Asked which geographic markets will have highest percentage revenue growth for their companies during the next 12 to 24 months, the executives continue to cite the U.S. and China most often, but the numbers are down. For example, 68 percent chose the U.S., but that is down from 75 percent in 2012 and 77 percent in 2011. About half (53 percent) chose China, two percentage points above the 2012 figure, yet five percent below 2011, while 27 percent chose India, down for the second year in a row and slipping to fourth on the list. Several countries are becoming more important for tech revenue growth rate. One-third cited Brazil for growth over the next two years, compared to 29 percent last year, a quarter (26 percent) cited Canada, 15 percent Mexico and 14 percent South Korea. The figures for the latter three countries are up five to six points over last year, the second consecutive year of increases.
“These results can be attributed to a mix of factors in countries outside the U.S., China, and India, such as improving economies, infrastructure investment, technology incentives, and increasing technology adoption,” says Gary Matuszak, Global Chair, KPMG Technology, Media and Telecommunications practice. “As would be expected, anticipated revenue growth and employment growth rates are closely connected so we are seeing increased employment expectations in a number of the countries that see revenue growth.”
Employment growth geographically follows revenue growth
The majority of executives (61 percent) say the U.S. will have the highest percentage employment growth rate for their company between now and 2015, but that’s 16 points below last year. China (49 percent), India (48 percent), Brazil (26 percent), Canada (23 percent), Mexico (21 percent) and South Korea (12 percent) all are up at least four points over a year ago.
Price, Labor and Production Pressures
Pricing pressures (38 percent) remains the most significant growth barrier facing technology companies over the next year, and more execs see labor costs (24 percent) as an issue, compared to last year (20 percent) and 2011 (16 percent). Staying on top of emerging technologies (24 percent) is also a significant barrier. Additionally, losing share to lower-cost producers (33 percent) is seen as the biggest threat to tech companies’ business model.
“Tech execs continue to be optimistic about revenue growth, with nearly 80 percent, forecasting another year of increased revenue for their companies,” says Matuszak, “but they’re increasingly worried about pricing and cost pressures.” He adds that “tech companies also are identifying regulatory and legislative pressures as growth barriers, which historically hasn’t always been high on their list of concerns.”
Political and Regulatory Challenge
About a third of respondents say political/regulatory (31 percent) uncertainty is the biggest threat to a company’s business model. Near term, one in five says regulatory and legislative pressures (22 percent) present the most significant growth barrier over the next year.
Looking at which of the following pose the greatest risk to their company’s growth, tech executives say fiscal cliff spending cuts (46 percent), followed by corporate tax reform (43 percent), the Euro crisis (36 percent) and failure to adopt immigration reform for engineering/tech workers (15 percent).
Revenue Drivers: Cloud, Mobile, and Data and Analytics
Cloud and mobile (including mobile devices) are projected to be the biggest revenue drivers for their companies in the coming one to three years, say 38 percent of the respondents. Of these respondents, about 70 percent say cloud and mobile revenues met or exceeded 2012 forecasts.
“More than half say SaaS is the main driver of cloud revenue, while almost a third cites mobile applications and mobile platform as the two main mobile revenue drivers,” noted Matuszak. “Cloud and mobile are continuing to drive innovation and competitive leadership in the tech sector. Revenues are materializing as cloud and mobile continue to become key technology platforms for a number of industries and adoption is growing in countries and businesses where there is less legacy IT infrastructure.”
Advanced data and analytics jumped up the list of revenue drivers with 33 percent, compared to 19 percent last year. Executives believe that customer acquisition (37 percent), operational excellence (34 percent) and competitive intelligence (30 percent) represent the best use of data and analytics insights. Nearly half of the companies currently have become or are becoming highly data and analytics literate, according to respondents.
Technology Adoption: Tech Knows Cloud
More than half (57 percent) of the executives say their organizations have adopted cloud and found little or no challenges integrating it into their business strategy and operations, and 12 percent say their organizations plan to adopt cloud and believe they will easily integrate it. Only 15 percent have found major challenges in integrating cloud.
“Tech companies are known for rapid implementation of their own technologies, so it is not surprising that the majority would report no or minor challenges during their cloud adoption initiatives,” says KPMG’s Matuszak.
On the other hand, a recent KPMG global survey of cloud users across all industries found that nearly 33 percent of all executives surveyed say that cloud implementation costs have been higher than they expected, and a similar percentage say that integrating cloud services with their existing IT infrastructure has been particularly difficult.
Security/Privacy and Corporate Culture: Top Cloud Adoption Challenges
In the tech industry outlook, executives most often cited security/privacy governance and corporate culture/change management as the biggest challenges for businesses in adopting social media, cloud, and mobile technologies in the next three years. Looking at cloud, almost half say security/privacy governance and 30 percent corporate culture/change management. For social media, nearly 40 percent say security/privacy governance and 30 percent say corporate culture/change management. Regarding mobile technologies, about one-third say security/privacy governance and 24 percent say corporate culture/change management and technology complexity.
Mergers and Acquisitions Drivers
Nearly two-thirds of the tech executives say their companies are somewhat likely or very likely to be involved in mergers and acquisitions as a buyer or seller over the next year. Most (56 percent) say access to new technology and products will again be the most important driver, followed by access to new geographic markets (39 percent), product synergies (37 percent) labor cost pressures (23 percent), access to employees with new skills and expertise (21 percent) and production cost pressures (19 percent).
KPMG Technology Industry Business Outlook Survey
The KPMG survey was conducted in the U.S. in February 2013 and reflects the responses of 102 primarily C-level and senior executives in the technology industry. Of the 102 respondents, whose companies may be based in the U.S. or other countries, 59 percent are in companies with revenues exceeding $1 billion and 41 percent are companies with revenues in the $100 million-$1 billion range.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 152,000 professionals, including more than 8,600 partners, in 156 countries.