The ICT sector is being hampered by uncertainty (and currency depreciation) caused by Brexit, with a slowdown in growth, thin margins and fierce competition, reports leading trade credit insurer Atradius.
In its annual ICT Market Monitor, Atradius warns that a slowdown in household consumption and an increase in delays to long-term corporate IT projects will nearly halve growth levels within the British ICT sector this year, from 4.5% in 2016 to 2.6% in 2017. With falling demand for hardware products, the main drivers for growth are software and data services, including cloud computing and mobile app development.
While Atradius reports a good payment environment, with a low level of protracted payments and no increase in the number of non-payments year-on-year, it warns that market competition will cause margins, which are already squeezed, to shrink further. Insolvency levels are expected to remain ‘average’.
Simon Rockett, Risk Services Manager for Atradius UK, said: “The traditional ICT sector in many developed markets is no longer growing at a rate that cushions businesses against the impact of rising costs and falling prices, with the result that any do not receive the returns they need from their working capital.
“Currently, the main triggers for defaults and insolvencies in this sector are increased price pressure and margin erosion due to heightened competition and lack of product differentiation. With minimal barriers to entry and new challenges arising, it is a fiercely competitive environment and businesses are being forced to compete on price as they also try to differentiate their offering to preserve already thin margins.”
He added: “Looking forward, advancing technologies and changing market conditions will drive dramatic shifts in the sector landscape, putting pressure on distributors to clearly delineate their value of resellers and vendors. The choice they face to survive is to go big or go niche. Sustained and continued margin pressure, and fierce competition will increase the probability of failure for those businesses that are not able to adapt.”