Dubai, Outsourcing

Despite cost disadvantage, Dubai still pursuing outsourcing share

20 Nov 2003 | (Thinking Point)

‘Together with India, we can offer a package solution to the rest of the world. This way we can get a bigger slice of the pie for the region’

The great eastward flight of jobs from the United States and Britain is not offloading much over Dubai as the emirate’s business planners had fondly hoped. As the stream of job flow from American and European companies seeking to outsource their business processing to cheaper locations such as India turned into a torrent over the past year, Dubai was hoping that at least a part of the bounty would be washed ashore.

The idea was that Dubai, with its unmatched infrastructure and living conditions, could lure call center and back office businesses to come and set up base here, and at the same time draw on the vast reservoir of human resources represented by Indians, both locally and back home. It was, no doubt, a more costly option, but the advantages of locating in a city like Dubai, including its tax-free environment, were thought to be strong enough to offset the cost difference.

While in theory the argument made perfect sense, the pace at which the call center and back office business developed in India in such a short period simply overwhelmed the marginal players, who could not quite hold on to their ground.

Compared to Dubai, per-hour people costs alone turned out to be $2.50 cheaper in India. And it was as though the Western corporations have been struck by some kind of an India-mania, which apparently made them wary of anything other than India.

But Dubai is never known to give up easily. Having failed in its bid to emerge as a direct contender for the outsourcing business, the emirate is now trying to find for itself a new role in the business. In seeking the new role, Dubai hopes to leverage its close connection with India and thus develop and intermediary business of planning, organizing and managing business outsourcing. Some players in this category have already moved in.

A move is also afoot to launch a Business Processing Outsourcing (BPO) City as part of Dubai Internet City (DIC), the pioneering initiative that triggered the transformation of Dubai into a knowledge economy. The BPO City will position itself as a value-added outsourcing resource as opposed to the low-value call center business offered by India on the strength of Indians’ proficiency in English.

High-value BPO, as Dubai would like to call its product, involves facilitating decision-making by global corporations on where to locate their outsourcing requirements as also helping company officials handling the task relocate to working and living conditions that they are used to in the developed world. Larger corporations have BPO outsourcing teams who can do this job, but for others who would be happy to share managed services, value-added BPO will be an attractive option. The Dubai BPO City will be one of the sub-clusters that DIC has already produced to specialize in e-hosting, e-security, disaster recovery etc.

“Teaming up with India, we have developed a plan which will facilitate Indian call centers to carry on work uninterrupted,” says Omar bin Sulaiman, chief executive officer of Dubai Internet City.

“Many companies operating out of India are now asking: If something goes wrong, where are our disaster recovery systems? This is where we at DIC step in: offering the tens of thousands of call centers in India disaster recovery systems,” he adds. “Together with India, we can offer a package solution to the rest of the world. This way we can get a bigger slice of the pie for the region.”

Dubai has the advantage of being able to position itself as a significant value-added BPO center by clearly differentiating itself from its key competitors, says Nicholas Labuschagne, chief operating officer of One World, which has set up office in Dubai as a value-added BPO player. One World manages BPO services on the infrastructure that it sources and specializes in bundling infrastructure, staff, business process knowledge and deal flow together. The creation of a portfolio of service providers, according to the company, minimizes the risk of operational discontinuity. The company says it has invested heavily in developing business opportunities in the US and the UK.

“The question often asked is whether Dubai can compete with India. Dubai can never do that on the basis of high volume, low value BPO which isconducted in English, and nor should it,” Labuschagne argues. But it can be significant value-added player, he says.

India’s ascendancy in the business is causing nightmares in the West, particularly Britain, where workers are increasingly in danger of losing their jobs to the rising star. The alarm is jolting British trade unions to organize countrywide agitation to force companies not to give the jobs away. Any job involving a computer and a phone connection seems to be under threat.

It is perhaps an irony of history that the British, who established their dominance over India through one East India Company, are now facing hundreds of pint-sized south Indian and north Indian companies paying the former colonialists back in the same coin. The ranks of British companies that have moved operations to India include Lloyds TSB, HSBC, Barclays, Thomas Cook, Prudential, BT and even supermarket chain Tesco. The unions estimate that at least 200,000 British jobs are facing the threat of extinction.

Global consultancy firm McKinsey has estimated that in the next three years more than 1 million new jobs are likely to be created in the Indian state of Karnataka, whose capital, Bangalore, is a major BPO center. Of these, as much as 40 percent would be from outsourcing, McKinsey estimates. British recruitment firm Adecco has similarly estimated that some 100,000 jobs in call centers alone will go from Britain to India by 2008. But this is happening not just in call center jobs and other low-level back office positions; nor is it restricted to the UK. American consultancy Forrester Research has reportedly forecast that the United States will lose more than 3 million white-collar jobs in the next 10 years and half of them will go to India. Nearly 50 percent of these are expected to be professional jobs such as managers, accountants, underwriters, computer programmers and IT consultants.

These forecasts have boosted the outlook for the Indian economy and Indian fund managers are already selling their upbeat view to investors.

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