Services sector ready to show value

itp.net spoke to Hazem Malhas, CEO of Optimiza about whether the economic crisis will affect the company's plans for continued expansion

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By  Mark Sutton Published  November 1, 2008

Solutions and services provider Optimiza registered a five fold growth in sales and 73% growth in net profits in the first half of 2008. The company attributes its success to organic growth and to a strategy of acquisitions, including the 2006 purchase of training company ATC to form the Optimiza Academy, HR solutions developer MenaITech and the recent acquisition of a 70% stake in Saudi systems integrator Royah. itp.net spoke to Optimiza's CEO, Hazem Malhas about whether the economic crisis will mean a change to the company's strategy, and how the IT services sector is likely to be affected.

How will the economic crisis affect the Middle East IT industry in general, and will it make a difference to your growth plans for Optimiza?

We know for sure that the impact of the global economic downturn will affect the Middle East. We cannot pretend that we are not part of the global economy, whether by being an oil producing region, or some parts of the region that are dependent on aid and support. However, in both markets there is a healthy and growing private sector, and more attention from the government and public sector on IT.

In tough times, when customers want solutions that address becoming more cost competitive, leveraging their existing investments rather than launching new investments, then the demand will be heavier on the consulting side rather than selling more infrastructure.

In the private sector, you are going to see more companies seeking to optimize their operations, to optimize their existing IT infrastructure to address mission critical issues, and this I believe will elevate the value of the work - there will be smaller deals in dollar terms, but higher in value to the client. The client might not have the budget to launch new investments, but will invest in existing infrastructure, or going deeper into areas like SCM or human resources.

On the government side, the countries with proper strategic vision will encourage more government investment in infrastructure. Governments today in the Middle East are dealing with a different situation than in advanced economies – the demographics and population explosion in our part of the world makes us unique. We have a growth in population, that means we need to build more schools, more hospitals, more infrastructure, more housing.

Are there particular vertical sectors where you see better opportunities?

Banks are under pressure, but there is one thing they cannot get out of – all the compliance issues. Those are intensive investments that they have to do – and more so now than before.

They have to bring in the right talent, the right skill set to get it done, training their people, improving their competitiveness in the market, developing their products and tools, because the market now is going to be very selective, they are going to be selective with their own customers, and all the banks are going to be competing more than ever.

Banks who understand are going to go and invest in high-value investments, maybe low in monetary value - a $50,000 consultant, that will help put strategies in place, rather than a million dollar project, with 70% of that in servers or networking. It could also be areas in infrastructure like disaster recovery, business continuity, data mining more on the intelligence kind of work. I think on the bank side we are going to see new opportunities emerging to weather the storm.

In telecoms, the mobile operators might not be affected as much as other sectors, but they are definitely going to watch their CAPEX and their OPEX, and they are going to be very selective in their IT investments. There is an opportunity, because if they want to streamline operating expenses, what is the most intelligent thing to do? – outsource. If I have an IT department that is costing me one million dollars, if Optimiza can come and do the same work for half a million dollars, I will outsource.

Other sectors like healthcare and education will also continue to grow. Nobody comes close to education. The trend is for every student to have a laptop or PC, so as much as a bank or telecom buys, they won’t come close to one tender from a ministry of education in terms of hardware sales. We will see more funding going to IT and infrastructure spending, mostly on hardware and providing students with accessibility.

Healthcare, the region needs more hospitals, more clinics, because of the growing population. This is where the governments will be spending and we are seeing more private sector money pouring in to the region.

In other parts of the enterprise sector, the utilities companies, oil and gas, transportation, logistics, I see them growing definitely. The momentum that has picked up is not going to slow down, because we know that there is the demand, this is a growing population, they still need electricity, food, petrol. We are seeing this ourselves - our fastest growing practices are the supply chain management and HR practices.

We see more spending on human resource management. If you want to streamline your costs, you want to make sure you protect your pool of talent. We already know the scarcity of talent in the region anyway, that is why people would be investing in human resources.

Does Optimiza have the depth of talent to service this expected demand?

That is basically our core competency – we made Optimiza because we felt that a lot of the technology providers in the region lack the consulting practices, and indepth industry experience, because these resources are the most expensive. The high end of the value chain is the consultant who sits in front of a senior bank manager – he has to know banking. I believe there will be more demand for these kind of strategy assignments, project management, program management. A lot of organizations we see in the Middle East don’t manage their projects properly, a lot of companies don’t apply best practices to human resource management and supply chain management. We invested in all these areas, and we have world class resources, and we also partner with world class consulting companies.

Are there other areas that need to be added to the portfolio?

We want to ramp up our consulting, we are growing beyond pure IT consulting into areas like management and business strategy consulting. About 10% of our workforce are consultants, not including project managers, the opportunity is to increase the population of that team. The other area ramping up is outsourcing, more low end skills, we can expand that.

Is it easy area to expand outsourcing capabilities, without major expenditure?

There are a lot of universities producing young IT guys that need jobs now, if we can create the opportunities, not only technical, but business process outsourcing,, then I believe we can expand into the outsourcing business, call centre business and data centre management, and even data centres themselves. That is the strategic direction we are taking whether through continuing acquiring companies in these areas,

We are on the right track - as Optimiza, and Al Faris Investments, we will not stop acquiring companies. We will focus on acquiring lean, mean, profitable companies, these guys a lot of them in an economic downturn, may not be able to finance their growth – they need to be part of a bigger thing, it is an opportunity for them and for us.

On the Academy side, we are going full blast, we have a great opportunity today in the training area, we are seeing a lot of demand, and we are partnering with an American institution to provide high end training for executives and managers.

How much does Optimiza have to invest in growth?

We are increasing our capital now by about $7 million, and we have a commitment from the board to cover the capital increase. We also have the support of financial institutions to execute our acquisition strategy, we also have partnerships with funds that want to invest in the sector and we have, on the drawing table, plans for Al Faris itself to launch a fund.

Do you have any acquisition targets in the pipeline in particular sectors or countries?

There are a few that we are in discussion with, we are also looking at Iraq seriously, looking at investments in Kuwait, in Saudi Arabia, the UAE and Qatar.

Saudi Arabia is our core market, it is the China of the middle east, I think Iraq is going to provide us with lots of growth opportunity, I think the Gulf markets will continue to at least sustain a certain percentage of growth and I believe we will see more business coming out of countries like Yemen, Syria, Sudan, Libya, for the mere fact that they are so behind on technology.

What are your plans for Iraq?

We already have projects in Iraq, in healthcare, with Al Basra Hospital, and in banking. We want to be local in Baghdad, we want to focus on training and human capital development, we want to focus on IT infrastructure and on providing solutions that can support the new Iraq that is coming out of the ashes.

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