You couldn’t pick a worse time to be a
contractor. With the economy at a
standstill and the debt-ridden government
reducing public works expenditures,
construction projects are scarce. Contractors
are fighting over whatever business they can
find, even if that means bidding below cost.

But despite the doom and gloom, Butec, one
of the country’s oldest contracting firms, has
managed to keep its annual revenues around
$100 million for the last five years. “We’re
doing OK,” says Ziad Younes, Butec’s secretary
general, “but the market isn’t doing that
well.”

What is Butec’s antidote for the construction
slump? Specialization. Rather than
devoting its energy to building simple apartment
blocks or office buildings — the sort of
jobs that are the first to be hit when the economy
slows down — Butec concentrates on
technically complex projects that require specific
know-how. For these types of projects,
profits tend to be considerably higher.

For example, Butec is building a $16 million stadium
in Tripoli. Work started in June 1999, and
the project is slated for completion in time for
next fall’s Asia Cup. Butec is also constructing
a 45-kilometer irrigation system in the
southern Bekaa, worth around $14 million.

Firms capable of handling these projects are
few, meaning less competition and higher
profit margins. “We don’t get involved in
projects where everybody bids, sometimes
below the direct cost of construction,” says
Younes. “Other companies can get a project,
but if they can’t complete it, at worst they
declare bankruptcy.”

Technically difficult projects tend to be
larger, which is another advantage. “The
greater the volume of materials and equipment
you purchase, the better the prices
you are apt to receive,” says Kamal Meine,
an architect. Sometimes, discounts reduce
the price per unit to as low as 50% to 60%
of the original sticker price. Butec manufactures
some of the equipment and materials
it uses itself, reducing costs further.

Because of its specialized nature, Butec
competes with only a handful of other companies.
Consolidated Contractors Company
(CCC), for example, has annual revenues
exceeding $1.5 billion. Along with its
German partner Hochtief, CCC constructed the
new $500 million Beirut International
Airport. Contracting and Trading Company
(C.A.T.), which is projecting a turnover of
$130 million this year, is another big competitor
to Butec.

“With few in the market
capable of taking on such complex projects,
competition is reduced substantially,” says
Ziad Kassis, owner of Unity Group, the company
currently building the Zahrani bridge.

Butec has also been targeting projects outside
Lebanon in order to counter the slowdown
in the domestic market. By doing
business abroad, Butec is able to balance its activities,
keeping itself and its staff operating.

The company teamed up with a local
affiliate to build a $130 million cotton-spinning
plant in Syria. The project was so successful
that, almost immediately, work started
on a second $110 million cotton plant.
Younes expects these two factories to
process between 10% and 20% of the country’s
total cotton exports.

The company was
also involved in the building of a $16 million
sewage plant in Latakia and one in Tartous
for $16.6 million. Butec is building a gas
compression station in Iran, a power plant in
Basra, Iraq, the Dubai Tower in the UAE, and
a pipeline with three substations extending
from Iraq to Jeddah.

Other contracting companies
such as C.A.T., which is working in
the Gulf and Africa — are following a similar
strategy: targeting markets abroad in order to
ride out the recession at home.

Butec has also diversified its services. The
firm, for example, established Butec Property
Management (BPM), which provides building
maintenance, cleaning, and security at facilities
that were built by the parent company.

But before giving Butec a big pat on the back,
consider this: While the company’s strategy of
specialization has kept revenues steady during
the recession, its competitor C.A.T. has
managed to increase its turnover by over
200% in the last four years by focusing on foreign
markets. C.A.T.’s revenues jumped
from $25 million in 1996 to $80 million in
1999.

“Specialization may help Butec hang on
to its turnover,” says Souheil Abou Habib, general
manager of Nassim A. Habib, a local
contracting firm. “But such projects don’t
come along too often and limit growth.”

While specialization has kept Butec alive,
real growth may require the company to look
at new strategies and be a bit less fussy about
the projects it is willing to take on.

Seven years ago, Imad Kreidieh,
founder and majority shareholder of
Allied Distributors, tried to capitalize
on Lebanon’s building boom by selling construction
materials and electrical supplies.
Business was not brisk, though. The company
had barely got off the ground when it
dawned on Kreidieh that he was on a road to
nowhere. Rather than packing up and calling
it quits, he scanned the horizon for new
opportunities.

The building boom was in full
swing, so why not go into real estate? He
decided against it. The tourism business was
beginning to look promising as well, but he
didn’t open a hotel. Used cars? No. Fast
food? Guess again.

Kreidieh found his pot of gold in something
a bit more titillating: lingerie. It’s sexy and
always sought after. So in 1993, when Allied
Distributors came across a faltering company
selling French-made J&Gils men’s
underwear, it wasted no time in scooping it up.

Making the jump between selling something
heavy-duty to soft and sensuous may
seem a bit extreme. But it’s this flexibility
that has made Allied Distributors successful.
Soon after, it invested the limited profits
earned from construction into another
four lines of European-made women’s lingerie:
Alfa, Gizella, Scandale, and
Nicholetta, as well as Boli Blue swimwear.

In 1994, the company was distributing to
12 retailers. Two years later, that number
jumped to 165 and the company had double-digit
revenues of more than $300,000. But in
1997, sales started to sag. Increased competition
and the economic slowdown saw
revenues drop 50% to $150,000. They
remained at that level into 1998.

Rather than hanging up the panties and
going into yet another new line of business,
Allied downsized in an effort to reinvigorate
the company. Some employees were laid off
and the firm moved to a smaller office. At the
same time, the sales team was sent out to do
direct marketing with commission-based,
rather than fixed, salaries. The company
also turned on the marketing machine,
devoting 3% of revenues to advertising.

Those measures helped to push up sales to
$170,000 for 1999. For the first quarter of
this year, sales had already reached
$300,000. “If all goes as planned, we
should make it to $550,000 by the end of
2000,” says Kreidieh. That, while operating
on profit margins of
more than 30%.

But there are hurdles.

Competition is fierce.
“I can tell you who my
competitors are,” jokes
Kreidieh, “everyone
who sells underwear.”
That includes Hispaco,
the distributors of
Princessa and Telleno,
as well as Sindia, the lingerie branch of
Fattal, which sells such
big-name brands as Wonder Bra, Cacharel,
and Calvin Klein.

Kreidieh feels that his
prices, ranging between $25 and $50, are
some of the lowest in the business for mid-range
underwear.

Allied has aggressive plans to take on its
challengers. For the first time, the company is
planning a billboard campaign (see box).
Allied is moving into Internet sales as well,
investing nearly $5,000 in an e-commerce
website. “I can buy planes and cars through the
Net, why not boxer shorts?” asks Kreidieh.
“It’s a marketing operation. I’ll be advertising my
products plus getting e-mails. I am concerned about
the young generation, who spend practically
10% of their time on the Net.”

Maya
Waked, business manager at Sindia, disagrees:
“Internet sales are an option, but it’ll
be difficult for lingerie,” she says. Sindia
dedicates 10% of its budget to advertising,
mostly through magazines and billboards. In
its latest campaign, the company inserted
over 100,000 brochures in daily newspapers
and handed them out in movie theaters.

But Allied has another big plan to inflate
revenues. The company will be forming a
joint venture with Afra, one of its suppliers,
and opening its own manufacturing factory
in Tripoli by 2004. By manufacturing
locally, Allied will avoid paying customs
duties, which are at 40%, and be able to
lower prices. “The one who can control his
costs will win,” says Kreidieh.

With the
new machinery, Allied will also be able to
add new lines of products to its collection,
such as babydolls, pajamas, and men’s lingerie,
and broaden its selection of colors
and designs. The company even hopes to
export to the United States and Japan.

What’s next on the list? With Allied Distributors,
you never know — and that’s what
makes the company tick. Flexibility is key
in an economy that is as unpredictable as
Lebanon’s. Who knows, before long we
might be able to walk into a supermarket
and buy edible underwear that tastes like
Kamar El-Din, courtesy of Allied.

Switching from the import of cheap
products to higher quality and now to
projects, Power Tech surged onto
the battery market. Its turnover jumped
from about $250,000 in 1994 to $4.9 million
last year. In the last two years, gross profits
increased fourfold from $212,000 to
$833,000. Not bad for a company that
started out as an importer of cheap batteries
from the Far East. How did this newcomer
to a market saturated with established players
pull it off?

“In the early 90s, the market demand was
for cheap batteries,” says Salim Jean, a
retailer and wholesaler of batteries, “and
that’s what all the importers were bringing
in.” Others in the market concur that at the
time the market was largely flooded with
low-quality products. At the outset, Power
Tech was no different than anyone else.
As an upstart, it may even have been worse off.

“We had no idea what we were doing,”
admits Nabil Haddad, Power Tech’s director
of business development. Neither did the
company have any focus. It sold everything
from mobile phones to lubricants,
gasoline, and whatever cheap batteries it
could get a hold of.

The impasse came when the increase in
prices following the Asian recovery wasn’t
mimicked on the Lebanese market, says
Haddad. While profit margins can be
reduced, selling below cost cannot be sustained
for long. Power Tech discovered
many players were importing batteries
with a smaller amount of lead or the recycled
variety in order to reduce costs. That also
reduced the longevity of batteries.

Power Tech was discouraged. But rather
than following the others, this time the
company decided to go its own way,
importing products of higher quality and
emphasizing that as a part of its sales strategy.

By the end of last year, Power Tech had
captured 6.2%, or $1.18 million, of the $19
million market for automotive batteries — not
bad considering it has more than 50 competitors.
But it wasn’t easy, because retailers
tend to stock up on what’s cheap and
easy to sell. “Importers usually bring whatever
the market demands, and the market
demand is mostly for the cheaper products,”
says Ayman Yazbeck, part owner of
M. Yazbeck Ets. So Power Tech set out to
change the demands of the market. It also
began offering incentives to retailers, such
as larger profit margins and extended credit
facilities, while wholesalers were offered
bonuses at the end of the year.

But would retailers really be interested in
stocking up on batteries that cost more?
Some believe they would be. “A more
expensive battery has a greater profit margin,”
says Tony Hanna, owner of Luca, a
distributor and retailer of automotive supplies.
He also believes that with few outlets
selling quality batteries, a retailer will face
less direct competition. “Nowadays, with
people more capable of buying new cars
because of credit facilities, demand for
good batteries is climbing, although the
greatest demand is still for cheaper ones,”
says Hanna.

Now 53%, or $2.6 million, of
Power Tech’s business is in distribution,
including sealed lead-acid batteries used as
backup power for computers, fire alarms,
and security systems. The company also
stocks specialized batteries.

The other side of Power Tech’s business
involves providing the power supplies and
backup batteries needed in high-tech projects.
Although there are dozens of
importers and hundreds of dealers, only a
handful have the know-how that is
required in this field. For example, when
Ogero put a tender up for bid for backup
power on a project, 36 companies applied.
Only Power Tech was able to submit a proposal
that offered the specific system
required. Here Power Tech dominates the
market. Last year turnover from this side of
business was about $800,000, up from
$100,000 in 1996. Power Tech has a 14%
market share in telecommunications backup
systems and 24% in industrial backup
systems for products supplied to turnkey
projects by the original equipment manufacturer
(OEM). Its share of the non-OEM
market is 68% and 72% for the two sectors,
respectively.

Most projects are equipped with power
supplies and backup batteries from the
manufacturer. Cellis, for example, has 350
relay sites, each equipped with backup batteries,
all initially supplied by Ericsson.
Libancell has 320 sites, all initially handled
by Motorola. Ogero, originally supplied
by Siemens, Alcatel, and Ericsson, has
some 440 relay stations. Each of these sites
requires an average of $10,000 worth of
backup batteries. There are also the
telecommunications systems used by the
Lebanese army and the Internal Security
Forces. Cellis alone has invested over $3.5
million in batteries for its infrastructure.
These local companies and government
organs now figure among Power Tech’s
clients.

“When we were looking for a supplier,
Power Tech offered a very good price
and provided us with quality materials,”
says Antonio El Rami, head of the maintenance
department for radio and transmission
equipment at France Telecom. There are still
power plants, refineries, petrochemical
plants, and cement factories to be considered.
It’s a fairly big market for a few players.

In supplying backup DC power for projects,
Power Tech has several advantages.
On top of the scarce competition, it is able
to compete with international giants on
price. While the products come from the
same manufacturers, Power Tech supplies
the client directly. For example, Ericsson
Lebanon buys from Ericsson Sweden,
which in turn buys from Emerson in the
United States. That’s two intermediaries
before it gets to a client like Cellis. “But they
give us a very favorable rate, especially
because of the large volumes,” says Nael
Salah, vice president and general manager
of Ericsson Middle East.

Also, the longest guarantee on the product
others give is two years, says Haddad,
while Power Tech offers a ten-year warranty.
According to Salah, Ericsson guarantees
are usually for one year with the possibility
of renewal. “I’ve already changed
$1.5 million to $2 million worth of OEM
batteries for them in the past few years,”
laughs Haddad. “If they’d bought from me,
I would have replaced the batteries under
warranty.”

He also says there’s an advantage
in terms of wasted time, claiming that
Power Tech’s small size enables it to react
quicker than large international companies.
“I’m here seven days a week, 24 hours a day,
and I have trained staff who can take care of
a problem on a Sunday,” says Haddad.

But not all of Power Tech’s business is
local. It distributes batteries in Nigeria,
Bahrain, and Qatar, and focuses on Nigeria,
Chad, Georgia, and Syria for projects. Last
year, $1 million of Power Tech’s turnover
came from distribution abroad and $1.5
million from projects abroad. That’s
almost half its total turnover. But can they
really compete away from home?

As far as
distribution is concerned, Bahrain and Qatar are small markets and local suppliers
can only import a limited volume. The volumes
purchased by Power Tech bring bigger
discounts, allowing it to sell to wholesalers
there for less than their purchase
price.

In Nigeria, which is a larger market,
Power Tech deals only in specialized batteries.

In projects, its competitive pricing
again comes into play. For example,
Orascom, a GSM Telecommunications
provider, put a tender up for bid in Chad for
backup power needed on a project. Power
Tech bid alongside giants like Siemens and
Ericsson. Their quotes were around $1 million.
Power Tech’s? $400,000.

After just six years in the market, Power
Tech has made a name for itself. It shows
what a few people can accomplish when
they’re all charged up.

Something’s in the air at Société
d’Oxygène et d’Acétylène du Liban
(SOAL). A subsidiary of France-based
Air Liquide (AL France), SOAL has
gone on the offensive since the early 1990s
with new management, a diversified product
line, and a complete overhaul of the company’s
operations. Its target? Regain the 90%
market share it had before three-quarters of
its business evaporated into thin air during the
war. While last year’s record sales of $5
million, 67% from the sale of gases, are a good
start, SOAL’s goal may be more elusive than
management first thought.

Since the end of the Lebanese civil war, the
company has been embroiled in its own
battle, with its foe, Chehab Industrial
Medical Gases (CIMG). “I will attack
SOAL from all directions,” says Emir
Mohammad Chehab, CIMG’s managing
director. While the war saw CIMG lay
claim to two-thirds of the market, SOAL’s
sales hit rock bottom in 1987 at $702,000.
That was down from $2.9 million just four
years earlier. Sales to industry had dropped
by 40% and to the health sector by 35%.

With SOAL’s re-emergence, the two competitors
are separated by little more than a
hydrogen atom: SOAL claims to hold 48%
of the market and CIMG 47%. Based on revenues,
SOAL is the market leader, although
CIMG’s prices are about 30% lower.

How did SOAL battle back? Air Liquide,
which holds a 51% share in the local outfit
and has revenues of over $7 billion, began
deploying new management in 1993.
Cumy Didier, a French technician, was
assigned as the new general manager.

Didier’s strategy was to diversify. He
moved the company into the sale and
installation of medical equipment, including
ventilators for operating rooms, respirators,
and anesthesia machines. That helped compensate
for the firm’s loss in the gas market.

At the same time, SOAL replaced most of
its cylinders in hospitals, starting at the
American University Hospital (AUH), with
containers that could hold 20 times more
oxygen. That gave the company an advantage
over competitors. Selling larger volumes
brought its prices down and, since more
oxygen could be consumed with a smaller
risk of interruption, SOAL increased its
number of client hospitals. By the end of
1993, sales had reached $3.8 million.

But SOAL still wasn’t sufficiently armed
for the long run. In 1995, CIMG began
employing the same technique and was
chipping away at the success of its nemesis.
SOAL’s sales dipped back down 7%, from
$4.65 million in 1995 to $4.35 million in
1996. It still had major internal problems —
a handicap that CIMG didn’t face. The
organization needed to be restructured to
place employees in their areas of expertise.

There were other problems: overpricing,
insufficient market data, and a lack of
correspondence with the parent company.

AL France intervened again in 1997,
assigning Joseph Haddad as SOAL’s commercial
director. His mission was to
increase sales and regain lost market share.
Haddad reorganized the sales force,
reduced costs, and replaced inexperienced
employees with qualified ones. Each division
was focused on separately to give better
quality control. The company was fully
computerized, market statistics were made
available to employees, and a direct line of
communication was recreated with the
parent company in France. And prices
were reduced by 10% to 15%.

The results?
Sales went up by about 10% from 1997 to
1999, which led to an increase in profits
from $83,000 to $133,333.

Nonetheless, management isn’t satisfied.
“Our goal is to get back our market share in
the near future,” says Haddad. CIMG, however,
is intent on blocking SOAL’s advance.
Backed by Air Products, the world’s second-
largest gas company, CIMG doesn’t
plan on relinquishing any more ground.

And it makes sure to keep abreast of the latest
developments at SOAL by having corporate
spies. “Just like they have insiders, so have
we,” says Chehab proudly.

For example,
upon discovering that SOAL was investing
in a new plant in the mid-1990s, CIMG followed
suit. A race to finish first ensued.
SOAL won that round, when its plant was
opened four months ahead of CIMG’s.

Competition between the two companies
has continued in the same vein, with each
hoping to muscle the other out. Last year,
SOAL bought Oxy-Leban, a distributor of
gas with a 10% market share that was having
financial problems. “Our sales would
have decreased by 20% if we hadn’t
acquired their customers,” says Haddad.

The acquisition of additional customers
helped SOAL increase sales when a
decrease had actually been projected.

While SOAL and CIMG claim market
shares that put them in a close race, their
assessment of the total market varies.
According to Haddad, the market for oxygen
gas has decreased by 22% in volume from
270,000 m³ per month in 1998 to 210,000 m³
per month in 1999. But SOAL’s sales in oxygen
have increased by 5% in dollar value since
1998, while volume increased by 15%.

Haddad claims to supply about
1.2 million m³ of the total oxygen
market of 2.5 million m³.

According to CIMG, the total
market size is 3 million m³,
making it difficult to determine
the share of each company.

In terms of installation and renovation
of gas equipment for hospitals,
SOAL claims to deal with 75% of hospitals in
Lebanon, while CIMG claims
to deal with 70% of new hospitals
and have a 50/50 share in old hospitals
with SOAL.

SOAL has already pulled off an impressive
comeback and is making plans for
future growth. This year, the company will
invest over $1.4 million to increase plant
capacity to supply the health and industrial
sectors, including $1 million that will be
spent on equipment.

SOAL will be aided by
Air Liquide, which provides the local outfit
with technical know-how. Of the total,
$800,000 is being invested in a second carbon
dioxide plant.

The company already
has four plants located on 10,000 m² in
Sin el Fil: for carbon dioxide, nitrous oxide,
acetylene, and one for oxygen and nitrogen.

The new plant is the result of SOAL’s new
six-year contract with Pepsi — business that
it snatched from CIMG. “You know the
bubbles in Pepsi, that’s us,” says Haddad.

Though its ambitions may not be altogether
realistic, SOAL still aims to regain its
original market share of 90%. “Within a
three-year period, this company will be
fully reorganized, healthy, and fully covering
the market,” predicts Haddad, who is
also looking to expand into neighboring
countries by 2003.

But CIMG has plans for
the market too, now slashing prices by a further
20%. That puts its prices about 50%
lower than SOAL’s.

Still, there might be a possible end to this
war of the gases. “The only way SOAL is
going to rule the market is if I sell CIMG to
them — and only at the right price,” says
Chehab. The question is whether there is any
seriousness behind the flippant remark and
whether SOAL would be interested.