Wednesday, March 21, 2012

SOFTWARE GROWTH IN MIDDLE EAST BYPASSES U.S AND EUROPE

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More and more international software firms are targeting the Middle East, as corporate and government investments in Information Technology (IT) expand throughout the region. Experts in both international and local markets say that both networking and Internet software solutions are currently growing at twice the speed of those in North America and Europe.


It is projected that IT spending in the Gulf region, which includes Saudi Arabia, Kuwait, Oman, Qatar, the UAE and Bahrain, will reach US$.8 billion this year, in comparison to last year’s $. billion. The majority will be spent on hardware and networking products. About percent will be used to purchase e-business software. The International Data Corporation (IDC) anticipates this figure to climb a further 1 percent by the end of 00, bringing IT expenditures in the Middle East to $4.6 billion.


These figures contradict previous estimations from abroad, which expected the U.S. market’s recent slowdown to have a negative impact on the Middle East. But several Middle East governments have responded to the foreign market decrease by consciously making efforts to assist local IT industries with reduced import taxes and customs duties on IT-related products. This has allowed the companies to stay in business and lower the local costs of IT products.


There are excellent opportunities for the software industry in the Middle East at the moment, according to Jean-Christophe Knoertzer, Regional Manager, IBM Software, Middle East, North Africa and Pakistan.


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IBM has increased the number of staff working with IBM software in the Middle East from a team of to 8 specialists in the past 18 months and expects this number will exceed 100 by the end of next year.


“We have brought in people covering all areas of our business, including specialists in web infrastructure development, data, systems management and security and e-learning,” says Knoertzer. “We have seen substantial growth across all of these areas in the last year with major project wins such as Juffali.com, Petrocommerce.com, Bazaar1.com and Standard Chartered Bank. We expect to see increased opportunities across all areas in the months ahead.”


IBM is currently the largest IT company in the Middle Eastern region, employing more than 1,500 people, together with its business partners. The company has been in the Middle East since 147, installing the first computer in the region in Saudi Arabia that year.


IBM works directly through its exclusive business partners in the region, Gulf Business Machines and Saudi Business Machines, as well as United Business Machines, Quantech and Attar Brothers in the Levant region. IBM offers complete range of IT solutions from hardware and software to services, providing a full range of solutions in the Middle East.


According to Khaled Hassan, Marketing Communications Manager, IBM Middle East, the company’s clients range from small businesses to large corporations and government entities, enjoying great success in this region with clients such as Petrocommerce, Bazaar1.com, the Ministry of Information of Kuwait and the government of Bahrain, as well as a variety of banks, IT and telecommunications companies in the area.


“We have customers across all areas of the business � large corporations which run their mission critical systems on our z0 mainframes through to small businesses that deploy our award-winning range of PCs. Likewise, we have companies that base their entire Internet infrastructure on our Websphere product.”


Challenges in E-Commerce


One such company is Juffali.com, a Saudi Arabia-based e-commerce portal that serves as a sales outlet to companies such as Mercedes Benz, Ericsson and Siemens.


The site is hosted in Jeddah, Saudi Arabia, using Saudi Business Machines Internet Service Provider (ISP) hosting services and IBM’s WebSphere to build its Internet infrastructure and e-business strategy. As Juffali.com’s entire customer base is located in the Kingdom, it is imperative that the hosting of the site is in close proximity to their customers, says Jamil El-Imad, General Manager, IT, E. A. Juffali & Brothers.


The Middle Eastern region is plagued with slow Internet connections, which restrain dot-com companies from providing valuable e-business services to a broader range of customers-- a luxury many international companies take for granted.


According to the Arab Advisors Group, the Arab world is bandwidth starved, with more than 740,000 Internet subscribers in 8 Arab countries sharing a total of Internet bandwidth of 777 megabits per second (mbps). The combined Internet bandwidth of Egypt, Saudi Arabia, Lebanon, Jordon, Morocco, Oman, Syria and the UAE is equal to that of what 518 individual American cable subscribers have.


The Arab Advisors Group says that overall low Internet bandwidth in all of the countries is a direct result of high costs, much higher than those seen in the U.S. or Europe. This is mainly because the ISPs have not formed partnerships with international backbone operators in the industry, and therefore continue to pay full connection costs to these operators.


The group predicts that the situation will ease up as liberalization and privatization steps gain momentum across the region and ISPs are able to expand their international bandwidth at no additional costs. Until then, companies like Juffali.com remain limited in their ability to grow.


Competition Hurdles


Technology companies are facing greater challenges, as the availability of cutting-edge technology grows throughout the Middle Eastern region, and companies are becoming more aware of what technology can bring to their businesses and what will work with their limitations.


According to El-Imad, “Plug and go (play) software solutions have proven to be ineffective to businesses in the region. This is due to the fact that many of these software systems have been designed for western businesses that by and large operate under different conditions and have a different set of business problems. However software such as IBM’s WebSphere, which can be easily developed and tailored to respond to local business needs in a relatively short development cycle, has proven to be very successful.”


El-Imad says that Middle Eastern companies are very receptive to technology, and sees this acceptance even more in the Gulf, where labor is scarce and many successful companies are looking to technology to compensate for their lack of expertise.


“The region has tremendous technology opportunities. However, many companies in the Middle East look to the IT companies to provide business solutions,” El-Imad adds. “Successful IT companies are the ones that are able to understand the business and are able to prescribe an IT solution that is able to enhance the efficiency and effectiveness of the business. In other words, reduce overheads, increase productivity or help to generate more sales. Middle East companies have long wizened up and very few are prepared to deploy technology for technology’s sake.”


Multi-Billion Dollar Flop


Another major problem faced by Middle Eastern companies is poor quality in software solutions. Israel-based Chromatis Networks, a high-tech company that was purchased in June 000 by communications equipment giant Lucent technologies for $4.5 billion, was recently closed down as part of a wide restructuring plan. But industry insiders say that Lucent pulled the plug on the company because of customer dissatisfaction with Chromatis products.


Prior to the acquisition, Chromatis was one of several small, privately funded start-up firms that produced products that speed up Internet traffic. At the time, company officials said the acquisition would enable Lucent to bring the bandwidth-expanding power of optical technology directly to its business customers.


But Lucent informed Chromatiss customers and its 10 employees in late August that it would stop manufacturing immediately and would close its doors in coming months.


Lucent spokesman Frank Briamonte said the company’s closure was “a purely business strategic decision” in support of the company’s restructuring efforts, adding that Lucent would be “exiting the product.”


The closure came as a shock to many in the high-tech industry, as Lucent had just announced that it would be investing additional resources in “last mile” solutions to alleviate the bottlenecks created in the last sector of the network between the telephone exchange and the customer. Apparently, the company had other “last mile” products similar to Chromatis’ and found that the Chromatis products simply weren’t in demand.


Industry sources say that Lucent had experienced a high return on Chromatis products that weren’t meeting client needs. Just before closing down, the company had fired 0 employees and warned of further action.


Anti-Piracy Strategies


Still the toughest problem faced by the Middle East in the IT industry is the widespread use of illegal software. According to the Business Software Alliance’s (BSA) Global Software Piracy Report, the Middle East and Africa had the third highest piracy rate in the year 000. The countries’ combined rate of 55 percent costs this region $76 million. In addition, the use of illegal software has been a deterrent to investors and has discouraged local and regional software development initiatives.


Governments throughout the Middle East have realized that a successful software market whose intellectual property is protected is key to encouraging local and international investments in the IT sector, and are taking measures to prevent the sale and use of illegal software. The Dubai government was the first in the region to sign an agreement regulating its number of software users and many other governments have followed.


In September, a groundbreaking new cooperation to enhance copyright protection in the UAE was formed between the BSA and the Dubai Free Zone Authority. The agreement is the first of its kind in the Middle East and is a firm demonstration of the UAE’s stance on protecting the local IT industry, in the hope of creating the right conditions and developing the software industry.


“This cooperation to assist the BSA in its enforcement work is a strategic decision,” remarks Dubai Free Zone Chairman, Sultan Ahmed Bin Sulayem. “Not only because IT companies are an important focus for us, but also because we believe in the importance of upholding copyrights throughout the UAE. It is one of our government’s priorities and part of HH Sheik Mohammad’s vision that has resulted in the establishment of Dubai as the IT hub of the Middle East.”


Over the past years, many of the world’s technology leaders have set up offices in Dubai as free zone companies. As copyright protection grows, this region is rapidly becoming the Middle East’s leader in intellectual property, attracting international IT firms such as Compaq, Microsoft, IBM and many others. These companies’ increased investments have contributed to the unequaled success of the Dubai Internet City, the region’s largest IT-focused zone.


“We have noted an important trend,” continues Bin Sulayem. “Many free zone companies are Middle Eastern software developers that have chosen to work here. This is a factor that encouraged our cooperation with the BSA. By protecting copyright, we are first and foremost encouraging Arabs to venture into the software development arena.”


Still Strong


The software industry in the Middle East is still enjoying great success despite these obstacles. Many international companies are launching the latest software products, including e-learning products, in this region at the same time as they are launched in the U.S. and Europe.


While the Middle East is still behind the U.S., Asia Pacific and Europe in IT spending, countries throughout the region have caught on to the importance of e-business and the software necessary to create infrastructures in all areas of business. And with the growth of advanced technology companies in the area, such as IBM and Microsoft, the Middle East may progress rapidly in its software evolution.








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