UAE services market shows rapid growth

The UAE’s IT services market was worth US$234.3 million in 2002, according to IDC. Furthermore, the sector is slated to grow rapidly over the next five years with an annual compound growth rate (CAGR) of 11.7%.

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By  Matthew Southwell Published  August 20, 2003

|~||~||~|The UAE’s IT services market was worth US$234.3 million in 2002, according to IDC. Furthermore, the sector is slated to grow rapidly over the next five years with an annual compound growth rate (CAGR) of 11.7%, which will result in a total market value of US$408.1 million by 2007.

Deployment & support services, along with system integration, accounted for most of last year’s spending on IT services. “The majority of spending is still on standard hardware, software deploy and support services, as well as systems integration,” confirms Torben Pedersen, senior analyst, IDC Middle East & North Africa.

“Those three categories account for more than half of IT services spending, so the market is still very much driven by big projects where it is basic infrastructure deployment. There were a number of those projects last year, for example the ports in Abu Dhabi,” he explains.

The pre-eminence of these core services is reflected in IDC’s vendor rankings, as the top five IT service companies in the UAE all deliver deployment & support services and system integration. “In no particular order, Emirates Computers, MDS, HP, CNS and GBM were the top five vendors in 2002. Furthermore, the top ten vendors account for about 60% of spending,” says Pedersen.

“These larger players are the ones that take all of the large contracts because they are able to provide all the main technologies and all the main services for it. For instance, Emirates Computers will provide the hardware, while Hyperlink will deliver the customer application development or an existing package, such as Oracle,” he continues.

Despite the dominance of core IT services, value added ones such as IT training & education and outsourcing showed the most growth during 2002. In fact, the latter boasted double-digit growth, which enabled it to account for 5% of the UAE’s service revenues last year.

“Rising dependence on IT for business continuity, combined with investments in relatively advanced IT products, has created a higher incentive among local firms for using external providers to secure smooth running of production processes and to reduce downtime on mission-critical parts of their IT solutions,” says Pedersen.

“As a result of higher demand, outsourcing providers are aggressively looking at ways to gain footage in the large account segment that traditionally has relied on inhouse IT departments,” he adds.

The growth of local outsourcing players, such as ASPGulf and Comtrust, supports IDC’s research. For example, the former claims that its client base has grown from just ten customers a year ago to an impressive 138 today, while the latter boasts growth rates of approximately 60%.

“There are plenty of growth opportunities throughout the region… and outsourcing is one of the few areas in IT that is growing,” says Farooq Hasan, marketing manager at Comtrust.

According to Pedersen, refinements to their go-to-market strategies has helped local outsourcing companies grow their business, as they now take into account the region’s prevailing attitudes towards handing over their data to third parties.

“What we have seen is that the service providers have tried to beat the fear of outsourcing by offering an out tasking solution instead, whereby the vendors have a team sitting on site with the customers. This was something new for 2002 and we have seen quite a bit of uptake in it since,” he says.

Moving forward, IDC suggest that those service areas that are currently growing will continue to do so. In addition, application consulting will also become more popular as local enterprise resource planning (ERP) implementations mature and end users look to deploy extended ERP modules.

“Application consulting is also growing and we see not just spending on basic ERP [services,] but more on extended applications such as business intelligence, CRM and HR,” says Pedersen. ||**||

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