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Key moments shape the fate of every market and none more so than when SAP AG's customer solutions operations chief Ernie Gunst strolled into a Dubai press conference last week to deliver the news that many in the channel have anticipated for a long time, but few wondered would ever happen.

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By  Andrew Seymour Published  September 16, 2007

Key moments shape the fate of every market and none more so than when SAP AG's customer solutions operations chief Ernie Gunst strolled into a Dubai press conference last week to deliver the news that many in the channel have anticipated for a long time, but few wondered would ever happen.

In confirming that the Germany-based behemoth is no longer shackled by an exclusivity agreement with its long-term Middle East partner SAP Arabia, the vendor has got the whole enterprise software market talking about a move that has strong implications for the regional channel.

SAP's longstanding alliance with SAP Arabia has always stood out as one of the more high-profile examples of the exclusivity arrangements that have become a standard feature of the Middle East IT landscape down the years. Many of these deals were inked at a time when the region's technology market was less accommodating and accessible than it is now, hence the number of vendors that have subsequently canned such agreements at the earliest possible opportunity.

SAP AG, somewhat predictably, has chosen not to disclose the price it paid for breaking the contract, but given the circumstances it's not unreasonable to assume that SAP Arabia would have walked away from the negotiating table much the happier of the two parties. That said, whatever price it has paid, SAP clearly felt it was worth the investment to strengthen its prospects in the Middle East. Let's not forget that Henning Kagermann, SAP's CEO, has previously described the company's business in the region as "not perfect" and admitted the firm is only partially in control of proceedings.

Under the terms of the deal reached last week, SAP picks up all existing software licences, maintenance customer contracts and trademarks from SAP Arabia, which is subsequently given ‘strategic partner' status instead and becomes just another member of the vendor's Partner Edge programme.

Most significantly, however, the move finally paves the way for SAP to begin engaging directly with resellers and ISVs in the region, a task that had previously been the responsibility of SAP Arabia. In that sense, the level of engagement is already there, but the crucial point here is that SAP is now free to handle these processes itself.

Multinational organisations such as SAP need absolute control over their global subsidiaries to ensure worldwide programmes and policies are implemented at a local level the way they envisage. With the previous arrangement nullified, the vendor will be free to develop a Middle East strategy exactly the way it wants.

SAP has already revealed that one of the first things it will do is establish subsidiaries in the UAE and Saudi Arabia, illustrating its intent to get straight on with the job at hand and ensure it has staff immediately available in the region. Of course, it's not as though it has lost ground to make up. Along with Oracle, the company's venture with SAP Arabia has seen it become a high flier in the MENA enterprise applications software market, ahead of rivals such as Sage, Microsoft Dynamics and 3i Infotech.

However, SAP AG has worked tirelessly to build up its partner network in the last few years, rolling out numerous SME initiatives and reorganising its internal structure in EMEA to better address the small and medium business market in addition to enterprise companies. It will now be able to enforce its own values directly on the market without the presence of a third party.

I'm sure the Oracles and Sages of this world will profess their apathy at news of SAP's new status in the region, but privately they'll be taking the situation very seriously. This is not simply an unknown force entering the market, but a vendor that already has an established brand and customer base here. And that makes it a much more dangerous proposition as far as those companies should be concerned.

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