New report highlights strong growth in local B2B market

The Middle East’s B2B e-commerce market is due to more than double between 2002 and 2005, predicts a GCC commissioned report.

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By  Greg Wilson Published  November 24, 2002

The Middle East’s business-to-business (B2B) e-commerce market is expected to more than double between 2002 and 2005, predicts a report commissioned by the GCC.

The research conducted by Ernst & Young between March and July of this year on behalf of the GCC’s policy-making Commercial Cooperation Committee (CCC), estimates that the Middle East’s B2B market will be worth US$400 million by the end of 2002, and will grow to nearly US$900 million by 2005.

“The region’s B2B figures were much higher than the B2C market,” says Basel Al Jabra, secretary general for the e-commerce national taskforce, Ministry of Commerce, Kingdom of Saudi Arabia.

“These figures indicate that Saudi Arabia is accounting for the majority of the electronic trade, with US$280 million dollars from [the Kingdom] alone. This is expected to reach US$550 million in the year 2005 for Saudi Arabia alone and about US$900 million for the GCC countries,” he adds.

The report, which was compiled from 500 face-to-face interviews with large regional businesses, emphasised the dominant role played by EDI-based technologies. Unsurprisingly, the oil & gas industry is leading the region’s move into e-commerce deployment, being extensive users of EDI and earlier adopters of internet-based technologies, particularly vertical and private exchanges.

The research team interviewed government agencies, automotive & automotive parts distributors, computer equipment vendors, local utilities, travel & tourism companies, cargo shippers, building materials manufactures and the retail chains to complete the report.

“The majority of the B2B side was through EDI mechanisms. This makes sense because EDI has been in the region for at least 15 years. [For example,] we have over 100 companies transacting using EDI [in the Kingdom alone],” comments Al Jabra.

EDI is used heavily by those organisations either playing in international markets, or local distributors of large international brands, such as car dealerships. “The automobile industry are generally very heavy users of EDI,” says Al Jabra.

E.A. Juffali & Brothers, a Saudi-based distributor for Mercedes, has been using an EDI-based solution to communicate with the manufacturer and local partners. “For over a decade we have been using digital links to automate our procurement from Mercedes,” says Jamil El-Imad, general manager, Juffali Information Systems Centre.

“All our business transactions, from warranties, to communication ordering, confirmation of ordering, shipping information and delivery dates [are] all done on a B2B level,” he adds.

According to Abdul Kadar Kamil, president & research director, Madar Research, international companies are going to increase the pressure on local partner companies to embrace B2B processes. “International companies are becoming increasingly important in driving the local B2B market… Local partners are going to have no choice. Some of the regional offices are forcing local distributors to place their order [electronically,]” comments Kamil.

Regardless of increasing volumes of electronic trade, just when the industry is going to embrace the internet as its preferred electronic trading medium remains uncertain. Most companies interviewed as part of the survey claimed that they were happy to stay with EDI, at least in the short term.

“Most companies are looking at a move from EDI, but they don’t have a fixed timeframe for the change,” says Al Jabra. “Whenever they see critical mass [or a] lower cost of transaction they will consider the change. One of the major things that would convince them [to go online] is if their competitors or some industry leaders shifted towards internet-based transactions,” he adds.

The region’s collection of online exchanges is a case in point. Most of them have struggled to gain real momentum, unless they have been given boost by either a government authority, as is the case with Tejari or powerful organisations, such as Saudi Aramco or Sabic have been able to drive suppliers to an online exchange.
“Most marketplaces have been struggling to find a workable model,” says Al Jabra.

For any marketplace in the region to be successful it needs to tap into the largely untouched small to medium enterprise (SME) market. Although SMEs make up as much as 80% of the companies registered in one Gulf country, many of them have yet to be driven to the internet. With these smaller operators online, local online exchanges stand a change of reaching some form of critical mass.

“We need to build the awareness among the [regional] SMEs, that is a key challenge facing the development of e-commerce in the region,” comments. Al Jabra.

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