(FORTUNE Magazine) – WITH A RECENT SPATE OF CONSTRUCTION that includes dozens of nightclubs, an indoor ski slope, a glitzy residential development shaped like a palm tree, and plans for the world's tallest building, you might think Dubai is angling to be the next Paris, or Cairo, or Hong Kong.

But no. It actually wants to be the next Bangalore. That may seem a strange goal for a country the size of Maine with just 2.7 million people (80% of whom are foreign nationals), but it's all part of a grand plan by Crown Prince Sheikh Mohammed bin Rashid al Maktoum to wean his country off oil as reserves rapidly decline.

The emirate recently announced the Dubai Outsource Zone (DOZ) --a 70-acre commercial park in the southeastern corner of the city that will be designated as a tax-free zone for the next 50 years. The idea is that a combination of cheap labor and modern infrastructure will help Dubai lure hundreds of companies looking to outsource IT-intensive operations from call centers to financial research houses. By way of royal decree, the DOZ is authorized to do everything from incorporating foreign subsidiaries (in a speedy 48 hours) to issuing visas (24 hours) to making sure the water cooler is full in the new office. (The DOZ building managers furnish and prepare offices.)

The DOZ has compelling precedents: Dubai's first outreach program was Internet City--a similarly tax-free technology park for everything from sales to engineering teams. Launched in 2000, Internet City, which is now full, has attracted more than 700 multinationals, including IBM, Microsoft, Oracle, and Cisco. Along with another "media" zone, it has attracted more than 25,000 employees representing 200-plus nationalities. The increased consumer spending from new businesses has already helped shopping, dining, and real estate eclipse oil revenues. (Oil, which made up 33% of Dubai's GDP in 1990, has dwindled to a mere 5%.)

To make the latest expansion work, Sheikh Mohammed is playing up Dubai's moderate labor cost (an entry-level call-center operator commands about $550 a month, vs. $350 in India and $1,500 in the U.S.), a soon-to-open university campus next door, customer service, and a glamorous Gulf-coast image--things that, according to Peter Rae, a spokesperson for Oracle's office in Internet City, make Dubai a "logical place for a lot of Western companies to set up shop." Oracle moved its Middle East and Africa sales staff from Ireland to Dubai three years ago, both for the central location and the Arabic-speaking labor pool.

So will businesses take the bait? India faces 12% annual wage inflation, Ireland's labor pool is drying up, and the only serious competition for technology outsourcing in the Middle East is Israel, says Cliff Justice of outsourcing consultancy EquaTerra. The DOZ will have its first test this winter when it hopes to announce its five anchor tenants. "They will have to have a multinational like Motorola or Citibank," Justice says. "If they don't, they'll never be a destination--they'll be an 'also.' " -- Abrahm Lustgarten