The Impact of COVID-19 on the Netherlands SITS Market
The Netherlands remains one of few major countries in Europe to have not yet entered an enforced widespread lockdown as a result of the COVID-19 coronavirus.
Citizens and businesses alike have been instructed to act responsibly and keep 1.5 meters apart, with the Government opting to control the risk and build up immunity to the virus, which it believes may take only a few months. At the time of writing (April 2), the Netherlands had 12,600 confirmed cases, 4,700 hospitalizations, and 1,039 COVID-19 related deaths.
However, there is likely to be a significant impact on software and IT services spending over the rest of the year. Even in the absence of an enforced nationwide lockdown, all schools have closed due to pressure from the public, while hospitality, retail, manufacturing, and other sectors have taken matters into their own hands by temporarily closing their doors. As we have seen in other countries, this is leading to a postponement or cancellation of new IT projects and a refocusing of resources on supporting essential short-term requirements (enabling remote working and scaling online activities). One example is the Dutch Fieldlab Digital Government initiative, part of the Dutch Smart Industry action program, which has been postponed until further notice.
NL Digital, a collective of companies of all sizes that drives digital transformation in the country, has shown great concern for the Government’s current strategy on the technology community. It recently surveyed business leaders among its membership on the impact of COVID-19 and found that 80% of IT companies said their clients had postponed digital initiatives and canceled or suspended payments. Meanwhile, a recent survey by public-funded body Techleap across 445 Dutch tech start-ups and scale-ups found that 84% of these companies would face acute financial troubles due to the loss of existing and new clients and investments.
The extent of the impact varies from one sector to another. Still, as we have seen in other territories, it is manufacturers, transport companies, and retailers that are in the eye of the storm.
In the manufacturing sector, TomTom has seen a dramatic drop in orders as automotive manufacturers stopped operations across Europe, e.g., Volkswagen, Renault. KPN and T-Mobile closed all their brick and mortar stores. Shell is implementing widespread cost-cutting measures to protect itself as the price of oil remains at record low levels. However, it is worth noting that the energy giant is also benefiting from earlier tech investment. The company’s refinery in Pernis will continue its maintenance processes for essential operations, leveraging 50,000 predictive IoT sensors in conjunction with AI and ML.
In the transport sector, KLM is planning to cut 2,000 jobs and reduce seat availability by as much as 90%. The NS (Dutch Railways) experienced a 90% drop in passengers, which, if continued until June, would result in losses of between €400m and €500m. The Port of Rotterdam has reported a decline of over 20% in traffic of Chinese ships, while in the logistics space, Uber Freight (launched in Europe in 2019), and Gefco are struggling with poor stock visibility, limited access to products and shipping containers, and border restrictions.
Auction company Royal FloraHolland has shown great concern for the Dutch floriculture sector, which exports 86% of total production and generates €6.2bn in annual revenue. Its operations have ground to a halt due to cross-border restrictions. The Royal FloraHolland is in the middle of a digital transformation program designed to make it “fully digital” by the end of 2020, a deadline that will most likely be pushed back.
However, some companies are making the most of the situation. One of such companies is online retailer Picnic.nl. This online retailer has seen an increase in App downloads and users, and orders leading to an expansion of its distribution center in Apeldoorn and the hiring of hundreds of workers to cope with increased demand. Dutch financial services provider Mollie, which serves over 65,000 SMEs in the Netherlands, has equally seen a boost as more and more restaurants and shops go digital after being forced to close their brick and mortar operations. There are even bright spots in the transportation space, with logistics platform providers such as Quicargo and Simacan experiencing a positive effect on dry freight sharing and Connected-as-a-Service cloud platforms.
Cybersecurity will remain a pressing concern, with a rise in the number of attacks in the early months of the pandemic. The National Cyber Security Center (NCSC) in the Netherlands has released a set of guidelines to aid companies in their remote working operations, recommending that measures such as multi-factor authentication and Virtual Private Networks are in place for safer access to company networks. Additionally, a We Help Hospitals Initiative was launched earlier in March where companies such as Capgemini, Deloitte, KPN Security, Northwave, Access42, and Tesorion are providing hospitals and other healthcare organizations in the Netherlands with new security solutions and related services to prevent cybercriminals exploiting COVID-19 to gain access to sensitive data.
According to teknowlogy Group’s estimates, Software and IT Services (SITS) in the Netherlands will be significantly affected by the outbreak despite the absence of a complete lockdown. During 2018/19, the SITS industry grew by 5.0%. Due to COVID-19, our optimistic scenario predicts a decline of -2.7% in IT Services, based on relaxed measures returning within 4-5 weeks. Under a pessimistic scenario, IT Services will experience a -13.7% slowdown with restrictions lasting six months and economic effects continuing well into 2021. Pre-outbreak, we expected the Dutch IT Services industry to grow by 3.8% year-on-year in 2019/20.
These estimates will be updated as we move forward, based on any new measures taken by the Government and the impact of the pandemic.