LANDMARK DEALS

Kuwait 2016 | ECONOMY | VIP INTERVIEW

TBY talks to Omar Alghanim, CEO of Alghanim Industries, on maintaining solid relationships with global brands, the insulation sector, and dynamics in the automotive industry.

Alghanim Industries is one of the largest, privately owned business conglomerates in the Gulf region. What has been the key to building and maintaining long-standing relationships with over 300 of the world's top brands?

The key is trust. Our partners trust us, and that means everything. Trust is an invaluable resource in business. In our case, trust is built on a foundation of successful partnership with global industry leaders that spans generations. General Motors (GM) is the principal example of such a partnership; my grandfather Sir Yusuf Alghanim signed a landmark deal with GM in 1945, making our company the first and only authorized GM dealership in the Middle East. The GM partnership continues today. Other examples include Saint Gobain, British Petroleum, and Colgate-Palmolive. In February we launched a new partnership with Wendy's—we will be leading an expansion of the brand in the Middle East and North Africa. We are confident this will be a prosperous and long-lasting relationship.

With a 55% market share in its segment in the Gulf and an 80% share of the Kuwaiti market, KIMMCO produces 25,000 metric tons of insulation material a year. How has the company been performing and what opportunities lie ahead for KIMMCO?

I look at insulation in a broad way. Insulation represents the best solution and the single most effective way to reduce energy consumption and pollution. In spite of being part of an oil-rich region, many GCC countries are importing gas for power generation. According to a Citigroup report, Saudi Arabia is at risk of becoming an oil importer in the next 20 years. When factoring in per capita energy consumption, and how it's higher than most industrialized nations, the notion becomes that much more believable. Where does insulation come in? Studies show that in Saudi Arabia, for example, buildings consume about 80% of all electricity used in the country. Insulation can reduce energy consumption by 50%, which in turn reduces the size and cost of A/C equipment. The environmental implications are huge. It isn't only about energy saving though; buildings that are insulated have less temperature fluctuation and less noise pollution, which in the end provides you with better customer experience. That's really what it comes down to; less wasted energy and more comfort for the consumer. If we take that, and apply it on a national or macro level, we see a reduction in government spending on power plants, which can be as high as $2 billion per power plant. We see a reduction in CO2 emissions. Today, there are countries that have regulated insulation with these objectives in mind. For 36 years, KIMMCO has been dedicated to providing the best insulation solutions in the region. Our partnership with the French insulation giant, Saint-Gobain, has helped us achieve that goal. Just as important is our dedication to increasing public awareness on the benefits, which stems from our view that it is the single most effective way to reduce energy consumption and pollution. We've achieved a lot over these years. If you've been in the region, you've been in a KIMMCO insulated building; whether you've visited Burj Al Arab or taken a ride on the Dubai metro, you've experienced our insulation. I am also excited about our latest joint venture with Saint-Gobain, SIIMCO, which specializes in the production of stone-wool insulation solutions for all type of buildings. Based out of Yanbu, Saudi Arabia, the new factory will allow us to meet the increasing demand for eco-friendly and energy efficient building materials. When completed, it will have an annual capacity of 60,000 metric tons of stone-wool insulation material. We know that the energy savings for Saudi Arabia will be huge. The factory will officially open in 1Q2016 and will not only cater to Saudi market but regional markets as well.

X-cite is Kuwait's biggest consumer electronics chain and maintains the largest market share by far in the country. After opening your first X-cite outlet outside of Kuwait, in Saudi Arabia, what will be your strategy to maintain competitiveness in the Kingdom?

Saudi Arabia is a huge market with huge potential; before we made our decision to enter we studied not only the market but the Saudi consumers as well. What we realized is that there is room for growth, especially when it comes to customer experience. Thankfully, that's something we do right at X-cite. Our hope and ambition is to provide consumers with a new electronics experience. Our dual philosophies of placing the customer at the center of our business and maintaining that our employees are our core asset provides us with a competitive edge. If you visit our store in Riyadh, you'll see exactly what I'm talking about. We've created a convenient, dynamic, and modern shopping experience that puts us ahead of our competitors. Customers can get their hands on the product, rather than view them through glass displays; it's interactive. Another area we focused on is the online experience, and we're happy to have launched both our brick-and-mortar location and our xcite.com.sa online store at the same time. While we recognize that we might be a few years away from seeing the same e-commerce activity as we might see in developed countries, we believe no offering is complete without this channel. We are fully committed to growing this business in the Kingdom, and are happy to announce the launch of our second store in Riyadh with more on the way.

How has Alghanim performed in the automotive business over 2014 and into 2015 and what are your expectations for the automotive business in Kuwait?

Our internal analysis of the Kuwaiti vehicle market based on data received from the traffic authorities shows that the market took a breather during 2014 and in fact declined a little. In 2015, the market has declined further with consumers holding back somewhat on purchases of “big ticket" items. However, we are seeing signs of the market stabilizing and are confident of a resumption in growth during 2016. Having said that, we are pleased to see solid improvements in the market share of our brands, Chevrolet and Cadillac, as we launch new models and our teams continue their focus on ensuring the highest levels of customer satisfaction both in the areas of sales and aftersales. Also, we are proud to have opened two new Honda showrooms, a car showroom and a dedicated motorcycle showroom. Honda's customer-centric designs and state-of-the-art service areas will be a welcome addition to the local automotive market.

What is your approach to attracting, developing, and retaining local talent at Alghanim Industries and how do you identify the “high potential" candidates from Kuwait and around the Gulf?

My main management goal has been to recruit the best talent from the Gulf and beyond and empower them. We hire as many Kuwaiti and Gulf national MBA graduates as we can, both in the region as well as on campuses abroad. If we can't get them straight out of school, we follow them as their careers advance and look for opportunities to recruit them down the line. I am a huge believer in hiring not only Kuwaitis but also Gulf nationals because most of our consumers are in the Gulf. When you have Gulf nationals speaking to Gulf consumers, you're able to come up with value propositions that resonate more effectively. With that in mind we've also created a series of programs targeted at attracting and developing young local talent, including internships and a fresh graduate development program. Over the past summer we hosted over 20 summer interns and gave them challenging projects that provided practical knowledge, built confidence, and provided interaction with our senior management team. We have a dozen recent graduates in our Alghanim Future Leaders Program, which is a nine-month development program that provides classroom training and rotational assignments. We support all of these programs by taking time to recognize and reward the achievements of the participants, which increases employee engagement and ultimately retention. Of course there is a higher purpose with all this. We want to contribute to the development of a thriving private sector in Kuwait and the GCC. Kuwait's government employs more than 90% of the nation's workforce, which is typical in the GCC. Compare that to the US, where public employment represents about 14% of the workforce. That's an impediment to growth and unsustainable over time. Public employment lacks the incentives that drive innovation and productivity in the private sector. And such massive bureaucracy can dampen economic and social development. It is for this reason that I became a founding and board member of INJAZ-AL ARAB, as well as the Chairman of INJAZ-Kuwait, which are part of the international non-profit NGO Junior Achievement. My interest in empowering youth, particularly through teaching entrepreneurship, stems from the critical issue of youth unemployment. In the MENA region, 60% of the population is under the age of 25. Of these young people under age 25, a staggering one out of every four is unemployed. In some MENA countries, youth unemployment is as high as 40%. Private sector employment has got to grow—swiftly, broadly, and sustainably—in Kuwait and throughout the Middle East. Our economies must be more diversified. Young people must have more choices about the kinds of careers they have. We have to promote more entrepreneurialism in the region.

When it comes to growth opportunities, in what particular sectors and markets are you looking to expand Alghanim Industries' portfolio within the Gulf and abroad?

I'll start by saying we are planning to expand strategically in the years ahead, focused above all on the Middle East, Africa, and Southeast Asia. Our best opportunities lie in these emerging and frontier markets, and here in the region where we have long operated at the crossroads of East-West trade. As far as sectors are concerned, consumer electronics, retail, and the food and beverage industries are areas of focus. We discussed our electronics chain X-cite, which opened its first overseas store in Riyadh this year. Then there is our partnership with the Wendy's Company to expand the Wendy's brand across the MENA region. This partnership includes all Wendy's outlets in the UAE, which will serve as a good foundation for growth. Similarly in 2013 we acquired the Costa Coffee brand in Kuwait. The brand had not had a ton of success here, but we invested in top-tier locations and revamped the menu and are seeing a turnaround. We are also planning on increasing the range of products for Kirby Building Systems, which is a pre-engineered building manufacturer we acquired in the 1970s. And we see huge potential for our insulation manufacturers, which include KIMMCO here in Kuwait, SIIMCO in Saudi Arabia, Izocam in Turkey, and Rockwool India. Improving insulation is the single most effective thing a building owner can do to reduce energy use and pollution. We are pleased with the performance of our businesses but are in continuous evaluation mode. To run a diversified company you have to make trade-offs. You can't do everything; that's a failing strategy. You look at your businesses with a critical eye and when you decide you can do better in one area than another, you act decisively.

How do you view the importance of Kuwait's role on the global stage?

We play an important role on the global stage for several reasons. First, Kuwait is at the crossroads of East and West. We have a proud history as a nation of merchants, plying our trade across borders and building lasting, useful enterprises that play a role in the progress of their time and place. This role puts us in a strong position to contribute to regional economic prosperity. Second, Kuwait has 10% of the world's oil reserves. This gives us outsized power and influence relative to other countries of our size. Third, and most importantly, Kuwait is a myth-shattering example to the world of sectarian cooperation and tolerance. This discussion takes me outside my role as a regional business leader, but the issue is important to address. The 2015 mosque attack is among Kuwait's darkest, but proudest, moments. It reminds us that in Kuwait, national unity and shared history transcend religious difference. As such we are an example for the region.

How can Kuwait become more competitive regionally and globally, and what issues do you believe will define Kuwait's economic future in the coming years?

Kuwait has some noteworthy strengths and weaknesses. On balance our economic prospects are bright. On the strengths, we have solid leadership and guidance under the Emir, His Highness Sheikh Sabah Al-Ahmed Al-Sabah. We have a world-class banking sector and governance system that puts us in a strong position to benefit from regional growth. The Central Bank of Kuwait (CBK) has done a superb job of partnering with the financial services industry to implement the post-2008 regulatory framework. I have observed this first-hand in my role as Chairman of Gulf Bank. It's worth noting here because our banking system is the foundation upon which all our economic activity is built. I can't overstate the importance of CBK's leadership to Kuwait's economic climate. On the weaknesses, we face difficulties in engaging Kuwaiti youth in the private sector. It is difficult to persuade people in Kuwait to give up the certainty and security of government employment, where few people if any lose their jobs, for the greater rewards, greater risks, and harder work in the private sector. I believe we can do more to reform public education. In too many instances, education in the Middle East has emphasized memorization over critical thinking. Generations upon generations have been trained to use their minds to store knowledge rather than to apply knowledge to solving problems. We have to change that emphasis. Then there is the question of diversity, especially when it comes to women in the workforce as a key factor in competitiveness. The MENA gender gap is three times what exists in most developing economies. According to the IMF, if this gap were narrowed by just one-third the regional GDP would grow by 6% or $1 trillion. This is a massive source of potential growth we need to unlock. It is easy for the private sector to stand on the sideline and point out problems. We have a responsibility to be part of the solution, working hand-in-hand with the government to encourage this critical transition from past practices. I take this responsibility very seriously. It's the reason I am involved with the WEF at a regional level as well as INJAZ, which encourages entrepreneurship. Research from International Labor Organization (ILO) indicates that entrepreneurs are most successful when exposed to entrepreneurism in primary, secondary, and university levels. This is precisely the reason I founded INJAZ. We need to be involved with governments to help develop and implement policies that will help young people acquire the skills they need to compete in the global economy, and provide the entrepreneurial talent the region needs to thrive in the future. I am excited to see Kuwait setup the National Fund for Development of SMEs to support entrepreneurism. This KWD2 billion fund aims to grow the entrepreneurial ecosystem by providing different forms of support to SMEs. As Chairman of Gulf Bank, I'm proud to say that we are the first bank to participate in this program, which involves leveraging our existing financial infrastructure and expertise to assist in providing growth capital, in the form of debt.

Moving forward, how do you see the future?

We will challenge ourselves, as we always have, to innovate and grow. As I see it, and this goes way beyond 2016, I have an obligation, just as my father and grandfather had, to succeed in making the future of our company better than the past. I owe that to my family, to the 14,000 men and women who work in Alghanim Industries, and to the customers who depend on us. I have an obligation as well to Kuwait, to the GCC, and to the greater Middle East to use our success and the lessons of our success to benefit the peoples of the region.