Testing times

Channel Middle East sat with Cesare Cardone, CEO at Gulf Business Machines (GBM), to discuss market conditions for systems integrators

Tags: Gulf Business MachinesUnited Arab Emirates
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Testing times (Khatuna Khutsishvili/ITP Images)
By  Julian Pletts Published  May 10, 2009 Channel Middle East Logo

So what is the real state of the enterprise IT market in the Middle East?
A lot of things have happened, without a doubt, and it remains very difficult to assess what else is going to happen. Everybody is guessing, the situation is very complex and we do see a significant weakness in demand even though we are moving very fast. There is an inertia in IT, particularly because we work on the large projects and not on the commodity side. Customers have definitely not stopped buying so all of the projects that were solid and needed are continuing. Luxury projects are frozen and we will see what happens with those.

The fourth quarter was already in the difficult zone, but we had an excellent quarter in terms of signings. I believe the first quarter will be more or less safe in terms of revenue. March was strong and we got a good impression of the business. The big question will be the second quarter and what will happen. The general demand and the pipeline is definitely weakening though.

A lot of public and private sector projects are said to have suffered payment delays. How has that affected cashflow?
When we came back from the summer last year we completely changed our attitude towards accounts versus receivables. I started doing the accounts every two weeks. I was not used to doing this but we collected a lot of money this way. Today, we see customers having difficulties in committing to new projects. We have had a couple of projects where a customer clearly wanted to proceed but they did not have the financial capabilities.

We are trying to find a solution to this because we want to do business. So far we have not experienced any major bad news, but we have had a few tense situations that we have had to come to terms with. We faced some tension and had to put some pressure on.

Has there been a certain maturation in the way the Middle East market has been operating since the financial crisis?
It's very difficult to say. In recent years there has been an endemic, if you like, in delaying payments. We have been in the business 18 years and not seen a worsening of the payment collection factor. The question is how long this current climate will last. Two or three quarters is okay because of the inertia. But if it is longer than that it becomes a different matter. Over the last five years we grew roughly 31% to 32% every year.

This year we made a plan for 13% growth, which is significantly lower. Nevertheless, it is realistic, but still optimistic. I made the plan assuming the business will weaken, but will not go negative. We have continued to hire but much less than we did in the past. Last year we hired roughly 300 people, this year it will be 70 people.

Your partnership with IBM is historically very important to the business. How much of that planned 13% growth revolves around that relationship?
If you are selling BMWs and that segment of the car market goes down there is no way you can gain two points of market share. IT is a different market - there are 100 or 200 niches. Without any doubt, if we stand still the market will not give us what it has given us in the past. We are identifying seven or eight additional areas of business to get the growth that we need. We see a lot of opportunities in services and new technologies and many different directions that you can go to.

How are the vendors addressing you in the current climate?
Our major relationship is with IBM. In the last few years we have developed a major relationship with Cisco and we are also working with 10 to 15 other significant partners. They are no comparison to Cisco or IBM, but they are there. That is why today the main focus, which is hardware and networking, is suffering - because the demand is inferior. Even though IDC is projecting a significant decline in the server market, we are still, even in the first quarter, foreseeing slightly positive growth.

Revenue is shrinking but we will grow and that is why we are working on solutions and services, broadening our offering and entering areas where we were not focused in the past. We are a solid company in this market and this crisis has really hit the smaller competitors more. We are well positioned and if the crisis does not last long then we will get out of it in a stronger position than before - this I can assure you.

To give you an example, we brought a company in Pakistan in 2007. Pakistan is a disaster, a very difficult situation. Nevertheless, we delivered 50% growth last year and plan to grow 70% or 80% this year - not because the market is growing, but because our proposition is quite solid.

In what ways have vendors tailored the way they work with you since the financial crisis reached the Middle East?
I don't think it has changed. Everybody is desperately looking for growth and we are doing the same so we have the same mind-set. Today, the market is in a difficult situation. IBM and Cisco are close to us and they work closely with us to ensure that we can grasp the opportunities and do our best.

They are 100% behind us and supporting us. When the market is doing well people start looking at a different ways to go forward, when the market is tough people get together. Our relationship with IBM is so strong and historical, it is unifying us.

What areas have GBM, IBM and Cisco highlighted for growth?
Networking is a very broad business area. We are working a lot now, for instance, on risk compliance, security, disaster recovery and building the sort of datacentres that we did not have before. The market is broad and there are many niches in which you can grow.

This time last year systems integrators were having real problems sourcing qualified people. Has that situation improved?
The skill on the ground has completely changed. It was very difficult to bring people here, there was incredible growth and everybody was hiring. There was also great success globally and strength of the dollar was making this part of the world less attractive. Now, everything has changed.

The dollar is weaker and there are no jobs in Europe and the Western countries. We have plenty of resources now available, but what is important is critical mass. The skills required for our business are many - one person will not have all of the skills. We need a huge array of competencies on Oracle, Cisco and IBM etcetera. If somebody falls out of the chain the whole thing falls down. We need a critical mass to make sure that we can cope if that happens.

That is why we have to be heavily invested in resources to help us have good services. This part of the world is fragmented, if you have resources in Oman you cannot easily deploy them in Qatar. So we have to develop a critical mass in these countries.

Does this mean that you have country offices for each market you work in?
If we have one or two contracts in a country then the critical mass is there and we will be more aggressive. For instance, we have a good presence in Oman because we started to close large contracts and so we moved in there. We are very interested in expanding. The board of GBM wants us to expand and we have started with Pakistan. We want to expand into North Africa too.

GBM also has a distribution wing. How is that business shaping up and where do you see it going this year?
That is now maybe 7% of the business. It started out as distribution for Intel on IBM as IBM moved out here with Lenovo and things like that. With distribution it is very easy to get the revenue but difficult to get the profit. We are extremely careful in protecting profitability and this year we are also looking for additional products to add to the product-set. That will help us to improve and get more revenue. Today, in the Intel market you have IBM, HP, and Dell. We are very focused around IBM so in a way we are constrained by this.

Therefore, we are looking for additional products that we can sell to the same set of resellers to give us revenue. We are interested in growing the distribution business because it doesn't require any major investment - the mechanism is there, we just need to put in more products and make sure that they fly.

Finally, what targets do you have for the business in 2009 and how do you see the market playing out?
We have one objective and that is growth, but we are also focused on getting our money because of the cashflow. We have a bold attitude moving forward, counting on the fact that we will make it through this. The first two quarters of 2009 have convinced us that the situation is bad, but it is not horrible, and we can make it through. We are here to grow and we have some very confident shareholders that want us to invest.

Nevertheless, I'm scared about what is going on, but scared doesn't mean that you do not move. The worst thing you can do is become economists and see the bigger picture and start worrying about what the central banks are doing. Here we need to work every day on the business. Nobody knows what is going to happen. It is very important for us to make sure that our people know what is going on.

If they start worrying about what is happening with their mortgage or medical situation they stop thinking about what we need them to do. Since November we have started to do as much as we can to ensure people understand what is going on.

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