ALKHOBAR: Economic analysts have widely reported that the Saudi economy is in better condition than the US or UK economies. That’s true, but “better” is a relative description. For the last three months, IT managers, vendors and small companies have been telling me how difficult the business environment is. Budgets for hardware, software and services have been slashed. Doing more with less is a priority for 2009. Small Saudi IT companies are perhaps the worst hit. They simply can’t cope any more with rising rents, limited credit and increasing prices coupled with the demand for lower fees for their services.
New projects are coming up but there’s fierce competition to win them. In most cases the project goes to the lowest bidder. There has been griping from vendors that some recent bids are unbelievably low and that’s a concern. While there is certainly some negativity on the part of the loser here, historically IT projects in the Kingdom have been fraught with implementation challenges. For example, Rockford Consulting Group stated that overall global statistics show that more than 60 percent of ERP implementations fail. One local integrator put the figure at 80 percent for Saudi Arabia.
With the global downturn, technical resources from abroad are now more reasonably priced than in the past few years and hardware is being sold at cost or below. That has allowed some companies to feel they can bid low and still make a profit. How such a strategy will lead to the development of local human resources is questionable. Senior Saudi IT professionals are required at the management level of these projects. Those Saudis are poached from government and quasi-public organizations. Unfortunately, budgets for advanced IT training have been cut or eliminated as part of cost-reduction measures. Where will the replacements for these senior IT professionals be found and what will be the effect on public services if they aren’t?
As for technology in the workplace, it’s really been just in the last decade that Saudi companies and organizations took measures to reduce their dependency on paper and now there’s the economic crunch. Suddenly last autumn, phrases such as “rationalization of resources,” “extending the lifecycle of equipment” “open-source as an option” and “reconsideration of corporate priorities” began appearing in Saudi corporate communications. Cuts in IT budgets followed. Many companies have frozen IT staff recruitment and some are considering redundancies. Directives to “cut foreigners before Saudis” are particularly ludicrous when it comes to enterprise IT since low paid expatriate technicians and engineers are the ones that keep networks running in the Saudi private sector.
It’s not just IT staff and outside vendors who are hurt when there are cuts to corporate IT budgets. Here’s how it works these days. If a Saudi company’s primary activity is garbage pickup and cutting IT resources will not affect that firm's ability to pick up trash, then the IT resources unrelated to trash pickup are being trashed. Employees are discovering that new computers and replacement equipment that was promised isn’t coming. IT help desk phones aren’t answered. Web resources aren’t enhanced or updated. Managers have been asked to justify every employee's access to e-mail or the Internet. If a justification can't be made, then the employee is restricted either to the company's intranet or may lose his dedicated PC. A manager explained the new corporate attitude:
“Employees tend to use Internet resources for activities that are unrelated to their jobs. We have policies in place in regards to this, but they are ignored. We don’t need the hassle. In the past we used to allow Internet access to keep employees happy. Now, if an employee doesn’t like the decisions of the company, we invite him to leave. These new policies cut our costs and increase productivity. Next, we plan to turn our attention to managing personal telephone usage during working hours.”
In addition to cracking down on abuse of IT resources in the workplace, an increasing number of firms have taken to outsourcing their IT service requirements. To save money, small businesses don't go to a major international provider when they outsource. Instead, they pay a technician to do the work they need in a freelance fashion or they hire a company without a local presence to handle their IT requirements. There isn't anything inherently wrong with this, but a large element of trust is required in such a relationship. If the relationship sours, things can get unpleasant.
Take the case of a Riyadh-based marketing company that was offering development and hosting services as part of its package. Those services were actually being provided by a firm in Egypt. The two companies got into a financial dispute and the Saudi firm decided to delay payment for services. So the Egyptian service provider changed the administrator passwords for all the websites overseen by the Saudi company. Asked whether it would be possible to sue the Egyptian company for its action, the Saudi company’s owner was advised to pay up quickly before his clients took their business elsewhere — and sued him.
Even Saudi companies that claim to want to become major players in international business are going cheap when it comes to IT. Recently I discovered one local firm that isn’t running any backups on its data. Its e-mail is frequently down and its corporate website is an embarrassment. This company was launched with over SR1billion in investments. Its office remodeling is complete but it doesn’t have adequate network infrastructure. Hard as it is to believe, recessed lighting was more important to the managers of this firm than data security and archiving. They never brought in a local consultant to advise them on their overall information management requirements and are using a fresh graduate to handle the duties of a CIO/CTO. IT will probably take a massive fine by a regulatory authority in the jurisdiction of a future acquisition to push this Saudi corporation’s board to make information security and IT management a priority.
There is an illusion that all is well in the local IT industry. This is mostly because huge IT projects are moving forward and consumers are still buying PCs. The huge projects are mostly government funded and do little to develop smaller IT services firms and integrators as they are awarded on a turnkey basis to major providers. That leaves the smaller IT companies struggling. The contracts they took in 2008 will keep those firms going for the first half of the year, but after that the outlook is difficult.
The Kingdom keeps holding conferences on creating a knowledge economy but this won’t happen without a vibrant IT industry of local developers, engineers and technicians in the private sector. Saudi banks have toughed the requirements for lending to private companies. This means it is difficult for small IT firms to take on even minor contracts in operations and maintenance since they need to keep spare parts and materials on hand. Commercially registered firms can’t be set up in a home — even if the only employees are the family members. Consequently, very small IT companies have to pay for office space that they can’t afford or else they can't legally be registered to do business. Paying for office space increases their costs so they can’t compete. This particularly hits women who are talented web designers, programmers and developers.
The business environment for IT companies in the Kingdom is far from rosy and backsliding in the development of Saudi IT resources is already in evidence. While government spending on major IT initiatives is grand, there needs to be at least a relaxing of regulations to allow small IT companies to thrive. This is not only because they are the engine of any successful economy but also because they will enable other small businesses and home owners to access the IT resources prevalent in modern societies at the community level.
HP was started in a garage in a residential area. So was Google. If Larry Page, Sergey Brin, Bill Hewlett and Dave Packard had been Saudis, they would have had to put their dreams aside. Becoming entrepreneurs and surviving those tough times as a business start up would have been impossible. The best they could have hoped for was to work for Saudi Aramco or SABIC. And with all due respect to both companies, more youth with big dreams to be employees are not what this nation needs. Saudi entrepreneurs focused on digital and next generation technologies — now that’s one element of a successful national future.
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