Qatar on target

If the Qatari channel sustains its current level of development then it is poised to pass a notable milestone by the close of 2007. Anything constituting low double-digit growth or higher will propel the value of the Qatar market to in excess of US$350m a year. It's little wonder, then, that vendors are taking careful aim at this riveting landscape.
Qatar on target
By Andrew Seymour
Thu 16 Aug 2007 12:00 AM

Qatar might only rank as the Gulf's fourth largest market, but it is showing more than enough potential to keep the technology hordes interested. As vendors rapidly step up their investments in line with the soaring growth being recorded in certain vertical sectors, the net worth of the Qatari market continues to swell.

Qatar already boasts a larger IT industry than Middle East neighbours Bahrain, Oman and Jordan, and has its sights set on emulating the Kuwaiti market, which is now worth more than US$600m a year. Having grown accustomed to GDP growth rates north of 8% a year, and with revenues from the non-oil sector making an even greater contribution to the economy, Qatar has quickly become one of the Gulf's most alluring markets.

Like many growing markets, investment tends to be made on front line offerings. For example, financial services will invest in front office systems and customer marketing to gain market share.

Last summer's Asian Games - hosted in the capital city Doha - catapulted Qatar into the limelight and more importantly led to an unprecedented level of investment in technology infrastructure. A wealth of IT projects were gobbled up by local and international companies eager to make the most of such a glorious opportunity.

"The highlight of the year was the Doha Asian Games and as we got closer that's when we saw a large number of systems on the client side - meaning desktops and notebooks - being deployed across events relating to the games," reflected Omar Shihab, research manager PC programme for the Middle East and Africa at analyst firm IDC. "This, plus a number of projects that we saw within the main sectors such as oil and gas, definitely drove part of the desktop market," he said.

Even markets renowned for consuming much larger volumes, such as the UAE and Saudi Arabia, couldn't match the level of PC growth registered in Qatar last year. Desktop PC shipments bounded an impressive 25% year-on-year to almost 56,000 units while notebook growth of 81% outstripped every other territory in the GCC, according to data from IDC. This rapacious demand for laptops has dramatically changed the composition of the Qatari PC space. A staggering 58% of the market now consists of mobile PCs compared with just 33% the previous year.

The Qatari market has undoubtedly reached a vital stage of its evolution as SMB companies join larger enterprises in demonstrating a healthy appetite for technology. Products in the VoIP and security categories, for example, remain popular as organisations seek technology that will both enhance and safeguard their business.

The challenge facing many vendors operating in this market is how to educate customers on making the right long-term decisions when it comes to investing in technology. "Like many growing markets, investment tends to be made on front line offerings," said Derek Morrison, regional manager at performance management software vendor Cognos Middle East. "For example, financial services will invest in front office systems and customer marketing to gain market share. Our role as a domain expert is to illustrate and demonstrate that proper investment in performance management will ensure that growth objectives, and most importantly balance sheet and profitability objectives, can be more strategically managed to provide a clear platform for growth."

Software counterpart Microsoft also expects the market to develop considerably in the coming years and claims it is promoting ways for the local channel to be more self-sufficient. "In the UAE channel, partners also have certain intellectual property whereas here in Qatar most of the channel are solution brokers with limited IP,' said Mohammad Hamoudi, Qatar country manager at software giant Microsoft. "There is a strong trading mentality, but that is evolving. One of the key joint activities we are looking to start is about creating a local software economy. This economy will create companies that develop intellectual property that they can implement here in the country, but also take elsewhere."

At close to US$350m a year, the Qatari market isn't yet large enough for some vendors to commit anything more than a token presence. 3Com, for instance, has a country manager in place to look after channel activities on the ground, but doesn't yet feel the need to open a fully-staffed office.
"We are playing an active role, but also some sort of observing role at the moment," explained Hamed Diab, Middle East boss at the networking vendor. "We tend to be flexible with that market and will think about a direct presence once the market growth goes further. But that will not be in the near future."

3Com currently relies on distribution partners Aptec, Online and Tech Access to manage its reseller channel in Qatar and address specialised partners capable of carrying different layers of its portfolio. "Qatar is a booming market and we are trying to address it by being focused in terms of our channel strategy and specific verticals," explained Diab. "The approach we are taking for Qatar is to really encourage more channel partners to operate from the ground."

We have got a healthy mix of one-tier and two-tier partners focused on the enterprise, commercial and SMB business, but also more international players that are seeking a presence in Qatar.

Other manufacturers, however, have scaled up their local operation to match what they believe is the market opportunity. Networking colossus Cisco has set its sights on expanding the size of its Qatari office to 40 people over the next year following strong corporate demand and an increasingly buoyant commercial and SMB market. More than 30% of Cisco's overall Qatari business already comes from the commercial business, illustrating the increasing focus that midmarket and SMB accounts are placing on technology as an enabler for growth.

"Qatar is one of the top five countries in terms of market opportunity for us in the Middle East and Africa - it is very healthy," said Adrian Taylor, regional channel manager for Gulf and Pakistan at Cisco. "The second important point in terms of the current state of the market is the ICT vision. They see ICT as playing a major role in the economy and driving the growth of the country."

The two-tier conventional channel model remains very much in vogue in Qatar due to the size of the market, although an active layer of sub-distribution is also given room to thrive. Most of the leading vendors invariably use the services of Dubai-based regional distributors to address Qatar and these firms subsequently sell to both resellers and local sub-distribution companies that don't have a direct purchasing contract with the vendors.

"We've got a healthy mix of one-tier and two-tier partners focused on the enterprise, commercial and SMB business, but also more international players that are seeking a presence in Qatar," continued Taylor.

Building strong links with the Qatari reseller channel is the only way for vendors to prosper outside of the lucrative government and oil and gas businesses. With the amount of growth being witnessed in the market, some vendors believe there is an opportunity for more IT providers to operate in Qatar. Indeed, Microsoft only has two official LAR contracts in the country, giving a clear indication of the market's limitations up until now.

"Our experience shows that the market as a whole underestimates the potential of dealer-based arrangements in Qatar," said Jacob Varghese, country manager at PC and projector giant Acer. "The Qatari market has always had strong financial presence and evidently there has been a spur in entrepreneurship which means there is potential for more dealers and resellers to come into the market."

While the Asian Games have understandably had positive repercussions for the wider IT market - and in particular for those companies involved in supplying equipment and services - the market has been witnessing a sharp rise in IT investment from certain sectors of the economy for some years now. "We continue to meet increasing growth in financial services, construction and retail," said Morrison at software outfit Cognos. "This growth has seen Cognos deliver specific offerings from its innovation centre to assist these sectors in managing information."
Local sources agree the SMB sector is starting to assume a greater portion of the market, but it is largely the corporate arena that grabs the attention. Microsoft, which now has more than 20 people stationed in Qatar - compared with just one person four years ago - regards the enterprise sector as the focus for many firms in Qatar. Only last month, global IT services provider EDS netted a monster seven-year outsourcing deal with the Qatar Foundation, a non-profit organisation overseeing education and community development projects.

While Doha, and its population of 400,000 people, remains the focal point for investors, there are other important areas within the country that provide vital customer bases to IT providers. Locations such as the Ras Laffan industrial area to the north east of Doha, and Mesaieed, a hub for petro chemical and steel production, in the south, are abundant with large corporate organisations.

With the launch of new retail activities we have found more potential to move forward with this boom. Some regions have already reached saturation point, but that is not the case in Qatar.

"The nature of the market is currently a bit skewed towards the enterprise," observed Hamoudi at Microsoft. "You've got the public sector investing substantially in IT at the moment. The financial sector is also addressing all the growth in this business, energy is a big part of that as well and now what we are seeing is small and medium enterprises kicking in to support the large enterprises. The whole ecosystem is starting to come together."

One stratum of the IT market gaining in importance is the retail channel. The growth of the economy and population, coupled with increasing FDI, is providing the ideal conditions for retail-focused organisations to flourish. This spike is being tracked with eager anticipation by vendors who are keen to expand their presence in the consumer sector.

IDC even puts last year's acceleration of notebook shipments down to events in the retail sector where A-brand providers such as Toshiba have been quick to exploit demand. Virgin Megastore recently opened an outlet in the market, joining local outfits such as Al Durra Trading and City Centre Electronic Services in what is becoming an increasingly cosmopolitan retail scene.

Hardware vendor Acer is putting more emphasis on engaging with retailers as it looks to ramp up its consumer presence in line with demand. "Qatar has traditionally been a corporate and SMB oriented market for Acer," explained country manager Varghese. "Recently, with the launch of new retail activities we have found more potential to move forward with this boom. Some regions have already reached saturation point in this sector, but that is not the case in Qatar."

He says that as the market develops, the vendor will dedicate more local resources in a bid to expand its presence. "We have constructed a go-to-market strategy that includes locating more dedicated resources in Qatar and setting up more service centres to add value to customer purchases. Ultimately we aim to create the full Acer experience in Qatar," commented Varghese.

With the euphoria of the Asian Games still fresh in the mind, the Qatari IT market faces a challenge to replicate last year's success this time around. Shihab at IDC forecasts further growth in 2007, but admits it is unlikely to be to the same level as the previous 12 months. "We don't expect the market to reach the same growth rate that we saw in 2006," he admitted. "We are not going to see a decline in shipments, but we are going to see a slowdown and that's mainly because of the absence of such large projects."

While the growth potential of the Qatari IT market is obvious, the one aspect that could hold it back is the sheer scale of its ambition. "The key challenge that we see is the ability for Qatar to execute on the aspiration side and the timeframes," admitted Hani Nofal, regional sales manager at networking vendor Cisco. "There are a lot of initiatives in place and I think the execution is challenging. This is why Cisco is driving to build local teams and increase partners' capabilities and capacities to force the government and customers to implement their vision."

In a country where the population doesn't even exceed one million people, the local Qatari IT market will always have its boundaries. However, major vendors such as HP and Cisco - the latter of which aspires to have 40 staff based in Qatar within the next year - are proving that the market harbours more than enough opportunities to warrant large-scale investments. As the Qatari IT sector fixes its sights on exceeding that US$350m target, the ambitions and objectives of indigenous and foreign IT providers are certain to grow in parallel.

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