Entrepreneurship in the Arab World: Ten Case Studies

Introduction

It is with great pride and pleasure that El Khazindar Business Research and Case Center has partnered with the American University in Cairo Press in compiling the ten excellent cases presented in this casebook. In a region where so much unrest has taken place over the last few years, case studies are becoming an increasingly effective source of community and society betterment. The region’s economic status has suffered considerably over the last three years, and it is up to the rising entrepreneurs to counteract the losses. The hope is that this casebook will improve the region’s entrepreneurial activity, and enhance both the business market and academia, by bridging the gap between theoretical learning and practical experience.

Case studies are becoming one of the most useful educational tools in creating a participant-centered learning experience. Retaining knowledge and gaining exposure to the market, students indirectly become experienced case solvers, ready to efficiently innovate in the practical world. Rising entrepreneurs need more than mere ideas in order to be able to truly make a change in their societies; they must have sufficient information on the latest business and entrepreneurial strategies that are already being implemented, exposure to business struggles and past failures, and knowledge of companies’ success strategies, in order to enter a professional business culture and encourage economic growth.

The MENA region has a dire need for creative societal innovation. The gaps between its countries and others are increasing in both kind and quantity as the world advances and expectations rise. KCC has acknowledged the rising generation’s need for true insight into the most current business positioning in the region, and has therefore carefully assembled this casebook, in collaboration with the AUC Press, to encourage a new educational experience for the progress of the MENA region.

The ten cases presented in this casebook encompass businesses and entrepreneurial startups from Egypt, the UAE, Morocco, and Saudi Arabia. The cases fall into three categories, each representing a situation in which any business might find itself. Ariika, Bey2ollak, Baraka, Choco’a, and Funlozia are all startup companies that managed to introduce their innovative companies into their societies; they have faced difficulties and challenges, but have managed to rise above them. These projects can therefore be categorized as entrepreneurial startups looking to develop and expand. ICD, Olives, and Ya Kun (discussed in the chapter ‘Birthing Pains’) are companies that have already found their expansion tracks, and have franchised into one or more countries outside of their startup home. Therefore, these companies are seeking either to localize or to franchise overseas. Finally, the hybrid agribusiness system and Tourtite (the El Mouaziz case) are startups based on creative ideas through which societies can encourage more well-rounded communal involvement. Thus, these two entrepreneurial startups are categorized as innovative.

Since 2011, the Middle East faced a series of pivotal events, all resulting in a number of new obstacles for both rising and established businesses. With the economy contracting and the unemployment rate rising, many unstable startups lacked the fundamental problem-solving skills needed to overcome these dismal circumstances. The five startups (Ariika, Bey2ollak, Baraka, Choco’a, and Funlozia) were able to rise above the obstacles, successfully launching themselves in the Middle Eastern market. Their case studies provide valuable hints for establishing strong businesses from the start that will be able overcome future difficulties.

Other companies face the question of how they are to enter the market in different countries, in the midst of the region’s current situation. Companies such as ICD and Olives represent the common case of startups (each meeting a different societal need) that have a clear idea of how they want to branch out. Their cases portray the struggles that such companies might face before they are finally able to expand their business horizons.

It is the creativity in the minds of entrepreneurs that sparks imagination and creates space for proactive ventures. Startups such as Moaziz’s Tourtite resort and the hybrid agribusiness model are examples of innovative business ideas introduced to the Middle East market through the optimistic initiative of two aspiring entrepreneurs. These two cases may inspire other potential entrepreneurs to initiate ideas that will improve the region’s economic position.

KCC hopes that this casebook will be an educational and inspirational tool for aspiring entrepreneurs all over the Middle East. It is the rising generation that has the power to identify societal gaps and needs, and holds the key to the region’s advancement and competition on a global scale.

1

Ariika Beanbags: A Successful Egyptian Entrepreneur Capable of Regional Expansion?

Rania S. Hussein and Hend Mostafa

Macroeconomic Overview of Egypt

¹

The richness of the Nile River that crosses Egypt, together with its central location at the northeast corner of Africa, has made Egypt an influential country in the Middle East. During the presidency of Gamal Abd al-Nasser, Egypt’s economy was highly centralized. This changed to an open-door policy in the 1970s under former president Anwar al-Sadat. Between 2004 and 2008, former president Hosni Mubarak pursued economic reforms to attract foreign investment and increase GDP. Economic growth in recent years was not reflected in living conditions, however. After the revolution in January 2011, the government increased social spending to address people’s dissatisfaction, but political uncertainty reduced economic growth and affected many sectors, such as tourism, manufacturing, and construction. Unemployment increased and economic growth is likely to remain slow due to the unstable political environment in Egypt.

In 2013, Egypt’s GDP per capita was US$6,600, a 1.8 percent increase from the previous year. The unemployment rate reached 13.4 percent and the inflation rate increased from 7.1 percent in 2012 to 9 percent in 2013. Egypt’s exports in 2013 reached $24.81 billion while imports were $59.22 billion. The main exports are crude oil and petroleum products, cotton, textiles, metal products, chemicals, and processed food. Machinery and equipment, foodstuffs, chemicals, wood products, and fuels are imported products.

The Furniture Industry in Egypt

²

The furniture industry in Egypt has a long history based on the strength of Egyptians’ craftsmanship. During the French and British colonial periods, Egyptian craftsmen were influenced by the European styles, which were reflected in their furniture production. The Europeans encouraged the industry’s development in the port city of Damietta, where it flourished. The Egyptian furniture industry witnessed its largest boom when it started exporting to the Middle East and North Africa (MENA) between 2004 and 2005 (fig. 1.1). In 2004, Egypt’s furniture exports were $48 million; in 2010 they reached $255 million. The MENA region was considered to be the best export destination for Egyptian furniture as they share a similar history, culture, and consumer preferences. In 2009, Saudi Arabia imported $61 million of Egyptian furniture products, which represents 23 percent of Egyptian furniture exports. The United Arab Emirates is the second largest export destination, with $22.2 million of Egyptian furniture exports (fig. 1.2). Between 2005 and 2009, exports to Europe increased. While Egypt exported finished products to MENA countries, exports to European countries consisted of unfinished products sourced by European manufacturers. As the demand for furniture in the local market increased, Egypt’s imports of furniture also increased. In 2009, Egypt’s imports from China, for example, reached $55 million.

Fig. 1.1. The boom in the furniture industry in Egypt

Source: Industrial Modernization Center, Egyptian Furniture Sector Development Strategy, December 2010, http://www.egytrade.be/wp-content/uploads/2013/03/Egypt-Furniture-Report-02-2011-1.pdf

Fig. 1.2. Top export destinations for furniture from Egypt, 2009

Source: Industrial Modernization Center, Egyptian Furniture Sector Development Strategy, December 2010, http://www.egytrade.be/wp-content/uploads/2013/03/Egypt-Furniture-Report-02-2011-1.pdf

In 2009, the production of furniture reached $3 billion and exports were $296 million. The furniture market in Egypt is divided between large companies that focus on exports and small companies that focus on the local market. The small local producers represent most of the market.³ Several factors were behind the boom in the furniture industry in Egypt. Firstly, there is the strong and recognized know-how of woodworking in Egypt. Secondly, the geographical location of Egypt and the cultural proximity to Europe and the MENA countries gave Egypt a special advantage. Moreover, the Egyptian furniture manufacturers were willing to produce small quantities to fill specific market gaps or customize products according to customers’ preferences, which increased demand for Egyptian furniture. Finally, Egyptian furniture products have very attractive prices compared to those of other countries. This is mainly due to the low labor cost in Egypt, which was $2 per hour in 2009, compared to $14.90 in the United States and $18.80 in France. Another reason for the low cost of Egyptian furniture is the advantage that Egypt possesses in shipping cost and transit time, because of its geographical proximity to the MENA countries and to Europe.

Despite these advantages, the Egyptian furniture market faces many challenges. One of the greatest is the fragmentation of the industry. The presence of only a few large players hinders the ability to develop further due to limited finance options. The limited quantities of furniture produced and the few varieties available are also obstacles to further growth. A factor that hinders international furniture manufacturers from investing in Egypt is the lack of copyright protections. The low productivity of labor in Egypt counteracts the country’s low labor cost advantage. Despite these challenges, the furniture industry in Egypt is growing and opportunities still exist in many untapped markets.

Company Background

In 2010, four students at the American University of Cairo (Hassan Arslan, Shaher Arslan, Khaled Attallah, and Mohamed Bahgat) decided to develop their own business. They conducted research in order to determine what they should produce. Attallah, traveled to the United Kingdom as an exchange student, where he found beanbags used as furniture throughout university campuses and labs. The comfortable and practical beanbags encouraged Attallah to consider producing a similar product in Egypt. Since there were no branded beanbags in Egypt, the four students decided that introducing a high-quality branded beanbag could be a great opportunity. The four students decided to create the company Ariika, with the goal of developing a high-quality product at reasonable prices.

The Product

The brand name Ariika, which means ‘sofa’ in classical Arabic, was chosen to reflect the products that the company manufactures. The products are made of leather or are waterproof, with PVC coating. The beanbags are filled with Styrofoam developed specially for Ariika. This high-quality Styrofoam is more durable than the ordinary Styrofoam available in the market, and Ariika also sells Styrofoam separately for refilling and maintenance.

Although Ariika started by producing only beanbags, it now has four different products: beanbags, floating bags, floating mats, and a U-pillow. Ariika’s products also allow for customization. At an additional charge, orders can be customized in terms of shape, color, images, or writing. The company has nine different designs of beanbags: five floating bags, three floating mats, and one U-pillow design. Ariika provides a one-year warranty for repair or replacement on its products.

Core Competency

Ariika produces the best value of branded beanbags in Egypt. They are of high quality, are reasonably priced, and have acceptable delivery time. Ariika’s products are not considered its core competency, however. Rather, it is the customer service and folllow-up that the company provides. Ariika’s website is user-friendly, with all details about the products, colors, and offers available. The moment that a customer places an order, he or she receives a personalized email confirming the order. At each stage of the production process, an email is sent to the customer indicating where the order is. Ariika provides the option of tracking the order at any time, too. It also provides electronic invoices and warranties. Ariika thus differentiates itself from competitors by providing a special experience to its customers. Many customers believe that Ariika is a multinational company. We operate on multinational standards; that’s why we are perceived as one, remarked Arslan.

Target Markets

Ariika has three target markets: consumer, corporate, and resellers. Its consumer profile consists of youth 20 to 35 years old from the upper and upper-middle social classes. The company targets newlyweds who are looking for different furniture options for their homes. Ariika also targets university students; it has marketed its products at the American University in Cairo (AUC), the German University in Cairo (GUC), and the British University in Egypt (BUE). According to the CEO, the company achieved a market share of 50 percent of the branded beanbag market in Egypt in 2013.

In 2011, the year Ariika was launched, Coca-Cola approached them and ordered 200 beanbags with its company logo to use in its marketing campaign. This opened a new target market for Ariika, and the company started targeting the corporate sector to strengthen its position in the market and build on its success. As Attallah indicated, the barriers to entry are low; any company with enough financial resources could present a threat to Ariika. Pursuing the corporate market would allow Ariika to sustain its position in the market. By the end of 2011, Ariika was selling its products to Coca-Cola and to real estate companies like Mountain View and Palm Hills. In 2013, Ariika introduced its new floating bag, which was requested by both Coca-Cola and Pepsi for their marketing campaigns. There was a bidding war between the two companies and Pepsi won the bid. Accordingly, Ariika produced a thousand floating bags for Pepsi. The company’s sales grew and, in 2013, it achieved a market share of 80 percent of the corporate market. Currently Ariika has many satisfied corporate clients, such as Vodafone, Etisalat, Coca-Cola, Pepsi, Heineken, Google, Bianchi Beach, Hilton, the Mountain View compound, Palm Hills, In & Out Furniture, and Danone.

Since its launch in 2011, Ariika has sold its products online through the company’s website. In 2012, Ariika decided to expand and target customers who buy from furniture outlets. After successful negotiations, Ariika was able to display its products in furniture outlets such as In & Out Furniture, For Kare, Istikbal, and others. Ariika has sold large quantities of beanbags to beaches, cafés, and compounds. It also displays its products at online resellers such as Souq and Jumia. Currently the company controls 90 percent of the reseller market.

Marketing Strategy

The company’s founders invested considerable time and effort in developing the brand name and image. They started by associating Ariika’s brand name with comfort, quality, and customization. Later, they decided to focus on comfort to differentiate the company from future competitors. Ariika always highlighted the innovative designs and high quality of its products in its marketing campaigns to build a strong brand image. In May 2011, Ariika was introduced at the AUC campus under the campaign Try Me and Buy Me. Ariika products were distributed around the AUC campus and students were allowed to try the beanbag and place orders. Although the company’s forecast sales for the first month were thirty beanbags, actual sales were 130.

The company’s sales continued to grow and it invested in any marketing opportunity available. Ariika implemented its marketing plans at private universities in Egypt such as AUC, GUC, and BUE, targeting the young people who study there. Through these campaigns, the company introduced its brand and allowed customers to try its products.

Ariika relied heavily on online marketing. The company developed a website where customers could customize, place, and track their orders. It also used social media tools such as Facebook, Twitter, and Instagram to promote its products. Through social media, customers can interact with Ariika, ask questions, and provide feedback. At the same time Ariika can announce new offers, introduce new products, or promote new events directly to its customers. Thanks to its extensive online presence, Ariika had 91,090 likes on Facebook in 2014, the highest of