Under India's shadow, Dubai squeezes into outsourcing

By Michael Kanellos
Staff Writer, CNET News.com

Published: November 20, 2005, 1:00 PM PST

Last modified: November 23, 2005, 9:27 AM PST

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DUBAI CITY, Dubai--India's a tough place to live. That's the pitch Dubai is using to woo companies to bring outsourcing work to the region.

The city-state, part of the United Arab Emirates, has kicked off an effort to land some of the outsourcing work that is heading to countries with low labor costs like India and China. But instead of trying to compete head-to-head against those giants, the country is positioning itself as a place where companies can place their more senior or more qualified employees who may not want to live in Bangalore or Mumbai.

The plan, ironically, appeals at least to one Indian firm. Dubai Outsource Zone (DOZ), the government agency/free trade zone responsible for the project, recently signed a memorandum of understanding with a large Indian outsourcing company to bring work here, said Ismail Al Naqi, the director of DOZ.

Employees at the Indian firm who have worked at the company for a couple of years will be able to qualify for the move, he said. Dangling the carrot of a work transfer will, ideally, cut down on employees changing jobs, a major problem for Indian outsourcing companies.

At the same time, continued loyalty is assured. Anyone who quits their job loses their work permit and gets deported, Al Naqi said.

"No one will refuse to come. Dubai could be 30 percent more expensive, but you could get more productivity," he said. "We're half way through finalizing the deal."

Potentially, the city could become a center for services like telemedicine, where Western doctors can pass work on to doctors in other countries who aren't paid as well. "When you get to the high end, the (outsourced) talent is paid the same wherever you go," he said.

While a large number of nations are moving into outsourcing, Dubai can boast of a few advantages. The first is a whole lot of money. Rising oil prices have brought a windfall of profits to the Arabian Peninsula. Dubai is funneling this into a massive construction and economic diversification plan.

To attract companies, DOZ is subsidizing 50 percent of the real estate costs and 50 percent of employee housing. By 2010, the goal is to have 100,000 employees working in outsourcing here.

Additionally, the government has streamlined bureaucratic processes. Where the government ends and the private sector begins is somewhat hazy. "You can call Dubai the biggest company in the world," Al Naqi said.

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Thirdly, corporate income tax, personal income tax and sales tax don't exist, which can ameliorate some of the cost disadvantages. There is also the lifestyle issue. The city has emerged as a polyglot metropolis. Much more than half the population has arrived from somewhere else on a work permit; Indians are actually the largest national group. Although traffic is bad, it's far smoother than in Bangalore.

The results so far are somewhat mixed. On the positive side, space at DOZ is getting gobbled up. The first phase of the project, which involves 250,000 square feet of office space, is already sold out. It begins operations in the second quarter of 2006. Another 250,000 square feet of space that will open in the fourth quarter of 2006 is sold out too.

"Now we are building for 2007," he said.

Most of the contracts landed to date, however, revolve around conventional business process outsourcing and not the high-end projects DOZ hopes to attract. The companies coming here, which include ABN AMRO and AXA, will use DOZ to handle regional projects.

Correction: This story incorrectly described Dubai as an island nation. Dubai is an emerate within the United Arab Emerates.