First mover

Abdulla Al Zamil is investing in a B2B project in KSA. Despite the costly and unreliable Internet service in the Kingdom, he believes that the first mover advantage is essential. But will other Saudis go the same route as Al Zamil?

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By  Peter Conmy Published  August 31, 2000

Abdulla Al Zamil is investing in a B2B project in KSA. Despite the costly and unreliable Internet service in the Kingdom, he believes that the first mover advantage is essential. But will other Saudis go the same route as Al Zamil?

Since Saudi Arabian authorities flicked the switch and tuned the Kingdom onto the phenomenon of the World Wide Web in early 1999, the Internet market has been undergoing growing pains.

Although many vendors saw the enabling of the Internet in the Kingdom as the ‘opening up’ of the region’s biggest market, businesses in particular have been slow to embrace the Web.

During the last 18 months of service the majority of Saudi businesses have opted to sit out the early stages of Internet development, waiting for a compelling reason to go online.

Who could blame them — how exactly are they going to make money when they are faced with an unreliable and expensive service, low number of Internet subscribers, banks that don’t offer online payment services and persistent logistical and fulfilment issues.

KSA's Internet Infrastructure

Although price cuts by the two custodian bodies of the Kingdom’s Internet, STC and KACST (King Abdulaziz City of Science & Technology) Web surfing for KSA subscribers is still one of the most expensive in the region.

“There is a slow penetration rate of the Web at home and in offices, because of the cost,” says senior ERP analyst at the Centre for Economic & Management Systems at KFUPM, Iftikhar Nadeem.

“STC is trying to improve the service, there are lines being laid everywhere. But the cost of the [reconstruction] work is being passed on to the user.”

Khalid Al Amayreh, director of sales & marketing for Saudi ISP, NourNet added, “I dream of a day when Internet access is free, and we can sell value-added services.”

The combination of high cost and low quality of service has encouraged some businesses to seek alternatives to the local network infrastructure.

Some companies have even subscribed to satellite links, but they were recently made illegal, “and the next day all the satellite dishes came down,” said Nadeem.

The Kingdom’s bandwidth problems exist at two levels; the availability of international bandwidth and the overloaded local network infrastructure.

Looking to resolve the first of these problems KACST enhanced its bandwidth capacity through a recent agreement with FLAG, a high-speed fibre-optic link that stretches from the Middle East to New York via London.

In addition, STC is in the midst of yet another internal network upgrade, including a fibre optic ring around Riyadh.

The project involves installing a number of hubs in key locations around the capital. But for the time being infrastructure problems persist.

“The existing infrastructure is not 100% capable either from a reliability point of view or from a bandwidth point of view,” mused Ibrahim Al Moaiqel, CEO of Jeraisy.

Across the Kingdom STC “is putting a whole digital network backbone in place. This will solve the speed, traffic and bandwidth issues. We have to upgrade the international link and the national infrastructure, they are doing this… slowly,” Al Moaiqel added.

Although most ISPs are optimistic after meetings with KACST and STC, there is a strong history of broken promises and missed deadlines when it comes to the delivery of network upgrades.

“There are improvements in pockets, but it won’t be until the end of next year before we see a stable service at reasonable speed,” said KFUPM’s Nadeem.

If it is as late as the tail end of 2001 before businesses and end users receive good service, where is the compelling reason to go online and join the global e-business frenzy?

Many ISPs have built their revenue models around attracting business users and adding value services to simple Internet access. But the majority of local businesses in the region are only at the “beginning of a learning curve,” admits Khalid Al Salam, director of sales & marketing for Al Alamiah Internet & Communications Company.

“They need a lot of offline training, knowledge transfer and education… [Virtual private networks] are becoming popular to enable businesses to connect to branch offices, but Internet subscriptions are still growing very slowly,” explained Al Salam.

Competitive Pressure to go Online

With the Internet revolution yet to spark into life within the Kingdom, many are expecting large global companies within Saudi to deliver a compelling reason to get online.

Organisations such as ARAMCO and SABIC and other global players are feeling the competitive pressures of the global market and are moving to slash operational costs using the Internet.

For example, ARAMCO hosted a seminar for 300 plus suppliers, where it urged them to put together online catalogues. The latent threat being that the oil giant wouldn’t do business with them by any other means than the Web.

A few organisations are looking to move their suppliers towards the Internet, in an effort to reduce their operational expenses, but it’s not easy.

Zamil Air Conditioners (ZAC) is assessing the possibility of investing money with its local business partners in an effort to bring them up to Internet speed.

“Once we roll out our business strategy, I expect to work with our partners, even if we have to spend money,” says the company’s senior vice president, Abdulla Al Zamil.

“At this time we’re trying to draw budget just for training and implementing this strategy with our partners. Some of them are still lagging behind [and are trying to] upgrade their skills. We do a lot of training with them on air conditioning; we just have to duplicate that for the Internet business strategy,” Al Zamil explained.

Due to low technical and business awareness of the Web amongst local partners, ZAC’s current e-business efforts are focusing on automating business processes with partners in European, US and Australian markets.

ZAC finished a comprehensive Oracle ERP roll out well over a year ago and has since integrated its backend systems with its Web front end.

The Zamil Group's Web Strategy

The Zamil Group initially had plans for a B2C site that would eventually morph into a building materials portal site, but ZAC is currently concentrating on the B2B side of its Web strategy.

“Our partners from Australia, Europe and the US are already embracing [Internet] technology. Those are the three areas where our partners are ready to implement B2B. But in the Middle East, it’s more challenging,” says Al Zamil.

ZAC’s e-business steering committee has ambitious plans, hoping that by year-end it will have automated business transactions via the Web with a number of global partners.

“Immediately after Ramadan we should have the B2B connectivity with at least five [maybe] seven global partners in the back end.”

ZAC chose to jump to the Web ahead of the pack. But Saudi agency companies are being pushed down the same path by the international vendors they represent. “Agency agreements in the Kingdom are still strong,” said Nadeem. “[Big name brands] are now pushing local partners to go online.”

Facing the Reality of B2B

But early evidence suggests that although commercial pressure from abroad could force many of the local businesses online, they are struggling to grasp the notion of information sharing — a key concept in B2B e-business.

Traditionally, businesses have been reluctant to share information, particularly on pricing. But many organisations, “won’t even post pricing information,” said NourNet’s Al Amayreh. Business “catalogues go online without any pricing details,” added Al Amayreh.

Juffali Mall — — a business to consumer (B2C) site for for E. A. Juffali & Brothers, has realised that information availability is a key to e-business.

However, the IT general manager, Jamil El Imad, realises that posting of straightforward pricing information on its B2C site is just the starting point.

“In the [e-business] space you have to make the information work for [the business],” says El Imad. “It’s just not about prices, it’s about adding value to the products and services on offer. Consumers have long realised that a competitive price is not the only incentive to purchasing a product. The first item is sold on price, subsequent items are sold on service.”

A crucial part of the initial B2C project was the development of a framework, whereby e-stores can be launched in a matter of days. Stores that offer goods and services can be enabled with minimum effort, thanks to the WebSphere technology from IBM, says El Imad.

Also the front-to-back end integration enables the dynamic updating of information for available services.

But ZAC and Al Juffali for the most part stand alone within the Saudi business community: they have both treated the Internet as a cost to their business and for the time being not a profit centre.

Although the Web will enable organisations to lower operating expenses, open up new global markets, offer greater services cheaply and get closer to the customer, organisations have to make a substantial capital investment to ensure they have the right foundations to support their online venture.

“If we talk about the cost of implementation of a B2B solution, very few people could tell you at this point in time, whether there is a plausible return on investment. There are a lot of stones unturned, but we just have to embark into it for competitive value,” explained Al Zamil.

“It is a cost centre at this time. Unfortunately, this is not an area where I can give my management or my board of directors a clear return on investment like all other projects that I present to them. This is one area where I just throw it on the table and say ‘this is the amount that I need to spend and don’t ask what kind of return I’ll give you,’” said Al Zamil.

Added El Imad, “The idea behind this technological leap is not to enhance the profitability of the company, the intention is to enhance the services offered to our customers and learn [about] the feasibility of introducing this technology.”

Learning from the Challenges of e-Business

Although not generating profits for either organisation, both companies see their back end investment and the integration with a Web front end as valuable learning experiences to ready the companies for the challenges of e-business.

“It’s been quite an experience for us,” says Al Imad. “It’s one thing talking about e-business and another thing getting into the nitty-gritty of implementation.”

For ZAC, keen to exploit market opportunities on a global scale, it is vital for the organisation to reap all the operational efficiencies it can from Web enablement and open up markets around the globe.

For Al Zamil it’s quite straightforward, if the company doesn’t move today, it’s rivals will, and ZAC faces being left behind tomorrow.

“It’s going to give us a competitive advantage today but tomorrow we’ll be lagging behind if we don’t do it. I know that I’m going to get some operational efficiencies, I know I’m going to grab new markets, I know that I’m going to get a lot more information about my customers, but can I put a [dollar] value on this — unfortunately not at this point in time,” explained Al Zamil.

Aside from the business giants in Saudi’s economy, there are many organisations, which don’t see any margin on the Internet, and consequently have done very little in the way of embracing e-business.

For many organisations the last 12 months deploying some form of enterprise resource planning package to automate back office functions, rather than assessing the opportunities of the Internet.

But even with automated business systems many companies still have to make the leap into the Cyber age. Key to this will be the promised improvements in quality of service and further price cuts will drive those 60,000 small businesses in Saudi on to the Web.

“Only when organisations see the money will they go on the Web,” predicts Nadeem. “The Internet challenges the local business culture, but the margins aren’t very much. It needs a big incentive to go online, it needs to be worth the change.”

Added Al Zamil, “Larger organisations are willing to pay the cost if it means getting into the global arena. But smaller companies will only follow if it’s cost effective.

"[They] will follow if the telecommunications infrastructure becomes competitive, otherwise it will take them out of business,” added Al Zamil.

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