Dec 12, 2010

Seminar on "From Free zones to Clusters : The Policy Initiative in the Dubai Model"

Speaker : Dr. Sumit Mitra

Background on Speaker :
Dr. Sumit Mitra holds a PhD in Business Policy from the Indian Institute of Management, Ahmedabad. He has a number of years of teaching experience in premier management institutes in India handling MBA level teaching and administrative responsibility.Currently, he is a part of the University of Wollongong, Dubai.

Background on Topic :
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban study, the term agglomeration is used.
"Free zones" are designated areas which are provided by countries for economic activity. The companies present in a free zone is generally given tax sops or complete tax waiver to encourage participation, build economic activities and many other reasons.

The seminar held was based on the Research paper "Industry Clusters in Freezones" and the work of Micheal Porter called "The competitive advantage of nations".

As Dr. Mitra proceeded to explain, the geographical concentration of interconnected companies provides many benefits such as knowledge spillover, creation of a regional brand, promotion of innovation, pooling of labour markets & minimization of fixed costs for the companies. The benefits to participating companies are in the economic as well as social realm. However, there are also a few counter-balancing threats to companies such as loss of competence when faced with companies having larger scale of operations and knowledge drain.

As Dr. Mitra pointed out, the move from being just a free zone to being a cluster requires the presence of network brokers. These network brokers are external entities whose primary activity is to promote trust, coordination and cooperation among companies involved. Here he emphasized that Porter's definition of the Diamond Model put government as a minor player in this entire activity. In most cases, the companies synergize among themselves and develop the infrastructure and logistics of clusters to together form a stronger entity. However, Dr. Mitra added that SMEs would require some form of hand-holding with the government in the form of policy definitions as well as certain initiatives.

He further elaborated that clusters are governed mainly through Markets or Policy. Markets can have certain disadvantages since the big players can create a monopoly thus preventing SMEs and smaller players from gaining any advantage of associating with a cluster. Consequently, Policy seems to be a better approach towards a unified and mutually beneficial partnership.

Dr. Mitra next moved on to highlight a few facts regarding Dubai which helped us understand the economic, political and social environment in which these free zones are developing. Due to the limited nature of its resources, Dubai has had to chart its own course towards becoming a knowledge hub of the future. In line with its 2015 plan of venturing towards R&D and other such core knowledge driven industries, it has established multiple free zones which are aligned towards specific activities. The free zones studied by Dr. Mitra are Dubai Media City and Dubai Logistics City.

Dubai Media City (DMC) is a tax-free zone within Dubai, United Arab Emirates. It has been built by the Dubai government to boost UAE's media foothold, and has become a regional hub for media organizations ranging from: news agencies, publishing, online media, advertising, production, and broadcast facilities. The ground work for infrastructure (Such as fiber optic cables) was already laid for firms to setup easily and its visa and operational procedures were relaxed for firms operating within DMC.

Being a part of DMC provides many tangible and intangible benefits such as publicity through presence of frequent events, conferences, well planned infrastructure as well as many value added services. Dr. Mitra shared with the attendees some information on the unique consulting support provided by TECOM (an arm of the Dubai Economic Council) with the help of Deloitte to the SMEs who cannot afford such consulting.

Some of the problems faced by the free zones operating in Dubai were brough out by Dr. Mitra. He elucidated that the main bottleneck faced is the sharing of the airport and seaport among all the free zones. However, since all the free zones come under the Royal Family of UAE, the differences are ironed out fast without much bureaucratic delays.

Through his own observations, he conveyed the positive attitude of the Dubai government in giving excellent infrastructure backed by friendly policies and fostering a growth in free zone participation which may one day become a cluster in its own right.

The seminar was wrapped up with a free-wheeling discussion between Dr. Mitra and the esteemed faculty of IME Dept., IIT Kanpur where many aspects of Dubai's involvement in free zones were analyzed. The impact of government participation and policies, the effect on the population of Dubai, analysis on few other clusters which had indifferent growth to determine the true reason for impetus to cluster formation were a few of the open ended questions which churned out some interesting perspectives and left the attendees with many issues to mull over.

Report Prepared By:
Nabarun Sengupta(nabarun@iitk.ac.in)

Published By:
PR & Media Cell, MBA-IIT Kanpur (prmba@iitk.ac.in)

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