Mr. Kaymo

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Industry Analysis
Software market in South Africa is valued at ZAR 21.7 billion in 2009. Comparing to 2004 when market value was ZAR 13.3 and shows tendency for steady growth by 10% per year. There are a possibilities for even faster growth in the future taking in account export opportunities for South African companies to developing countries on the continent and that future growth can go up to 14% per year. The export component is valued at ZAR 520 million or 6% of the domestic software market. The software industry is strongly pyramidal in structure regarding revenue concentration, with the five largest software vendors controlling 40% of the software revenue and the ten largest controlling 50% of the revenue. The industry functions strongly at a firm level, which results in a fragmented and individualized industry.

The following gaps are usually identified between the current status quo and the desirable state of the industry: • Market fragmentation – resulting in lack of a national, comprehensive software market strategy and an industry body, which would unify the market and act on its behalf. • Scarcity of data – resulting in lack of understanding of the local software market and support for the local industry, as well as lack of implementation of government policies (without the requisite underlying data). • Relatively poor quality of the SA software products – resulting from lack of adequate software standards and a software quality support strategy. • Lack of adequate IP protection in the local market – resulting in lack of confidence on the part of potential foreign investors. • Lack of a comprehensive, medium to long-term marketing strategy for the SA software industry – resulting in lack of awareness of the SA software industry in the biggest import markets of the USA and Western Europe. • Lack of funding – stemming from the absence of a venture capital funding strategy as well as incentive programmes for software companies, particularly the start ups. • Lack of appropriate skills – resulting in a disconnection between the national educational policy and software industry skills requirements.

Following are South Africa’s advantages:
• The ability to see the bigger picture, integrate and not become overly specialized • A “can-do” attitude
• The English language as a business medium as well as a westernized culture, work ethic and the legal environment • Same time zone with respect to Europe
• Links with the UK via UK ex-pats in South Africa and many SA ex-pats in the UK (the same principle can be extrapolated – albeit to a lesser degree – to countries such as the USA, Australia, New Zealand and Canada) • Possibly still a small cost advantage compared to the developed markets (Western Europe, the USA) for high level skills, although this advantage may be almost gone • May have special skills/products in certain vertical industries (e.g. mining) and/or certain technologies (e.g. mobile) • A portal to Africa for global vendors – this may prove beneficial to SA, even if South African firms themselves presently do not export software to the sub-Saharan region.

Segmentation

Applications software is the largest software category, which represented 39.3% of the total market in 2009. Software-related services, the second largest category, with expected growth of 11%. Application development and deployment software is the third largest category, which accounted for 18% of the total software market.

Trade (exports, imports, trade balance)
The structure and the value chain of the import and export trade in the software industry is different from most other industries, because of the lack of tangible products comprising the industry. It is difficult to track and understand the trends in an industry, where the items of value can so easily be imported and exported, simply through an e-mail attachment to and from overseas destinations.

Exports...
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