Please release ME

With much gusto and a flood of publicity, Intel recently launched its new Centrino wireless technology range simultaneously across the world, including here in the Middle East. Andrew Picken investigates whether the region is no longer the poor relation of the IT industry and now has equal prominence with the rest of the world.

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By  Andrew Picken Published  April 28, 2003

Introduction|~||~||~|OVER THE last decade, the Middle East IT market has witnessed phenomenal growth coupled with greater local investment from multinational manufacturers. The region has grown in stature and importance within the IT world and a drive past Dubai’s internetCity reads like a who’s who of the IT world, paying testament to what has been achieved in the last ten years.

Much of the credit for the rapidly evolving Middle East IT industry must go to prominent government figures in the Arab world like Crown Prince Abdullah of Saudi Arabia, Dubai’s HH Sheikh Mohammed bin Rashid Al Maktoum and King Abdullah of Jordan.

They created a catalyst for change when they identified a need to attract multinationals, and more specifically IT talent, into the region in order to stimulate growth within the IT industry. By creating the right trading conditions, principally through tax incentives and liberal recruitment laws, it has been made possible for the industry to grow with great vigour.

Additionally, the Middle East now has a strong developer community with a bourgeoning IT training market. This is recognition that home grown talent also needs to be reared in order to secure the future of the region’s IT industry. The annual Gulf Information Technology Exhibition’s (GITEX) held in Dubai, Egypt and Saudi Arabia has allowed the Middle East corporate sector access to the latest technology on offer.

Haider Salloum, marketing manager for Microsoft South Gulf, recognises these achievements, extolling the virtues of the Middle East governments. He says: “the recent focus on the Middle East reflects the visionary outlook from the governments and leaders in their mission to bring e-government tools and projects to the region.”
Speaking at the Middle East launch of Centrino, Gilbert Lacroix, general manager for Intel Middle East and North Africa stated: “we are very proud to be able to bring this latest wireless technology to the Arab world at the same time as the rest of the world.”

The comment was more than mere politeness from a Frenchman resident in another country. Lacroix opened Intel’s office in Dubai nine years ago and he is all too aware that a launch like this previously would have been staggered regionally, with the Middle East lagging months behind other markets.

“Intel was one of the first to challenge the multinationals to do business in the Middle East,” he insists. “When I arrived it took roughly six months longer to get products launched in the Middle East than elsewhere in the world.”

Although things have changed, there is certainly merit to the argument that the major players in IT previously overlooked the Middle East, drip-feeding the market with technological hand me-downs from the western world.

Lacroix took matters into his own hands by ensuring that local distributors had access to the latest Intel processors in good time to assemble their own products. As a result, multinational manufacturers who delayed launching kit into the region faced losing business, thus encouraging them to deliver products faster.

While a company such as Intel can obviously exert considerable influence changing other vendors’ minds was not an overnight process. Leon Beuyukian, CEO of pan Arab vendor CompuME, claims that this casual attitude endured for a long time and only now are things beginning to change.

“The IT manufacturers were not very focused on the Gulf” he says, adding that at the retail level the Middle East is still being bypassed. “On many occasions the Middle East and the Gulf region is left out from new product ranges, but this has been changing, particularly since Dubai became the hub for Middle Eastern business, strengthened by the establishment of the Dubai internetCity” says Beuyukian who insists that the future of the Middle East market looks very bright.

||**||Commitment to the region|~||~||~|The fastest uptake of new IT innovations in the region has been in the commercial sector. Hani Harik, president of Emirates Computers, says there really aren’t too many grounds for complaints regarding product releases any more, pointing out: “the time gap between product availability in the US and in the Middle East is measured in weeks at most, and in days in some cases.”

Haider Salloum added his voice to the argument that the Middle East has achieved parity with other key IT markets like Europe. However, Salloum did indicate that the Microsoft Office 2003 launch (provisionally scheduled for the end of 2003) will not occur in the Middle East at the same time as the rest of the world, but added it will be “as close as is practical to the global launch date.”

Salloum stressed Microsoft’s commitment to the Middle East, insisting: “for Microsoft, the Middle East is one of the fastest growing subs worldwide and has long been an area for focus and development. The Middle East office opened in 1991, and in the twelve years of operating in the region, now has offices in 11 countries across the region.”

Gigliola Graziani, category and product manager for HP Middle East’s Personal Systems Group, refutes claims that the Middle East has been previously overlooked and claims that HP is one of several key multinational manufacturers strongly committed to the region. She highlighted that on the consumer notebooks side, HP offers the complete Presario range and further revealed that HP also intends to release the Pavilion series into the Middle East market.

Of course, there are reasons why major vendors previously overlooked the Middle East as a market. For a start, there’s market size. For most vendors the entire region will represent a fraction of their overall business, considerably behind the US, European or Asian markets.

For instance, customers in the Middle East buy a fraction of the millions of PCs sold in mature markets like the US or Europe. Egypt and the UAE are pegged at 135,000 PC’s sold per year while Saudi Arabia sells 240,000 PC’s a year. Unsurprising then that in the dot com boom market a few years ago, vendors paid less attention to the market here.

Of course, for most of the big multinationals now, the days when double digit growth was taken for granted quarter after quarter have largely gone and perhaps unsurprisingly many are looking at a market which still has enormous potential for growth with a fresh perspective.

||**||Attractive prospect |~||~||~|As Graziani claims, “the Middle East market is highly visible, both on an EMEA and a worldwide level,” pointing out that Middle East consumers have a number of characteristics that make the market attractive for manufacturers.

Young, technology savvy consumers are a key construct of what makes the Middle East market so exciting insists Graziani: “consumers are well-informed and updated on the latest IT offerings, and they tend to be very abreast of technological developments.” She further added: “looking at the larger market places in the region, such as Saudi Arabia and the UAE, the tendency is more towards early adopters in technology.”

Gilbert Lacroix at Intel echoes these sentiments. He points out: “the UAE Higher Colleges of Technology has been working with wireless technology for nearly two years” and, in conjunction with Intel, they intend to rollout a wireless infrastructure in all 11 of its campuses. Lacroix is at pains to highlight the attractiveness of the Middle East market for Intel and others looking to invest in the Middle East. “We have over 300 million people who share a common language and culture, this creates great economies of scale, you can see the attraction for people” he says.

Small to medium sized enterprises dominate the business landscape of the Arab world and this presents great opportunities for the IT industry. Lacroix points to the ‘trader’ rather than ‘industrialist’ business culture that permeates throughout the Middle East, a trait that makes the market both competitive and fast moving. The technology hungry Middle East market can yield healthy profits for manufacturers and this has encouraged a plethora of high-end specification technology to hit the market.

||**||Consumer spending|~||~||~|However, as the Middle East market matures there is a danger that it will fragment into those who can keep up with the pace, and price, of technological change and those who can’t stomach the premium priced products. Graziani feels that consumer’s needs across the market are indeed divergent, with price and functionality the two overriding purchasing factors. To illustrate her point, she compares consumers in Egypt with those in the wealthier parts of the region.
“The purchasing power of the average consumer in Egypt is lower than that of Gulf Cooperation Council nations, consumers tend to be more price conscious and would sacrifice technological advancement in product offerings in order to achieve the required price” says Graziani.

An issue that Beuyukian picks up on, “the disparity between the rich and poor is extremely wide. Hence those people that can afford it adapt to technology rapidly, however the needy have different priorities.” The lack of purchasing parity across the region does appear to be widening. Despite this the IT market is still extremely buoyant, with IDC reports showing the region’s IT market has grown by a staggering 30% against a worldwide slump.

||**||Local Manufacturers |~||~||~|The role of locally assembled IT products is another important factor in the industry. Despite the marketing dominance of the top five PC manufacturers, the assembly market actually remains quite diverse with 45% of the 31.4 million PCs sold across the world in 2002 manufactured by “others” e.g. those out with the top five manufacturers.

This trend is accentuated in the Middle East with locally assembled PCs commanding more than 50% of the market. The success of the local manufacturers, aided by partisan government incentives, has made Western-based manufacturers sit up and take notice.

Intel has developed close ties with PC assemblers all across the Middle East with 50% of its income in this region coming from these relationships. “Over the past decade Intel has nurtured relationships with local assemblers through a number of technical and marketing programmes” says Lacroix, who feels Intel is in a strong position to fuel the Middle East’s IT growth.

Haider Salloum outlined Microsoft’s strong relationship with organisations across the whole gulf. He indicated a genuine willingness on the part of local companies to explore the benefits the latest software can bring them.

He points out: “we are working with a number of companies on the upcoming Windows Server 2003 launch who undertook early adopter schemes months ago when they realised the benefits the new software could bring to their business.”

Any previous irreverence paid towards the Middle East market by the major IT players does appear to be well and truly over, particularly in light of the recent announcement by HP that it is to build a PC assembly plant in Saudi Arabia. The factory will be run for HP by a consortium of local partners and will produce mid-range PCs aimed at competing with locally assembled white boxes. It is estimated that the factory will produce around 60,000 units per year and will also export to other countries in the region that have trade agreements with Saudi Arabia.

Speaking at the time of the announcement, Antoine Maury, general manger of HP PSG CEEME&A, said: “this represents a huge endorsement for the PC market in the Middle East, we see enormous potential for growth in the PC market in the region, and the new facility will compliment our existing portfolio of products.”

The move does underline the company’s longer term commitment to the market and HP’s confidence in the region is typified by Graziani comments: “ I believe the Middle East is increasingly considered a ‘star’ in the fastest growing markets.”

There are a number of reasons why consumers should be excited by HP’s move, which is hoped will attract other Western-based manufacturers. Products manufactured in other markets around the world, such as Japan and the US, tend to be released in these markets before they are launched elsewhere in the world. The Middle East market would benefit from a similar release trend if more manufacturing bases are established in the region and this would further stimulate interest and growth in the industry. The increased competition will also drive down prices for Middle Eastern customers.

||**||Key role of the internet|~||~||~|The internet will play a crucial role in the future of the Middle East IT industry. At present, internet penetration in the region is low with Nielsen Net-Ratings research figures revealing only 2.9% of the total Middle East population using the Internet, compared to 59% of the US population. Much of this can be attributed to the low PC penetration in the region. Despite this, most of the major manufacturers are confident that the industry will go from strength to strength.

Another key obstacle in the way of increased internet usage is a lack of Arabic content, a point that Lacroix is keen to stress. He says: “what drives PC usage, the internet. Whether it is at work with e-procurement and e-government or at home with e-banking.”

Among the leading Arabic IT solution providers is Sakhr Software. Founded in 1982 as a division of Al-Alamiah Group, Sakhr Software has developed cutting-edge technologies that are now prevalent throughout the Arabic IT industry. Sahkr Software is now reaping the benefits of forging ahead with a new generation of Arabic Natural Language Processing (NLP) technologies at a time when international software developers were reluctant to sponsor any serious research into difficult native language’s such as Arabic. One of its more significant developments is the translation engine that it built for the popular Arabic translation site, ajeeb.com.

Sakhr Software works closely with Intel and Lacroix predicts a big future for Arabic content provision: “If you can’t provide rich local content, you will not increase internet usage.” He goes onto compare the Middle East region with his native France, where despite having a population in excess of 60 million, internet usage is among the lowest in Europe.

The French were slow to pick up on the internet and a lack of French content initially stifled interest. However in the last 2 years a significant amount of local web content has become available and according to Nielson Net-Ratings research, usage has grown 88% in the same period.

Multi-lingual support is another crucial factor for the Middle East and the majority of manufacturers have made great strides in this area over the past few years. 50% of all Arabic testing and development for Microsoft is carried out in the Middle East, with its main team based in Dubai and satellite teams working in countries such as Egypt and Saudi Arabia. The launch of MSN Arabia also allowed customised regional content.

With Arabic spoken in more than 30 countries, the Middle East has an obvious appeal but Leon Beuyukian offers a word of caution, insisting the market has a number of inefficiencies that still need to be ironed out.

He warns: “although the market has one language, it’s quite difficult to operate in, due to legal and inefficient government regulations.” He further adds: “business inefficiencies more than offset the application of taxes.” A point that further highlights the differences in governmental and business efficiency between the Middle East countries.

Beuyukian says that progress is being made and singles out the UAE for praise, “there is no doubt Dubai is the jewel of the Middle East and the government is doing all it can to eliminate these inefficiencies.”

So as everyone in the industry heads home from the GITEX Saudi Arabia laden with new ideas and the latest gadgets, maybe things are looking quite good for the IT market in the Middle East.
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