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Resource Regions: Asia Pacific

Key Takeaways for IT Vendors

Globally, the risk of a consumer-led recession is increasing as central banks increase interest rates to control inflation. Most economists are coalescing around an expected slowdown in 2023, and a lot will depend upon monitory policy and wildcard events. IDC’s recent poll of 100 CIOs globally indicated that 79% expected a recession[VG1]  in their countries or in important buyer countries next year. The majority of them expect it to be a mild or moderate one and not a deep recession.

Inflationary pressure, geopolitical tensions, supply chain disruptions, increasing IT skills shortages, and weakening local currencies all contribute to what IDC refers to as “Storms of Disruption”. Inflation is a significant pain point for Asia Pacific excluding Japan and China (APeJC) economies. Central banks of all major regional economies, namely South Korea, Philippines, Malaysia, Thailand, India, New Zealand, and Australia have increased interest rates in July and August 2022.

Emerging markets face a more pessimistic economic outlook with currency devaluations against the US dollar, making imports costlier. This is a double whammy for countries that import oil and food as weakened local currency means higher imported inflation.

Many APeJC economies were hit due to lockdowns in China, their largest trading partner. Hope is that the Chinese government stimulus will help enterprises, and thus the economy, recover. IDC assumes that the Chinese economy will stabilize and return to growth in 2023. However, the pace of recovery is doubtful with the global economy cooling.

Japan is an interesting case as it is doing the opposite of what the world is doing. The Bank of Japan (BoJ) is not increasing interest rates like other developed economies, thus resulting in a weak Yen, which will impact corporate earnings. Inflation has increased, primarily driven by energy and fresh food prices. The underlying inflation pressures are much softer than in other developed economies, and BoJ predicts inflation to moderate in 2023. There is also an increased risk of rising covid cases.

IDC’s latest survey, Future Enterprise Resiliency & Spending 22 Survey, Wave 3, reveals that IT leaders in APeJC are concerned about inflation (45%) and timely access to products/services due to supply chain disruptions (47%). Chinese IT leaders are increasingly worried about staffing and labor shortages (56%), whereas IT cost increases stemming from inflation (48%) and COVID-related restrictions (46%) are leading concerns of Japanese IT leaders.

IT leaders have started reporting increasing difficulties in filling up vacancies both in line of business and in IT. They have either upskilled existing IT staff or engaged a third-party service provider to resource for the most important technology initiatives. Most IT leaders in the region report extreme difficulty in filling up positions for data management professionals, data scientists/data analysts, followed by software developers and networking engineers.

While the US is “technically” in a recession with a second straight quarterly contraction, Europe is forecasting it to happen in the next six months. APeJC GDP continues to grow in 2022 but at lower levels than predicted earlier. Interestingly, APeJC IT spending growth is holding up well in 2022, with a dip expected in 2023.

For more details on these trends check out IDC’s recent IT Spending & Recession Impact webinar.

Consumer IT spending (related to consumer purchase of mobiles, tablets, PC’s, wearables, and peripherals) slowed in the first half of 2022 because many device purchases have already happened in the last two years to enable WFH or online classes. We expect this to decline further this year and next year.

Enterprise IT spending has been stable  as businesses continue to protect IT budgets in the short term. Operational budgets account for a larger share of overall spending (cloud, subscription, as a service) and are difficult to pull back at short notice. Cloud spends are still expected to grow strong due to a marked shift from capex to opex operating model.

Expectations are that some capital spending and investments in new projects are vulnerable because the focus will shift to keeping the lights on rather than putting money on new initiatives. Again, the willingness and ability to increase IT budgets in line with rising prices, either due to inflation or currency devaluations, is more uncertain today.

IDC’s survey, Future Enterprise Resiliency & Spending 22 Survey Wave 6, indicates that there are no signs of significant cuts to IT budgets or strategies yet. Instead, businesses are exploring ways of maintaining projects within constraints of existing budgets, which already include planned increases driven by digital transformation and cloud deployments. Enterprises in China have seen their budgets drop due to a decline in economic activity.

However, in this story, regional enterprises are still focused on bringing operational efficiency and business resiliency. Investments in digital infrastructure resiliency programs appear at the top of their priority list. This will involve investments in computing, storage, and network infrastructure and automation across data centers, public clouds, and edge locations to create more responsive, scalable, and resilient platforms for enabling digital business.

To sum up, below are the key takeaways:

  1. Consumer technology spending hit, expect further declines, followed by reductions in early-stage speculative enterprise projects and capital spending.
  2. Cloud spends to stay strong as businesses focus on achieving increased business agility and cost optimization post-COVID. However, some spending still correlates with employment so job cuts may negatively impact cloud spending. Employment statistics of enterprises will be an early indicator of any future impact on cloud spending.
  3. Expect greater scrutiny on technology investments, especially as technology begins to represent a growing portion of spend. Technology investment will increasingly be to support sustainable business growth, and vendor messaging must give it due importance. In short, technology spending will be more strategic.
  4. Local currency devaluations will negatively impact enterprises’ IT budgets, with imports becoming costly.
  5. Increasing IT skill availability gap, enterprises turn to third-party service providers to bridge the talent gap.

Understanding the impact of a global recession is essential for market intelligence, strategy, and marketing teams to understand evolving market size, competitor strengths and weaknesses, and optimal pricing approaches. The Black Book Live program serves as the essential tool for these tech supplier teams seeking to map demand for global, regional, and local markets around the world. The Live edition of the Black Book is published monthly and reflects the current optimistic scenario for tech markets. An alternate global IT market view reflecting the latest economic assumptions and indicators across 89 countries, alongside country-level analysis of impact on ICT pricing and demand is also available on request.

For more insights, watch our on-demand webinar: State of the Market – IT Spending & Recession Impact by Industry, click here.

FUTURE ENTERPRISE RESILENCY & SPENDING 22 Survey wave 3: Q5. Overall Impact – Which of the following do you expect will have the greatest impact on your IT spending plans for the rest of 2022?

FUTURE ENTERPRISE RESILENCY & SPENDING 22 Survey wave 6: Q6C. Compared to your organization’s originally budgeted IT spending levels for 2022, how will current disruptions affect your organization’s most likely final IT spending levels for all of 2022?

Vinay Gupta - Senior Research Director - IDC

Analyst Profile
Vinay Gupta is a Research Director for IT Spending Guides in Customer Insights & Analysis group. Based out of Bangalore, he is responsible for supporting the growth of spending guides across Asia Pacific excluding Japan and China, leading the spending guide team, working with country teams, sales teams and tracker teams. Vinay has close to fifteen years of industry experience where he has helped enterprises and IT vendors with actionable insights through his research focused on analyzing the ICT market in areas of market sizing, market trends and forecasts, and IT vendor rankings. In his role at Ovum, his focus was on building tools that IT vendors use to target accounts, identify customers and prospects, understand accounts in granular detail, and focus sales budgets on the correct prospect thereby improving bottom-line of vendors. He started his career working with Mahindra & Mahindra moving on to 3dPLM Software Solutions (a JV of Dassault Systemes) where his focus area was vehicle integration and later product life-cycle management. During his tenure there he also interacted with end users to identify their needs and help design better processes which would adapt changing customer needs.

The Russia-Ukraine war has dramatically shifted the global geopolitical landscape. Countries and companies around the world are struggling to respond. While not as exposed as European nations, Asian nations, will undoubtedly feel the spillover effects of the economic sanctions on Russia, as will the ICT industry in Asia/Pacific. IDC expects that sanctions, commodity shortages, and higher prices for oil and gas as well as other essential goods will further fuel inflationary pressures and damage ICT supply chains that support the regional consumer electronics/semiconductor manufacturing as well as distribution industries.

The situation is highly dynamic. Just one week prior to the invasion, we surveyed 370 Asia/Pacific (including Japan) organizations about their IT spending. 56% of respondents expected 2022 GDP to be same or higher than expected, and 49% indicated their IT spending in 2022 would increase from 2021 (Source: IDC FERS Wave 1 Survey conducted mid-February 2022). These generally positive views have no doubt darkened somewhat over recent weeks.

“Given the fluid nature of the war, IDC recommends that companies create action plans that enable them to anticipate and react to potential disruptions resulting from it, such as supply chain disruptions, chip shortages, increased inflation and cybersecurity threats. The impact of events can change quickly and so must your plans. Leveraging technology for resiliency should be top of the agenda.”

Sandra Ng, Group Vice President and General Manager, IDC Asia/Pacific

IDC carefully evaluated the geopolitical situation and its impact on Asia/Pacific ICT markets, through its broad network of regional, and local analysts and will continue to do so. 

Asia/Pacific IT Vendors will be impacted by:

  • IT Supply Chain Disruptions for Asia/Pacific IT Vendors: Asian exports to Russia, while small, are sometimes significant, and will be hit by U.S. and EU sanctions. Prominent examples include Taiwan-based TSMC, which manufactures the Russian-designed CPU alternative to Intel/AMD, which has announced that it will no longer ship to Russia. By contrast, Russian exports to Asia/Pacific are much larger. These include industrial gases like neon and C4F6, and metals like copper, palladium, nickel, titanium, tungsten, and vanadium, used in IT products from chips to mobile phones and batteries. While most vendors have large inventories of these raw materials, raw material costs look set to increase. Ukraine and Russia’s supplies to semiconductor manufacturing of commodities are especially critical for Asia/Pacific, as the ICT industry has already been struggling with chip shortages with the pandemic and an extended Russia-Ukraine war will exacerbate this. While larger vendors have large stockpiles, supplies to downstream industries such as phones, laptops, and autos are likely to be delayed.
  • Logistics and Transportation for Asia/Pacific IT Vendors: The war impacts the oil and gas industry and therefore has tremendous impact on logistics and transportation costs. Asia, as a net oil importer, is especially vulnerable, and transportation prices will increase. Asian ICT manufacturers and distributors, pressured by higher input costs, may struggle to pass on price increases to consumers.
  • Inflationary and FX Impacts for Asia/Pacific IT Vendors: Inflation remains mild across the Asia/Pacific region, but with COVID-19 related spending, and now the Russia-Ukraine war, inflation has re-emerged as a concern. This makes planning harder for Asian exporters, especially in industries like semiconductors and computer hardware whose supply chains span continents. Inflation encourages vendors to lock in pricing for raw materials, while riding market increases (where they can) for output products. Inflation may impact the nature of ICT demand in Asia; for example, increasing the use of as-a-Service platforms, especially public cloud services from hyperscale providers operating regionally, as these allow buyers to reallocate capital spending from IT to increase enterprise resiliency.

Asia/Pacific Technology Buyers will be impacted less in the short term, as they will continue their investments in transformational IT. But if the war is protracted, they too will face issues such as:

  • Inflationary Impacts for Asia/Pacific Technology Buyers: While inflation may cause some buyers to delay IT investments, IDC surveys suggest inflation is not likely to reduce investments. This varies by country, with Singapore and Japan more likely to report possible delays compared to China and Indonesia. Inflationary impacts also vary by technology— APJ respondents report that investments in telco/networks, SaaS, and IaaS are more likely to have budget increases because of inflationary pressures. Some well-placed IT buyers, say, those with U.S. dollar revenues may be able to lock in favorable discounts and rates with weaker vendors before any price increases.
  • Supply Chain Implications for Asia/Pacific Technology Buyers: Asia/Pacific companies will need to increase logistics and supply chain transparency, beyond tier 1 suppliers. We expect to see greater monitoring and know-your-supplier practices using technologies like integrated ERP, supplier monitoring, blockchain for increased traceability, and environmental monitoring.
  • Impacts on Asia/Pacific Technology Buyers’ Russian IT Suppliers and Operations: Many buyers will temporarily pause any Russian operations and suppliers to limit financial, legal, and brand reputation risks. This will probably lead to shift in IT vendor mix for these buyers.
  • Cybersecurity Impacts for Asia/Pacific Technology Buyers: Cybersecurity and resiliency top IT spending priorities, and this will continue. Cyberwarfare may spill over beyond the conflict combatants and into Asia/Pacific.

An Open Question? China’s responses to E.U. and U.S. sanctions remain an open question, but these will have political, and economic impacts in Asia/Pacific as well as for ICT markets. For example, will Chinese (and potentially Indian) technology vendors step up to support Russian markets and fill the void left by Western technology suppliers? What will be impact on Chinese ICT vendors should they decide to increase their market presence in Russia? How will it impact their market positioning and ability to sell in other markets around the globe?

IDC will continue to monitor developments closely and provide guidance as necessary moving forward.

Further Reading:

IDC’S Initial Take

This IDC Market Note summarizes the views of IDC’s regional analysts to provide a first take on the Russia-Ukraine war’s impact for Asia/Pacific ICT vendors and technology buyers to help them adapt and react to fast-moving market conditions.

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Dr. Chris Marshall - Vice President - IDC

Analyst Profile
Chris Marshall is a Vice President responsible for several areas of research at IDC. Chris leads the Asia/Pacific regional industry research teams, which includes coverage of healthcare, government, retail, energy, manufacturing, and financial services. Additionally, Chris leads our regional teams in data, analytics, artificial intelligence (AI), future of work, and sustainability. Previously, Chris was a senior executive in IBM Watson Financial Services where he led their AI-enabled risk and analytics practice in Asia. Before joining IBM, he held partner and executive roles in big data and analytics at KPMG, Oracle, and UBS. He is also a former Professor of Computer Science at National University of Singapore where he was co-founder and director of their programs in Intelligent Systems, and Financial Engineering.