The ICT sector in Greece : Main facts and growth prospects

1. ΙΔΡΥΜΑ ΟΙΚΟΝΟΜΙΚΩΝ & ΒΙΟΜΗΧΑΝΙΚΩΝ ΕΡΕΥΝΩΝ FOUNDATION FOR ECONOMIC & INDUSTRIAL RESEARCH The ICT sector in Greece: Main facts and growth prospects Aggelos Tsakanikas, Phd Head of Research, Foundation for Economic and Industrial Research (FEIR/IOBE) atsakanikas@iobe.gr Ermoupolis Seminars: Research Group for the technological, economic and strategicanalysis of the Information Society Syros, 14 July 2007

2. Towards a definition … • Need for comparable and reliable data for the various dimensions of Information Society both on the demand side... • i.e Internet use: numerous studies but what kind of use (frequency of use, information fishing or in depth use?), etc • E-commerce: Involves what?, what are the B2B limits; etc • ...and the supply side :Need for a common understanding for the kind of firms that form the ICT sector (clarifying thus data on trade flows market volume, etc) However: • National approaches adopted by the main global ICT producers (USA, Canada, Japan) • Various national approaches due to the different level of integration and diffusion of ICTs in the economic activities of each country. • From the mid-90s, along with the rapid growth of “new technologies” some preliminary efforts for aligning national definitions and adoption of a common methods and standards for measuring ICTs

3. Conceptual content of the ICT sector Difficult task for two reasons : • Includes activities related with rapidly changing technologies from various sectors of the economy: ICT producers (manufacturing), ICT trade (retail, wholesaling), ICT services. • Rapidly changing technologies that lead to technology fusion (mixing services with manufacturing), emerging new activities hard to classify, traditional activities that are transforming (i.e publishing): blurring the borders between old taxonomies and various distinct activities Two (complementary) approaches for the ICT sector • From the firms’ side and their primary activities (top-down approach) • From the products / services’ side (bottom up approach). Problems for both approaches

4. OECD Definition(1998, revised 2002, new revision planned n 2007)

5. Domestic ICT sector(IOBE’s definition) • All firms with a primary activity in “OECD sectors’’ • Additional important firms from the retail sector, not covered by OECD (i.e. KOTSOVOLOS, MULTIRAMA) • Firm with at least two secondary activities in the “OECD sectors’’, although their primary activity is different (i.e in Business Services NACE: 74) • Selected members of SEPE / SEPVE An alternative taxonomy (bottom up approach): • Α) ICT Manufacturing : The ICT industry • Β) ICT trade : Wholesalers and selected retailers (box moving, gadgets etc) • C) Carrier services & ISPs: Fixed and mobiletelephony, Internet providers • D) Software: licenses and customized software • Ε) IT services : Numerous firms Furthermore: Core sector vs “periphery”

6. ICT manufacturing IT services 7,8% 35,9% ICT trade Software 40,1% 7,4% Carrier services 8,7% The Greek ICT sector: main facts • ~1800 firms (Ltd or S.A.) • ~13000 (including all legal entities, sole proprietorships, etc) • Almost 40% in NACE 72 (Computer & related activities) • 36% in Wholesale (box moving, gadgets) • Number of IT-Telcos: 87% -13% • Core sector: 73% (~1300 firms) . ICT’s sector contribution to GDP: ~4%

7. The Greek ICT sector: main facts • 83% founded after 1990 • One out of four ICT firms founded after 2000 • Mostly IT services (70% after 1995) • Older firms mainly from manufacturing (electronic parts and related material, wires, etc) • 82% up to 50 employees • 83,2% of IT up to 50 employees(67,3% in Telcos). • Average IT firm: 43 persons (122 in Telcos, without ΟΤΕ). • Median IT firm: 15 persons (24 in Telcos) • Employment in IT-Telcos: 40-60%

8. The Greek ICT sector: main facts • 34% of employees in the ICT sector work in Carriers an 31% in Trade • 13% increase in 2006 • The sector is over-concentrated in Attica: 77% of SA & Ltd • However faster growth outside Attica

9. The Greek ICT sector: financial situation * Without OTE, sales in 2004 increased by 10% and profits by 22% (-6.4% & -28% in 2005 • The ICT sector’s financial situation is mainly influenced by OTE. • OTE and mobile firms hold the 37% of the ICT market (slightly falling each year) • 69% of the ICT firms had net profits (2005) that sum up to 1.5 billion €, but more than 60% of it comes from two mobile firms (Cosmote, Vodafone) • 2004: 73% of firms with profits that sum up to 1.75 billion €) up to (55% of it comes from the same two firms) • OTE is responsible for half the losses in the sector (2005)

10. The Greek ICT sector: financial situation • During 2005 all sub-sectors suffered from reduced turnover, but in 2006 sales are expected to boost by 10% • Carrier / internet services remains the most healthy and growing part of the ICT market. Quite satisfactory results reported in IT services, ICT manufacturing and Software seem to face several difficulties. Mixed picture in ICT trade.

11. The Greek ICT sector: main facts • 3rd CSF: ~6% of their annual turnover • Size matters: Positive relationship between size and participation in CSF projects • Smaller firms as sub contractors • Only 8% of the turnover comes from exports (in the Balkans) • Mostly box moving, and manufacturing • Almost 60% active only in the domestic market • Some “export intensive” firms from IT services • Market structure: Public sector: 8%, Β2B: 65% B2C: 27% • Small niche markets in Banks, Health, Shipping.

12. Sources of Growth / Barriers Sources of growth • ICT projects funded by the OPIS • Diffusion of ICTs in other sectors of the economy • Level of education and training related to ICTs • Foreign investments • Sufficient personnel Barriers to growth • Small domestic market • Cost of access / use of Internet • Limited ICT skills and e-mentality of the population • Lack of organizational change (Inertia to change)

13. Group Α: Established

14. Sources and Barriers for growth in the Greek ICT sector • Global & European economies keep on growing fast, international trade is increasing, Greek economy holds its high growth rates. Domestic demand is high, business climate is improving, some reformatory policy initiatives have been introduced. However, long lasting structural problems of the Greek economy and delays in the implementation of necessary policy measures create difficulties for all firms, touching upon ICT firms as well: • Favourable macroeconomic environment, but not a necessary and mandatory condition for the sector’s growth. • Domestic demand for ICTs is of small scale and problematic. Public sector’s demand is not strong and is hindered by bureaucracy: Important ICT projects are implemented with significant delays. • A secondary demand, induced by familiarization of citizens and firms with ICTs and by the proliferation of electronic services, is far more important. • Most important market: firms and then consumers. However, they both face some common problems: • lack of information and knowledge about ICT benefits, technophobia, limited ICT skills, organizational difficulties in adopting organizational changes required • A large part is not convinced about the tangible benefits of ICT investments (responsibility of ICT firms as well).

15. Sources and Barriers for growth in the Greek ICT sector • External demand is increasing, but attracts only a small number of firms. ICT exports have been limited so far and stem mainly from some large manufacturing firms, box moving, (exception: some smaller export-oriented IT firms). • Some positive signs: domestic ICT demand is increasing, firms try to exploit the external demand. A significant number of large and medium-sized firms are already “connected” and adopt more advanced ICT tools. Throughout their value chain they cooperate with numerous smaller firms which will be forced to collaborate, in order to maintain their big clients, even if they are not convinced about the benefits of ICT investments. • As younger and more intense ICT users are entering in the economic activity they will leverage ICTs’ diffusion in the country. • State’s role in creating a secondary demand is also reinforced: more informative and training campaigns, e-government is increasing, experience improves efficiency in adopting new technologies, • Most of the important ICT projects are expected to operate, offering additional services which will provide cost benefits, efficiency, and productivity gains. Besides, at the public policy level, initiatives and actions concerning directly or indirectly the information society are proliferating

16. Sources and Barriers for growth in the Greek ICT sector • Supply side: scattered, small in size, with numerous firms, limited market specialization: A relatively new sector, in a area with rapid technological developments, may be responsible for the lack of an established entrepreneurial culture. Price competition is intense, but all the firms seem to sell similar products / services without any substantial differentiation. • The sector is innovative, but R&D is very scarce and limited to a small number of firms. These firms mostly collaborate with universities, on the basis however of an interesting, extensive and important research agenda. • Important barrier for the sector’s growth: limited broadband diffusion and poor infrastructures. Improving infrastructures is a basic precondition for further growth, as they allow more attractive, and at a reasonable price, services, which can attract broader categories of population and firms. Public and private investments in broadband infrastructures, are positive signals for the future. • The sector’s growth is benefited by the technological convergence between IT and Telecommunications and the innovative value added services that are created, based on advanced infrastructures (triple play services,IPTV services, video on demand, VoIP, integrated solutions for B2B and B2C could attract broader categories of users.

17. Sources and Barriers for growth in the Greek ICT sector • Firms are moderate optimistic, as the poor financial results of the past seem to be overcome, leading to greater liquidity. Furthermore, projections for 2006 and 2007 show an increase in the turnover, despite the small recession in 2005. Thus, positive prospects for the expansion of ICT market can be reflected at their financial data in the next couple of years. • Employment and investments (especially in the telecommunications) are estimated to increase, firms report that they intend to intensify their efforts for greater differentiation, specialization, and focus on niche markets. Moreover, some restructuring actions have been taken, in order to rationalize the sector’s structure, while the increased interest from foreign investors indicates that there are some good business opportunities in the domestic market. At the same time, the sector gradually accumulates know-how and experience, by implementing large scaled and innovative ICT projects. This is a competitive advantage that should be further exploited at the international level and especially in the neighbouring countries. • Another important advantage : Sufficient well-educated scientists & engineers and managers in the sector, despite the missing link between firms and universities concerning their familiarization with market conditions. Need for more intense collaboration in that area as well.

18. Therefore: positive prospects... The prospects for the ICTsector in Greece for the next couple of years are moderate optimistic: • The macroeconomic environment still remains favorable. • Fast growth rates, increasing investments, improved business climate. • Gradual softening of demand and supply limitations. • Younger intense ICT users, increasing household expenditure. • Large and medium-sized firms are connected and impose new forms of cooperation with smaller firms. • Empowerment of the state’s role not only as an investor for the ICT sector, but also as a provider of electronic services with tangible benefits for the users. • Increased external demand from neighboring countries, but time is pressing • Foreign investments indicate that there are some good business opportunities. • Driving forces: Telecommuncations and new value added services: benefits from the convergence between informatics and communication. • Advanced infrastructure, better,less expensive and more attractive services. • Increase in employment and investments (especially in telecommunications).

19. … but under preconditions: • Increase of public and private investments on broadband infrastructures, which will lead to increasing competition in telecommunications and gradually in the IT market with new value-added products/ services: contribution to further diffusion of Internet. • Development of Greek digital content, which will lead to: a) a more intense diffusion of the Internet to eager potential users and some dynamic firms that are willing to participate in the IS, in combination with further training, b) the diffusion of ICTs in other sectors of the Greek economy • Reinforcement of training/ advisory/ educational actions mainly by the State, but also supported by a more consumer-oriented strategy by firms. • The more intense integration of ICTs in Public Administration, so as to offer real e-services, and not reproducing bureaucracy (e- bureaucracy?). • The role of Public as a service provider that facilitates the citizens and firms’ activities should be further upgraded. • Extroversion efforts from those who are capable for such actions, clearing up the field from problematic cases from the past, and speeding up the necessary mergers & acquisitions, ownership transitions, etc. • The reinforcement of a more profound and intense collaboration between universities and firms, so as to ensure a better fit of market needs and human capital preparation, while improving the R&D collaboration as well.

20. Some policy proposals… • At the ICT firm level • Restructuring actions, M&A, and strategic alliances should be fastened with the aim of rationalizing and improving the efficiency of sectors’s structure. • …combined with efforts of specialization, market segmentation and focus on niche markets – especially mainly by small firms • …but also innovation and differentiation through more intensive R&D, in collaboration with universities and research centres • Consumer-oriented strategies with the emphasis placed upon a) the cost for ICT users and b) the promotion of the ICT benefits to those that are willing, but also to the more cautious potential users • Investments on infrastructure that allow integrated high value - added services but also further collaboration, in order to develop a Greek and sector-based digital content. • Extroversion efforts by those that are capable, in order to exploit business opportunities that still exist in the neighbouring countries.

21. Some policy proposals… • At the level of public policy for the IS • Improvement of broadband infrastructure, development of additional digital content and new e-government higher value -added services • Emphasis on organizational change in the Public sector, so as to improve efficiency in integrating ICTs that lead to a transformation of the actual e-service • Expansion of ICTs use in Public Administration, in order to improve its functions, operation and efficiency • Integration for the regulatory framework for telecommunications, but also… • ..empowerment of EETT (National Regulatory Service for telecommunications) while allowing for a greater independence and continuation of its management • Boosting training concerning ICTs, in order to bridge the digital gap • …with additional motives not only for the adoption of ICTs by citizens and firms, but also for a more intensive use • … and motives for firms for further education and training of the employees that lack those capabilities • Use of ICTs in the teaching processes and reinforcement of the teaching of ICTs at all levels of education, so as all graduates will have developed some ICT skills • Simplification of the procedures for the public offerings and tenders which will allow for a tighter project implementation cycle