Start-up Nation

DIC provided an ideal base for any technology company doing business in the Middle East, the Indian subcontinent, Africa, or the former Soviet republics—collectively a potential market of 1.8 billion people with a total GDP of $1.6 trillion. In no time 180 companies signed up as tenants, including Microsoft, Oracle, HP, IBM, Compaq, Dell, Siemens, Canon, Logica, and Sony Ericsson.

In one sense, DIC was a remarkable success: by 2006, one-quarter of the world’s top five hundred companies had a presence in Dubai. Dubai then tried to replicate that success story, founding Dubai Healthcare City, Dubai Biotechnology and Research Park, Dubai Industrial City, Dubai Knowledge Village, Dubai Studio City, and Dubai Media City (where Reuters, CNN, Sony, Bertelsmann, CNBC, MBC, Arabian Radio Network, and other media companies all have a major presence).

DIC’s director of marketing, Wadi Ahmed, a British citizen of Arab origin, explains, “We have made Porter’s [cluster] theory a reality. If you bring all the companies from the same segment together . . . opportunities materialize. It’s real-life networking. It is bringing the integrator together with the software developers. Our cluster includes six hundred companies working within two kilometers of each other. . . . Silicon Valley has some similarities but it is an area, not a single managed entity.”³

It is true that Dubai had at first posted impressive growth rates and that it turned itself into an important commercial hub in a short time. But there was never any comparability between the number of start-ups in Israel and in Dubai, or the amount of venture capital Dubai has been able to attract compared to Israel, not to mention the number of new inventions and patents. So what makes Israel and Dubai different in this way?

Drill down a bit into what is going on in Dubai’s Internet City, for example, and the answer begins to emerge. In DIC you will not find any R&D or new innovation-based companies. Dubai opened its doors to innovative global companies, and many have come. But they have come to spread innovations made elsewhere to a particular regional market. Dubai, therefore, has not created any thriving innovative clusters; rather, it has built large, successful service hubs. So when Mohammed Al Gergawi was handpicked by Sheikh Mohammed to help catalyze Dubai’s economic miracle, the job was to grow and manage this exciting, but not necessarily innovation-generating, venture.

In Israel the story is different. Margalit is one of tens of thousands of serial entrepreneurs. No one picked him; he picked himself. All of his success came from creating innovative companies and hooking into a global venture and tech ecosystem that is constantly searching for new products and markets. And while the physical infrastructure that facilitated this process in Israel may have been inferior to Dubai’s, the cultural infrastructure has proved to be vastly richer soil on which to cultivate innovation.

Attracting new members to a cluster by offering a less expensive way to do business might be sufficient to create a cluster, but not to sustain it. If price is a cluster’s only competitive edge, some other country will always come along to do it more cheaply. The other qualitative elements—such as tight-knit communities whose members are committed to living and working and raising families in the cluster—are what contribute to sustainable growth. Crucially, a cluster’s sense of shared commitment and destiny, which transcends day-to-day business rivalries, is not easy to manufacture.

The obstacles for Dubai, in this sense, are profound. Foreign nationals—European and Persian Gulf business adventurers or South Asian and Arab temporary laborers—are there to make money, period. Once they’ve done so, they have typically returned home or moved on to their next adventure. They have a transactional relationship with Dubai; they are not part of a tight-knit community, and they are not collectively laying roots or building anything new. They evaluate their standing and accomplishments vis-à-vis the communities in their home countries, not those in Dubai. Their emotional commitment and sense of rootedness lie elsewhere. This, we believe, is a fundamental obstacle to a fully functioning cluster, and it may also be an impediment to cultivating a high-growth entrepreneurial economy.