Think of Egypt and the chances are that images of colossal monuments to long-dead Pharaohs or lonely feluccas sailing down the Nile will spring to mind.
But when it comes to the IT industry the channel has a different vision - one of untapped potential, regional importance and a chance to make a mark on a fertile landscape.
Out of all the African nations the Egyptian IT market has always been the one that has held the most potential and interest in terms of channel development.
Many of them have not yet finalised their IT infrastructure — hardware and software systems need to be in place before a firm begins contracting more sophisticated third party IT services.
In recent years the government, under the guidance of previous Egyptian Prime Minister Dr. Ahmed Nazif, introduced many positive catalysts for growth and change.
Almost three years ago Nazif implemented tax reforms and privatised large enterprise organisations. Government spending over the last year has accounted for almost a third of all IT spending on services.
It also set up the Information Technology Industry Development Agency, which if some commentators are to be believed has had a profoundly positive effect on the IT business and helped attract some high-profile names.
An analysis of the PC market carried out by research house IDC classifies Egypt as one of the most promising markets in the Middle East and Africa region thanks to its large population, improving economy and attractiveness to foreign investors.
IDC expects the Egyptian PC market to expand at an average annual rate of 16.5% in volume and 16.2% in value through to 2011, as economic stability in the country promotes greater PC purchasing.
Despite worries that Egypt is not developing mature habits, IDC also revealed that notebook shipments have skyrocketed in recent times with unit shipments doubling year-on-year.
The concerns of those who believe the Egyptian market is performing below its potential are well founded though.
IDC also looked at the deployment of value-added and support services - the type of business development expected of a mature market - and found Egypt wanting of a greater investment.
"Most companies in Egypt lack the financial resources necessary to invest in IT services," said Vladimir Kroa, research director for IT business services at IDC CEMA.
"Many of them have not yet finalised their IT infrastructure - hardware and software systems that need to be in place before a firm begins contracting more sophisticated third party IT services. Finally, Egypt is an emerging economy meaning it is difficult for firms to align their IT processes with their business objectives."IDC expects that Egypt will realise some of the potential it has been exhibiting over the coming years and is predicting that by 2011 IT services spending alone will increase by over 12% to US$260m.
"The support that we saw from the government was a couple of years back, they cancelled the import duties into Egypt," explained Tarek Galal senior VP of hardware distributor Metra Computers.
"It was 5% and it changed to zero, but you still have the sales tax of 10%. That was a boost because it really made a difference," he asserted.
We have decided that our level of services cannot be different from what the end-user is offered in the UAE or Saudi. Services with the channel have become more and more important in Egypt.
Galal also explained that his business has widely benefited from a government initiative he says is dubbed 'Computers for 2010', the intention of which is to help those with lower incomes purchase a PC.
He says this has accounted for a 40% increase in PCs sold in Egypt and increased the volume of consumers using technology in the country.
The strength of the PC market in Egypt is perhaps a good indication of the level of development of the overall market.
Elsewhere in the region's more mature territories, desktop PCs are being beaten and bloodied by the more nimble and sprightly notebook.
That is not to say that the move to mobility is not coming in Egypt, it is, but just not at the rate seen by its near neighbours.
ETE, a Cairo-based assembler and distributor of notebooks and PCs that focuses heavily on CPU vendor Intel's products, explains that the dynamics of its environment are changing.
"The market is shifting now and mobility is coming," said Khaled Nasr, ETE's CEO.
"Four years ago it was about 90% of the market share for desktops. Now mobility is coming, it is almost 30% of the market."
ETE has seen its business grow strongly over the last five years as IT has become more mainstream, but he still warns that no trader in Egypt can avoid the fact that the consumer's biggest concern is the bottom line.
"First of all if you look at Egypt, it is a price-orientated market. There are no Dells or HPs in the market, those with big numbers," proclaimed Nasr.
"Now the customers are happy to buy a fully assembled PC because of the after-sales service, which we are doing, and because of the support we can offer."
Aside from Nasr's comments, the consensus when talking to the channel is that the Egyptian IT market, though experiencing very healthy growth, is a long way from establishing the services culture that could be expected of its grown up regional siblings.
"There is a lot of potential, but I think that there are a lot of deterrents as well," warned Metra's Galal over the sophistication of the Egyptian IT market.He also feels that the reseller channel still has a long way to go before it develops a professional service-led culture.
"More development definitely needs to be done. The business is still being run with the mentality of 'I know you, you know me, so let's try and make a good deal, but if we don't know each other we will not be able to do good business'," said Galal.
Shashank Sharma, Acer's country manager for Saudi Arabia, Egypt and East and West Africa, feels the channel in Egypt has been exhibiting glimpses of future potential for value add and sophisticated revenue offerings.
It is an ongoing process, but there is still work to be done to get our channel specialised to the level that we want them. What we are doing to help the channel achieve this is increase resources.
"I would say it is getting there, but it is not there at the moment," proclaimed Sharma.
"But that is the good thing about working in Egypt right now, it is on a growth path in sales and I think vendors are taking notice of that. It is forcing everyone to take notice of their service arrangements and the level they offer. We have decided that our level of services cannot be different from what the end-user is offered in the UAE or in Saudi. Services with the channel have become more and more important in Egyptian IT."
Acer, like many other vendors in its position, is vowing to treat the Egyptian market in a similar fashion to the two largest markets in the Middle East, Saudi and the UAE.
It therefore doesn't come as a surprise that with the Egyptian market harvesting such strong long-term potential, vendors are not only calling for the channel to look to the development of a greater level of services, but are advising Egyptian partners to specialise.
"It is an ongoing process for us, but there is still work to be done to get our channel specialised to the level that we want them," said Serdar Urcar, general manager of HP Personal Systems Group in the Middle East.
"From our perspective what we are doing to help the channel achieve this is looking at increasing our resources. I am searching for an Egypt PSG manager who will cover Egypt, Lebanon and Jordan from Cairo," he explained.
It is all very well for vendors to say that the Egyptian market is ripe for services and specialisation, especially when many of them are covering the country as one of a list of other regional countries and flying in to oversee the work of the channel, but partners are a little more cautious about the level of market development taking place.
They talk of a series of barriers and issues that have to be resolved before the potential that Egypt exhibits can be realised.
Hatem Ezzo, director of operations at Sun Microsystems-focused systems integrator Promise Service, cites debt collection as one notable pressure facing the distribution channel in Egypt.
"We have a little bit of a difficulty collecting payments, they can be a little bit late," he admitted.Ezzo also complains that local competition has become more fierce in recent years, which is having a major impact on market dynamics.
As already mentioned by Metra's Galal, Egypt is a price sensitive market reflected in the low GDP of US$5,400 per person. However, it's possible that the price focus and low spending power are offset by the country's population size, especially in the consumer segment.
"That is one of the aspects where I have a different point of view," asserted Galal.
Last year price points remained a focus for resellers in Egypt, but this year it is not a dominant factor. The trading approach is going out and more of the long-term elements are taking its place.
"I feel that there is potential in the size of the population, but I also see that there is a big deterrent in the distribution of PCs to all of the population for the very simple reason that we have reached a stage where something drastic has to be done price-wise to be able to penetrate and increase the scope. I estimate that only 3% of the population is able to buy a PC. For the lower incomes of the community to be able to, it would require a drastic change in the pricing structure, which somehow I do not see possible."
ETE believes that in a market with such a vibrant local whitebox contingent it is not as simple as just claiming that the market is highly price sensitive.
"It is a price sensitive market, yes, but if you concentrate on price you are definitely looking at the low-end," asserted ETE's Nasr.
"In the high-end there is a chance for everybody to make money. There is an opportunity to make good margins on the high-end products. For instance we are securing good margins on the Quad Core and the 45nm CPUs. Now the Egyptian market is shifting this way, from the low-end to middle and high-end products."
If Nasr is to be believed then this may well be one of the first undeniable indications that the Egyptian IT market is in fact reaching a level of maturity that has not been witnessed before.
Geographically, the Egyptian IT market is focused around the country's capital Cairo, especially with the creation of new Free Zones.
Apart from Alexandria, the rest of the market could be considered, on the whole, as dispersed and rural.
This presents a challenge for vendors looking to maximise their reach in Egypt. But more importantly it presents an extra obstacle for the distribution channel.
"That is one challenge that we face with our distributors now. A couple of big cities - Cairo, Alexandria, Luxor - all get attention, but there are resellers and small retailers in other parts of the country which we need to reach out to," commented Sharma at Acer.ETE's Nasr has resolved the geographical issue within the channel.
"If you look at the size of Egypt, there is a geographical challenge because some places like Luxor are 1,000 kilometres away. It is very tough to control so we prefer to assign a distributor to promote our brand and help them to do whatever they need to do there," he said.
As suggested here, sub-distribution seems to be the way that the channel deals with the breadth of the country and the density of reseller partners.
Another issue that has seemingly befallen the distribution level of the channel is not only the problem of lengthy payment cycles, but also the cost of obtaining credit insurance.
Despite the challenges that continue to make the market a more troublesome environment to operate than some companies would like, Egypt is undoubtedly one of the most important IT markets in the region.
And as Dubai continues to see inflation hikes and rising overheads, IT focus on this ancient country will only grow.
"What we are seeing now is that the reseller channel is maturing," professed Acer's Sharma.
"Last year price points remained a focus for resellers, but this year it is not a dominant factor. The trading approach is going out and more of the long-term elements are taking its place," he commented.
There are also positive signs that the market may well be maturing. "Egypt is trying to become a software market and a services market," said HP's Urcar.
"They are also trying to become a production market for software, like Bulgaria in Europe, but not necessarily the size of India. From that perspective they are playing a very clever game indeed. The government is trying to make Egypt an attractive place for IT companies - both internationals and locals - to invest."
And if the voice of those espousing the unique offerings of the Egyptian IT market is to be heard then the government and other Egyptian IT visionaries are succeeding in their efforts.
Some commentators in the channel are claiming that the Egyptian IT market is so promising that many multinational companies would be well-advised not just to establish large and intricate local channels, but to begin production of their products in the North African nation.
"There is an excellent opportunity for multinationals looking to outsource or establish manufacturing plants here instead of other traditional areas, " said Metra's Galal.
Promise's Ezzo is confident in the country's strength and in the future prosperity of the IT market too.He summarises: "Egypt is a very big market and it is much cheaper than Dubai. We have all of the facilities, accommodation is affordable and transportation available. That is what attracts the multinationals to come here. The economy here is getting better as time goes on. Egypt is going to boom."
Egypt might be regarded as the rising star of the MENA IT sector, but it's also a market where many vendors and IT companies admit they face issues in terms of grey marketing.
This is naturally disruptive for authorised channels operating in the country and can also have a huge impact on local pricing dynamics.
Hatem Ezzo, director of operations at systems integrator Promise Service, insists that aside from global purchasing agreements, which afford international competitors better prices than he is given locally, grey marketing remains the "biggest issue" impacting his business.
Shashank Sharma, country manager for Acer Egypt, concedes that vendors must accept responsibility for product flow.
"One of the reasons why grey marketeering is happening is because the engagement from the vendors is less than it is with the partners in-country," he said.
"I think that is because the in-country presence has not always been there and information about official sources for procuring products is not really highlighted, meaning people look elsewhere to fulfill the product need. Grey marketeering is indeed a problem, but I feel it is now becoming marginalised in Egypt," he concluded.
Microprocessor vendor Intel, on the other hand, dismisses the notion that the grey market is a challenge befalling the channel across Egypt.
Ozerk Ege Ertem, sales manager at Intel for Turkey and Africa, prefers the term 'open market' to describe the grey market.
"Open markets are a result of free trade at a worldwide level and all countries' governments are supporting free trade," insisted Ertem.
"As free trade is there, it means there will always be an open market and this is not a bad situation."
Intel's channel partner ETE, however, claims that although the grey market is affecting some players in the channel, it has been able to sidestep the problem.
"Maybe the guy who is getting CPUs from the grey market can sell it at a cheaper price than mine, but that is not a problem as I can cover it with my edge on the motherboard or some other part," insisted CEO Khaled Nasr.
"I am selling a whole solution and for my PC and notebooks I am not affected. If you talk about HP, Dell or Apple, however, perhaps these guys are suffering and the local distributor is suffering from the price that is coming from the grey market," he said.For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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