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Sun 16 Dec 2007 09:57 AM

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Where will you invest?

Channel players face tough decisions on where to invest in 2008, says Andrew Seymour

With the number of days running out until the end of the year, the Middle East channel community is quietly concerning itself with what lies ahead during the next twelve months. Vendors, distributors and resellers are all finalising their strategies for 2008, undoubtedly aware that the more the market matures, the harder it becomes to match the astronomical growth rates clocked up in recent years.

So where exactly should the channel be betting its bucks in 2008? Is Saudi still seen as the place to splash the cash? Would investment in Egypt make more sense? Or is it safer to grow channel capacity in one of the smaller GCC territories instead?

The answer to those questions remains very much linked to the individual game plans of vendors and their business partners. There is clearly a call for vendors to establish stronger infrastructures outside of Dubai if they are truly committed to creating fully-functioning partner ecosystems in each country, but much also depends on the company's product range and their willingness to take a gamble.

Every vendor will have its own idea of what represents a worthwhile opportunity and what doesn't, although those with an overly cautious investment plan may find that their prudence is detrimental in the long run.

The word from the research houses is that solid double-digit growth will remain the order of the day in 2008, although for many companies in the channel the real issue is how easily this can be translated into profitable growth. To outsiders, the Middle East is inextricably viewed as a booming market ripe with opportunities. That might be true, but it is also accurate to say that the financial health and long-term security of many local channel players still borders on the precarious.

Only this week, rumours have been surfacing of at least two Dubai traders that have recently defaulted on payments and are struggling to keep their heads above water. Hardly the characteristics of a market that vendors and analysts paint such a shining picture of, but a timely reminder that bottom-line performance needs to be seen as one of the principal measurements of success. Vendors have a role to play in that too by creating channel programmes that put an emphasis on rewarding profitable business.

A fervent trading culture and uncertainty over exactly how much IT kit actually leaves the region naturally leads many to opine that the market is not as wholesome as some would suggest, but when all things are considered the Middle East channel is still home to a sprawling reseller community offering diversified and sophisticated services.

Perhaps the most pressing concern - for companies based in the UAE and Saudi Arabia especially - is the rising cost of staff salaries and overall living expenses. This factor threatens to compromise the liquidity of the channel and unless it is managed carefully will result in many organisations living dangerously close to the edge. One senior channel source speculates that a hike in staff salaries to keep pace with inflation could eliminate more than 40% of a resellers' profit, while a further rise after that would almost spell the end for some parties.

Despite the inflationary pressures, the Gulf market is poised for another year of strong IT spending. A steady flow of government projects from Abu Dhabi, Doha and Riyadh is keeping the systems integration community satisfied, while the smaller markets of Bahrain, Kuwait and Oman are also committed to improving IT infrastructure in the public sector. Expect security, data storage and anything that facilitates connectivity to be at the front of the queue when it comes to favoured investment areas in 2008.

The prospects for the recovering Levant market also look encouraging with increased investment from key sectors such as telecommunications and banking having a major say in the revival. Political instability and economic sanctions have hampered the Levant PC channel in the last couple of years, but the resilience of the Jordanian market, coupled with signs of positive development in Lebanon, have put the sub-region back on the map.

Those with an appetite for the wider MEA region will no doubt be assessing the viability of building better links in the African market too. The level of re-export and sub-distribution that occurs between the Middle East and certain African markets remains as fervent as ever, but several ‘first-movers' are also cultivating stronger in-country links as they take a longer term view of doing business in emerging territories.

East Africa is one such area where gradual improvements in infrastructure and logistics are forcing companies to pay attention, although North Africa continues to look a stronger bet at the moment. Enterprise vendors with a track record in the oil sector have warmly welcomed the opening of the Libyan market, although by virtue of sheer size and scale alone, the Egyptian market remains in pole position.

IT spend in Egypt has already surpassed the $1 billion mark, according to some research houses, and with new government IT tenders seemingly springing up on a daily basis, there will be more than a few regional IT executives booking flights to Cairo this year. The challenge, for vendors, rests in assembling on-the-ground teams that can monitor local partner development and build a coherent channel strategy. Egypt has more than its fair share of problems with grey marketing and channel transparency, and those who want to grab a piece of that $1 billion prize won't succeed in doing so by managing their channels from a distance.

All in all, there are some huge challenges that the Middle East channel will need to navigate in 2008, but the conditions are far from treacherous. Distributors and resellers should pick their investment opportunities carefully, focus on adding more specialisation in their business to drive differentiation, and most importantly, put profitable business above everything else!

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