Capetown, Western Cape Province
The PC industry within South Africa is growing rapidly. PC products comprise the following:
* Computer Peripherals (Printer's, monitors, scanners and other input and output
* Computer Hardware (Desktop stations, Tower stations,Note books, Lap tops)
* Computer Software (Word-processing software, Electronic mail, Accounts packages)
* Computer on-line services (Compuserve, Internet, BBS)
The PC peripheral market as a whole was approximately R718,201,136 ($196,767,434) in 1994 representing a 25% growth over R570,518,160 ($156,306,345) million in 1993. The trend has been toward the development of the infrastructure of both the Private and Government sectors. Within the S.A. computer arena, computer peripherals include printers, plotters, graphics displays and other input/output equipment e.g scanners and bar code readers. The printer and plotter industry is growing at a rapid rate. According to a recent market survey 95% of PC owners plan to buy printers within the next twelve months. The major players within the computer printer and plotter arena are Hewlett Packard, Epson, Seikosha and Cannon. The different types of printers used in the peripheral arena are, (1) Dot-matrix (2) Inkjet (3) Laser. Within the graphics display segment of the computer peripheral industry, there are a number of brands, either from the Far East or the US. They include Acer, Apple, NEC, Philips, Tatung, Sony, Dell, IBM, Auva and Compaq. The other input and output devices include scanners and bar code readers. The harmonized tariff code for computer peripherals is (84.71.92). PC peripheral companies within South Africa compete on a national basis for market share. Several of them dominate the PC arena, and are mainly based in Gauteng. The region includes Johannesburg and its affluent suburbs, the greater Pretoria area and Industrial towns of the East Rand, such as Springs, which accounts for 10% of Gauteng's industrial production.1
Currently the market is shared by about 97 participants. Acer Africa the top PC assembler and distributor in South Africa (according to a recent market survey), has greater sales, and financial, production, distribution, and marketing resources than other PC companies operating in South Africa. The second largest PC distributor and assembler is Mustek Electronics. The third largest is IBM which is also a leader in the PC industry, mainly focusing in the business arena.
The PC peripheral market is changing due to the fierce competition in the market place. It has entered a shake-out phase where low growth has created pressure on profit margins and forced companies to rationalize and consolidate their operations. Price wars continued to dominate the PC arena in 1994. Pushed by intense competition among PC suppliers, greater use of mass marketing channels, and increased focus on more price sensitive buyers in homes, small business, and schools, vendors continued to slash prices, cut dealer margins, and introduce low-cost lines aimed at the consumer and home market. Nevertheless the South African PC peripheral market has shown extraordinary growth over the past five years and is likely to continue to expand. Assemblers of industry standard clones will face even greater competition but will continue to thrive, given that the dominant driving forces facing the South African PC market are continually increasing processing power and decreasing prices.
The South African Government's attitude towards the computer industry is positive, its goal being that South Africa keeps abreast of new technology and remains a player in the extremely competitive global market for manufactured technological products.
Within the South African peripheral arena there are a lot of factors influencing market size. South Africa has just emerged from an apartheid regime, and was isolated from the rest of the world, in terms of technology, trade and investment. The reasons for the increase in the demand for PC peripherals within South Africa include the influx of foreign investment into South Africa. Between 1991 and 1994, 184 overseas companies set up new factories or offices in South Africa, which created new business opportunities within South African business. The area of greatest growth is in the business sector and Government sector, and within the global PC arena the consumer market has overtaken the business market in countries like the U.S.A and Australia.
President Nelson Mandela's ANC-led Government has created new business opportunities. It has pledged to rebuild much of South Africa's physical infrastructure. The Reconstruction and Development Program (RDP) aims to provide a million houses, dramatically improve public transport and health care facilities, as well as providing electricity to 2.5 million households by the year 2000. The (RDP) is expected to cost billions of dollars, creating many opportunities for foreign businessmen. The initial budget is expected to be doubled annually for the next five years and many Government contracts will be available. The RDP has been slow to take off, however, and there is some doubt how much money will actually be allocated by the government. US branded peripherals have a high status in South Africa, and more and more discerning firms are seeing the value of quality branded US products. The Far Eastern countries, such as Korea and Taiwan, are main suppliers to the market, particularly in the low-end computer peripheral segment.2
Within the international business arena, products that are technology based, e.g computer peripherals, radio receivers and electrical appliances, need not be totally adapted for the South African market, except for the different voltages i.e. 110V-220V. Marketers of U.S. peripherals might learn a lesson from the U.S. automotive industry. Most of the computer hardware products that are entering into the South African PC arena are coming in from the Far East, because of cheap labor and low quality products. Most U.S. computer and peripheral manufactures make PCs at the upper end of the market of very high quality mainly for the use within the business arena, and therefore concentrate on a market that wants high quality products. The ordinary consumer cannot afford a brand name and would rather go for a cheap clone.
The key competitive factors bearing on this market are price and quality. When dealing with the South African business community, price will play a leading role in securing the business. Acer's marketing strategy, is to focus on the consumer market seems to have adopted focuses on the consumer market. In a recent article, Computer Week (a South African computer publication) stated that, Acer, now well established in South Africa, and would become one of the top five PC manufacturers in the world, as they were concentrating on the exploding consumer market. Mustek Electronics seems to concentrate on both the business arena and consumer arena. IBM marketing strategy within South Africa seems to be more directed at the business arena.
No local production of computer peripherals exists in South Africa, only assembly of no name clones, with components imported from the Far East. Even so, Taiwanese and locally assembled clones should face stiffer competition from the United States.
Within the South African computer arena, the major source of computer peripherals is
from the import market which is by far the largest. All computer peripherals are imported,
some complete, some via local assembly. The major 3rd country suppliers of computer
related products within the South African PC area are:
1. Far East
US Market Position
The U.S. market share for computer peripherals in South Africa stands at 22 percent. American companies lost market share during the sanctions era; however most big US companies, such as IBM, Digital Equipment Corporation, Unisys, Microsoft, Compaq, have now returned to South Africa by either establishing an office here or buying back their share in the company, e.g. IBM. IBM has become very active in expanding its operations, including building an assembly plant for PCs and peripherals. Their idea is to supply South Africa and Southern Africa. Many multinationals are establishing themselves in South Africa. With its sophisticated financial, communications and manufacturing infrastructure, South Africa is seen as a natural base to supply the rest of the African continent. The value of imports of computer peripherals from the U.S. for 1994 was R127 million ($35 million), from January to April 1995 computer peripheral imports were R54 million ($15 million). There is approximately a 25% pa increase in the demand for PC peripherals from the U.S.
The various end groups with the PC peripheral arena are as follows3:
Office automation is a priority for the expansion and growth of any business either micro, small, medium or large enterprises. About 70 percent of office workers, including managers, use PC peripherals and accessories. This figure continues to rise.
Below are the statistics of software used in different applications.
About 9700 PC's and peripherals were installed in schools. Most PCs installed are in private schools. The South African government is looking into supplying government schools with more equipment i.e. computers to enhance pupils' knowledge.
At the present time more than one-third of income generating home offices have PCs and peripherals. Although micro and small businesses and home offices do not buy PC's as frequently as large corporations, the percentage of PC ownership for home offices is one of the highest among office equipment products.
The home PC (peripherals and accessories) has now become a general purpose machine, incorporating video, audio and online information. Households have multiple PC users. Software is becoming more useful and easier to use, and the popularity of home on-line information services like CompuServe and the Internet is increasing.
There are no restrictions or quotas on computer peripheral imports into South Africa. Customs duties are nil, only 10 percent Ad Valorem duty and 14% Vat. Non-tariff barriers such as prior deposits, foreign exchange restrictions and import quotas are not applicable.
The computer software and hardware market in South Africa is technologically on a par with other first world countries and there is very little lag between the release of new products internationally and their appearance on the South African market. The South African information technology (IT) market is the twentieth largest in the world, contributing 0.6% to world-wide IT revenues and it said to be one of the top ten emerging markets that are currently being targeted by major international computer companies. Numerous multinationals have entered or re-entered the South African market, since the market began opening up in 1992, with all the major international software companies now being represented in South African.
Trends in the computer software market in South Africa relate mainly to downsizing of business systems, predominantly in the corporate market, which has resulted in midrange package revenues growing at a compound annual growth rate of 39%. Software compatibility with previously purchased software is also an important issue in software buying behavior. Thirdly, multimedia applications, particularly those suited for business needs, are expected to become more popular. The base of installed personal computers (PC s) in South Africa is approximately 800,000 to 900,000, and indications are that 84% of the top 200 IT users are investing in client-server systems. There is fierce competition in the IT industry in South Africa, with price competitiveness, service reliability, and a high demand for after-sales and value-added service, contributing significantly to the competitive situation. Software piracy is almost double that experienced in the US and is estimated to be around 60% of the value of the market. There are no restrictions or quotas on software imports, but imported software is subject to certain tariffs. Most new entrants into the market find local representative companies to represent them, of which there are a few joint ventures in the industry.4
In 1995, South Africa's computer software industry revenues are expected to be SA Rands 4.7 billion (US $ 1.3 billion) out of a total computer industry revenue of SA Rands 11.11 billion (US $ 3.057 billion). A 16.1% overall growth is expected in 1996 to SA Rands 12.9 billion (US $ 3.548 billion). The estimated breakdown by segment is as follows: Total Software: SA Rands 2.2 to 2.5 billion (US $ 600 - 690 million), broken down into:
Total Hardware: SA Rands 5.176 billion (US $ 1.423 billion), broken down into:
The software segment is expected to show a real growth of at least 20% per annum for the next three to four years. Software growth in South Africa has consistently been higher than the world average in the past two years. Historically, the South African industry has not been a pioneer of computer technology, including software. It has rather acted as a distribution agent for international companies. In the past one to two years, numerous multinationals have entered or re-entered the South African market. All the major world software players are now in the South African market, including high profile companies like Microsoft, Oracle, Lotus, Novell, IBM, Silicon Graphics. The ensuing increase in competition is bringing supplier margins under greater pressure. Industry surveys conducted amongst the top 200 IT users in South Africa reveal the following software trends5:
Computer system downsizing is one of the key areas of growth, with 40% of the top 200 companies using IT having already downsized, 18% currently downsizing and 12% planning to downsize. Downsizing has been to both LANs and smaller mainframes, and numerous companies have moved to open systems.
Midrange platforms have shown the highest growth compared with mainframes and PC s. As a consequence, overall midrange package revenues have grown at a compound annual growth rate of 39% from 1991-1994 and are forecast to grow at a compound annual growth rate of just over 30% through 1997. UNIX-based midrange systems have shown the highest growth - at a 74% compounded annual growth rate from 1991-1994. Compounded growth of UNIX-based systems is expected to remain at approximately 40% from 1994-1997.
Mainframe package revenues are growing by less than 10% and PC package revenues at approximately 25%.
Interactive multimedia applications, particularly those suited for business needs, are expected to become more popular as business users become more aware of the advantages of such applications. Statistics from 1994 do, however, reveal that 70% of the top IT using companies have no interest in multimedia software that integrates voice, text, video and graphics. Although sales of CD ROM s have been concentrated in the home market until now, the business market is expected to implement half of all CD ROM drives manufactured by the end of 1995. About 35% of the currently installed PC base in South Africa has CD ROM s connected. It is estimated that in excess of 80% of all new PC s sold by the end of 1995 will have CD ROM s connected. Sales for CD ROM drives in 1994 were approximately 36,000 and are expected to double to about 72,000 by the end of 1995 and as a consequence of this the demand for multimedia applications is also expected to increase.
The current base of installed PC s is approximately 800,000 to 900,000. This is expected to increase to about 1 million by the end of 1995, and is expected to result in substantial growth in the PC software market in the coming years. Of total software sales 40% are estimated to be in the vertical market applications segment, with manufacturing and distribution being the biggest users. Amongst packaged application software, 40% of sales are in horizontal applications, mainly office automation and general accounting packages.
Amongst the major application software suite packages available, Microsoft Office is the market leader, with a 60% share of the market. South Africa was a significant part of the international launch of Microsoft s Windows 95 operating system. Sales in South Africa are predicted to be between R150 million and R250 million ( US $ 40-65 million) over the first year with significantly more users moving to Microsoft s Office 95 Suite. Indications are also that 30 - 40% of sales will be on CD-ROM. The Microsoft suites are followed by Lotus Smartsuite with 30% and Borland Office with 5%. WordPerfect is the preferred word-processing package, with a 68% market share, followed by Microsoft Word with 28% and Lotus AmiPro at 5%. Lotus 1-2-3 is the leader in the spreadsheet category. Specialized application software sales are also on the increase resulting from the surge of investment in industrial automation in South Africa. In these applications there has been local development over the past years, in production planning and control and production management software for specialized applications. The value of the locally developed software market is however difficult to estimate due to lack of published data. Computer aided software engineering tools is also growing as gross domestic fixed expenditure (GDFI) increases in South Africa, especially in machinery. Although computer aided design (CAD), computer aided engineering (CAE) and computer aided manufacture (CAM) have all been utilized for some time, companies operating on the leading edge of technology continue to upgrade their systems. Software development in the military sector is particularly advanced, but little published information is available due to security constraints. Software related to programmable logic controllers (PLC s) and supervisory control and data acquisition (SCADA) systems is also on the increase, the market for the aforementioned products in 1995 and the related services has been forecasted to be R170 million (US $ 47 million) and R38 million (US $ 10 million).6
Client-server and related technologies are being increasingly used by local companies. Industry research has shown that 84% of the top 200 IT users are investing in client-server systems. UNIX based software applications have shown the highest growth at 74% between 1991 to 1994. These applications are expected to contribute about 30% of total application sales. Co-sourcing is one of the fastest growing segments of the IT industry in South Africa. Contracts tend to be concentrated in the downsizing and outsourcing segments. Data warehousing growth in South Africa is at par with worldwide growth trends. Retailers, bankers, parastatals, oil and chemical companies, insurance companies and manufacturers are the principal users of data warehousing. The table below summarizes the market size for software products in the South African market:
The entry or re-entry of international software companies is resulting in fierce competition within the IT industry, with American companies dominating the list of newcomers. Many of the newcomers products were distributed in South Africa in the past, but their official return has lead to industry fallouts and new strategic alignments. The entry strategy of approximately 50% of new entrants or re-entrants has been to link themselves with local companies.
All the major players are now in the market, including Microsoft, Novell, Oracle, IBM, Lotus, Silicon Graphics, Siemens Nixdorf Information Systems, Hewlett-Packard, Sun Microsystems, EDS Africa, Intel, Cisco Systems, Newbridge Networks, Dun & Bradstreet Software Services. Other software companies with local offices or joint arrangements are: Maximizer SA, SAS Institute, Santa Cruz Operation, Multisoft SA, Pegasus Software SA, SAP, and Vmark Software Africa. Some of the top South African IT companies involved in application software and software development are: Q Data Consulting, Compustat, SPL, Unidata, M & PD, ICL, Knowledge Systems International and the Computer Hardware Market.
There are a number of local software developers, but they are catering mainly for the needs of small businesses, and do not contribute significantly to overall sales. Factors that give software companies a competitive advantage in the local market are price competitiveness, service reliability, after-sales service and value-added services around networks and software. Businesses often want their software suppliers to take responsibility for their computerization projects, and a survey conducted in 1994 amongst companies using packaged software on mid-range computer systems revealed that over one third of users were highly dissatisfied with the results of computerization projects.
Software piracy is almost double that of the US, at about 68%, and is estimated to cost the industry SA Rands 220 - 230 million (US $ 60- 63 million). Piracy is concentrated in application software and operating systems. The Business Software Alliance (BSA) has been increasing awareness in the market via advertising, educational campaigns and an antipiracy hotline, to the pitfalls of using pirated software. The BSA has also started offering rewards of up to SA Rands 10,000 to individuals who can provide information leading to successful litigation against companies using pirated software. The BSAs aim is to reduce software piracy to 40% within the medium term. The grey market is also a problem, within the industry, although minor compared to software piracy. Novell SA estimates that the level of grey Novell software is as high as 25%, amounting to SA Rands 25 million ( US $ 7 million in lost business. The Business Electronics Association has launched a Consumer Code for Electronics Equipment this year to restrict harmful business practices by asking grey marketers to affix stickers to products, including software, sold outside official channels.
The biggest users of computer software in South Africa are:
* large corporations, such as the South African Iron & Steel Corporation (ISCOR), financial institutions, insurance companies, base metal processing , as well as oil and chemical companies;
* quasi-government organizations such as universities, Transnet (the state owned transport services corporation) including South African Airways, Telkom (the telecommunications utility) and the South African Broadcasting Corporation (SABC). The looming privatization and decentralizing of many para-statal organizations is likely to have a significant stimulatory effect on the software market demand;
* mid-sized and small companies which are increasing as a result of many major corporate s unbundling to foster entrepreneurship and free enterprise;
* small office home office (SoHo) market which is increasing rapidly as many more smaller businesses emerge to provide contracted out services to the larger organizations;
* individuals and families who are fast beginning to recognize the need to become computer literate from an ever younger age.
The large corporations are the biggest users of computer software, followed by quasi-government organizations and midsized companies. The manufacturing sector is the largest single consumer of packaged application solutions, accounting for some 24% of total sales however mid-range platforms dominate this sector.
The most important criteria amongst all companies purchasing PC software is compatibility with existing software. For medium to small sized firms, warranty, service and after-sales support is at par with compatibility while in larger companies, adaptability of the software to internal company standards is also an important factor. Although corporate customers are investing substantial amounts into IT, about 30% are not satisfied and believe that the price/value relationship is not very beneficial.
The SoHo market is an emerging market, but opinion within the industry is not unified about the growth potential within this segment. The main point of contention is pricing, which is significantly higher compared to world markets. This end-user segment is price sensitive, and some experts believe that a significant boom in this segment will only materialize once hardware and software prices are lowered. Currently, an average home PC costs 200% of the average monthly salary, compared to 50% in the US, making the PC more of luxury than a necessity for the average potential buyer in South Africa. The individual and family buyers segment is not expected to grow significantly until discretionary income and computer literacy increases amongst the lower income population, which is being given a high priority by the Government of National Unity especially through distance learning techniques. All the major software application types are being used by the IT end-users in the South African market.
94% of end-users are using word processors;
93% of end-users are using spreadsheets;
45% of end-users are using business graphics;
41% of end-users are using databases;
33% of end-users are using accounts software;
27% of end-users are using E-Mail;
19% of end-users are using communications software;
15% of end-users are using marketing presentation software;
14% of end-users are using financial analysis software;
12% of end-users are using data collection software;
10% of end-users are using personal information management and statistical analysis software;
8% of end-users are using project management software;
7% of end-users are using utilities and desktop publishing;
5% of end-users are using programming and software development software, sales force automation software and integrated software;
2% of end-users are using emulation software.
Computer education and training is widely available in South Africa, and the demand for training is indicative of the market demand for staff to be able to work in an automated office environment. Computers are being utilized increasingly in schools, and the trend is likely to continue as more and more of the previously disadvantaged communities have access to the education system. This will however take considerable time to materialize.
There are no restrictions or quotas on software imports into South Africa. Software is subject to the following tariffs:
Import duty: 15% on FOB price
Value added tax (VAT): 14%, calculated as follows:
(F.O.B. value + import duty + surcharge + 10% of F.O.B. value) x 14%
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Author: Felix R. Klimpacher
Last Update: April 27, 1998
This Page's URL is: http://gurukul.ucc.american.edu/initeb/fklimpa/southafrica/comppage.html