Executive Magazine

Tablets on the boardroom table

by Jad Hajj March 3, 2012

written by Jad Hajj

With the explosive growth in demand for smartphones and notebook computers in recent years, it is hard to believe that corporate technology users are still finding room in their bags and attachés for yet another device. The rising popularity of tablet computers, though, suggests they are somehow finding a way.

Although corporate demand for tablets is still low relative to consumer demand, it is already significant — and rising rapidly. Global market research firm IDC sees worldwide demand for tablets and other Internet mobile devices rising sharply in coming years, from 41 million units in 2011 to 235 million units in 2016. A significant driver of this growth, according to IDC, are corporations, which are seen doubling their share of tablet purchases to nearly 10 percent of total shipments in 2015, up from about 5 percent in 2010. Apple, for its part, claims that its iPad tablet is being used or tested at 80 percent of Fortune 100 companies. In the Middle East and North Africa, technology-consulting firm Ovum sees growth doubling in 2012 alone, from two million units to four million, and rising to 11 million by 2016. A recent IDC survey found that roughly half of all Internet users said they plan on buying a tablet in the near future.

In hopes of gaining a better idea of what is driving the popularity of tablets in the business world, Booz & Company and Motorola recently undertook a global research effort, interviewing chief information officers (CIOs) from a wide variety of companies. Three factors stood out.

First, much of the interest in tablet computers is due to the ongoing consumerization of corporate information technology (IT), as more and more employees insist on using their favorite devices in the workplace. IT departments are scrambling to put in place new IT infrastructure and policies to run and manage these devices. CIOs have needed to devise programs and processes that support workers who bring personal devices — not just tablets but also smartphones — into the office and use them in their regular work activities. Some companies have even gone so far as to give employees an allowance to buy the devices they prefer.

Mobility is a second factor, as more companies recognize the value in empowering employees to consume content — check e-mail, review PowerPoint presentations, manipulate downloaded sales data — on the go. Very few notebook computers are mobile broadband-enabled (less than 10 percent, according to our estimates), compared to roughly half of tablets. Our CIO interviews suggest that mobile broadband tablets are being strongly considered as alternatives.

Finally, there are the added security benefits that mobile broadband offers over Wi-Fi connectivity, including the ability to erase a tablet’s sensitive data remotely, if necessary. “We need encryption at rest [data physically stored in an encrypted manner], policy enforcement via active sync, remote data wiping, encryption, and associated policies,” a CIO at a global workforce firm told us. “It is all basic stuff, but it needs to be supported out of the box.”

In the coming years, enterprises in the MENA region will be further investing in information and communication technologies (ICT) as they strive to catch up with their counterparts elsewhere. Although enterprises account for as much as 6.5 percent of all mobile SIMs in some European countries, they have not even reached one percent in any country in the MENA region. By some estimates, the size of the MENA enterprise ICT market will almost double over the next five years, from an estimated $14.8 billion in value in 2010 to $26.1 billion in 2015.

The next two to three years will see a very interesting battle for the corporate share of mobile device spending, and CIOs in the region will need to think about what part tablet computers will play in their overall ICT strategy. Cost, of course, will be top of the list. A current major drawback of the iPad is its relatively high price, which is difficult to justify if the device is to be used in conjunction with both smart phones and laptops. Other cheaper tablets have not gained sufficient momentum in the corporate market, but this may change, as developers create more business-oriented apps and companies develop their own.

The extent to which MENA enterprises adopt tablet computers may also depend on other factors that lead to benefits that are harder to quantify but should still be part of a CIO’s calculations for return on investment. Among them:

Structured creation: Tablets’ initial use in enterprises is primarily centered on applications where mobility matters and where content is consumed rather than created. The new frontier of mobile productivity will be driven by what the industry terms “structured creation,” in which users can enter information in standard methods, such as drop-down menus. This results in data sets that can be easily compiled and analyzed, meaning faster processing of data and gathering of insights. In the MENA region, increasing Arabic language support for tablets — along with greater numbers of Arabic-language applications — will drive this kind of structured creation.

Unanticipated productivity gains: Because tablets can significantly increase employees’ connectivity, they will likely result in higher productivity as employees respond to questions faster, review materials more frequently, and plan work activities in advance. An IDC survey shows that 40 percent of UAE organizations have deployed mobile devices to at least 10 percent of their employees for work purposes.

Increased retention: Consumer technology is taking over every facet of people’s lives. Employees want access to the newest and best technology at work because they most likely are using something even more cutting-edge at home. Providing employees with new technology to help them become even more productive can boost retention by improving their engagement with the company.

Unexpected creativity from employees: In their push to persuade management to invest in tablets, employees will likely search far and wide for new ways of using them, in order to justify the costs. Those engaged in sales demonstrations have found that the tablets provide a level of interaction not previously possible. Client response is stronger, and salesmen report better results, suggesting that companies will need to be open to evolving applications of the technology.

Competitive advantage: Inevitably, the use of tablets will become standard in virtually every industry. Companies that can devise new applications and uses for tablets may be able to gain real advantage over competitors. Tablets can offer an advantage in industries where it may be important for customers to see that the company is on the cutting edge of technology. CIOs should consider whether there are ways the workforce interacts with customers that could be standardized through the adoption of tablets to improve customer perceptions of the company.

With manufacturers releasing more advanced tablets every month, the increasing use of these devices in the business world is not likely to slow down anytime soon. In the MENA region, senior managers are driving technology purchase decisions much more actively because of their own at-home use of tablets and other devices. CIOs in the MENA region are responding to this interest from senior managers and are seeking to ensure support of the new devices in corporate environments. Understanding how tablets are evolving — and how they are likely to benefit enterprises in the years to come — can help position enterprises and their employees on the leading edge of this technological change.

March 3, 2012 0 comments

Naturally selected

by Maya Sioufi March 3, 2012

written by Maya Sioufi

To say that Internet and social media usage in the Middle East and North Africa is expanding exponentially has become a truism of our time, but like the dinosaurs that failed to adapt as the ice age covered the globe, many companies’ marketing strategies now resemble bewildered cave men soon to be run over on the information highway.

So how fast is the online world changing? Well, the number of Internet users in the Middle East has increased from 3 million in 2000 to around 77 million today, of which 18 million are on Facebook, according to Internet World Stats.

In the past year alone, the number of Facebook users tripled in Algeria, doubled in Egypt and Saudi Arabia, and increased 75 percent in the United Arab Emirates, according to an analysis by Omnicom Media Group (OMG). Advertisers have been among the first species to take note of the sea change in consumer behavior and realize the value of the increasing attention online.

While Internet advertising in the Middle East is still in its infancy, online advertising spend in the Arab region is estimated to reach $266 million by 2013 and $1 billion by 2016, up from $56 million in 2009, according to Zenith Optimedia. Advertising companies, web development companies and small start-ups specialized in digital marketing all want a piece of the growing digital pie.

Ahead of the wave

Lebanon-based Eastline Marketing (ELM) is one of the companies offering digital marketing tools and claims to have grown rapidly from its inception in 2006 to cut itself a 20 percent slice of the domestic market currently, with other clients in Qatar and Saudi Arabia. Its founders, Nemr Badine and Marc Dfouni, both graduates from Canada’s Concordia University, say their headline offering is Sweepz, the only proprietary platform in the region that supports the Arabic language. Through Sweepz, clients of ELM can launch social media promotional campaigns such as contests, quizzes and sweepstakes, which are linked and regularly updated to social networks such as Facebook and Twitter. The company expects this product, which costs $1,000 to $10,000 depending on the project, to represent 30 percent of revenues in 2012.

ELM offers several other services, such as social media marketing (which includes managing the online presence of a customer) and display advertising: the acquisition of media space, planning campaigns and search engine optimization.

ELM’s founders believe that they have now reached an inflection point and in order to grow further they need more capital, and thus are seeking a strategic investor to fuel expansion. Badine and Dfouni estimate their company’s value to be at least $3 million.

“Our objective is to position ourselves as the regional leaders in digital marketing solutions whereby international brands would come to us to market their brands in the region and regional brands would come to us to market their brands both regionally and internationally,” says Badine. ELM is considering several options: venture capitalists (VCs), angel investors and another round of ‘family and friends financing’, though “we are in that spot where we are a bit too large for smaller VCs and too small for larger ones,” remarks Badine.

As the Middle East becomes ever more wired and the number of users who are ‘Facebooking’ and ‘Tweeting’ increase, the prospects for the nascent digital marketing industry seems abundant. ELM has been one of the early movers in this space but their future expansion in a fast changing industry will depend on their securing strategic capital.

March 3, 2012 0 comments

Economics & Policy Technology

Q & A – Hamadoun Touré

by Thomas Schellen March 3, 2012

written by Thomas Schellen

The United Nation’s International Telecommunications Union (ITU) partners with governments to define the global rules that underlie the development of the information society. It has also assumed a growing role in seeking to employ information and communications technology in reaching the UN’s Millennium Development Goals. Executive sat down with the ITU’s Secretary General Hamadoun Touré after his February visit to Beirut to discuss the ICT policy in Lebanon and the wider region.

You have referred to broadband Internet access as an essential infrastructure for participation in today’s economy. In the case of Lebanon, how do you assess the importance of broadband in the country’s participation in the global economy?

As I said [during my visit], Lebanon had a fixed broadband penetration rate of about 4.7 percent at the end of 2010, which is the highest in the non-GCC countries of the Arab region. Lebanon also has a relatively extensive fixed telephone network at about 20 percent fixed-line penetration, which is again the highest penetration in fixed-lines in the Arab region. It has been estimated that by end of 2010, 20 percent of households in Lebanon had a high-speed DSL broadband connection and therefore, Lebanon will have to prioritize increasing the number of households with internet access if it is to reach the global target put in place last October by the [ITU’s] Broadband Commission for Digital Development, which is that by 2015 40 percent of all households in developing countries will have broadband internet access at home.

How about pricing of broadband and mobile access?

Lebanon is providing relatively affordable fixed broadband penetration; according to our price basket that we published last year, entry level Internet broadband access was at 3.5 percent of average monthly income at the end of 2010, which is below the five percent target identified by the broadband commission… One must say that Lebanon has been late to introduce 3G mobile Internet penetration. Operators launched 3G only in 2011 and that was late; due to the nature of the annual contracts they have, mobile operators will not upgrade the networks through long-term investments.

Do you have figures showing the correlation between broadband penetration and ease of access and economic growth?

There are publications by the World Bank and other agencies showing that each 1 percent of broadband penetration translates into 1.38 percentage of growth in gross domestic product. You could also argue the contrary that each seven percent of GDP translates into 10 percent penetration of broadband; we will never be able to say which one is the cause and which one is the effect.

A concern in Lebanon is the political indecisiveness that could delay a new board for the Telecommunications Regulatory Authority (TRA). Would in your view a non-functional TRA affect the development of telecommunications in Lebanon?

Can you imagine a game without a referee? It could be chaos; and therefore you need a referee that is not only fair but also balanced and neutral and ensures that players play a fair game. You need rules and regulations — light-touch regulations, as we always advocate, but they have to be in place. To have authority, the referee should come before the game starts. Otherwise he could be ignored. Continuity in this area [of regulatory authority] is very important.

Do you see that the political upheavals of the Arab Spring have been affecting the operating environment, from the ITU perspective?

We as ITU are assuming that today, except for one country — Syria — the Arab Spring is over and that we need to talk about economic development issues in order to start creating jobs for the people who are the most in need of them. This is why we are organizing the Connect Arab Summit in Doha for March 5 to 7 to which His Highness the Emir has invited all the heads of state and governments in the Arab region and to which I am inviting all the Arab private sector and the international private sector as well. We want to bring all the stakeholders together and talk about not only investments in infrastructure but also in content development because the region has so many things in common and could develop heavily upon common Arab heritage, Arabic language, and Arab culture.

March 3, 2012 0 comments

Economics & Policy Technology

The apper class

by Thomas Schellen March 3, 2012

written by Thomas Schellen

Times always seem fortuitous for those companies in information and communications technology (ICT) that focus on the newest and fastest growing demand. This is even truer when other outlooks in the economy are, to say it nicely, as subdued as is the case today. So it come as no surprise that the handful of Lebanese companies which specialize in the emerging business of developing applications for mobile devices are buzzing with aspirations.

By the reckoning of the members in this new Lebanese branch of the global ICT industry, the field of developers in Lebanon today comprises about five companies that are focused exclusively on mobile app consulting and development. Approaching the market with innovative names such as FOO Solutions, Eurisko Mobility and Apps2U the larger of these companies employ between 15 and 25 professionals apiece and have on average produced 20 to 30 mobile apps in the past three years or less.

A second group of Lebanon-based companies with supply-side mobile app business interests include developers that produce apps as a value-added service to their existing ICT business or are expanding from their existing business into the apps space. A third group of companies are startups and young companies that are product centric, meaning they are in the business of developing games or financial payment solutions and use the mobile as one of their channels to engage customers. These companies, however, do not seek to address third party demand from companies that are looking to have apps developed by specialist services firms.

For FOO founding partner and CEO Elie Nasr, a crucial value gain since the company’s formation in early 2009 was the acquisition of skills. “Part of the process [is] where clients invest and the company benefits from delivering the project but also from the learning involved in producing the app,” he said.

Eurisko’s co-founder and CEO Zack Morad told Executive that the company has become a regionally known entity in less than 18 months of operations. “We started marketing our services in late 2010 with all cold calling,” he said. “In the first six weeks of 2012, there was almost no cold calling. Now, a lot of people call us.”

Up-sizing

The growth rates for the relatively small, in terms of employment numbers, have been impressive. FOO and Eurisko expanded from founding teams of two and four entrepreneurs in 2009 /10 to teams each numbering just under 20 professionals at the end of 2011. For 2012, each of the two competitors looks to reach team sizes of 30. Like the other mobile app developers in Lebanon, FOO and Eurisko have been financed from own funding resources of the founding entrepreneurs and their business partners, not by small and medium enterprise investment funds, venture capital groups, or private equity firms. Morad and Nasr also both said that they are entering a phase where their respective companies are looking for injections of capital. The company has grown organically until now and is bent on reinvesting its earnings, Morad said, “We are not taking anything out of the business. We will always be investing and growing because we see the big picture and we want to grow and help grow the market.”

Going viral

Similarly to Eurisko and FOO, the headcount at Apps2U is advancing toward 20 specialists. What is different in the genesis of Apps2U is that this enterprise grew out of the business of parent company MT2. This firm, although having worked for many years with relatively low profile, is well established in regional ICT. Its corporate DNA is rooted in telecommunications and MT2 acts as a content and services provider in partnership with network operators and audiovisual media across Arab markets. “We are a telecom company and we are offering all kind of mobile app services to all kind of customers in the region, not only in Lebanon. MT2 has connections with over 30 operators,” Apps2U managing partner Mario Hachem told Executive. The content formulas of MT2 include highly profitable features such as subscription-based delivery of Islamic content – e.g. guides to the proper observances during Ramadan and hajj – via SMS to mobile phone users across regional markets from Saudi Arabia to Iraq under revenue sharing agreements with network operators.

This business sparked the formation and growth of Apps2U, said Hachem, who is also chief technical officer at MT2. “For the last three years, operators have been asking for apps and for the last three years our team has been increasing in numbers and experience,” he said.

Scheduled to be turned into a standalone company under ownership by the current MT2 investors, Apps2U plans to increase team size from 16 developers to between 25 and 30 before the year’s end. The growth is in part for adding new technical expertise, as the firm wants to build skills in developing apps on the Microsoft 8, Facebook, and SmartTV platforms. As it has been expanding into the mobile app sector, the latest addition to the interactive portfolio of MT2 and Apps2U in February 2012 was a dedicated television channel on Nilesat where Blackberry users in the Middle East can flash their chat messages on the TV screen while communicating within the Blackberry community as well as with users of different smartphones.

Also sporting a strong business profile in providing value-added services to telecommunications operators is Inmobiles. Established in Beirut as startup in 2003, the firm has grown to a current team size of 80 by delivering products to telecoms operators or the banking sector, but until now never to end users, Inmobiles CEO Charbel Litany told Executive. The company made its first foray into the provision of an app to end users just at the end of 2011. It did so with a big splash, as the “whozcalling” app went viral in the space of weeks.

According to Litany, the roll out of the free app and its success nicely links to a strategy to convince network operators of a value proposition involving operator-owned app stores to push into the space currently controlled by device manufacturers. “I am trying to push value-added services on the device side and have network operators change from the network side to the device side. With the huge growth of the smartphone market, we have decided to test the market with one of the free products,” he said.

The company has so for not been monetizing its successful app in favor of using it as “proof of concept” in demonstrating to regional telecom operators that they can generate their own revenue with their app stores. This notwithstanding Inmobiles’ first free app appealed equally to regional and global users.

Market potentials

Corresponding to the limitations on assessing the value of enterprises on the supply side of mobile apps, searching into the demand side value for Lebanon’s mobile app developers does not provide a picture with clear and sharp contours.

According to Fadi Sabbagha, the chief executive of Born Interactive, local market potentials for mobile apps are limited by the small budgets that most Lebanese companies allocate to digital. For his firm, apps are not a standalone business but a natural extension of its communications services on a basis of client demand. What’s more, most of the business is in the region, not in Lebanon.

In all likelihood, the small budgets in Lebanon are directly correlated to the small size of the Lebanese market which translates into small revenue potentials, he told Executive, noting that hype over mobile apps here is paired with restrictions on budgets whereas in regional markets he observed, “a bit less hype but clients are more comfortable with budgets.“

While acknowledging that apps are still on the slow burner in the Lebanese market, Ralph Khattar, CEO of 2010 startup Virtual, added that the launch of every app developed for a major Lebanese company provides a boost to the business.

“Each time a company launches an app, they are promoting it, and each time is advertising [app development]. There are a lot of companies that need an app and we can have a good market share. Twenty percent is a good number,” he said.

Reality tests

Responses from the firms that have ordered apps give a clue that the experience is a bit more differentiated. Some high-profile companies which had apps developed for them in the past two years gave Executive overall positive and satisfied feedback but added that things could still get better.

According to Jihad Murr, the Chief Operating Officer of television station MTV, the station’s strongly advertised app is not yet highly used but among the most downloaded Arab applications on all platforms.

“For Lebanon, it is too early to make money from mobile apps but I think mobile apps and related revenue streams in the future will be a big part of the income for our media. We wanted to be the first in this market,” Murr said. MTV’s mobile app is linked to the station’s website, which has 70,000 unique visitors per day.

According to Eurisko Mobility, which developed the app for MTV, the station’s app has been downloaded over 300,000 times. The company embarked on the mobile app project with the intent to monetize it through revenues streams from paying advertisers, he added. The ad activity has been scheduled to start in March and MTV will also seek to obtain revenue from in-app sales of specific programs. Both projects are in progress but have advanced slower than planned. “We were late in monetizing it. We are starting now but I expected to start six months ago,” Murr said.

Similarly, business development director Michel Aji at restaurateur Roadster Diner enthused about the company’s mobile app in general but could convey no positive message about harvesting financial rewards from the year-old gadget.

The app was the number one among the free-to-download apps for the Lebanese market in the first two weeks of its launch in the first quarter of 2011 and had reached 15,000 downloads by mid February 2012, Aji said. The company serves in the range of 200,000 monthly visitors across its 12 eateries in Lebanon.

“On return on investment on this particular application, there is no reliable data,” he conceded, pointing to the Lebanese issue of unreliable data connectivity as a reason why the app does not facilitate online ordering.

No cheap feat

Costs of commissioning a mobile app are certainly an issue in the small local market. Companies that ask a Lebanese provider to custom develop a mobile app for them look at a cost of “at least $5,000”, Sabbagha said. This appears to be a consensus figure in the industry. The ceiling of possible cost for an app is not really defined, and Hachem said it can reach “$100,000 per platform”.

For entrepreneur Bahi Ghubril the cost of having a high-end app developed for several thousands of dollars per mobile platform is certainly a barrier. Ghubril is CEO of Zawarib, a mapping company with a declared mission to make Beirut easier to navigate. But although maps and mobiles make a natural fit and location-based services are among the reliable performers in application stores, the value proposition in Lebanon is not strong enough for his company to go it alone in commissioning an app.

“People consider apps to be a sign of success but users expect everything in apps and online to be free; at the same time it costs a lot of money to develop a strong app that would have good interactivity and a good search function for Zawarib while the market for this in Lebanon is very small,” he said, adding that the proposition of developing an app could be interesting in a partnership with online portals but not as a branding tool or mere image project.

Competitive edge or just edge?

The developers agree that infrastructure problems and high cost of connectivity are barriers to the industry’s growth in Lebanon. However, the better-late-than-never rollout of 3G services by the mobile phone operators Alfa and MTC Touch since last November has resulted in some 400,000 users who by February 2012 have taken to the services.

The outlook seems to be moderately positive also on the structural side of telecoms as latest annual management contracts between the government and the two network operators, which went into effect at the beginning of last month, contain two, albeit somewhat vague, management objectives of positive relevance to mobile applications developers: network operators are each to enable at least one Mobile Internet Service Provider by deadline of May 31 and to establish a mobile applications platform by 2013 “that hosts and offers mobile applications to subscribers”, with the added stipulation that four fifths of the applications have to be sourced from Lebanese developers. The two propulsion factors for competitiveness of Lebanese developers are the high quality of the human capital and its low cost in Lebanon. “Beirut has a highly-educated human resources pool, highly motivated, highly creative, and very cost efficient,” Morad said.

From Inmobiles, whose Charbel Litany said the company has seen zero attrition in its headcount since starting operations in 2003, to Virtual whose Ralph Khattar referred to the country’s leading universities as ready sources of talent, the developers describe Lebanon’s rich human capital as a core strengths that the industry can build on. This comes with the downside of losing staff to players abroad. As Nasr said, “the problem is not migration to competitors in Lebanon but people going overseas.” For FOO, a loss of four staff members who went abroad to join companies or pursue further education represented 70 percent of employee turnover since the company started.

As all mobile app developers in Beirut are aware of the threat of losing high-value talent to multinational firms, each company said that it is investing substantially in employee loyalty and retention, offering profit sharing or stock grants to its existential talents.

As every developer Executive talked to also has aspirations to grow its business internationally, foreign competition is an issue to consider. According to the Lebanese providers, India, the world’s leading country in ICT outsourcing, is not the biggest competition, because, as Nasr argued, Indian supply comes with a price-value caveat under which high-quality apps will be just as expensive as those produced here.

The GCC countries are also not on the radar as big competitors because of their low availability of native human resources and high costs of production in the knowledge economies. This leaves countries closer to Lebanon as main sources of competition in developing mobile apps under similar price and quality matrixes. One serious contender is Egypt, which was one of the rising stars in the outsourcing globe, before running into disruptions of economic reliability in 2011. Other countries with competitive potential vis-à-vis Lebanon are Jordan and, according to Nasr, Palestine.

Mobile applications developers represent the third wave of potential knowledge economy progress via ICT made in Lebanon. It serves to recall here that the first two waves — the introduction of mobile telephony in 1994/95 and the new economy take-off in 1999/2000 — also saw the country start out at the forefront of ICT adoption and native entrepreneurship. Both times, the natural competitive advantages of Lebanese innovativeness and richness in human capital were eroded, at least in part, by systemic, political inabilities to support the economic competitiveness of Lebanese ICT firms.

Business Models in Mobile apps

The business models underlying the development and delivery of mobile apps by serial app developers come in three main categories:

First — the free to download, which is still the largest group. When such an app is ordered by a client, the app developer produces a customized product according to demand specifications that include interactive features and the number of operating systems and platforms that the app needs to run on. These apps can function as enterprise tools within a company (for example as catalogues for the sales team), as marketing, branding, and customer relations tools toward a company’s end customers, or as instruments enhancing the company’s corporate social responsibility portfolio. As the developer produces the “free” app for a corporate client, he is paid like any other software consulting and developing company. In many cases, developers also produce free apps at their own cost and push them into the markets to build reputation or to generate advertising or sponsorship revenue streams.

Second — user paid and individually priced apps which can be downloaded for a onetime fee. This bazaar or mall-like business model has been pioneered by Apple’s App Store and benefits both the developer, who in case of the App Store reaps 70 percent of revenue, and the platform, which takes the rest. This model has proven to work well for popular apps as users pay fees that in many cases amount to less than one dollar for each download. If an app goes viral through peer-to-peer recommendations by users or effective marketing schemes, the monthly revenue streams can scale into very handsome sums and high profit margins. Apps in the ultra-long tail of available products, however, until now are not likely to generate enough income to recover development costs. The owners of leading platforms and application stores — currently the device makers (with Apple on top) and Google — are beneficiaries of concentration in consumer capital, but network operators and other players are not going to leave this attractive market place un-staked in the rising mobile technology economy, or mobitech.

Third — apps that rely on recurrent revenue streams from users. Under this model, a basic app is often offered for download at no cost. However, the free download acts as teaser. To succeed, the app needs to convey attractiveness and inspire loyal and habitual usage. Customers are either asked to pay for the continuous use of the app after the initial free usage period, or are offered premium services for which they pay either time-based, recurrent subscription fees or per-item charges. This in-app purchase model unlocks income streams for content providers and network operators.

March 3, 2012 0 comments

Comment

Driving us mad

by Sami Halabi March 3, 2012

written by Sami Halabi

Inching along amid a cacophony of horns in one of Lebanon’s estimated 1.6 million vehicles leaves a driver with ample time for reflection. As the clock on the dash ticks past another hour and the feet maneuver endlessly from gas to brake, how the country reached this point inevitably comes to mind.

For the sixth year running the country is set to operate without a budget. The president has again broken his oath to uphold the constitution, which states a budget must be passed by the end of January.

This is beyond unfortunate. With a budget comes some sort of policy framework that, in theory, commits the government to put its money where its mouth is. What we have currently is the politically calculated calamity of treasury advances, a crude process where cabinet has to agree on every spending measure outside of the 2005 budget. In any case, hardly any money that came from the people that year, or any subsequent year, comes back to them through the budget. That’s because after the debt servicing is paid to the banks, the deficit of Électricité du Liban is covered and the salaries of the patronage apparatus (also known as the public sector) are paid, the state is already in a deficit.

Any further spending, with borrowed funds, lies solely in the hands of cabinet. In other words, the money borrowed on behalf of the public, that should be spent on the public good, becomes fodder for the overlords pulling the strings at the cabinet table in their petty battles and under-the-table deals. The fact that the funds of $1.2 billion agreed to by cabinet for new power plant construction is to be allocated from the next budget — regardless of how unlikely it is to manifest — and not done through a treasury advance, highlights how little intent exists in cabinet to actually implement reforms.

Thus no one should be surprised when they look out from the windows of their cars to find themselves locked tight in an inescapable labyrinth of metal, given the absence of government policy to reform public transportation. To say that we are approaching tipping point in terms of what our roads can handle would be tardy commentary — we are well past that point. Since our policy makers ceased producing budgetary policy, more than 500,000 cars have entered the country, with the current trend at around 100,000 cars every year. The traffic and the pollution can only get worse.

But traffic aside all these cars are, quite literally, starting to drive the economy and an increasing proportion of the job market. Already the value of the car imports totals some 4 percent of gross domestic product, which doesn’t help much given that this is money leaving the country, not staying in it to create employment. Then consider all the customs and fees, which account for another 4 percent of GDP, which people must pay to a government that does little for them in return. And since the years of economic growth were “jobless,” in the words of the last finance minister, many local private sector jobs are now being steered by those very same cars.

Figures relating to how many people are directly and indirectly employed in the automotive sector are sketchy, not least because a national labor survey has never been conducted. But the sprawl of the ‘car economy’ can easily be seen with just a glance at the countless mechanics in Goberi, Sarafand or on the road to Halba, or the armies of valet parking attendants and cabs in the capital.

With labor-intensive sectors such as agriculture in decline and the trade or services having a small labor component, the options left for gainful employment are hardly the professions that will produce a society that progresses beyond being passive consumers of imports, or one that has the political and economic infrastructure to build anything else. The longer we go without a shift in the financial dictates that rule the country, the more our job market and our economy will be skewed toward import-based sectors, rather than creating one that can compete productively on an international level.

Unless our financial policy makes an abrupt U-turn, we will continue to be driven mad by our politicians and, perhaps deservedly, ourselves.

March 3, 2012 0 comments

Society

Journey to the opening bell

by Line Tabet, Ramsay G. Najjar & Zeina Loutfi March 3, 2012

written by Line Tabet, Ramsay G. Najjar & Zeina Loutfi

Facebook recently announced that it is going public, in a move which would constitute one of the biggest offerings and tech initial public offerings in history, estimated to reach $5 billion. While dwarfing the $1.67 billion raised by Google in 2004, this news can only remind us of the buzz that surrounded Google, turning it into one of the fastest growing companies and most attractive places to work at.

All this ado about Facebook cannot but get us thinking about IPOs in our region, which have been relatively few and far between compared to most developed and emerging economies. Surely there are several challenges that stand in the way of regional companies wishing to go public, ranging from unfavorable regulatory and market conditions to lack of investor confidence in such times of political upheaval. However, there are several areas that a company can work on to prepare the grounds internally and thus improve its chances of carrying out a successful IPO.

It is true that no one can predict the volatility of the stock market or the investors’ mood; however, it has become widely acknowledged that communication is key to any successful organizational change, especially when it involves going public.

A well-established corporate culture is crucial to successful organizations. In fact, a corporate culture that all employees identify with is an enabler of their alignment around the company’s purpose, strategy and goals; it enhances productivity and increases their pride and sense of belonging to the organization.

Part of the family

But having a solid and well-established corporate culture becomes much more critical when a company ventures into an IPO. This is because when a company goes public, it is moving from being privately managed to becoming publicly transparent and accountable, thus welcoming a new stakeholder to its family: the shareholders. The way business is managed changes and thus requires the company to adopt new management processes that reflect best leadership and management practices. This places employees under scrutiny and pressure; they feel vulnerable and are reluctant to change. Clearly, all these adjustments put a strain on the corporate culture, which would need to be solid and resilient to smoothly navigate the bumpy road of an IPO. As a very recent example of this, Zynga, the world’s largest social gaming company behind the popular Farmville Facebook game, decided to go public and succeeded in raising $1 Billion when it first traded on NASDAQ in December 2011. However, the company’s shares went down by 5 percent soon after the launch and upon announcing first quarter results that were more or less in line with expectations the stock fell nearly 18 percent. One of the reasons according to experts was the company’s corporate culture. Employees describe the corporate culture as intense and data-driven, where objectives and key results are the basis for employee and staff evaluation, and where performance data are used to calculate hard work, thus creating an atmosphere of competition and even all-out war between colleagues and departments.

However, even having a strong corporate culture in place is not a sufficient guarantee that employees will remain on board during and after the IPO. Efforts should be put on internal communication to reassure employees that the change in the way business is conducted and the addition of new business partners does not imply that their performance will be questioned or that the company will no longer value them. Communication efforts should strive to make employees feel proud of being part of the IPO adventure; they should feel part of a family rather than pawns manipulated by top management. Google understood that the reason behind its success is in attracting top notch professionals and young minds, and as such, its IPO letter started by “Our employees, who have named themselves Googlers, are everything,” putting the emphasis on the idea that going public will not change their corporate culture but rather reinforce it.

Returning to the Arab region, we note the large number of companies that have yet to institutionalize their corporate cultures, let alone establish strong and solid ones which could withstand the strains of an IPO. With a vast majority of companies being family-owned businesses, family feuding, nepotism and emotions remain at the center of management practices. Non-family employees many times feel like outsiders and thus lose the motivation and desire to work, never mind getting into a long process of an IPO that will bring new stakeholders on board and make the family members richer. There is no secret ingredient in the recipe of a strong corporate culture. However, there are key drivers that any organization should have in order to build or reinforce a distinctive yet common corporate culture; this should start by gathering all employees around the same mission, vision and values of the company and establishing a two-way communication whereby leadership would make sure to listen to concerns, address doubts and acknowledge achievements.

Weaving a tale

The second success factor that can go a long way in helping ensure a smooth IPO is elaborating a story or narrative around the company, one that would go beyond business and profit to emphasize its achievements, namely in terms of how it touches the lives of its various stakeholders. Who can forget the story of Facebook that has been turned into an award-winning movie? It would be a generalization to say that behind every successful company that went public is the story of a young student with a genius idea who tried to make it happen from his bedroom.

However, Steve Jobs, Larry Page, Sergey Brin and now Mark Zuckerberg are the first names that come to mind, when we think of successful companies that went public. In fact, the common ground between them is that all these high-listed companies were first start-ups whose founders wanted to make the lives of people easier through a certain service or product. Sometimes these stories might be far from reality, such as the story of e-bay founder Pierre Omidyar who started the e-shop concept following a discussion with his wife about how to acquire PEZ-dispensers. The anecdote might not be true; however, it succeeded in attracting potential investors, increasing familiarity with the company, allowing the public to relate to its founder, while downplaying the fact that he was already a multi-millionaire when he created the company.

As such, it is important to create a story around the company, whether it is centered on its founding and evolution, its services and products, or the noble cause that it espouses, as it will help generate considerable brand awareness and often loyalty, allowing stakeholders to identify with it and providing it with significant communication mileage. But most importantly, a story helps establish an emotional bond and paint a human side to a company, particularly at a time when the schism between the corporate world and the rest of society is growing wider. A feel-good, inspiring story encourages people to often unconsciously root for the company over others, providing it with a competitive edge that can translate into a solid goodwill bank that might shield it in times of crises and positively impact its bottom line.

When we think about IPOs, the first thing that comes to mind is a number in billions, a ringing opening bell at Wall Street, and a success story of entrepreneurship. This entrenched image could very well be duplicated in the Middle East, especially since the region is now becoming an investment hub with many countries well on their way in carrying out capital market reforms and instituting regulations that are in line with international practices. With communication as a pivotal enabler behind the success of any IPO, regional companies should start by cementing their corporate cultures and creating an inspirational story behind their success. Who knows, the next Facebook or Google might just be around the corner.

March 3, 2012 0 comments

Comment

Salafi spillover

by Peter Speetjens March 3, 2012

written by Peter Speetjens

"We salute the Free Syrian Army,” reads a banner in Badawi, a poor suburb of Tripoli, where the Lebanese flag is about as common as the three-starred flag that adorned flagpoles in Syria prior to the 1963 Baath Revolution. Further down the road, a billboard heaps praise upon the “Islamic” revolutions in Tunisia, Egypt and Yemen.

Tripoli and the north of Lebanon are increasingly entangled in the Syrian quagmire, which could have dangerous implications for the future of Lebanon as a whole. As the Syrian conflict grows increasingly violent, Tripoli is no longer merely a safe haven for civilian refugees. It is also a base for the FSA to treat its wounded, as well as pick up arms and supplies. Syria is not at all popular in the predominantly Sunni city. Most inhabitants have not forgotten the heavy-handed presence of the Syrian army during and after the Lebanese Civil War. Many people were killed, or “disappeared”, and members of the Islamic movements bore the brunt of Damascus’ wrath.

Today, seeing their Muslim brethren being killed in Syria, they smell revenge. Mohamed, a Badawi shopkeeper, armed with a walkie-talkie and a handgun under his shirt, explained how cross-border activities between Lebanon and Syria concerned people, medication and arms. He complained about inflation: three dollars for a bullet and up to $2,000 for an AK-47. “Thank God, we are supported by the Gulf,” he said. The financial and logistic support for the Syrian uprising by countries such as Qatar and Saudi Arabia is no longer a secret. British daily The Times on January 22, for example, reported that Qatar and Saudi Arabia were beginning to fund the Syrian National Council (SNC) and armed groups fighting the Assad regime. On paper, the SNC is an umbrella organization for Syrian opposition groups. In reality, it is dominated by the Muslim Brotherhood, while there appear to be sharp internal divisions. Such growing pains are of course only normal for an organization less than a year old.

On January 26, the SNC published a one-page ad in Al Hayat thanking Saudi King Abdullah for his generous support; the 87-year-old monarch as a symbol of change in the age of Twitter and Facebook — who could ever have thought? Other reports are even more worrisome. On February 12, Al Qaeda leader Ayman al-Zawahiri urged Muslims in Lebanon, Turkey and Jordan to join the struggle in Syria. A day earlier the Iraqi vice-Minister of Interior, Adnan al-Assadi, claimed that Iraqi arms and Jihadists were crossing the western border.

While most mainstream media continue to broadcast a black and white picture of “the people vs. the power,” the mood of Syrian artists, students and intellectuals in west Beirut’s trendier bars is changing. They feel “their” revolution is slipping out of their hands.

“The regime has committed too many crimes — we want it to fall,” a student from Homs summed things up. “Yet you cannot deny that the opposition is mainly Sunni. The religious minorities and Kurds are hardly part of the uprising. If the majority of the Syrian people vote for an Islamic government, I think we should give it a try. But seeing the way things are going, I fear a civil war.”

If that were to be the future for Syria, then Lebanon would be foolish to think it can remain unaffected. The recent deadly clashes between pro and anti-Syrian factions in Tripoli were but a warning shot. The suggested solution, to turn the city into an arms-free zone, was well-meant yet laughable. No sane Lebanese person would dare uphold that as a feasible option. The problem with arming (radical) Sunni groups in Afghanistan, Iraq, and even Libya, has proven to be an unpredictable affair, as they often have their own agendas. Lebanon should know, following the pitched battles with Sunni fundamentalists at Diniyeh and Nahr Al Bared. Ask a shopkeeper, such as Mohamed, what he thinks should come next and the answer is truly frightening. According to him, the Shia simply are not Muslims and it is only thanks to Hezbollah that Assad is still in power. Therefore, following the fall of the latter, it should be the former’s turn. “If we had not had a civil war in Lebanon, Lebanon would today be Palestine,” he said. “That’s why we need another civil war to get rid of Hezbollah, so Lebanon is not an Iranian satellite state.”

March 3, 2012 0 comments

Society

Treasure Islands

by Paul Cochrane March 3, 2012

written by Paul Cochrane

There is only a passing mention of one of the Middle East’s tax havens, Dubai, and no mention of the other two contenders, Bahrain and Lebanon, in Nicholas Shaxson's book “Treasure Islands: Tax Havens and the Men Who Stole the World.”

This is a shame as there are plenty of juicy tales to tell about shell companies, dodgy accounting and suitcases crammed with petrodollars, but there is a good reason for the lack of coverage. The Middle East three are small fry in this business, with more than half of world trade passing through tax havens, while in 2010 the balance sheets of small island financial centers alone were conservatively estimated by the International Monetary Fund to be worth a staggering $18 trillion — just less than a third of the world’s gross domestic product.

Compare the Cayman Islands — population 56,000 — with Lebanon and Bahrain; in 2008, the Caymans had $2.2 trillion in equity liabilities (deposits and other obligations) and $750 billion in portfolio assets, while in 2010 Lebanese bank assets were $133 billion and Bahrain’s $210 billion. Likewise, the Dubai International Finance Center is a featherweight compared to the Dublin International Financial Services Center, which hosts 8,000 funds with $1.5 trillion in assets. So, while the reader will find nothing about the 2008 law that enabled Lebanon to become an offshore center (there were 5,983 registered companies in 2010), “Treasure Islands” gives a full account of how tax havens developed worldwide, the back-room deals that prompted legislative change, and the problems that tax havens cause.

At this point, a definition of “tax haven” is worth making, for as Shaxson notes, there is little agreement. Shaxson’s definition is a broad but salient one, with a tax haven a “place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.” This can refer to the obvious, evading tax, to more complex financial dealings such as repackaging capital and trade miss pricing, to usury specialties and lax corporate governance laws. What all havens, onshore and offshore, have in common is “secrecy in various forms,” while a giveaway is whether “the financial services industry is very large compared to the size of the local economy.” A further common marker is very low or zero taxation rates, which are typically offered to non-residents, whereas residents are taxed.

But these jurisdictions are not just obscure tropical islands, they are the renowned financial centers of the world: the United States, Luxembourg, Switzerland and Britain. Cumulatively, the biggest player is Britain, with its Crown Dependencies and overseas territories (Guernsey, Jersey, Cayman Islands, the British Virgin Islands etcetera), plus the former empire (Hong Kong, Singapore etcetera) accounting for 37 percent of all banking liabilities and 35 percent of all banking assets on the planet. If the City of London is added in, at 11 percent, the British group has almost half of the world’s banking assets. Like the rest of the globe, the Middle East is linked to these tax haven networks, as a cursory glance through company registries will highlight a listing of places such as Panama, Cyprus, the Bahamas and so on. According to research published in 2011 by Global Financial Integrity (GFI), four Arab states were in the list of the top 10 countries worldwide with the highest illicit financial outflows between 2000 and 2009: Saudi Arabia with $380 billion, the United Arab Emirates with $296 billion, Kuwait with $271 billion and Qatar with $130 billion. The GFI notes that the prominent destinations of this capital flight were fiscal paradises and the interconnected global financial centers.

Curbing tax havens is a pressing concern, as they deprive countries of billions of dollars in tax revenues as well as the capital available for lending, and played a major role in triggering the financial crisis. Shaxson offers some solutions, but taking on tax havens and their clientele incurs serious opposition. Some two-thirds of global cross-border trade happens within multinational companies — the majority of which utilize tax havens — while 99 of Europe’s 100 largest companies use offshore subsidiaries, with the largest users being banks.

While the reader is left with a degree of despondency given how intrinsically important tax havens are to the global financial system, Shaxson has done an invaluable service by making the public aware how rotten to the core it truly is.

March 3, 2012 0 comments

Comment

That moment unforeseen

by Nicholas Blanford March 3, 2012

written by Nicholas Blanford

The world of journalism lost two giants of the trade last month with the deaths of Anthony Shadid, the Middle East correspondent for The New York Times, and Marie Colvin, a veteran war correspondent for Britain’s Sunday Times.

Both died in Syria — Shadid from a fatal asthma attack while heading to the Turkish border after spending several days with the rebel Free Syrian Army, and Colvin from an exploding artillery shell in Homs from where she had been reporting for a week.

Their deaths have provoked once more, among journalists covering conflict zones, deep introspection on how to assess the critical balance between the need to report a story to the outside world and the risks involved in obtaining it. The demands to produce material combined with ever growing numbers of correspondents covering the same story — from newly arrived hopefuls looking for a big break to seasoned veterans — have increased the sense of competition among reporters.

Shadid’s moving memorial at the American University of Beirut attracted a large number of colleagues, many of whom had flown in for the occasion from points across the Middle East, Europe and even the United States. During the lengthy drinks that followed, a leading topic of conversation was the dangers involved in infiltrating Syria to report on conditions on the ground as both Shadid and Colvin had done. More and more journalists are undertaking the perilous trip to sneak across the border to spend a few days with the Free Syrian Army or besieged civilian populations, providing crucial eyewitness accounts to supplement the flow of often unverified cell phone footage or reports offered by so-called ‘citizen journalists’.

Few doubt the importance of the story. After all, the fate of Syria in the coming months has the potential to reshape the geo-political map of the Middle East, and not necessarily to the collective good.

The violence wracking the country and the tragic examples of Shadid and Colvin, among other foreign journalists who have died or been wounded in Syria, is causing many to err on the side of caution. One brave journalist I know who covered the conflicts in Afghanistan, Iraq and the Arab Spring uprisings in North Africa, and has been kidnapped twice, told me that he was stepping aside from the Syria story. Too many close calls and a recent marriage had changed his perspective.

Gathering as much information about the situation on the ground is critical, which is then weighed with the importance of the story and personal factors. A war reporter who is well established, middle-aged and married with children has much more to balance in his or her decisions than an ambitious single 25-year-old just embarking upon a career. But there is also the dreadful burden of peer pressure. When one reporter takes the plunge and survives with a scoop, his competitors feel compelled to do the same or better. Then there is the not-so-subtle pressure from newspaper editors — “I see Smith of the [rival] Daily Standard got into Homs, would you be interested in having a crack at it? No pressure of course, just wanted to check…” An outright refusal could jeopardize one’s career, but accepting the assignment could get you killed.

How does one calculate acceptable risk? There is risk in crossing a road (especially in Beirut), but we all do it. And the more often we cross the road, the more confident we feel and the sense of risk diminishes. That’s when we blithely march across a busy street while sending text messages on a cell phone with barely a sideways glance and end up squashed like a bug on a truck’s radiator. War reporting is similar. The fear factor is highest usually when taking the first step — whether it is following troops into battle, driving down a highway notorious for roadside bomb ambushes or passing through kidnapping territory. Once that Rubicon has been crossed safely, there is a temptation to push on to the next level of risk. But surviving a succession of dire situations can breed complacency, which in turn leads one to take ever greater risks.

Of course, the level of acceptable risk is different for everyone, but the heartbreaking examples of Shadid and Colvin are sobering reminders that the risks are deadly real. No one can plan for all possible contingencies, and even decades of experience offer no shield against that moment unforeseen.

March 3, 2012 0 comments

Business

Still shipping

by Joe Dyke March 3, 2012

written by Joe Dyke

In the list of Lebanese businesses, the name sticks out — Henry Heald and Co sounds incongruous. In many ways it is, yet it is believed to be the country’s oldest company.

Henry Heald and Company steamboat and shipping experts was registered in 1837, more than 100 years before the country gained independence. All of Mr Heald’s contemporaries have since closed down, meaning the shipping agents are believed to be the oldest continually registered company in Lebanon.

Little is known about Heald, an Englishman from Yorkshire, apart from the fact that he had been living in the “Levant”, for several decades before setting up the company at a time when European trade was expanding rapidly. Philip Mansel, author of the book ‘Levant’ which tracks the history of Beirut and other port cities, explains how the Ottoman-led government of Muhammed Ali had opened up to foreigners. “There was a complete change in attitude. The whole region was opening up because Muhammed Ali’s efficient modern administration arrived in 1831,” he says. “Customs receipts trebled in the 1830s and Heald’s were a part of that.”

In the late 1800s Heald’s nephew, Charles Smith, who had taken over the business, died, leaving it to his partner Earnest Joly, in whose family the business remains to this day and his great-granddaughter Harriet currently occupies the managing director chair. She explains it was the high-society connections of Earnest’s more affluent wife Catherine that enabled the takeover bid.

“When Earnest and Catherine wanted to buy the rest of the company from Charles Smith, Smith’s sister was a bit of a snob,” Harriet explains. “This branch of our family had been living in Smyrna [now Izmir, Turkey] and Ms. Smith didn’t approve of the people from Smyrna and refused to sell her part of the company. Then Catherine produced a copy of Debrett’s [a magazine for Britain’s elites] showing her as the granddaughter of a Baron and immediately everything was alright and she was quite happy to sell.” Yet Earnest’s woes did not end there. With the company growing, both in Lebanon and other parts of the Middle East, he was taken prisoner by the Turks for a large part of the First World War.

While many Europeans took the hostility to Westerners as their cue to abandon the Middle East, the Jolys returned to post-war Beirut to rebuild. And the family’s resilience was tested again 60 years later when they struggled to keep the business open throughout the Lebanese Civil War, despite the Beirut port closing for months and the company’s offices being blown up in 1975. Harriet’s dogged father kept operating, often risking personal harm to convince ships to dock.

“All the captains knew him but were frightened because there was a war going on, so they didn’t like coming in to port,” Harriet says. “Usually the condition for coming in was that they would give him a cabin and he would sleep on-board to prove it was safe.”

“Once he had a ship arrive and he took the captain and two visitors out for dinner over toward Jounieh. He sat them with their backs to the window and while they were eating a fire-fight broke out in the distance behind them,” she says. Once the fighting had abated he settled the bill and returned his guests, satiated and unawares to the affray, back to port.

Nowadays the company has around 15 staff in Lebanon, plus assets in other parts of the Middle East, and operates as a shipping agency, port services firm and recently even as an investigator of illicit insurance claims. Walking through the offices in Gemmayze there are few clues to the company’s unique heritage. Bar the odd ship’s wheel on the wall, you could be in any modern office in the country, with staff tapping away on computers, an impression Harriet admits is deliberate.

“When we are presenting to clients we always mention the history because we think that is kind of nice, but we like to also come across as very much up-to-date and in touch with the latest developments,” she says. “I think a lot of people have a downer on family businesses and think it’s not really the way it should be done.”

Much of the industry had a difficult 2011 as Hassan Qoreitem, head of Beirut port, admits. “It was a tough year not just because of Syria, but because of the situation in the region and in Lebanon as well. The local cargo decreased but we succeeded in increasing shipment cargo through the Port of Beirut.”

Revenues for the port itself declined 4.79 percent in 2011, according to Blominvest Bank, but there was positive news as the port breached the landmark of handling one million containers for the first time. Qoreitem describes Heald’s as “one of our most esteemed clients”, but the company has not been immune to the regional downturn. A crucial contract for the company is with NYK Roro to import cars to the Middle East but demand disappeared as uprisings swept the region, with just three shipments in the first six months of 2011. Yet it has slowly picked up in recent months, averaging one a month between August and January.

Harriet sees room for expansion in the coming years, with freight forwarding and fraudulent claims on medical insurance among new potential areas of growth. She has two step daughters, a niece and a nephew, so the obvious question, therefore, is whether the business will stay in family hands for one more generation?

“It may or it may not,” she says. “No one is going to force someone to do something they don’t want to do, but it is obviously there for family to take over if anyone shows an interest.”

March 3, 2012 0 comments