Etisalat is considering the purchase of niche technology firms in the region to equip itself to capitalise on the UAE’s booming $80 million (Dh293m) IT outsourcing market, a senior executive has said.
As part of a strategy to branch out from traditional telecoms services, etisalat is looking to offer a host of additional IT solutions and needs the support of sector specialists, Abdulla Hashim, vice-president for Enterprise Solutions, told Emirates Business.
He said etisalat was looking to capture a slice of the UAE’s growing outsourcing spend, and would bolster the services it provided mainly through partnerships with IT companies, but would also consider buyouts as part of its long-term strategy.
“We are a telecommunications company but we’re moving into many areas of the ICT service provider space, but we cannot do this alone, so we need partnerships. We perform well in telecoms and are looking to do the same in network centric services,” he said.
“Developing partnerships is the core of our strategy and we have already done this. We will select partners that complement our services to enable us to provide a total solution.”
Hashim was speaking on the sidelines of the etisalat Infrastructure Management Forum, where delegates heard that outsourcing in the UAE had tripled from $28m in revenues in 2004 to a current $80m, according to latest statistics.
When asked whether etisalat would fuel its enterprise business expansion through acquisitions, Hashim said: “If there is a business case and there is a market there, then this could be part of our strategy. At this stage we cannot say yes or no, but if there is a compelling business case then it could provide options for us.”
Etisalat has so far built partnerships with Fujitsu, Cisco and Juniper, but is also extending its reach globally with service provider partners, including Orange, BT and Cable & Wireless.
It is looking to extend its capability beyond providing traditional communications links, such as internet leased lines and IP connectivity, to supply customer equipment like routers and LAN switches, and network applications, like messaging and IP video conferencing.
The firm expects its IT infrastructure management outsourcing business to grow by more than 150 per cent over the next two years.
Hashim said this was partly driven by a skills shortage in the UAE, that meant companies were compelled to look to third-party providers for IT solutions.
“There are companies here that are growing very fast and need to increase their IT capabilities and expand networks to stay competitive in order to keep up with the pace of business in the UAE.
He added: “Getting the right skills is difficult and is expensive for businesses, plus there is the problem of training staff. And if you train staff then it’s difficult to retain them as a result of the competitive skills market.”
A lack of IT skills was also leaving UAE firms open to increased security threats, according to Hashim.
Margaret Adam, Research Analyst for IT Services at IDC MEA, said the UAE faced a major challenge to train and retain skilled workers in the IT sector.
“There’s no secret that there’s an IT skills shortage here in the UAE, which is being driven largely by the huge growth we’ve seen in India. It’s becoming a lot more worthwhile for people to stay in India or to outsource to regions such as Europe or America, which is leaving the UAE in a bit of a predicament partly because it’s so expensive to live here. So a lot of skilled staff are looking at other options.
“At the lower level, it’s OK and you are able to find network engineers, but as soon as you get to the more advanced level there’s a huge problem,” she added.
Adam said IT services spending overall in the UAE was $507m in 2006, with outsourcing making up 16 per cent. This figure is expected to rise to $1bn by 2012, according to IDC data.
She added: “Because there is such an expat-based community, companies are not willing to invest in training for their staff. To get an engineer up to a more sophisticated level requires a lot of investment, so companies are reluctant to provide the training to someone who’s going to leave after two or three years.”
IDC has found traditional telecommunications firms, such as etisalat, have made significant progress to reinvent themselves as Managed Services Providers (MSP), which offer a more extensive IT package to companies considering outsourcing.
The firm said this has partly been achieved through strategic partnerships and buyouts by such firms.
Adam said despite the surge in interest in the sector, the fear of lapse security measures in the Middle East was putting businesses off pursuing potentially cost-saving outsourcing IT infrastructure projects.
“This is a major issue and is by far the biggest inhibitor to people outsourcing. In the Middle East, it’s the factor of the maturity of the market when you compare to other regions around the world.
Nobody wants to be the first one to do it and take that risk.
“Acquisitions has been a trend more in Europe and the United States. In the Middle East, particularly Saudi Arabia, its more about partnerships and joint ventures. Generally, that tends to lead to an acquisition later. Companies in this region are setting up the foundations for this activity, while others are set on improving their organisations internally.
“In the coming years you will see companies purchasing managed service providers, not specifically IT firms, but the people that provide the software or solutions towards it,” he added.
Etisalat is looking to make further in-roads into foreign markets, where it sees significant potential. The firm has a presence in 15 countries with 40 million customers.
Geoffrey Young, senior manager and solutions architect at etisalat, said Africa formed a major part of the company’s global expansion plans. “Africa is a key growth area for us. There’s a huge untapped market and if we could implement some of the services we provide here it could be a huge draw for people to sign up to etisalat. But each of our operations there is treated as a different company and there are no synergies between them.”
Etisalat gears up to capture a slice of UAE outsourcing