As the role of the channel continues to evolve, distributors and systems integrators have been compelled to provide services around the products and solutions they supply all in an effort to stay relevant. Piers Ford looks at how SIs and distributors are broadening their horizons to earn recurring revenues.

As value-added distributors (VADs) come under increasing pressure to diversify and add to their traditional core portfolio of marketing, logistics and financial services, many of them are looking at systems integration (SI) as a stable and sustainable revenue stream.

With demand for SI high across the Middle East, this sounds like a good strategy. But a number of challenges remain, not least the ever-pressing skills shortage and a lingering sense that VADs lack the flexibility and expertise to meet the specific, focused needs of the big-ticket projects that are driving the market in the region.

The SI landscape is diverse across the Gulf Cooperation Council (GCC) member states, according to Frost & Sullivan’s Information and Communication Technologies Practice. In the UAE, the most advanced country in the region, competition is fierce as it has the best infrastructure in place, and a number of global vendors and systems integrators have chosen to set up their headquarters in Dubai or Abu Dhabi.

“Due to infrastructural developments that are taking place in the region, the vast majority of projects are partly supported by governmental funds,” said an analyst at the research firm. “The region is predicted to invest $2.3 trillion on infrastructure between 2010 and 2015. Furthermore, regional governments have also shown increasing support for ICT development in the region. Therefore, both green-field (new transportation, new hospitals and so on) and brownfield (airport and shipyard expansion, hospital renovation) projects are resulting in increased demand for SI services.”

But are VADs in the best position to evolve and play a key role in meeting this demand? Frost & Sullivan suggested that while their traditional range of value-added services has naturally helped them align their business models with SI and create demand for channel partners, only some will shift their focus to SI itself. For the rest, the priority will remain making sure that services and products are available in the right combination to meet customer requirements with a competitive price.

Acquiring the right skills set remains a barrier to SI market entry, with local talent thin on the ground and legislation, relocation costs and high salaries making it difficult to recruit from outside the region.

At leading Middle Eastern SI Gulf Business Machines, Chetan Parekh, regional sales manager for the Systems and Technology Group, said that nevertheless, some VADs are actively adding skills or partnering with specialist companies in order to take advantage of the burgeoning market.

“Today, organisations are changing and adapting to the new reality of having to do a lot more with a lot less, said Parekh. “More and more, they have to operate with decreased departmental budgets. The focus is not only on CAPEX reduction but also on containing and reducing the OPEX.

“SIs are basically a bridge between the technology vendors and customers. The customers’ challenges are the driving forces responsible for changing the way SIs approach their business. One recent trend is a noticeable move towards offering specialised skills. Mobility integration projects are particularly prevalent.”

Other areas where demand for SI services is rising include enterprise application software, cloud computing, security solutions and service-oriented architectures.

“In the short term, the role of the SI is going to be ever more important for several reasons, including the rising levels of complexity as a result of more sophisticated technologies, an industry-wide move towards lower cost models, and new technologies on the horizon,” said Parekh.

“There is also a continuous move towards open and distributed environments and a focus on increasing the efficiency of operations, which will fuel the market for the more established SIs. VADs are evolving the way they are doing their business. The model is shifting from just selling infrastructure hardware solutions to delivering solutions that need consulting, integration planning, deployments and even operational support.”

At help AG, a systems integrator which specialises in information security services and solutions, managing director Stephan Berner is less than complimentary about the SI capability on the ground across the region.

“Are there any truly dynamic, skilled SIs in the Middle East today?” he demanded. “Most of the companies pretend to be professional and have the right level of expertise, but in the end it is all about cheating the customer by not providing quality resources and technical execution at any point of time.

“There is a massive demand for qualified SIs in the region today, but by far not enough supply. The worst thing is that a large number of SIs abuse this situation by promising the customer something they cannot deliver.”

Changing this requires focus on the part of the VAD or SI – something which they might lack the resources or commitment to generate, according to Berner.

“If you speak to most channel entities in the region, they would claim to offer a range of value-added skills ranging from consultancy and integration all the way down to post-implementation support,” he said.

“In reality, however, very few of these organisations have the dedicated specialists who are sufficiently well-versed in each product in the portfolio.

“The ability to build upon a vendor’s product and conduct in-house development, which results in an enhanced version of the solution, is what is currently lacking in the channel. This is something that is only possible if the SI has invested in hiring and continuously training technical resources with the correct skill sets.”

VADs who cannot make this commitment might be better off developing their financial services portfolio – and leasing services.

“This will probably take another two or three years,” said Berner. “To demonstrate the importance of this today, if a VAD offered us 90-day payment terms instead of the standard 45-day payments terms, we would be happy to disclaim 2% of our margin.”

Developing skill sets at the same time as keeping up with trends and complexity as disruptive technologies enter the market is a tall order for the non-specialist VAD. But established SIs say they are committed to constant evolution.

“In the past it was difficult for the VADs to attract and retain skills largely on the back of high touch OEM (Original Equipment Manufacturer) engagement models, who tend to drive the architectural requirements,” said Brent Flint, services executive at Dimension Data Middle East and Africa.

“But this is an evolving arena and VADs have had to become innovative and add additional value to a pure product sales process through technology integration capability, product lifecycle management, and invest in efficient methods of deployment driven by automation. This will remain a challenging area for VADs to really mature offerings.”

Steve Lockie, group managing director at global VAD Westcon said it is important for VADs to continue to develop reseller and SI capabilities and skills rather than competing directly with them.

“It is relatively simple to acquire the skills,” he said. “The question is where you want to augment the reseller and provide true ‘self-through’ capabilities or compete. We are very clear that any SI services must be sold through the channel and at the reseller’s request.”

“The business of value-added distribution makes it pertinent for the distribution strategy to include the development of skill sets that support project-based business,” suggested Meera Kaul, managing director at regional VAD Optimus Technology & Telecommunications.

“This would mean that the distributor will have presales, technical implementation and support staff, training and capacity building programs and an ecosystem to drive deeper customer relationships with resellers and end customers.

“The greatest opportunity in SI is to be able to address projects with greater technical complexity. If the SI companies have the foresight to invest in technologies, resources and long-term relationships with their clients, the opportunities are immense.”

Key SI Markets in the Middle East

The buoyant SI market in the Middle East region is being driven by significant government-led projects as countries try to reduce their dependence on oil, according to analyst firm, Frost & Sullivan.

“SI first tapped into the traditional verticals such as BFSI, telecom, oil and gas,” said an analyst at the industry watcher’s Information and Communication Technologies Practice. “However, the strongest growth is expected from industries such as retail, healthcare and transportation. For example, the healthcare sector received nearly $28bn investment in 2012 and this is expected to reach $60bn by 2025.

“The sector also draws significant investment from the private sector. In Kuwait alone, there are plans to build nine new hospitals by 2015, which will need SI such as ERP or integrated information systems. Transportation is another growth vertical, especially in this region, which has a number of world-renowned airlines. Several airports such as Doha, Dubai and Abu Dhabi have announced plans to expand. SIs will have opportunities to sell their in-flight communication and entertainment systems or global desktop support and service monitoring tools.”

Verticals with strong specialist requirements such as security are also driving demand for SI services.

“There is the continual challenge to become more efficient and effective in service architecture, design and execution,” said Brent Flint, services executive at SI Dimension Data Middle East and Africa.

“These drivers will remain in place in the foreseeable future. We do not believe it is in one particular area but certainly are focused on taking our consulting offering to market along with engaging in cloud and managed services opportunities. Clearly outsourcing and long term contracts for all of the above represent opportunities for both SI and the client base to exploit return on investment (ROI) and better balance CAPEX and OPEX budget planning.”

The impact of the cloud on SI

Cloud computing will generate demand for specialised SIs who can exploit the integration of underlying hardware, applications, data and business processes unto single delivery and consumption models, according to industry insiders like Chetan Parekh, regional sales manager at Gulf Business Machines.

“However, this evolving model of cloud computing is threatening the traditional role of SIs who specialise in providing hardware, software, installation and support to these infrastructures,” he warned.

Meera Kaul, managing director at VAD Optimum Technology & Telecommunications, said there are ample opportunities for SIs to make themselves relevant in the cloud ecosystem, as consulting practices or education partners, to drive acceptance and sales of the cloud business model.

“Selling cloud solutions is a tremendous opportunity for SI,” she said. “Services in the channel will be required not only for putting private cloud infrastructure together but also building on consolidation, virtualisation and performance of the infrastructure. Enabling to customer base to deliver and execute these services in a structured manner will be a tremendous value-add opportunity for SIs.”

At security specialist SI Help AG, managing director Stephan Berner said the cloud will only make SLAs more important and customers more demanding – all paying to the SI’s strengths.

“SIs already have extensive experience in providing after-sales support to their customers and support for cloud services is merely the logical evolution of this,” he said. “So while the cloud will definitely change the way we go about conducting business, you definitely cannot remove the SI from the equation.”