Entrepreneurship in the Arab World

Ten Case Studies

El-Khazindar Business Research and Case Center

• Publisher: The American University in Cairo Press
• Year: 2016
• ISBN:
  9781617976995
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

This collection of case-studies showcases the experiences of ten intriguing entrepreneurial ventures from emerging markets in the Arab world (Egypt, the UAE, Morocco, and Saudi Arabia).Readers will receive an in-depth insight on a variety of localized strategic, managerial, marketing, and innovative approaches and practices, which create unique challenges and opportunities in a region undergoing rapid political, social, and economic transformations. The unique case-studies address different stages within the exciting entrepreneurial cycle, from start-up to growth, sustainability, and international expansion.This casebook is a valuable resource for anyone wanting to know more about launching and sustaining a business within developing Arab economies, as well as being an effective teaching tool for disciplines related to new venture management and entrepreneurship.

1

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

Rania S. Hussein and Hend Mostafa

Macroeconomic Overview of Egypt¹

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 Egypt²

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 any beanbag company in the world. Fat Boy, the most popular beanbag brand globally, had only 32,607 likes.

According to Hassan Arslan, before 2013, the company had no clearly defined marketing budget and the marketing expenditures were not closely tracked, which resulted in some decisions that had a negative impact on the company’s profits. Arslan decided to focus more on budgeting and allocated a specific budget to the different functions at Ariika. With time and thorough training, the owners were able to develop more systematic ways of allocating their expenditures and determining what resources would be allocated to which function. This, according to Arslan, reduced redundancy and increased efficiency. Currently Ariika places its advertisements on social media, as they are the best method to reach its target market. Moreover, the effect of online ads can be monitored and evaluated easily, unlike for other, more expensive offline marketing.

Ariika marketed its products in Enigma magazine, which has an online store that sells furniture and clothing, and on Nefsak.com, an e-commerce website. Ariika also appeared in two major furniture exhibitions in Egypt: Le Marché 2011 and La Casa. These exhibitions allowed the company to introduce its products to many visitors.

Production Strategy

Production was one of the most challenging functions for Ariika. The main problems were limited capacity and huge waste. When the company started in 2011, its capacity was three beanbags per day. As demand increased, t...

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Contributors
• Acknowledgments
• Introduction
• 1. Ariika Beanbags: A Successful Egyptian Entrepreneur Capable of Regional Expansion?
• 2. Bey2ollak—Beat Traffic Together: A Case Study from Egypt
• 3. Adaptation and Business Model Innovation in Times of Rapid Change: Baraka Group Case Study
• 4. ChoCo’a: Growth Strategy for an Established SME
• 5. Funlozia’s Dune Raider Befriends the Egyptian Desert Sands
• 6. Evaluation of Pan-Islamic Investment Banking in the Middle East: The Case of ICD
• 7. Olives: The Taste of Lebanon with a ‘Twist’
• 8. Birthing Pains: The Issues Faced by Start-ups in the United Arab Emirates
• 9. A Hybrid Agribusiness Value Chain: The Case of a Horticulture Social Enterprise in Minya, Egypt
• 10. Transferring World Athletic Championship–Winning Principles to Entrepreneurship: The Case of Abdelkader El Mouaziz