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MIS 648 Country Study: IT Opportunities in Bulgaria Presented by: Daniel Caratini Sowmya Venugopal Nicole Hensley Janet Vasahlik October 23, 2006 Agenda • • • • • Physical Picture Socio-Cultural Facts Economy Demographics IT Industry: Technology Scene, Penetration, Training, Teledensity, Producers, Consumers, Strength and Weakness • • • • • • E-commerce Picture Business Climate of Bulgaria Business Climate of Eastern Europe Investment Opportunity #1: Internet Café Investment Opportunity #2: Tourism Service / Website Questions Physical Picture Location Topography Physical Picture (cont.) • Total area: 42,823 sq mi • Temperate weather: – Cold damp winters – Hot dry summers • Transportation: – – – – – Crossroad between Europe, Asia and Africa Roads (102,016 km), Railways (6,500 km) 4 int. airports Seaports available Public transportation available Information taken from www.wikipedia.org Socio-Cultural Facts • Bulgarian flag => • Official language: Bulgarian (84.8%) • Bulgaria is known for its folklore, traditional music, rituals and tales • Has nine UNESCO World Heritage Sites • Currency: Lev ($1 US = 1.55 LEV) – Cash economy • Religion: – Bulgarian Orthodox Church – Islam, Roman Catholicism and Protestantism Information taken from www.wikipedia.org Socio-Cultural Facts Politics: • Parliamentary Democratic republic • Executive power is exercised by the government • The U.S. Freedom House rates the country as a free country (1 on political rights and with a 2 on civil rights) Educational System: • Supported by the state • Compulsory for children of ages seven to sixteen • 41 state supported and private higher educational institutions Information taken from www.wikipedia.org Socio-Cultural Facts Hofstede’s Dimensions* * Data taken from www.geert-hofstede.com Economy Brief economic history • • • • • • Collapse of communist regime in 1989 Transitioning to market economy 1996-97 economic crash Member of NATO since 2004 Scheduled to join the EU January 1, 2007 Plans to adopt the euro in 2010 – 2011 Major industries • Agriculture / Farming (major crops: wheat, sunflower) • Electricity Economy Economic Indicators GDP (current US$) GDP growth (annual %) Foreign direct investment, net inflows (BoP, current US$) Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Inflation, GDP deflator (annual %) Present value of debt (current US$) Revenue, excluding grants (% of GDP) Agricultural land (% of land area) Additional Economic Indicators Energy use (kg of oil equivalent per capita) Electric power consumption (kWh per capita) Fixed line and mobile phone subscribers (per 1,000 people) High-technology exports (% of manufactured exports) Internet users (per 1,000 people) Literacy rate, adult total (% of people ages 15 and above) Military expenditure (% of GDP) Personal computers (per 1,000 people) School enrollment, secondary (% net) Time required to start a business (days) 2001 13.6 Billion 4.1 813 Million 55.6 63.1 6.7 --35.7 49.7 2001 2462.3 3907.5 560.9 2.7 76.5 --2.7 48 84.4 --- 2002 2003 2004 2005 15.6 Billion 19.9 Billion 24.3 Billion 26.6 Billion 4.9 4.5 5.7 5.5 905 Million 2,097 Million 2,005 Million --53.1 53.6 58.0 60.8 59.8 63.0 68.2 77.4 3.8 2.2 4.8 3.9 ----16.1 Billion --35.7 37 40.2 --48.1 48.1 ----2002 2417 3838.2 695.1 4 80.1 --2.7 51.5 87.1 --- 2003 2493.9 3965 807.7 4.3 197.5 --2.6 55.2 88.3 32 2004 ----966.4 4.0 283.5 98.2 2.4 59.4 88.5 32 2005 ------------2.4 ----32 * Data taken from The World Bank Group Demographics • • • • • • Population: Population growth rate: Net migration rate: Life expectancy at birth: Sex ratio: Ethnic groups: – – – – – • Bulgarian Turk Roma Russian Other 7,718,000 (2005) -0.89% (est.) -4.3 migrant(s)/1,000 population (est.) 72.03 years 0.93 male)/female (est.) 83.9% 9.4% 4.7% 0.2% 1.8% Religion: – – – – – Bulgarian Orthodox Muslim Roman Catholic Protestant Other 82.6% 12.2% 0.6% 0.5% 4.1% IT Industry - Technology Scene • 1980s, leading supplier of 5th generation computer systems to soviet union research institutes, Electronics & telecommunications counted for 25% of industrial production • 1990’s, modem technologies were introduced, mobile wireless technologies became famous in later 1990s. • Telecommunication infrastructure like DSL and fiber optics were built by Bulgarian Telecommunication Company (BTC) • ISP and telephony services are expensive • Approximately 10.4% of the Bulgarian population access internet.15% of internet access are provided by public access points like internet cafes, schools and workplace. Less than 3% of internet users are from smaller towns. IT Industry - Penetration • Bulgarian gov., banking & telecommunication sectors are the major users of IT. • Foreign investors entered telecommunication market by acquiring ownership of existing companies or by joint ventures. • International software and hardware producers do not consider Bulgaria as a primary target. • Study and self-sufficient technology growth • Continuous growth of technology penetration, access affordability and connectivity • Growing digital divide in terms of accessibility to IT infrastructure and provision of internet-related services IT Industry - Training • Uneven Penetration of internet access in universities - AUBG (almost 1:1, other universities 1:100) • Internet usage is not integrated into learning process • Absence of technology infrastructure leads to theoretical knowledge in secondary schools IT Industry - Teledensity • Teledensity – 37 lines (PSTN) per 100 households. Difficulty in finding out information on companies teledensity. Digital phone lines are growing and contribute to 22% of total phone lines. ISDN lines were introduced only in year 2000 and hence a lower percentage of .34% of total phone lines. 14.3% of the population reported to have cell phones, 3/4th of the household possess at least one cell phone device. IT Industry - Producers • • • • • • • • Most of the electronic transactions fall into B2C category, B2B transactions occur only in about 100 small and tiny consumer segments. In Bulgarian government, 18% of all workplaces in public administration are computerized. 20% of them have internet access. Bulgarian government is well prepared to adopt technology compared to the industry sectors. Financial services sector and telecommunication sector are the only economy sectors who have greater IT penetration. 30% of companies use computers at work, only 12% of them have internet access, 3% of employees access internet for email and communication purposes only. Tendency towards increased company presence on the internet, basic and static information like Company Profile, Contact information and Listing of products The number of hosts in “.bg” domain was 1860, 2500 sites under “.com”, “.net” and “.org” domains, about 800 others use Bulgarian portals – www.hit.bg, www.dir.bg, www.online.bg, www.search.bg The population of IT professionals fall between 4000 & 15000, (if we include telecom engineers and IT teachers falls between 45-50000) Uneven penetration of technology, low-level of internet access, low level of trust in security issues and lack of clear legal environment for electronic business are the main causes for the small & inefficient local producers. IT Industry - Consumers • • • • • • IT specialists jobs are attractive 220% the average monthly salary, specialized professionals (systems admin, programmers) are paid 340% the average monthly salary According to Bulgarian Association for Internet Technologies (BAIT), about 15000 IT professional have left the country in the past 10-12 years. Severe brain drain cause of unavailability of challenging IT opportunities. 800,000 debit car holders vs. 10,000 credit card holders. 400-700 credit cards are being issued by Bulgarian banks each month. Only 1.4% of the debit card holders are registered with ePay.bg (Bulgaria’s most popular online payment system) due to lack of trust in the systems security. Common categories of goods traded on the internet : Books(45%), Prepaid internet access cards(10%), Flowers & souvenirs 10-12%), music (7-8%), electronic items & cell phones (6-7%), online payment of utility bills in Sofia (12-15%). Here processing is done on internet, payment is still by the conventional manner upon delivery. Online Payments by prepaid cards called “Net-Card” are gaining popularity. IT Industry - Strengths & Weaknesses • Strengths – – – – – – 98% literacy rate, rated among the top 5 in the world No.2 in certified skills, after U.S. 4-6% increase in GDP for consecutive 5 years Robust Banking sector Existence of foreign investment initiatives Closer location to central Europe • Weakness – – – – Brain drain Volatile transition economy Low access to computers, internet Strong presence of mafia culture E-commerce picture Bulgarian Firms • • 24% of local enterprises have websites 11% of which allow online ordering Bulgarian Consumers • • • • • Estimated that only 3.8% of population made online purchases in 2004 Reasons for low eCommerce activity Weak economy Low wages High unemployment rate (11.5%) Most popular online purchases are books and magazines! Information taken from ARC Fund’s eBulgaria 2004 Report E-commerce picture (cont.) E-commerce picture (cont.) Information taken from www.knigopolis.com Samples of IT Industries • Value-added SMS services – e-Commerce • PIAPs / Internet cafes • Government administrative services: e-Government, ePolicy http://www.daits.government.bg • IT outsourcing services such as BGITExchange http://www.bgitexchange.com • BASSCOM – Bulgarian association of software companies http://www.basscom.org • Academics and education, aerospace and defense, CAD/CAM systems, charity, construction, entertainment, finance and banking, freight forwarding, healthcare, insurance, pharmaceuticals, telecommunications and tourism. • Competitive academic IT teams, winners • Potential brain drain present Business Climate of Bulgaria Advantages – – – – Low inflation rates Average 4% economic growth since 2000 Low corporate tax rates Pending EU membership Disadvantages – – – – High unemployment rate (11.5%) Low wages Inefficient judicial system Strong organized crime presence Information taken from Bulgaria Country Commercial Guide 2006, U.S. Department of Commerce Business Climate of Eastern Europe The UN defines Eastern Europe as: • • • • • Belarus Bulgaria Czech Republic Hungary Poland • • • • • • Moldova Romania Russian Federation Slovakia Ukraine Information taken from the CIA World Factbook Business Climate of Eastern Europe Business Overview • Former communist regimes • Transforming economies • 2005 average growth of 5% • High unemployment • Low wages Information taken from the CIA World Factbook Investment Opportunity #1: Internet Cafe Internet Cafes staffed with Bulgarian University IT students to provide: • Internet access • PC usage training • Internet and software training Investment Opportunity #1 (cont.) Why do we think this idea is viable? Reason #1 • Estimated 2006 Internet usage in Bulgaria is only 26% • 2004 survey identified reasons for low usage: • Too expensive (30.2% of respondents) • Don’t know how to use the Internet (18.9% of respondents) • Don’t have computer access (18.9%) Investment Opportunity #1 (cont.) Why do we think this idea is viable? Reason #2 • Bulgarian higher education standards • Globally recognized • Produces highly skilled certified IT specialists • Low wages • Low employment opportunities Investment Opportunity #1 (cont.) Result • IT professionals leaving Bulgaria after graduation • IT knowledge learned at university level not being diffused back into the country • Local and rural residents not gaining benefit of world class IT education in Bulgarian universities Investment Opportunity #1 (cont.) Internet Cafes staffed with university students would provide consumers: • PC access • Internet access • PC usage training • Internet and software training Investment Opportunity #1 (cont.) Internet Cafes staffed with university students would provide investors: • Low cost labor by employing university students • Access to a growing, yet untapped market • Increasing profit potential as Internet usage increases Investment Opportunity #1 (cont.) Internet Cafes staffed with University students would provide Bulgaria: • Increased Internet usage resulting from: – PC access – Internet access – PC and software training • Opportunity for Bulgarians to benefit from strong university IT programs despite high number of graduates leaving the country Investment Opportunity #1 (cont.) TAM Ease of Use Usability Accessibility Evaluation Acceptance Usefulness Functionality Potential Information taken from Lecture 2 Investment Opportunity #1 (cont.) Comparison to Latvia Household income statistics • Bulgaria: • Latvia: lowest 10%: 4.5% lowest 10%: 2.9% GDP growth • Bulgaria: • Latvia: 5.5% 10.2% Unemployment • Bulgaria: • Latvia: 11.5% 7.5% highest 10%: 22.8% highest 10%: 25.9% Investment Opportunity #2: Tourism Service / Website • Climate • Geographic proximity to Oriental/Southern / European locations • Natural resources, mountains, hydrothermal sources • Traditional hospitality • Historical sites Information taken from http://www.geographic.org/maps/bulgaria_maps.html Investment Opportunity #2 (cont.) Black Sea, Sofia Black Sea Coast Sofia Information taken from http://www.orienttravel-bg.com Investment Opportunity #2 (cont.) Golf, Ski, Spa, Water sports • • • • • Ideal Spa and Recreational Resorts More than 500 natural mineral hydrothermal sources Ski Resorts, Mountains Golf Resorts Professional Sports Training Camps Information taken from http://www.orienttravel-bg.com Investment Opportunity #2 (cont.) Business Climate • Black Sea area hub: close to any Eastern European as well as Southern tourist locations • Tourism, hospitality is the most important • Tourism as business driver • Credit card acceptance at tourist locations • English/Russian/German Investment Opportunity #2 (cont.) Potential Business Opportunities • With the IT sector still not a large source of income, tourism with use of IT is still a good source of income • Internet based central Tourism websites with discounts, advertisement can grow e-commerce • Maintains Bulgaria’s niche in tourism while improving IT penetration • E-commerce tourist kiosks, e-reservation • Property investment for tourism, time share Investment Opportunity #2 (cont.) Specifics • Establish e-Ticket, e-Commerce websites • Provide safe online credit card transactions, flexible packages • Use local resources • Establish B2B Tourism/Reservation web services • Recruit and use talents from Colleges/Universities/IT firms Investment Opportunity #2 (cont.) IT-Led Development Industrial Policy Environmental Factors Political, Social, Economic and Geographic Environment Indigenous vs. MNC R&D Industry Structure Education & Skills Technology Policy Infrastructure IT Diffusion IT Production and Use Economic Payoffs Employment, Productivity and Economic Growth Information taken from Lecture 4 Investment Opportunity #2 (cont.) Why investment in this country can differ from Latvia? • Attractive sea-side locations • Warm climate allows for more days for prime sea side tourism which translate to more income • Close to other famous southern and oriental tourist destination • Mountains and ski resorts attract winter vacationers • Bulgaria is geared towards tourism Questions