Big market in small business: Take-up of new technology by SMEs offers growth potential

Relinquishing internal control of IT systems and data storage may have given security-conscious Saudi businesses cause for concern in the past, but with the introduction of new locally based services, industry experts see strong potential for growth in outsourced services aimed at large businesses and small firms. Projections from the market advisory firm International Data Corporation (IDC) released in February 2014, suggest year-on-year growth of 16.3% in the Kingdom’s outsourcing market in 2014, compared to 13.9% for IT services as a whole. IDC expects to see a 52.9% increase in the uptake of cloud services over the same period. Meanwhile in May 2014, Deloitte forecast 10% growth in IT spend by Middle Eastern small and medium-sized enterprises (SMEs), up by $2bn to $22bn in 2014. Defining SMEs as companies employing fewer than 100 people, Deloitte notes that 68% of SMEs in the Middle East are in Saudi Arabia. “With the Kingdom representing the vast majority of SMEs and ICT spend in general, we expect this to be one of the leading growth factors in regional SME ICT spend,” the report stated.

CHALLENGES: However, the 2014 annual Middle East edition of the Deloitte report, “Technology, Media and Telecommunications”, acknowledges that there are challenges when encouraging greater uptake of IT services by small firms in the region. In the Western world, SMEs have invested heavily in IT, building their web presence, investing in e-commerce and accessing cloud-based storage and security platforms. All of this has enabled the SME sector to develop in ways that would have been impossible in the past. In contrast, the Deloitte report estimates the average SME in the Middle East is spending just $20,000 on ICT per annum, often a small fraction of annual turnover.

The report also suggests SMEs in Saudi Arabia are lagging behind the wider population when web presence is measured. Citing research from Google, it says that while internet penetration by population is 49%, only 15% of SMEs in Saudi Arabia have an online presence. Across the region, the report’s authors expect to see this figure climb as new generations take the helm of family businesses. E-commerce is another area with room to grow. Although the sector rose by a compound annual growth rate of 24% in the last four years, total e-commerce sales in the Kingdom are forecast at $992m for 2014, the second-highest in the GCC, but far behind the $3.4bn of web transactions anticipated for the UAE.

GOING MOBILE: With the major mobile networks keen to invest in cloud services, new products aimed at the SME sector are emerging. In late June 2014 Mobily launched cloud services specifically tailored to SMEs. With prices ranging from SR2699 ($720) to SR9999 ($2666) per month, businesses opting for the cheapest of the three packages are offered 8 GB of Ram, 2.2 GHz with a storage capacity of 200 GB, while premium Platinum customers will have 32 GB of Ram, 8.2 GHz and a storage capacity of 1 TB. The service is being offered in conjunction with US firm Virtustream, which signed an agreement with Mobily in January 2013 to provide enterprise cloud solutions in the Kingdom.

UNLOCKING POTENTIAL: For many industry observers these kinds of ICT offerings, alongside training packages, are key to unlocking the potential contribution of SMEs to the Kingdom’s economy. In 2013 multinational software corporation SAP launched the Al Mawarid scheme to offer IT training to 2000 unemployed young Saudis over a two year period in collaboration with the government. Ahmed Al Faifi, CEO of SAP Saudi Arabia, told OBG, “Better IT integration and understanding by SMEs will help them grow the economy and create jobs. However, to do this they need government support to bridge the knowledge gap and investment issues.” Al Faifi’s view is that cloud services can play a key role in private sector growth, especially for the Kingdom’s SMEs. “The private sector has been especially receptive of cloud computing, as it frees up capital giving the flexibility to invest in other areas of their business. Cloud services can be especially beneficial for SMEs which don’t have sufficient capital or expertise to run their IT services themselves.”