The period of dramatic developments on the Croatian telecommunications market ended with a couple of mergers in the mid 2000s and has been largely quiet since. Positive trends are continuing in the ISP and mobile telecommunications segments, less so in the cable TV market. Throughout the last couple of years there was sufficient financing available to support even the struggling operators.
Government spending and investments by telecommunications and financial institutions were the main drivers behind the IT equipment and business process technology market segments in 2008. They were also the key drivers behind the PC market growth. In 2009, many of the large consumer electronics retail chains found themselves on the verge of bankruptcy. The situation was similar to the late 1990s, but many companies have learned their lesson since then and are liquidating their current stock in order to meet their financial obligations and start a new cycle before the Christmas season.
The Croatian Telecommunications Agency estimates that there were approximately 2.25 million Internet users in Croatia at the beginning of 2009, with more than 500,000 broadband connections, primarily ADSL.
Approximately 8.5 percent of internet users in Croatia use internet for shopping, which is still well below the Central and Eastern European average. Regardless of this, analysts expect that the total turnover over the internet in Croatia could reach as much as USD 30 million. One of the studies indicated that most of the purchases involve books and music, travel tickets or theater and movie tickets.
The official statistics indicate that the number of cable TV subscribers has hovered around 135,000 since 2005.
Business Process Technology
According to the local branch office of IDC, the Croatian market for IT services in 2008 reached another all-time high of USD 424 million, representing an increase of 16 percent compared to the previous year (expressed in local currency, the growth was only seven percent). The growth was spurred by the the government, retail, banking and transportation sectors, but also by the EU and World Bank funding for IT services contracts. Systems integration services accounted for the largest share of the total IT services market with 16.1 percent. Applications consulting and customization came second with a 13.7 percent market share, while hardware support and installation services followed with 12.9 percent. While it is certain that the IT services market felt the impact of the financial crisis in 2009, some forecasts predict that it will reach USD 560 million in 2013.
Digital Equipment and Systems
The third quarter of 2009 was expectedly grim for the PC sales in Croatia, which experienced a drop of 28 percent to 63,000 PCs sold. The local branch of the market research agency IDC reports that the market for the enterprise application software (EAS) in Croatia reached USD 45.5 million in 2008. Despite the current crisis, the market is expected to expand to USD 55.8 million in 2013. Enterprise resource management represented more than two thirds of the total EAS sales in 2008, followed by supply chain management software and operations and manufacturing software.
With 14 fixed telecommunications operators, 3 mobile operators and 48 Internet service providers in a country of 4.4 million inhabitants providing significant competition, almost all alternative operators experienced financing difficulties in one way or another. Not all alternative operators recorded growth.
There is no doubt that the current economic crisis will negatively impact all segments of the ICT sector in Croatia. Instead of being driven by the government, banking and retail sectors, the market will depend on the investments made by the leading operators, which accumulated cash while the market was growing.
The battle for the broadband users will be the key to success in the telecommunications industry and the main driver behind the market. Judging by the planned central government budget for 2010, many projects in the government sector will be postponed for at least a year. We expect the operators to continue to invest into their network, followed by the retailers who are beginning to consider online sales as a way to cut their costs.
Siemens, Ericsson and Cisco are the leading suppliers for the Croatian telecommunication operators.
Business Process Technology
The marketplace for IT services continues to be very competitive, as witnessed by frequent reshuffling of the top five suppliers and the fact that none of them has more than an eight percent market share.
The Croatian ICT market is well established and entry should be well planned and should take into consideration the following factors:
• The price sensitive nature of the majority of consumer demand;
• A judicious selection of one of three low-risk entry strategies: representation, agency or distributorship. (Note that a Croatian agent or distributor is preferable to a “European office” due to the difficulty of the language and other idiosyncratic market factors);
• After-sales service, follow-up and training are essential;
• The entrenched bias of a conservative market that sticks to known suppliers and therefore requires sustained market development; and
• Croatia’s position as the pre-eminent stepping-stone for developing most sectors in South East Europe: the marketing mix should anticipate this medium term option.
There is also potential for suppliers of complementary ICT products to work with the primary providers.
Market Issues & Obstacles
Financing will remain the key issue for alternative carriers as recent and potential future performance on the secondary markets has been limited.
Although less attractive for new entrants than ten years ago, the Croatian ICT market continues to provide significant revenue for existing operators. It is likely that it will be among the last industries in Croatia to feel the economic downturn.