Obtaining and sustaining business can be difficult in Arab markets. Mark Ford spoke to a range of information and communications technology companies about their strategies for creating positions in the region’s “new economy” spoke to a range of information and communications technology companies about their strategies for creating positions in the region’s “new economy” –
A slice of a market inhabited by 300 million people sharing a common language and similar cultures should whet the appetite of businesses seeking to supply information and communications technology (ICT) goods and services. But the barriers to companies looking to enter the Arab ICT market are high. And they come in a variety of shapes and sizes across the region.
“No-one provides the real information that’s needed for making a decision,” says Sheikh Khaled bin Zayed al-Nahayen, chairman of the UAE-based Bin Zayed Group (BZG).
Lack of market information has impaired business planning and decision-making in Arab ICT markets, he says. “Here, when we present business plans, they are based on nothing,” he says. He hopes that the market data for the ICT sector and firms in the knowledge economy provided by his newly created Madar Research Group will go some way to filling this void.
Market data may do more than that, says Abdul Kader Kamli, president and research director of Madar Research Journal. “A better understanding of these markets will encourage both global and Arab investors to become more engaged in the region,” he says. “And it will help existing companies map out properly prepared business plans for the future.”
Even major ICT players such as HP (formerly Hewlett-Packard & Compaq) are unsure of their positions in certain market segments. “Based on market data we are number one [in the region] in terms of Intel products, PCs, notebooks and servers,” says Joseph Hanania, general manager of HP Middle East. He believes HP is “also leading the business critical” sector of the market, but notes that “there’s no independent data” to guarantee his claim.
A variety of ICT market perspectives are portrayed in Madar Research Journal – from comprehensive data on the depth of internet penetration across Arab states to the lowdown on internet cafés in Saudi Arabia and Libya.
Sheikh Khaled’s diverse BZG portfolio, with interests in several sectors from furniture trading to construction, includes seven technology companies. He is visibly more excited by ventures in what he describes as the “wild, wild west” of technology than more traditional local business pursuits in oil and real estate.
But he also seems genuine in his concern that the ICT facilities that his technology businesses deliver should improve the competitiveness of the small businesses that are so critical to the region’s economic buoyancy.
“In the GCC [Gulf Cooperation Council] there are not so many large companies,” Sheikh Khaled notes. Thus a central aim of BZG’s technology businesses is to fit products to the region’s enterprise stock by designing and delivering “full service” offerings to small and medium-size enterprises (SMEs). These products provide SMEs with technologies they could not otherwise afford to buy or replace because of lack of capital, or could not service because of the cost or lack of relevant expertise.
Another entrepreneur concerned with harnessing SME potential from a different angle to gain positions in Arab markets is Sheikh Alawi Baharoon, CEO of Baharoon Development Corporation, the holding company behind one of Saudi Arabia’s largest business-to-business enterprises, Integrated Visions (IV).
He believes that Arab markets are too tough for the world’s major ICT names to handle alone. “It is expensive for [major ICT] companies to come into a region where per capita income is much lower than in the UK or Germany,” says Sheikh Alawi. He believes the world’s global ICT players would be hard pressed to obtain the economies of scale necessary for profitable operations in the region. They cannot pay high expatriate wages in several Arab states, he suggests, so “to do something meaningful, IV integrates small [local] companies to achieve that economy of scale”.
Until recently, Oracle adapted its products in and for the local market. However, according to Husam Dejani, vice-president of Middle East operations, the software company has changed tack. “Oracle is a global company and a few years back, we took the decision to have one global strategy. We implement this with zero modifications,” he explains.
As far as Dejani is concerned, “no company has the bandwidth to create local programmes [and] there’s a big question mark over the returns they would get from these programmes”. Today Oracle employs no local IT staff. “All I have is a global network – 42,000 globally and 300 in the Middle East,” says Dejani.
This may sound like bad news for Oracle’s customers but apparently it is not. What has happened is that while product localization used to be performed after the software was written, today there is no need for that tinkering.
“Localization has moved behind the product,” says Dejani. This means that if you are using Oracle software and you need Arabic, it is already loaded in the background waiting to be called up. “We are strong advocates of centralization – the software has to function in all languages at all times,” he says.
Dejani claims that this has distinct advantages for users, including some of the region’s largest businesses. “Emirates Airlines implemented our software for all their functions, and they had an interesting ERP [enterprise resource planning] challenge,” he says. Emirates’ Indian-based, UK-based and Dubai-based employees are subject to their homeland’s tax and social security conditions. A couple of years ago, about 30 software variations would have been needed to cope with the airline’s payroll but now it runs from one piece of software. “This is what I call global software as opposed to local software,” he says.
Another aspect of Oracle’s global strategy has reduced the corporation’s need to employ local people. Oracle’s online partner network enables users to raise software queries over the web.
Emirates used to approach its local Oracle support organization to get problems resolved. Now a query is logged onto computer and then sent to the support provider in the Oracle support network who is most competent to deal with the problem, regardless of where the support person is located.
Dejani said that at first he was sceptical about the likely effectiveness of a reduced number of employees and reduction in face-to-face contacts. Now he is convinced it works.
Oracle’s global approach does not exclude it from playing a key role in local product development. “Microsoft and Oracle are building platforms that offer the base for Arabic products,” explains Sakhr Software’s business development director, Fahad al-Sharekh.
Sakhr’s collaboration with Intel demonstrates that “the integration between Arab and international technologies has become a firm reality,” says al-Sharekh. The Kuwait-based company, which specializes in the use of Arabic-language ICT contexts, has recently launched software that uses Intel’s Pentium 4 3GHz processor to transform Arabic written text into speech quickly and accurately.
“Previously the software was able to recognize 400 characters a second but with the new Pentium 4 processor this number has increased to 1,000 characters per second,” al-Sharekh says.
Sakhr claims that its optical character recognition system is 99% accurate. “The joint path Sakhr has taken with Intel sets the example for the cooperation between regional and international companies,” says al-Sharekh.
Local offices and staff remain important in some major ICT players’ regional strategies. Major ICT products, technologies, solutions and services company HP has established offices in several countries to gain its position as “the largest IT company in the area in terms of presence and revenue”, says Hanania.
“Compaq has had a direct presence since 1994. Dubai-based with multiple offices in Saudi Arabia and Egypt it also has employees in Kuwait, Oman, Bahrain, Qatar, Lebanon and Jordan, as well as an office in Abu Dhabi. Hewlett-Packard has been in Dubai since 1998 and has opened since in Saudi Arabia and Egypt,” he says.
“Employees and individuals in certain countries sell the entire [HP] portfolio – from handheld [products] to fully tolerant non-stop systems,” says Hanania. He adds that regional staff also play an important part in providing product and service feedback to HP’s research and development team. This means that, in common with Oracle, “Arabization is designed into products – the basic design does not change” specifically for the market.
Growing the Arab market
The world’s largest ICT companies know they have to help grow the Arab ICT market and must work hard with governments to promote ICT literacy across Arab states. “We are ready to make investments,” says Hanania, who thinks there is “responsibility on all players, including suppliers, to help in the spread of technology.”
“With large organizations there is little difference – for example, between Middle Eastern airlines and those elsewhere,” Hanania says. But he does see issues for SMEs in terms of ICT literacy and usage. He thinks this is a matter for both private and public sectors. “HP works with governments to improve technology reach. In education, governments tend to take a leadership role, so HP may invest in products, services or knowledge transfer,” he says.
Microsoft has worked with several Arab governments to promote ICT usage. In September 2002, Microsoft Arabia said one of its partners had concluded an agreement with Saudi Arabia’s ministry of the interior to provide technology solutions in the kingdom’s “e-government’ initiative.
This promises a good local market position for Microsoft and its partners. Such partnerships should also help to grow the market. Sheikha Lubna al-Qasimi, chief executive of the Dubai-based Tejari online business-to-business marketplace, is one of several industry participants convinced that government involvement in ICT contexts deepens ICT penetration and stimulates ICT literacy.
Microsoft is committed to working with the Saudi government “for the future of computing… [and] to create a positive social and economic impact”, according to Microsoft Middle East’s managing director, Mohammed Kateeb.
The Thuraya experience
Saudi Arabia’s promotion of ICT literacy faces particular difficulties in its remote areas. This is a challenge across large parts of the Arab market for most companies and governments but it is an opportunity for others.
Thuraya Satellite Telecommunications Company has a “vision for the utilization of satellites to build an infrastructure and bridge the digital gap”, says chairman Mohammed Hassan Omran.
He talks with passion about Arabia’s rugged and sparsely peopled deserts. He believes his business has some real and practical answers to the question of how to provide telephone and internet access at a reasonable cost in developing countries.
Particular problems are encountered in remote areas, notably that of low incomes and the high costs of building and maintaining infrastructure. Thuraya nevertheless pursues its work with multinational and national companies as well as governments to achieve the goal of “universal access”. In some areas this means constructing fully resourced “telecentres” where people can drop in to access reasonable-cost telephone and internet links to the rest of the world.
Some of the challenges of establishing telecommunications networks in remote areas are not a result of factors of nature or demography. Omran says that establishing partnerships with providers of the terrestrial infrastructure that is required to deliver satellite services to the end-user can be time-consuming. “Thuraya may have problems with the distributors and local partners who maintain those parts of the infrastructure,” he says. The company is sometimes also obliged to use the main telecommunications provider.
Rollout of services can be slowed by the negotiations required before each market entry. With governments in some countries “it takes months and months to establish regulations, licences, fees and subsidies”, Omran says.
Despite his experiences of the trials and tribulations in growing the Arab ICT market, Omran supplies the simplest yet most compelling reason why a market will emerge across Arabia. “People want to be connected,” he says.