition of intellectual property rights (IPR). MDE companies may reduce their write-down period from five years to two years, subject to certain conditions.

Nguyen explained the significance of this move: "Clearing IPR is costly and time-consuming. Sometimes, companies cannot ship out a product because they cannot obtain the required IPR. With a shorter writing-down period for IPR acquisition, Singapore MDE businesses will not only enjoy lower tax, it may also accelerate their product releases."

For example, a games company can spend less on acquiring IPR due to lower taxes, and therefore, may release its products--with approved IPR--much quicker to the market, he said.

Nguyen added: "Overall, this tax incentive and the proposed S$230 million (US$150 million) Singapore Media Fusion fund will encourage MDE businesses to actively exploit their IPR and increase their offerings from Singapore to the global market."

Anderson said this would definitely help the industry, and from a long-term perspective, will provide benefits to MDE companies. However, these benefits cannot provide quick and short-term relief for local businesses, he noted.

"These write-downs will help from a mid-term and long-term perspective, by way of lower taxes and other financial benefits. But, the most important aspect we have seen with local MDE firms is cash flow and cash positions, and these write-downs will not help too much on this side," he explained. "So this is a good initiative and will definitely help firms, but they might not see the short-term help that some need."