Will those in the new Executive MBA program at AUB benefit from their investment? Who are we talking about?

We are talking about executives who hold managerial positions, have people who report to them and have budgets to run, often from tens of millions of dollar to over $100 million. Most executives in the Arab world do not necessarily have business degrees. They are technically qualified in their industries, but does the best engineer have skills in managing human resources? We are the first to know in this country that we have a huge deficiency in Lebanon in the area of human resources management. Most of the HR departments are run by people who are trained to deal with payroll issues, sick leaves, this kind of thing –rather than to manage the human capital resources in the company.

The corporate Middle East is a very peculiar business environment. How will you capture the region’s special characteristics and challenges in the program?

Most Arab companies whether in Lebanon or other countries, are family-based. This is factored into our courses through the cases that we are going to discuss. On one hand we are going to describe current practices, seeking to understand them. Then we aim to show the pros and cons of current business practices and current forms of organizations in the Arab world and try to identify the weaknesses and improve on them.

How fast do you foresee the results of the EMBA program percolating into the regional business culture?

I think of universities as kitchens for new ideas that will not necessarily be applied at the moment but hopefully in the future. Even in the West, where decisions on how to optimize your investment decisions were born, these were not practiced. It took 20 to 25 years of generating graduates at business schools and sending them to the job market so that they would convince their ‘boss with a hat’ of the methods they learned. We think that we will be able to convince the executives in our program to go to their boards of directors and present a case for the value of growth by extending beyond the traditional ways of Arab practices in business management. This is not going to be a push-button thing. Spreading this culture through our executive MBAs and our regular MBAs as well, we hope that in the next 10 or 20 years the culture of business in the area will evolve. Otherwise we will keep stagnant and not go anywhere.

How can you help the person applying for an EMBA convince their boss or board of directors to let him or her join the program and perhaps pay for it?

I stand yet to be corrected here but I doubt that any of the batch of executives already admitted to the program, got any sponsorship from any of their employers. This is really unfortunate. Trying to invest heavily into their people is still strange to the culture of many companies here. I would be happy to see companies pay their employees’ tuition on a loan basis, repayable after graduation, or share in the cost, or paying with the condition that they stay with the employer for a certain number of years after graduation. I haven’t seen that yet and I would like to help developing this.

You are substantially more expensive than other EMBA programs in Lebanon? Does your program quality justify this?

We did not at all look at current prices in other institutions when we priced our program. We didn’t look at this in the way of pricing. We looked at our MBA, how much it costs, and how much additional costs this program involves. We are talking a whole set of arrangements and different expenses, from data base costs to receiving scholars from outside. In fact, we think that this program may not break even in the beginning, and we don’t guarantee that the price will not be higher in the future.

And you want to transfer the good name recognition of AUB and the high image of your traditional MBA to your standing in executive education.

We are adding a new brand to this institution, but we are not branding ourselves against the local education market; we are branding ourselves on the international scene. If you look at EMBAs at the London School of Economics or Columbia Business School, all of the high-quality programs are above $100,000. So if you compare numbers on quality EMBAs, I think ours is at the moment among the cheapest. We priced our program as a good product at an affordable price, and we are trying to penetrate the market of quality EMBAs.

Does that mean that in the long run executives from major industrialized countries will see your EMBA as a viable option?

Given the image of Lebanon as the link between East and West, this program might fly internationally and we hope it does. Many executives in Europe, Japan and North America have business interests in the Arab world and perhaps want to know more about businesses in the Arab world. Perhaps it would appeal to them to acquire an EMBA here, mingle with people, establish contacts, business prospects for the future.

Would this also reflect positively on Lebanon’s role in the region?

Many people say today that Arab countries developed enough and know what to do, so they don’t need Lebanese anymore to link them to the West. On the surface, this is true. But when you go to the heart of things, you will find that in any business in the Gulf, there will be the Lebanese in the hierarchy, just below the Gulf person who is heading the division. There is value for this Lebanese brand.

Do you regard the wave of new universities in Lebanon as a problem?

People talk of turning Lebanon into the educational center of the Arab world. Turning Lebanon into the educational center of the region is one way to come up with a new market for Lebanon and this needs to be worked out. In this context, we don’t see the new universities as a challenge for AUB. We see them as an attraction to bring students to Lebanon. I will be more than happy to see 50 universities in this country, bringing tens of thousands of new students into the country. The School of Business at AUB is strong and wants to do its job well. We want the rest of the country to also do their jobs well and institutions to be qualified to build a reputation for Lebanon as a center for excellence in education.

MORE ABOUT THE NEW MBA PROGRAM

EXECUTIVE talked to Nadia Shuayto, the program’s coordinator, about its goals in building upon business culture in the Middle East

How did you structure the program?

The program uses a theme-based approach. For instance Fundamentals and Analytics is the theme for the first semester. Participants will earn credits but we decided to deliver the content in a modular format. Rather than giving separate courses on financial management or financial accounting, we decided to have two modules within the theme, and called them ‘soft skills’ and ‘hard skills.’

How long is the program?

The participant is expected to finish the entire Executive MBA program within 18 months. Courses will be given every three weeks for three days, and on very rare occasions, four days. Our target is not just the Lebanese executive; it is the executive from any country in the region. Thus we decided to organize our courses for Thursday, Friday and Saturday, because Thursday and Friday mark the weekend in many countries in the region.

What corporate experience is required for the Executive MBA?

A quality program begins with the participants. We are being very selective and strict on admission. You must have a minimum of seven to eight years of management experience to enter the program. Were equally scrupulous in your selection of faculty?

We are also very selective in our faculty about who will be teaching in the program and we will have many guest speakers from the industry who will talk about their experiences. Some of our keynote speakers are world-renowned authors, coming from Ivy League schools.

What do you expect graduates to take home from this program?

We want to train people to focus on the human aspect of management rather than just focusing on the financial bottom line. With our program we are going to create a well-rounded leader that will become a change agent. As change agents, the graduates of our program will go back to their companies and develop their employees as well. A lot of Middle Eastern executives fear delegating, they fear empowerment. We want to take that fear away from them. We don’t just want leadership at the top – we want an environment of leadership throughout the organization. Our focus is really on human development. Once the human develops, the corporation develops.

The Executive MBA program at AUB is available to participants who qualify by their academic and managerial background. Class size is restricted to 24 persons and the courses for the first class started on February 26, 2004. Cost of the 44-credit program is $600 per credit, or approximately $30,000 for tuition, books and materials. English proficiency is a must.

Pain d’Or, the Lebanese bread, pastry, and confectionery manufacturers are investing $20 million into a new Saudi Arabian operation, which the company hopes will eventually lead to a multinational status. The new company, which will open in a year, will incorporate Pain d’Or’s full production, sales points and delivery network concept as Pain d’Or’s whole Lebanon range of products will be on offer in the Kingdom. “Saudi Arabia is the biggest economy in the Middle East. That is why we started our expansion there,” said manager Hachem el Koussa. “We will probably open in [the Saudi capital] Riyadh,” said Koussa. “It is central. The government is based there and the buying power is strongest there. But we plan to gradually cover the whole of the Kingdom.” In parallel to the international ventures, Pain d’Or is continuing to expand nationally, in particular into regions of the country in which it does not yet have a presence.

Pain D’Or’s story began almost 20 years ago, when in war-ravaged Beirut of 1986, bread deliverymen braved Beirut’s Green Line on a daily basis to ensure that customers got their bread.

“Today, Pain d’Or is a household name,” said Koussa, whose family company, the Malco Group (previously the Malco Trading Co) was founded by Hachem’s father and his three brothers four years earlier in 1982. Originally, the company specialized in restaurants, but the war-related instability prompted Malco Trading to branch out. Enter Pain d’Or with bread and pastries in 1986 (as well as Fantasia, the snack food company, in 1992).Today, the Malco Group manages three companies: the Malco Manufacturing and Distribution Company (MMD), HMDR – which is responsible for Pain d’Or production and sales – and the original Malco Trading Co. – which deals with the Malco Group’s restaurant interests, Horseshoe and Abu Nuwass. Pain d’Or was born, explained Koussa, out of his father’s empathy with the plight of a people suffering because of the war. In 1986, as inflation skyrocketed, vast swaths of the Lebanese population found themselves impoverished. The situation was particularly grim for children, Koussa recalled. “It was a new kind of war – economic war,” he said. “Our aim, in launching Pain d’Or, was to help ourselves, and the Lebanese people. We thought: if children can’t buy chocolate, let’s create something they can buy instead. And we invented the Pain au Lait.”

The war had also rendered movement around Beirut, and Lebanon in general, hazardous, so Pain d’Or created a unique distribution network. “Customers couldn’t come to us. We said: Ok, if they can’t come to us, why don’t we go to them? In this way, they were able to make hamburgers at home, with buns, without venturing out into the streets.”

The fledgling enterprise didn’t allow the East-West division of Beirut to stand in its way. “We refused to divide the country ourselves,” declared Koussa. “We went everywhere. It was dangerous for our workers, of course. But Pain d’Or was for everyone. We made this our slogan. It was our duty.”

Initially, Pain d’Or only produced and distributed. It had no outlets. The first shop opened on Corniche al-Mazraa in 1988, when its range was restricted to eight items, compared to the 300 it offers today.

Other companies were already producing many of the products offered by Pain d’Or, but Pain d’Or pegged its distinctiveness on the unification of a whole range of diverse, not necessarily unique, items under one brand name. “There has always been competition with respect to individual items,” Koussa acknowledged. “However, Pain d’Or combined many lines of production under one umbrella. Maybe there is a lot of competition with regard to bread, sweets, or donuts, but we unified everything in one establishment. Our strategy was: be different.”

Thanks to Pain d’Or, people no longer had to queue in bread lines, or purchase from what Koussa called, “unhygienic shops.” Most different of all, though, was the fact that Pain d’Or did not immediately produce Arabic bread. At the time, the Arabic bread flour available did not, Koussa claimed, meet Pain d’Or’s hygiene and overall quality specifications. In 1992, Pain d’Or developed a strategy, which it hoped would allow it to compete with emerging investor blocs. It began to open outlets across the country, to bring its products closer to the consumer. Today, there are 18 Pain d’Or shops throughout Lebanon, of which six are in Beirut. The company intensified its diversification efforts, while simultaneously attempting to raise consumer awareness. “Previously,” Koussa explained, “if a customer wanted any type of French bread, they would say: give me French bread. Now they specify what they want, but this has taken us more than 10 years.”

The path to customer enlightenment was painstakingly slow but meticulously planned. “We didn’t introduce real French bread right away,” confessed Koussa. “European people like to chew. They like to eat hard bread. Americans don’t. They like to eat soft bread. Lebanese people like to eat soft bread. If we had given them hard bread straightaway, we would have had a problem. We slowly made some of the bread harder. Now, the Lebanese eat hard bread as well as soft bread,” he said. It was hard going at times, but Pain d’Or effectively pioneered the introduction of European-style bread to Lebanon, thus creating a whole new market, which eventually became saturated in the 1990s. “It was useless to compete,” said Koussa. “It was better to create a new market and that was why we expanded our range.” Today, though, neither Pain d’Or’s ‘broad variety under one umbrella’ trademark nor its array of European-style breads is unique, Pain d’Or remains the market leader, with an annual turnover of between $10 million and $15 million a year, and employs over 500 staff. The business has been dealt a tremendous blow by Lebanon’s economic and financial crisis, in particular by the introduction of Value Added Tax (VAT) in 2002. “Especially with our kind of products, which are not cheap, we could not introduce VAT without having a conflict with our customers,” Koussa recalled. “2002 was a disaster for us. Many of our customers refused to pay the VAT. They didn’t understand it.” In the interest of preserving its client base, Pain d’Or often paid VAT out of its own pocket. In so doing, it lost $2-3 million and saw its profit for 2002 wiped out.

In 2003, the company puts its shoulder to the yoke, armed with a strategy designed to help it recoup its losses. Essentially, it distributed its overheads across a broader, more diversified base by introducing a host of new products and establishing more outlets, and by increasing distribution. It also spent 6% to 10 % of its budget on advertising, especially with brochures and flyers, and on marketing its ‘healthy bread’ concept. These measures ensured that Pain d’Or revenues, helped by extra tourists, grew by 15% to 20% in 2003.

Saudi billionaire Saudi Prince Alwaleed bin Talal’s recent $98 million purchase of a 49% share in the satellite broadcasting arm of leading Lebanese television station LBC International has provided a welcome, if modest, boost to Lebanon’s satellite television sector. The industry has been struggling to compete with cash-laden Gulf channels like market leader MBC and Abu Dhabi TV – both backed financially by their respective governments – and to overcome the roughly $30 million, or 20%, loss in 2003 television advertising revenues caused, according to LBC Chairman Pierre Daher, by the war in Iraq and the bombings in Riyadh.

“The move has reinforced the position of LBC as a potential leader in the region,” stated Daher. “Walid bin Talal did not make this jump into LBC just because he felt like it. It was carefully planned. He thinks LBC has potential,” said Daher, who discounted the suggestion that bin Talal, who bought the stake in LBCSAT – valued at $200 million – from Arab Radio and Television (ART) chairman Sheikh Saleh Kamel, might wish to exert editorial pressure on the station. Meanwhile, other Lebanese stations are hoping the development signals a trend that will allow them to forge similar strategic, financially rewarding partnerships.

Not everyone, however, is optimistic. “Lebanon’s satellite television channels have serious problems,” remarked one media professional. “LBC and Future were very good satellite TV stations until the Gulf people decided to invest more in their TV stations. Now you have private stations like LBC and Future competing with MBC, which is funded by the Saudi government, with Abu Dhabi TV, backed by its government, and with al-Jazeera. They can’t compete.” He said annual satellite television budgets had in some instances, in the Gulf, quadrupled in two years, from about $25 million, to $100 million. Lebanese channels, although just as creative and aptly managed, have been left financially adrift in the wake.

The bin Talal move has at least consolidated LBC’s position at the head of the Lebanese satellite television sector. Future TV remains hot on its heels. “It’s mainly LBC and Future that are making money,” said the chairman and general manager of NBN, Nasser Safieddine. “Apart from them, I don’t think any Lebanese station is making serious income from the satellite market.”

Of bin Talal’s foray into LBC, he said: “All of us in the Lebanese media welcome this. A boost for any Lebanese station is a boost for the whole sector,” he said, before adding, “NBN is looking for a strategic partner. We are not ashamed to say this. Because competing, as we do today, with stations that have budgets that are 10, 15, 20 times as big as ours is useless.”

Bin Talal’s establishment of the 24-hour music channel, Rotana – backed by a music production company, and using the old Lebanese MTV infrastructure – has also been hailed as a smart business move that also benefits Lebanon’s satellite TV sector. “Rotana is different. It is a complete organization. It takes care of music production television programming. I think that very soon they will be the leaders of music television in the Arab world,” said one media executive. “And it’s good for Lebanon. It’s money coming in.” “People get fed up with news. They want something different,” added another. “It’s a good move,” agreed Safieddine. “It’s easier to market music and songs than educational programs.”

LBCI has been sub-contracted by the American Harris Corp, which has won a $96 million contract to refurbish Iraq’s official media to train Iraqi anchorpersons.

Still, old habits prevail. The weekly LBC political satire show Bass Mat Watan was suspended at the end of last month by the National Audiovisual Media Council (NAMC) after it played a practical joke that, according to the government body, “harmed the image and authority of the state, and shook the country’s stability”. At the end of 2003, New TV owner Tahseen Khayyat was arrested on charges of treason. All agreed the move constituted a politically motivated attack on the media. Khayyat was released 25 hours later and the charges were dropped. “On the face of it, it looks that way,” remarked Walid Azzi, publisher of ArabAd. “It’s not very reassuring,” noted another newspaper executive. “It was harassment.” Safieddine said he felt Khayyat should not have been arrested, but, interestingly, defended self-censorship as a “wonderful thing.”

Lebanon’s print media, for their part, are reeling under a double scourge: miserable circulation figures and worryingly low advertising expenditures, which observers say dropped by 25% last year. Although the market is characterized by an abundance of publications, especially magazines, most are unable to survive without continual financial top-ups. A vicious circle has, in effect, been created: no one wants to advertise in a publication that doesn’t sell. But publications need advertising revenue to expand circulation. Currently, only 16% to 17% of media-related advertising budgets are spent on the print sector, claimed one publisher. This is due, in great part, to the fact that “no magazine sells more than 3,000 copies and no newspaper reaches more than 10,000 readers,” asserted ARABAD publisher Azzi. However, publishers constantly inflate readership figures – sometimes by as much as 50% to 60%. The tendency has become more pronounced, Azzi lamented, as journalistically below-par, spit-and-stick magazines mushroom and compete. “Spitting and sticking is very easy to do, but it’s not journalism,” he said. “You need quality, in-depth journalism and innovation to get a magazine rolling and to get advertising.”

In the struggling print media, An Nahar leads the pack both in terms of quality and advertising revenues, observers agreed. “It’s run by master professionals and has acquired a great deal of integrity. This is why it gets the lion’s share of advertising,” said Azzi. A one-page ad in An Naharcosts between $8,000 and $14,000.

However, even An Nahar is feeling the financial pinch, particularly as its has just bought back, for a considerable, undisclosed sum, Prime Minister Rafik Hariri’s 34.5% stake in the paper. In the shadow of An Nahar follow As Safir and L’Orient le Jour, and then the Daily Star. The latter two need to be developed, said Azzi, adding that the Daily Star in particular must not make the mistake of thinking it can rest on its laurels because it is the only English-language paper in town. Daily Star Executive Editor Rami Khouri is attempting to ensure that does not happen. The regional Daily Star is undergoing expansion-oriented change, he said. It is now being printed in Lebanon, Kuwait and Qatar and is being sold in 11 countries. “We’re becoming a truly regional paper in terms of our coverage and distribution. We’re making serious ongoing changes in content,” said Khouri, adding that the regional Daily Star aims to become the leading English-language Middle East newspaper with analysis, commentary, insight and interpretation. The Daily Star is not placing as much emphasis on straight news because it believes readers obtain this from other, local papers or from electronic media. To this end, it has developed a still-expanding network of about 150 contributors from around the world.

Meanwhile, the new newspaper Al Balad has elicited mixed reactions and prognoses. “It’s still early to judge,” remarked a cautious Azzi, although he commended the paper’s marketing efforts. Striking a more positive note, NBN General Manager Safieddine said: “I think it’s a very intelligent move. I think they moved into the market in an intelligent way.” An Nahar editor Tueni said he hoped the Al Balad would succeed because competition was good for the market but added that he did not regard the paper as a direct competitor of either An Nahar or As Safir because it’s profile was different: less political and serious. “I haven’t had any reaction,” said LBC Chairman Daher. “It’s new. But I read a paper for politics. Until now, I haven’t seen an editorial line in Al Balad. The rest is nice, but I am not sure I would by a paper for the rest.” Al Balad is currently sorting out a dispute with the Order of the Press, which has accused it of ‘dumping’ its copies at a price forbidden by applicable laws. A newspaper comprising more than 24 pages cannot be sold for less than LL2,000 – Al Balad is selling for LL1,000.

A spokesperson for Al Balad said that after meeting with Order of the Press representatives the newspaper realized it had a stark choice: raise the price or diminish the number of pages. “We will not diminish the number of pages,” the representative stated clearly, “because that would change the nature of Al Balad.”

Industry insiders have suggested that pressure was brought to bear on Al Balad over the pricing issue because of the paper’s apparent support for An Nahar editor Gebran Tueni in his dispute with Nabih Berri. Tueni had implied in an editorial that Berri was involved in the Union des Transports Africains, the company that owned the plane that crashed off Cotonou, Benin, on Christmas day. The idea was, the insiders said, that a ‘rebel’ Al Balad should be tamed – made to understand that, in the view of the Order of the Press, a new newspaper must refrain from siding with the ‘wrong’ party in disagreements involving important politicians.

Would that the industry watchdogs be always so lynx-eyed in their patrolling of the sector. Although there is widespread acknowledgement that the orders have helped defend freedom of the press in Lebanon, many media professionals argued that the two organizations’ directors have used the bodies to bolster their personal prestige rather than to remedy the sector’s ills, and that qualified journalists are being barred entry because they are not at one with the orders’ directors. “These positions are not there to give you prestige. They are supposed to enable you to see exactly what is going on in the business, so that you can correct things,” noted one publisher, who asked not to be identified. “This is not happening.” Mohamad Baalbaki, president of the Order of the Press, denied the claims. “This is not true,” he said. “Whoever says this, doesn’t know the reality of our activities in the order” Qualified journalists had not, he said, been deliberately denied entry. But, he explained, their membership must be approved in a meeting held by an eight-member committee comprising four senior members of the boards of the Journalists and Press Orders respectively. A minimum of five board members must be in attendance for a membership application to be approved. Unfortunately, for two years, no meeting has been held because no board member from the Order of Journalists is willing to show up. “If the representatives of the other order don’t attend the committee meetings the committee cannot make a decision on memberships. Our colleagues in the other order, especially its president, Melhem Karam, don’t like to come to these committee meetings. He prefers not to expand the membership in his order. We are constantly asking him to come to a meeting where membership requests can be studied. He is always busy or traveling,” said Baalbaki. The committee last met, acknowledged Baalbaki, “about two years ago.”

Marked by an insider language and a particular way of life, modern shipping and transportation has long established its very own culture of connecting nations, cultures, and markets. It has a history of its own, which reaches farther back than that of most other economic activities. Today, the industry consists of a huge variety of services and business specializations, and plays a significant role in the global economy.

Compared to its past roles in facilitating international trade and exchange and also viewed against national economic ambitions, Lebanon’s place in transportation has been small – one can even go as far to say dismal. The contribution of the transportation and shipping sectors to GDP is, in typical fashion, not precisely determined. For a nation reputedly mired in mercantilism, Lebanon recently has been awfully short on transportation essentials, beginning with ships and rigs.

With less than 100 vessels (the number exceeded 300 before 1975), the merchant fleet is not only marginal in size but also overage and, critics say, to a large part technically obsolete. Trucking is an underdeveloped industry too, where no government incentives are extended to either individual owner/operators or fleet owners. Banks are said to be overly reluctant in engaging into financing of either merchant vessels or trucks.

Governmental budget allocations to transportation have shrunk in the past five years. In 2002, the expenditure was 2%, and, as throughout the reconstruction era, the vast majority of these funds were committed to boost the infrastructure.

On the side of road construction, acceptable improvements were achieved but progress has been slower than intended, and nothing at all has progressed with respect to rail. Of all infrastructure measures, the airport rehabilitation and expansion project is most complete, even though it was weighed down with expectations that could not be met in the projected time frame.

In both sea and air transportation, Lebanon’s long-term hope and aspiration is to function as a regional transportation hub. The country’s shipping and transport experts have placed their strongest bets on sea-to-sea transshipment, whereby large container “mother” vessels would call on Beirut Port to unload and load cargo to smaller vessels that provide feeder service to regional ports, to Cyprus, Turkey, Syria, Egypt and eventually the Palestinian territories.

Sea-to-land transshipment plays a lesser role in the scenarios because of the limitations on ground transportation, which protectionist practices of governments in the region have created. Local players have voiced higher hopes for succeeding in multi-modal transportation that would also integrate air shipping into a regional hub function. Beirut, with its port and airport, has momentous potential to fulfill the function. Public sector entities have made industry-wide lauded efforts to improve operations of the facilities, reduce red tape, and act upon suggestions by the shipping industry. However, other ports and airports in the region are competing for the coveted role. The port of Tartous – a strong candidate for growth in the opinion of local experts – last year was granted a 50 million euro expansion loan by the European Investment Bank. In a venture that analysts considered less promising, the Israeli government only last month commissioned a feasibility study for a proposed railroad to link its Mediterranean and Red Sea ports and, in this way, establish a niche role in transshipment. Although the discussion over creating a transshipment hub in Lebanon has been very involved, the country still needs to convince all around that it does not only talk-the-talk of transportation but is able to walk-the-walk.

The good news is that beyond verbal commotion over the Lebanese possibilities, chances prevail for real motion in the transport sector. In air travel, national carrier MEA has been resuscitated and outlooks for passenger travel in 2004 are among the economy’s most positive indicators. Aware of this potential, new companies are targeting Beirut for charter and corporate aviation business.

The hottest current optimism factor in the shipping industry is Iraq. Although freight forwarding to Lebanon’s former top Middle Eastern trade partner still presents great security concerns due to the activities of insurgents, the second half of 2003 has already shown that the ports of Tripoli and Beirut could increase cargo throughput to Iraq. Here, 2004 could become the first year of a new future for the Lebanese shipping industry and, within realistic regional possibilities, see the country enter a new phase in writing forth its contribution to the very hands-on culture of connecting nations by shipping.

The alternative wouldn’t be pretty. At least for sea transportation, failure to bring Beirut up to transshipment hub function might condemn the ancient trade center to ‘walk the plank’ and fully plunge into shipping marginality.

Beirut Cargo Center

“Freight forwarding is a profitable business in Beirut but there is room for much more,” says Joseph Harb, president of Beirut Cargo Center (BCC), “I always tell my team that we are only at 10% of what is in our reach.” One of no more than 15 forwarders with a strong presence in the market, BCC has dominant positions in providing logistics to shows and exhibitions and in the shipping of household goods. The company started operations in 1993, after Harb decided to leverage his nearly two decades of managerial experience in the Dubai shipping industry, by returning to Beirut and setting up shop. “Our expansion and acquisition of business went very fast,” he says, “each year we created new departments and added 10 to 15 persons to our staff.” Today, BCC employs 130 staff, with separate departments for sea, air, overland freight, customs clearing, warehousing, exhibitions, and packing and moving. Factors that Harb credits as decisive in his company’s success are working according to international standards and implementation of quality systems and services, aided by an emphasis on training and consistent reinvestments of profits. In the area of rate competitiveness – in any segment of shipping equally important to high service quality – Harb brought a relationship with European logistics provider, Schenker, as crucial intangible capital to BCC. A $7.7 billion company by 2003 turnover, Schenker signs worldwide annual contracts with cargo carriers in a magnitude of 1 million TEU. As their local partners, BCC share in Schenker’s global buying power, allowing it to stand strong in rate rivalries. A decade of growth means that BCC is now an established entity in the freight forwarding business here. It also means that the company could be approaching the size limits for an operator in the dimensionally disadvantaged Lebanese market. But staying true to his credo that much more growth is achievable, Harb is now accruing the adrenaline for his most ambitious jump: becoming a regional logistics provider for Schenker and some of their big manufacturing clients. A project for establishing a Beirut distribution center for a growing European consumer electronics company has already been drawn up to substantial detail. Based on a permit to operate in the free zone at Beirut Port, BCC would immediately seek to acquire a warehouse space of up to 1,000 square meters there in order to implement these projects, thus effectively doubling their existing warehouse capacity. In development steps to follow, the company would set up a trucking department of 20 trailers with scheduled daily overland runs to Levant destinations. In the mid-term, Harb expects to expand his free zone warehouse to 10,000 square meters. Internal consolidation of the Lebanese freight forwarding industry through mergers and acquisitions is unlikely, Harb says. In his view it is a more realistic scenario that his international partners, Schenker, would one day decide to establish their own offices in Beirut, as Lebanon gains in the role as a freight forwarding hub. This possibility, however, does not worry the entrepreneur. The international firm would first approach its existing partner, BCC, and this would open new roads for development. “The future is international logistics,” Harb says, “If you have the international, you will also have the local.”

Sealine

With 25 years of presence in the Lebanese market, Sealine and associated Seatrans are shipping agents and ship owners. The firm has found its niche in representing European cargo lines and as operator of a regular container freight service between Italy and the Levant. The company has a share of about 16% of tonnage volume passing through Beirut port and last year realized two thirds of its business as agents for European shipping lines, mainly German Hamburg S‏ûd and Italian Gilnavi. The remainder came from the operations of its own vessels, but this side of the business could increase in 2004 based on a strategic adjustment of operations that the firm implemented in late 2003. If successful, it will be a classic example for a move that turns an emerging problem into an opportunity. “We are directly affected by the euro exchange rate,” said shareholder Samir Noaime, “due to the strong euro, we are facing difficulties with lack of volume.” The appreciation of the European currency over the past two years has forced Lebanese traders to increasingly source their supplies from the Far East and the US, leading to a drop in shipping volumes on the traditional European supply routes. To balance the negative impact of the shifting trade patterns, the Sealine management modified their shipping service from one route – Ravenna to Beirut via Limassol – to two, by switching to Venice as Italian port for the second route and also adding the Syrian port Latakia before sailing on to Beirut. Besides offering more Levant-bound cargo opportunities, the change of strategy also opened greater potential to pick up Europe-bound freight, because Syrian export shipping volumes are far more substantial than the Lebanese. It is too early to assess the results of the new strategy after serving the Syrian port for now two to three months but the firm had encountered no obstacles, Noaime said. “We are well introduced in Syria and I am more than optimistic that Latakia and Tartous will be doing well.”

The operational environment for their activities in Lebanon is today incomparably better than in the 1980s when Sealine served the ports of Beirut, and in often forced diversions, Jounieh. It seems near miraculous how in those days, under the raging Lebanese conflict, shipping companies succeeded in supplying the country with urgently needed supplies. According to Noaime, the war had also been the reason why the company’s ships until today have not been sailing under Lebanese flag. The terse security situation and resultant excessive scrutiny of Lebanese-flagged vessels in European ports had mandated the company to register its vessels outside, in San Vincent and in Cyprus. However, as one vessel owned by the company is due for immediate replacement and the two others are also scheduled for renewal, the next generation of Seatrans ships would be flying the Lebanese colors. “We have a project to develop the fleet. We want to employ younger vessels with a little bit higher capacity” Noaime said, “and I will be proud to have the Lebanese flag.” With a capacity of 225 TEU, the new vessel is by no means a large ship and Sealine sees no difficulty in financing the renewal of their moderate fleet out of own resources, Noaime said. Under the company’s existing route setup, three vessels would suffice, but more could be added if a project for developing new routes to Turkey and Egypt were to succeed. But in the short term, Noaime’s expectations for 2004 are that a repeat performance of 2003 results would be reason enough to be happy.

Aramex

For courier enterprises, their speed and reliability have created huge opportunities in the last quarter of the 20th century. Companies specializing in express shipping of documents and goods experienced a rush in demand for international deliveries that hasn’t ceased growing since. The firm Aramex was founded as a regional response to the international courier business surge. Conceived in 1982, it developed from an auxiliary provider of narrowly defined express services to a full-fledged operator with its own international network. Today it flaunts its services as ‘total transportation solutions.’

In Lebanon, where Aramex has been operating since the late 1980s, the company saw the nature of demand evolve significantly in the past five years. “The weight per shipment has increased noticeably,” said country manager Asma Abboud, “and the content has changed.” Shipments weighing 40 to 50 kilograms are becoming more and more commonplace in the express segment and some customers use the service for sending consignments of 100 and more kilos to destinations within the region. Across the board on its services provided here, the company reached 10 percent growth in 2003. Over more traditional forwarding, Aramex express shipping has advantages in achieving door-to-door delivery in 24 hours or less to Middle Eastern countries. The company expanded into an increasing range of packing and shipping services, and in 2004, it wants to take a shot at developing its transit business here, which to date has been minimal.

In the domestic market, Aramex has embraced specialization. It does not deliver mass mailings and moved out of areas such as media distribution after LibanPost entered the scene. Shipping of bank documents, blood and laboratory samples, delivery of IT products under collection of their invoices, is where Aramex has a strong position. A Shop and Ship niche service facilitating forwarding and clearance for goods purchased abroad via the internet has some 250 subscribers who use it actively. The firm’s customer mix is 90 percent corporate and 10% individual but the individual clients are very important to the bottom line, Abboud said. She attributed a high share and loyalty of banks in the clientele to the fact that Aramex had been able to provide them with consistent service in the years of conflict. In their corporate philosophy, Aramex stress a team approach that affords staffers with opportunities to rise through the ranks. “Being a transparent company gives each of us a chance to grow and learn,” Abboud said, “each team member becomes an entrepreneur.”

On the level of Aramex’ country stations, this translates into a decentralized corporate culture where managers in every market can make decisions and add to the system. As a corporation, Aramex underwent a noteworthy evolution that took it from being a privately owned firm to go public on the Nasdaq and then, by way of delisting, return to private ownership with an investment fund based in Dubai. Each of these steps proved a useful learning experience and spurred the business on, according to Aramex chairman, Fadi Ghandour. On the whole, Amman-based Aramex saw a very successful 2003 and will “close the year with record results in revenues and net income,” Ghandour told Executive. While the Lebanon operation is doing “very well” the company is internationally looking at Africa and Southeast Asia for expansion. “There is no change in our strategy,” he said. “We are doing what we have always done, but we have become more aggressive on acquisitions.”

Executive travel services ExecuJet

At the top of the transportation pyramid reside flight services for corporations and wealthy individuals. Lebanon is a candidate to become an emerging market for this lucrative segment of the transportation industry. One of several contenders for a stronger corporate aviation business in Beirut is ExecuJet Middle East, a Dubai-based company and part of the ExecuJet group with operations in four continents. The firm, which already has a limited customer base of Lebanese clients, has ambitions to grow its business here into a much larger presence. As a first step, the company announced the appointing of a new sales team for the Levant at the end of last year. With this team, the company aims at penetrating the Lebanese and neighboring markets. “The ExecuJet business model is based on providing total aviation solutions,” ExecuJet Middle East managing director, Horm Irani, told Executive. “I believe that the model is very well-suited to improve efficiencies and comprehensively service the wide range of requirements in the Levant region.” The expansion project is still it its early phase and ExecuJet Middle East would yet have to set its timing for opening an office in Beirut or establishing a base of operations here, but it assessed a doubling of business aircraft movements through Beirut over the past six months, as “very encouraging” signs for local market growth. Irani labeled Beirut International Airport a hub for the western part of the Middle East that could play the same role as Dubai has assumed for the gulf region. “It would make commercial and operational sense to base ourselves out of BIA,” he said, “we anticipate no obstacles in growing our business interests there and establishing the offices and operations base we project.” He affirmed that the Lebanese government and aviation authorities have been very “proactive and progressive” in supporting infrastructure investments and legislating the freedom and ease of movement for sector companies.

Based in Switzerland, the ExecuJet Group was founded in 1991 and has been operating in this region since 1999. Besides offering consulting, operations/management and charter services, the Middle East unit is active in sales and financing of corporate aircraft, representing manufacturers Bombardier and Pilatus. A boost in flight services for corporations and high-level individual customers would certainly add to the Lebanese market. Although several providers in the high-end segment are interested in developing their business here, ExecuJet Middle East sees this area as one whose potential has barely been tapped into. From their perspective, awareness of the benefits of corporate travel is increasing, although Beirut as market for the high-end services is still lagging in some areas. “The risk is a little higher when compared to the Gulf and international markets as the market is still far from maturing,” Irani said. “Profitability is also assessed to be lower as customers are very value-conscious and have still not accorded the full premiums on the offerings.”