Dubai: The next big thing in outsourcing?

Dubai has kicked off an effort to land some of the outsourcing work that is heading to countries with low labour costs like China and India.

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, he said.

He said: "No one will refuse to come. Dubai could be 30 per cent more expensive but you could get more productivity. We're half way through finalising the deal."

The city could potentially become a centre for services such as telemedicine, where western doctors can pass work onto doctors in other countries who are not paid as well. Al Naqi said: "When you get to the high end, the [outsourced] talent is paid the same wherever you go."

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

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

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," he said.

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 also sold out.

Al Naqi said: "Now we are building for 2007."

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.

Michael Kanellos writes for CNET News.com