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Dubai wants to become a major IT outsourcing destination

March 20, 2006

The United Arab Emirates wants to do more than just manage some US ports. Now it wants Dubai, its capital, to become a major IT outsourcing destination.

For the past few years, Dubai has been building a modern infrastructure, clearing away all taxes and visa hurdles in an effort to encourage companies that set up operations there, said Mehtab Ali Sayed, director of marketing at the Madar Research Group in Dubai.

“They are positioning themselves against India,” Sayed said.

Increasingly, many U.S. IT vendors already have offices in Dubai, mostly to support regional customers. Among them is Sierra Atlantic Inc., a Fremont, Calif.-based provider of offshore IT services, which opened an office in Dubai in August.

“Compared to India, it is expensive,” said Sierra CEO Raju Reddy, who noted that labor can cost 50 percent more than in India, where the company has the bulk of its operations. Moreover, “there is not sufficient local talent in Dubai,” he said.

But Dubai will nonetheless be an important base for supporting customers in the region, as well as delivering high-end architectural and design services, said Reddy.

Because of issues like costs and the limited labor pool -- the UAE’s population is about 2.6 million -- Dubai has barely made a ripple in the global and competitive outsourcing world. And despite its handsome office parks and zero taxes, it faces challenges.

The contentious move by the state-owned Dubai Ports World to acquire London-based Peninsular and Oriental Steam Navigation Co. for US$6.8 billion, allowing it to take over operation of half a dozen U.S. ports, illustrates the UAE’s efforts to diversify its economy.

But the port deal -- which would allow Dubai Ports World to run the ports of New York, New Jersey, Philadelphia, Baltimore, New Orleans and Miami -- could also prove to be a problem in its efforts to become an IT outsourcing hub if it fails.

“If there is a reversal of a major business deal, I would assume that will cause people to take a cautionary view with where and how they can do business,” said Jane Siegel, director of the Information Technology Services Qualification Center at Pittsburgh-based Carnegie Mellon University’s School of Computer Science.

While the UAE is considered an ally, the port takeover has met with vocal congressional opposition from House and Senate members upset about plans to allow a Persian Gulf company in a hostile region to manage the U.S. ports.

The White House has said it won’t allow the deal to be blocked.

While routine IT support isn’t going to get the attention the port agreement is receiving, “you can make the case that if they are handling anything that involves strategic or sensitive data transaction, that that could be a concern,” Siegel said.

Even then, she said, it’s not on par with scenarios envisioned by some in Congress if Dubai manages U.S. ports.

If the port management deal goes through, “it could establish Dubai as a credible place to do business with from the U.S.,” said Jeff Perdue, associate director of Carnegie Mellon's IT services center.

“It could have a halo effect.”

Despite the limitations of UAE’s labor pool and the geopolitical risks, firms focusing on the Middle East and West Africa “see Dubai as an excellent location for basing regional operations,” said Atul Vashistha, CEO of NeoIT Inc. in San Ramon, Calif. Vashistha said Dubai wants to establish itself as the Singapore of the Middle East.

Rita Gunther McGrath, an associate management professor at Columbia Business School in New York, has been advising Ireland on attracting foreign investment. She said Ireland sees the UAE as a potential rival.

McGrath, who has been to Dubai, described it as relatively friendly country that’s high-tech and with an “appetite for modernity.”

Source: IT World Canada