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Tue 19 Aug 2008 04:00 AM

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Bahrain enhances IT prospects

Bahrain is often assumed to be a land of limited opportunity for the IT masses, but rapid growth in a number of key sectors is beginning to explode this perception in dramatic fashion. It is also leading to a level of self-sufficiency among locally based entities that can only bode well for the enduring health of the domestic market.

Bahrain is often assumed to be a land of limited opportunity for the IT masses, but rapid growth in a number of key sectors is beginning to explode this perception in dramatic fashion. It is also leading to a level of self-sufficiency among locally based entities that can only bode well for the enduring health of the domestic market.

Times are changing in the Bahrain market and nowhere is this more evident than in the consumer channel, where soaring demand for IT and electronics, and the obvious consequences of a rising population, are continuing to redefine the retail model. In a short space of time Bahrain has seen the retail landscape receive a makeover of epic proportions.

Bahrain’s version of Computer Street is very different to Dubai’s. You won’t be able to sell high-end PC brands here — there is more emphasis on Chinese products and assembled systems.

If you looked at the Bahrain market a year or two ago you would have seen two major outlets - Geant and Home Electronics," explained Ali Mohammad Akbar Khan, general manager at Mars IT Distribution.

"Now there is Plug-Ins, Emax, which has two outlets - a big box outlet and an electronics store - and in the next three months there are two major names coming into the market in the shape of Carrefour and Sharaf DG. Both of these companies have already started negotiations with suppliers."

Given such seismic events, it is no exaggeration when retail pundits say the sector has been turned on its head. "The dynamics are shifting quite dramatically in the channel," admitted Sanjeev Awasthi, general manager at AJM Kooheji & Sons, the authorised distributor for LG products in Bahrain. "It used to be that 20% of business was done through the hypermarkets, 40% through the showrooms and 40% through dealers. Now the power retailers and hypermarkets have 50% of the market."

Awasthi says that AJM Kooheji is combating these changes by converting at least one of its showrooms into an IT-focused LG concept store and making the most of the exclusivity it enjoys to drive its status as the superior destination for all LG branded products. "On top of that we are looking at the possibility of having a multi-brand IT business because footfall is converging and consumers are demanding choice," revealed Awasthi.

Mars IT, traditionally a distribution firm, has also muscled in on the retail act by developing its own string of showrooms. And while it admits certain accessory vendors are taking a pounding from the fact that many mobile PCs are now bundled with features such as webcams and free carry bags, it maintains the good times are here to stay.

These days retail products in Bahrain are growing strongly and you can make a decent margin on them," maintained Khan. "Brands such as Nash Gulf and Creative are really doing well at the moment," he added.

The spike in consumer products is naturally having positive implications for the distribution channel, which has the task of ensuring retail players aggressively targeting the market are given the allocations they require.

Such is the demand for speed and service that hypermarket Geant is purported to have taken the step of only sourcing IT products locally rather than going through Dubai. "They want to see sub-distributors with local stock who can take care of things like RMA issues," explained one player familiar with the situation.

Such developments also give ammunition to local IT providers that feel adequate in-country vendor support is still lacking. "I would urge vendors to consider Bahrain as its own region," declared Khan. "Redington, Jumbo and Emitac are still doing a lot of business in Bahrain and they have staff here, but vendors must also give Bahrain independent country recognition."

That said, the numbers don't always stack up favourably, meaning many vendors still consider it more feasible to address Bahrain remotely. With an IT market worth just US$300m a year, it is not difficult to see the logic in flying business development managers in and out on a frequent basis, rather than maintaining a heavily-staffed office.

"We have distributors and can manage relationships through them, but we are constantly increasing the number of in-country people," said Khalid Khan, SME manager at Avaya, which sells through carrier Batelco and Fakhro Electronics in the Bahrain market. "We have now opened satellite offices in Oman and Kuwait too, and this means that Bahrain in particular can call on the resources of the Kuwait office," he explained.

Although Dubai-based distributors retain a strong influence over the Bahraini channel, local sub-distribution outfits remain a vital component of the supply chain, providing credit to resellers and operating in much the same way as an in-country distributor but without direct vendor contracts.Some vendors do value distribution relationships with domestic players, however. Printing vendor Epson uses Computerland, Fujitsu Siemens works through Bin Hendi Informatics and Microsoft employs Kanoo IT to distribute its OEM licences.

While the ascent of the retail channel continues to capture the imagination of the market, the Bahraini commercial sector also appears to be in rude health. Investments from verticals such as government and oil and gas are buoying the enterprise segment, although the heart of the market lies firmly in the SMB arena.

Bahrain has a population of around 800,000 people and so it is predominantly an SMB market," pointed out Avaya's Khan. "It is not a market dominated by large enterprises, but rather small businesses which we consider as up to 100 people and to an extent midmarket companies with up to 500 people."

The major issue with the Bahrain market is expenditure — everyone is now very cautious about their capital expenditure and operating expenses. They are carefully studying different options.

Badea Esbai, country manager at Microsoft Bahrain, believes the economic and political reforms that have taken place during recent years have put the market in good stead. "The e-government strategy for the Kingdom is focused on ensuring effective delivery of government services to citizens, residents and businesses in the region," he commented. "Bahrain also has a very progressive banking sector and a rapidly growing telecommunications industry."

Local players may complain that vendors don't afford Bahrain as much of their attention as they insist it deserves, but that doesn't necessarily mean it is hindering the expansion of the market.

There is strong demand from the financial sector, whether it's in the form of new banks or investment companies, and then we are also seeing a lot of real estate projects where ICT forms the backbone," enthused Abdalla Ishaq, general manager at systems integrator GBM Bahrain.

"The e-government initiative is also taking direction. The government has formed an ICT committee and this already has a strategy for 2010 so there is a lot of commitment in that respect."

Infrastructure is the area that most organisations are investing in, according to Neil Desai, operations manager at Zayani Computer Systems, one of the market's largest integrators with 60 staff and two offices. The company recently achieved Microsoft Gold certification, while it claims that a series of customer wins in the networking space offers proof that the Bahrain market is as technically advanced as anywhere else.

"We have also got into unified communications, which is an area everybody is talking about," explained Desai. "Since last year we have already done four projects, which is a big number for this market, and we are also doing some software projects based on network management that HP OpenView offers."

Unified communications is a subject close to the heart of Nortel as well. The networking vendor has a dedicated team of sales, engineering and marketing support staff managing the business in Bahrain, and claims the UC phenomenon is taking off. "Unified communications is becoming a requirement for many customers, especially those that need to be extremely responsive to their customer needs," said Mamdoh Ismail, country manager for Bahrain at Nortel.

Although the size of the channel community in Bahrain is fairly modest, there are some formidable names synonymous with the reseller market, such as the Almoayed Group, which works with the likes of HP, Sun Microsystems and IBM, and boasts a number of specialist subsidiaries providing services in different parts of the ICT market.

Storage integrator STME has a Bahraini subsidiary too, while Computer World, which is held in high regard as a large Microsoft reseller, and GBM Bahrain are also influential names operating in the market.

"We are primarily focused around IBM knowledge and the networking business through our relationship with Cisco, but we have also expanded into services," explained GBM boss Ishaq. "The set-up is that by the end of the year we hope to have around 45 people, whereas we were 32 last year so you can see the kind of growth we are facing," he said.

Commentators estimate that more than 200 IT resellers operate in Bahrain. As well as the large enterprise integrators there are a number of strong IT trading and reseller companies such as Advanced PC, Microplus Computers and data networking specialist Microtech Computers - all of them based in the capital Manama, which remains the hub for the entire market.

Bahrain's traditional IT trading community has its own characteristics, according to Khan at Mars IT Distribution. "Bahrain's version of Computer Street is very different to Dubai's where you see a lot of branded PCs and accessories being sold," he said. "You won't be able to sell high-end PC brands here - there is far more emphasis on Chinese products and Chinese-assembled systems."

Local market knowledge looks poised to remain an asset that Bahraini resellers will need to exploit as they attempt to enhance their relationships with customers in the face of heightened competition."It is also important for them to have the right technical and sales resources in place to cater to growing customer demand," counselled Microsoft's Esbai. "Going forward I believe that resellers need to focus on selling solutions for specific industry verticals with dedicated go-to-market campaigns.

Last but not least, a key element for success is to focus on value added services and after-sales support," he concluded. It is clear that if resellers and integrators are to prosper then they have to accept that clients will drive a hard bargain.

The major issue with the Bahrain market is expenditure - everyone is now very cautious about their capital expenditure and operating expenses, and they are carefully studying different options and evaluating alternatives regarding the cost," said Nortel's Ismail.

"Terms like ‘return on investment' and ‘total cost of ownership' are becoming more familiar and they are taken into greater consideration by Bahraini customers," he added.

Such challenges are unlikely to deter outside parties from pursuing the lucrative project opportunities available in the market. Desai at Zayani, which also serves as a service centre for certain Acer and HP products in the Kingdom, admits local integrators are feeling the heat from global IT providers that are now investing in the Gulf region and can exploit economies of scale.

Far from being intimidated, however, Zayani intends to be one of the first companies to respond with an offensive strategy of its own.

"We are starting to look at other markets in the GCC because the Bahrain market is too small to stay alive," revealed Desai. He insists the company has enough skills and resources to use in surrounding markets, while the growing acceptance of managed services - especially those that can be carried out remotely - will support its aspirations. Saudi Arabia heads the list of markets the company plans to target first due to its proximity.

Although Bahrain has developed into an increasingly self-sufficient market, the constraints of its size lead to an inevitable reliance on the Dubai market for some IT products. Many first-tier resellers deal directly with vendors when it comes to high-end enterprise kit, but volume products like PCs, servers and printing equipment are regularly sourced from distributors in Dubai.

Ishaq at GBM believes that the merits of independence hinge on the circumstances of the organisation concerned. "From our point of view, everything is done here in Bahrain, but if there is a specific case where a part is not available then we may call Dubai. On the opposite side of the coin, some of the companies in Bahrain prefer not to stock anyway. They are happy buying from two or three big distributors in Dubai."

Whatever their preference, local resellers need to make the decisions that are most practical for the development of their business as the golden days of the Bahraini IT market redefine the channel landscape.

Bahrain by numbersThe Bahraini channel continues to go from strength to strength, but there is no escaping the fact that the size of the opportunity isn't as attractive as some of the surrounding markets in the Gulf. Data released by IDC last year valued the Bahraini market at US$275m and the PC sector at around 65,000 units.

Research from local technology group Mars IT, meanwhile, suggests that trade liberalisation, strong demand from the financial sector and government IT initiatives will bolster the value of the IT market to US$315 million by 2010 - almost US$100m more than just two years ago.

Not surprisingly, Mars tips software and services to exhibit the fastest growth over the next two years following a spike in projects from vertical sectors such as banking and real estate.

Although hardware continues to account for the majority of IT spend, the domestic software sector is expected to be worth more than US$65m within the next two years, with enterprise applications likely to represent at least a third of that figure.

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