Dubai faces a battle to establish itself as one of the world's leading outsourcing loca tions.

The Dubai Outsource ZoneDubai Outsource Zone was launched in 2004 and by July this year more than 70 companies had registered, including Emirates airline, telecom service provider du and Mashreq bank.

"Our main objective is to help build the outsourcing industry in the local and regional markets," said Ismail Al Naqi, Dubai Outsource Zone (DOZ)Dubai Outsource Zone (DOZ) director.

"Outsourcing is inevitable it's a gradual trend. Firms mainly outsource for four reasons to free up resources, to reduce costs and to increase internal performance and customer satisfaction.

"Companies should start outsourcing non-critical functions and then move up to more sophisticated activities." India and China continue to dominate the outsourcing industry, with a ready supply of cheap labour and more than a decade's worth of experience in the sector. They were the top two ranked countries in consultants AT Kearney's Global Services Location Index 2007, followed by Malaysia,Thailand and Brazil.

The UAE trailed in 20th, the same position it held in the 2005 survey, behind regional rivals Egypt and Jordan, which were ranked 13th and 14th respectively.

India on top
Each country is given a total rating out of 10, with the UAE scoring 5.51 points, compared to India's 7.00 and China's 6.56. The UAE scored 2.73 out of four for financial attractiveness, 0.86 for people and skills availability and 1.92 for business environment. The maximum score for the latter two categories is three points.

Low-cost centres such as those countries making up the AT Kearney top five typically provide simple outsourcing such as call centres, medical transcriptions and simple accounting, and Hari Padmanabhan, deputy managing director of 3i Infotech, an Indian-based global outsourcing provider, believes the UAE can succeed by offering niche services.

"We believe the future will see IT run as a single service, which customers will pay for in much the same way as they do their electricity or water bills," he said.

"Dubai faces a challenge to compete with the likes of India, China and the Philippines, but there are areas where a high level of expertise is required and these employees will be more attracted to a place like Dubai.

"Dubai can succeed by becoming a location for specialised, complex applications. This is a very niche segment of the market.

"The aviation industry will pull a whole load of qualified professionals into the country and Dubai can become a centre for specific industries, which is always a challenge for low-cost centres," Padmanabhan added.

The Middle East's strategic location between Europe and Asia means it can serve a vari ety of markets. The AT Kearney report found that outsourcing had so far focused on IT, distribution, legal services, manufacturing, engineering and call centres.

Cost and focus were the main drivers of outsourcing, the report claims, with more than 80 per cent of participating firms saying reducing operational and capital investment costs and the need to concentrate on core activities led them to outsource.

Padmanabhan said: "CEOs are under pressure to grow faster than the market place while maintaining profitability. This can be done by looking at fixed costs and trying to make these better related to revenues. Employing third party organisations is often the best way to do this.

"The boundaries between the inside and outside of an enterprise are becoming very vague. Using software as a service generates a lot of value, especially because companies can move away from a capital expenditure model, thereby enabling them to have more flexible costs."

Execution outsourcing
Business process outsourcing enables companies to reduce their fixed costs. Instead of spending large sums to set up their own back office infrastructure, they can pay outsourcing companies per transaction. This is known as business execution outsourcing.

Padmanabhan said: "Firms need services to manage their back office, which can be provided from a low-cost location and scaled up rapidly.

"This is a fast-growing region and companies are expanding rapidly, so over the past three years we have launched many products that are designed for companies that want to drive this growth through IT." Jordan and Egypt anticipate benefiting from the booming Gulf economies as regional corporations transfer operations to nearby low-cost centres.The former has been successful in establishing a vibrant outsourcing industry, slashing tax rates from 25 per cent to 6.25 per cent.

CrystelCallCrystelCall, a Jordanian outsourcing company, was at September's Gitex exhibition to showcase its services.

The firm serves customers in Arabic, English, French and Spanish, employing 120 staff. It expects this number to increase to 500 by the end of the first quarter of 2008.

"Competition is driving the outsourcing industry," said Rami Sweis, CrystelCallCrystelCall chief executive.

"We are seeing that across the telecom sector.

Liberalisation is causing new operators to emerge and the easiest way to come to the market and operate with low cost and less human resources is through outsourcing." Around 45 per cent of CrystelCallCrystelCall's revenues come from the telecom sector, with the remainder coming from finance, real estate and insurance.

Outbond services
As well as inbound outsourcing, which accounts for 70 per cent of income, the company also conducts outbound services for clients such as telesales and telemarketing, providing the remaining 30 per cent of revenues.

More than 60 per cent of CrystelCallCrystelCall's business comes from the United States, with the company using Voice Over IP (Voip) technology, which enables users to make telephone calls free over the inter net, to keep its costs competitive. With no sign of the current ban on international Voip services being lifted in the UAE, the DOZDOZ will struggle to attract call centre type outsourcing, Sweis warns.

"Contact centre success is based on a liberalised telecoms market by default," he said. "You also need to have the workforce and I think this will be one of the biggest challenges for the DOZDOZ.

"It's not easy to get a residents permit here and this will be a major challenge for getting resources to Dubai.

"The cost of living has risen dramatically over the past few years and this challenges the business case for DOZDOZ." The Arabic-speaking market offers massive potential for the outsourcing industry, Sweis believes.

He said: "Our key differentiator is that we offer Arabic. This is something that India, the Philippines and other outsourcing rivals will not be able to offer.

"Potentially, there's a market of more than 300 million people in the Middle East, which is larger than North America.

"This is a large population base we can serve and it is being underserved right now.

"Customer service levels in the region are behind other regions in the world and customers are now demanding better service, around the clock.

"Companies are unable to keep pace with customer demands and this is where outsourcing comes in."

Know your partner
A major factor determining whether companies choose to outsource is the failure potential, which can have significant impact on cost, so finding the right partner is key.

DOZDOZ director Al Naqi said: "Companies need to know the pedigree of their outsourcing partner. What about its financial backing and the maturity of talent?

"If they make the wrong choice the chances of failure are high.

"Outsource contracts are weak in this region.The industry is immature and companies have not gone through trial and error to learn from their mistakes.

"UAE outsource companies are trying to learn from the best in the business, such as those in India." Joseph Weinman, AT&T vice-president of strategy and energy services for the Middle East and Africa, warns that companies who outsource might find themselves held to ransom unless the contract between the two parties is watertight, with the outsource provider increasing costs and its client unable to go elsewhere.

Weinman said: "We don't want to outsource five jobs and then have to maintain 50 positions to manage those five jobs. We must have clear performance criteria to show our partner is performing according to the contract.

"There must be meaningful penalties for both sides built in to the contract to ensure they all try their best." Padmanabhan believes there is strong demand for outsourced payroll and human resources services in the Middle East, especially for repetitive processes that can scale with growth.

Al Naqi added: "Financial outsourcing has more potential than human resources.

"The legal framework in the UAE doesn't allow for the right infrastructure to support human resources outsourcing," he said.

© Emirates Today 2007

 

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