Large outsourcing deal helps fuel robust rise in IT services spending in the UAE, says IDC

According to a new IDC study, a massive outsourcing contract between Injazat Data Systems and the Abu Dhabi Water and Electricity Authority worth more than $100 million and spread over ten years set a precedent for outsourcing services, spurring demand that will likely set off a chain reaction of contracts over the next few years. Moreover, the UAE's economy continues to boom and the government has a number of IT and general development initiatives that will increase the need for IT services.

Nevertheless, the UAE IT services market remains fragmented, with more than 50 companies competing for market share in 2005. Among the top 20 vendors, only three remained in the same market position from year to year. Moreover, the top five players - Mideast Data Systems, Emirates Computers, Mercator, Al Abbas, and EMITAC - accounted for less than a third of spending while the top-ten players accounted for just over 52% of spending.

"Although the market is growing at a healthy rate, there are too many firms fighting for limited space, and consolidation is inevitable," says Philip van Heerden. "There is also a lack of vertical market expertise, something essential for a services provider that needs to define itself against competitors. Services providers need to ensure that mergers bring complementary services to their services portfolio in the country."

Outsourcing made dramatic gains in the UAE IT services market last year. Though spending on information systems outsourcing started from a small base, it exploded by nearly 7.5 times. Services related to hosting infrastructure also made striking advances, rising by nearly 69% in 2005. "Outsourcing has finally arrived in the UAE," says van Heerden. "Last year outsourcing spending amounted to around 15% of the total IT services market. By 2010, this number will reach approximately 23% of spending."

Nevertheless, hardware support and installation remained the largest single IT services category in the UAE in 2005. Systems integration was the second largest followed by application consulting and customization in third position. While the first two foundation markets expanded at a rate faster than overall market growth, the latter was nearly flat.

Upgrades and IT initiatives at both the national and local levels meant the two government sectors were again among the largest verticals investing in IT services in the UAE in 2005. Local government spending took the top spot and federal spending the third spot, with the banking sector ranking a solid number two. Together, these three vertical sectors undertook nearly 36% of spending on IT services in the UAE last year.

"The country is still on fire in terms of development," says van Heerden. "Foreign direct investment continues to pour in and more and more companies are setting up shops in the UAE that serve as regional headquarters for the Middle East."

IDC's UAE IT Services 2006-2010 Forecast and 2005 Vendor Shares examines the UAE IT services market and forecasts expenditure on IT services through 2010. The study provides details of the size and vendor breakdown of the market, and ranks and profiles the top IT service providers according to their 2005 revenue. Covering thirteen basic market categories, IDC's forecast outlines the strengths, weaknesses, and strategies of the market leaders, and describes future trends in IT service delivery, such as outsourcing.