Healthy jump in IT services spending reflects Saudi diversification, says IDC

According to a recent IDC study, spending on IT services in 2007 will exceed $890m, representing an 11% jump from 2006.

While still showing signs of development, the composition of the Saudi IT services market is set to change. Hardware and software support services accounted for the largest share of spending in 2006 at just under 30%, while systems integration was close behind at around 29%. Custom application development and application management outsourcing, however, were the two fastest growing areas, with the latter more than doubling year-on-year in 2006. Although these fields began the year from a relatively small base, their soaring growth rates point to the rapid transformations occurring in both the business and IT environments.

'While software support and systems integration will remain the cornerstones of most IT services providers, vendors will need to branch out quickly to build share in the expanding market,' says Barti Rajan, Research Analyst, IDC Middle East and Africa.

'The IT services market is shifting from product implementations and installations to managed services, value-added services, facilities management, hosting and disaster recovery, and outsourcing. Future growth will depend on providing clients with more than just the basic services.'

The developing nature of the Saudi IT services market is apparent in the battle for market share, with vendors moving up and down the rankings as competition intensifies. There are currently more than 50 IT services providers competing in Saudi Arabia and no one vendor dominates the market. In 2006, the top-ten vendors garnered 66% of the total spend, with five of the top-ten being new entries. Despite the segmented nature of the Saudi IT services market, Middle East companies are dominant, with each of the top five (SBM, Atos Origin Middle East, Arabic Computer System, Ejada, and Jeraisy Computer & Communication Services) based in the region.

'In addition to planning their portfolios for the changes taking place in the market, IT services vendors also need to reflect on their internal management and employee development strategies,' says Mr. Rajan. 'The long-term government initiative of replacing foreign workers with Saudis means IT services vendors are likely to be faced with labor shortages and new hires that are under-trained. This means retaining qualified staff will be extremely important as vendors compete for top talent. Competitive salaries will be only the first step in keeping specialists on board. Vendors will also need to offer flexible hours, training, and an advanced package of benefits.'

In terms of demand, the telecommunications, banking, and central government sectors invest the most in IT services in Saudi Arabia. Together, these three sectors were responsible for more than half the total spend on IT services in 2006 and will likely be so again in 2007. The oil and gas industry was also a significant investor in IT services in 2006 and IDC expects this sector to increase its spending significantly in 2007 and beyond.

IDC expects spending on IT services in Saudi Arabia to increase at an annual average rate of 13.0% over the next five years.

IDC's Saudi Arabia IT Services 2007-2011 Forecast and 2006 Vendor Shares (IDC# ZS05P) report presents detailed analysis, conclusions, and forecasts of the IT services industry in Saudi Arabia. The study provides market size information, vendor market shares, and revenues, broken down by IT services categories and vertical markets. The study presents profiles of the top IT services providers, including their IT services portfolio, their presence in individual vertical markets, and their largest contracts in 2006.