The Middle East is not at the forefront of the global trend and is unlikely to ever find itself at the cutting edge of IT research, development or implementation. But the region’s corporates are fast followers of first-world trends. And they are rapidly approaching a crossroads: those with well formulated e-business plans will be better equipped to make the right moves and those without them will be left behind.
‘About 5 per cent of B2B transactions in the Middle East were conducted online last year,’ says Sankar Krishnan, Citibank’s vice-president and regional head of e-business. ‘But it’s the growth rates that are really significant: these figures are going to double every year for the next few years.’
Increasing numbers of companies are conducting an increasing volume of transactions online. As the point of critical mass is approached, the argument against e-commerce grows weaker, accelerating the rate of transaction migration. In the meantime, the region’s corporates – and some governments – are discovering the internal benefits of e-commerce.
‘In terms of implementing e-commerce strategies, companies in the Middle East are about 18 months behind Europe and Europe is about a year behind the US,’ says Basil Tutunji, sales director for the Middle East and North Africa (MENA) region for Intershop, a global provider of e-commerce software solutions. ‘This gap isn’t likely to close, but it indicates the direction the region is headed in.’
There might be a time lag but, put simply, Middle Eastern corporates are being beaten online with sticks and lured online with carrots. The benefits are the stuff of IT executives’ sales spiel: e-commerce can lead to dramatic cost reductions, improved supply chain management, far more efficient inventory management, more powerful purchasing power, fully integrated back and front office operations and a whole host more. The mantra is simple: e-commerce allows you to do better business, cheaper.
In the other ear a different story is being whispered. The fear is that competitive advantage and crucial business opportunities will be missed if a business is not e-enabled. The fear is increasingly real and well founded. As a growing number of international and regional heavyweights migrate towards e-commerce those who want to sell to them – or buy from them – have no choice but to follow them online.
‘The major factor is the pull from outside the region,’ says Krishnan. ‘When your foreign supplier moves online, you either follow him, or you have to find a new supplier. And the same applies for customers. The regional migration is being accelerated by the way in which the regional satellite operations of international companies are now entering the phase of following the e-commerce policies of their parents.’
The size of the stick and the manner in which it is being wielded is shaping the development of regional e-business. The pull online from international companies and a handful of regional enterprise-scale institutions such as Saudi Aramco has encouraged the development of bilateral e-commerce ties. Such direct B2B e-business can generate considerable cost-saving benefits on both sides of the transaction, but offers little in the way of being a new marketing tool: buyers and sellers still need to identify each other and assess products first.
The creation of e-marketplaces is one way round the limitations of bilateral e-commerce. The regional flag bearer is Tejari.com, one of the cornerstones of the government of Dubai’s e-initiative and a strong illustration of both stick and carrot at work. The attractions of a regional e-marketplace bent on generating serious mass are considerable. And, some 18 months after its launch, Tejari.com has made noticeable progress: about $65 million-worth of transactions were processed in the first quarter of the year and, according to Tejari.com, its transaction value has increased by more than 100 per cent each quarter over the last 12 months.
Impressive as this is, the really explosive growth of the market might lie just around the corner. The government of Dubai is committed – as soon as it is possible – to move all its procurements to Tejari.com. Those companies – local, regional or international – that wish to sell to any department of Dubai’s government have only a few months left to prepare their systems and their catalogues for e-commerce. Even against such a promise, Tejari.com’s ambitious launch targets of $10,000 million-worth of transactions a year still appear some way off, but perhaps a little more realisable.
Tejari.com is not the only regional e-marketplace – others such as Commerce One, CirraNet and Aregon are making considerable strides – but it remains the only government-owned project and, significantly, the only marketplace with a guaranteed demand-side. It remains to be seen if other regional governments follow Dubai’s lead and build their own e-marketplaces, though few doubt that government leadership is necessary in most markets for the private sector to flourish. But already there are some potentially important private sector initiatives, most noticeably in Saudi Arabia, where 50 of the largest corporates have formed a loose consortium with the aim of building an e-marketplace.
‘One of the major issues that remains unanswered is the type of markets needed,’ says Ayman Abouseif, regional head of IT giant Oracle Corporation. ‘What are the advantages of vertical marketplaces for, say, the oil sector, which can be highly specialised, or geographical markets like Tejari.com? There is also a third way: companies can choose to build and own their own marketplaces, as Carrefour has done in Europe and Ford has in the US.’
For those operating on a level playing field without guaranteed government demand, the search for scale remains challenging. ‘After a period in the late 1990s when companies were buying the hype and spending heavily on e-fads, outside Dubai the hype has been kicked away and more realism has entered the market,’ says a senior international IT executive. ‘We’ve now got to the stage where more realistic views are being taken of the benefits of e-commerce. But the real problem is cultural: people in this part of the world are incapable of making quick decisions, and procedures within local companies are agonisingly long winded. So we’re still in the educational stage.’
Says Larry Howie, regional head of Oil & Gas Exchange, a global e-marketplace for the region’s dominant industry: ‘People have become more mature, if slower moving. They want to understand the value proposition better and you have to show them the up-front benefits, the revenue streams. There are a lot of cautious people out there.’
In addition to caution, there is also ignorance. The market is almost completely unscoped: not a single executive interviewed by MEED was willing to even hazard a guess on the size of the regional B2B e-commerce market. ‘There is a serious lack of research,’ says Intershop’s Tutunji. ‘And this is a barrier to market growth – people want to see RoI [return on investment] studies before they invest in new technology and they’re not available.’
A further barrier to explosive e-commerce growth are the limitations imposed by weak internal IT systems. For corporates to extract the maximum benefits of e-commerce, full enterprise resource planning (ERP) platforms need to be developed. These allow the smooth electronic processing of transactions and their implications right through a company rather than just at the point of contact with its customer or supplier. In the Middle East, the adoption of ERP has been slower than many forecast, but the rate of growth is now rising fast, particularly among the larger regional corporates: Saudi Aramco, Petroleum Development Oman, Emirates National Oil Company and Saudi Basic Industries Corporation (Sabic) have all seen their ERP programmes go live in the last six months.
But, once again, size matters. The costs of implementing ERP systems can be more easily borne by large-scale corporates such as those listed above, than by the region’s small and medium-sized enterprises (SMEs). And in global terms, there are very few large businesses in the Middle East. ‘The giants, the Saudi Aramcos, are very sophisticated. The region’s top 10 are at a high level of e-procurement,’ says Krishnan. ‘But behind them there is still a sizeable gap and the average cost of web-enablement is high for smaller companies.’ But these costs are falling fast. ‘With a growing number of outsourcing opportunities, it is becoming less of a problem for SMEs to find different paths to ERP solutions that suit them,’ says Oracle’s Abouseif. ‘In essence, the regional ERP market offers very good opportunities.’
The last piece in the jigsaw is still missing. There is currently no system for direct e-transaction settlement online. ‘There is clearly the need for some sort of automated clearing house to support e-commerce,’ says Citibank’s Krishnan. ‘Some of the central banks in the region [Saudi Arabia, Kuwait and the UAE primarily] are looking at this – and its introduction could seriously kickstart regional e-commerce.’
The kickstart might only be months away, and with other factors also falling into place, the cusp of the region’s real e-revolution might be near at hand. Certainly, over the next few years the migration of B2B transactions to the internet is going to turn from a trickle into a flood. Those that prepare themselves will ride the wave and those that don’t will be drowned. Before long it will be clear who the winners and losers are.