Industrial subcontracting has huge potential in UAE

DUBAI — Industrial subcontracting is an efficient way to organise industrial production through cooperation between main contractors and subcontractors. This method has huge potential for immense cost savings in UAE's manufacturing sector.

By A Staff Reporter

Published: Sat 13 Aug 2005, 10:26 AM

Last updated: Thu 2 Apr 2015, 4:14 PM

Considering the huge opportunities it offers to the local businesses, Dubai Chamber of Commerce and Industry (DCCI) explores the possibility of setting up Dubai Subcontracting and Partnership Exchange (SPX) with the objective of enhancing industrial cooperation and partnership among its members.

The first step in this direction is that DCCI carries out an industrial survey among its members to check the feasibility of such an initiative and whether there is a demand by its members for such a specialised services. This survey is being recently initiated by DCCI.

Subcontracting consists of an agreement between the main contractor and the subcontractor. The main contractor entrusts an enterprise with the production of parts and components or provision of services that are necessary for the manufacture of the final product.

The subcontractor carries out the work according to the specifications provided by the main contractor. Thus, there is a division of labour in the industrial production.

As industrial subcontracting has become widespread, the need has risen for stable and permanent relationship between industrial partners. To meet that need, United Nations Industrial Development Organization (UNIDO) has been advocating the concept of industrial partnership since the mid 1980s.

The concept refers to a form of industrial subcontracting that is based on subcontractor's specialisation and technological expertise and can lead to stable long term relationship between industrial enterprises.

In order to increase the chances of success, these new forms of stable subcontracting and supply linkages often call for other complementary forms of linkages, such as provision by the main contractor of special raw materials, sophisticated equipment, technical assistance, training, know-how and licence agreements. Therefore, the traditional subcontracting relationship has become a full-fledged partnership.

Subcontracting and partnership exchanges: Subcontracting and partnership exchanges (SPX) are technical information, promotion and match making centres for industrial subcontracting and partnership between main contractors, suppliers and subcontractors, aiming at the optimal utilisation of the manufacturing capacities of the affiliated industries.

The SPXs act as centres for technical information, match-making and promotion as well as clearing-houses for industrial subcontracting and partnership enquiries and opportunities. SPXs are involved in collection, analysis, storage and organisation for rapid retrieval of information and data on the existing production capacities and capabilities of industries.

They also identify subcontracting opportunities and assist potential subcontractors, suppliers and partners in organising production clusters and associations. In addition, SPXs act as centres for multidisciplinary assistance and information for subcontractors and suppliers in areas including technical support: product design, technology, equipment, and innovation.

They extend their services to quality management, standards and certification, marketing strategies and analysis including participation in international fairs and in some cases getting access to credit, financial facilities and incentives.

In the Gulf region, the Gulf Organisation for Industrial Consulting — Subcontracting and Partnership Exchange (GOIC-SPX), has been established in Doha, Qatar, with focal points in the six member states of the Gulf Cooperation Council (GCC).

GOIC-SPX concentrates on six industrial activities and these are namely petrochemicals, water desalination, metal works, plastic and rubber, electrical and electronic equipment, and industrial services.

Does Dubai need an SPX? An overwhelming majority of Dubai manufacturing industries are small and medium sized enterprises. The small enterprises employ 1 to 9, the medium employ 10 to 99 and the large employ 100 and more.

The small sized enterprises represent about 10 per cent, the medium about 74 per cent and the large about 16 per cent. This industrial structure is determined by the small nature of Dubai market where there are no economies of scales and therefore the companies' size tends to be small to medium.

One consequence of this market structure is that industrial companies' production capacity and/or technical specialisation, the primary reasons for industrial production subcontracting, may not be sufficient to meet the orders they receive.

This necessitates that these industrial enterprises need to cooperate and engage in long-term partnerships that is mutually beneficial. To put this into practice, an institutional set up is needed to inventorise the relevant information on Dubai industrial enterprises such as industrial activities, products, processes, and production capacities. Then the database can be used to match the needs of main contractors with the products and services that subcontractors can offer.

World experience has shown that an SPX that is incorporated in a ministry of industry or a government agency is monopolised by the government and separated from its industrial constituency and therefore is expected to fail.

An SPX that is incorporated in private sector institutions such a chamber of commerce and industry, professional or manufacturers association can survive, if it is given the necessary recognition and operational autonomy.

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