Egypt — The New Frontier?

Part 2: The Future

By Tom Dissenbach

Last month I made the observation that the globalization of our industry is going through an explosive period of expansion and I posed the questions “Does Egypt (with no forest resources) have the ability to become a global player in the furniture industry, and could it be the new frontier for furniture manufacturing?”

This month, I want to present the challenges to successful globalization efforts of the Egyptian wood products industry, to look at its future and to suggest how all of this is typical in developing countries and can affect your future efforts in exporting and importing. The challenges and opportunities that follow can be found — to one degree or another — no matter where on this planet you choose to look.

The Quality Challenge
The current perception of the furniture industry in Egypt is mixed. Market research in Europe and North America confirm a significant number of quality complaints. A quick look exposes the quality problems facing the sector.

		Successful Egyptian exporters are using nitrocellulose based finishes in environmentally controlled finishing rooms such as this one at Azmi.

The challenges begin with the fact that lumber importation is necessary — but not for the reason most would think. The reason lumber importation poses a challenge lies not in the imported lumbers’ cost but rather in the poor quality of the imported lumber. There is a total lack of grade regulation, and the moisture content is above 15% more often than not. Some importers have told me (and they really believe) that 15 to 20% moisture content is the optimum for use in furniture manufacturing.

Much of the lumber is imported from developing countries in Eastern Europe that lack proper drying technology and equipment. Most lumber is shipped into Alexandria where, unfortunately, there are no importers or distributors who have drying equipment. Thus, the Egyptian manufacturer must re-dry its own lumber, which is typically done with the use of vacuum kilns.

This improperly dried lumber, unfortunately, is used to make cores for tops as well as for solid wood panels and parts. The result is warped panels as well as cracks, splits and failed glue joints. Most large manufacturers recognize this problem, but many do not realize what is happening and have come to accept the lumber as it arrives.

Thus, the sector must monitor the grade and moisture content used in the manufacture of its products and only use lumber dried to 6 to 8% equalized moisture content if it is to have any chance of successful globalization. Importers of furniture from Egypt, as well as from other developing countries, should make sure the raw materials being used by the manufacturers — especially lumber and veneer — are of the quality necessary to produce an acceptable product.

Egypt’s second quality issue revolves around the methodology and construction techniques used in manufacturing veneered case goods. There are applications where solid lumber banded tops are only three ply — causing cracking and splitting of veneers where these bands expand and contract.

Many of the manufacturers are not using fastening devices that add to the structural integrity of the furniture because they are not available. Finding good quality screws is a challenge in some areas of the country.

The last major area that is contributing to poor quality in the eyes of the international market is the finish. While a few Egyptian manufacturers import nitrocellulose lacquer systems to use in their export products, many still rely on shellac and varnish systems in open finishing areas — some on the roof of the factory. The Lilly Company has sent reps into Egypt to train manufacturers. Several of them — such as Azmi — have shipped product to the United States with excellent finishes using materials imported from here.

The Production Scheduling Challenge
When you or any customer orders a container for Feb. 5 delivery, it does not mean June 5. Promising a delivery date and then constantly missing it is not acceptable to any customer anywhere in the world. There is a tendency for some overseas manufacturers to accept any order with the attitude of loading down the wagon without doing any serious capacity planning and scheduling. This results in unhappy customers reluctant to place additional orders due to late deliveries.

	The New Interlit Egypt Company is focused on high volume office furniture manufacturing utilizing a state of the art plant with flat line finishing systems.

Some manufacturers, however, know the important elements of successful exporting and have installed production scheduling and control systems enabling them to manage their resources and to schedule to the capacity of their plants in order to meet their delivery commitments.

The Focused Factory Challenge
Some manufacturers seem to want to make their small plants of 50 to 100 employees available to manufacture anything that will sell overseas. Thus, they may try to make every conceivable product for the home and office. These companies are basically custom shops using production woodworking machinery and are not effective in manufacturing larger quantities for the export market. Faced with a huge training burden, quality and on-time delivery suffer along with profitability.

The plants that are successful exporters, on the other hand, have done what some factories in this country do: they define their core competency and stick to it.

One such company in Egypt is New Interlit which has built a state-of-the-art panel plant to focus on office furniture manufacturing. The company uses a highly automated 32mm system complete with high-speed flat-line finishing.

Education and New Technology
In the last three years an industrial zone has been created near Damietta and many factories are being built there. Hundreds of thousands of people depend on furniture manufacturing for their livelihood in this furniture manufacturing capital of Egypt.

One of the strategies I proposed two years ago for the sector was the construction of a technical institute and incubator facility in this area to promote new technology as well as management and marketing methodology. The combined facility — the Damietta Export Center — would be under “one roof” and house excellent drying facilities, a face and plywood plant, and optimizing equipment for both. The plant would contain dozens of incubator cells manufacturing various products as required by the global customers of the center. All of these cells would feed up-to-date finishing, packaging, consolidation and shipping departments. This facility would house the global sales and marketing hub for the center as well as the management of the incubator manufacturing facility.

A state-of-the-art technical institute (or technical college) would be housed here to provide necessary training in manufacturing, management and marketing skills to equip hundreds in the area with the skills to form new manufacturing companies for export. In addition, it could be utilized to educate the sector throughout Egypt on issues brought up in these pages and last month’s article. If this center is completed, look for the emergence of a vibrant exporting sector providing micro-lead times for small orders placed by customers all over the world.

An existing technical center — providing free training for young men leaving the military — is located near Cairo. It was furnished by the Italian Government and equipped with Italian woodworking machinery. Unfortunately, it is underutilized and could be a center for training furniture manufacturers in the Cairo and Alexandria areas similar to the technical training mentioned above. Thus, there would be two training centers for the sector.

Alexandria is a beautiful city located on the Mediterranean Sea and has the largest port in Egypt. As mentioned last month, one of many new industrial towns is being built at New Borg El Arab. This location has interesting possibilities for the industry. There are several new well-equipped furniture plants located there as well as an abrasives manufacturer and a carton manufacturer. The carton manufacturer was quick to learn the packaging requirements for export to U.S. furniture manufacturers and is an excellent resource for the sector.

There is a plywood manufacturing company located about 50 miles from this city and from Alexandria that is pioneering the manufacture of particle- board using cotton stalks in an effort to utilize local natural resources and reduce the dependence on imported board. Similarly, a plant is reported to have begun manufacturing medium density fiberboard from rice straw that is plentiful in the Nile Delta.

		This woodworking complex at Mobica has kilns and adequate dry storage to insure proper lumber moisture content. The company bus is one of many used to bring employees to work.

Even with all the challenges in the sector, it is not hard to see the potential. There are companies in Egypt looking for strategic partners who are interested in investing there and sharing their technology for the mutual benefit of both parties.

Globalization involves more than exporting and importing — it also encompasses the structuring of strategic global alliances. Manufacturers here may want to have facilities located near emerging markets or they may want to import finished furniture or parts for use here. In either case, forming a strategic alliance with an established company overseas and sharing technology, constant interaction and follow-up is the only way to insure a successful offshore venture. In fact, you should promote and help train any global partner to adhere to my Profitability Grid ( found on page 25 of the February 2000 issue of W&WP ). It will be for your mutual benefit to help them produce quality products, on time and on cost.

There will be a huge emerging market in Eastern Europe, the Balkans as well as the Middle East. Egypt has the opportunity to position itself for these markets as well as established markets in Europe and the United States. The question is, “can Egyptian manufacturers pull it off?”

The speed and determination with which the sector moves forward in light of the needed change initiatives will determine whether Egyptian manufacturers can become a viable and reliable global source. The government cannot do it for them. Each company will have to dedicate itself to the task and will have to cooperate with others in Egypt to strengthen the sector. Above all, they must be willing to listen to their potential customers and provide exactly what they want — when they want it.