"IT products and services made up over 55 percent of the total ICT spending among SMBs in Sri Lanka in 2007," says Swati Sasmal, senior research manager at AMI Partners. "The rest comes from telecom products and services. Sri Lankan SMBs are also constantly striving to reach the higher levels of growth and achievement attained by their largest neighbor – India." This explains the considerably high growth rate in IT spending.

AMI expects IT expenditure to grow at an impressive 24 percent in 2008. This is because SMBs in Sri Lanka are becoming more aware of the advantages of IT in achieving competitive excellence and developing an edge over competitors. However, the overall growth rate of ICT products and services for 2008 is lesser, though healthy, at 14 percent.

"Within the overall IT spending pie, computing hardware and Internet will comprise around 70 percent of the total," Sasmal says. "This is because Sri Lankan SMBs are primarily focused on building a robust IT and telecom infrastructure."

Another significant category is IT services (which includes Product Support Services and Professional Services) that is anticipated to comprise about 11 percent of the total IT spend in 2008. IT services serves as the backbone for all IT deployed by Sri Lankan SMBs – both in terms of basic infrastructure and advanced projects like enterprise connectivity. Within IT services, product support services (computing, software & networking support) account for a majority of the services spend – around 65 percent of the pie at present. Professional services make up the remainder.

Sri Lanka's economy is set to grow at a healthy 7 percent GDP this year. Recent AMI surveys point out that around 22 percent of Sri Lanka's PC-owning SBs and over 45 percent of MBs (medium businesses, or companies with 100 to 999 employees) plan to expand their workforce over the next 12 months.

"More than one-in-five MBs plan to open new sites or branches this year," Sasmal says. "During the last 12 months, about 30 percent of Sri Lankan MBs experienced a double-digit rise in annual revenues. About 60 percent of MBs are bullish about maintaining their growth rates in the next 12 months. Mobility is an important business need for Sri Lanka MBs since they need to keep in close touch with their customers and suppliers. About 60 percent of MBs have mobile (regularly on-the-move) employees."

Growth in workforce and overall infrastructure, and employee mobility act as drivers for adoption of Internet and networking technologies. "This is true especially for the SB segment that is still in the process of building an adequate connectivity infrastructure," she adds. "About 50 percent of SBs have indicated an intention to deploy high-speed broadband connectivity, while over 40 percent plan to focus on networking all hardware in main office locations."

Although SMBs are eager to adopt affordable broadband services, the tariffs are still on the high side. The Sri Lankan Government as well as internet service providers (ISPs) need to work on a collaborative approach to lower tariffs so as to boost broadband penetration.