Saudi Spenders

Buoyed by oil profits, many businesses and government entities in Saudi Arabia have money to burn when it comes to IT budgets, but are they finding value? Daniel Stanton gets the story on Saudi and the returns it is getting on its IT investments.

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By  Daniel Stanton Published  October 31, 2006

Saudi Arabia is the largest market for IT in the Middle East, but not all of the money is being spent wisely. One of the top five IT vendors in the country, for example, has an impressive website, but on closer inspection the contact telephone number and email addresses supplied on it do not work. A case of style over substance, perhaps, and a trap that other companies in the Kingdom could easily fall into with their investments. Even so, more and more companies continue to invest in new technologies.

“In KSA in 2005, IT spending was in the region of US$2.5 billion,” says Mark Walker, director of business development, IDC MEA. “It’s growing at a rate of just under 13% up until 2010, that’s the compound average growth rate.

“The fastest growth is still in the hardware sector, that includes servers, workstations, those kinds of devices. That’s followed pretty much equally by software and services. The biggest part of the IT market is hardware, followed by services and packaged software.”

IDC’s research suggests that hardware will continue to have the strongest growth in the Saudi market for the next couple of years.

“The key drivers of that are the infrastructure rollout supported by the Saudi government - the million PCs initiative, that sort of thing,” says Walker. “There’s no problem with affordability in Saudi Arabia. They’ve got the money to do the rollout, it’s just a case of getting everything done, and I think that’s why we’re going to see a lot of infrastructure rollouts. That will include communication technology as well, where IT and telecoms converge. And that will continue for the foreseeable future.”

Walker believes that the Kingdom has a particular opportunity to exploit a niche in the market when it comes to localising technology.

“It’s almost like you buy a car and you buy a Gulf-spec car – you have to have Gulf-spec software there, and I think that creates not only a challenge but also a huge opportunity for technology vendors playing into that region, especially in the services space,” he says.

“If you roll out an ERP package in the UAE,Western Europe or South Africa, there’s not much modification you need to have. You roll in out in a solely Arabic country and you take allowances, like in the Ramadan period you have shortened hours, the female population generally doesn’t work, so all of these are issues have to be incorporated into that software. So there’s a huge software modification and integration services opportunity there which has been played out very successfully by a few companies in that region.”

Sage Accpac is hoping to boost sales of its ERP solutions in the Kingdom, having opened its first KSA office last month. “We have HR solutions that are wholly Arabised which we didn’t have in the past and there’s a lot of demand for HR software, too, which is one of the reasons why we’re going out there,” says Marc van der Ven, managing director, Sage Accpac Middle East. The Kingdom currently makes up around 25% of Sage Accpac’s Middle East revenue, but van der Ven is aiming to increase this to around 50%. He sees it as a particularly strong growth market, but acknowledges that it differs from other Gulf countries in some ways. “I think there’s a lot of investment going in there in infrastructure still and it’s less competitive. There are fewer applications out there than are available in the UAE,” he says. “I also feel that the management of many of our clients in Saudi Arabia is more involved in the day-to-day decision making than what we see in the UAE, especially in IT decisions.” One company that recently made a major change to its infrastructure, due to additions to its group, is United Motors Agencies (UMA), the distributor in Saudi Arabia of brands like Kia and Chevrolet.

Hossam Elddin Saleem, CIO, UMA, says: “We had to rebuild the whole infrastructure from scratch to enable the whole company to work as one infrastructure from the IT side – the communications, the network, the security, the applications, and the hardware.”

Thanks to its investment in technology, UMA’s infrastructure is no longer totally reliant on the national telco and electricity provider. “In UMA we have a 40 kVA UPS which covers the system for one to two hours and behind it there is a generator,” says Saleem. “The UPS is not connected to the main server room or the main operations room, it’s connected to the end users themselves.

“So in a power cut, the engineer will never feel it - the generators start after 10 seconds.

“Also on the communications side, we have all of the company locations connected through wireless.We run these connections with auto-switching in case anything happens to one of them.We are running it with zero downtime.”

The company recently completed an intranet project, supported by Microsoft. Certain business users are given a device which can be plugged into any internet-enabled PC via the USB port to give secure access to the company intranet.

“After the problems that happened in Heathrow airport it’s stopping everyone taking laptops inside planes,” says Saleem. “This means that it might not be a habit to take your laptop any longer. This is a very small thing, smaller than an optical mouse. You will carry it in your pocket or your luggage and you can use any computer worldwide. You connect it and then you go to your website and you put your username in, you put your finger on it and it will allow you to access all the applications and enter. This is the highest level of security.

“It lets you know is connected to you, who is logged into your applications and your site. Everything’s arranged under the workflow system, like if I apply for a vacation the different departments can check it and review it, then sign it. Sometimes the high level manager is travelling abroad but you might need his signature. He can do it wherever and whenever. You just log into the site and you find everything over there. Anywhere in the world, it will be like he’s inside the office.”

UMA is currently implementing a business management system from BMC Software. “It’s running into all our devices and servers, the whole infrastructure,” says Saleem. “It will be on a 60-inch monitor. If the server goes down for one hour, the communication line will be down and you can drag it by mouse from one type of connection and choose another connection. You don’t need to do any technical work or special work other than this to find the solution to that problem. Before we had some technical guy manually checking the servers and the infrastructure.With BMC we are implementing the helpdesk solution and business management solution. It’s a huge project.”

Abdullah Al Oraini, IT director at the Royal Commission of Jubail and Yenbu, implemented an Oracle ERP at one of the Commission’s three sites in the Kingdom, and expects to roll it out across the others as soon as it has completed its switch to accrual accounting. However, he has already seen impressive results after deploying at Jubail.

“For Jubail only, it automated some of their work and speeded up some of the transactions they are doing,” Al Oranin says. “It is of course raising the efficiency and speed and so on, and probably the accuracy and the integration of the different systems. For example, in accounting, they can see what’s in the planning, what’s in the budget, they can deduct their monthly salary from the budget automatically for personnel, and so on.

“So this installation has really resulted in raising the efficiency, reducing the cost and giving speed to transactions.”

Abdul Rahman Al Thehaiban, vice president, Oracle Saudi Arabia, says: “One of the main challenges for the private sector is really to expand their operations for a number of reasons. Saudi Arabia joining the WTO (World Trade Organisation) will create pressure on the private organisations to increase efficiency in their organisations in order to be in line with the new major players who are coming. So there are new players in the market, new competitors that they have not been used to, very modernised competition, and as a result of this the private sector is investing heavily in IT.”

He adds: “In Saudi the majority of the private companies go IPO (Initial Public Offering). For them to go IPO would create a further transparency of the records of the organisations so they need a business application for them to be efficient and transparent. There is some major spending on the projects.”

Al Thehaiban points out that the three billion Saudi Riyal investment in e-government recently announced by His Highness King Abdullah II will spur IT development in not only the public sector but also the private sector. “There is no option for companies and government but to move into the e-age,’ he says.

“We have started to see the private sector players deploy IT to help them address their future expansion. The oil and gas and telecom sectors have always been the largest IT spenders, followed by financial services. Now we have started to see private industry starting to spend to increase their competitive edge versus the new global players that will be coming to Saudi to compete.”

However, Al Thehaiban foresees possible problems in the future, due to the shortage of skilled individuals. “Unfortunately, among the tremendous IT spending, there is very little spent on HR education,” Al Thehaiban says. “With the restriction of employment visas for expatriates and the limitation of spending on training Saudi nationals, moving to the e-age will not be as easy as we think.”

Moses Kuria, COO,Wamad, believes that the conflict between Saudisation and automation could harm businesses in KSA if they do not change the way they manage IT.

“Because of Saudisation, it is harder to get people from India and other Arab countries to come and do very mundane repetitive tasks like IT administration, support, and loading up new software,” he says.

“Visas are becoming an issue, and therefore all of these things are driving the need for automation.

“The second key driver is outsourcing. In my opinion, Saudi has not cracked even 1% of the outsourcing potential. There is so much potential for outsourcing because businesses have become so huge and complex.

“They want to focus on doing their own thing, they want someone to come and take over things in IT that previously have been done by their own employees.

“But now you put Saudisation and outsourcing against each other because outsourcing companies are not expected to come in and replace their own employees with the employees of the new company. Something needs to come in the middle, and that’s automation. That’s what we enable.”

Wamad provides tools to outsourcing organisations and is working with Injazat in the UAE and ITS in Kuwait.

However, it has not detected much demand for its products in Saudi Arabia, and Kuria warns that this could mean the Kingdom misses out on the benefits.

“We see outsourcing becoming even an outlet for Saudisation itself because today companies are claiming the reason they cannot get Saudis to work in jobs like IT, banking and accounting is because they don’t have the experience,” he says. “We are working towards setting up a huge outsourcing base within Saudi itself.

“It’s going to be a disaster for Saudi Arabia if the jobs go offshore. And they will go offshore.

“Look at Dubai Outsource Zone, for example. Who is the target? Saudi. It has to do something to create an outsourcing base within Saudi Arabia, and if they don’t do that they will not stop the change.”

Ebttikar, part of Al Faisaliah Group, is one company that has seen success as a provider of managed infrastructure services. It has seen high demand from both government and private sector clients. Ebttikar can count Riyad Bank, National Commercial Bank, Sabic, and Aramco as customers, and telco STC represents more than 30% of its revenue. The integrator recently undertook a contract to maintain the SAMA (Saudi Arabian Monetary Agency) joint network, which connects all banks,ATMs, and Tadawul data centres to the SAMA data centre.

Ebttikar also provides services for the ministry of interior and ministry of health, among others, but says the market is changing. Munir Zahra, director business development and marketing, Ebttikar, says: “We have seen changes in the way companies are working.Vendors are going into services, the system integrators like us are moving into trying to improve their services, improve their specific value-added services in order to compete with those vendors and add more services that are vendor independent, which is very important for customers nowadays.

“We have seen changes in consultancy in terms of the market. Most of the banks and organisations have complex mature IT infrastructures. Now they want to go into the upper level where they want a consultant in-house to manage the operation, to manage the investment, to improve their services based on this. They want to know how to capitalise, even how to provide more services out of this infrastructure. “STC have a huge, huge IT infrastructure. Now they are thinking of how they can even use it for external companies, to sell IT services based on their infrastructure. They see the infrastructure they have, and think why not convert this to something like managed disaster recovery, managed network services, managed security services and so on and so forth. So we are seeing changes in terms of business models.”

Sun Microsystems has also been involved in upgrading some of Saudi Arabia’s financial networks. “About three months back we got awarded the infrastructure for the new exchange,” says Graham Porter, Middle East marketing manager, Sun. “Tadawul is the dissemination system for selling and buying Saudi stock. SAMA decided to change in order to take the huge load and the huge number of transactions they receive from the public as well as from banks to trade in Saudi stocks.

“The old one wasn’t capable to take the load and give the functionality that the user required, so they changed it and bought a new one. The infrastructure for the new one is based completely on Sun technology - many numbers of servers, as well as storage.”

He says that a robust banking infrastructure is now vital for Saudi Arabia, given the modernisation and growth of the industry. “You’ve got huge volumes,” says Porter. “Saudi’s going through that phase of IPOs, deregulation of the telecoms sector, and suddenly there are people dealing online and buying and selling stock for the first time, so it needs a fairly robust system. Sun’s done that in a number of countries.”

Hani Salman, country manager for Sun Microsystems, Saudi Arabia, says that businesses are investing in IT partly to ensure that they can meet the additional demands they face as a result of the Kingdom’s membership of the WTO.

“This also encourages them to get aligned with the regulations to compete with their neighbour countries, as well as to help their Saudisation initiatives,” he says.

Porter adds that this makes it important to show evidence of transparency, particularly with concerns around issues like money laundering. “People are suddenly being a lot more transparent in the way they deal with the outside world,” he says. “They’ve got to store their data, for example, they’ve got to show in financial transactions where the money’s going, where the cash is from. People looking at the Middle East and Saudi in particular want to understand what’s going on in the economy.”

Another growth area in Saudi Arabia that is boosting demand for networking technology is the trend towards smart buildings. Hasoub, Systimax’s value-added supplier and integrator in Saudi Arabia, recently worked on the King Abdulaziz Endowment Project in Mecca, as well as other smart building projects.

“This is a new concept in the Middle East market,” says Sami Said Hassan, general manager, Al Hasoub.

Although smart building technology has most commonly been used in hotels and new residential developments so far, Hassan believes that take-up in other areas is increasing. “In Saudi I can see that there is a lot of potential even for the corporates. For most of the corporates coming to rent a new building, one of the conditions is for the building to be ready, to be a smart building, so the connection, the cabling, and the infrastructure of the building should be ready. This is the new direction.

“We talked to mostly hospitality but now I feel that corporates are moving more to this direction. I know a lot of corporates now are talking about smart buildings and the need to change the infrastructure to be part of the service. They can select which services they want. I can see a lot of demand for voice over IP now, in corporates, and in Saudi Arabia.”

However, although demand is growing in all kinds of high tech areas and the private sector is making better use of IT, Saudi still has one main factor holding back its development. “In terms of the overall level of IT penetration in Saudi, compared to the overall penetration in the region, it’s pretty low,” says IDC’s Walker. “In terms of internet penetration per user, it’s pretty low. Contrast it with the UAE where it’s all over.

“That’s a problem that’s got to be overcome, but it’s going to be overcome in the end if the spending and deployment rates continue.

“There is available budget, the marketplace is sophisticated enough, there’s a hole that’s just got to be plugged. It’s just a case of how fast they can roll it out.”

“There’s no problem with affordability in Saudi Arabia. They’ve got the money to do the rollout, it’s just a case of getting everything done, and I think that’s where we’re going to see a lot of infrastructure rollouts.”
“We have HR solutions that are wholly Arabised which we didn’t have in the past and there’s a lot of demand for HR software, too,which is one of the reasons why we’re going out there.”
“If the server goes down for one hour, the communication line will be down and you can drag it by mouse from one type of connection and choose another connection.”
“With the restriction of employment visas for expatriates and the limitation of spending on training Saudi nationals,moving to the e-age will not be as easy as we think.”
“Saudi’s going through that phase of IPOs, deregulation of the telecoms sector, and suddenly there are people dealing online and buying and selling stock for the first time, so it needs a fairly robust system.”

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