Carly Fiorina, chief executive of Hewlett-Packard, has high hopes for central and eastern Europe. “In many ways, the environment here is more dynamic than in some countries in western Europe and dynamism and change creates a market for technology,” the head of the US information technology group said after a recent visit to Russia, Poland and the Czech Republic.
Yesterday, the company's warning that its earnings for the current quarter would miss analyst estimates caused shares to fall. But in eastern Europe, HP is strongly positioned for growth, with a 12 per cent share of the region's information technology spending. It made its first sales in the region in the 1960s. By the fall of the Berlin Wall in 1989, it had a sizeable sales network. Since the early 1990s, revenues have soared, fuelled by the demand for IT equipment and services for the modernisation of the ex-Communist economies.
HP's sales in central and eastern Europe span its full product range, including personal computers, printers, software and services. Ms Fiorina says the mix is almost the same as in western Europe, although there is slightly less demand for HP's managed services - that is, IT services out-sourced by a client to HP.
HP employs 3,000 people in the region, including 350 in Russia and 500 in Poland, the two largest markets. Most supply and service local customers, either directly or through scores of distribution companies. But HP is also developing call centres to support clients across the whole of Europe, the Middle East and Africa. Two are in Slovakia, one in Poland and one, for government sector clients, is in Bulgaria.
Ms Fiorina says the region will develop further as an outsourcing base for many companies, citing as an example DHL, the delivery group, which has established an international services management in the Czech Republic. Ms Fiorina says HP has no immediate plans to increase its own use of central and eastern Europe as an outsourcing base within HP. But she says: “I think over time it will develop. For a global company like ours - we are a $80bn company now - it's to our great advantage to draw in the talent from all over the world.”
This process will encompass central and eastern Europe: “It's a market that's growing and has highly capable and ambitious people. As we continue to globalise our capabilities, a region like this will be a beneficiary.” Ms Fiorina says the region has important competitive advantages, including high education levels, companies that appreciate the role of IT and governments that support business. “They have a private sector and a public sector that understand technology as a critical enabler.”
Kasper Rorsted, HP managing director for Europe, the Middle East and Africa, adds that people in the region are accustomed to change and are ready to adopt new ideas and new technology. “People have experienced more change in the last 10 years than most of us will in our lifetimes,” he says.
Governments and companies are not burdened with the legacy of existing IT systems. Because so much is built from scratch, IT users are free to buy the latest technology, he says. “The product mix was different five years ago. Now we have the same level of sophistication as in western Europe.“
But Mr Rorsted warns that the region also faces challenges - including implementing proper legal frameworks, fighting corruption and improving transparency. Schools also suffer from a lack of investment in IT, creating concerns over whether students have sufficient access to IT in their studies.
HP does not disclose regional financial data for central and eastern Europe. But IDC, the IT market monitoring company, confirms HP is the market leader in the region. Steven Frantzen, Prague-based managing director of IDC's Europe, Middle East and Africa division, says HP benefited from the merger two years ago with rival US computer maker Compaq, which had a strong regional base, as did Digital, a company acquired earlier by Compaq.
Mr Rorsted says the IT market in central and eastern Europe is growing faster than in western Europe, albeit from a much smaller base.
He says the IT market generally is growing at two or three times the overall rate of economic growth. In Russia, for example, where the economy is growing at about 8 per cent this year, the information technology market is forecast to expand by 15 per cent.
Mr Rorsted says that on top of this, HP is winning market share, so its revenues are growing faster than the market.
HP plans on annual sales of $2bn in 2007, up from $700m last year. The group says that along with China and India, Russia is one of the company's key developing markets. Mr Rorsted says: “We invest where we see the highest rates of GDP growth.“
HP hopes to benefit from the expected further consolidation in IT hardware manufacture. In western Europe, the top three personal computer makers have a 50-60 per cent market share, whereas in central and eastern Europe about half the market is still in the hands of local companies assembling computers from imported parts. HP argues that, with its strong brand, it is well placed to win share from local companies. At IDC, Mr Frantzen agrees. “This is a fair point. There will definitely be concentration and global suppliers will benefit.”
