|Local software firms eye outsourcing to compete
|With Western conglomerates increasingly looking to emerging markets to subcontract software development, local firms are hoping to break into increasingly competitive European markets by promoting Lebanon as an offshore outsourcing zone for global corporations. |
Since demand in Lebanon and nearby Gulf markets is too limited to sustain the country's 50-odd software firms, the US and Europe are the key to growth, says Thies Witting, head of the software sector of the Euro-Lebanese Center for Industrial Modernization (ELCIM).
"For companies who want to remain small, the regional market is enough. But if they want to expand they have to break into European markets outside of France [where they are present] because of the historic relationship with Lebanon," he says.
"There are two ways they can do this, by outsourcing [their services] or by selling locally manufactured, standard products. With few exceptions, the only way to achieve success is by outsourcing since plenty of domestic firms already supply standard software to Western markets."
Indeed global companies have a wealth of software outsourcing companies to choose from, most of which compete with Lebanon at the level of cost, and to a lesser extent proximity. Romania and Bulgaria are emerging as popular outsourcing destinations for European nations, and US firms favor India and Pakistan. Lebanon's small IT firms need to group together into software clusters to challenge their dominance, argues Witting.
Association of Lebanese Software Industries president Joe Abi Aad agrees that outsourcing should be the priority of Lebanese firms since Western firms are becoming dependent on off-shore IT subcontractors. But creating software clusters is one of many possible routes.
"We are never going to be able to compete with places like India in terms of cost, so I don't think we should be focusing on competitively priced products," Abi Aad told The Daily Star.
"What we need to focus on is branding a whole Lebanon package and creating a niche as a near-shore outsourcing zone with multi-lingual designers with a grasp of Western culture."
Xenatus Global, a 12-man Lebanese software development firm under contract with two conglomerates in Canada and California, successfully marketed its own Smart Arc program in the West and continually works with US firms independently.
"Local work gives us exposure, but being subcontracted is certainly easier than dealing with fluctuations in local market," says Xenatus' business manager, Shakeeb al-Jabri.
Jabri says several Lebanese software firms have left Lebanon over the past two years due to lack of demand. Some have gone to regional software-exporting hubs, like Egypt, Syria, and Jordan, where Arabic-language computer programs are manufactured, while others have subcontracted in the Gulf.
While Xenatus cannot compete with India, Asia, or Eastern Europe in terms of cost, US firms continue to renew their contracts, which Jabri attributes to "ease of communication."
"We are bilingual, exposed to other cultures, it's easier for them to relay their ideas," he says. "Sure they get the credit for our programs, but we learn a lot from their expertise."
ELCIM director Raja al-Habre says Lebanese firms' linguistic advantage is key to their appeal to smaller firms looking for a specific program rather than mass-produced software.
"They are performing relatively well, but they still have demands for the government relating to IT infrastructure and broadband access," Habre said.
The Daily Star