Proceed with caution

Is the future is bright and prosperous for the Middle East IT sector, or is it not all that it's cracked up to be? 

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By  Andrew Seymour Published  January 31, 2008

There are still glaring discrepancies in vendor attitudes towards Middle East investment, leaving the market facing something of a conundrum when it comes to working out if the future is bright and prosperous, or simply not all that it's cracked up to be. For channel partners wanting to get the most from their supplier relationships, the key is going to be ignoring any ungrounded hype and understanding each vendor's limitations.

The Middle East IT sector has enjoyed its fair share of the limelight during the past couple of weeks as a result of the head honchos of Cisco and Microsoft pledging to chuck huge sums of money at the region.

Microsoft has revealed it will splash $265m on its regional education initiative alone during the next five years, while Cisco - as I documented in last week's eChannel editorial leader - is poised to invest more than $1.5 billion in the UAE over the same period. Great news for certain sections of the IT channel on paper, but I'd be surprised to see anybody else following suit in quite the same way.

While both companies are justifiably looked upon as bellwethers of the ICT sector, their spending actions do not necessarily reflect the wider sentiment of fellow manufacturers when it comes to the Middle East.

Microsoft and Cisco are global organisations in every sense of the word, and both enjoy clear leadership in their respective niches. You can bet that as well as the Middle East, they are investing in Latin America, Russia and every other developing market in the world. The reality, however, is that the majority of vendors simply aren't in a position to allocate vast quantities of cash on a region which can't necessarily promise the instant returns they'd like.

The bona fide size of the Middle East market, and subsequently the quantifiable returns that it can deliver, is still obscured by an unhealthy obsession with sky-high growth figures among many market commentators. Unfortunately, the people who control the purse strings tend to sit in the finance department rather than the marketing department.

I was handed some IDC data this week that revealed the enterprise software market in the Middle East and North Africa grew at a rate of 36% last year. Heady days indeed - or at least I thought so until I discovered that the overall value of the market equates to just $390m.

While it's not a figure to be sniffed at, it's not exactly a gigantic sum either, especially when you consider that it represents the hunting ground of big-hitters such as Oracle, SAP and Sage. Divide that pie into several pieces and you begin to realise that's it not necessarily the hugely affluent market it's made out to be. I certainly doubt if Oracle or SAP partners expect to hear any announcements of the Cisco and Microsoft variety this year.

I'm not denying that the prospects for Middle East IT growth look good, but when you speak privately to the decision-makers at the top IT companies in the region there is a consensus that the market has to be viewed in context of its size.

With that in mind, the speculation over CA's future direction in this region just lately is particularly interesting. A new strategy in Asia, where local offices have been scaled back to make way for an almost JV-like approach that involves certain partners acting as CA's face in the market, appears to have sparked suggestions that CA could adopt the same policy here.

The vendor, however, points out that the affected Asian offices operated a direct-sales model involving minimal partner contact whereas the Middle East arm has always been channel-focused, thus making any comparison between the two insignificant.

However, you can bet that the decision CA took in Asia was a commercial one and even if it isn't thinking of mirroring it in the Middle East then it will - like every other vendor of proportionate scale - still be closely scrutinising its local operations to see how they stack up in respect of its profitability targets.

The point here is that any vendor serving this region will be constantly monitoring to see whether, dollar for dollar, they are getting back as much they are putting in.

I agree with the view that vendors need to take a long-term approach to emerging markets - and it could take five, six or seven years before an initial investment is realised - but at the same time that argument doesn't always carry weight in the boardrooms of vendors that lack the spending power of a Cisco or Microsoft.

The Middle East market might be maturing, but it is still a long way from being mature. What customers want and what they will pay for are two very different things, while inflationary challenges in markets such as the UAE and Saudi Arabia are bringing additional profitability challenges.

It is inevitable that we will continue to see marked differences in the way vendors treat this market. And while the channel is right to call for more support, resources and local touch, the reality is that the numbers may dictate otherwise for now. Resellers will do well to pick their suppliers carefully, understand their role in this fragile ecosystem and proceed with the same sort of caution that many vendors are showing.

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