Moving his solar cell manufacturing plant from India to Fujairah, the mountainous state of the United Arab Emirates (UAE), Anjan Turlapati, CEO of Microsol International, says he found a better location thanks to the state’s thriving free trade zone.
Located next to the Port of Fujairah, the free trade zone is modeled after numerous similar sectors found in Dubai, including the region’s oldest and largest, Jebel Ali Port. Fujairah’s free trade zone has benefited from a burgeoning petrochemical industry as well as the bustling port that is one of the world’s largest bunkering facilities and a hub for fuel storage. In December, the UAE announced it intends to allocate US$1 billion from its federal budget to help build 35 development projects in Fujairah over the next three years.
For Turlapati, the biggest benefits of operating in Fujairah are a comparative lack of bureaucracy, greater simplicity of doing business and lower costs. But the tradeoff has been losing local access to scientific research and other resources more easily found in India. Speaking with Arabic Knowledge at Wharton, Turlapati talks about how his green-tech company has adapted to the UAE.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: Tell us about your company. How long have you been in the United Arab Emirates?
Anjan Turlapati: We’ve been in the UAE since about mid-2003 and have been in the Fujairah Free Zone since. We manufacture solar cells. We have a full-fledged manufacturing facility in the free zone, which involves all the processes: A chemical processing station, diffusion furnaces, plasma etchers, laser cutting tools [and] high-temperature furnaces. Then we print contacts using screen printers and inks. We have machines for testing each cell that’s produced through multiple variables, and we also have silicon nitrite coatings on the cells to enhance their ability to capture light.
Arabic Knowledge at Wharton: What led you to the free trade zone?
Turlapati: We did not want a local partner because … [we did not want someone else] building this plant and running our production. We were not very sure how savvy [about our field] investors in the region were. Also, there was the risk proposition, whether things would happen properly or not.
Arabic Knowledge at Wharton: Why settle in Fujairah?
Turlapati: It was primarily to do with the facilities, in terms of buildings already built [that] were more or less like shells so you could do the inside exactly like you wanted. You didn’t have to do too much breaking and rebuilding. We did a lot of work inside to get the process going properly. The second thing was the personalized approach here. The director general of the free zone was very proactive, [with a] willingness to interact with investors, to figure out how to help.
The third thing was our process. It involves having a large number of technicians, people who have finished middle school education or higher, and we wanted the factory to be someplace where our secondary costs in terms of housing and technical labor would be less. Fujairah was the lower-cost location. We wanted a small place where people feel more comfortable. Many of the technicians come from small towns and villages in India. We could put them in Dubai, but everything is so expensive. Here people can just walk to most places — the supermarket, the shopping mall. People feel comfortable here; they don’t feel inhibited walking to all these places. The cost of living was just right.
Arabic Knowledge at Wharton: Has the free trade zone attracted businesses similar to yours?
Turlapati: We are probably the only solar cell plant anywhere in the Middle East. Before coming to the free trade zone, we had been running the cell production business in India for two years. Things are far more flexible here than in India. You can export out of India and not have to pay taxes, so there is no real benefit of coming here because of the zero tax. The real issue is that we found the indirect costs in the free trade zone extremely low. This really comes from the fact that there is no bureaucracy. There are no tax administrators. You don’t have the range of regulatory bodies [that India has], whether they are for [retirement] funds or labor law. [India’s] range of departments [have regulations that] tend to cost money to comply with, and eat up management time.
None of this exists in the free trade zone. The free trade zone authority seems to have a fairly substantial span of control. We went to them for company formation, various legal matters and visas. You are dealing with just one body. The other advantage is that in the UAE, you deal with the municipality in regards to effluent treatments or water. You don’t deal with 100 agencies like you would in most countries. The amount of administrative staff [you need to employ] is miniscule compared to what you need in India. To handle compliance with company law, income tax, international standards, filings with 12 different departments and customs, you need 30, maybe 40 people. In Fujairah, we have one person. The big bright point is the lack of bureaucracy. The second insight we have as far as the UAE is concerned is that a bureaucrat is permitted discretionary decision-making. That is a big help to industry. There seems to be a tendency to believe the individual businessman and let him work [on his own] path.
Arabic Knowledge at Wharton: Did you have any concerns about setting up in a free zone?
Turlapati: In some places, standards had to be set. For example, regarding industrial accidents, what really is the law? I’m a little worried about this. Am I, as an owner and manager, liable for criminal action if there is an accident? Is there a system that can evaluate this? There are some gaps in those areas. There is a need for that to be in place. They will probably start working these things out now that the free trade zones are up and running.
Arabic Knowledge at Wharton: Were there downsides to other free trade zones that are located in more populated areas?
Turlapati: Why be in the middle of the economic action? My market doesn’t exist in the UAE. I sell nothing in the UAE. Much of it is sold in Germany, Spain, Italy, Portugal, the Czech Republic, China and France. So I don’t need to be in heavily populated areas.
In most countries, when shipping internationally from a special economic zone, containers are locked and sealed, verified and then cleared. All this is bureaucracy that takes time. In the UAE, in Fujairah, they are willing to accept documentation from the airline — in this case, Emirates Airlines flying out of Dubai.
Our operation needs young engineers, fresh guys from Bristol or King’s College in London, who want to work in the region. They probably would rather be in Dubai. But their weekends are free, and they can go there and entertain themselves. Other than that, people find it very cost-effective to live here.
Arabic Knowledge at Wharton: What are things you wish you had known when you were chasing those entities? Do you have any advice for anyone considering setting up in a free zone?
Turlapati: When I was in India, I used to complain about how terrible the Indian infrastructure is. Now I complain how terrible the UAE infrastructure is. I could be a habitual complainer. It’s very good here in the UAE — its roads, and yes, its customs authorities. There’s less bureaucracy. That’s good. But there’s a dearth of infrastructure. If I go to an Indian city, there’ll be research establishments that have huge resources: Scanning electron microscopes, advanced electronic systems and chemical analyzers, all accessible at low cost.
There are research institutions run by the Indian government, and it probably has research on every subject on earth. What really happens at these places is that you have people who are working on some cutting-edge technologies, using equipment and facilities that industry could not afford. You can get a lot of work done at them. There are 20 universities working on solar energy, and students working on solar energy.
In terms of all that research and resources, the UAE is far off. Then there is the issue of industrial infrastructure — sophisticated machining technology, welding. They are not here. You can’t get someone locally to weld a gas pipeline in my plant. So we fly them in from India. That is not a big hindrance because India is two and a half hours away.
We met with the Petroleum Institute in Abu Dhabi and worked with UAE University and American University in Dubai. We tried to send some kids to industry fairs. We’re doing some projects with those universities. We’re trying to play a role in this economy.