Growth of SME segment to boost tech industry New Straits Times , Monday, November 11, 2002 THE small and medium-sized enterprise (SME) segment is still a booming sector for the local information and communications technology (ICT) industry, with analysts forecasting between 15 and 20 per cent growth next year, although not as early as the second quarter. Frost & Sullivan's electronic business (e-business) research analyst Amit Phatak said the services sector such as travel, retail, telecoms-allied businesses, banking and finance-allied businesses, and healthcare are expected to lead spending within the SME segment. Among the factors expected to trigger higher ICT spending among SMEs are government initiatives such as SME participation in global supply chain management, stabilising economy and improving financial budgets, he added. "In addition, at present, strategies of holding on to investments are expected to give way to Stronger e-business strategies like Internet-enabling of business processes and higher business automation." Areas of spending, according to Amit, will typically be infrastructure enhancement such as bandwidth; integration of backends and databases and network security; e-business applications such as supply chain and portal deployment; and Internet-enabling of business processes and enterprise application integration (EAI) among matured SMEs with a minimum level of e-business penetration. Comparatively, he said, ICT spending among SMEs this year has been moderate. High levels of spending which were expected in e-business applications, for example, have not materialised. "This is largely attributed to the wait-and-watch attitude by the sector, with infrastructure upgrades like network security and the establishment of infrastructure for information systems being one of their major priorities," Amit said. "However, under the current circumstances, this is a good sign as enterprises would be geared up to invest much more in the years to come, with enhanced connectivity and infrastructure." According to research firm International Data Corp (IDC), the total ICT market reached between US$2 billion (RM7.6 billion) and US$3 billion last year, in which the SME sector took 35 per cent. Its senior analyst Yvonne Yong observed that SMEs in Malaysia will spend a considerable amount in hardware next year, but will move towards software and services by 2005. "Through IDC's end user surveys, we found a growing trend for SMEs to invest in software applications (such as customer relationship management/enterprise resource management and security applications), which is expected to account for 44 per cent of the market by the year 2005." This, she added, is an indication that SMEs value the benefits of such applications to enhance their business processes. IDC found that ICT spending in the hardware sector was still the dominant factor among SMEs last year. However, SMEs have begun to realise the importance of investing in newer hardware components, especially notebooks and low-end servers. "Nevertheless, concern about the economy is a crucial factor in holding back spending and this would be an influential element in causing a stir in the ICT industry," Yong said. "SMEs may face restraints in their spending patterns but if it entails investing in technology areas, SMEs in Malaysia will be a true contributor to the ICT industry. Therefore, the demands of SMEs will definitely increase competition in the core technology areas (initially on hardware and gradually moving on to software and services)," she said. By Ferina Manecksha Copyright © The New Straits Times Press (Malaysia) Berhad, Balai Berita 31, Jalan Riong, 59100 Kuala Lumpur, Malaysia