Focus on management

Narayan V, vice president and region head for systems integrator 3i Infotech discusses the rise of managed services in the Middle East and the potential for reducing expenditure

Tags: 3i InfotechUnited Arab Emirates
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By  Narayan V. Published  August 1, 2009 Arabian Computer News Logo

The Middle East is undoubtedly one of the fastest growing ICT markets worldwide. The IT market in the Middle East and Africa (MEA) region is forecast to grow from US $51 billion in 2008 to over $70 billion by 2012, according to a report from Injazat Data Systems.

IT services will constitute just over 20% of IT spending in the region. Across the Middle East and North Africa (MENA), the oil and gas sector will remain the key economic driver that stimulates and supports other sectors. Governments in this region will mostly be well insulated financially, as they pursue development plans in infrastructure, complementing investments by key market players in the energy, water, telecoms and manufacturing sectors.

Managed IT services will be one of the faster growing categories in the region as larger companies and governments hire outside firms to advise them on new systems, install them, manage them and train internal staff on how to use them.

The shift towards managed IT services

The imperative to deliver productivity and innovation is being driven by increasing competitive pressures. Companies are facing the fundamental challenge of dealing with increasing IT complexity and cost, and the need to deliver value from their technology investments. Corporate leaders are demanding IT infrastructure that supports competitive requirements to evolve with market conditions, quickly implement new functionality to support changing models, and quickly realign processes in order to seize new opportunities as they appear.

Managed IT services are emerging for many organisations in the region as a compelling solution for maximising operational efficiency and leveraging a sound IT foundation which can support a company's most vital processes and applications. It's an approach to IT investment that's designed to remove the burden of lower value day-to-day operational and maintenance activities and allow companies to focus their valuable IT talent and resources on activities that provide a clear competitive advantage and/or contributes directly to a company's financial health.

The tendency of organisations to purchase their IT as a service instead of doing everything themselves is showing up in the growing popularity of managed services. A managed service provider is tasked with delivering one or more IT functions as a service that clients can use when required. This methodology allows the client to focus on efficient business operations without the hassle of owning and managing skills and infrastructure.

The managed services market is expected to be worth between US $12 billion and $15 billion in emerging markets and $350 million in the United Arab Emirates in the next two to three years, according to an industry official. It will outpace the overall information and communication technology [ICT] industry growth because customers will be looking into achieving cost flexibility and decreasing risks.

Manufacturing in the Gulf region has been investing quite heavily in ERP solutions and specific applications related to manufacturing and distribution. Consolidation is the major theme across the industries but it has been quite big in the manufacturing sector. Adoption of managed services in the United Arab Emirates and Saudi Arabia has been rapid and manufacturing is now a prime vertical.

According to Madar Research, the Enterprise Resource Planning (ERP) software market in the Gulf Cooperation Council (GCC) will touch $300 million by the end of 2009, as there is a rising demand within the regional enterprise and SMB sectors. Furthermore, the report estimated that the market will witness a compound average growth rate of 14% in the next five years. ERP spending in the GCC is expected to rise faster than the projected world average, which is between 6%-9%.

Throughout the Middle East, the banking industry and government organisations tend to spend heavily on IT services. Retail financial institutions in the GCC are increasingly opting for managed services in the wake of intense cost pressures, increased competition and regulatory requirements. Leading retail Arab banks currently outsource discrete, well-defined tasks that are commodity-like and constitute a relatively small percentage of the overall IT budget. The move towards managed services by financial institutions in the Middle East is primarily to maintain a competitive edge and reduce operational costs for the enterprise.

Managed services are being increasingly used for IT functions like website development, hosting and end user support. Going forward, managed IT services will be considered for more complex, inter-dependent, and large scale IT functions such as telecom and network management.

Governments across the Middle East are facing numerous challenges as they try to modernise public administration, citizen services, safety, and security. Managed services provide the way out. With large IT infrastructures that are difficult to manage, government organisations are employing managed services to improve response times and overall efficiencies in the most cost-effective manner.

Managed IT services present an ideal opportunity for institutions to offer their customers enhanced services without the expense involved in owning the required technology or maintaining the human capital required to deploy and operate it. In many situations, managed services provide companies with a cost-effective alternative to in-house capabilities.

Change is on the anvil

There is a growing acceptance of managed IT Services as an alternative to reduce costs of IT/network operations, increase operational performance levels and reduce the risks of infrastructure failures in the Middle East.

In the current times, when corporate budgets continue to be tight and controlling costs is pivotal, nearly every organisation is looking for ways to increase their operating effectiveness and efficiency.

Narayan V is the vice president and region head for 3i Infotech.

Oman

Oman's IT services market was estimated at US $77 million in 2007 and is expected to increase to $120 million by 2012. IT services revenues CAGR has been forecast at 9% for the period through 2012. Currently support services still account for around one-third of spending, with consulting and integration the second-largest category, followed by managed services.

Saudi Arabia

The Saudi Arabian IT services market was worth around US $978 million in 2008, and is expected to grow at a CAGR of 13% from 2008-2013. In the past two years, high oil prices have driven spending on large IT projects by government as well as in industries such as oil and gas, transport and utilities. Support and maintenance account for around one third of spending on IT services, but the market for more complex services such as managed services and outsourcing has grown. The outsourcing opportunity was projected at around $178 million in 2008.

Bahrain

Bahrain IT services' spending is expected to reach around US $87 million in 2009. Of that total, 40% is expected to be support and maintenance, with systems integration (SI) the second largest category and managed services/outsourcing at about 20%. CAGR for 2008-2013 has been forecast at 7%.

United Arab Emirates

IT services will be the fastest-growing segment of the United Arab Emirates' IT industry, with double-digit growth seeing the market rise from an estimated US $820 million in 2008 to around $1.75 billion in 2013. IT services revenues' CAGR over the 2008-2013 period is expected to be 16%. Support and maintenance account for around one-third of spending on IT services, but the market for more complex services has grown. There is a growing demand for services such as hosting, facilities management and disaster recovery.

The use of sub-contracting has increased, including support, with several large contracts and outsourcing deals recently announced. Outsourcing may account for around $150 million of total IT services spending in 2008. Services are becoming an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat.

Kuwait

The Kuwaiti IT services market stood at US $162 million in 2008. Services will be the fastest growing segment of the IT market, with double-digit CAGR growth likely during 2007-2012. The market should reach around $258 million by 2012. Telecoms, banking and retail verticals all provide strong demand. There has been a recent trend towards larger deals, particularly from government. Meanwhile, a more volatile environment for the oil industry is encouraging companies to look for solutions that will increase operational efficiency and boost overall business agility.

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