Since the dawn of the personal computer, Lebanon has been on the information technology map. Now as the age of the internet and new economy create business opportunities and bring international ICT companies to Beirut, the potential is there for Lebanon to establish itself as a Levantine hub. Executive checked how four Lebanese companies are gearing up for the challenge.
Computer Information Systems
Growth is steady for Computer Information Systems (CIS), which is shifting from distribution of hardware to providing implementation services and turnkey solutions for corporate clients. “Things are picking up again,” said sales manager Michel Nassif. “We are still recruiting people.”
According to figures the company published for its overall activities, normal is rather good. Together with sister company, Unidist, CIS realized consolidated IT sales revenue that increased from $100 million in 2001 to $125 million in 2002, with 55% coming from project integration and 45% from product distribution revenue from activities in some 30 countries in the Middle East, Africa, and Europe.
For 20 years, CIS and its affiliate companies have been the distributors for information technology firm Hewlett Packard and other manufacturers, first in Lebanon, and from 1993 in African and Middle Eastern countries. With 26% of its consolidated IT sales revenue in the Middle East, this region is the largest of seven geographic markets for the group, followed by North Africa. As the market for computers and peripherals has seen margins shrink, the firm’s growth orientation is now in project integration and turnkey solutions. “The integration business has sustainable margins compared to distribution, which is based on volume at low margins,” Nassif said.
A recent example was a contract won by CIS in collaboration with an international partner to install Lebanon’s new passport issuing system. From input stations to the production of computer-readable passports, the complete solution covered all hardware components and software for the highly secure system delivered to the Lebanese state. While the group set up three hardware distribution hubs in France, South Africa and Dubai, CIS based their know-how for project implementation in France and Lebanon. Focal competency realms are in platforms, networking and solutions based on the products of leading global software and hardware providers, from Oracle and Microsoft to Nortel and Cisco, with technicians and IT experts dispatched from Beirut to various projects in the group’s areas of operations. In the domestic market, CIS is looking for annual double-digit growth. “It is our base market – we have a strong presence here,” Nassif said. “We want to do business and remain preferred vendor of IT.”
The HP product lines dominate the field clearly in some office peripherals. For desktop and portable computers, Compaq and HP are part of the international manufacturer segment competing for individual, institutional and corporate buyers of brand products. Nassif assesses brand computers as holding about one third of the overall PC sales, which in his estimate total around 60,000 units per year.
Plans by the government to facilitate e-business and plans by the Ministry of Post and Telecommunications to implement a public data network would boost the IT industry, the manager said. “E-services and e-banking and e-commerce are what is going to come. It will take some time but it will happen.”
Software Design has practiced the art of programming in Lebanon since 1986, and its core product, the Visual Dolphin suite of financial and office management software, is a leader in the local market. “In one sentence: Things are going great,” said company founder and CEO Michel Nseir. “We are in a real expansion phase. Visual Dolphin is doing beautifully well and we are competing quite easily with international products.”
According to Nseir, the advantages Visual Dolphin offers to local and regional clients are that it compiles the same features available from international products but is localized to the profile of companies in the Middle East, and at a total cost of ownership that is four times less than for the big names in office management solutions. The company has kept its development capacities centrally focused in Beirut, although it grew regionally over the past few years, opening offices in the UAE and Saudi Arabia. Out of its team of over 50 employees, one third are consultants and one third are working in administration and sales. The remaining 19 are developers and all but two are based in Beirut.
“In Lebanon, we feel modestly that we continue to be leaders. In the region, we are still too small – I would even say extremely small – but we have enough to keep our company busy,” Nseir said.
Only in the domestic arena, the company decided to maintain its strong position of direct contact and sales to customers. In addressing regional markets, Software Design is betting more and more on relationships with resellers and partners. Software Design recently partnered with new resellers in Kuwait and Jordan but its most significant directional moves point to Germany and Canada. In both countries, the firm has appointed consultants in search for business partners, and Nseir is particularly looking to outsource some of the company’s work to Canada. Outsourcing from Lebanon to Canada? The development cost wouldn’t be higher in Canada, Nseir claimed, because from day one of operations, the Canadian government would extend grants and financial benefits to the firm – such as footing 40% of salary costs – that one could only dream of in Lebanon. If a partnership with a Canadian firm and manufacturer of a compatible software product line can be reached, finding customers and opening the North American market are considerations that play a role in Software Design’s planning. But a further very important – and not entirely comforting – need behind the strategy is that for a new identifier. “A Lebanese brand name is not appreciated,” Nseir lamented. “Europe and Canada have a better perception among Middle Eastern customers than a Lebanese product.” For example, Indian decision makers in companies in the Gulf would be willing to consider non-Indian products but not Lebanese ones, and in pitching to those decision makers, Software Design would have to hide their Lebanese identity, the manager said. Apart from Great Plains, a US supplier of business solutions that is part of the Microsoft realm and the fiercest competitor for business management software in the Middle East, the market for these products is divided among a good number of regional and smaller international providers. With turnover in the range of $1.5 to $1.6 million and claiming about 12% year-on-year growth between June 2002 and June 2003, Software Design is a well-established member of the Lebanese software industry. But in the absence of real promotion of the national ICT industry and image, Nseir is incensed about the lack of prospects and support for his industry. “Why do I have to go to Canada today, just to change my Lebanese identity? Three years ago, we were proud to be a Lebanese company,” he said.
For multinationals that choose to appear on the Beirut market, development and education seems to be a more of a priority that racking up the sales figures. Microsoft has made such a commitment to the Lebanese market by opening a representative office here in 1999. The software giant sees the country as a “potential market,” said Microsoft Eastern Mediterranean general manager Charbel Fakhoury. “Lebanon has always been a leader in ideas. But it has been slow on executing a unified vision. This is how I see where we are today.” “If we look back over the past four years, things have changed,” Fakhoury said. “Early on, we had issues on software imports with customs. It caused costs, created delays and a lot of efficiency issues. This has been resolved.”
Less beneficial to the firm were the slowdown of growth in telecommunications, internet penetration and adoption of e-services. High costs of PC ownership and connectivity, along with leisurely progress of legislation on things ‘e’ and Intellectual Property Rights discouraged faster development and kept Microsoft’s revenue growth in Lebanon lagging behind other countries in the region. But the company has been working closely with important sectors, Fakhoury said. ICT industry and private sector businesses, governmental entities and education institutions from schools to universities have all been the partners Microsoft sought out successfully over the past years. Over the period, the company brought to Beirut a good number of road show conferences and events aiming to win both developers and business decision makers to view their respective enterprises the Microsoft way. But it also supported dot-net clubs for students at five universities and sponsored a “smart bus” to expand IT awareness in rural Lebanon. Organizationally, Microsoft has structured its Middle Eastern presence into five sub-regions, namely southern Gulf, northern Gulf, Saudi Arabia, Egypt, and Eastern Mediterranean. The Beirut office, where 36 employees are based, is entrusted with the Eastern Mediterranean region comprising Lebanon, Jordan, Cyprus, Malta, and – as far as the restrictions of US embargo and export control regulations allow – Syria. A win-win business message of local and international synergies is key in the concept professed by Microsoft. “Our role is being a catalyst of IT in the economy,” Fakhoury said. “We want to increase the number of our partners and their level of skills.”
Without maintaining a large global services structure, Microsoft banks on partners and professionals certified under its software engineering qualifications to work with its tools and enhance the value of the entire business proposition of using Microsoft products. In Lebanon, the firm was an “early comer, early investor, and early supporter of the market,” Fakhoury said. In acknowledging the need to see things moving in all segments here, he classified the country as a potential market. “The effort we have to put in to drive things in Lebanon is higher than the effort needed in other countries. The market requires a lot of convincing and is decentralized. At the same time it is very demanding.”
In October, Mircosoft will launch a new set of its market-
dominant programs the likes of Word, Excel, Outlook, PowerPoint et al, together with further programs, server platforms and services solutions under the new label Microsoft Office Systems. The main launch event for the Middle East will be at the Gitex IT show and trade fair in Dubai. But the company is also preparing something for Lebanon although details are not yet available.
The world of chatting and information sharing would be naught without the net. Internet service provider Terranet came to the Lebanese market in 1999, with the handicap of being a late starter who wanted to deploy the best technology while complying with international industry standards. The company’s start-up goal was to rise to one of the top five or six ISPs in a local market characterized by rapid growth environment and exciting (by local standards) subscriber pool of well over 100,000.
“From being number 17, it took us one-and-a-half years to rise to one of the top three ISPs in Lebanon, gaining a very good reputation as the number one contender for customer satisfaction,” boasted Joseph Saade, Terranet’s deputy general manager. It was to the firm’s advantage that most customers had not been locked into loyalty contracts and were ready to experiment with new providers. But as Saade also said, the path to becoming really a major player in the Lebanese market was paved with hardship. Within a matter of a few weeks and months after large-scale introduction and marketing of its service as provider of an integrated internet access and portal, Terranet saw its cash flow model thrown in jeopardy when a ruinous local price war among Lebanese providers slashed profit margins for the whole industry to the point that ISPs sold access far below cost. Following this irrational phase of price aggression, a wave of non-licensed internet-over-cable operators took most of the new home user market with 24/7 services. Furthermore, the revenue theory of the portal concept, which aimed to bind customers to their provider by offering content and directory services and then cash in on that loyal customer base by selling (mostly banner) advertising space, flopped globally. “We made the same mistake in saying we want to provide the AOL of Lebanon and make enough money from ads to cover the cost of the portal,” Saade said, admitting that this never happened. Nonetheless, Terranet today claims that its some 22,000 true clients, who provide a steady stream of dial-up subscription revenue, represent about 40% of the country’s regular dial-up customers. The firm is a contender in both corporate and dial-up markets. About one third of subscribers use the faster – and more expensive – 56k service, which is the top of what an internet user can draw on in this country. Terranet undertook an investment into the much speedier ADSL (asynchronous digital subscriber line) service, which started to dominate developed communication markets about at the time when Lebanon’s public sector decision makers moved towards deliberating the pricing structure for the 56k ISDN service. Terranet’s two-year old ADSL equipment is ready to run but could not be introduced, due to another lack of pricing regulation.
Outside of Lebanon, Terranet succeeded in several Middle Eastern ISP projects either as subcontractor to set up a network or as full partner in a new service. While the company is bound to maintain its portal and design capabilities in the sister company, TerraVision, Saade said the corporate emphasis will be on providing access services. Overall, Saade is very optimistic. The haunting possibilities of further price wars have been resolved and the termination of the non-licensed cable-internet business through the government will bring a flood of new subscribers, he said. “The market now has four to five ISPs and the public is very intelligent in that concern, knowing what each company is capable of providing.”
Saade claimed that his corporate customers trust Terranet as an advanced provider of technology and reliable customer support even if the ISP is not out to offer bargain rates. He is also confident of securing a good market share of the expected boom in new dial-up subscriptions over the next two years.