The snowballing effect

6The Middle East economy has been on the downward curve due to spending cuts, tightening liquidity, investor uncertainty, etc. and the IT sector has borne consequences like any other industry. This gave rise to defectors and the general idea has been that many IT businesses left the country with unpaid loans which has affected the IT industry adversely.

According to a recent report by Coface, a trade credit management solutions and risk information services provider, a total of 814 runaway cases were reported out of 23,000 companies that were monitored by the company in UAE and Saudi Arabia. This is a mere 3.5 per cent and as per the survey a large portion of these runaways were general trading businesses. When these so-called ‘skips’ happen, the lack of (or decrease in) bank lending and a liquidity crunch usually cause a snowballing effect that slowly influences the entire industry.

We met up with Dharmendra Sawlani, President of Dubai Computer Group (DCG) and Suchit Kumar, General Secretary of DCG, the premier association of IT channels in Dubai recognised by Dubai Chamber of Commerce and Industry, to understand the dynamics of channel market and the real story behind runaway cases that have disrupted the market in many which ways. We also discussed the initiatives and efforts of DCG to curb this phenomena and how such a scenario can be avoided in the years to come.

Dharmendra Sawlani, President of Dubai Computer Group

While explaining the key points, Salwani said “When there is a slowdown in the economy, it is usually followed by a chain of late payments and as time passes they keep piling up leading to absconding at one point. The perception in the market is that there were many runaway cases, which is not really true; there were only a few. While this number may be small, it has still given everyone a false impression that the IT industry is collapsing,”

Commenting on how instability in the market has affected businesses in the region, Kumar said, “This instability was like a learning curve for those who have been taking certain aspects of the business for granted. This has enabled them to rethink business practices and take self-corrective measures.”

“On the brighter side, this situation presented the industry with an opportunity to come together and rethink the business model we have been working on, to adapt it to be more safe, secure and sustainable in the years to come. This year I expect the IT industry to completely bounce back from the aftereffects of these events and continue growing,” added Sawlani.

Dubai Computer Group
Suchit Kumar, General Secretary of Dubai Computer Group

DCG has taken the initiative to organise educative programs to inform and update businesses on the best practices to follow for creating a positive ecosystem for businesses in the market and streamline all processes. “Last year we also started an event called ‘Business Networking’ to enable business engagement through personalized one-to-one meetings within the IT industry,” said Kumar. This event follows the successful completion of two other events that were hosted by DCG and will serve as a platform for connecting its members with those who share a similar drive and ambition in the IT channel industry.

An analysis conducted by Coface shows that UAE growth will pick up in 2017 to reach 2.5% up from 2.3% in 2016 because the country is more diversified from oil than its neighbouring GCC states.

“2016 was a very challenging year. Though some business holders did skip the market and there were uncertainties for some time, the dust has finally settled in the IT industry,” stated Sawlani. He went on to emphasise how there is a need for proper due diligence by the agencies that lend money and those providing credit insurance as well.

Commenting on the reasons for runaways in the market, Sawlani said, “Usually businesses that are not following ethical practices get trapped with lucrative offers by brokers, etc. Then delayed payments and cash crunch may force them to drop out.” He further explained that another reason is mismanagement by individual companies. “The first step every business owner should take is to thoroughly know their customers and re-consider their business practices. The challenges faced by the industry, namely fluctuating oil prices, slowdown in the economy, etc. are not new. These have been a part of the industry for a long time. Since most of the businesses were able to sail through such difficult times, it should not be held as a reason for defaulting,” he added.

The government plays a huge role when the industry is facing such challenges. “Dubai government is always open to discussions. DED has programs in place for dispute resolution and are very approachable in case we need any kind of support. DCG has also helped and negotiated for firms that suffered any kind of setbacks, however, if a firm skips the market then it is out of our hands,” explained Kumar. “Going forward we expect the economy to stabilize and an increase in government spending as well. Once the government actively increases their funding in the IT industry, public expenditure in this sector will increase as well,” he added.

The incidence of businesses skipping when the economy is under stress is not unique to the IT industry. Dharmendra further explained that no doubt there has been a trickle-down effect because of runaways but in this case perception has been much larger than reality. On positive side, this situation will alert the channel and make it more cautious to work with best practices which will go a long way in consolidating the channel.