Outsourcing drives modestly expanding IT services market in Saudi Arabia, says IDC

According to a recent IDC study, customization services were also hot, with investments jumping nearly 32% year-on-year. Although these two areas still represented less than a third of total IT services spending, their rapid expansion points to the growing recognition of the benefits of outsourcing. IDC believes total services spending will pick up again this year, growing by more than 13%, as high oil prices, rapid IT developments in the banking and telecommunications sectors, and growing adoption of outsourcing services generate momentum for IT services in general.

'The surge in demand for customization and outsourcing services caught many vendors off guard but enabled them to sustain revenue,' says Philip van Heerden, Research Manager, IT Services, Verticals, and Consulting, IDC MEA. 'Although support and deployment services and system integration were again the largest IT services areas last year, they both shrank. They will pick up again this year but expand at less than half the rate of the total IT services market.'

Saudi Business Machines again took the top spot among the vendors in Saudi Arabia in 2005, followed by Atos Origin, Ebttikar, and Al Alamiah. The newly formed Ejada took fifth, partially relying on the client base of the firms that joined forces to create the company. According to IDC, the Saudi services market is becoming fragmented. Although the top five vendors accounted for just over 46% of revenue last year, there were more than 50 companies jockeying for position.

'Ejada represents a major merger both in the kingdom and across the region,' says van Heerden. 'We expect this to be the first of many as price pressures intensify and IT vendors seek ways to cut costs and expand their portfolios.'

The government led the country in spending on IT services last year followed closely by the agriculture, construction, and mining sector (primarily composed of the oil-extraction industry). Telecommunications was a solid third. Together these three verticals were responsible for 56% of IT services spending in Saudi Arabia.

'Larger companies are relatively set for many IT services and the sun is setting on the day of the new mega contract,' says van Heerden. 'While there will still be tenders and opportunities for generating business among large firms, growth in the IT services market is shifting to small and medium-sized businesses, which are still largely underserved. The smart vendors are retooling their services portfolio for this end-user segment.'

IDC's Saudi Arabia IT Services 2006-2010 Forecast and 2005 Vendor Shares (IDC# ZS05N) examines the Saudi 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 ten 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 and business services.