Small and nimble players are consistently finding innovative ways to strike big against the Goliaths. This is true whether in today

Less popular cruises?

While 60 cruise ships dock at Beirut each summer only one, the Ausonia, takes on new passengers, and for three years now, Lebanese holidaymakers have signed up for the weeklong Greek island cruise, organized by the Cypriot company, Louis Cruise Lines. That was until this year, when prices went up by about 5%, noted Toufic Keyrouz, general manager of the travel agency Lebanese International Tours, who feels that the budget cruise may have had its day.

Paul Zahlan, a director of Lebanon

According to Chateau Musar, the 2003 wine harvest promises wines that are

Lebanese experts on urban planning and zoning contend that this communal discipline of real estate management exists as nothing more than a quasi-reality here. Sights from nearly every nook and cranny of the country corroborate the judgment. From north to south, communities overflow with building structures that defy common sense, communal planning and esthetics.

The Automobile Importers Association teams up all local car agents who hold distributor contracts with international auto manufacturers. Avidly working to represent the interests of these primary agents, the AIA emphasizes a unified presentation of official importer concerns to the media and Lebanese public. EXECUTIVE talked to the president of the AIA, Samir Homzi.

E: What are the association’s main concerns?

SH: Our aim is to make new cars available to all people of all budgets. New car dealers are today making vehicles available in a price range that starts at around $5,000 to $6,000. These are economical, trouble-free new cars that consume very little unleaded gasoline. They are sold with manufacturer warranties and with payment arrangements over five years that make for monthly payments of $100 or $125 to families with a lower income.

E: How long does it take before new models are available in the local market?

SH: Sometimes new cars are launched in Lebanon prior to Geneva, Frankfurt, and Paris and in some instances, new cars have been launched in Lebanon for the Middle East and for the whole world. In many instances, new models are launched in Europe prior to being introduced to the Middle East. This is for technical reasons, whereby the manufacturer would like to optimize the vehicle for this area.

E: Turning to recent developments of automotive sales, is it correct that the association has observed a decrease of new car sales by 50% or more when comparing annual sales in 2002 with those in 1997 or 1998?

SH: The figures definitely went down. They went down first of all because of all the taxation. Vehicles are overtaxed in Lebanon. We are paying high customs duties in Lebanon, on top of which we are paying VAT, on top of which we are paying registration fees.A country like Lebanon deserves to have much lighter taxes.

E: Does the AIA have a figure for how many cars are operating in Lebanon today?

SH: To be really honest, the only way to get to this number would be to go to the traffic department and look at their data. They are getting better and better under the minister of the interior and have made great improvements. We prefer to keep track of only our own auto figures, which means each dealer provides his figures to the association and at the end of the day we calculate these figures as those of new car sales in Lebanon.

E: A study in the late 1990s placed the average age of cars circulating on Lebanese roads at about 14 years. Do you have any update or opinion on the current age of the country’s fleet of cars?

SH: I don’t think my figures would be far from that. But I won’t venture to give out figures because we don’t have the mechanism to determine what is the average age of the cars here. However, when you drive around, you can see that the age is quite high.

E: Can you comment on the mechanique fee schedule that does not advantage new or environmentally sound cars but is cheaper for the oldest cars?

SH: We worked on that issue but unfortunately we did not get what we wanted. We believe that the mechanique should stimulate people to renew the car stock in Lebanon. We are seeing every day cars on the road that nobody would accept in other countries. We would like to see these cars slowly replaced by new cars, and we are working seriously to have the government first of all cancel the registration fees and lower customs duties. Once the mechanique becomes a technical inspection in January 2004, we would like to see these cars pulled out of circulation because not only their appearance is less than exciting but also because they are a danger for people using the roads of Lebanon.

E: Without the high taxation levels, and under a favorable environment for financing of car purchases, how many new cars could the Lebanese market absorb annually?

SH: The total market today is about 12,000 units per year, distributed over 35 dealers. By contrast, in some neighboring countries, one dealer sells about 10,000 cars each year. We are not calling for elimination of customs but ask for their reduction and complete cancellation of registration fees, in order to encourage people to replace their old vehicles with new ones.

E: In a macro-economic context, how important is the contribution of automotive sector to fiscal income?

SH: Customs duties on vehicles and petrol tax and so forth make a very big contribution to the government income. But we believe that if registration fees are cancelled completely and customs duties are reduced, we will sell more vehicles. The government will benefit more from the taxes we just mentioned, and we would have cleaner air from cars that produce less pollution. We would have safer cars on the road, and more pleasant cars to look at for this country and its image as a tourism destination. On all fronts, we would be better off if we decrease the taxes.

E: How much does the automotive sector contribute to Lebanon’s GDP?

SH: Today we don’t have such a figure and I don’t want to jump and give a figure off the top of my head. We do contribute to the economy in various ways, to the banks and the insurance companies for example, where car loans and the motor insurance are important businesses.

E: How can the cost burden of car ownership be distributed more equally and fairly?

SH: If we dealers would take our profit margin up from 4% or 5% and put it at 25%, we would be selling a quarter of what we are selling today. That is not the case at all. As I said, competition is very high among the dealers and profit margins are very tight. But I am saying that with its tax burden, the government is trying to milk this cow to its limits. Asking too much from the cow and taking all eggs from the chicken is killing the chicken and killing the cow.

E: Would a change in taxation of cars not put the government under additional financial pressure?

SH: Sales of new cars should increase for three reasons: economic, safety and fiscal. The whole set of taxes today is too high. If it is lower, the fiscal power of Lebanon will be the first to enjoy a better situation. One point is that our invoices come from the biggest car manufacturers and there is no chance of them being tampered with. Importation of used vehicles happens not through a manufacturer but through a dealer or a roadside trader, who can deliver an invoice that does not reflect the value of the vehicle. If we can stop the importation of used cars, or at least limit it to vehicles of two years of age, plus have a flexible taxation, the government will be the first to benefit and the country will definitely be winning.

E: Do you have any information on the number of used car dealers in Lebanon?

SH: We have no relationship with used car importers. We have relationship with used car dealers with whom we exchange the vehicles that we receive from our customers. They take these cars from us and recondition them. These were cars that have run in Lebanon and were used in Lebanon. But we have no relation with importers of used cars. I have personally no contact with importers of used cars.

E: It seems that you view the activity of used car imports not very favorably.

SH: I said from the beginning that I wish to see the importation of used cars stop, or if that is not feasible, to limit it to the acceptance of vehicles two years of age. I believe that trashy cars, which were refused in Europe and should have gone to the junkyard, ended up here.

E: Apart from lower taxes, do you see ways in which people could reduce their cost of car ownership?

SH: Wherever you look here, you see that most cars only have one driver. When I was in the United States, I experienced car-pooling. In a company, three or four people who share the same office hours agree to travel together to and from the office, and each car owner has to use his car only four one week a month. In this country, we have invented the service taxi. It is a Lebanese philosophy. Why don’t car owners do more ride-sharing in Lebanon?

E: When you say you are looking for the best, what defines ‘the best’?

RM: A quality that I especially like to see it is the passion to make an impact on the world that goes beyond making individual gains. It begins with developing the professional side and the personal side and then reaching out to the community, in terms of giving back to society.

E: How do you spot these special qualities in applicants?

RM: They have that drive, that energy, that special electricity. When you see it, you know it.

E: Was it in any way a political or economic decision for the school to intensify your presence here?

RM: Not necessarily. We started in the Middle East about five years ago. Then all the disruptions occurred and we just pulled back. I feel the disruptions in the region will continue for quite some time, but I decided that it is time to come back, regardless, and be part of an answer to some of the problems instead of leaving things stay as they are.

E: Wharton does not have a shortage of student applications. What is the average academic level for students who gain admission?

RM: We use the GMAT score, and the average score is 714. But I think the range is much more important. It is from 640 to 780. You don’t have to have the highest score. It is everything else that really makes the candidate stand out.

E: Can people easily recoup their investment if they attend Wharton, which is an expensive program?

RM: The MBA is a long-term investment. In light of that, Wharton has created a number of programs for financing your MBA that help student to gain access immediately, through loans given to students based on their needs. We hope that students come with a contribution of some small percentage, 10% or 20 %. But if a student can’t do that, it really is the responsibility of the school to provide grants. Students might face short-term pain in terms of servicing loans. But longer term, they will be fine. The gains to society, themselves, and their company will greatly outweigh the short-term pain of those first initial years of loan repayment.

E: But in order to be able to pay back those loans, they almost automatically will have to take a job with an American or multinational corporation?

RM: There is an advantage in working in a different nation for a year or two in order to broaden the experience of the MBA. If a Lebanese student would opt for working in London or Paris to gain diverse experience in the first years, and then come back, usually the salaries and bonuses from those first years do a lot towards paying back the loan.

E: Do you have the impression that anti-American bias has grown in the target group that you approach?

RM: There is no anti-American sentiment when it comes to education.

E: How about visa?

RM: This last year, I had no problems getting visa for my students from the Middle East. They went through an additional screening process but they had no problems because they did things correctly.

E: It is then safe to assume that people coming to Wharton from the Arab world will not experience an anti-Arab bias stateside?

RM: Not at Wharton. After 9-11 and the whole student body was very protective of our Arab students.

E: How many Arab students does Wharton have at present?

RM: Probably 1 to 1.5 %; that is something I’d like to increase.

E: How high is the percentage of non-acceptance of applications?

RM: If we have about 7,000 to 8,000 applications and a class of 800, there is a lot of it. We use a structure where we view the application first and then evaluate these twice, dividing them into two groups, one of about 40 % whom we want to interview and another group whom we don’t want to interview and will deny at that point. We then weed the first group down. It works out fairly well.

E: But you would advocate Wharton as offering a better opportunity than a local school?

RM: Students, who really have aspirations to create value and provide leadership, need to get abroad. The MBA is much more than a functional skill at learning. It is an experience of other cultures, worlds. It is the intensity of the experience. But some people just want to be functional experts that don’t want to leave. There are those who want to make money and therefore are interested in taking the credentials. To them I would say, stay, don’t take that risk; don’t spend the money. It really depends on the needs.