Asia-Pacific IT Spending: Opportunities for Channel Partners

By Cindy Payne, Managing Director
Asia-Pacific Connections Pte Ltd

October 2004

As the regional economy recovers from the global recession that hit export-oriented Asia-Pacific in 2001, IT spending across the region is increasing in response to public- and private-sector investments in infrastructure upgrades and technological improvements. In a recent user survey of over 3,000 CIOs and IT Managers region-wide, International Data Corporation (IDC) found that 58% of the respondents expect an overall increase in their organisation’s IT expenditure this year. IDC now estimates that IT spending in Asia-Pacific* will grow 10% in 2004 to reach nearly US$88 billion.

Forces driving this IT demand are rapid infrastructure upgrades, product innovation, and initiatives related to operational efficiency and customer affinity. Organisations across Asia-Pacific are vying to leverage IT to maximise productivity and competitiveness.

IDC tracks IT spending through channel partners in the region and reports indirect sales were valued at over 70% of all IT spending in 2003. Channel sales are expected to keep pace with regional IT spending growth so that, in 2008, channels should sell over US$72 billion worth of hardware and US$18 billion worth of software – compared to anticipated total regional IT sales of US$130 billion.

Channel partners in Asia-Pacific are reaping the rewards of the burgeoning small- and medium-sized business (SMB) market, since most SMBs do not have an in-house IT department and prefer to purchase their IT products from a single, third-party source. Value-added resellers and systems integrators, in particular, are cashing in on SMB IT spending in Asia-Pacific, which is outpacing overall regional IT spending. IDC projects SMB IT spending to grow 12% this year to reach US$29.7 billion, representing one-third of all IT spending in the region. China, alone, will account for 31% of this SMB spending, whilst Australia and Korea together will comprise another 33%.

Hardware is the mainstay of SMB spending in Asia-Pacific today, followed by software and services. However, beginning next year and through 2008, services should surpass SMB software and hardware spending in the region – with a projected 15% compound annual growth rate (CAGR) from 2003-2008.

Software channel partners are expected to increase their contribution to overall IT spending in the region going forward. Currently, value-added distributors and resellers contribute up to 60% of all software licence revenue, whilst systems integrators account for 31% of enterprise applications-software licence revenue. Software vendors are likely to depend more heavily on systems integrators and consulting partners in the future – tapping their expertise and knowledge base to improve vendor-software offerings and develop better end-to-end solutions.

Global vendors are strongly advised to develop carefully planned, localised channel strategies if they want to penetrate the promising Asia-Pacific IT market effectively.

*All IDC statistics in this article reflect Asia-Pacific, excluding Japan.