Soaring Saudi

Saudi Arabia has supposedly been the least affected by the global financial downturn, but is that really how those inside the market see it? Channel Middle East got in touch with five senior executives from various tiers of the Saudi market to find out what sort of shape they think the local channel is in and how much of an impact the recession has had on day-to-day business.

We spoke to Ziad Mortaja, managing director and TSG lead at HP Saudi Arabia; Ahmed Eissa, country manager at Metra Saudi Arabia; Wael Fleihan, general manager at Arabian Business Machines Company; Othman Al-Dawamenah, regional manager at Alnafitha International; and Wael Waheed, country manager at Tech Access Saudi Arabia.

There is no country in the Middle East that has escaped the global economic downturn. To what extent has it impacted the Saudi IT channel and what kind of behaviour has it led to?

Ahmed Eissa: It has impacted the channel, but perhaps not as much as other areas in the region. The impact was also a little delayed. Whereas the entire globe caught it at the end of last year, we started seeing the impact in the middle of this year. A lot of government projects were put on hold and in Saudi you get a lot of resellers that do corporate systems integration and, at the same time, resell business. So a lot of money was being put on hold and there was a slight delay in payments. The other thing is that banks withdrew all their facilities in the IT channel so available cash decreased.

Wael Fleihan: Initially, for a few lines of business, the IDC reports show that volumes dropped by more than 40% from last year. If you talk about notebooks, for example, they went down from 1.4 million units to maybe 900,000 units per year, so the drop affected the whole country. All unnecessary spending was put on hold by most market segments. Banks and government have still been spending, but cautiously. All the petrochemical projects were stopped for a while to be re-evaluated before being launched again. Even the high-end applications, such as those from SAP and Oracle, were affected because companies postponed their investments.

Wael Waheed: What I feel when I look back at the last six months is that end-user companies have a budget, but they don’t want to spend it because they are afraid of the future. That is how the crisis has impacted the market. But things are becoming better. People understand that the recession is not that bad and that if they start spending they will see some improvement in the business. People are signing orders again, whereas before it was only quotes because they didn’t want to spend their budgets. You can certainly see the improvement in the SMB market; the US$5,000 to US$50,000 business. People are taking decisions immediately and this has made the small and medium-sized market huge compared to the corporate accounts.

Has the global economic downturn changed the way that IT vendors and their channel partners run their businesses in the Saudi market?

Othman Al-Dawamenah: Yes, people have started to analyse their business more professionally. Partners and distributors did not always base 100% of their business on the right financial planning and strategy because of the major growth that was happening — everybody was able to make money even if they didn’t have a professional plan. But since the crisis, people have started to move in the right direction in terms of planning and hiring the right professionals. Today, if they hire somebody, they want to make sure that person can deliver and do their job 120%, otherwise they will lose money. I have also seen distributors become more cautious in terms of credit facilities, credit terms and guarantees, while vendors have started to lower their prices and offer more in the way of discounts and price protection.

Wael Fleihan: Liquidity in the market has been affected so people are very cautious when giving credit and extending credit limits. They are very aggressive in pricing, and competition is high. People feel that credit is the most precious thing when doing business so you can’t just give anything without having any collateral against it. Credit insurance has also been affected. The traditional channel is more suspicious, so companies are taking more notice of their customers’ financial strength because they want to get paid.

Ahmed Eissa: The downturn has been to the advantage of Saudi Arabia because a lot of vendors are realising that this is a very strong market. It is both big and captive, so it is very healthy. What vendors are doing now is using it to compensate for the decrease in revenues elsewhere. A lot of them are setting up shop in Saudi Arabia to further expand this market. There is a lot of in-country investment happening, led mainly by HP, but others are following suit too. When it comes to the resellers and the actual way they do business, there is not a lot of change happening. It has basically been the finances and cash flow that have been affected.

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