Should You Outsource to Dubai?

Leo Espinoza -- Supply Chain Management Review, 4/14/2008

Dubai is the fastest growing city in the world. Under the leadership of Vice-President and Prime Minister of Defense Sheikh Mohammed bin Rashid Al Maktoum and Ruler of Dubai, Dubai has taken the challenge of having a lesser (and quickly depleting) oil supply than its neighbors and used that limitation to focus on its strengths and catalyze its phenomenal growth. The region and the people have a grand vision to supplant Houston’s current standing and become the center of the energy world. Given the current market dynamics today, should Dubai continue to effectively execute against its aggressive growth agenda, it likely will emerge as a key business leader in the near future. However, Dubai’s growth will depend on its ability to understand, embrace and leverage the power of an integrated, lean supply chain function in the region. 

The empirical evidence (per AMR Research) suggests that the top 25 supply chain management-focused companies in the world outperformed the market by a significant margin. The average total return of the top 25 supply chain-focused companies for 2007 was 17.89 percent compared with returns of 6.43 percent for the Dow Jones Industrial Average and 3.53 percent for the S&P 500. Certainly, this is performance enviable by any organization, especially those in a region with a vision for future growth. While the supply chain function has emerged as a top priority for companies focused on profitable growth, Dubai has not fully embraced the concept.

Dubai Advantages

Dubai has three major advantages fueling its explosive growth. The key advantages are as follows: 

1. Location, Location, Location: Dubai is geographically advantaged because it is physically accessible to over 40 percent of the world’s population within a four-hour flight in any direction. Proximity to customers is important as it eases time and logistical challenges, which can translate into higher turnover and profitability. Dubai also has the advantage of the world’s third largest deep water port. Dubai also enjoys close proximity to some of the world’s largest oil reserves and producers (e.g. national oil companies such as Saudi Aramco, Kuwait Petroleum Company, Emirates National Oil Company, Abu Dhabi National Oil Company, etc.)
2. Business Friendly and Risk Mitigation: Dubai has positioned itself as a friendly neighbor to the world by opening its marketplace and creating incentives for business to easily enter the market and conduct business. This is fueled by a strong legal, political and economic infrastructure that enables companies to alleviate the relative hazards of doing business in a foreign country by minimizing expropriation, theft and overall safety to its business interests. 
3. State-of-the-Art Infrastructure: Known to have depleting natural resources, the emirate has focused on the strengths of location and stability to establish:
   1. Hotels, resorts, conference centers, restaurants and entertainment of the highest global quality standards
   2. Excellent business infrastructure, including an ultra modern airport, free trade zones and good transportation
   3. Warehousing for the storage and distribution of goods and third party logistics providers (3PL’s). For example, Agility Company has seen tremendous growth in providing warehousing and logistics to the region, as well as Transworld Group’s newly commissioned logistics center at Jebel Ali Free Zone.
   4. Supporting Services: Early entrants such as DHL, which recently celebrated its 30^th anniversary in the region, is one of many examples of companies demonstrating the success of providing the necessary day-to-day services to the core businesses on the ground in the region.

Dubai’s Opportunities for Improvement

One key area for improvement in Dubai is its level of supply chain management sophistication. Dubai is behind the leading business practices of supply chain management by several years. For example, the role of the chief procurement officer (and its equivalents) does not exist today in Dubai, compared to elsewhere in the world. Yet, given Dubai’s rapid growth, a tremendous advantage is to bring the value of the supply chain function into every decision being made going forward. Currently, supply chain management in Dubai is synonymous with legacy procurement and contracting functions that existed in top American companies over a decade ago. Today, the Top 25 supply chain-focused companies are defined by their lean, integrated supply chain. An integrated supply chain is one that at its foundation integrates all aspects of the supply chain (procurement, logistics, warehousing, inventory, contract management) across the entire enterprise, from raw materials through processing and logistics to the end user. A lean supply chain is one that embraces some form of total quality management (e.g. Six Sigma) focused on eliminating seven core wastes (per Ventana Research) as follows:

1. Over-production caused by a focus on supply rather than demand
2. Wasted motion due to poor processes
3. Waiting time generated by turning the production system to the fastest rather than the slowest process
4. Conveyance waste caused by poorly designed supply systems that delay transit of goods and services
5. Processing waste from badly designed systems
6. Raw material waste from inefficient design or ineffective supply strategies
7. Correction waste caused by reworking poorly made products

Focusing upon these opportunities will add value to the bottom line and propel growth. In order to do this, it is necessary to have the right leadership and ability to execute. This dynamic is placing significant focus and demand on the importance of supply chain management talent that is largely underrepresented at this time.

Closing the Gap

Three primary drivers are narrowing the talent gap. First, demand is driving the growth. Market-based economics demonstrate that companies and people will migrate to the best opportunities. For example, firms are recognizing this growth opportunity and are value investing and importing talent to help improve existing companies and one key area of focus is the supply chain management function. Secondly, the large foreign multi-nationals are capitalizing on this opportunity and have already established or are in the process of establishing headquarters (e.g. Halliburton) or regional headquarters/hubs (e.g. Shell) in the area. Thirdly, two critical players in Dubai’s growth are Dubai World and Dubai Holdings. These conglomerate holding companies are at the epicenter of business in Dubai. They are compelled to leverage the synergies across all of their portfolio companies via the supply chain and harness the efficiencies of a lean, integrated supply chain. They will most certainly need top talent and leaders to make this happen. For Dubai to achieve its vision as a global business leader, it will require a commitment to an integrated and lean supply chain function throughout the region.

Leo Espinoza is a client partner in the supply chain practice at Korn/Ferry International Houston.

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