“As the Saudi economy is still in the infrastructure development stage, demand for project-based services like support and installation remain higher,” said Kavita Bhadauria, research manager, IT Services, IDC MEA. “However, a healthy growth in outsourcing services signifies some level of maturation within the IT services sector. The majority of this growth can be seen in the uptake of discrete managed services rather than in traditional holistic IS outsourcing contracts.”

Holistic IS outsourcing is when companies outsource entire IT departments. Discrete managed services however, enable companies to break down IT infrastructure into parts and then contract with outside providers to handle various portions. For example, a company could decide to outsource the management of its desktops, rather than its network.

IDC expects the overall Saudi IT services market to grow at an annual average rate of 13.4 percent by 2014 but predicts that outsourcing will outpace the rest of the market at 15.9 percent year-on-year on average.

“A number of factors are contributing to the growth in the outsourcing market,” said Bhadauria.

“Besides the natural maturation of the market, these include challenges in terms of skills availability and increasing pressure on companies to focus on core business.”

For instance, currently Ericsson is managing Mobily’s network in Saudi Arabia, which allows Mobily to focus more on its customer facing operations. Ericsson is responsible for network operations, field operations and optimization as well as spare parts management and site maintenance across Mobily’s entire multi-vendor network.

Bhadauria commented that the demand for outsourcing services is currently coming from the large enterprise segments, particularly finance, telecom, government, transportation and utilities.  There has been an increase in the uptake of enterprise services such as network and desktop outsourcing services (NDOS) and with the increased supply of datacenter space, hosting of infrastructure services has also increased.

There are issues though and these mainly center on how to convince small and medium sized businesses (SMBs) — those companies with 50 to 200 employees — to move to outsourcing.  SMBs make up the majority of businesses in Saudi Arabia, but most remain unaware of the benefits of outsourcing and the few who are aware are finding that current outsourcing models are unaffordable. Bhadauria remarked that high prices for certain types of outsourcing are a result of available data centers being located in just two Saudi cities — Riyadh and Jeddah — and that the cost of data connectivity is too high.

“A lot of work is still to be done in terms of customer education, improved services level agreements (SLAs) and competitive service offerings to further enhance the adoption rate of IT outsourcing services,” said Bhadauria. “It won’t be as easy or quick to profit from outsourcing to SMBs as it is to enterprise customers. Having said that, there is a lot of potential. Providers need to reach out to SMBs and talk to them in a language they can understand and price offerings within their reach.”