Big in Japan
It’s time to do some real business.
All eyes, turn East—opportunity lies in the Land of the Rising Sun.
Remaking a Post-war Economy
In hopes of rebuilding its post-war economy, Japan decided to start the Japan External Trade Organization ( JETRO), whose original mission was to promote the export of Japanese products to other countries. However, the massive trade surplus witnessed by the Asian giant in the 1980s instigated a change of direction in its trade strategy; Japan now became interested in promoting the export of other countries’ into Japan. JETRO’s new mission thus became assisting foreign companies to export their products to Japan.

But promotion isn’t simply about marketing foreign products in Japan; JETRO goes the extra mile to facilitate everything and anything possible for those interested in exporting their products to Japan. Subsidies are offered to potential companies, consultants are sent abroad to advise them as to how to improve their production methods, as well as the qualities of their products, offices are provided free of charge for up to four months while doing research in Japan and exhibition space is made available for those ready to display their exportable products to prospective Japanese importers.

So why is Japan being so nice? Believe it or not, it’s actually in the country’s interest to do all of this. One of the major goals Japan seeks to attain is increasing foreign direct investment (FDI) as part of its economic restructuring plan. But there’s also a particular interest for Japan in the Middle East—87% of its oil is imported from Arab countries. Strategically speaking, Egypt is the most important area for Japan in the Arab World, (the very first JETRO office opened in Cairo in 1955, before the official opening of JETRO’s Japan office in 1958). That’s why JETRO’s role in Egypt is pivotal—strong economic ties means amicable political relations as well.

“Japanese imports into Egypt for 2000 totaled US$ 740 million—that’s down 20% from 1999. Egyptian exports to Japan for the same year amounted to US$ 157 million—up 20% from the previous year. And there’s room for more growth. Egypt already exports oil and oil products, raw cotton, textiles and ceramics to Japan. But at the rate Egyptian businesses are privatizing, a lot more can be exported. Given the proper guidance, Egyptian companies just might strike gold if they tapped into the Japanese market,” remarks Mr. Tadashi Koitabashi, JETRO, Cairo’s Managing Director.

And you don’t have to be big to be successful. In fact, Koitabashi is quick to point out that small and medium enterprises are just the segment that JETRO is targeting to help get their exports to Japan. Depending on the company’s needs and/or industry, JETRO opens a plethora of channels, ranging from Japanese contacts to consultants to investors. “Small and medium-sized companies don’t have the resources to go to Japan, find contacts and exhibit their products; that’s what JETRO is here to help them do. We provide them the opportunity to build the quality of their products to Japanese standards, thus making them not only exportable to Japan, but to anywhere in Europe, the States and many other nations. Japan’s standards are international standards—when you can sell to Japan, you can sell to the world.”

A Match Made in Heaven
It all boils down to ‘matchmaking.’ “We’ve designed a website that allows Egyptian companies, as well as other Arab ones, to search for Japanese counterparts that may be interested in importing their goods. All the company simply needs to do is register itself on JETRO, Cairo’s website. Upon finding a contact in Japan, JETRO offers these companies free access to a ‘Business Support Center,’ that functions like a full fledge office, free consultancy and research facilities. More than 30 Egyptian companies have already registered with us, and are in the process of getting ready to export to Japan.” The website designed by JETRO, Cairo is one of the latest schemes of the organization’s Trade Tie-up Promotion Program (TTPP), which ‘matchmakes’ Egyptian and Japanese companies interested in investment, trade, technology transfers and/or joint-ventures. Aside from Egyptian companies that have registered on the website, 40 additional companies are already participating in the TTPP.

The key to doing business in Japan is finding a counterpart who knows the market—who knows what the market wants and how they think. That’s the core of matchmaking. Through finding a Japanese counterpart, Egyptian companies are provided with consultants, an extensively large market is made accessible and a variety of benefits are reaped, such as increased technological know-how and potential joint ventures, both of which enhance product quality and overall company performance. “For instance, joint-ventures between Thai and Japanese companies kept many Thai companies afloat in 1997 when the Baht fell drastically and Thailand’s economy collapsed. Thai companies engaged in joint ventures with foreign companies were left abandoned, but the Thai companies that were in involved in joint ventures with Japanese companies survived.”

It’s basically a no-cost chance to make money, manufacture a higher quality product and expand into a new market. So why haven’t more companies in Egypt gotten involved in exporting to Japan? “Businesses assume that it’s too hard, that the distance makes it difficult and that there are no mutual trade interests between Japan and Egypt. This could not be further from the truth. One of the largest consumer markets makes Japan ideal for any exporter. Although the quality standards of the Japanese are among the toughest to meet, nevertheless, meeting those standards is achievable—even by small Egyptian companies.”

A Foreseeable Future
The list of exportables is endless—Japanese importers are interested in just about anything. Many Egyptian companies involved in food processing, textiles and fertilizers have already begun to approach the Japanese market. Egyptian companies producing herbs, jams, and ceramic are only some of the export success stories. In fact, Egypt-Japan trade relations look so bright that newer projects and ventures are underway. “There is even a study underway for the possible export of Egyptian-made automotive spare parts to Japan. In order to make the Egyptian auto industry more competitive, JETRO is trying to do what it can to provide automotive component parts support.”

The success that JETRO has met so far has prompted Dr. Atef Ebeid to pursue creating an Egyptian version of JETRO. The Egyptian Export Promotion Center and JETRO have already sent a joint draft of the concept for the Minister of Economy’s approval. If Egypt does embark on creating an Egyptian JETRO, however, it’s going to take more than the government’s backing; it’s going to take a change in business practices to a certain extent. “The Japanese are criticized for being over-concerned in studying business plans for a potential project; they might quote higher cost estimations and negotiations seem to take longer than usual. But, the irony is that, others who may implement a similar project quicker, end up with the same higher cost estimations that the Japanese businessman may have arrived to initially. Thus, there are more negotiations. So it all amounts to the same thing really, weather you are doing business with the Japanese or anyone else.”

As for the Japanese investing in Egypt, there are a few obstacles that first need to be overcome. Distance is perhaps the greatest natural barrier, but even in the face of such an obstacle, the Japanese may turn their eyes westward, if Egypt proves itself capable of manufacturing goods that meet Japanese standards. “It’s too expensive for most Japanese companies to produce in Japan, so they open factories in Asia. But if it was more cost efficient here, and the quality was up to Japanese standards, you might find more Japanese businesses investing in the Middle East.”

BOX

Interested in marketing your product in Japan? Well, you may just be four steps away.


1. STEP ONE: Register your company online at JETRO,Cairo’s website, and access numerous Japanese counterpart importers that may be interested in your product.

2. STEP TWO: Apply and request to be sent to Japan to follow with potential Japanese importers, gaining access to JETRO’s ‘Business Support Center’ facilities, free of charge for up to four months.

3. STEP THREE: Have a consultant in your field of industry sent to your facilities, advising you as to how to improve the production methods of your product and the quality of the product as well.

4. STEP FOUR: Once you have made the necessary adjustments and your product meets Japanese standards, you can request free exhibition space in Japan, in order to show your product to interested Japanese buyers.


Doing Things the Japanese Way
We’ve imported their products, but here’s one company that’s importing their thinking.

Toshiba is the international icon of electronics, in as much as McDonald’s and Coca Cola are the global icons of the fast food and soda pop worlds. But such icons no longer are limited to multinational bigwigs; there’s a new star on the horizon that’s homegrown—a new star that is set to be the icon of the Arab World and beyond. Mahmoud El Araby, founder and chairman of El Araby Group, has taken what was essentially an import business, turned it around into a Toshiba-licensed manufacturing company and has expanded it to even produce his own brand name electronic appliances.

El Araby did all of this on his own. No bank loans. No financing. No outside investors. It was his sweat, his money and his vision that got El Araby Group where it is today.

Mr. Ryoj Ikeda will testify that El Araby Groups’s operations are among the most impressive he’s seen so far. As General Manager of the Toshiba Gulf FZE Cairo Representative Office, Mr. Ikeda has spent the last three years overseeing Toshiba’s manufacturing here in Egypt, which has been solely licensed to Mr. El Araby’s company. “The quality of the products manufactured under El Araby is on par with Toshiba products made in Bangkok, and even better than those manufactured in Indonesia.” That’s pretty impressive if you consider that Toshiba’s Bangkok quarters exports its manufactured goods to a highly selective and discriminative Japanese market.

Though El Araby Group has no current plans to export to Japan, the reasons are due more to the state of Egyptian industry more than to the inability of the company to manufacture appliances that are exportable to Japan. As Mr. Ikeda points out, “Egypt is lacking in robust feeding industries. For instance, home appliances require galvanized steel and aluminum; on the other hand, in Thailand and Indonesia, you’ll find a steel industry capable of providing better quality steel than in Egypt. That affects the overall quality of production, which tends to be inconsistent. Quality and quality control is everything when you talk about manufacturing goods that are to be exported anywhere, but especially to Japan.”

However, El Araby Group has overcome the obstacles of Egyptian industry, producing topnotch caliber appliances that will even be exported to a number of COMESA (Common Market of East and South Africa) countries. The question anyone reading this can’t help but ask is, in spite of the hurdles and hardships, how did Mr. El Araby single-handedly achieve this?

You Can Do Anything If You Put Your Mind to It
The year was 1974. That was when it hit Egypt—privatization. Sadat’s famous ‘Open Door Policy.’ Suddenly, the private sector was revived and investors enlivened. El Araby began to search for Japanese companies interested in exporting their goods to Egypt. “Toshiba was interested, but like all Japanese companies, they had to first do extensive research on the Egyptian market first. In 1975, we began to import Toshiba products—primarily fans, television sets and video recorders. A year after doing business with them, Toshiba then invited me to visit their operations in Japan.”

That ‘pilgrimage’ would forever change the way Mr. El Araby’s envisioned business. “I was impressed with what I saw—the size and volume of their factories, the efficiency. All of a sudden, I felt small. What is it that I was really accomplishing in my country? Was I importing? So what. Why shouldn’t I start to manufacture in Egypt as well? I returned to Egypt on a mission—I was determined to begin manufacturing Toshiba’s electronic appliances right in our own land.”

Using his own capital, Mr. El Araby bought some land, writing it off as an investment. If his pet project didn’t take off, he could always sell the land. Second on his list was the construction of a manufacturing plant. “We decided to start modestly, building enough facilities to initially produce fans. Since at the time, we were importing about 50,000 fans, we made that number our own production target as well.” His first year of production, however, was more ambitious than planned. Sixty thousand fans were produced, all of them up to standards of their imported Toshiba counterparts.

As far as meeting production standards, El Araby Group proved itself to be a first class operation. The real challenge, though, lay ahead. Mr. El Araby now faced the task of building consumer confidence in his own Egyptian made product. “We took the imported Toshiba fans and placed them side by side the Egyptian made Toshiba fans in all the shops. The locally produced fans cost 25% less, but were exactly identical in quality, the sole difference being the ‘Made in Egypt’ tag.” In order to entice his buyers, Mr. El Araby, in all confidence, offered a five year warranty, rather than the usual one year warranty, on his Toshiba Egyptian made fans.

The net result? People who were buying the imported Toshiba fans found they had nothing to lose by buying Egyptian made Toshiba fans, since both were under a fully guaranteed warranty anyway. The services offered under the warranty were no less in quality than El Araby’s appliances. “We provided full-service maintenance, equipping each truck with a generator so that if the power at a customer’s home was out, we could still fix the fans in the truck. Our engineers were also trained professionals, who had all necessary spare parts on hand and were even instructed and taught not to accept any tips from our customers.”

As Good As It Gets
Originally, 40% of El Araby’s ‘Egyptian made’ Toshiba fans were locally produced; the remaining 60% of the parts were imported. Mr. El Araby could have still cut a profit, while qualifying for discounted import tariffs if he continued producing at least 40% of the components for his fans here in Egypt. Yet, because Mr. El Araby is always striving to do better than he already is, he jacked up operations and equipped the plant to handle manufacturing 75% of his fans’ components. “We reinvested in the plant, adding more land, infrastructure and machines. By 1984, we were also producing other appliances—including televisions, radios and video recorders. Only then was I able to truly claim that we too had become to be similar to the Japanese plant I visited only eight years earlier. We weren’t just importers anymore; we were now manufacturers in Egypt.”

The formula is simple—according to Mr. El Araby. “It took manufacturing a quality product, at an affordable price, with the proper support and maintenance to back it up.” It also took some patience and wise money management. “We got into the manufacturing of appliances after being appliance importers, and thus fully learned about the electronic appliance business inside out before getting directly involved in it. It took a few stages before we got to where we are now. Today, 95% of the components of our Egyptian made Toshiba products are produced locally, at El Araby’s plant.”

The most challenging of parts on which El Araby won Toshiba’s approval to produce locally was the motors installed in its Egyptian made fans. Up until 1990, El Araby imported its fans’ motors. However, the ambitious Mr. El Araby decided to endeavor in producing the motor in his plant. “We had to be able to make a motor that could run continuously for 5,000 hours, or six months. But when we ran the test motors we produced on generators in the plant, we found them powerful enough to run two full years without stopping once.”

Reaping the Benefits
Being associated with a name like Toshiba, Mr. El Araby has found, opens doors for what some may consider the impossible. But, creating local manufacturing operations that are on par with Japanese standards, has meant personal success for El Araby himself. “We are now branching out and manufacturing electronic appliances under the El Araby Group’s own label, sourcing our technology from a company in Hong Kong.” Strategic outsourcing of technology has given El Araby an edge in planning the production of his own brand name products. “We can’t afford here in Egypt to spend money on R&D; Japan spends about US$ 9 billion per year. Where would we get the money to do that?”

Mr. El Araby, similarly to the Japanese, has kept business in the family—all of his sons are involved in various aspects of the group’s operations. “The shares of the company are distributed equally among all of us.” He hopes that his grandchildren will also take interest in coming on board, eventually running the company as the next generation of management. When all is said and done, Mr. El Araby is working to accomplish his ultimate dream. “The Toshiba Corporation started 125 years ago with one employee. Today it employs 180,000. I hope, that in 125 years, El Araby Group achieves the same.”

Japan’s Six ‘S’’s
Management style in Japan isn’t just a method—it’s an art. Here are the six ‘S’s’ by which all successful Japanese companies manage operations.

1. Seiri. Organization—eliminating the unnecessary and keeping things as simple as possible.

2. Seiton. Straightening up—running things with order.

3. Seiso. Keeping a clean plant and facilities.

4. Seiketsu. Maintenance—ensuring that the plant and facilities are in tiptop condition.

5. Shitsuke. Adopting rules—and more importantly, observing them.

6. Shukan. Good habits—ensuring that workers develop productive and healthy customs.

How Sweet it Is…Vitrac’s Got Japan Eating Jam
Successfully exporting its products to Japan, Vitrac hasn’t only been able to penetrate the Japanese market, but it now accounts for supplying 20% of the market with its jam.

It started with an idea to take advantage of Egypt’s surplus food products, providing the local market with processed fruit products, eventually tapping into foreign markets soon after. Today, it’s ended up to be one of Egypt’s leading exporters of processed food stuffs. Reaching out to Australia, the United States and Canada, only to name a few, Vitrac has made a name for itself, not only in Egypt, but globally as well.

Starting Off on the Right Foot
“We basically thought that processed fruit products were ideal for both the Egyptian market and as a potential export—processed fruits would, after all, be infinitely easier to export than fresh fruits,” explains Mounir Abdel Nour, founder and Chairman of VitracEgypt. “So we approached a leading French company, Vitrac, that produces jam, and utilized their know-how and technology to produce the same quality jam here in Egypt.

Vitrac remained a joint French-Egyptian venture from its beginning in the early eighties well into the middle of the decade, when the French sold their shares in 1986, making Vitrac a 100% owned and operated Egyptian company. “But we actually started exporting before that—in fact, in 1983 we had sought out the ‘obvious’ markets in which we might be more successful, such as the Arab markets, and Saudi Arabia in particular.” Between 1983 and 1986, the volume of Vitrac’s exports was limited, but nevertheless increased steadily due to a devaluated Egyptian Pound. “Then, in 1987, we received requests from Egyptian expatriates in Australia to export some of our Jam there. By 1990, our exports to Australia rocketed, and Vitrac had come to dominate the generic jam market in that country, offering consumers quality jam at competitive prices.”

It was in Australia that the Japanese became familiarized with Vitrac’s products. Importers from Japan were so impressed with Abdel Nour’s product, that they began requesting him to export to Japan as well as Australia. “I have to admit—I was skeptical in the beginning. After all, Japan isn’t exactly one of the more obvious markets when one thinks of exporting his product. It also seemed like a difficult market to enter. But, to my surprise, I found out that all of this was further from the truth than I believed.”

Why wasn’t it so impossible to export to Japan? Well, freight costs are not as hefty as one may guess them to be. “Freight traveling from the East to the West costs a lot, as many companies vie to send their products to westward markets. On the other hand, because most freighters going back to the East are relatively empty, they offer lower prices to those interested in exporting their products to the Orient.” In addition to relatively low freight costs, the size of the market is grossly greater than we in the Middle East suppose it to be. “There is potential to export in volume—something which any exporter could only dream of. In June 2001, we exported 42 containers to Japan—by the end of this year, we would have exported to Japan alone an average of 4,200 tons of jam.

“And because the cost of living is generally higher in Japan, exporters can sell their products in the Japanese market at higher prices than in other parts of the world.” That one proof that, although places like the United States are considered ‘volume’ markets, while the Japanese market is more of a ‘quality’ market, there is potential for exporters to turn Japan into a volume market, if they properly approach it. What makes it even more worth approaching is that the Japanese market is more open to a variety of tastes than other obvious markets. “Especially in the food sector, Japan is more willing to accommodate an array of products. Even more so than Europe, for example.”

Of course, Abdel Nour admits that Vitrac did have to adjust its products to meet the precise taste and unusually particular standards of the Japanese market. But it wasn’t as difficult as one might think. “The Japanese don’t treat products simply as a commodity; they really get involved with all aspects of the product—from its manufacturing to its packaging, suggesting ways to enhance everything related to the product. They send technicians to factories to study how the product is made and what needs to be modified or done differently. As a business, it was a good exercise for us. We profited a lot from this—this not only improved our exports to Japan, but to other markets as well.”

A Long Term Winner
Abdel Nour is reaping the rewards, in more ways than one, of his decision to export to Japan. “First of all, the average cost per unit of manufacturing our products has fallen, even though production has increased. This goes back to what I said earlier—you have a large volume market with a relatively higher purchasing power. Second, it has generated much needed foreign currency for the company—something which is essential in importing raw or intermediate materials and machinery we use in our operations. Third, we are constantly upgrading our facilities, at the advise of our Japanese consultants, which means improved production methods, cost efficiency and a better product.”

Other avenues have been opened to Vitrac since its begun exporting to Japan. “One of the most popular jams we export to Japan is our blueberry jam—blueberries are very big in Japan. So the Japanese imports with whom we work facilitated us importing blueberries from Canada to use in manufacturing Vitrac blueberry jam. Without the Japanese, this could not have been made possible.” The assistance that such Japanese importers, as the one who works with Vitrac, is not unusual in Japan; their business culture espouses a commercial relationship with partners that is cooperative, helpful and reciprocal. “The relationship with a Japanese importer isn’t only about business; they make an effort to develop a very friendly and trusting relationship. Trust is something that the Japanese highly esteem. As long as you are upfront with them and stick to your word, business with them won’t only be profitable, but it will be pleasant.”

What advise can Abdel Nour offer others interested in exporting to Japan? “Look, as long as you are serious, committed to timing, make the effort and have the financing to manufacture your product to be in line with Japanese standards in terms of quality and taste, the returns are enormous, really. The sheer size of the market means volume; the high standard of living of the population means high purchasing power; and the willingness on behalf of the Japanese to provide the necessary technical assistance means overall product upgrading.” Though the Japanese are meticulous and require solid facts and research to be convinced of any business moves, even necessitating studies that predict possible complications that might be met along the way in embarking on such business ventures, once they have confidence in their partners, they are more than cooperative. “I cannot stress how much trust figures into the equation in the relationship with Japanese businessmen. Earn their trust you earn their confidence. Earn their confidence, and you earn everything.”

Are there any potential future joint ventures with the Egyptian company’s Japanese partners, given the success that Vitrac has so far met? “Well, none have emerged as of yet, but one of our Japanese importers is thinking of relocating his production facilities, and I believe he may even be contemplating importing our jam to produce under his brand name, with the future prospect of shifting all production of his jam to Vitrac’s factory in Egypt.”

What opportunities does exporting to Japan offer Egyptian companies? Well, for Vitrac, its offered market, money and more manufacturing of his products.

Reduced average cost per unit. Though production increases, costs are lower, because you sell in volume and at more competitive prices.
Foreign currency income. More exports means accessing foreign currency that can be used to purchase intermediate and raw materials required for manufacturing exports.
Tapping into a ‘gold mine’ market. Though many already export to places like Saudi Arabia, the US, Libya, Kuwait, Africa, Greece and Italy, Vitrac can vow that Japan hasn’t only become its most important market, but its largest as well.
Product upgrading. Because as business partners, they do immerse themselves in all aspects of the product and its manufacturing, the Japanese are excellent in consulting with companies, advising them as how to best enhance their product.
Technological Assistance. Product upgrading translates to include expansion of production facilities, cost efficient production methods, using the most up-to-date technical machines.