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IXP – UAE/BAHRAIN

As a native-born Israeli carrying an American passport, I was nervous about participating in the UAE/Bahrain IXP despite assurances that entering these countries wouldn’t be a problem (you can only imagine how worried my Jewish grandmother was). My unease was exacerbated when I applied for my visa to Bahrain; “Israel” wasn’t even listed in the drop down of countries to choose from for “Country of Birth” forcing me to choose “Other”.

On the flight over, I couldn’t help but think of the recent headlines of Dubai’s financial crisis and bail out by Abu Dhabi and wondered if this was vindication for Abu Dhabi’s more conservative and pragmatic development approach. I was very curious to see what Dubai held in store. Will it still look like the opulent, magical city that the Mahtoum family had envisioned, or will it resemble Miami and Las Vegas after the housing bubble burst in the U.S.?

Despite a ticket-swapping fiasco where two section mates had their boarding passes mixed up, we all make it onboard and arrive in Abu Dhabi. Apparently getting past British Airways security with the wrong boarding pass is just about as easy as getting into a White House State dinner without being on the guest list.

Our trip included a visit to Mubadala, the strategic investment company of Abu Dhabi. We learned how Mubadala is positioned as the catalyst for economic diversification and also serves as an incubator to develop and train future leaders. Abu Dhabi has clearly realized that while it is sitting on immense oil wealth, one day that wealth will run out and it will need to have built up an economic infrastructure to complement oil.

The best part was breaking into small groups to talk to some employees. My group spoke with Nakisa Bidarian, who is a manager in the Acquisitions Group. Nakisa is a western-educated (Tuck MBA) ex-patriot who worked at Accenture and Citigroup prior to Mubadala. He spoke of how the company basically views itself as a business developer that manages and deploys capital, rather than an industry leader that develops innovation. In fact, Mubadala’s strategy relies heavily on partnerships with foreign companies for technical expertise. We asked Nakisa what brought him over here and got keen insight into the UAE’s value proposition. Most foreign workers pay little or no tax in Abu Dhabi (Americans would still be subject to U.S. taxes). He views the UAE as a perfect balance between the Western and Arabic world saying he gets many of the cultural benefits of living in the U.S. including clubs, bars, movies, etc. with much better economic incentives and job responsibility.

One of the key questions that arose from our time in Abu Dhabi was whether the government’s strategy of relying so heavily on foreign workers and not offering a path to citizenship is sustainable. Abu Dhabi places a huge premium on protecting the Emeriti class. But is it sustainable? Will having a path to citizenship ultimately deter foreigners from coming or will it be like The Grapes of Wrath where a group of migrant workers is simply tossed aside at the first sound of discontent and replaced with another group who has been enticed with the illusion of higher wages? Nakisa mentioned that most of the labor force, especially in prestigious companies like Mubadala, is between 25 and 35. He says it doesn’t bother him that he can’t become a citizen and views working in Abu Dhabi as an investment in his human capital and not a permanent place to settle down necessarily. Later that evening, I had a discussion with another student who brought up an insightful question about how knowledge gets transferred and retained under the current model. It is great to get young, bright, ambitious workers to Abu Dhabi, but you need more experienced individuals to show them the ropes and we both questioned if and how this happened.

With free time in the afternoon, we headed to the Lebanese Flower restaurant for a huge lunch of mixed grill meats, hummus, and pita bread. I spotted a tiny bakery adjacent to the restaurant and enjoyed sampling the desserts including the ones I always had while visiting Israel, including Knafeh and Baklava.

As we drove into Dubai, I got the first view of its opulence with the Burj al Arab glistening in the distance. The structure, mimicking the sail of a boat, is the world’s only 7-star hotel and is located on a manmade island in Jumeriah beach. Dubai is the land of superlatives, seemingly intent on taking over the Guinness Book of World records. We took in the Dubai Mall, the world’s largest shopping mall and the Burj Khalifa, which had just opened on January 4th and stood as the world’s tallest manmade building at 2,717 feet. Souvenirs outside still referred to the building as the Burj Dubai, a subtle reminder of Dubai’s recent financial implosion and $10 billion bailout by its neighboring emirate, Abu Dhabi. As a gesture, the building was renamed after Abu Dhabi’s ruler, Sheikh Khalifa.

The IXP Office arranged a desert sand dune trip for us. We piled into a bunch of SUV’s and headed out into the middle of the desert. As our driver tried his best to turn our stomachs upside down, we rode through a roller-coaster of sand dunes that stretched to the horizon. Cameras flashed left and right as we stopped and had opportunities to take in the spectacular expanse of sand dunes while it was light and eventually layered against the picturesque sunset. Many future Facebook profile pictures were taken that night.

When we got to the oasis, we were greeted with options to ride camels and smoke traditional shisha. After a traditional Middle Eastern dinner, a belly dancer came out and performed, eventually taking some volunteers for a lesson. A few of the IXPers, shockingly including yours truly, got up and took Belly Dancing 101 in front of a few hundred tourists. Before heading home, all the lights were turned off and we were left to gaze up through a crystal clear sky at the most stars I had ever seen.

After a Real Market Labs T exercise where we met with local entrepreneurs in the textile, gold, and spice trades to find out about their businesses and what problems they had, we came back for a debrief session. The conversation turned to discussing what the goal of Dubai was and the various features and bugs of the current system. Dubai is clearly a land of opportunity for foreign workers who don’t need to pay taxes. It is also very much a dictatorship that has created a caste system with emiratis at the top. As a fellow student put it, Dubai is “the ultimate social Darwinism” where it brings in foreigners, doesn’t need to care for those who fail and can easily kill losing industries without dealing with the economic backlash such as rising unemployment.

Whereas the previous day’s activities focused on small, local shops, the next day was about meeting with more experienced business leaders in Dubai. After meeting with the head of Lazard’s Dubai office, we met with an entrepreneur who is building an online consumer electronic distribution network. We started by asking him why he decided to start his business in Dubai as opposed to India or other countries in the region. His answer was that it was accessible to a huge market – India, Southeast Asia, North Africa, etc. – and also that the turnaround time for shipping was significantly better than India; whereas he could have a container unpacked in 6 hours in Dubai, it would take about 6 days in India. I started to see how Dubai’s geographic position was one of the big advantages that time would not erase.

That evening, we headed back to the Dubai Mall to see the famous water show, akin to the one outside the Bellagio in Las Vegas. We settled down for drinks at a restaurant overlooking the water and sat through four spectacular sets arranged with various musical pieces, including an incredible performance choreographed to Andrea Bocelli’s Con Te Partiro. The size of the water show made the one outside the Bellagio, which was actually designed by the same company, look like an amateur routine and seeing the high bursts of water against the Burj Khalifa was truly breathtaking.

As Professor Noel Maurer, who was the faculty adviser for the trip, put it, the IXP was designed to take us from a state-run view in Abu Dhabi to a business perspective in Dubai to societal view in Bahrain where the kingdom was using a different strategy to build up its economy.

We met with some MBA students from the University of Bahrain. Professor Maurer gave a brief lecture on Bahrain and its current economic strategy, which involves a huge new port that places a bet on the growth of the transportation and logistics business in the region, manufacturing, finance, and small businesses. We had a discussion about Bahrain’s strategy as a group and I enjoyed watching the Bahraini students during the conversation. Some felt very comfortable speaking and even challenging ideas, but it was interesting that none of the females were willing to participate. I am sure part of this was nerves, but I wondered whether there were other, more cultural, elements at play too.

Abu Dhabi, Dubai, and Bahrain. Three Arabic entities in the gulf region that share many similarities, yet are remarkably distinct. On our final day, we had a three-hour classroom session to reflect on the trip. We started by talking about what the advantages and disadvantages were to potentially starting a business in each region. Touching on the assets and liabilities of each place, I realize how complicated the picture really is with competing social, political, and economic concerns. Each has pursued a somewhat different strategy, pulling levers along dimensions of people, processes, and technology and I conclude that these strategies are not necessarily intended to bring growth and bring each one to the same place. Indeed, if I were placed behind the Rawlsian veil of ignorance and asked to choose between the three, my answer would differ depending on whether the question revolved around trying to start a business or trying to start a life.

As I lay on the beach on our last day, I thought about how much fun I had on the trip and the tremendous advantage of the IXP experience over another trip I could have taken over break. Aside from maybe a lazy beach or spa day, I had the opportunity to see all the sites and do all the fun things that I would have done if I had come to the region on a personal trip.At the same time, I was able to glean first-hand insight into a region jockeying to be a strategic player in the future global economy as well as meet some truly amazing HBS students that I would not have otherwise met due to the school’s section-centric culture. As the sun hid behind a cloud and a breeze blew by, I was brought back to reality and remembered that the next day, shorts and flip flops would be replaced by a winter coat and a scarf and a return to below-freezing campus.

AUTHOR’S BIOGRAPHY
Shahar Ziv was born in Haifa, Israel and raised in Tenafly, NJ. This was his first experience in the UAE and Bahrain.

February 16, 2010
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