The addressable IT market in Sri Lanka is forecast at US$393mn in 2011, just 2% of the size of India's market. It is expected to grow to US$742mn over BMI's five-year forecast period. The computer market has comfortably been growing at a double-digit compound annual growth rate (CAGR) for several years, yet the penetration rate remains around 1%. Computerisation has only just started in the service and the government is implementing an eSriLanka strategy.
In 2011, Sri Lankan IT spending should continue to benefit from the local and regional economic recovery. The IT market has considerable latent potential but has been handicapped over the years by the country's political instability, although things are now looking up. The restoration of peace and improvements in security have helped to release enterprise demand for IT solutions as companies look to boost efficiency.
Over the course of 2011, the consumer PC segment will benefit from a further reduction in prices following the Sri Lankan government's decision in June 2010 to reduce import duties on electronic goods. A projected 2011-2015 CAGR of 17% makes Sri Lanka one of the fastest growing markets in the region, albeit from a low base.
Industry Developments
In May 2011, the State Trading Corporation (STC) announced a partnership with Etisalat to provide computers to Sri Lankan schools at discounted prices. In the first year, the project will cover 340 schools, and this will be expanded to 1,000 in 2012. In the second phase of the project, teachers will be able to purchase notebooks through loan schemes. In Q111, the government launched a web portal and services platform, a key step in the implementation of its eSriLanka agenda. The new portal was designed to reduce costs and provide traditionally underserved population groups with access to ICT tools. Government agencies previously ran on different platforms with little integration.
The government reduced import duties on electronic goods by 3.5% in 2010. This should result in a further reduction of local market PC prices. The decision will lead to a reduction in tax on imported central processing units (CPUs), leading to lower prices for locally assembled computers. Competitive Landscape
In May 2011, PC House, manufacturer of the leading domestic PC brand Panora, said that it was planning to introduce notebooks for the local market. PC House will build the notebooks in its existing assembly plant where it currently makes desktops. The new notebooks will be sold under the Panora brand and PC House said they would be equipped with features to enable them to compete with other leading brands.
In 2010, Microsoft Sri Lanka started promoting its cloud computing solutions, which it believes could be a transformative software delivery model for Sri Lankan enterprises. Hidramani Group, one of Sri Lanka's largest apparel manufacturing companies, is running a cloud computing pilot on the Windows Live Initiative. Microsoft claims 70 or more customers for its Dynamics NAV 2009 suite in the Sri Lankan market.
The nascent IT services market is dominated by local IT distributors, which have built IT services offerings around portfolios of brands such as HP, SAP and IBM. Services are often comprised largely of provision of hardware and software implementation, maintenance and support, but they provide a basis for development of the market for more advanced services.
Computer Sales
Sri Lanka's addressable computer hardware market is forecast at US$270mn in 2011 and is projected to reach US$489mn in 2015. As basic infrastructure improves in areas outside Colombo, there is potential for strong growth in the north and east.
Sri Lanka's IT market will stay dominated by hardware, with spending on hardware accounting for an estimated 71% of Sri Lanka's IT spending in 2010. There is considerable growth potential as the level of computerisation is low, with PC penetration estimated at less than 5%. The average price of a PC has already dropped over the past few years to less than US$300, bringing computers within the reach of lower income consumers.
Software
Sri Lankan spending on software remains rather low, with BMI forecasting the addressable market at US$48mn in 2011. The estimated 11% share of the total IT spend, accounted for by software, reflects the relative immaturity of Sri Lanka's IT market. However, the domestic software market is expected to grow at a CAGR of about 20% through to 2015.
One significant market restraint is the high level of software piracy, with nine out of 10 packages in use thought to be unlicensed. The core business software demand is for applications such as enterprise resource planning (ERP), as well as basics such as email. Local channels have estimated that there are about 400 ERP installations in the country.
Services
IT services is expect to reach US$75mn in 2011, accounting for about 17% of Sri Lanka's total spending on IT. The market is dominated by demand from the government, finance and telecoms sectors, which account for at least half of the total.
The provision of IT services is still typically built around hardware sales, with the growing base of installed hardware and software systems the foundation for an expansion of services provision. The consulting element should become more significant over the forecast period. The economic situation and credit tightening are likely to have an impact on projects in some key sectors.
E-Readiness
Sri Lanka suffers from a very low level of internet penetration, which reflects the state of its telecoms infrastructure as a result of years of civil war. This situation has been identified by the government as a major barrier to future social and economic development.
Progress is expected over our forecast period, with internet penetration reaching 19%, and broadband penetration 23% by 2015. In recent years, the government has announced broadband infrastructure rollout plans and has also encouraged the deployment of technologies such as WiMAX and Wi-Fi, but adoption remains limited.
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