It is arguably the youngest industry in the region and one of the fastest growing. Estimated to be worth $3,000 million a year in the Middle East, information technology (IT) might still account for only a small part of both public and private sector spending, but it is becoming ever more significant.
'The days when chief executives would meet with their IT directors only once a year have passed,' says Thierry Louesse, regional general manager for IT storage company EMC Middle East. 'New IT can transform the way in which a company operates. Beyond this, it has become a business issue because of the size of the cost, and chief executives have no choice but to pay close attention.'
However, the rate of change - or evolution - of the technology available, concerns about integration risk, legacy platforms, e-security, data storage, mining and accessibility, business continuity and the like can create a veritable minefield for the uninitiated. For the region's senior executives, the IT question is multilayered: what are the advantages of installing new systems or upgrading old ones? What are the business risks associated with not doing so? How disruptive will the process be? How can comparative advantage be extracted?
It is a reflection of the volatility of the industry, and its penchant for product-driven - or even fashion-driven - trends that many of last year's main growth areas are likely to be in abeyance this year. Twelve months ago the Middle East was awash with talk of enterprise resource planning (ERP) and the way in which system automation and the electronic integration of core processes could transform business performance. Also in vogue were customer relationship management (CRM) systems and there was the potential for regional applications service providers (ASPs).
'ERP has been hit over the last year with growth rates falling off,' says Abdul Karim Riyaz, the Dubai-based regional marketing manager for Computer Associates (CA). 'Equally, within the diverse CRM field, it is currently a story of consolidation and integrating what is already in place. We are finding that the corporate focus is moving towards storage and security issues: these are two of the fastest IT growth areas in the Middle East.'
The explosive growth of electronic data storage might suggest that one of the great management mantras of recent decades has run its course, and that people are no longer the most important asset a company has. 'The most important asset now is data,' says Louesse. 'All companies need properly stored data, and the growth patterns are exponential.' Within the global IT industry, storage accounts for about 15-20 per cent of total expenditure and in 2001, at about 20 per cent, it was the fastest-growing sector.'These patterns are reflected within the Middle East, though the growth rate might be even faster here,' says Louesse. 'It has been forecast that the point will be reached in 2004 where the total spend on storage will exceed that on servers.'
It is not just the increasing volume of data that is driving the storage industry forward. 'Attitudes were dramatically changed by the events of 11 September,' says Louesse. 'A growing number of the larger companies in the region watched what happened, digested the implications and set up special units to deal with 'disaster recovery' and 'business continuity'.'
The need for unified storage and back-up systems and the consolidation of different server networks is further fuelling the rapid growth of the sector. Perhaps the best example of this is the contract awarded to STME by Saudi Aramco for the development of network-attached storage infrastructure that will allow Aramco's Exploration & Petroleum Engineering Centre to protect, manage and analyse on a daily basis all information generated by exploration and field development activities.
'Rapid corporate expansion or mergers and acquisitions create new scale and the possibility of dramatically improved efficiency,' says Louesse. 'For some companies, putting a single platform in place could reduce the number of back-up staff and their associated costs by 90 per cent, as well as reducing costly downtime.'
Also expected to be an important growth area this year is electronic security. 'Companies in the region are waking up to the online facts of life,' says CA's Riyaz. 'The internet has created vast opportunities for businesses but it has also raised new security issues. E-commerce means you have to allow the good guys in as well as keeping the bad guys out.'
Open platforms and the on-line availability of highly destructive software tools have forced corporates to become more aware of the security threat. 'We are finding that the culture is changing and clients are taking a more sophisticated view,' says Riyaz. 'They are realising that there is more to it than hiding behind firewalls when you could install intrusion detection systems. But there is much more to it than just software, it's also a corporate state of mind.'
Riyaz illustrates the point with the story of a sizeable GCC bank that spent heavily on the development of a disaster recovery and security system, but then every evening had a taxi call to carry the back-up tape to a different site. 'Technically the security system was fantastic, but in reality it could be compromised at any time,' says Riyaz. 'It is for reasons like this that the IT security sector is expanding as rapidly through the provision of consultancy services as it is through software.'
In the areas of storage, security, ERP and CRM, much of the impetus behind the industry's development comes from the supply side. New technology allows for new product development and companies are faced with the choice of either spending heavily to stay at the cutting edge or risk falling behind advances made by their rivals that, over a phased period, could make them more competitive.
However, other areas of the IT industry are reassuringly demand driven. The drift towards deregulation, privatisation and the breaking of monopolies in a number of sectors throughout the Middle East are changing the landscape. Successful first moves made in Oman and Abu Dhabi towards the privatisation of the utilities sectors have, for example, created significant IT opportunities as multiple suppliers sell their services over a shared transmission network to what could ultimately be multiple distributors that service the retail market.
'The need for effective real-time data collection and a trading infrastructure is unavoidable,' says Derek Kemp, chief executive officer of Logica Middle East. And Logica has already started to benefit from the deregulation process in Abu Dhabi, winning in late January a $5 million contract for the supply of data collection and central settlement systems for the Shuweihat independent water and power project (IWPP). With a sizeable number of other IWPPs on the blocks in other markets, there are good opportunities to come.
The pickings in other sectors could be even richer. While none of the GCC's telecommunications sectors have yet been properly opened to competition, they will, and central market architecture will have to be constructed. In addition, each of the players in competitive markets will require their own CRM and billing systems.
Equally, the development of stronger regional business ties and the establishment of cross-border projects will further reinforce the need for well-structured data collection, monitoring and settlement systems. For example, the establishment of a GCC electricity grid will require strong conceptual IT architecture from the beginning or the political debate is unlikely to be won. The Dolphin gas initiative will need an integrated IT platform that will be considerably more sophisticated than mere SCADA systems bolted onto a billing platform.
'The more complicated the project, such as the deregulation of utilities, the greater the benefits of economies of scale and the stronger the argument for the outsourced running of applications,' says Kemp. 'Growth in this area of IT is driven by the speed of liberalisation, then the extent of competition in these liberalised markets and then the need for competitors in these markets to become more efficient. We are taking a long-term view.'
For the IT sector as a whole, the Middle East is rich with opportunity in both the short and the long term. Lagging as it does behind the Western world in terms of IT implementation, it is all the more attractive as it tries to catch up.
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