Letter of intent

Rapid globalisation has highlighted the fragmented nature of the region's IT market and the fact that it lacks the size and momentum to play on the global playing field. In an attempt to change the situation, some of the industry's big hitters have signed a pledged that forms the basis of a pan-Arab IT alliance.

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By  Greg Wilson Published  November 24, 2003

IT sector lacks clout|~||~||~|A month ago, the state of New Jersey in the US was toasting the implementation of the EduWave e-learning platform within a number of its schools. Speaking at the reception, the local education commissioner introduced Integrated Technology Group (ITG), the Jordanian independent software vendor (ISV) that developed the solution, as “a big company, from a very small country in the Middle East.”

For the company’s CEO and president, Walid Tahabsem, the preface typified the challenges facing Middle East information technology providers.
“The region’s IT market lacks both size and momentum,” he says. “[The industry] is made up of a collection of smaller companies. As long as it remains this way, we are going to struggle to get recognition, exposure in new markets and form partnerships outside our borders.”

As rapid globalisation makes the region’s fragmented nature all the more apparent, five IT associations, representing approximately 600 companies from around the region, came together at Gitex Dubai to sign a letter of intent to form a pan-Arab IT alliance.
The proposed alliance hopes to provide a unified front to governments, investors and vendors. The organisation proposes to campaign at a regional level on a wide range of issues, from the protection of intelligential property rights (IPR), to greater regional partnership, movement of labour and free trade.

“We have signed a letter of intent to form an alliance of Arab IT associations that is capable of lobbying on issues, helping move regulation forward and enabling members to network and form partnerships,” said Marwan Juma, chairman of Jordan’s Information Technology Association (INTAJ), one of the founding members of the group, during a Gitex press conference.

Since the initial announcement on October 22, the signatories of the letter have returned to their respective organisations to ratify the decision. With that complete, the work to establish a constitutional structure, create a mission statement and outline the organisation’s objectives has begun.

A firm policy agenda for the alliance is likely to emerge from the group’s next meeting, which is scheduled for December at the World Summit of Information Society (WSIS).
“All the parties agree that there is a need for this alliance,” says Ra’ed Bilbessi, CEO, INTAJ. “The real challenge here is to create an effective body, not another talking shop. The organisation should act as a joint voice to attract interest to the region and promote the benefits of the region,” he adds.

The letter of intent and the issuing of an open invitation to other regional IT associations to join the pan-Arab IT alliance is a call to arms for local solution providers. By partnering and increasing regional trade, the local IT associations hope to increase the size and influence of Middle East IT firms.

The proposed alliance has been quick to test its collective bargaining power by requesting a consolidated Arab Pavilion “at the heart” of Gitex from the show’s organisers, Dubai World Trade Centre (DWTC). At the time of going to press, it is unknown whether the request will make any headway.||**||Alliance faces hurdles|~||~||~|
Undoubtedly, any regional IT alliance will face a succession of hurdles — just about everything from its actual organisational makeup to its policy initiatives could potentially sink the pan-Arab association before it sets sail.

But the simple fact that such an initiative has even emerged reflects the realisation that local IT service providers are confronted with a number of significant challenges, probably the least of which is what hall they are in at Gitex.

A number of factors have conspired to push the formation of a regional IT organisation onto the agenda. Foremost among these is the heightened focus on greater regional collaboration and trade caused by local political turmoil and a global slowdown in IT spending. Previously, developers in Jordan and Egypt had focused their efforts on other markets, primarily the US or Europe.

“The slowdown of international markets has caused local developers to investigate local markets for growth,” says Sayed Ismail, chairman of the Egyptian Software & Hi-Tec Chamber, Federation of Egyptian Industries. “The local recession has intensified the need for local solution providers to get bigger and better to increase their local reach,” he adds.

The switch in focus from international to regional has fuelled calls for greater inter-regional trade. Historically, trade within the region has been almost non-existent, amounting to between 7% and 8% of total exports. “This is pitiful. [A region] has to go out of [its] way to trade that little with its partners,” comments, Ennis Rimawi, chairman & president of Jordanian independent software vendor (ISV), Estarta Solutions.

Greater inter-regional trade means smashing the protectionist thinking that is entrenched in many local businesses and governments. Local economies in the region have, until relatively recently, been import based, due largely to the absence of an advanced manufacturing base.

Consequently, exclusivity agreements and monopolistic thinking have characterised the market. Only as local economies have diversified and competition been introduced has this trend started to be reversed. However, oil-rich markets, such as Saudi Arabia and Kuwait, still demonstrate a propensity towards protectionist thinking.

“Many country economies in the region have had closed doors, imposing high tariffs on imported goods from around the region,” says Ali Shamseddine, chairman of Lebanese ISV, Astrolabe and vice president of the Lebanese Software Association. “Greater free trade will increase the size of the market for all parties. Free trade will encourage the export of high yield software and services within the region,” he adds.

Supporters of free trade point to the European Union as a working example of economic unification and the benefits it can deliver. “Without a free market we are missing one of the basic pillars of the economy. A free market will increase the volume of inter-regional trade,” comments Fahad Al Sharekh, managing director, Sakhr Software.||**||Changing mindset|~||~||~|
Despite economic arguments for free trade, progress towards such a goal has been slow. However, last year’s formation of the GCC customs union has gone some way to improving the situation.

“It has eased the bureaucratic issues relating to the movement of goods,” says Jyoti Lalchandani, senior consultant software & services, regional manager, IDC Middle East. “But we don’t see how this [will] foster business relationships, because despite [being] one region, it has many different countries and [each] is very different,” he adds.

Arguably, more fundamental than rewriting local customs legislation is a transformation of the local business mindset. As Marwan Juma, puts it, “we have to change the strictly local mindset and get [companies] to look at the bigger picture. Companies have to start acting, and thinking, regionally.”

However, it is one thing to ‘think regional,’ but it is another to be able to execute on it. Few local IT providers have built sufficient critical mass to extend their operations beyond their immediate geographical border. For most, partnerships or even consolidation through merger is the only way local companies will create the necessary mass and evolve into technology powerhouses.

“Each company [acting as an island] doesn’t have the resources on its own that it takes to compete and become a 10,000 person IT powerhouse,” says Rimawi.
“For companies in [the Middle East] to compete with the big global players, [they] have to start thinking regional. Meaning that we have to start leveraging the infrastructure in Dubai, and the human resources in Jordan, Egypt or Syria… to create regional companies capable of competing globally,” he adds.

So far, international vendors have probably done the most to facilitate a regional IT industry. For the last two years, the likes of Microsoft, IBM and Oracle have encouraged local channel partners to specialise in certain skill sets and help develop vertical industry expertise. The overarching objective is to create a number of solution specialists capable of covering the entire region.

However, prior to the channel initiatives from the region’s largest vendors, there had been little or no mechanism for ‘networking’ between partner companies across the region.

“If you look at the local market there traditionally hasn’t been a strong role played [in unifying the different markets] by either the IT vendors or IT associations,” says IDC’s Lalchandani. “However, the presence of these organisations is growing,” he adds.
The plan to create some form of pan-Arab IT alliance is a bold attempt to rectify the lack of ‘regional thinking’ among local companies. But the initiative is facing its fair share of challenges — not least among them marrying the often-disparate interests of different groups. ||**||Group objectives|~||~||~|
Initially, at least the objectives of the alliance will be fairly narrow, simply focusing on the establishment of the group, its mission statement and other core objectives, says Bilbessi.

However, hopefully it can at least bring one element to the table — leadership. With local governments focusing their ITC strategies on local issues, such as legislation, privatisation or even basic infrastructure, the formation of some form of pan-Arab governmental IT committee is unlikely. In theory, however, the more dynamic private sector driven model would be able to respond to changing market conditions, lobby governments for ‘favourable’ legislation and bring together the public and private sector interests.

“A pan-Arab [IT association] is something that has to be driven by the private sector,” suggests Dr Fawaz Zu’bi, Minister, Ministry of Information & Communications Technology, Jordan.
“[The private sector] is better able to pursue this objective. They are more creative and aggressive and are likely to get better results. Our [the government] role is to encourage such initiatives. It is a natural step to build on the synergies between countries,” he adds.
The extent to which an Arab IT alliance is able to nurture public/private sector collaboration could determine how successful the alliance turns out to be. Some of the most successful IT associations around the globe have worked very closely with the government.

“Public/private sector collaboration is key to establishing this body, and its overall effectiveness. There has to be close collaboration with government if this to be an effective lobby group,” says Bilbessi.
Tahabsem adds that any IT alliance must “take the message to government about the local market. Government often looks to international vendors for solutions, without even looking at what the local market has to offer.”

There are a number of successful models that can be followed. For instance, India has used its network of IT associations — the most successful ones have been co-sponsored by the government — to build a multi-billion dollar IT industry. “IT associations have traditionally supported the growth of smaller development countries, [such as] India and Pakistan,” says Lalchandani.

“Once there is an independent organisation focused on the Arab world, promoting and fostering relationships with governments and so on, I think you will start to see growing demand for locally developed software solutions,” he predicts.

Arguably, the missing piece of the puzzle is the absence of active IT associations within the Gulf region. Whereas a number of associations within Egypt, Lebanon and Jordan’s INTAJ have been increasingly active over the last two years, the Gulf States are largely devoid of similar, private sector driven organisations. Even where they do exist the strict political environment of some Gulf countries has limited their influence. ||**||Across the region|~||~||~|
Consequently, leadership of any pan-Arab IT association is likely to emerge from the region’s software development centres, such as Lebanon, Egypt or Jordan. But within the framework of the Arab IT alliance it has to be local businesses that take up the challenge.
“[IT associations] play a key support role, but ultimately you need business leaders that are just going to make it happen, that are brave enough to just do it,” says Rimawi.

The influence exerted of any pan-Arab IT alliance in a particular country will vary according to the number of member companies in each particular country and the nature of the public/private sector partnership. That said, some of its grander objectives, such as working towards movement of labour and reduction of import/export, are likely to remain out of reach until the region as a whole makes greater steps towards economic unification.

Other targets, in particular protection of IPR and greater networking and partnership opportunities, appear to be far more obtainable. According to ITG’s Walid Tahabsem, the networking opportunities offered by the Arab IT alliance should be almost immediate.
“Partnership is vital opening up new markets and increasing the recognition of local IT providers,” he says.

However, with a policy manifesto for the IT alliance unlikely to appear before the end of year, it will be interesting to see whether the group implements mechanisms to measure itself and its members. Success stories and an active, visible track record could prove vital in establishing the alliance group throughout the region.

“At the end of the day, people [companies] aren’t very bold in the region,” says Rimawi. “Once there are clear, visible success stories then more companies in the region will move and emulate them,” he adds.

Greater transparency and the sharing of business experience and practices could also be another issue that the group takes an early lead on. For instance, INTAJ has built up considerable experience in public/private sector collaboration, which could benefit associations in other parts of the Gulf.

The sharing of best business practices could also extend to group certification and qualification. For instance, 600 companies campaigning for funds to become CMM certified makes a more powerful story to donor organisations.

“The alliance could help us in raising funds… It will show a greater degree of professionalism and add to the region’s credibility as a [IT service provider,]” says Bilbessi. “We will be able to present ourselves as a regional organisation, and there is a lot of value the whole region can get from that,” he adds.

With much of the proposed regional IT alliance still on the drawing board, many companies and associations are bound to adopt a wait and see attitude to the group. However, despite the market sceptics, some are convinced that the proposed institution can have some impact.

“If you don’t believe that an IT association can work just look at INTAJ’s impact in Jordan. Before it was created the local industry was disorganised, but when INTAJ was up and running the industry had a strong voice and was even able to change some laws to the benefit of the industry,” says Tahabsem.

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