Servicing Growth

The Middle East has been slow to take on board the services message, but now it is catching up and learning lessons from other's mistakes. The channel needs to get a slice of the action.

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By  Guy Mathew Published  April 15, 2002

Introduction |~||~||~|The question that a lot of IT hardware vendors have been asking themselves over recent years is how to boost their margins in the face of ever-tougher competition. There are a number of answers, one of them being to develop service arms. However, it is not just IT vendors that regard the services space as a pot of gold. Accountants, pure-bred systems integrators and even telcos have seen that businesses, globally and regionally, are willing to pay to have outside experts come in to help them maximise their investments in IT and even go so far as offer them business roadmaps in the case of business consultants like Accenture, PricewaterhouseCoopers (PwC).

Why would businesses go to the expense (and it can be very expensive) of bringing in consultants to help them? Some might say that it indicates a management team that does not believe in its own abilities. But a good team should know when it can rely on its own skills and be able to recognise the areas in which it has a shortfall. IT is certainly not the core competency of many non-technical companies. Given that this market exists and is growing, the channel needs to be involved and gain revenue from a phenomenon that is likely to continue, especially in the software sector. The issues though, are complicated and there is a lot of adaptation and skills development required before local players can step up to the plate.

The two biggest players in the game are EDS and IBM Global Services (IGS). Both offer a broader range of services than the competition. There are also the 'big five' accountants. Their business consultancy arms tend to dominate the services market in the US and Europe but they have not managed to get to a dominant position in the Middle East for a number of reasons. Then there are what might be called the tier-two players, companies that are not global players but have expertise in certain areas of the services market and have carved themselves a niche.

In order to separate some of the issues that affect certain areas of the market it is necessary to define the categories that services can be divided into. IDC lists them as: implementation, support, training, consultancy and operations. Different companies focus on different areas, but as Sanjeet Dabral, regional manager for IDC, points out: "Each of the five divisions is growing. Basically it is a natural evolution of the large IT spend that there has been over the past few years. Because people have a lot of expensive hardware and infrastructure although there are budgets out there, people are looking to optimise their existing systems."

Although there is space to specialise, EDS and IGS aim to cover the whole gamut of services from auditing and consultation through training and implementation to management and support services. IGS divides into four sections: consulting and systems integration, strategic outsourcing, infrastructure services and e-learning and training. Big Blue sees a lot of further potential in the Middle East. Musa Barkett, head of IGS for Middle East, Egypt and Pakistan, explains that the company sees the region as an emerging market with a compound annual growth rate (CAGR) in the region of 18% in services. But despite the comprehensive list of services IBM offers, he admits that they still need partnerships to deliver the best solution. "We don't have solutions for every corporation so we are aggressive in finding the best of breed solutions. We can partner with competitors because we are looking at the benefit to the customer. We are skilled at ensuring customers needs are met."


EDS has a similar policy of finding the best solution regardless of rivalries or alliances on other projects. "Customers are looking for the best solution, not just products," explains Mohammed Yassin, regional director of sales and marketing for EDS. "One of the major selling points we have is that we are vendor independent. We are probably the only company that has used every product there is in the IT space in projects across the world."

When it comes to doing a full scale implementation solution providers have a major role to play, according to Yassin: "What we like to do is handle the core application and do the project management and bring in experts in their field when it makes sense."

UAE country manager for EDS, Lorcan Malone, concurs: "We do use local companies and we will continue to use local companies. Say we had to implement a network; it makes sense to use a local company that has done it 20 times before here. But the key thing for the end customer is that EDS carries all the responsibility so they have a one-stop shop."

However, the issue that services companies have to deal with is making sure that they pick the right partners. As Yassin points out, it is their reputation that is at stake if a smaller partner proves unable to live up to its claims. Compaq Global Services (CGS) has a tightly defined structure for accrediting partners so they can only work on certain projects that fit very closely with their profile. Alaa Ashimy, manager of CGS, Gulf and Levant, explains that Compaq audits partners skills, infrastructure quality, inventories for support contracts, how they market themselves, what sector of the market they are in and what their market strategy is. All these factors can play a part in whether they will be considered for partnerships and will vary with the client concerned.

Ashimy points out that if channel players have got the skills, "they will be like the delivery arm of CGS and it becomes a win/win situation all round." It is a point that Yassin agrees on. "Our key selection criterion for local partners is not really the price they give but the quality and references they have. But also they are learning from us; things like quality control, management, our methodologies, so it adds value both ways because one of our aims here is to transfer knowledge to the local market."

Global business consultancies do not have a grip on the market in the Middle East for a number of reasons. Partly because the region is still developing and taking on board business practices from the West, but also because up until recently there was resistance to services. People who know the market cited the cost as a major factor. "I have offered to bring to the Middle East consultants who have a lot of experience, for example on SAP implementations but when it is offered it is seen as a luxury that clients don't really want. I have spoken to colleagues who have a lot of experience with large scale ERPs and they have found this is the case, but I think the truth is that clients don't want to pay the kind of fees that these guys can command in the UK or America. But it is difficult to persuade someone to lead a project for half the price of the job they're already in." says Stephan Dando, owner of MCS, a consultancy company.

However Alshimy believes that attitude has gone from the market now. "Enterprises are very well educated today, the market has already matured. The only area we see resistance now is internal from IT managers opposed to outsourcing but outsourcing is now a clearly defined part of some companies strategies in vertical sectors like petro-chemicals."

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The growth of the market can be seen in the presence of companies like Satyam in the region. The Indian services company has done more than 50 ERP implementations in the region but gains 70% of its revenue from the US market. The company changed from being a software development specialist in 1995, to developing a full range of services to provide end-to-end solutions. Just as with the other players, it can offer the channel opportunities. "For a lot of projects people want a turnkey solution and we are not a hardware supplier and we don't sell licenses so we work around with channel partners. But we will bring in the hardware. We'll tell them [clients] we think this should be the sizing of the server, this much memory, this much processing power, this should be the kind of network and this should be the design. So we work very closely with them [channel partners] a lot of the time because hardware is not our core business," says Ajith Menon, director of operations, Satyam Middle East.

There are some caveats to the growth of services in the region. A recent IDC report suggested that as much as 20% of all IT spending is wasted because projects are misguided or do not achieve their objectives. That is a shocking statistic but one many people in the Middle East would not find hard to believe. As Dando says: "There is a big difference between simply installing software and implementing it, which is what a good consultant should do, and companies need to consider carefully whether or not people have the capabilities they say they do because it is possibly not always the case."

There are some aspects of the services market that are commonplace in other parts of the world that have not been so successful in the Middle East. The ASP model is a prime example of this. Yassin puts it down to the need to "buy something and see it in the next room". But he adds that this attitude will change with time and education.

However, it does beg the question: how successful are hosting centres going to be in the short term? With the trend towards IT on demand, they are major planks of the strategies of big players and their operations services. Barkett of IGS has no doubts: "Our partnership with DIC is a cornerstone of our presence here. It will make us entrenched in the geography."

Hosting centres tie in with the stated aim of both IBM and Compaq to make IT a utility. The concept is to help businesses avoid the high up front costs buying and managing an IT infrastructure sufficient for their future needs when the money would be helpful to their cash flow in the short term. The benefit to IT services vendors comes from the economies of scale they can leverage by having a few sites that can host a large number of customers. It also adds flexibility because those customers do not even have to be on one platform. The IBM-DIC hosting centre uses Cisco networking hardware and there are also Sun servers installed. With product neutrality an important selling point, multi-vendor platforms should not be an obstacle. Compaq's Ashimy is slightly more skeptical about other hosting ventures like Etisalat's in the UAE: "It will eventually be successful, but not as quickly as people expect. There are still fears about security and the ASP model-that level of market maturity will take time."

What all the players believe is that the growth trend is likely to continue for some time yet. As competition increases it will become cheaper for companies, large and small, to utilise services and channel companies that gain a strong position in the market will be those that can use the presence of global players to their advantage by learning from them, but Dando highlights just how far there is to go: "There are more than 150 SAP implementations in Poland, which is more than the Middle East as a whole. But that for me is an encouraging sign because it means there are still opportunities here." ||**||

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