Twenty-six-year-old Farida Khamis, vice president for corporate finance at Oriental Weavers Carpet Company (OWC), the internationally successful area rug and home furnishings conglomerate that her father, Mohamed Farid Khamis, founded in 1979, is often asked to explain the secret of her group's export prowess.
"The answer is very simple: You just have to prove yourself in terms of quality," says Khamis. "There are no secret formulas or tricks. If you produce a good quality product, you can sell anywhere."
Today, more than 60% of OWC's production is exported to over 100 countries worldwide. The company is continuing to expand aggressively in new regions and diversify in complimentary markets outside their core industry of machine-woven area rugs.
Key customers include most of the world's 'Big Box' retailers, including Ikea, Carrefour, Target, Sears, Home Depot, Wal-Mart, Marks & Spencer and JCPenny.
Unlike many Egyptian companies that only recently looked to exports, OWC Chairman Mohamed Farid Khamis had his eye on the international market from day one. After setting up his first plant in Tenth of Ramadan, he quickly established a marketing and distribution company in the US. After conquering the US market in the late 1980s, it was on to Europe, where he put in place similar distribution and warehousing operations. In 2005, OWC completed its first factory in China to cater to the booming Asian market.
(Mohamed Khamis' involvement with OWC is now strictly at the strategic level. Instead, he has turned over day-to-day management responsibilities to Farida and her elder sister Yasmine, who is vice president for operations. Khamis remains heavily involved with education, particularly with the new British University in Egypt, which he recently founded. He also attends to political obligations as a member of the Shura Council, the nation's upper house of Parliament.)
"A lot of people assume that we set up in China to replace some of our local manufacturing the same way that American and European companies have been doing. That is absolutely not true," says Farida. "We are still continuing to expand rapidly inside Egypt. Cost structures in Egypt are very similar to China, so the only reason we have started to produce there is to take advantage of the 1.3 billion potential customers in their market."
Although OWC is one of a handful of Egyptian companies whose export success story predates the Nazif government's sweeping economic reforms, the group has nonetheless reaped the benefits of economic growth spurred by tax and customs cuts as well as regulatory reforms.
"The changes in policies and the overall political situation in Egypt during the past couple of years have definitely made foreign investors feel more comfortable. The government has done a tremendous job to encourage more foreign investment," says Khamis. "Foreigners are now more eager and willing to invest with our company, other companies and even on their own in a number of key sectors."
Khamis speaks from direct experience. She has just finished raising equity for a $600 million petrochemicals project OWC is undertaking along with the Egyptian Petrochemicals Company to produce both propylene and polypropylene, the primary raw materials used in manufacturing the fibers they use to make rugs.
"I could have covered the equity by over 300%," she says. "Investors from the Gulf and Europe, as well as local and international banks, were actually fighting to come and invest with us. To this day, I'm receiving phone calls from potential investors who want to inquire about the project."
Her company already owns a small petrochemicals facility in Suez, Oriental Petrochemicals Company, which produces polypropylene for the local market. Until recently, the propylene used to make the polypropylene was imported.
"This new venture is the final step in making our group 100% vertically integrated. Egypt has the propane gas needed to make propylene, so we really don't need to import. We are working very closely with the Minister of Petroleum [Sameh Fahmy] to set up a truly world-class petrochemicals complex in line with the ministry's master plan. We have promoted and pioneered the project, and now they are going to take it a step further. A steering committee has been established with members from both the private sector and the government to complete the final stages of setting up the company," says Khamis.
On the textiles front, OWC recently entered into an extremely promising joint venture with Italy's Miro Radici, one of Europe's leading manufacturers of textiles and fibers. "They are actually the largest distributor of terrycloth and bedsheets in Europe," says Khamis.
Their joint manufacturing facility in the Tenth of Ramadan Free Zone is 45% owned by Radici, 45% OWC and 10% SB Capital, a US-based fund with interests that include retailers Value City department stores and American Eagle Outfitters. SB Capital also owns household textile brands Cannon, Fieldcrest, Charisma and Royal Velvet.
"We will be taking advantage of Egyptian cotton, which is in high demand abroad, and our partner's distribution channels in the US and Europe," says Khamis. "OWC's existing customers, such Ikea, for example, have been decreasing their number of suppliers. For example, they used to deal with four different rug manufacturers; now, they deal with only two. OWC supplies Ikea with 50% of all their rug needs globally.
Now that we have this venture with Radici, they are interested in having us supply them with towels and sheets."
OWC/Miro Radici Textiles is currently producing samples and will begin full production in May. The company employs 400 people and is expected to have an annual turnover of 10 million this year. According to Khamis, the factory will be tripling its output within the next 2-3 years and making use of the Qualified Industrial Zone agreement with Israel and the United States to sell towels and sheets in the United States.
"We are witnessing a definite swing in momentum and a real change in the investment climate. Of course it is stronger in some sectors than in others, but it just happens to be very strong in the sectors that we operate in textiles and petrochemicals," says Khamis.
"For the past four years, all of our expansions have been within Oriental Weavers International. But in 2005, we saw a big pick-up in local sales. I think this can be attributed to an increase in disposable income amongst Egyptians" as the economy improves and tax cuts take effect, she says.
OWC and MAC (Misr American Carpets, an OWC subsidiary that was fully acquired by the company in 2005) each have more than 100 showrooms to cater to Egyptians of all income brackets nationwide.
"We sell both high-end products and second-quality lines at discounted prices. We have seen an increase in sales with both markets," says Khamis. "In the past, we used to direct all of our more expensive, modern, higher-end products abroad. Now, we have set up specialty stores for these products called La Boutique, both within our existing showrooms and separately. They are doing very well.
"I personally have a very positive outlook for the coming period. All indicators show that the economy is healthy, our companies are solid, and investors are very enthusiastic about the future. What happened to the stock market in February and March of this year was inevitable. The market had been booming for two years, so we knew that the growth could not be sustained for long. Every year, we take part in the EFG-Hermes 'One on One' conference in Sharm El-Sheikh, which brings emerging market companies together with the largest international and local fund managers.
"In 2005, the market went up by over 100% in the three days following the conference. I remember OWC was trading in the high 70s, and three days after the conference it was up to 120. That didn't happen this year. The fund managers were there not to buy, but to listen. I was told that even though they were impressed with the actual companies, they felt that prices had not yet reached rock bottom [in the ongoing correction]. I think that the market will recover slowly," says Khamis.
"We look forward to the development of the mortgage law which will help our industry to grow even further as more home owners enter the market. I am very optimistic that we will finally begin to see some movement on this front in the coming months. The only reservation I might have is regarding overall political reform, which has lagged a bit behind the economic reform. Some investors are showing their concern over this as well.
"But despite the fact that there are some unresolved political issues the economy will continue to improve and we will start to see even more trickle down effect on to the consumer level," she says.
Farida Khamis (26)
Vice President Corporate Finance, Oriental Weavers Carpet Company
Education: BA Business Administration with a minor in Psychology (AUC)
Mentor: My father, not because he is my father, but because I really respect what he has done. He built the company up himself in 25 years and it has been a huge success, both locally and internationally. I also respect him on a personal level for all the social work he has done. You see a lot of businessmen who are really self-indulgent, and that's not the case with him at all.
Brand Egypt: I think this is very important, but I think it should be done by sector, because not all sectors are at the same level of competitiveness. Tourism and textiles are, however, two sectors that are in need of proper branding.
By Hadia Mostafa
Business Today Egypt 2006
