By Julian Pletts
Much of the financial strength of Kuwait is in the fact that it is home to 10% of the world's oil reserves.
When it comes to ranking the Middle East IT market, Kuwait appears to comfortably occupy third step on the podium, a long way behind the might of the UAE and burgeoning Saudi market. But as Channel Middle East found out, the Kuwait market remains firmly out in front as far as IT adoption's concerned, creating a wealth of opportunities for the local channel.
The most common observation from the Kuwaiti IT channel is that the market always leans towards the high-end, top-of-the range products, be it the latest consumable gadgets or the most sophisticated enterprise solutions. This is possibly down to the fact that, despite a population of just 2.5 million people, GDP is estimated at more than US$24,000 per capita.
A great deal of the financial strength of Kuwait lies in the fact that it is home to 10% of the world's oil reserves, with oil accounting for nearly half of the country's domestic product. Along with the construction industry, oil and gas companies are heavy investors in IT infrastructure and services, but it is the government - which has spent huge sums on IT and communications - that has facilitated the strength of the local market.
Seras Al Oqlah, managing director of Future Technology Systems, a Kuwaiti-based reseller working with vendors such as Symantec, Juniper Networks and Sun Microsystems, is positive about the prospects of the Kuwait IT market. "It's a booming country compared to others today and what we see now is that most international vendors are focusing on Kuwait in this region.
The market is growing and there is a very high demand for IT solutions." Market research house Business Monitor International extols Kuwait's place as one of the top IT markets in the Middle East. "Kuwait is the third largest computer market in the region, and the total size of the market is expected to increase from US$406m to around US$875m in 2011," stated BMI in an executive summary for one of its forecast reports.
Given the IT market compound annual growth rate forecast at 17% for 2006 to 2011, Kuwait is set to be one of the fastest-growing countries in the region. This is due partly to its relatively small but tech-literate and wealthy population, which allows faster trend adoption," it concluded.
Bruno Haubertin, partner and alliances sales organisation manager at Sun Microsystems Middle East, believes Kuwait also has a more important role to play in the region rather than just third fiddle to the UAE and neighbouring Saudi. "Kuwait seems to be a development house for the region, you don't see that in many other countries in the region," opined Haubertin.
In Kuwait the identity of the companies who have ambitions across the region are increasing, perhaps due to the size of the market and the education." He also explained that some of the company's partners in Kuwait are looking to the development of re-export channels into countries such as Egypt and other African nations, where demand for IT products are increasing, as a way of maximising their revenue and expansion.
Toshiba's country manager John Maliakal echoes the tendency for Kuwaiti consumers to head for the high-end of the market. "This has been the case across all kind of products, it is not just IT; I have spoken to retailers across electronics products such as mobiles and telephones and buyers typically go for the high-end products," he said.
We are also seeing an increase in the market itself, Kuwait is growing and has grown at around 40%." Maliakal also suggests that small Kuwaiti dealers are beginning to really feel under threat as the Carrefours and Lulus move in, mirroring developments in its two larger regional siblings, Saudi Arabia and UAE.
The fact that Kuwaiti consumers and commercial buyers have more money in their pockets to purchase the best kit still benefits the resellers on the ground, including Future Technology's Oqlah.
Kuwait is a high-end market simply because people are ready to pay. They have high budgets to pay for solutions and invest in systems and infrastructure and they are more educated as to what they want from their products," he said. Across the region vendors and channel players alike are often heard championing the provision of value-added services and after-sales care over the wholesale shifting of boxes as a tactic to prosper.
Nowhere though, is this more imperative than in the Kuwaiti channel where the liberal freedom of investment afforded to company purchasers and execs is notable and channel businesses should equip their employees with all the arms they need to survive on the value-added battle ground.
"Kuwait as a business environment is becoming more solutions-focused by shifting to value-added service," reiterated Nisar Khan, sales manager at Trend Micro Middle East. "Even large companies, previously box movers, are now having to become solutions providers if they want to compete. With most distribution partners the true value of the investment they can make is in product champions, technical support and in many cases services teams for deployment for assistance or other services.
Regional distributor Aptec claims that the integrity of the Kuwaiti channel has not yet reached the same maturity of the market. Aptec's area sales manager for enterprise and export, Santosh Kumar, says strong consumption has led to shady practices.
Due to high demand for IT products, a few inexperienced players have started offering certain products from different channels, which disturbs the flow and has a great impact on the pricing," he said. "Reporting such acts to the vendor is very important in safeguarding the country's IT interests."
One important trend shaping the channel make-up in Kuwait, and indeed in nations around the region over the past few years, is the level of in-country distribution compared to the flow of product from Dubai.
The general consensus is that although Dubai, in its position as a regional IT re-export hub, is still playing a major part in serving the country many vendors have switched focus towards distributors with feet, and perhaps more importantly offices, on the ground.
According to Aptec's Kumar the majority of vendors now have a policy of using in-country distributors. "The conventional concept of exporting from Dubai has drastically reduced," he conceded. "However, few distributors based in-country have the knowledge and capability of handling distribution and still operate in the reseller mentality.
There are, on the other hand, some commentators that disagree with Kumar's assessment of the distribution channel for Kuwait and believe the majority of distribution is actually still based in the UAE.
The distribution channel is definitely Dubai-based because of the free zones such as Jebel Ali and the logistical services like warehousing that are available here," said Roger El-Tawil, channel and marketing director at Avaya. "In Kuwait you will see some small branches of these distributors setting up to cater to faster turnaround and demand in the local market.
Noman Qadir, sales manager at CA, is of a similar opinion: "Distribution is still Dubai-based. This is because the SMB segment has not really kicked off in Kuwait." He feels that until this market segment strengthens vendors will stay clear of in-country distributors.
It always helps to have a distributor in the country to make sure there is a movement behind the resellers that is driven by the distributors in the ICT space. That, though, has to be driven by demand as well. Until the SMB segment matures in Kuwait it is just not going to be profitable for channel partners.
Sumit Kumar, regional sales manager Middle East and North Africa at USRobotics, says that working with regional distributors has not hindered its business in Kuwait thanks to its policy of employing at least one distributor with offices in the country. "Some vendors have a direct distributor in Kuwait. We have decided that it is best to work with a regional distributor and we have Almassa, Aptec and BDL.
But Almasa has an office in Kuwait and BDL may be doing the same in two months. It is very important in a market like Kuwait for the local resellers to communicate with distributors that are there, rather than communicating with a distributor that is in Dubai. They have instant access to the stock and it certainly gives you an edge.
Whichever distribution model is preferred, it is very important for vendors in Kuwait to work at ground level to maintain face-time and support their resellers who are - similarly to dealers in other vibrant markets in the region - facing tough competition as the number of resellers fighting for market space skyrockets.
"The Kuwait market is very business orientated and aggressive, they are good business people so it will always be cutthroat," said Avaya's El-Tawil. "What vendors must do is create a balance of partners to deliver to different segments of the industry.
It would appear that this necessity to avoid in-fighting is a very important tactic in the channel in all of the major markets in the region. Partners must have the confidence of knowing that their vendor is fully behind them and that they are not going to have to fight a price war with other partners.
Kuwait - as a market that has not had the accelerated growth that the UAE has experienced since the late 1990s and that Saudi is currently encountering - is a perfect place to ensure that such good practices are put in place before the market swells any further.
Qadir at CA disagrees that the Kuwaiti market is getting too big or indeed suffering from too much competition. "In Kuwait, if you look, there are not actually that many channel players because of the size of the country. You will not find twenty thousand resellers. Kuwait in that regards is balanced, the competition is there, but it is still quite healthy," he said. If the market is balanced, reseller wise, it is still showing side effects of its own tumescence with power retailers moving in to the country, laying routes and establishing dominance.
There are, however, those who still stand firmly behind the traditional Computer Street guy. The Kuwaiti IT segment has not grown so large that it has lost the need for the personal touch of the souk-seller. The reseller channel in Kuwait is still quite open and there are still plenty of opportunities for all resellers according to USRobotics' Sumit Kumar.
PC vendor Lenovo approaches the Computer Street seller and souk-seller in Kuwait in a more-the-merrier fashion. "There are a lot of small players in the Kuwaiti market and we are trying to engage these through our Lenovo partner network," boasted Qaiser Butt, Gulf distribution marketing manager at Lenovo. "We want to own these resellers to some extent.
We may not be doing business with them directly in terms of the account, fulfillment of payment or the logistics, but it is important that we talk to them on a daily basis." Qaiser says that Lenovo's desire for partnerships in Kuwait had not yet been satisfied and it is still looking to recruit as many resellers in the country as possible.
"The Computer Street, Hawali area in Kuwait City, was once predominantly the initial retail area of IT products, now the market is expanding as more retailers from other GCC countries are moving in," added Maliakal. "We see that the Hawali market is shrinking down and those who are strong are expanding upwards and outwards by going for more rural markets in the country and opening up their own outlets there."
For Kuwait-centric distributor, Future Technology Systems, the reseller channel in Kuwait lacks the business acumen of the UAE or Saudi Arabia. "There are too many resellers and IT companies opening up in Kuwait," said Oqlah. "There is too much of a lack of professionalism here in the IT field," he added. Qadir at CA is happy the channel is where it needs to be but can foresee further improvements.
The Kuwait channel is really good at managing customers in terms of expectations as well as leading them to the next level. As far as future investment, the channel has to invest in services. There is a lot of room for improvement in terms of added services to end customers," asserted Qadir.
First there was product selling in Kuwait, then there was solutions selling and now there is a lot of investment towards outsourcing support services and Kuwaiti partners are investing heavily towards that."
So if you are afloat in the Kuwaiti channel be aware. Ensure you have a fully trained crew and the means to cope if some of them jump ship. Also keep an eye out for illegitimate competition from margin pirates and be prepared to fend off legitimate competition from your stretch of the channel. Choose allies carefully and look at the possibility of increasing your offering to the end-user by outsourcing services.
But don't worry too much - the Kuwait IT market is well-placed for continued double-digit growth.
"All of our partners in Kuwait complain strongly about the problem of hiring the right people, keeping them and avoiding competing too much in the channel," confessed Sun's regional channel boss, Bruno Haubertin. "Out of all our regional partners, it is the Kuwaitis who stand up all the time and ask, ‘how can we protect our staff and keep them?'"
Communications vendor Avaya suggests the best strategy to combat allegations of staff shortages in Kuwait - and indeed around the region - is to recruit individuals taking their first step on the ladder.
I tell my partners to recruit fresh graduates and within a year these guys will turn out to be dynamic and full of creative ideas," claimed channel boss Roger El-Tawil. "They're not overly paid because the reseller is training them. Our partners should create some form of nurturing of this talent within their organisation," he said.