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MIS 648 Country Study: IT Opportunities in Bulgaria

MIS 648 Country Study: IT Opportunities in Bulgaria. Presented by: Daniel Caratini Sowmya Venugopal Nicole Hensley Janet Vasahlik October 23, 2006. Agenda. Physical Picture Socio-Cultural Facts Economy Demographics

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MIS 648 Country Study: IT Opportunities in Bulgaria

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  1. MIS 648 Country Study: IT Opportunities in Bulgaria Presented by: Daniel Caratini Sowmya Venugopal Nicole Hensley Janet Vasahlik October 23, 2006

  2. Agenda • Physical Picture • Socio-Cultural Facts • Economy • Demographics • IT Industry: Technology Scene, Penetration, Training, Teledensity, Producers, Consumers, Strength and Weakness • E-commerce Picture • Business Climate of Bulgaria • Business Climate of Eastern Europe • Investment Opportunity #1: Internet Café • Investment Opportunity #2: Tourism Service / Website • Questions

  3. Physical Picture Location Topography

  4. Physical Picture (cont.) • Total area: 42,823 sq mi • Temperate weather: • Cold damp winters • Hot dry summers • Transportation: • Crossroad between Europe, Asia and Africa • Roads (102,016 km), Railways (6,500 km) • 4 int. airports • Seaports available • Public transportation available Information taken from www.wikipedia.org

  5. Socio-Cultural Facts • Bulgarian flag => • Official language: Bulgarian (84.8%) • Bulgaria is known for its folklore, traditional music, rituals and tales • Has nine UNESCO World Heritage Sites • Currency: Lev ($1 US = 1.55 LEV) • Cash economy • Religion: • Bulgarian Orthodox Church • Islam, Roman Catholicism and Protestantism Information taken from www.wikipedia.org

  6. Socio-Cultural Facts Politics: • Parliamentary Democratic republic • Executive power is exercised by the government • The U.S. Freedom House rates the country as a free country (1 on political rights and with a 2 on civil rights) Educational System: • Supported by the state • Compulsory for children of ages seven to sixteen • 41 state supported and private higher educational institutions Information taken from www.wikipedia.org

  7. Socio-Cultural Facts Hofstede’s Dimensions* * Data taken from www.geert-hofstede.com

  8. Economy Brief economic history • Collapse of communist regime in 1989 • Transitioning to market economy • 1996-97 economic crash • Member of NATO since 2004 • Scheduled to join the EU January 1, 2007 • Plans to adopt the euro in 2010 – 2011 Major industries • Agriculture / Farming (major crops: wheat, sunflower) • Electricity

  9. Economy * Data taken from The World Bank Group

  10. Demographics • Population: 7,718,000 (2005) • Population growth rate: -0.89% (est.) • Net migration rate: -4.3 migrant(s)/1,000 population (est.) • Life expectancy at birth: 72.03 years • Sex ratio: 0.93 male)/female (est.) • Ethnic groups: • Bulgarian 83.9% • Turk 9.4% • Roma 4.7% • Russian 0.2% • Other 1.8% • Religion: • Bulgarian Orthodox 82.6% • Muslim 12.2% • Roman Catholic 0.6% • Protestant 0.5% • Other 4.1%

  11. IT Industry - Technology Scene • 1980s, leading supplier of 5th generation computer systems to soviet union research institutes, Electronics & telecommunications counted for 25% of industrial production • 1990’s, modem technologies were introduced, mobile wireless technologies became famous in later 1990s. • Telecommunication infrastructure like DSL and fiber optics were built by Bulgarian Telecommunication Company (BTC) • ISP and telephony services are expensive • Approximately 10.4% of the Bulgarian population access internet.15% of internet access are provided by public access points like internet cafes, schools and workplace. Less than 3% of internet users are from smaller towns.

  12. IT Industry - Penetration • Bulgarian gov., banking & telecommunication sectors are the major users of IT. • Foreign investors entered telecommunication market by acquiring ownership of existing companies or by joint ventures. • International software and hardware producers do not consider Bulgaria as a primary target. • Study and self-sufficient technology growth • Continuous growth of technology penetration, access affordability and connectivity • Growing digital divide in terms of accessibility to IT infrastructure and provision of internet-related services

  13. IT Industry - Training • Uneven Penetration of internet access in universities - AUBG (almost 1:1, other universities 1:100) • Internet usage is not integrated into learning process • Absence of technology infrastructure leads to theoretical knowledge in secondary schools

  14. IT Industry - Teledensity • Teledensity – 37 lines (PSTN) per 100 households. Difficulty in finding out information on companies teledensity. Digital phone lines are growing and contribute to 22% of total phone lines. ISDN lines were introduced only in year 2000 and hence a lower percentage of .34% of total phone lines. 14.3% of the population reported to have cell phones, 3/4th of the household possess at least one cell phone device.

  15. IT Industry - Producers • Most of the electronic transactions fall into B2C category, B2B transactions occur only in about 100 small and tiny consumer segments. • In Bulgarian government, 18% of all workplaces in public administration are computerized. 20% of them have internet access. Bulgarian government is well prepared to adopt technology compared to the industry sectors. • Financial services sector and telecommunication sector are the only economy sectors who have greater IT penetration. • 30% of companies use computers at work, only 12% of them have internet access, 3% of employees access internet for email and communication purposes only. • Tendency towards increased company presence on the internet, basic and static information like Company Profile, Contact information and Listing of products • The number of hosts in “.bg” domain was 1860, 2500 sites under “.com”, “.net” and “.org” domains, about 800 others use Bulgarian portals – www.hit.bg, www.dir.bg, www.online.bg, www.search.bg • The population of IT professionals fall between 4000 & 15000, (if we include telecom engineers and IT teachers falls between 45-50000) • Uneven penetration of technology, low-level of internet access, low level of trust in security issues and lack of clear legal environment for electronic business are the main causes for the small & inefficient local producers.

  16. IT Industry - Consumers • IT specialists jobs are attractive 220% the average monthly salary, specialized professionals (systems admin, programmers) are paid 340% the average monthly salary • According to Bulgarian Association for Internet Technologies (BAIT), about 15000 IT professional have left the country in the past 10-12 years. Severe brain drain cause of unavailability of challenging IT opportunities. • 800,000 debit car holders vs. 10,000 credit card holders. 400-700 credit cards are being issued by Bulgarian banks each month. • Only 1.4% of the debit card holders are registered with ePay.bg (Bulgaria’s most popular online payment system) due to lack of trust in the systems security. • Common categories of goods traded on the internet : Books(45%), Prepaid internet access cards(10%), Flowers & souvenirs 10-12%), music (7-8%), electronic items & cell phones (6-7%), online payment of utility bills in Sofia (12-15%). Here processing is done on internet, payment is still by the conventional manner upon delivery. • Online Payments by prepaid cards called “Net-Card” are gaining popularity.

  17. IT Industry - Strengths & Weaknesses • Strengths • 98% literacy rate, rated among the top 5 in the world • No.2 in certified skills, after U.S. • 4-6% increase in GDP for consecutive 5 years • Robust Banking sector • Existence of foreign investment initiatives • Closer location to central Europe • Weakness • Brain drain • Volatile transition economy • Low access to computers, internet • Strong presence of mafia culture

  18. E-commerce picture Bulgarian Firms • 24% of local enterprises have websites • 11% of which allow online ordering Bulgarian Consumers • Estimated that only 3.8% of population made online purchases in 2004 • Reasons for low eCommerce activity • Weak economy • Low wages • High unemployment rate (11.5%) Most popular online purchases are books and magazines! Information taken from ARC Fund’s eBulgaria 2004 Report

  19. E-commerce picture (cont.)

  20. E-commerce picture (cont.) Information taken from www.knigopolis.com

  21. Samples of IT Industries • Value-added SMS services – e-Commerce • PIAPs / Internet cafes • Government administrative services: e-Government, e-Policy http://www.daits.government.bg • IT outsourcing services such as BGITExchange http://www.bgitexchange.com • BASSCOM – Bulgarian association of software companies http://www.basscom.org • Academics and education, aerospace and defense, CAD/CAM systems, charity, construction,  entertainment, finance and banking, freight forwarding, healthcare, insurance, pharmaceuticals, telecommunications and tourism. • Competitive academic IT teams, winners • Potential brain drain present

  22. Business Climate of Bulgaria Advantages • Low inflation rates • Average 4% economic growth since 2000 • Low corporate tax rates • Pending EU membership Disadvantages • High unemployment rate (11.5%) • Low wages • Inefficient judicial system • Strong organized crime presence Information taken from Bulgaria Country Commercial Guide 2006, U.S. Department of Commerce

  23. Business Climate of Eastern Europe The UN defines Eastern Europe as: • Belarus • Bulgaria • Czech Republic • Hungary • Poland • Moldova • Romania • Russian • Federation • Slovakia • Ukraine Information taken from the CIA World Factbook

  24. Business Climate of Eastern Europe Business Overview • Former communist regimes • Transforming economies • 2005 average growth of 5% • High unemployment • Low wages Information taken from the CIA World Factbook

  25. Investment Opportunity #1: Internet Cafe Internet Cafes staffed with Bulgarian University IT students to provide: • Internet access • PC usage training • Internet and software training

  26. Investment Opportunity #1 (cont.) Why do we think this idea is viable? Reason #1 • Estimated 2006 Internet usage in Bulgaria is only 26% • 2004 survey identified reasons for low usage: • Too expensive (30.2% of respondents) • Don’t know how to use the Internet (18.9% of respondents) • Don’t have computer access (18.9%)

  27. Investment Opportunity #1 (cont.) Why do we think this idea is viable? Reason #2 • Bulgarian higher education standards • Globally recognized • Produces highly skilled certified IT specialists • Low wages • Low employment opportunities

  28. Investment Opportunity #1 (cont.) Result • IT professionals leaving Bulgaria after graduation • IT knowledge learned at university level not being diffused back into the country • Local and rural residents not gaining benefit of world class IT education in Bulgarian universities

  29. Investment Opportunity #1 (cont.) Internet Cafes staffed with university students would provide consumers: • PC access • Internet access • PC usage training • Internet and software training

  30. Investment Opportunity #1 (cont.) Internet Cafes staffed with university students would provide investors: • Low cost labor by employing university students • Access to a growing, yet untapped market • Increasing profit potential as Internet usage increases

  31. Investment Opportunity #1 (cont.) Internet Cafes staffed with University students would provide Bulgaria: • Increased Internet usage resulting from: • PC access • Internet access • PC and software training • Opportunity for Bulgarians to benefit from strong university IT programs despite high number of graduates leaving the country

  32. Ease of Use Usability Accessibility Evaluation Acceptance Usefulness Functionality Potential Investment Opportunity #1 (cont.) TAM Information taken from Lecture 2

  33. Investment Opportunity #1 (cont.) Comparison to Latvia Household income statistics • Bulgaria: lowest 10%: 4.5% highest 10%: 22.8% • Latvia: lowest 10%: 2.9% highest 10%: 25.9% GDP growth • Bulgaria: 5.5% • Latvia: 10.2% Unemployment • Bulgaria: 11.5% • Latvia: 7.5%

  34. Investment Opportunity #2: Tourism Service / Website • Climate • Geographic proximity to Oriental/Southern / European locations • Natural resources, mountains, hydrothermal sources • Traditional hospitality • Historical sites Information taken from http://www.geographic.org/maps/bulgaria_maps.html

  35. Investment Opportunity #2 (cont.) Black Sea, Sofia Black Sea Coast Sofia Information taken from http://www.orienttravel-bg.com

  36. Investment Opportunity #2 (cont.) Golf, Ski, Spa, Water sports • Ideal Spa and Recreational Resorts • More than 500 natural mineral hydrothermal sources • Ski Resorts, Mountains • Golf Resorts • Professional Sports Training Camps Information taken from http://www.orienttravel-bg.com

  37. Investment Opportunity #2 (cont.) Business Climate • Black Sea area hub: close to any Eastern European as well as Southern tourist locations • Tourism, hospitality is the most important • Tourism as business driver • Credit card acceptance at tourist locations • English/Russian/German

  38. Investment Opportunity #2 (cont.) Potential Business Opportunities • With the IT sector still not a large source of income, tourism with use of IT is still a good source of income • Internet based central Tourism websites with discounts, advertisement can grow e-commerce • Maintains Bulgaria’s niche in tourism while improving IT penetration • E-commerce tourist kiosks, e-reservation • Property investment for tourism, time share

  39. Investment Opportunity #2 (cont.) Specifics • Establish e-Ticket, e-Commerce websites • Provide safe online credit card transactions, flexible packages • Use local resources • Establish B2B Tourism/Reservation web services • Recruit and use talents from Colleges/Universities/IT firms

  40. Education & SkillsTechnology PolicyInfrastructure Industrial Policy Environmental Factors IT Diffusion Economic Payoffs Indigenous vs. MNC R&D Industry Structure Employment, Productivity and Economic Growth Political, Social, Economic and Geographic Environment IT Production and Use Investment Opportunity #2 (cont.) IT-Led Development Information taken from Lecture 4

  41. Investment Opportunity #2 (cont.) Why investment in this country can differ from Latvia? • Attractive sea-side locations • Warm climate allows for more days for prime sea side tourism which translate to more income • Close to other famous southern and oriental tourist destination • Mountains and ski resorts attract winter vacationers • Bulgaria is geared towards tourism

  42. Questions

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