Key Players in the Industry - Term Paper Example

«Key Players in the Industry» TABLE OF CONTENTS EXECUTIVE SUMMARY 2 INDUSTRY ANALYSIS 4 ENVIRONMENTAL ANALYSIS 5 POLITICAL ENVIRONMENT 5 ECONOMIC ENVIRONMENT 6 SOCIO-CULTURAL ENVIRONMENT 9 TECHNOLOGICAL ENVIRONMENT 10 LEGAL ENVIRONMENT 10 FINANCIAL AND INVESTMENT CLIMATE 11 MANAGERIAL AND LABOR ENVIRONMENT 12 KEY PLAYERS IN THE INDUSTRY 13 RECOMMENDATIONS 15 BIBLIOGRAPHY 15 EXECUTIVE SUMMARY In the recent years, Egypt has established itself as a perfect location to find business and investment opportunities. Various huge multinational companies are making billion dollars by operating in this economy. The aim of this report is to analyze Egyptian economy from business point of view. This report is very significant for the investors who are aiming to start a business in Egypt. Through analysis it has found that textile industry of Egypt is one of the largest industries of its kind in Asia and Africa and Egypt is exporting quality textile products to various countries of the world. The industry analysis has been done to highlight the major trends in the textile industry of Egypt and it has found that textile industry is facing high growth for the past few years. The current global financial crisis has affected the textile industry and reduces its revenues during 2009 and half year of 2010 however, it is expected to generate more revenues in 2011. Apparel industry is being considered as the more dynamic sector of textile industry in Egypt because it has been least affected during the crisis. After industry analysis, we have analyzed feasible business opportunities in Egypt textile industry. The external environment is considered very important because our apparel business will expose to various risks. In order to analyze the external environment PESTLE analysis and some additional analysis has been done. The political analysis shows that although political instability is expected in the next one or two years in Egypt because of the low living standards of people and change in presidency and national elections. However, politicians in Egypt are risk averse and it is expected that political instability will not stay longer and it will not impact the businesses because government of Egypt is highly focusing on open door investment policy. The economic analysis shows a growing market condition however, a few economic indicators like inflation and unemployment portray and poor picture. However, the positive economic growth and various other economic indicators have been analyzed as positive for our apparel business. Socio-cultural analysis shows that family structure and traditions are very strong which affect the consumer purchasing behavior. Technological developments are rapidly taking place especially in the textile industry and all sort of technological channels are being used for communication, however, there is need for further improvement. Legal analysis shows that legislature framework of Egypt is offering huge benefits and incentives to the investors and current legislation has contributed a lot to develop an attractive financial and investment climate. The textile industry of Egypt is a huge industry and the market structure of the industry is still unsaturated. Moreover, highly skilled and technical labor is available at relatively cheaper rates. Therefore, if we come up with a strong business strategy, we can hope to run a successful business in Egypt. INDUSTRY ANALYSIS The textile industry of Egypt is considered as one of the oldest industries in the work and dates back to around 500 BC and today comprised of 3000 public and private companies (SEAM Project). In the 19th century, under the rule of Muhammad Ali, Egyptian made efforts to industrialize the economy and machines and technology was imported from abroad, however, by the First World War, the textile industry of Egypt had achieved a strong foothold (Kjeilen). The textile industry covers various textile segments such as spinning, weaving, knitting, converting and garment manufacturing (Infomat). Egypt has faced improvements in its investment because of various reasons including the new tax law, decree of customs tariffs and launch of Great Free Arab Trade Zone. Moreover, the law of investment No. 13 released in 2005 has been issued to develop unified services centre to improve the procedures of investment and Public Association of Industrial Development has been established to develop the industrial policies and to improve the industrial area so that industrial investment could be attracted (Egypt State Information Service). The major textile producing countries which offer first class facilities and easy access include Iran, Bangladesh, Pakistan, India and Egypt (Stensgaard, 2005). The efforts which have been made to improve the investment climate in Egypt especially in the high growth industry like textile have actually proven fruitful. Today, Egypt textile industry attracts U.S. $8 billion through foreign direct investments and contributes to 16.3 percent in Gross National Product. Moreover, textile exports of Egypt make 24.5 percent of the total turnover of Egypt and around 4,491 companies operating in Egypt textile industry are providing 30 percent employment opportunities in the country (Furnex Egypt, 2010). Industry experts are of the view that textile industry of Egypt has the potential to have a bright future however; there is a need to deliver more attention towards the industry from both the businessmen and the government. Moreover, to meet the international standards the new weaving, spinning and dyeing machinery should be imported (Montasser, 2009). The demand of Egypt textile exports is increasing in the international market and the domestic market of Egypt is still unsaturated. The businesses who plan to establish textile related business can find better opportunities because this is the right to invest in Egypt. ENVIRONMENTAL ANALYSIS Egypt current environment is offering huge opportunities to the investors and in order to evaluate whether starting an apparel business in Egypt is a feasible option or not, environmental analysis is required. Following analysis has been done to show how Egyptian market is attractive to start an apparel business. POLITICAL ENVIRONMENT The exports of the textile have been always supervised by the government of Egypt because textile industry is considered as an important component of Egyptian economy (Eternal Egypt). However, political conditions in Egypt are being considered very instable from investment point of view. As a representative of Council of Foreign Relations, Cook (2009) in his report talked about the political instability in Egypt. Cook argues that most of the researchers believe that current regime of Egypt will disorder very soon because of the innumerable challenges and he gave four related reasons. The first reason is that current regime of Egypt was founded around 60 years ago and it has appeared very flexible in terms of economic stagnation, political killing and defeat in war. Second, the primary constituents of Egypt’s current regime such as government affiliated intellectuals; military etc exhibits signs of defecting. Third, Egyptians will soon engage in political oppositions as political activism in Egypt is still an elite pursuit. The fourth reason put by Cook is that the spoiling economic conditions and lack of opportunities in Egypt are not visible in political demands (Cook, 2009). On the other hand, the recent reforms of the government to support the investment climate in Egypt actually highlight increasing opportunities in Egypt for the foreign investors. In the recent report on Egypt Country Risks, Colign (2010) argues that Egypt is going to face a little political control as a result of national elections in 2010 and presidential elections 2011. Moreover, he has also highlighted the risks of population dissatisfaction because of low living standards. However, he has shown that political risks will not sustain longer because politicians in Egypt are mostly risk averse and if structural changes are made then these risks will completely eliminate. Another important point is that ventures established in Egypt are not controlled by public sectors however; government encourages the ventures which improve export growth, tourism and reduce the imports. After investing in Apparel Company in Egypt, if we plan to expand our business by exporting to foreign countries, then we will surely going to make huge business. Egypt is exporting its textile products to various economies of the world and at international level; Egypt has also built strong relationships with US and other export partners. Barrack Obama visited Cairo In 2009 and because of the contribution of Egypt in Middle East, he also promised to provide US military assistance and other trade opportunities to Egypt. Therefore, the political analysis of Egypt shows that although there are political instability risks in Egypt however, because of the risk-averse nature of politicians, expected structural reforms and peaceful relations of Egypt with other countries, businesses in Egypt are not much exposed to political risks. ECONOMIC ENVIRONMENT The annual economic growth rate of Egypt economy in 2008 is 7.2 percent however, the inflation rate is 18 percent (Kjeilen). According to UN estimation 2009, the total population of Egypt Is 83 million, major language of Egypt is Arabic, major currency is Egyptian Pound, major language is Christianity and Islam and Gross National Income per Capita is US $1800 (BBC News, 2010). Source: Original Source is EIU, CIA World Fact book, UN, Heritage Foundation, Transparency International, Reporters Without Borders, World Bank. Retrieved from Rabobank Economic Research Department Although the facts show that Egypt economy is facing significant economic growth in the current years and investing in an industry like textiles can be a feasible option for investors. On the other hand, various researchers still find Egyptian economy as weaker economy from investment point of view. According to Alissa (2007) Egypt economy does not have a strong institutional capacity for the implementation of better coordinated reform programs. These programs are important to resolve various problems of Egypt socioeconomic realities such as poverty, high inflation and increasing public debt. Therefore, Alissa argues that the current stabilization in Egypt economy and the economic growth is because of the external factors which may not be sustainable. However, based on such factors considering Egypt economy as an unfeasible option is never recommended. There are various other factors which have to be considered to evaluate whether the current investment climate, legislature and environment are feasible or not. Doing apparels business in Egypt is also feasible from raw material point of view. The cotton that is produced in Egypt is internationally prized and considered of high quality and it is evident from the fact that during 2009 and 2010, contracts of export of Cotton from Egypt has reached to 1,245,690 kantars and the estimated cost of these contracts is US $140,822 million (Gafinet, 2010). The recent global financial crisis has also affected the textile industry of Egypt and the sales of Egyptian textiles have declined by 9.3 percent in 2009 and 6.6 percent in 2010 however, it is also expected that in 2011 textile sector of Egypt will face a growth of 4.5 percent. The report also shows that garment sector of Egypt is least affected by the crisis because it is a more dynamic sector as compared to other textile sectors (Just-Style, 2009). The economic analysis shows that although Egypt is facing high unemployment and inflation however, the access to quality and cheap raw material, economic growth and growth in textile industry are the feasible factors to start apparel business in Egypt. SOCIO-CULTURAL ENVIRONMENT Socio-cultural considerations are very significant before investing in a foreign country. It is important to evaluate whether the social and cultural factors of Egypt are feasible to start an Apparel business or not. Since the culture of Middle East is very different from Western cultural therefore socio-cultural factors may also pose major risks for us in Egypt. Egypt is a Muslim country and more than eighty percent of population of the economy has Islamic Faith and modes of living. Ikram (1980) argues that as a result of Egypt contact with oil-exporting states, social conservatism has increased in the country and Elits (1982) argues that western manufactured products and services are considered as new “imperialism of values” (Kirpalani, 1990). Kirpalani has also found that most of the population in Egypt is young which enhance the demand of specific brands however, as the family structure influences the consumer purchasing behavior therefore, parents also impact the buying decisions of their children. The family structures are very strong in Egypt therefore; parents can impact the clothing and leisure expenses of their children until their marriages. If we start an Apparel business and targets the domestic market by creating the ads promoting the parental advises in buying apparels, we can actually attract huge customers. Moreover, even if we design western apparels to be sold in foreign and domestic countries, we have to consider the fact that advertising appeals based on western culture will not positively impact the image of our company. The increasing educational opportunities in Egypt and the increasing number of working women is increasing customer base in Egyptian market. Therefore, starting an Apparel business appears to be a very attractive opportunity in Egyptian market however, we have to strictly consider the family and religious traditions to make visible position in Egyptian market. TECHNOLOGICAL ENVIRONMENT The technological development in Egypt is evident from the increasing number of internet users. In 2009, the internet users have increased by 21.1 percent. InternetWorld Stats also show that free internet strategy was implemented in Egypt in 2002, which made it the largest internet market in Africa. Source: InternetWorld Stats The technology and infrastructure in textile industry of Egypt is very suitable and most of the machinery has been imported from aboard. However, because of the increasing number of investors there is a need to invest more in weaving, spinning and other technologies and machines. LEGAL ENVIRONMENT The current industrial laws and legislations have been developed to attract more and more investors and to improve investment climate. By doing Apparel business in Egypt, profits can be made without undergoing strict legislations. Following table summarizes the legislative framework of Egypt. Legislative Framework in Egypt Source: Information taken from Egypt State Information Service Moreover, by establishing an Apparel company in Egypt, we will also have to consider the commercial law which covers intellectual property, commercial property, dispute resolution & conciliation, employment and immigration law, international trade regulation and agency & distribution contracts. For any firm operating in Egypt has to follow the sections defined by Commercial law, regardless of the industry it belongs to (Hugerfrancer International, 2009). FINANCIAL AND INVESTMENT CLIMATE Starting an Apparel business in Egypt is feasible because the investment and financial climate of Egypt is improving and incentives and guarantees are being provided to protect the rights of the investors (Egypt State Information Service). Creating an apparel company in Egypt which will target both the domestic and international markets is a feasible option because of the fairly liberal trade and investment policy of the country. During the era of President Anwar Sadat, various fundamental changes were made to introduce open investment policy and to make Egypt a market-oriented economy. The current legislature framework mentioned in the Legal Environment section shows that open door investment policy has been emphasized in the current legislature framework. Actually, the policies introduced to attract investments in Egypt are more than encouragement to FDIs such as a contribution towards the development of private sector, a way to control imports etc. Financial investments are welcomes in Egypt however; the most visible mode of financial investment is through joint ventures. MANAGERIAL AND LABOR ENVIRONMENT The growing population of Egypt, increasing business opportunities and access to cheap and skilled labour also make the plan of starting an apparel business in Egypt a feasible option of us. A number of Multinational Giants such as Oracle, Microsoft, Vodaphone, Intel, SQS etc are operating in Egypt (Information Technology Industry Development Agency). The report shows that talented and highly skilled people in Egypt are graduating each year. Around 330,000 students complete their graduation each year and the table shows the relevant background qualification. Source: Information Technology Industry Development Agency The cost of labor in Egypt is very low as compares to various other economies such as China, Turkey, Morocco and Tunisia. Apparel business deals with textile industry which is a labor-intensive industry therefore, if we start our apparel company in a country where labor cost is very low then we can reduce our labour expenses. Moreover, current Egyptian government is also greatly focusing on enhancing the skill of Egypt labour which will future enhance the excess to skilled labor. Source: Gafinet Website Therefore, if we start our Apparel Company in Egypt, we can hope to attract skilled and talented people. Moreover, the cost of labor relative to other world markets also makes Egypt a feasible option for us. KEY PLAYERS IN THE INDUSTRY The largest and the oldest company in textile industry of Egypt are Misr Spinning and Weaving. Established in 1927, this enterprise covers 600 acres area and employs around 28,000 workers and gives an annual production of 46,000, out of which 50 percent is exported to US, Europe, Arab and African countries and 50 percent is sold in the domestic market (Montasser, 2009). Another key player in the Egypt textile industry is Abo El Sebaa which is a private weaving enterprise.  Employing more than 3,000 workers, the company is producing towels which are exported to Europe, US and other countries of the world. Moreover, company also has a yarn dyeing section with an annual turnover of USD 100 million (Montasser, 2009). As mentioned earlier, today, 4,491 companies are operating in the textile industry of Egypt and they include both the private and public companies. A few other top textile companies in Egypt include Goldentex group co, Aboul Enein group, Elyosr for import, export & trading agency, Alex technical sports and professional clothing, Arab dying - Abdel Gabbar, Bishara worsted wool manufacturing co, Kodous Tex industry and trade, GFM trade company Egypt, Conytex - part of the Sekem group and many others. Since the market is not very competitive therefore, market is very attractive to start Apparel business. RECOMMENDATIONS Based on the above analysis following recommendations are given to the investors looking for business opportunities in Egypt. Starting an Apparel business in Egypt has proven a very attractive opportunity however, in order to make the business successful, company needs to develop a strong business strategy because the culture of Egypt is very dissimilar to Western culture. The textile industry of Egypt is a huge industry therefore, before making an investment therefore is a need to analyze the specific segments which company can target. Egypt economy is currently facing economic hardships and political instability and such factors can impact the company. To avoid these threats, it is recommended that our Apparel Company will start its operations after the presidency elections of September 2011 so that we may get a better idea about the market after elections. Social family structures are very strong in Egypt and if company aims to target the domestic market, considering socio-cultural factors is very important. On the other hand, if company also goes for export strategy then quality should be one of the core values because demand of Egypt products in international market is because of its product quality. BIBLIOGRAPHY Alissa, S. (2007, October). The Political Economy of Reform in Egypt: Understanding the Role of Institutions. Retrieved September 28, 2010, from http://carnegieendowment.org/publications/?fa=view&id=19660 BBC News. (2010, September 11). Egypt country profile. Retrieved September 25, 2010, from http://news.bbc.co.uk/2/hi/europe/country_profiles/737642.stm Colijn, L. (2010, April). Country Report Egypt. Retrieved September 28, 2010, from http://overons.rabobank.com/content/images/Egypt-201004_tcm64-75066.pdf Cook, S. (2009, August). Political Instability in Egypt. Retrieved September 27, 2010, from http://www.cfr.org/content/publications/.../CPA_contingencymemo_4.pdf Egypt State Information Service. (n.d.). Industry Along History. Retrieved September 27, 2010, from http://www2.sis.gov.eg/En/Economy/Sectors/Industry/050303000000000001.htm Eternal Egypt. (n.d.). The Textile Industry in Egypt. Retrieved September 25, 2010, from http://www.eternalegypt.org/EternalEgyptWebsiteWeb/HomeServlet?ee_website_action_key=action.display.story&story_id=31&language_id=1 Furnex Egypt. (2010). The Egyptian Home Textile Industry. Retrieved September 26, 2010, from http://www.furnexegypt.com/textilesindustry.asp Gafinet. (2010). Textiles and Ready-Made Garments. Retrieved September 28, 2010, from http://www.gafinet.org/English/SectorsValuePreposition/Textiles%20value%20proposition-2010.pdf Hugerfrancer International. (2009). Doing Business in Egypt. Retrieved September 28, 2010, from http://www.hfi-international.com/publications/Doing%20Business%20in%20Egypt%2009.pdf Infomat. (n.d.). Retrieved September 28, 2010, from http://www.infomat.com/research/infre0000298.html Information Technology Industry Development Agency. (n.d.). Why Egypt? Retrieved September 29, 2010, from http://www.egypt-on.com/Documents/EgyptON_Why%20Egypt_vArtwork%20REF.pdf InternetWorld Stats. (2010). Egypt: Internet Usage and Telecommunications Reports. Retrieved September 29, 2010, from http://www.internetworldstats.com/af/eg.htm Just-Style. (2009, July 27). Egypt’s clothing fortunes mirror global downturn. Retrieved September 28, 2010, from http://www.just-style.com/analysis/egypts-clothing-fortunes-mirror-global-downturn_id104834.aspx Kirpalani, V. H. (1990). International business handbook:: Volume 1 of Haworth series in international business. Routledge. Kjeilen, T. (n.d.). Economy. Retrieved September 27, 2010, from http://i-cias.com/e.o/egypt.economy.htm Kjeilen, T. (n.d.). Figures. Retrieved September 27, 2010, from http://looklex.com/e.o/egypt.economy.figures.htm Montasser, A. (2009, February). Egyptian Textile Industry: Potentials and Pitfalls. Retrieved September 26, 2010, from http://aegypten.ahk.de/index.php?id=1151&L=15 SEAM Project. (n.d.). The Textile Sector . Retrieved September 25, 2010, from http://www.eeaa.gov.eg/seam/Manuals/TextileSectorReport/Part%20A.PDF Stensgaard, A.-B. (2005, January 13). Major textile industry players head for important new regional industry showcase . Retrieved September 27, 2010, from http://www.ameinfo.com/52139.html Read More