Uniceramic is keeping with tradition while repeatedly re-inventing itself to stay on top of a growing ceramic tile market in a volatile environment
From the brilliantly colored glazed-brick and tile murals of Mesopotamia to Antoni Gaudi’s surrealist mosaic creations, ceramics have been a mainstay in the evolution of Mediterranean art and design. Keeping the tradition alive is Uniceramic, one of the first companies to produce floor tiles in the Middle East and one of the region’s largest producers today.
Registered in 1973 by founder Joseph G. Ghorra, Uniceramic’s launch coincided with the outbreak of the civil war in Lebanon in 1975, but the unfavorable environment honed the survival skills of the company, and came in handy as it expanded its market share over the years to encompass other regional flashpoints such as Iraq.
“It was very difficult during the war,” general manager Nabil J. Ghorra recalls. “You see in our industry, gas is the main energy component that is used. It’s highly flammable, and it doesn’t like bullets and bombs much. Since we had to bring gas in every day, it was neither the easiest nor the safest thing to do at the time. Then the Israeli invasion pushed into the Bekaa where we have our plant. Most of our raw material was close to where the Israelis were, so we had to re-excavate and look for other places to find material.”
Today the company’s 42,000 m2 plant is still located in the Bekaa, near Chtaura. Its staff has grown from 138 employees in 1975 to 375 in 2005 and its production capacity has increased twelve fold over the same period. By 1996, the company went public, becoming one of only three industrial companies listed on the Beirut Stock Exchange.
The key to Uniceramic’s production increase says Ghorra, lies technology, allowing more cost effectiveness.
“We have increased our production capacity twelve fold between 1975 and 2005, but without having to increase our number of employees by the same amount. And this month we are set to increase our annual production from 4.3 million sqm2 tiles to 6.5 million sqm2.”
Increasing production falls into the company’s two-pronged corporate strategy, based on consolidating Uniceramic’s domestic market share, while simultaneously expanding internationally.
Although the tile market in Lebanon peaked back in 1995 at 10.6 million sqm2 of tiles only to decline steadily for the following six years, it has experienced a strong recovery since 2001, reaching 10.4 million sqm2 in 2004. Unexpectedly, the figures for first quarter of 2005 read even better than last year’s.
“We witnessed a 20% increase from the first 3 months of 2004,” says Ghorra. “The market is still growing.”
In a bid to keep its share of the market pie, which increased from 26% in 2002 to over 30% in 2004, Uniceramic is taking on the market with more products, new products and an added line of interior design and architectural services.
“We used to be just manufacturers, but we saw that in Lebanon, imported goods are perceived as being better than local products,” Ghorra explains. “The Lebanese prefer Western products over Lebanese products, just as they prefer Lebanese products over other Middle Eastern products. There is a stigma there. So we had to add value to our product. We were known as a good product, but not a particularly beautiful one. That is why our “Reflection of Beauty” campaign was launched 3-4 years ago.”
Uniceramic began opening its own showrooms, displaying full-fledged ceramic bathrooms and kitchens. Initially conceived purely as a mean to inspire customers, with no sales taking place so as to not compete with the company’s wholesalers, demand from customers became such that Uniceramic eventually began selling its products, but at a higher price.
“The customer is interested in a bathroom, he is not interested in a tile,” notes Ghorra. “(Despite increasing our prices) we discovered that people still preferred to buy from us because of the service – people are ready to buy for the service. We had architects at the showroom giving them advice and this was an added value for them.”
In parallel to this, Unicermic expanded its domestic sales channels to include retail networks and projects, in addition to wholesalers.
For now, the strategy seems to be paying off. Despite a 40% dip in business due to the political upheaval sparked by the February 14th attack (which notably slowed the construction industry down as Syrian workers fled), Uniceramic is hoping to make a 50% higher turn-over than last year, and more than a 50% increase in profits.
Focus on exports
Part of this increase is set to come from the company’s export market, which boasts clients in 20 different countries and constitutes 40% of total sales. Hitherto, the bulk of Uniceramic’s export’s have gone to the region, which Ghorra views as holding significant potential.
“In developed countries, the highest consumption per capita is 6.5 sqm2 tiles per capita,” he says. “In Lebanon, we are now at a peak, with 2.5 sqm2. In some other countries on the Middle East, they are only at 0.5 sqm2. So the potential for market development is huge.”
Yet seeking out the potential in a volatile region is a path fraught with pitfalls, which Uniceramic is all too familiar with. Prior to its March 2003 invasion, Iraq represented one third of the company’s total exports. Since then, sales have come to a halt.
“We have offices there, but I haven’t been to Iraq in a year and we have no direct sales to the country anymore,” says Ghorra. “But a lot of Iraqis now live in Syria, and they buy our products from there, which is one of the reasons why Syria has now become our biggest export market.”
Although the Middle East has treated the company well, Ghorra says he is ready to get involved in more stable markets and Uniceramic is now focusing its efforts on expanding its market share in Europe and the United States.
“At the end of the day, you want to make profits,” he says. “You want to show shareholders that this company is making returns on investment – this is how you grow, by gaining the confidence of the market. If you are constantly focusing on putting out fires, you don’t get to do that. We are surviving quite well, but we will be focusing more on Europe and the United States from now on, so as to stabilize demand, and be able to grow.”
The challenge of high energy prices
Yet expanding into less volatile regions will not protect Uniceramic from the challenges posed by out-of-control energy prices, which have chewed of quite a chunk of the company’s revenues since the war on Iraq. Despite hitting record sales worth $20.9 million in 2003, Uniceramic suffered a loss of $1.36 million in 2003.
“When we realized that the war in Iraq was imminent, we feared that the regional countries that exported into the Iraqi market would dump all their products on Lebanon, which has a more open economy,” Ghorra explains. “So as to not lose our market share, we decreased our prices, based on President Bush’s prediction that oil prices would fall after the war. Our sales soared and our market share increased by 8%, but the price of oil kept going up. Essentially, we ended up with a large gap in profitability.”
With 30 to 40% of production costs stemming from energy, boosted sales could do little to save the company’s profits. Worsening the situation was the strengthened Euro, which racked up the prices of imports of spare parts and raw material.
However the strong Euro has not exclusively brought woes to the company.
“It did also have a positive effect,” says Ghorra. “People import less from European countries such as Italy and Spain, as it gets more expensive. We penetrate that segment of the market.”
By 2004, Uniceramic re-adjusted its prices and with sales only slightly below the 2003 figures at $20.7 million, closed the year with a net profit of $96,251.
Unfair trade
The threat of foreign competition however, remains a dark cloud on Uniceramic’s otherwise promising horizon. Since Lebanon’s implementation of the Greater Arab Free Trade Area’s clauses, demanding the gradual reduction of tariffs and taxes, Lebanese companies have found themselves competing with regional tile makers propped up by heavily subsidized products.
“There’s unfair trade going on,” says Ghorra. “In Egypt, tile fabricants are buying gas at subsidized rates. For 1000 kilocalories of energy, they pay 0.4 cents. We pay 6.11 cents – 14 times more. In addition to that they have cheap labor and all raw material locally available. In 2002, there were almost no imports coming from Egypt into Lebanon. In 2003, 211,000 sqm2 of tiles were imported. By 2004, this number had reached 1.3 million sqm2, and in the first 3 months alone of 2005, we have seen 903,000 sqm2 imported.”
Facing the risk of being down priced out of the market and forced to delocalize, Uniceramic is engaging in government lobbying, so as to introduce measures to limit imports from subsidized foreign industries.
“The government needs to protect us,” Ghorra argues. “Otherwise, why would investors come to Lebanon, if profitability is better elsewhere? This country needs to create 10,000 new jobs every year, but the government needs to give the incentives and the opportunities to the industries to use this labor and create new jobs.”
But the manager of the company, which saw itself rewarded the prize for best Industrial Company with an Internationally Renowned Brand in 2004, remains upbeat about the future.
“We are strengthening our trading capacity, stabilizing and securing our market shares abroad, launching 75 new references in tiles in June and July, and we will become quite aggressive on the domestic market in order to fight for our market share and consolidate.” Uniceramic appears set to keep up tradition for quite some time to come
