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CHABROS INTERNATIONAL GROUP: A WORLD OF WOOD
Bassam Farah wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected].
Copyright © 2010, Richard Ivey School of Business Foundation Version: 2014-04-17
CHABROS INTERNATIONAL GROUP
On December 30, 2009, as a result of the global economic crisis, Chabros International Group, a leading wood company headquartered in Lebanon, reported a drastic drop in lumber and veneer sales in its largest market, Dubai. Antoine Chami, Chabros’s owner and president, had to decide what to do. Should he close parts of his Serbian sawmill that had cost him more than $11 million to acquire and expand two years ago to meet Chabros’s increasing sales volume at the time? Should he try to re-boost his company’s sales to use his sawmill’s available capacity? If so, should Chabros try to increase its sales within the countries where it already operated or should it expand into a new country? Would Morocco, among other countries, be the best country to expand into? Was it the right time to embark on such an expansion?
CHABROS INTERNATIONAL GROUP’S HISTORY
Chami’s father and uncles founded Chabros in the 1960s. The name Chabros came from Chami Brothers. Originally, Chabros operated only in Lebanon and dealt only with veneers, that is, the different kinds of wood surface (see Exhibit 1 for a more detailed definition of wood veneer). In 1978, Chabros became wholly owned by Chami’s father, and Chami took full charge after the death of his father in 1987. At that time, the political, security, and economic situation in Lebanon was very unstable. The country was undergoing a civil war, so Chabros’s primary goal was survival. In 1991, the civil war ended, however, the country’s economic situation remained relatively unstable despite slow gradual improvement.
After 1991, Chabros occasionally serviced Lebanese customers located in Dubai, an emirate in the United Arab Emirates (UAE). Dubai clients purchased their products from Chabros in Lebanon and shipped them to Dubai. Here, Chami and his top management team thought: “Why don’t we send sales representatives from Lebanon to Dubai to market our products there?” Thus, the first internationalization attempt started when Chabros sent one of its sales representatives, Nicholas Mousalli, to Dubai to study the wood market, analyze wood prices, and market Chabros wood products (i.e. lumber and veneer).
The year 1998 marked the first direct exporting activities to Dubai. After making a couple of successful deals exporting wood from Chabros in Lebanon to customers in Dubai, Mousalli suggested opening a branch in Dubai. Chami implemented this suggestion immediately, opening Chabros’s first branch in a
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200-square-metre rented warehouse. Chabros was not registered as a company in Dubai until the next year, when Chabros bought its own warehouse. In 1999, Chabros celebrated the birth of its first foreign subsidiary, the Dubai subsidiary, under the name Chabros Wood Trading (see Exhibit 2). Chabros Dubai was a great success. Armed with this success and an ambition to make Chabros a global player in the worldwide wood industry, Chami decided to go to Saudi Arabia. However, Saudi Arabia was a huge market and alone Chabros did not have the required financial resources to enter such an enormous market. Chami convinced two of his Italian suppliers, who witnessed Chabros’s success in Dubai, to partner with him to enter the Saudi Arabian market. In 2001, Chabros Riyadh was established. It was initially established in Riyadh, Saudi Arabia, as an international joint venture (IJV) with Chabros owning 50 per cent of its shares and each of the two Italian partners owning 25 per cent. However, given the cultural distance between European and Arab countries, the Italian partners found it difficult to adapt to the Saudi Arabian mentality and the Saudis’ way of doing business. The first Italian partner sold his shares to Chabros one year after the establishment of the IJV and the second Italian partner sold his shares to Chabros two years later. By 2004, Chabros Riyadh was a subsidiary wholly owned by Chabros Lebanon. Prior to 2003, demand for wood (lumber and veneer) soared in the UAE, Saudi Arabia and Qatar, and Chabros experienced a great shortage in the supply of European wood. The sales generated by Chabros far exceeded the production capacity of Chabros’s European supplier. To reduce this supply shortage and secure the largest quantity possible of European wood, in 2003 Chabros opened an office in Serbia, called Chabros Serbia, and financed its Serbian supplier to increase its sawmill’s production capacity. Despite the financing provided, the Serbian supplier’s pace of production capacity increase was very slow. As a consequence, Chami asked himself: “Why don’t we acquire our Serbian supplier and quickly expand the sawmill’s production capacity to meet our sales needs?” In 2007, Chabros acquired its Serbian supplier for $1.4 million and the sawmill started operating under the name of Wood World Trading as a Chabros manufacturing subsidiary. Given the Dubai and Riyadh internationalization successes, and despite the European wood supply shortage that the company faced, Chami and his top management team decided to go to Qatar. Qatar was attractive because it was a small natural-gas-rich country that was following the path of its neighbor, Dubai, in fast economic growth. They went to Qatar in 2004 and opened a new subsidiary, Chabros Doha. Between 2004 and 2008, Chabros opened four new subsidiaries, albeit for different purposes. First, in 2005, Chabros opened a subsidiary in Muscat, Oman, to access new markets to sell its wood products (lumber and veneer). Then, later in that same year, it opened a subsidiary in Cairo, Egypt, to access a new market where it could sell its supply of lower quality lumber and veneer. In 2006, it opened a second subsidiary in the UAE in Abu Dhabi. In 2007, it opened a second subsidiary in Saudi Arabia in Jeddah. The last two subsidiaries were opened to increase Chabros’s sales volume and take advantage of lower prices associated with purchasing larger quantities. Later, Chabros benefited from production economies of scale after acquiring the Serbian sawmill. Chami opened Chabros Cairo for a specific strategic purpose. At first, Chami, like his major competitors, bought and sold only the higher quality veneers, that is, veneers graded “A” and “AB.” However, later, by being exposed to different methods of wood production around the globe, he quickly learned that in their typical production process, sawmills produced veneers of different qualities, including “B” quality. Further, he learned that when a veneer trader bought only higher quality veneers, for instance “A” and “AB” qualities, sawmills usually charged that trader higher prices than they would have charged a trader who bought all the different qualities of veneer that they produced. Thus, in most cases, when a trader bought only “A”- and “AB”-quality veneers, the sawmill charged that trader prices as if he/she bought all
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the different qualities of veneer and assigned the lower quality veneer that was left at the sawmill, the “B”- quality veneer, a value of zero, assuming that it would not be sold. That was because it was much more difficult for a sawmill to sell its lower quality veneers. Moreover, by being subjected to different national markets and their dissimilar product demands, Chami learned that Egypt was a market for lower quality rather than higher quality wood. Thus, Chami opened Chabros Cairo to market its “B”-quality veneer. This way, Chabros could buy and/or manufacture all the different qualities of wood (lumber and veneer) for the same price as the higher quality wood alone. Then, it could sell the “A”-quality wood in Dubai and the “AB”-quality wood in Saudi Arabia and Lebanon for some profit while selling the “B”-quality wood in Egypt for approximately 100 per cent profit, when compared to trading only higher quality wood.1 CHABROS INTERNATIONAL GROUP IN 2009 By 2009, Chabros had already established eight subsidiaries/offices in six countries other than Lebanon, namely Serbia, the UAE, the Kingdom of Saudi Arabia (KSA), Qatar, Oman, and Egypt. While four countries hosted one subsidiary each, the UAE and Saudi Arabia hosted two each. These subsidiaries constituted Chabros International Group (for a map of the Middle East and North Africa (MENA) region and parts of Europe including Serbia see Exhibit 3). When Chabros was first established, it was involved in trading only one type of wood, veneer, and just in Lebanon. However, by 2009 Chabros International Group was involved in two areas of business, production and trade. It produced several species of European lumber of different qualities and traded different qualities of diverse species of lumber and veneer among countries in many areas of the world. For example, it imported lumber and veneer from the United States, Europe, Asia, Africa and Australia, and exported them to the Middle East and North Africa (MENA) region and European countries, namely the UAE, Saudi Arabia, Qatar, Oman, Egypt, England, Germany, Denmark, Spain, and Turkey. Chabros International Group’s Sales, Profits, and Market Share From 2005 to 2008, Chabros International Group experienced rapid growth in sales volume. In 2005, Chabros’s sales were $60 million, whereas in 2008 they became $100 million, an increase of 67 per cent within only three years. However, 2009’s sales suddenly dropped by $10 million (see Exhibit 4). This was due entirely to the drastic fall in Chabros Dubai’s sales. In 2009, while Chabros’s other subsidiaries experienced either relatively stable or somewhat improved sales, Chabros Dubai suffered from a 30 per cent decline in its sales. In 2008, Chabros Dubai contributed $50 million to the group’s $100 million total sales, whereas in 2009 it contributed only $35 million to the group’s $90 million total sales. This represented a 30 per cent drop in Chabros Dubai’s sales from 2008 to 2009 and a 10 per cent aggregate increase in sales in all of Chabros’s other subsidiaries. Chabros Dubai maintained its position as Chabros International Group’s leading subsidiary in terms of sales volume despite its severe sales drop in 2009. Even after the global economic crisis, Chabros Dubai ranked first in terms of sales among its Chabros counterparts, while Chabros Riyadh ranked second and Chabros Doha ranked third (see Exhibit 5). Between 2005 and 2008, veneer sales grew 33 per cent, from $30 million to $40 million, whereas lumber sales grew 100 per cent, from $30 million to $60 million. In 2009, veneer and lumber sales dropped by $5
1 “B”-quality wood (lumber and veneer) was used for making lower quality wooden doors, closets, furniture, and internal decorations, etc.
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million each (see Exhibit 6). Thus, veneer sales dropped by 12.5 per cent while lumber sales dropped by only 8.3 per cent. In 2009, Chabros International Group sold its veneer products at an average price of $3 per square metre and its lumber products at an average price of $1,000 per cubic metre. This translated into sales of 11,666,666 square metres of veneer and sales of 55,000 cubic metres of lumber. According to Chami, although Chabros started as a veneer company, because Chabros was considered the market leader in veneer in the MENA region, at that moment it had more potential and freedom to grow its lumber business than its veneer business. Despite Chabros’s rapid sales growth from 2005 to 2008, its percentage net profits from sales did not vary much and ranged between six per cent and 6.8 per cent. However, net profits suddenly dropped to 4.2 per cent in 2009 (see Exhibit 7). According to Chami, Chabros International Group was considered the largest trader of veneer in the MENA region. It represented more than half of the supply of veneer in that region. Chabros had a lumber market share of around 20 per cent in both the UAE and Qatar and around one per cent in both Saudi Arabia and Egypt (see Exhibit 8). Chabros International Group’s Suppliers, Distributors, Employees, and Customers Chabros International Group bought its different kinds of veneers from suppliers (veneer manufacturers) all over the world, but mainly from suppliers in the United States, Italy, China, and Ghana. In contrast, Chabros produced most of its European lumber species in its Serbia sawmill and imported its non- European lumber species from non-European countries. In terms of distribution, Chabros International Group’s subsidiaries used their own trucks to distribute their products within the countries they operated in. However, Chabros Serbia used its trucks to distribute its products all over Europe and to transport them to Chabros’s Trieste wood terminal, where containers were loaded and shipped to other countries in the world. Transportation costs (i.e. truck and/or train transportation costs plus shipping costs) of wood from Chabros Serbia to Chabros’s MENA region subsidiaries ranged from $60-80 per cubic metre and made up only around ten per cent of the total cost. Customs duties constituted four to ten per cent of the total cost. In 2009, Chabros International Group’s workforce consisted of more than 500 employees. Chabros Dubai had the largest number of employees, at 180; while Chabros Abu Dhabi and Chabros Muscat had the fewest, at 10 employees each (see Exhibit 9). Chabros International Group’s customers ranged from wholesalers to building contractors to carpentries to retailers as well as end users. However, Chabros International Group’s customers differed from country to country. In the Gulf countries, the company’s customers were mainly building contractors who designed and manufactured wooden doors, closets, and decorations for buildings (residential, business, or governmental), towers, hotels, restaurants, etc. In Lebanon, its customers included wood wholesalers, retailers, and furniture manufacturers. In Europe, its customers were mainly retailers.
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Chabros International Group’s Competition, Competitive Advantages/Disadvantages, and Strategies Chabros International Group competed with firms in two industries: the hardwood industry (as opposed to the softwood industry) and the veneer industry. According to Chami, hardwood was used mainly for making doors, closets, furniture, and internal decorations, etc., whereas softwood was used mostly for making building components, windows, paper, and external decorations. Chabros International Group faced local, regional, and global competition. Locally, in the different countries where it operated, Chabros was competing with other small- and medium-sized hardwood and veneer suppliers, mainly domestic small- and medium-sized retailers and wholesalers, who usually did not import wood from abroad and who were typically servicing small- and medium-sized subcontracting companies and carpentries. Regionally, Chabros was competing with hardwood and veneer suppliers that operated only at the MENA region level, that is, companies that traded wood only in the MENA region. And globally, Chabros was competing with the largest global hardwood and veneer companies. These included American, European, and Asian hardwood and veneer companies, such as General Woods and Weston in hardwood and General Woods and Fritz Kohl in veneer, which Chabros bid against for huge projects, including towers, hotels, and government buildings, in Dubai, Doha, and Riyadh, to name but a few locations. Chabros International Group had several competitive advantages over its rivals. First, it provided its customers with more varied and more customized wood products than did most of its competitors. Moreover, Chabros built distinctive strategic relationships with its key suppliers. Second, Chami had more than 25 years’ experience in evaluating and choosing the best kinds of veneers to trade in. Such experience was very valuable, rare, and difficult to imitate. Unlike trading in lumber, which was considered a commodity, trading in veneer required taste and expertise. Chami tried to transfer this capability to other partners and top managers at the company. Such a capability of evaluating and choosing the best veneer was important because, for veneer, the grades “A,” “AB,” and “B,” which implied that the higher the grade the fewer the knots in the veneer, did not mean a lot. Customers bought a certain kind of veneer not because it was graded “A,” “AB,” or “B,” but because they liked its design and pattern. So the sales of veneer were a function of the tastes of different customers in different countries. Chami had a very good understanding of the tastes of different categories of customers in many different countries. When Chami first opened in Dubai, he had much greater expertise in buying veneers than his local competitors. Even in 2009, because of this great expertise that he had acquired buying veneers over the years, he still personally inspected most of the veneers that Chabros bought. Third, Chabros International Group was on the one hand a wood manufacturer and on the other hand a wood wholesaler. Having such a dual strategic posture gave Chabros an advantage over competitors who were solely manufacturers and competitors who were solely wholesalers. Being simultaneously a manufacturer and a wholesaler gave Chabros strategic flexibility. Being a low-cost wood manufacturer of European wood species, Chabros was able to sell the different kinds and qualities of European wood at lower prices than most of its wholesale competitors. And by being a wood wholesaler, Chabros was able to purchase the non-European wood species from the manufacturers with the lowest prices and compete with the manufacturers with the higher prices. For example, consider the situation where Chabros, as a wholesaler, had the choice to buy veneer from two different American veneer manufacturers. The first manufacturer, because of his distance from the forests, was manufacturing veneer at a cost of $1.50 per square metre and selling it at a price of $1.70 per square metre, whereas the second manufacturer, because of his proximity to the forests, was manufacturing the same veneer at a cost of $1.40 per square metre and selling it at a price of $1.50 per square metre. Chabros bought the veneer from the second manufacturer at $1.50 per square metre, a price equal to the cost that the first manufacturer was incurring to produce its
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veneer. In addition, Chabros received the wood once it paid for it, whereas the manufacturer paid for the trees three to four months before the veneer was available for sale. Chabros, in this case as a wholesaler, had a better competitive position than its manufacturing competitor. Fourth, given Chabros International Group’s size, the company benefited from economies of scale. To serve wider and bigger markets Chabros bought bigger quantities and all the different qualities of wood instead of buying only smaller quantities or only higher qualities of wood (i.e. “A” and/or “AB”). This was because Chabros had higher sales and greater variety in markets that demanded more quantities and different qualities of wood (e.g. selling veneer of “A” quality to the UAE, “AB” quality to Saudi Arabia and Lebanon, and “B” quality to Egypt), which ultimately lowered the cost of wood for Chabros. Finally, according to Chami, Chabros had an advantage over its non-MENA region competitors (e.g. European, American, and/or Asian competitors) in that it simultaneously understood and adapted to its Western suppliers and MENA countries’ customers. This was because the majority of Chabros’s employees were Lebanese and Lebanese people were known to be very adaptable due to their culture, which had emerged as a mixture of their Arabic roots and a French tinge. Lebanese people were Arabs who had been colonized for several decades by the French empire. This made them open to both Western and Arabic cultures. They gained the twin capabilities of being able to understand and adapt to the behaviors of their Western suppliers and speak the language of their MENA countries’ customers, thus facilitating Chabros’s business between the East and West. While Chabros International Group had several competitive advantages it also had some disadvantages. First, being a wood manufacturer sometimes put Chabros at a disadvantage. While being a veneer wholesaler sometimes gave Chabros an advantage over other veneer manufacturers, being a lumber manufacturer put Chabros in the reverse situation and sometimes gave it a disadvantage compared to lumber wholesalers. For example, in 2008, when the euro reached $1.55, Chabros’s Russian supplier was able to sell Chabros’s Dubai subsidiary the same lumber that Chabros produced at its Serbian sawmill at a lower price. This was because Chabros’s Serbian sawmill’s costs and prices were in euros, whereas the Russian supplier’s costs and prices were in U.S. dollars. At that point, Chabros had to cut down on its production in Serbia and sell from its Russian supplier’s/competitor’s production. Second, not having seriously worked on Chabros’s image and brand name somehow put the company at a disadvantage. Thus, while Chabros was operating in seven MENA countries, the Chabros brand name was not very well known in the region, not to mention in its parent country, Lebanon. To grow his company and to increase his profits, Chami followed several strategies. Due to the wood supply shortage that Chabros encountered during the early 2000s, one of the earlier strategies that he followed was acquiring his Serbian supplier, which had not been able to meet Chabros’s sales demands, for $1.4 million and investing another $10 million to expand the sawmill’s capacity so that it could meet Chabros’s increasing sales demands. Another strategy that Chami followed was not to sell large quantities with small margins but rather to provide customers with a greater variety of wood products and qualities so that they could satisfy all their lumber and veneer needs with Chabros, and find the lumber and veneer they could not find elsewhere. For example, while its competitors were selling only 10 kinds of wood (lumber and veneer) Chabros was selling 40, and while its competitors were selling only one or two qualities of wood Chabros was selling three or four.
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A third strategy was expanding into countries with a high demand for European lumber species. This way he could supply these countries with lumber produced at Chabros Serbia’s sawmill rather than with lumber produced by other lumber-supplying/producing companies. By following this strategy, he could sell more of his products at higher margins yet at prices lower than other rival domestic importers. Chami planned to expand into two new countries every year if possible. A fourth and, in Chami’s view, extremely important strategy that he followed was his flexible payment strategy. Chami not only did not ask his customers for any letters of credit (L/Cs), but also offered them flexible payment terms. For example, even if he agreed that a customer paid within 90 days, contrary to his non-MENA region competitors, he did not take any legal action if that customer was one or two or even three months late to pay. Moreover, because he did not ask for any L/Cs, customers were able to ask for different kinds of wood products, sizes, and qualities without going through the hassle of applying for a new L/C or adjusting a previously existing L/C. As a consequence, customers loved to work with Chabros. All these advantages and strategies helped Chabros International Group grow very fast, however, not for very long… THE CRISIS On December 30, 2009, Chami reviewed his company’s end-of-year financial statements. Chabros Dubai’s sales had dropped by 30 per cent and Dubai was Chabros International Group’s largest market! To make things worse, Chami had just invested more than $11 million to buy his Serbian sawmill and multiply its capacity only two years earlier! In 2007 and 2008, 100 per cent of the wood produced by Chabros Serbia’s sawmill was sold by Chabros’s MENA subsidiaries. However, at the end of 2009 Chabros’s MENA subsidiaries bought only 50 per cent of the sawmill’s production! The 2008 global economic crisis created a 2009 Chabros financial crisis! Shocked, Chami went into crisis mode. He had to find solutions and he had to find them fast. He started asking himself: “What to do now? How to control the damage and save the company? How to overcome this financial crisis? Should we close parts of the mill and reduce its capacity to match our markets’ current demand? Or should we, despite the global downturn in demand, try to re-boost sales to match our Serbian sawmill’s excess capacity? If we reduce the mill’s capacity, how much of that capacity should be reduced? If we decide to re-boost sales to match the mill’s existing capacity, how should we do that? Was now the right time to follow such a growth strategy? If we decide to follow a growth strategy, which growth strategy should be followed? Should we follow a market penetration, product development, market development, or diversification strategy (see Exhibit 10 for explanations of each of these different strategies)?” All these and other questions raced through Chami’s head. Chami immediately called his top management team for an urgent meeting. In the meeting he expressed his concerns about his company’s financial situation. He requested that his management team work with him on finding solutions fast. The future seemed uncertain and the team did not know what to expect. However, Chabros had good financial and human resources and had very good knowledge of its wood business. To overcome the current situation, Chami and his team members explored different alternatives. They explored the alternative of closing parts of their Serbian sawmill (they recognized that by closing half of the sawmill they would reduce the number of the sawmill’s employees by half and thus save $400,000 per year in salaries). They looked at the alternative of trying to re-boost Chabros’s sales. They examined the
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different strategies that they could follow if they decided to try and grow the company’s sales. They thought about whether they could increase Chabros’s market share in the countries where it already operated — i.e. follow a market penetration strategy — and if so, which existing markets/countries to penetrate. They contemplated the different countries that they would expand into if they decided to follow a market development or diversification strategy. They gave special attention to Morocco because they were particularly interested in it. Although they did not do a strengths, weaknesses, opportunities, and threats (SWOT) analysis and did not prepare financial estimates for the other potential target countries, they did so for Morocco (see Exhibits 11, 12, and 13). They even asked themselves whether they should change their product mix — that is, focus on lumber more than on veneer, although veneer initially was the core business of the company, or focus on veneer more than lumber. To decide upon a course of action they gathered information related to these alternatives (this information is available in Exhibits 14 and 15). All these alternatives had their benefits and risks. Chami and his top management team had to decide which course of action to follow and they had to decide very quickly.
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EXHIBIT 1: GLOSSARY OF TERMS Wood veneer: In woodworking, veneer refers to thin slices of wood, usually thinner than three millimetres (an eighth of an inch), that are typically glued onto core panels (typically, wood, particle board or medium-density fiberboard) to produce flat panels such as doors, tops and panels for cabinets, parquet floors and parts of furniture. They are also used in marquetry. Plywood consists of three or more layers of veneer, each glued with its grain at right angles to adjacent layers for strength. Veneer beading is a thin layer of decorative edging placed around objects such as jewelry boxes. Veneer is obtained either by “peeling” the trunk of a tree or by slicing large rectangular blocks of wood known as flitches. The appearance of the grain and figure in wood comes from slicing through the growth rings of a tree and depends upon the angle at which the wood is sliced. Lumber: Boards or planks that have been sawn (usually on all four sides) or split from large harvested logs. Though this term is often used interchangeably with “timber,” “lumber” specifically refers to this wood product within the wood-products industry. Lumber appears in a wide variety of end uses, including construction, flooring, paneling, and furniture. Note: Additional information about Chabros International Group can be found on the company’s website: www.chabros.com.
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EXHIBIT 2: CHABROS INTL. GROUP’S SUBSIDIARY GROWTH BY YEAR
Year Office/Subsidiary Location Office/Subsidiary Purpose Country State/City 1969 Lebanon Beirut Headquarters
1998- 1999
United Arab Emirates (UAE)
Dubai Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2001 Kingdom of Saudi Arabia (KSA)
Riyadh Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2003 Serbia Sremska Mitrovica
Import office: Purchased wood from Europe and exported it to the Middle East and financed the Serbian sawmill from 2003- 2007.
2004 Qatar Doha Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2005 Oman Muscat Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2005 Egypt Cairo Sales subsidiary: Cut and sold mainly lower quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2006 UAE Abu Dhabi Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2007 KSA Jeddah (on the sea)
Sales subsidiary: Cut and sold mainly higher quality imported wood (lumber and veneer) usually within the country but sometimes to nearby countries.
2007 Serbia Loznica Manufacturing subsidiary (sawmill): Bought and sawed trees, dried the wood, and exported/sold the different qualities of the wood to the MENA region and Europe.
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EXHIBIT 4: CHABROS INTL. GROUP’S SALES IN US$ (MILLION)
Year Sales 2005 $60 2006 $72 2007 $85 2008 $100 2009 $90
EXHIBIT 5: SALES RANKING OF CHABROS INTL. GROUP’S SUBSIDIARIES IN 2009
Sales Rank Subsidiary/Office 1 Dubai 2 Riyadh 3 Doha 4 Beirut 5 Cairo 6 Muscat 7 Jeddah 8 Abu Dhabi
EXHIBIT 6: CHABROS INTL. GROUP’S PRODUCT CATEGORY SALES IN US$ (MILLION)
Year Veneer Lumber Total 2005 $30 $30 $60 2008 $40 $60 $100 2009 $35 $55 $90
EXHIBIT 7: CHABROS INTL. GROUP’S NET PROFITS FROM SALES (%)
2005 6.0 2006 6.5 2007 6.8 2008 6.7 2009 4.2
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Page 13 9B10M100
EXHIBIT 8: CHABROS INTL. GROUP’S MARKET SHARE BY COUNTRY IN 2009 (%)
Country Market Share Lumber Veneer
UAE 20 >50 Qatar 20 >50 KSA 1 >50 Lebanon 2 >50 Oman 5 >50 Egypt <1 10
EXHIBIT 9: CHABROS INTL. GROUP’S EMPLOYEE DISTRIBUTION IN 2009
Chabros Subsidiary/Office Number of Employees Dubai 180 Loznica 140 Riyadh 70 Beirut 35 Jeddah 30 Doha 25 Cairo 15 Abu Dhabi 10 Muscat 10
Total Number of Employees 515
EXHIBIT 10: DIFFERENT GROWTH STRATEGIES AVAILABLE TO CHABROS INTL. GROUP Products
Markets
Market Penetration (more sales and/or more subsidiaries) Same markets (e.g. same countries), Same products (e.g. same wood products)
Product Development (new products) Same markets (e.g. same countries), New products (e.g. new wood products)
Existing Markets
Market Development (new markets) New markets (e.g. new countries), Same products (e.g. same wood products)
Diversification (new products for new markets) New products (e.g. new wood products), New markets (e.g. new countries)
New Markets
Existing Products New Products
For the exclusive use of L. Zhang, 2023.
This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.
Page 14 9B10M100
EXHIBIT 11: MOROCCO’S (CASABLANCA’S) SWOT ANALYSIS FOR 2010 Strengths • Specialized know-how • Known E.U. quality standards • Capacity to consistently supply the market
with similar-quality products • Moroccans’ positive perception of projects
accomplished in Dubai
Weaknesses • Lacking local relational networks, particularly with
customers and government • Chabros is not known in Casablanca • Chabros does not know which Moroccan customers
are creditworthy and which ones are not; the company does not use letters of credit (L/Cs)
Opportunities • No serious competent local rivals • Big market currently served mainly by imports • High demand for Chabros Serbia’s European
lumber species • Very few sellers of veneer • Morocco is not passing through a recession • Morocco’s currency, the dirham, is pegged to
the euro, similarly to Serbia’s currency, the dinar, which reduced Chabros International Group’s exchange rate risk
Threats • Supply contracts exclusively awarded to historically
well-established suppliers (monopoly) • Possible entry of new foreign competitors • Possible changes in taxes and tariffs • Possible tacit collusion of local competitors
EXHIBIT 12: MOROCCO’S (CASABLANCA’S) FINANCIAL ESTIMATES FOR 2010 (US$ THOUSAND)
Sales $6,000 Cost of goods sold $4,800
Gross profit margin $1,200 Operational expenses $480
Earnings before interest & taxes $720
EXHIBIT 13: MOROCCO’S LOCAL LEGAL AND FISCAL CHARACTERISTICS IN 2010
• Tariffs on lumber are 5%. • Tariffs on veneer boards that are ready to use are 35%. • Tax exemption on profit for the first 5 years, then tax of 30%. • Value added tax (VAT) on lumber is 14%. • Moroccan law guarantees re-transfer of capital, annual transfer of
dividends, and transfer of capital in case of termination. • Capital can be 100% foreign. • Income tax around 18%. • Sales can be made abroad.
For the exclusive use of L. Zhang, 2023.
This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.
Pa ge
1 5
9B 10
M 10
0
EX H
IB IT
1 4:
M A
R K
ET S
EL EC
TI O
N : M
A JO
R E
C O
N O
M IC
IN D
IC A
TO R
S ( 1 )
(2 )
C ou
nt ry
(3
) M
ar ke
t s iz
e:
Po pu
la tio
n (m
ill io
n)
(4 )
G N
I p er
c ap
ita , A
tla s
m et
ho d
(c ur
re nt
U S$
)1
(5 )
W ea
lth o
f c on
su m
er s:
G N
I p er
c ap
ita ,
PP P
(c ur
re nt
in te
rn at
io na
l $ )2
(6 )
Li ke
ly fu
tu re
g ro
w th
ra te
: G D
P pe
r c ap
ita a
ve ra
ge
an nu
al g
ro w
th ra
te 2
00 0-
20 08
(% )
1.
A
lg er
ia
34 ,3
73
4, 19
0 7,
89 0
1. 4
2.
B
ah ra
in
77 5
25 ,4
20
33 ,4
30
*2 .4
3.
Eg yp
t 81
,5 27
1,
80 0
5, 47
0 2.
5 4.
Ira n
71 ,9
56
** 3,
54 0
** 10
,8 50
2.
7 5.
Ira q
30 ,7
11
- -
- 6.
Jo rd
an
5, 90
6 3,
47 0
5, 72
0 2.
2 7.
K uw
ai t
2, 72
8 **
43 ,9
30
** 53
,4 80
*1
.8
8.
Le
ba no
n 4,
19 4
6, 78
0 11
,7 50
2.
6 9.
Li by
a 6,
29 4
12 ,3
80
16 ,2
70
*1 .8
10
.
M or
oc co
31
,6 06
2,
52 0
4, 19
0 2.
2 11
.
O m
an
2, 78
5 **
14 ,3
30
** 22
,1 70
*2
.1
12 .
Q
at ar
1,
28 1
- -
- 13
.
Sa ud
i A ra
bi a
24 ,6
46
17 ,8
70
24 ,5
00
0. 4
14 .
Sy
ria
20 ,5
81
2, 16
0 4,
49 0
1. 3
15 .
Tu
ni sia
10
,3 28
3,
48 0
7, 46
0 3.
4 16
.
U ni
te d
A ra
b Em
ira te
s 4,
48 5
- -
*- 0.
1 1.
G
N I p
er c
ap ita
, A tla
s m
et ho
d (c
ur re
nt U
S $)
: G N
I p er
c ap
ita (f
or m
er ly
G N
P p
er c
ap ita
) i s
th e
gr os
s na
tio na
l i nc
om e,
c on
ve rte
d to
U .S
. d ol
la rs
u si
ng th
e W
or ld
B an
k A
tla s
m et
ho d,
d iv
id ed
b y
th e
m id
ye ar
p op
ul at
io n.
G N
I i s
th e
su m
o f v
al ue
a dd
ed b
y al
l r es
id en
t p ro
du ce
rs p
lu s
an y
pr od
uc t t
ax es
(l es
s su
bs id
ie s)
n ot
in cl
ud ed
in th
e va
lu at
io n
of
ou tp
ut p
lu s
ne t r
ec ei
pt s
of p
rim ar
y in
co m
e (c
om pe
ns at
io n
of e
m pl
oy ee
s an
d pr
op er
ty in
co m
e) fr
om a
br oa
d. G
N I,
ca lc
ul at
ed in
n at
io na
l c ur
re nc
y, is
u su
al ly
c on
ve rte
d to
U .S
. do
lla rs
a t o
ffi ci
al e
xc ha
ng e
ra te
s fo
r c om
pa ris
on s
ac ro
ss e
co no
m ie
s, a
lth ou
gh a
n al
te rn
at iv
e ra
te is
u se
d w
he n
th e
of fic
ia l e
xc ha
ng e
ra te
is ju
dg ed
to d
iv er
ge b
y an
ex
ce pt
io na
lly la
rg e
m ar
gi n
fro m
th e
ra te
a ct
ua lly
a pp
lie d
in in
te rn
at io
na l t
ra ns
ac tio
ns . T
o sm
oo th
fl uc
tu at
io ns
in p
ric es
a nd
e xc
ha ng
e ra
te s,
a s
pe ci
al A
tla s
m et
ho d
of
co nv
er si
on is
u se
d by
th e
W or
ld B
an k.
T hi
s ap
pl ie
s a
co nv
er si
on fa
ct or
th at
a ve
ra ge
s th
e ex
ch an
ge ra
te fo
r a g
iv en
y ea
r a nd
th e
tw o
pr ec
ed in
g ye
ar s,
a dj
us te
d fo
r di
ffe re
nc es
in ra
te s
of in
fla tio
n be
tw ee
n th
e co
un try
, a nd
th ro
ug h
20 00
, t he
G -5
c ou
nt rie
s (F
ra nc
e, G
er m
an y,
J ap
an , t
he U
ni te
d K
in gd
om , a
nd th
e U
ni te
d S
ta te
s) . F
ro m
2 00
1,
th es
e co
un tri
es in
cl ud
e th
e eu
ro a
re a,
J ap
an , t
he U
ni te
d K
in gd
om , a
nd th
e U
ni te
d S
ta te
s. S
ou rc
e: W
or ld
B an
k na
tio na
l a cc
ou nt
s da
ta , a
nd O
E C
D N
at io
na l A
cc ou
nt s
da ta
fil
es .
2.
G N
I p er
c ap
ita , P
P P
(c ur
re nt
in te
rn at
io na
l $ ):
G N
I p er
c ap
ita b
as ed
o n
pu rc
ha si
ng p
ow er
p ar
ity (P
P P
). P
P P
G N
I i s
gr os
s na
tio na
l i nc
om e
(G N
I) co
nv er
te d
to in
te rn
at io
na l
do lla
rs u
si ng
p ur
ch as
in g
po w
er p
ar ity
ra te
s. A
n in
te rn
at io
na l d
ol la
r h as
th e
sa m
e pu
rc ha
si ng
p ow
er o
ve r G
N I a
s a
U .S
. d ol
la r h
as in
th e
U ni
te d
S ta
te s.
G N
I i s
th e
su m
o f
va lu
e ad
de d
by a
ll re
si de
nt p
ro du
ce rs
p lu
s an
y pr
od uc
t t ax
es (l
es s
su bs
id ie
s) n
ot in
cl ud
ed in
th e
va lu
at io
n of
o ut
pu t p
lu s
ne t r
ec ei
pt s
of p
rim ar
y in
co m
e (c
om pe
ns at
io n
of
em pl
oy ee
s an
d pr
op er
ty in
co m
e) fr
om a
br oa
d. D
at a
ar e
in c
ur re
nt in
te rn
at io
na l d
ol la
rs . S
ou rc
e: W
or ld
B an
k, In
te rn
at io
na l C
om pa
ris on
P ro
gr am
d at
ab as
e.
- : N
ot a
va ila
bl e
* D
at a
re fe
r t o
ye ar
s or
p er
io ds
o th
er th
an th
os e
sp ec
ifi ed
in th
e co
lu m
n he
ad in
g, d
iff er
fr om
th e
st an
da rd
d ef
in iti
on o
r r ef
er to
o nl
y pa
rt of
a c
ou nt
ry .
** D
at a
ar e
fo r y
ea r 2
00 7
be ca
us e
da ta
fo r y
ea r 2
00 8
ar e
no t a
va ila
bl e.
S
ou rc
e: D
at a
in c
ol um
ns (3
), (4
), &
(5 ) a
re fr
om th
e W
or ld
B an
k’ s
D at
a C
at al
og , h
ttp ://
da ta
.w or
ld ba
nk .o
rg /d
at a-
ca ta
lo g.
D at
a in
c ol
um n
(6 ) a
re fr
om “U
N da
ta re
co rd
v ie
w G
D P
pe
r c ap
ita a
ve ra
ge a
nn ua
l g ro
w th
ra te
,” U
N da
ta ,
ht tp
:// da
ta .u
n. or
g/ D
at a.
as px
?d =S
O W
C &
f= in
ID %
3a 93
% 3b
cr ID
% 3a
10 0%
2c 10
7% 2c
11 6%
2c 21
% 2c
24 %
2c 29
% 2c
38 %
2c 55
% 2c
57 %
2c 58
% 2c
63 %
2c 67
% 2c
73 %
2c 86
% 3b
tim eI
D %
3a 5&
c= 1,
3, 5,
6& s=
cr E
ng N
am e:
as c,
sg vE
ng N
am e:
as c,
tim eE
ng N
am e:
de sc
& v=
1 . A
ll da
ta w
er e
co lle
ct ed
d ur
in g
A ug
us t 2
01 0
fo r y
ea r 2
00 8,
u nl
es s
ot he
rw is
e st
at ed
o r y
ea r w
as n
ot
ap pl
ic ab
le fo
r v ar
ia bl
e.
For the exclusive use of L. Zhang, 2023.
This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.
Pa ge
1 6
9B 10
M 10
0
EX H
IB IT
1 5:
M A
R K
ET S
EL EC
TI O
N : M
A JO
R P
O LI
TI C
A L,
L EG
A L,
C O
M M
ER C
IA L,
A N
D G
EO G
R A
PH IC
A L
C H
A R
A C
TE R
IS TI
C S
(1
) (2
) C
ou nt
ry
(3 )
Po lit
ic al
sy st
em :
V oi
ce &
a cc
ou nt
ab ili
ty
(0 %
-1 00
% )1
(4 )
Le ga
l s ys
te m
: R ul
e of
la w
(0
% -1
00 %
)2
(5 )
C om
m er
ci al
sy st
em :
Ea se
o f d
oi ng
b us
in es
s (1
-1 83
)3
(6 )
G eo
gr ap
hi ca
l d is
ta nc
e fr
om L
eb an
on
(k ilo
m et
re s)
1.
A lg
er ia
17
.8
26 .8
13
6 3,
30 9
2.
B
ah ra
in
24 .0
69
.4
20
1, 67
2 3.
Eg yp
t 14
.4
52 .6
10
6 92
0 4.
Ir an
8.
2 23
.0
13 7
2, 17
3 5.
Ir aq
12
.0
1. 0
15 3
72 8
6.
Jo
rd an
26
.9
64 .1
10
0 36
5 7.
K uw
ai t
32 .7
70
.8
61
1, 21
0 8.
Le ba
no n
35 .6
26
.3
10 8
0 9.
Li by
a 2.
4 29
.2
- 1,
97 4
10 .
M
or oc
co
27 .9
51
.7
12 8
3, 99
1 11
.
O m
an
16 .8
74
.6
65
2, 39
8 12
.
Q at
ar
25 .5
77
.5
39
1, 75
4 13
.
Sa ud
i A ra
bi a
5. 3
59 .8
13
1,
42 5
14 .
Sy
ria
4. 8
34 .4
14
3 30
6 15
.
Tu ni
si a
11 .5
58
.9
69
2, 42
4 16
.
U ni
te d
A ra
b Em
ira te
s 20
.7
72 .2
33
2,
09 8
1. V
oi ce
a nd
A cc
ou nt
ab ili
ty (V
A ) -
M ea
su rin
g pe
rc ep
tio ns
o f t
he e
xt en
t t o
w hi
ch a
c ou
nt ry
’s c
iti ze
ns a
re a
bl e
to p
ar tic
ip at
e in
s el
ec tin
g th
ei r g
ov er
nm en
t, as
w
el l a
s fre
ed om
o f e
xp re
ss io
n, fr
ee do
m o
f a ss
oc ia
tio n,
a nd
a fr
ee m
ed ia
. T he
0 %
-1 00
% in
di ca
te s
ra nk
o f c
ou nt
ry a
m on
g al
l c ou
nt rie
s in
th e
w or
ld . A
v al
ue
of 0
c or
re sp
on ds
to th
e lo
w es
t r an
k an
d 10
0 co
rre sp
on ds
to th
e hi
gh es
t r an
k.
2. R
ul e
of L
aw (R
L) -
M ea
su rin
g pe
rc ep
tio ns
o f t
he e
xt en
t t o
w hi
ch a
ge nt
s ha
ve c
on fid
en ce
in a
nd a
bi de
b y
th e
ru le
s of
s oc
ie ty
, a nd
in p
ar tic
ul ar
th e
qu al
ity o
f co
nt ra
ct e
nf or
ce m
en t,
pr op
er ty
ri gh
ts , t
he p
ol ic
e, a
nd th
e co
ur ts
, a s
w el
l a s
th e
lik el
ih oo
d of
c rim
e an
d vi
ol en
ce . T
he 0
% -1
00 %
in di
ca te
s ra
nk o
f c ou
nt ry
am
on g
al l c
ou nt
rie s
in th
e w
or ld
. A v
al ue
o f 0
c or
re sp
on ds
to th
e lo
w es
t r an
k an
d 10
0 co
rr es
po nd
s to
th e
hi gh
es t r
an k.
3.
E as
e of
D oi
ng B
us in
es s
- E co
no m
ie s
ar e
ra nk
ed o
n th
ei r e
as e
of d
oi ng
b us
in es
s, fr
om 1
-1 83
, w ith
fi rs
t p la
ce b
ei ng
th e
be st
. A h
ig h
ra nk
in g
on th
e ea
se o
f do
in g
bu si
ne ss
in de
x m
ea ns
th e
re gu
la to
ry e
nv iro
nm en
t i s
co nd
uc iv
e to
th e
op er
at io
n of
b us
in es
s. T
hi s
in de
x av
er ag
es th
e co
un try
’s p
er ce
nt ile
ra nk
in gs
o n
10 to
pi cs
, m ad
e up
o f a
v ar
ie ty
o f i
nd ic
at or
s, g
iv in
g eq
ua l w
ei gh
t t o
ea ch
to pi
c.
- : N
ot a
va ila
bl e.
S
ou rc
e: D
at a
in c
ol um
ns (3
), (4
), &
(5 ) a
re fr
om th
e W
or ld
B an
k’ s
D at
a C
at al
og , h
ttp ://
da ta
.w or
ld ba
nk .o
rg /d
at a-
ca ta
lo g.
D at
a in
c ol
um n
(6 ) a
re fr
om
di st
an ce
fro m
to .n
et , w
w w
.d is
ta nc
ef ro
m to
.n et
/c ou
nt ry
-d is
ta nc
e- fro
m /L
eb an
on . A
ll da
ta w
er e
co lle
ct ed
d ur
in g
A ug
us t 2
01 0
fo r y
ea r 2
00 8,
u nl
es s
ot he
rw is
e st
at ed
o r y
ea r w
as n
ot a
pp lic
ab le
fo r v
ar ia
bl e.
For the exclusive use of L. Zhang, 2023.
This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.
