MIS 648 Country Study: IT Opportunities in Bulgaria

1
MIS 648 Country Study IT Opportunities in
Bulgaria

• Presented by
• Daniel Caratini
• Sowmya Venugopal
• Nicole Hensley
• Janet Vasahlik
• October 23, 2006

2
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

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Physical Picture
Location
Topography
4
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
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Socio-Cultural Facts

• Bulgarian flag gt
• 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
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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
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Socio-Cultural Facts
Hofstedes Dimensions
Data taken from www.geert-hofstede.com
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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

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Economy
Data taken from The World Bank Group
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Demographics

• Population 7,718,000 (2005)
• Population growth rate -0.89 (est.)
• Net migration rate -4.3 migrant(s)/1,000
  population (est.)
• Life expectancy at birth 72.03 years
• Sex ratio 0.93
  male)/female (est.)
• Ethnic groups
• Bulgarian 83.9
• Turk 9.4
• Roma 4.7
• Russian 0.2
• Other 1.8
• Religion
• Bulgarian Orthodox 82.6
• Muslim 12.2
• Roman Catholic 0.6
• Protestant 0.5
• Other 4.1

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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
• 1990s, 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.

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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

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IT Industry - Training

• Uneven Penetration of internet access in
  universities - AUBG (almost 11, other
  universities 1100)
• Internet usage is not integrated into learning
  process
• Absence of technology infrastructure leads to
  theoretical knowledge in secondary schools

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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.

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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.

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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 (Bulgarias 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.

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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

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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 Funds eBulgaria 2004
Report
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E-commerce picture (cont.)
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E-commerce picture (cont.)
Information taken from www.knigopolis.com
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Samples of IT Industries

• Value-added SMS services e-Commerce
• PIAPs / Internet cafes
• Government administrative services e-Government,
  e-Policy 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

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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
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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
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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
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Investment Opportunity 1 Internet Cafe

• Internet Cafes staffed with Bulgarian University
  IT
• students to provide
• Internet access
• PC usage training
• Internet and software training

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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)
• Dont know how to use the Internet (18.9 of
  respondents)
• Dont have computer access (18.9)

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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

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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

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Investment Opportunity 1 (cont.)

• Internet Cafes staffed with university
• students would provide consumers
• PC access
• Internet access
• PC usage training
• Internet and software training

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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

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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

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Investment Opportunity 1 (cont.)

• TAM

Information taken from Lecture 2
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Investment Opportunity 1 (cont.)

• Comparison to Latvia
• Household income statistics
• Bulgaria lowest 10 4.5 highest 10 22.8
  
• Latvia lowest 10 2.9 highest 10
  25.9
• GDP growth
• Bulgaria 5.5
• Latvia 10.2
• Unemployment
• Bulgaria 11.5
• Latvia 7.5

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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/m
aps/bulgaria_maps.html
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Investment Opportunity 2 (cont.)
Black Sea, Sofia

• Black Sea Coast

Sofia
Information taken from http//www.orienttravel-bg.
com
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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
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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

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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 Bulgarias niche in tourism while
  improving IT penetration
• E-commerce tourist kiosks, e-reservation
• Property investment for tourism, time share

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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

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Investment Opportunity 2 (cont.)

• IT-Led Development

Information taken from Lecture 4
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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

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Questions