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Mon 9 Nov 2009 04:00 AM

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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.

Soaring Saudi
Soaring Saudi
Wael Fleihan, ABM.
Soaring Saudi
Ziad Mortaja, HP.
Soaring Saudi
Ahmed Eissa, Metra.
Soaring Saudi
Wael Waheed, Tech Access.
Soaring Saudi
Othman Al-Dawamenah, Alnafitha.

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. How strong is the level of in-country investment offered by vendors in Saudi Arabia at the moment?

Ziad Mortaja:Some international companies are downsizing their operations in the country by letting go of people and others are still monitoring the market. Some that have not been here before are even coming to the market. There is more or less a global view that the Saudi market is one of the least impacted in the region by the global financial crisis and there is positive momentum that is attracting global IT players to the market. Of course, the priorities within the market are changing. There is now more focus on proper investment and prioritising of IT projects, but, all-in-all, the Saudi market is staying positive.

Wael Waheed:Most of the vendors are investing now because Saudi Arabia is a promising country in the region. The economic crisis has only had a minimum effect on the Saudi market and so vendors are investing through events, training and workshops and other activities. There is a strong focus on developing the Saudi market and they expect ROI. A lot of big projects are going on and the next quarter is a big hope for us and everybody else. I am expecting an increase of 10% to 15% in the business compared with the same quarter last year.

Othman Al-Dawamenah:It is very strong at the moment, actually. Most of the vendors have now realised how important this country is for their business. They have seen drops happening everywhere else in the GCC, but Saudi has probably been the least affected so it has become a strategic market, not just a place where you dump a few thousand products and then return to Dubai. Most of the vendors are bringing their teams into Saudi Arabia, from Huawei to Samsung and LG. Apart from the established vendors that have already been here for the past few years, such as Acer and HP, most IT vendors are increasing their teams in the region.

How developed is the reseller channel in Saudi Arabia?

Ziad Mortaja:In my opinion, it is still far under-developed. The channel community within the Saudi market — and I think that applies to HP’s channel and others — still has a way to go in terms of competency in various areas, so there is room for development there. There is a gap — and that gap is clearly understood by the way — between the vendor capabilities and the ability to position new technologies and services into the market place and the capability of the channel to cope with those changes. The pace of technology development is fast and there is definitely an investment that is needed to ensure that the right resources are there.

Wael Fleihan:Everybody is suffering the same issue, which is cash. If you want to do business or bid for a project you need money, and whenever you bid you have to think about when you are going to get paid. So most companies in the channel are now cautious and they want to assess their risks first. As a result, resellers are being very selective in which projects they take and which bids to make. In earlier years, when everybody was making a profit, resellers were very courageous and took risks because they had lots of money.

Ahmed Eissa:I think it is fairly developed. What resellers need to do is work out their product mix to achieve profitability, because the market continues to get more competitive with vendors coming in and the eyes being on the country. While resellers need to run their volume business, they must also find other areas where they can make a decent profit. I think one of the biggest challenges in Saudi Arabia is human resources — from the vendors through to us and the resellers — so the channel needs to develop its own talent.

What sectors and product categories will drive the Saudi IT market?

Ziad Mortaja:There will definitely be a big focus on advanced IT services, which will be a large market due to the amount of complex projects being driven by the public sector and some of the large private sectors. I totally believe that software products and services are of high demand in Saudi Arabia. In addition, there will be demand for classic data centre products — from servers and storage and communications infrastructure — because we are seeing companies move towards establishing tier three and tier four-type data centres. This is being driven by the telecos and financial institutions.

Wael Waheed:Servers, blade servers and enterprise storage continue to be promising. People need to secure and monitor their data so there is a real opportunity for storage sales. The government sector is key. It has been spending a lot of money and there is a long-term plan for the IT industry. The private sector is also important in Saudi, but overall I believe the SMB business is the most important sector of the market.

Othman Al-Dawamenah:I would say the telecoms sector is driving the IT market right now in terms of security, connectivity and IP telephony. I would also say that the solutions market is booming. Everybody is trying to grab a piece of it because it is a category where there is money and there is a need. It is also a fresh sector in Saudi Arabia so it isn’t yet covered like hardware or networking equipment. Solutions include things like ERP, CRM, HR systems, disaster recovery systems, e-faxing solutions and warehouse management solutions. All the RFQs are going in that direction so there is a heavy demand on the solution side.

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