Fighting fit

These are defining times for the UAE corporate reseller sector. A combination of rising costs, demanding end-user customers and the arrival of international competition has led the channel's top providers to carefully consider their growth strategies. For Sami Abi Esber, president of Mideast Data Systems UAE (Holding) - one of the largest IT holding groups in the region and a long-term incumbent of the market - such challenges are all part of the game.

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By  Andrew Seymour Published  May 2, 2008

These are defining times for the UAE corporate reseller sector. A combination of rising costs, demanding end-user customers and the arrival of international competition has led the channel's top providers to carefully consider their growth strategies.

For Sami Abi Esber, president of Mideast Data Systems UAE (Holding) - one of the largest IT holding groups in the region and a long-term incumbent of the market - such challenges are all part of the game.

How would you assess the state of Mideast Data Systems' business and what is your outlook for the rest of this year?

Business was very good for us last year. We grew by almost 25% and the future looks very promising so we believe 2008 will be another very good year for MDS. Each and every sector within the group is expanding and we expect further growth of 25% this year as well.

That will be stronger than the market, which according to IDC is growing at a rate of around 15%.

What makes you think you will be able to grow faster than the overall IT market? After all, the market environment is becoming extremely competitive.

We managed it last year, and what we've seen up to now - with the backlog and the amount of business happening in the market - allows me to be optimistic.

What's also happening is that the UAE government, the local governments in Dubai and Abu Dhabi, are really investing in IT infrastructure and this is another factor which is contributing to the growth of the IT market. I'd say that about 25% of our business comes from local government these days.

There are numerous businesses within the MDS UAE portfolio. Which ones are seeing the strongest growth and why?

Mainly the solutions and systems integration businesses. As I have already said, investment in providing full IT infrastructures for local government establishments is the main driver, while there is also investment from the oil and gas sector as old legacy systems are replaced by new solutions.

That is making a very important contribution.

We have profited from the real estate boom too by providing networking and VoIP solutions, so more or less what is happening in the country with the overall business boom has contributed to the growth.

As the market matures, the major challenge facing many resellers in the Middle East is how they finance their growth and take their business to the next level. How is MDS tackling that challenge?

Our model is very clear and unique. We started in 1995 by being a single company with almost 60 employees and now we are a group of 16 companies with 470 employees.

Our model is about seeing a trend in the market and then investing in creating an independent business unit. For example, with the real estate growth, we saw an opportunity for us to provide networking and structured cabling infrastructure so we created a new company just focusing on that.

And this new company will expand year after year, and grow the business with it.

Hopefully we will launch another two companies this year.

How do you strike a balance between giving the management of each unit the autonomy needed to grow and yet ensuring there is enough centralisation for the wider group to meet its corporate objectives?

Each business is mainly structured like a separate, independent business unit. However, the majority of the shareholders in each and every business unit is the same, and they are more or less the people who put together the yearly budget and follow the execution of this budget.

However, sales and operations are decentralised.

The IT services and corporate reseller channel in the UAE is renowned for being incredibly fragmented. How does that affect the way you address the market?

The main issue is that it means you cannot be a single company - you cannot serve different industries. You have to focus on specific solutions for specific industries in order to be successful because you cannot do everything.

Our strategy to tackle this problem is specialising in single solutions for specific industries. If you try to do everything you will not be successful and that is the reason why we are segmented.

Given the number of companies within the group - and your plans for launching new units - it could be said that you are making an attempt to do everything.

No, we are not trying to do everything. We are focusing on specific products and a specific line of industries - we cannot do everything.

When you look at MDS' overall business, which are the areas that you would like to see the company perform better in?

What we'd like to improve is our product gross margins because the market is over-crowded when it comes to resellers. This is what has created a distance between product resellers and manufacturers. Companies are no longer seeing big margins coming from product supplies.

Does that mean you envisage a situation where MDS would seriously consider exiting the product business?

No, we have not and we will not exit the product business, but it will not have the same focus that it used to have before. It will more or less be about including the product in our solutions offering.

Rising salary and staff costs in the UAE are placing a lot of pressure on people-intensive markets such as the corporate reseller and IT services channels. How are you managing this trend?

We are affected by this trend because it is affecting everyone in the market. However, we are trying to solve the issue, mainly by compensating our key people and the people who contribute to the success. This compensation is not only in the form of salaries, but in shareholdings of the business.

A senior figure in the Middle East distribution channel recently suggested that if the level of inflation continues to rise at its current pace, IT resellers could potentially see up to 50% of their profits wiped out. Is that statement an exaggeration of the situation?

No, not in the distribution business because you can't increase the prices of PCs by 10% or 15%. However, the systems integration and software solutions business is very different because most of the big enterprise customers accept the fact that prices could rise as a result of the inflation.

I think this problem will have more of an impact on distributors and companies in the market that are working with low margins.

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