Kassatly

The international ready-to-drink (RTD) alcoholic beverages Bacardi Breezer and Smirnoff Ice, have become a global phenomenon with annual sales of over $1.5 billion. In Lebanon, the multi-flavored alco-pops have carved out a $3 million niche market that is growing by 15%. They are the drink of choice of the lucrative 20-30 year old demographic, who, in the last four years, have embraced them on the wave of beach and club culture, egged on by Lebanon’s modest tourism boom, and aggressive marketing campaigns.

Three years ago Kassatly Chtaura recognized that they may not have the international pizzazz, nor the brand equity of either Smirnoff or Bacardi, but what they did have was the ability to produce their own RTD, Buzz, and compete on price. Three years on, Buzz can lay claim to a 30% share of the local market. It has been a war fought on two fronts – with Bacardi and Smirnoff winning the battle for the pubs and clubs, while Buzz has found willing consumers in supermarkets, where it has been able to undercut its sexier rivals by as much as 40%. “They have so much financial clout in terms of their ability to promote their labels. We cannot realistically compete, but in the shops we can hold our own,” says Akram Kassatly, chairman of Kassatly Chtaura, sitting in his office surrounded by the dozens of bottles that make up the Kassatly Chtaura drinks catalogue – liqueurs, juice, arak and RTDs. Buzz sells 50,000 cases a year, more than enough for Kassatly to justify the $2 million he invested in the bottling machinery needed to manufacture Buzz. “It wasn’t a huge gamble. The plant we bought can also be used to make beer, juice sparkling wine and RTDs,” he says.

However, the multinationals are responding to the impact of locally made products, by cutting their prices by as much 20%. “They can afford to sell at a loss just to get us out of the market,” says Kassatly, who believes that the government is quite happy to see Lebanese industry reduced to its knees, if it means an open market. “The end result will be a bigger burden on the state if these companies go out of business,” he says. “With the costs we have to endure, we are practically competing with multinationals. These guys can spend a million on an advertising campaign without blinking, If we do this, we go out of business.”

Still, attack is the best form of defense. In anticipation of what he hopes will be a bumper summer, Kassatly has now revamped the original Buzz design and is preparing to launch a non-alcoholic RTD. This latest foray into the beverage market is aimed at teetotal customers (including no doubt the many GCC tourists), and even young teenagers, who still want to feel part of Lebanon’s endless party.

Kassatly says his decision to launch the range was a gut instinct on what he perceives the Arab tourist will want, and is based solely on the power of image. What he is essentially selling is a carbonated fruit juice disguised as an alco-pop. “If they can be seen holding a fashionable drink that won’t compromise their beliefs, or get them into trouble, it might just take off,” he says.

His initial run of non-alcoholic RTDs will be 20,000 cases, and despite his confidence in the habits of his target consumers, Kassatly admits he is stepping into the unknown. “We might have sales of $200,000, we might have more. Tourism is a significant contributor to the economy, and the feeling is that we are making a product that that will reflect this growth and encourage consumption within this sector,” he says.

Kassatly has never taken his eye off the export market, where his goods maintain strong brand loyalty among expatriate Lebanese: “We export 15% or our RTDs and 40% of our overall products, especially to countries with a strong Diaspora, such as Africa, Jordan, Sweden and France.” No doubt in response to a wintry local market, Kassatly hopes to increase exports by 50% in the next two years. For the time being he is prepared to soldier on. “All we can do is what we have always done, and that is to innovate within our know-how,” he says.

UNICERAMIC

The latest strategic move in the planning of Chtaura tile manufacturer Uniceramic, is worth more than a precursory glance for industrial Lebanon. The company has placed a bid for leasing manufacturing facilities in Iraq, and according to Uniceramic’s general manager Nabil Ghorra, the company is one of three finalists out of 129 bidders. Uniceramic’s Iraqi gambit would bring three new manufacturing units into the company’s fold, two tile and one sanitary ware factory. If their bid were accepted by the US Coalition Provisional Authority in Baghdad, the Lebanese company, together with joint venture partners, would aim “to invest in very fast expansion in Iraq,” says Ghorra. The three factories are equipped with the latest technology and would be perfectly complimentary to Uniceramic’s existing capacities, he says.

This corporate decision is highly noteworthy, not least because the move entails an investment value of some $10 million over three years. As a shift in strategic planning, it involves icing a $17 million project for building a sanitary ware factory in Syria, in exchange for a much larger entry into the challenging, but highly promising field of manufacturing in Iraq. In the long run, it would also increase pressure within the company to completely refocus production at the Chtaura plant on higher quality tiles.

The move comes on the back of a pivotal year in Uniceramic’s 30-year existence. For 2003, the company could report record sales both domestically and internationally. In terms of volume, the firm recorded a 55% increase in domestic sales last year, compared to 2002. In terms of dollar value, the increase was 37%.

Several factors contributed to making 2003 a record year and quite the opposite of what the firm’s management had thought would be a very difficult year. Anticipating a protracted military conflict in Iraq, Uniceramic had expected this war to cut into Iraqi sales of competing regional tile manufacturers, and saw danger in that these competitors might try to flood the Lebanese market with their surplus stock. In a preemptive move to ward off such competition and counter weakened demand, which they expected because of the economic fallout from the regional situation, Uniceramic’s board of directors at the beginning of 2003 decided to lower prices by 10% and slow production to 40% of capacity, during 10 weeks in the summer. As the year progressed however, the manufacturer found itself in a domestic market where demand for ceramic tiles had increased by a surprising 20% overall. And in the absence of strong price pressure from regional competitors, their tiles were suddenly the market’s best buy. Yet the record year did not pass without a sting. When some cost factors moved against their predictions, the locked-in reduced prices on products meant that the firm wrote a loss for the year. The reduction of output in the summer meant that for the first time in its corporate history, the tile maker could not satisfy demand for some product types. However, what matters above all else for the Uniceramic management, is that the company increased its share in its key domestic market, beyond its wildest dreams. “For us, it was really hard to think that one could gain that much market share,” Ghorra says. They may have been surprised by the size of their success, but Uniceramic has been investing consistently in modernizing and automating their factory over the past six or seven years, improving product quality and design and developing their showrooms. Rather than utilizing aggressive pricing alone, Ghorra could thus plausibly attribute the manufacturer’s domestic sales successes to structural improvements in product policies, brand building and marketing. And even as they are correcting prices upwards for this year, the company has high confidence in being able to consolidate their new strong position in a reinvigorated Lebanese construction market.

For Uniceramic’s international activities, Ghorra is optimistic about expansion in the world’s two largest import markets for ceramic tiles, the US and Germany. Following rewarding forays into smaller European markets such as Norway, the company now sees its opening for supplying premium quality tiles to those demanding Western markets. It is also aiming for a stronger role in the high-end sales of tiles in Arab markets, where a new showroom in Amman has produced encouraging results. As for future steps in the company’s strategy, much depends on Iraq. If the aim to operate the three Iraqi factories comes into fruition, the company would seek to produce all its lower priced tiles there. “It is a tremendous window of opportunity,” says Ghorra. “Iraq is the China of the Middle East.”

For the Chtaura factory, where Uniceramic has a well-established record of asserting job security, even when implementing automation in recent years, this would mean an increased need to emphasize production of high-value added premium tiles, increasing their share of production way beyond the 30% achieved today. “In two to three years, we would like to have only premium production in Lebanon,” Ghorra says. In any case, shareholders in Uniceramic have already agreed upon a $5 million capital increase for corporate expansion. The company also has a positive track record with financiers of previous investments in the Chtaura factory, including the International Finance Corporation. On the basis of a successful deal and the assumption of operations in Iraq, even the sleepy Uniceramic stock on the Beirut Stock Exchange could find new appreciation.

Nobody should think that you can’t teach an old tile maker new tricks.

DEBBAS

Cesar Debbas & Sons have been manufacturing lighting fittings, metallic suspended ceilings and panel boards in Lebanon since 1967. Debbas says it is Lebanon’s biggest such manufacturing company, and is equipped with the most advanced technology. It sells around 150,000 lighting units, and 40,000 square meters of false ceiling a year. It also owns manufacturing companies in Saudi Arabia, Abu Dhabi, and France. In Lebanon, it employs around 85 staff. Debbas exports between 20% and 50% of its products, depending on contracts. The company says its market share lies somewhere between 40% and 60% – most probably above 50% with revenues of some $5 million a year.

In 2000, Debbas experienced its worst-ever year since the bleakest periods of the country’s civil war, and since then things have got only marginally better. Revenues grew by less than 10% in 2003 over 2002 and were still 30% lower than in 1997 – Debbas’ best-ever year. Production costs continue to constitute close to 100% of revenues.

“We are running at 50% to 60% of capacity,” laments Debbas’ general manager, Samir Tabbal. “We would have to go above 70% to 75% of capacity to start making real profit.”

Debbas’ woes have been aggravated by the diminutive size of Lebanon’s industrial market, as well as inordinately high manufacturing costs, says Tabbal. “Our costs are increasing day by day. There are a lot of hidden costs and inefficiencies in the Lebanese system. For instance, sending a container from here to the port and putting it on a ship costs twice as much as shipping it from Beirut to anywhere in Europe,” he says. The high cost of electricity for manufacturers in Lebanon only adds to the problem.

Also of concern to industrialists is the general inefficiency of the Lebanese worker. This phenomenon stems from a lack of an industrial tradition and a sense of responsibility or seriousness, but is ultimately a consequence of the low salaries they receive. “At our plant in France, the worker generates twice the turnover he generates here, with the same technology,” says Tabbal.

If Lebanon’s industrial sector is to be kick started, markets must be identified through a joint effort on the part of industrialists. It is not enough though, to simply pen inter-governmental agreements – the accords must actually be implemented. One such agreement between Lebanon and Egypt has been respected only on the Lebanese side, says Tabbal. In Egypt, shipments are held up in ports and payment is delayed. In addition, Lebanese industrial companies must no longer be excluded from profitable projects in Lebanon, simply because they are not foreign, even when they are better suited to the task than the foreign companies that are selected. “To not accept us just because we are Lebanese is unacceptable,” Tabbal says. Further costs must also be reduced, Tabbal says. This, he suggests, is the responsibility of the government and the chamber of commerce. “But it’s extremely complicated. The system is so unresponsive and inflexible. The public sector is working at between 20% and 50% [of] efficiency,” he adds.

He believes worker efficiency will only be increased if Lebanese labor laws are overhauled. “If we change the labor rules, we will be able to force the worker to do what is required – while respecting his rights,” says Tabbal. “Most workers in Lebanon are underpaid. Here, you cannot force a worker to work overtime.” Tabbal nonetheless says that he doesn’t think labor law reform will happen any time soon: “I don’t think the industrialists are aware of its importance, and I don’t think members of parliament consider this issue a top priority.”

In the absence of any impetus for official change, Debbas is holding seminars for its workers during which the importance of worker responsibility and productivity is explained. Debbas’ overall current strategy – given Lebanon’s gloomy economic climate and the industrial sector’s panoply of woes – is to focus on ‘high added value’ products. Only with such products does the company feel it can compete with its European competitors.

At the lower end, “no one can beat the Chinese,” says Tabbal. “That’s why we try to avoid all competition with Chinese products and focus on the medium to high-end products where the competitors are European.”

It is by concentrating on the high-end, in particular on technical research, that Lebanese industry can carve a niche for itself in the global industrial order. “Maybe we cannot beat the Europeans or the Americans or the Japanese technologically on a systematic basis, but we can achieve breakthroughs where we have a product that is equal to, or even a little bit better than its European or American equivalent. We have to exploit this niche. This is where we can be competitive – not in large-scale production, not in standardized items, not in items manufactured by the Chinese or the Koreans,” says Tabbal.

SIOM

Formed in 1967, SIOM produces high-quality silverware for small, niche outlets. Started as a family business, it has since grown to rank, according to managing partner, Antoine Baroud: “among the top five high-end silverware producers in the world.”

The company employs about 70 staff, and has five outlets in Lebanon with annual revenues of $10 million. It produces about 3,000 different silverware items. “We have one of the widest ranges of silverware in the industry,” Baroud says. SIOM exports over 80% of its products, of which roughly 30% go to North America, about 30% to Europe, 10% to Africa, and the remaining 30% to the rest of the Arab world. “The local market, of which we have a 65% to 70% share, is small and shrinking,” admits Baroud. This doesn’t help Lebanon’s struggling industrial sector. According to Baroud, if the sector is to remain efficient, competitive and able to survive – Lebanese industries need to team up with European companies, so they are not left behind in the global age. In this way, SIOM is attempting to stay ahead of the game in such difficult times, by forming strategic alliances with European companies. In doing so, SIOM feels it will more effectively secure the foreign markets it needs to survive. “You cannot survive as an industrial base if your market is Lebanon,” Baroud says.

Growth over the next five, six or seven years can only be accomplished if the government imposes restrictions on “dumping,” reduces costs related to communication, electricity, raw materials and import duties, and establishes more incentives for producers. “Here in Lebanon we don’t have a long-term survival vision for the industrial sector,” he says, adding that for Lebanon’s industrialists, raw material costs run 20% higher than in Europe. “The cost of communication is also prohibitive. It is among the highest in the world, as is the cost of electricity.”

The SIOM manager argued that the government should develop tax incentives to help producers. “This is done all over the industrialized world. Anytime you export, they reduce your taxes and give you a 10% tax incentive. You can deduct these 10% from the cost of shipping,” he says. Overall, he explains that a tax break for exports could translate into a 15% reduction of costs. The funds freed up could then be used to improve productivity. “Production goes up. Sales go up. You expand your production facilities. You employ more people. This is much healthier,” he said. The government could also help increase Lebanon’s notoriously low worker productivity by not taxing salary bonuses for strong worker performance, Baroud says: “In Sweden, you can pay workers an additional 50% of their salaries as an incentive. So if a worker makes $1,000, you can pay him a $500 incentive without being taxed. In Lebanon, incentives are taxed. This is terrible. It means workers don’t care, because they don’t get any benefits if they are more productive.” Low-interest loans would also be beneficial, says Baroud. All these measures would allow Lebanese industry to be more competitive within the foreign market, while bolstering the growth of the sector domestically, he believes.

As of yet, these incentives have not yet been introduced, “because we don’t have an efficient government. If we had an efficient government with a long-term vision, things would be much easier,” says Baroud. The country is in need of across-the-board reform, to help revive the economic sector as a whole – which would in turn bolster the industrial sector. “We need labor reform, social security reform, health reform and tax reform,” he says.

Employment and unemployment are two words that politicians love to use. They understand that an economy is equal to consumption, which entails income, which in turn entails a salary and yes, a salary requires a job. Politicians are thus duty-bound to maximize employment and develop human resources, to achieve optimum productivity.

The same cannot be said however, for politicians in Lebanon, where the issues of human development and job creation remain entirely marginal topics. This would seem a reckless policy, when unemployment stands at anywhere between 10% and 19%. That’s quite a range. In the US, a move of 0.5% sends the government running for cover. That’s how important jobs are to an economy.

“The Lebanese labor market is in a state of ‘dis-equilibrium,’ away from the effective allocation of labor,” said Zafiris Tzannatos, economist and internationally renowned human development specialist. Previously the manager for the Middle East and North Africa at the World Bank, and the author of several books – he joined the American University of Beirut (AUB) last year as chairman in the department of economics. The country’s civil war and other regional factors are heavily to blame for the labor market’s troubled state, Tzannatos said. “These factors cannot be ignored. No economic policy can be rational until it realizes the constraints of local factors and politics.” Under the present circumstances, any review of the national human development situation is more a report on glaring problems and inadequacies, rather than an inventory of achievements. For starters, human development specialists are a rare breed in the Lebanese economy, be it as human resources managers in the private sector or public sector policy makers. More importantly, policy making on human development seems to constitute a non-event in our national government. The files on human development and job creation appear to slumber in the bottom drawers of the public administration.

Even if such condemnation were exaggerated, it is the bigger picture that matters, and how it is perceived by Lebanese opinion makers and society as a whole. The general consensus is that the government is doing “absolutely nothing” for human resource development. “There is no government support whatsoever in human resource development,” said Nadia Shuayto, a professor at AUB. “I don’t see it anywhere.”

According to Shuayto, the lack of public support extends to both the realms of elementary and secondary education and to the absence of continued education opportunities for adults through community colleges.

The malaise is hardly less pronounced in the private sector. “Even within corporate organizations, I don’t think that they invest heavily in human resources development,” Shuayto said. “I worked on our human resources benchmarking study, comparing Lebanon to the US and Europe. Unfortunately, we are not up to par with international standards on the aspect of managing human resources in our companies.”

Due to the structure of the Lebanese economy with its vast number of small and very small enterprises of less than 15 employees, these corporate advisors see it as entirely unfeasible to expect the private sector to undertake research into factors such as labor productivity and short- and medium-term labor supply and demand. This responsibility belongs to the public sector, they say. This is the point where the National Employment Office (NEO) attached to the ministry of labor comes in, or where it should come in. The NEO has four departments, for labor statistics, studies and planning, guidance and vocational training and employment. The mandate of its activities includes the assessment of short-term labor market demand, long-term trends, and the training and matching of job seekers with local and international companies active in Lebanon. However, the agency has not published any recent labor market statistics as of late, and since its director general went into retirement last year (after 25 years in the same position), nobody at the NEO has the authority to release information on the number of registered job seekers, or how many positions the agency has helped fill. Private sector job market experts say that the NEO does not coordinate with companies involved in the research of corporate labor needs, and that a law regulating the activity of commercial job matching and head-hunting firms is missing. These critics also decry the absence of any governmental initiative to investigate the structure of the Lebanese labor force and say that it is probably all too convenient for Syria, if data on the Lebanese labor market remains opaque. The ministry of labor in Beirut is traditionally headed by an office holder with close affiliations to Damascus, which undisputedly benefits from the absorption of a good share of its labor force in Lebanon. Under the status quo, analysts believe that immediate measures need to be taken to secure the quality of education and the initiation of labor market research. Measures on the former must be government driven. With the latter, significant initiatives can originate from outside the public sector.

But how important is labor market research data in facilitating labor market development? Adequate and timely information as well as analysis are “prerequisite factors,” Tzannatos explained, for effective policies in increasing development. Three critical elements, are first and foremost employment opportunities by increases in production and more general economic growth; secondly, the ability of individuals in the labor market to capitalize on these opportunities; and thirdly, institutional factors such as the interaction between government entities and labor market participants, in addressing private sector development and social policies. He is at pains to emphasize that he is not out to play the role of the proverbial new broom, or level wholesale criticism on the deficiencies of existing researchers. He rather wants to contribute to remedying the problem. “It is important to introduce modern economic analysis on the labor market in Lebanon,” Tzannatos told Executive. While other aspects of the Lebanese labor market situation are also in urgent need of attention – data collection would go a long way towards mending the worst deficiencies in organizing the labor market here, which is fundamentally of a well-manageable size.

Attempting to instigate artificial or protectionist measures against the influx or outflow of labor, would not be good for a country that has a long history of labor mobility. “As an economist, I support the free movement of both capital and labor,” Tzannatos said. “I would see Lebanon with optimism, partly because historically it is a society that has made it, continuously, and largely successfully since Phoenician times, and partly because potentially the country has a tremendous social capital, at home and in the Diaspora. The important things for Lebanon are to articulate a (economic and social) development agenda and to apply sound macro-economic policies.” A healing of the fiscal coffers and subsequent allocation of fresh resources would certainly bear well for the NEO, which is currently woefully understaffed. According to an official at the institution, the NEO will soon undertake a full re-engineering process that will leave it with a functioning statistics collection, an interactive website and active employment mediation services. Lebanon’s immediate concern however, is how to integrate the country’s 905,445 school-age students (helped by its 84,409 teachers) into the global economy over the coming 15 years. Lebanon has the teachers, the curricula and the schools to produce top students, but the system needs to be geared to the demands of the labor market. Instead, the politicians see new schools as nothing more than convenient bribes at election time. Over half of today’s students are girls, and the country would loose out if it failed to open new avenues to women for achieving careers. The failure to achieve human development would seriously endanger the Lebanese economy by eliminating its main edge in the global market place – vibrant human capital.

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.”