Polish e-commerce: Challenges, but Solid Fundamentals.

UNCLAS SECTION 01 OF 02 WARSAW 000735 SIPDIS SIPDIS DEPARTMENT FOR EUR/NCE, EUR/ERA, EEB/CIP EUR/NCE FOR DKOSTELANCIK, BPUTNEY USDOC FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MWILSON TREASURY FOR MGAERTNER E.O. 12958: N/A TAGS: ECPS ECON EINT EINV PL SUBJECT: Polish e-commerce: Challenges, but Solid Fundamentals. REF: WARSAW 000688 WARSAW 00000735 001.2 OF 002 -------------- Summary -------------- ¶1. Poland's e-commerce sector appears to be doing well although some challenges remain in the level of internet access, business IT investment, and government e-commerce initiatives. The business-to-consumer segment of the market has already reached 4 billion zloty ($1.4 billion) annually, while estimates put the business-to-business segment at 60 billion zloty ($20 billion). The continued growth in Polish e-commerce should provide plenty of opportunities for U.S. companies. End Summary. -------------- Fulfilling E-Commerce Prerequisites of... -------------- ¶2. What conditions need to exist to promote healthy e-commerce? Based on internet research and conversations with a leading reporter on technology matters and the spokesperson for the predominant Polish on-line store, we identified three: access to computers and high-speed internet; investment in IT infrastructure; and the presence of a permissive regulatory and policy environment. -------------- Internet Access -------------- ¶3. Access to the internet is increasingly available and affordable. Polish computer sales increased by 38% last year, compared to 10.5% worldwide. By the end of 2006, 37% of all Poles had access to an internet connection, which is expected to increase to 50% by 2010. Of these, close to three million users have access to broadband. In addition, costs are falling - for example, many companies now charge less than 1 Polish Zloty ($.33) per month to host an internet domain. The ability to participate in e-commerce is now within reach of the average consumer and small business. -------------- Infrastructure Investment -------------- ¶4. Corporate, private, and public investment in information technology (IT) is substantial and increasing, helping to create an e-commerce ready economy. The Polish market in IT goods and services reached nearly 20 billion zloty ($680 million) last year, an increase of 14% from the previous year. The IT market supports an estimated 10,000 Polish IT firms. The GOP plans to provide an extra boost, with a six year plan to spend up to 3.5 billion zloty ($1.2 billion) on IT procurement and service contracts between 2007 and 2013. -------------- Permissive Regulatory and Policy Environment -------------- ¶5. In the governmental arena, one positive development has been the adoption of the first national IT plan, which consolidates many previous IT-related strategies that caused some degree of confusion. The government now appears to have a policy framework in place that permits the continued development and growth of Polish e-commerce. In addition, our e-commerce contacts told us that they could not come up with any examples of government regulations or practices that were hindering the development of e-commerce in Poland. -------------- Leads to Growth and Opportunity -------------- ¶6. The result: in 2006, the business to consumer (B to C) e-commerce market reached 4 billion zloty ($1.4 billion),or 4% of the B to C market as a whole - an increase from just 1 billion zloty ($340 million) 4 years ago. While there is less information on the business to business (B to B) e-commerce market, estimates suggest that it is approximately 60 billion zloty ($20.3 billion). Both of these segments of the e-commerce market should see continued robust growth over the next couple of years, with estimates of the B to C market reaching 16 billion zloty ($5.4 billion) by 2010. -------------- But There's Still Room for Improvement -------------- WARSAW 00000735 002.2 OF 002 ¶7. While the building blocks for successful Polish e-commerce are largely in place, there are still challenges that remain in each of the conditions we identified as necessary for healthy e-commerce. -------------- Internet Penetration Below EU Norms -------------- ¶8. Poland lags in internet access when compared to western and northern Europe. The proportion of the population with access is just half the 71% in the United Kingdom and also falls behind the 50% for the EU as a whole. However, Polish internet access, while below that of the EU average, is already higher than Italy (25%) and Spain (19%). Costs for hosting sites may be falling, but for other essential e-commerce components remain high. This is especially true for telecommunications, where dominant player Telekomunikacja Polska S.A. controls two-thirds of the market and is uniformly criticized for high connection fees and monthly access charges. -------------- -------------- Infrastructure Investment Dominated By Foreigners -------------- -------------- ¶9. Investment in Polish IT is still primarily by foreign companies - with big names such as Microsoft, Oracle, IBM, and SAP all amongst the largest investors. Homegrown companies have yet to contribute significant resources to the continued growth of e-commerce. While the GOP will provide a boost to this for in the first half of its six year IT plan, it is front loaded: investment for the second half will fall to 1 billion zloty ($340 million) between 2010 and 2013. Even many of the largest contracts awarded to date have been delayed by litigation by companies that did not submit winning bids. -------------- GOP Initiatives Lacking -------------- ¶10. While our sources could not identify any regulatory obstacles to successful Polish e-commerce, neither could they identify any successful government initiates designed to act as catalysts to e-commerce growth. Certain government projects that could propel growth in the business-to-government market segment, such as e-signatures or e-filing of taxes for corporations, have suffered from repeated delays and cost overruns. -------------- Comment -------------- ¶11. Polish e-commerce faces challenges, but post believes this is because Poland is earlier on the growth curve than its neighbors and not because serious obstacles will prevent sustained development of e-commerce. Most of the building blocks for robust growth in e-commerce already exist. Stories about continued IT investment by large companies abound in the press. Government initiatives in e-signatures and e-taxes, while delayed, are still making progress. U.S. companies should find ample opportunity to invest and grow with Poland's e-economy. ASHE