Challenges Await in Booming IT Integrators’ Market

Elevated digitalization requirements sparked by the pandemic have accelerated the transformation of information technology system integration, which points toward trends shifting to a service-based operating model in Hungary.

Two main factors fuel this progress. Firstly, prominent IT vendors on the market’s supply side are switching to service-based operations and business models. Secondly, customers are tailoring their processes toward using services rather than significant one-off investments, which supports them in running more flexible, adaptive and, thus, resilient operations. Such a burgeoning market is, however, challenge-ridden.

“As a result of the increasingly difficult availability of IT professionals, most customers are looking for strategic partnerships with some service providers, even starting open innovation collaboration with them,” József Sándor Kerekes, technology presales and consulting division director of digital service provider T-Systems Hungary tells the BBJ.

Companies are also increasing their focus on the data economy. Data management and related artificial intelligence solutions are gaining momentum, especially for companies that produce and gather, and not just consume, data. This is encouraging a change in the market.

“Thus, also at T-Systems, we are talking about shifting towards offering convergent digital services on top of traditional systems integration functions,” says Gábor Vasvári, a strategic expert at T-Systems Hungary, which operates under the umbrella of local telco player Magyar Telekom, a daughter company of German giant Deutsche Telekom.

Such an industry houses competition that grows stronger as more complex service providers come to life via local mergers and acquisitions. Beyond such large-scale one-stop-shop businesses, smaller companies still exist in the market, offering services in a maximum of one or two areas, with highly-specialized expertise.

“However, the main threat comes not from the local and regional IT service providers but from global tech, especially cloud companies, which, if they focus more intensely on the domestic market, can offer a serious competitive edge with their cheaper prices,” Vasvári warns.

József Sándor Kerekes

Changing Needs

How are business needs changing in a vertical of such plasticity? On the one hand, “Flexible, calculable operation will become increasingly important for customers, based on which they will always pay only for the services used. Furthermore, fast implementation and integrability will also become increasingly important aspects. The above demand represents one of the most significant advantages of the cloud model,” Vasvári adds.

On the other hand, customers still expect customized solutions nowadays, in addition to quality and legal guarantees of the given IT service provider concerning operation, which is the strength of traditional on-premise services.

The holy grail for combining these two business models is the availability of an IT/hybrid cloud solution, which combines the speed and flexibility of the cloud with the integrability and quality guarantees of on-premise solutions.

“T-Systems also prioritizes hybrid cloud and hybrid IT operations and can provide many services to its customers in this way,” Vasvári insists.

Hungary is a mixed bag in digitalization when compared to its neighbors. According to the most recent digital economy and society index (DESI) produced by the European Commission, Hungary scores 43.8 points out of 100. This puts it head-to-head with Slovakia, behind the Czech Republic but ahead of Poland, from among its Visegrád Four peers.

Hungary excels, both within the V4 and against the European Union average, in connectivity; in other words, the availability and price of fixed and mobile broadband. However, considering the digital technologies integration indicator, Hungary comes last among the V4 and is 25th in terms of the EU average (in a 27-strong club).

“This shows that the IT sector has plenty to do to increase the growth and usage of these technologies,” Vasvári  says.

The ICT Spending guide by IDC, a global market intelligence firm, shows that 48% of the Western European IT services market already belongs to managed services. In the meantime, project-based solutions still dominate in Central and Eastern Europe, including the V4, as they have a 54% share of the IT service pie in the region, against only 39% in Western Europe.

More Adaptive

“Compared to Western countries, there is no significant difference between the V4 countries, but overall, the Czech IT market is more adaptive; they adopt new technologies much faster than Hungary or Poland. Compared to the size of the country, the Czech Republic is the largest market, about twice the size of Hungary’s. Moreover, the Czech market is more mature in digitalization; businesses were able to make the compromise decisions along which they could better apply cloud technology,” Vasvári notes.

The Hungarian IT market is similar to Poland’s, as companies in both countries are more conservative about adopting new solutions than in the Czech Republic. A common trend in the V4 is that project-based services are growing more than managed services, and their market growth rate is similar in magnitude.

“Yet, this growth rate falls behind the cloud market in every V4 country. In terms of future market growth, the public cloud will expand much more in the V4 (annual growth of around 20% is expected in the coming years) than the market for on-premise solutions, where we typically speak of an annual growth rate of less than 10%. And, of course, it is also important to note that the cloud market in all V4 countries is still far from saturation,” Vasvári adds.

The market is undoubtedly bursting with potential. The pandemic accelerated digitalization; many companies realized that digital solutions allow them to maintain business continuity and remain competitive.

“If we approach from this angle, the pandemic has even been beneficial for the spread of digital services, and it is enough to think about remote work opportunities, among others. But secure VPN [virtual private network, which helps users stay private online] solutions have also grown in importance,” Vasvári adds.

The indirect effects of the war in Ukraine, which appear across the entire economy in Hungary and globally, curb the growth possibilities of the IT market, too. Sputtering supply chains, increasing inflation, and rising energy prices harm all economic actors, who may have fewer resources for IT investment.

“However, it is also important to highlight that, with a prudent IT solution, internal business processes can be made more efficient, and energy efficiency can even be enhanced with an IoT solution, which offers opportunities for IT integrators,” Vasvári concludes.

Editor’s note: Other service providers were offered to chance to contribute to this article but had not done so by our deadline.

This article was first published in the Budapest Business Journal print issue of September 9, 2022.