Q&A: Jacques Sarraf

Success in industrial manufacturing has come to mean superior skills in beating the odds and defining the competitive edge. As a player in regional markets for pharmaceutical and cosmetics, the Malia Group under leadership of Jacques Sarraf has made subst

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E: The Malia Group reached a milestone with 50 years of industrial production of cosmetics. Where were the challenges you encountered in building an enterprise in the Lebanese environment?

Within 50 years, we have undergone three different ages as a group: from 1950 until 1975, from 1975 until 1990, from 1990 until 2004. Each phase had a different mission. The most difficult period was between 1975 and 1990, the 15 years of war. Despite that, it was the most successful as we turned a negative situation positive and the mission of surviving during the war into a mission of not only enduring but diversifying our business and investing. From 1972 until 1985, we moved from two companies in one sector, health and beauty, to what is today a multi-sector business of 12 companies.

E: Was this then the decisive period in the evolution of the enterprise?

It was high risk but we said at the time, high risk is high profit. Let’s export. And this became our culture of always going to countries where high risks exist and where others are afraid to go. This allowed us to support ourselves, knowing that we have the expertise and the flexibility. In our thinking, we have the expertise to manage the effects of September 11.

E: What do you mean by ‘managing September 11’?

Until I saw it myself on television, I didn’t believe what I had been told. But since that moment, my philosophy is to believe that September 11 can happen every day. What are the contingency plans? What is the security that we have? We used to say, ‘think that an accident could happen.’ Today we think, ‘it is going to happen, so what are the contingency plans?’ What are the plans, in case one of us will be kidnapped in Iraq? And we act based on this. It’s normal to have difficulties. Otherwise we are not performing. This is strength.

E: Does this corporate philosophy explain why you are so active in Iraq?

I mentioned Iraq because today, Iraq is high risk. I like Libya too. I like Sudan. I remember how I said in 1992, ‘let’s send a delegation to Sudan.’ People sitting with me were saying, ‘Mr. Sarraf, let’s go to a country where we will have opportunities.’ I said, what I believe personally is that in such countries there are opportunities because we will be alone. Can I compete in France, or in the United States, or in China? There is a lot of opportunity there, but do I have the size to exist? Can we survive? The story of success of any Lebanese is the opportunity that others overlooked. Lebanon is a beautiful hub, but a hub to live in and do business out of.

E: But isn’t industry here facing exceptional obstacles?

Not within our sector. Some of the industrial sectors have problems, but not all the sectors. Yes, we have some constraints but our cost is not based on electricity, and our cost is not based on labor. Basically, if I compare our pharmaceutical industry to the European or international industry, we can be cheaper by 35%.

E: Would that apply to other industries as well?

No, because you have to select the sectors where you don’t have the cost problems. In labor and energy costs, Lebanon is very expensive compared to others. But within our industry, research and development is a main task, and we have the capacity. In the country’s pharmaceutical industry, the salaries we pay pharmacists are six times higher than what we pay in Syria or Iraq; but when we compare that to Europe, we are 100% cheaper.

E: How do you translate that into a manufacturing advantage?

With brand equity. ‘Made in Lebanon’ has strength within the region. It’s one of the most select tags, along the same lines as that of Saudi Arabia today. It cannot be compared to other Arab places. The know-how we have is the strength of our human resources, marketing, and our creativity.

E: You seem to be one of the few local entrepreneurs who see research and development as a priority. How big is your research capacity?

Today, we are extending our lab. We used to have a 300m2 of lab space. Now we are going to expand to 750m2 just to have the capability to do more research and development.

E: How much in percentage of your annual turnover do you allocate to R&D?

Frankly speaking, when we feel that it is needed, we invest. If we have to calculate as a first step, we cannot survive. Our budget has no limit for such things. We don’t allocate; it’s always over budget anyway.

E: When you market your own pharmaceutical products, how do you ensure their safety and their compliance with international standards? Do you export medical products?

Lebanon has a 2000 law and we are applying it. We are exporting to Syria, Iraq, Jordan, and we are in Sudan, in Russia, everywhere. We don’t have any problems. We are fulfilling all the requirements for exports within the health and medication service. Otherwise, the health ministry will not give you a document to release your exports.

E: How do you fulfill the requirements for clinical testing of medical products? Does the Lebanese law regulate this?

We are doing it by our own standards. We do our own bio equivalence with Lebanese university hospitals. We are not obliged by Lebanese law, but by what we call self-control. The government doesn’t give us any support with this, and we are not asking for their support because we believe this is a private business and we are surviving by ourselves.

E: Is it correct that you recently have taken steps to diversify your activities?

Before 1995, we used to distribute food products, chocolate, biscuits and a lot of other businesses. In 1995, we said let’s be dedicated only to health and beauty. It took us five years, and we were implementing all our plans to be strong in health and beauty, through the pharmaceuticals and through the cosmetics. But in 2000/2001, we faced the problem of new diversification, asking how we shall expand our business. [Since then] we have been diversifying from cosmetics and pharmaceuticals to the cigarette business, to SIM cards, prepaid cards, to the clothes and retail business, because we feel that as a group we have the strength to do it.

E: So you were first deciding to concentrate on health and beauty and then reversing that path in a shift to new diversification?

You said a shift; I said a new vision. In 2000-2005, our vision has changed completely. Today our vision is consolidation. Now we have diversified, let’s consolidate.

E: Is that a model that other Lebanese industries, whether groups or single players, could follow?

I prefer to talk only about the Malia Group. Not the others. This is their choice. I cannot Xerox myself. It’s a culture and a history. The vision that I can give you is one of preparing ourselves for the next five years. Today, we have a direct presence in Lebanon, Syria, and Iraq. We want to explore our opportunities around the world. For this reason, we have invested in a new plant for cosmetics and we are investing in a new plant for pharmaceuticals. Development is needed. I have to run our business like the multinationals, with the hope that in the year 2010, we will be a small multinational.

E: And you are working to export your cosmetics lines to Europe?

Yes, we are exporting to Russia, to Cyprus, to Greece, and we are now developing our export team to go further into Europe. We are working contracts in Belgium and we are in discussions with Brussels and with Paris.

E: Is your competitive advantage now so strong that you can go into these markets?

Yes, we can be competitive with the norms and standards to which we are producing. Secondly, we are more advantaged than the Europeans and thirdly don’t forget about what is happening with the euro today. We are dollarized and that means we can be really competitive with the euro. It is a strong export advantage. For this reason, a lot of multinationals are contacting us to contract their products in Lebanon.

E: How many employees do you have today?

400 in the group.

E: Are you satisfied with the average productivity you have achieved?

I have to say yes, although I am not convinced. We can do better.

E: How many shareholders do you have?

Malia Group is a holding but it is not yet on the market. We have a plan for 2007 to go to the market. Today it is purely Lebanese, owned by the Sarraf family. We have companies with whom we have partnerships.

E: How were the last five years in terms of profit?

We made a lot of investments between 2000 and 2004. It wasn’t as profitable as it used to be, because we have been developing a lot and we have to move with this expansion, otherwise we will not to be able to develop the whole group. Profitability wise, the ratio was better before the year 2000.

This year [2004] is one of the most difficult years due to the ratio of the euro. We import 60% to 70% of our products from Europe in euro but all our exports and all our local sales are in dollar. We haven’t been in a position to increase our prices. This fluctuation decreased our profitability compared to last year and the year before.

E: Wasn’t also the oil price going against you in 2004?

Yes, it affected our chemical products a lot. The raw material for our plastics industry has increased a lot and a lot of industries that are complementary to our industry have increased their price due to the high euro. Transportation costs were also affected by this situation. I didn’t mention these points but at the end, we are feeling the results of these effects. Thus, we are not looking today at the profit. We are looking at how to develop and maintain our market position. For this reason, we have set our sights on going public in 2007.

E: In your regional and international corporate future, where would you anticipate revenue streams to originate in five years between Europe, Africa, Middle East, Lebanon?

We would basically be happy if the Middle East would be 50% of our business and 50% would be in other regions. This is to say that we aim for 50% from the Middle East where we today generate 80% of our revenues in the region.

E: In this scenario, at what level would Lebanon figure in the long term?

Our main objective in Lebanon is to just cover our expenses.