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Romania's IT sector turning into international companies' playground
The Romanian IT & software sector is about to turn into a playground for big international companies, as increasingly more domestic start-ups and SMEs are facing adverse market conditions triggered on one hand by the fierce competition of multinationals and on the other hand by the controversial tax measures and the absence of economic incentives, shows a KeysFin survey that cites data of the barometer on the current state of the Romanian business.
Whereas Romania's software industry overall is on a positive trend and is potentially capable to provide for over 10 pct of GDP in the coming years compared to 6 pct at present, the business concentration in the hands of a small number of players — multinationals in particular — is already taking a shrill turn, the KeysFin survey states.
Statistics show more than 60 pct of the software industry is currently controlled by big foreign investors. Whereas in 2012 SMEs controlled the bulk of the market, in 2016 the large players' market share had advanced to 36 pct and the trend is picking up speed.
"Whereas in 2012 small and medium-sized businesses generated 25 pct of the turnover, by 10 pct more than corporations, in 2016 the percentages have changed substantially. The top 40 largest companies in the market came to hold a chunk of 36 pct of the pie, with turnovers of over 50 million euro each. For a comparison, the 17,000 micro-enterprises, generally start-ups, see revenues of less than one million euro. The middle segment of small and medium-sized firms has thinned out considerably, counting just 1,216 firms, most of them with less than 8 million euro in revenue," say KeysFin experts.
As of September 2017, there were 19,068 active software companies in Romania, by 1,000 more compared to 2016 (17,421), respectively 8,000 more than in 2012 (when the number of active companies was 11,090). The sector's turnover in 2016 was 4.8 billion euro, compared to 3 billion in 2012, with a profit of 571 million euros, twice as much as five years ago.
In terms of regional distribution, more than 42 pct of the companies were operating in Bucharest (7,771), followed by the North-West development region (15.2 pct, or 2,809 registered companies).
According to the survey, the players to see the largest turnover in the Romanian IT & software sector are Oracle (200 million euro in 2016), followed by IBM with 179 million euro, Ericsson (160 million euro), Bitdefender (100 million euro) and Endava (69 million euro). Statistics show that 60 pct of the market belongs to foreign firms, with the top three major investors (the Netherlands, Germany and the US) concentrating more than half of the business. By the number of foreign-owned companies, the majority thereof are running on German capital (324), followed by Italy (260), France (209) and the US (176).
The entry of foreign players has influenced labor market developments in this sector, as their significant financial strength has triggered a real migration of small companies' staff. The top five employers in this sector have absorbed over 12,000 employees, accounting for 12 pct of the industry's total personnel.
"Large companies have attracted 65 pct of the workforce in the sector. This is a significant indicator of the imbalance in this industry, which is increasingly controlled by multinationals. Against this background, 47.6 pct of the companies in the sector registered no employee in 2016," the experts said.
"Fierce competition has pushed Romania's software industry to internationally competitive standards. However, the large number of start-ups is worth noting, a sign that young IT professionals are further confident they can make it on their own," the survey authors say.
The Romanian software industry has become a truly strategic goal for the Romanian economy, requiring increasingly active support from the state.