Dubai: Outsourcing IT

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Having ridden out the global economic downturn, the IT industry looks set to continue its impressive expansion in Dubai, though it will have to deal with increased competition from within the region as well as further afield – especially Asia – as it seeks to attract new investors and clients.

IT has long been at the core of the government’s plans to expand the economy and give it a strong knowledge-based foundation. The authorities recognised that a strong information and communication technology (ICT) backbone was essential to developing a modern, diversified economy.

This recognition in Dubai has seen increased spending on IT infrastructure, including the ongoing expansion of the fibre optic network and the provision of faster internet services, which have enabled the development of a number of new technology segments. One area that has the potential for strong growth is outsourcing. By externalising non-core activities – especially IT tasks such as data storage and processing – companies are better positioned to focus on their main line of business, rather than having to devote resources to back-office activities.

According to Dr Petra Elgass, a partner at the business consultancy Management Partners, there is growing momentum across the Middle East towards change in the way IT is managed. “We are now seeing more business and IT transformation initiatives happening in the region, which focus on shared service centres and centres of excellence, as well as on outsourcing. These initiatives, if designed and managed carefully, will have a significant performance impact,” Elgass said on March 17 at the opening of the company’s new Dubai office.

Dubai has recognised the significance of that impact, establishing the Dubai Outsource Zone (DOZ) in mid-2004 to take advantage of the growing potential the segment offers. An increasing number of firms in Dubai and the UAE are looking to ramp up their use of business-process outsourcing, with the aim of achieving greater cost savings and adding value, said “ICT in the UAE”, a report issued in January by the Dubai Internet City (DIC) in conjunction with the regional law firm Al Tamimi & Co.

Given the change in investment trends for IT departments, firms are now opting to work with outsourcing service providers for mission critical applications and gain operational efficiency, said the report. The DOZ has, in particular, been the beneficiary of the growth of the local enterprise sector and the shift in trends in IT services and management, said Malek Al Malek, the managing director of the DIC and the DOZ.

“Buying patterns have changed as companies have realised the value of outsourcing – not only in terms of cost, but also in relation to business processes within a firm. The cluster has noticed this change in the adoption of shared services and customer profiles,” Al Malek said in a statement accompanying the release of the report.

Al Malek believes that the outlook for outsourcing is strong, with an increasing number of large enterprises having realised the value that is added to their top line by taking up shared services. “IT networks are also upgrading their infrastructure to maintain industry standards within their framework. However, regional IT service providers have to raise their service levels to meet these standards and bring about a change in consumer attitudes,” he said.

It does seem that attitudes are changing, if a report issued by international management, consultants AT Kearney in early March is any indication. Its latest Global Services Location Index (GSLI) found that the UAE was fast emerging as an ideal offshore IT centre. While India, China and Malaysia continue to be the gold standard for IT services and support, in terms of contact centres and back-office support on the GSLI the UAE has jumped to second in the Middle East and 15th globally, up from 29th in the previous study. The upward momentum is largely due to the growing strength of Dubai as an outsourcing centre.

That said, Dubai will still have to contend with strong competition for investment and clients, with other countries in the region such as Jordan and Tunisia, along with Egypt, all ranked in the top 25 internationally. Meanwhile, Malaysia and India are both active in targeting Gulf firms, Dubai’s key market.

However, Dubai should be able to build on its current good form in the outsourcing segment and in the broader IT sector, as it rolls-out better, faster services to further strengthen its ICT backbone.

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