Logistics in Emerging Markets
Monday, 23 April 2012 15:39

Interview with Tarek Sultan, Chairman & Managing Director of Agility

Mr. Tarek Sultan, Chairman & MD of Agility

Let's start with the latest report by Transport Intelligence which was sponsored by Agility. The report addresses global economy uncertainty, political turmoil and the deemed attraction of emerging markets, which is a sign of their dependency on developing markets. This is basically a decoupling theory. What is your take on this? What is your futuristic view of the emerging markets being new trade hubs of the future?

I think it's no longer a theory; it is a fact that emerging markets are gradually decoupling themselves from developed economies. They are growing more quickly and appear to have more resilience. I think we should be tied to emerging markets. There are some challenges in many developed economies; however, the emerging markets should continue to enjoy robust and consistent growth.

Moving on to the logistics sector, what are the future trends in the global logistics? Are emerging markets going to be the future players in logistics?

We are going to see emerging markets continue to dominate the trends going forward, with respect to logistics. Logistics in Emerging MarketsTrade lanes between emerging markets and regions, such as the Middle East, and countries like Brazil and China. A few years back, maybe those were not so developed, but they are really starting to come into their own. We are going to see emerging markets continuing to grow and in some instances, there might be some countries which will overpass the more developed markets in logistics. Also, regions like Mexico and Southeast Asia are becoming platforms for doing things closer to home. So these are some trends that will persist over time. Actually, they will become more pronounced in the next two years.

And with regards to competition? Agility is now one of the leading players in the logistics industry. Do you see any raise or arrivals of companies in the logistics sector? Maybe some companies from China?

There are always new companies that are developing, especially in the emerging markets. One of Agility's differentiators is that we have platforms in 120 countries. It is not easy to develop the scale and the platform needed to sustain competitiveness in supply chain. There are regional and local examples of companies that are becoming strong in their markets and I think it is very difficult for them to establish the sort of platform that is needed.

Agility is not only in logistics. You are providing a vast portfolio of services: e-governance, custom optimization, consulting, etc. How would you describe your strategy for the next five years? What areas would you like to exit or enter? Do you see any opportunities?

First and foremost, we are a company that has grown out of emerging markets. Among the top 10 of logistics companies, we are the only one with such a background, which helps us understand emerging markets and interpret them for our customers in a more realistic and accurate way. Going forward, I think companies will try to get their new business opportunities from emerging markets. This is the kind of strategy that we are going to stick to, that we will focus on and that is important for our customers, who are also looking to expand in a world that is being consistently constrained by growth. That is one part of our strategy.

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Emerging markets are all more complex than developed markets, with the exception of a few countries like Singapore and Dubai. Kuwait is one of those countries where we have a little bit more complexity than we should for a country of our size.

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When you are doing business in emerging markets, it is important to look holistically at the opportunities that come your way. We have already made significant investments in building our infrastructure in emerging markets - notably the Middle East, south Asia and China, and increasingly so in Africa and South America. Our focus now is to grow the company organically. Over the past 10 years we have spent over $3 billion dollars on our network – this has given us our unique positioning globally to best serve our customers.

What is the role of your Kuwaiti operation? What is the percentage of the business that Kuwait represents?

Kuwait is an important part of our overall platforms and is ideally situated to take advantage of opportunities in Iraq. We have a well-established banking sector here. The communications to-and-from the country are quite well-developed. It is a natural place of business for the Iraqi market. It makes sense when we are only an hour and a half drive from investors. So I think that in the future, Kuwait is going to be a great place to do business, if you are looking to capitalize on Iraq as an opportunity. There are new ports that are being developed by the government, projects that are a couple of years away from being finished which are part of the larger strategy adopted by the government to facilitate trade between the two countries. Logistics in Emerging MarketsA large part of the value proposition of that port is focused towards the Iraqi market.

But there are also other countries that are trying to do the same like Saudi Arabia or Aqaba in Jordan. What makes Kuwait different? How do you fit into that yourself?

There are two ways I can answer that. First of all, all governments are looking to differentiate themselves with the overall package of services they can offer to investors. One thing that Kuwait has and that cannot be easily replicated by other countries is its geography. It is the northernmost point of the Gulf and there are historical ties and very close links to the Iraqi market. Having an established banking sector that is recognized as one of the most stable in the Middle East and having a developed legal system are also important to any international investor that might be looking to base its business here for Iraq. That is how Kuwait has the advantage over its neighbors.

Having said that, however, as a global company, it is very important for us to have a solution or platform that can address the Iraqi market from different perspectives. We also have a strong presence in Turkey, which is ideally situated to serve the northern markets in Iraq. We have a strong platform in Jordan, too – in Aqaba. We also have operations at the airport and extensive housing and logistics capabilities in that market. And, we have very well-established presence in Saudi Arabia. To give you an example of how we approach our business, we are able to address a market like Iraq through a platform that is well-established in emerging markets, but also developed markets such as the United States. You might ask what the relevance of the U.S. to a market like Iraq? Well, the future of Iraq lies in gas and investments related to that industry. Having a well-established business in project logistics and the ability to source things like pipes and valves that are relevant to the oil and gas sector is something that is going to be required in the Iraqi market. This gives you a good idea of how we would leverage our capabilities to be relevant in Iraq.

One of the things that sets you apart from others is that you don’t just talk about corporate social responsibility; you also actually do something about it, unlike some people who pretend to take action but who do not persuade the people. Where does this vision come from? Did you acquire it during your studies in the United States? Does it come from you?Logistics in Emerging Markets

Sometimes, it is not clear how an idea sort of develops.One characteristics of our company is that we do business in 120 different nations.We are present in emerging countries where natural disasters tend to happen. Whenever something like that occurs, we have people on the ground in the countries that are the most heavily impacted - like Pakistan, Indonesia, the Philippines and China. At the end of the day, we are one of the few companies which has people on the ground and who are impacted by these events. So I think that it is important for us to reach out to our own people in times of need, but we also thought we had a unique opportunity to do something special for the world humanitarian organizations by leveraging what we do best: logistics on the ground. An entity like the UN cannot and should not be present in any country at any given point in time. That would be a waste of resources. We have the network, distribution and warehousing needed by the UN. Having that capability and leveraging it for the global humanitarian communities is something that comes naturally to our company and it is something that we believe in.

Another thing that helps our culture is that we have gone through a number of acquisitions over time. Around 50 companies have been put together in a short time. Having a common identity and being able to work together on various difficult assignments is something that is really important to our brand. Our customers are looking for a company that is able to operate in different environments, so we need to be able to do that.

Now, I have a financial question for the investor community. How do you see your performance money-wise? Is it your biggest challenge going forward? Is it a concern to you?

Our company is very fortunate in that regards. If you look at our balance sheet, at the net value of cash that we have, we are in a situation where the company has little or no debts. We are in a healthy place to be, especially with the turmoil that we have seen in the world's financial markets. Of course, financially-speaking, we always like to do better. We are fortunate that we have very substantial revenue base - close to $5 billion, but we are always looking for ways to make our business more profitable and efficient. I think we took some really important steps last year and 2012 will be increasingly important to us. Logistics in Emerging MarketsOur focus will be on our core platform and business. We are not looking to acquire new companies, but rather to optimize and improve what we have. This is healthy and our place to be. We do things very quickly as we had in the past. We always have time to go back, tighten the screws and make things work as well as they should. Now, with the way growth has slowed down in the global economy, it is an opportune time for us to look into our business and make it more efficient for our shareholders.

In 2012, we have planned to improve our own business by focusing on our core business, by focusing on important tech initiatives that are designed to make our company more user-friendly to our customers and, at the same time, more efficient.

What is the main challenge of the company internally and externally?

Being a global logistics company, our platform covers 95% of the global GDP. Therefore, anything that affects the global GDP will affect our business. One of our major challenges is global growth and therefore, there are risks coming from Europe and even the U.S. Also, emerging markets tend to have better than average growth rates and tend to be dynamic from a political perspective, which is very clearly demonstrated through the Arab Spring. On balance, these emerging markets will be better for our customers as well as for our shareholders. In the long run, there will be development because there is a lot more work to do. In spite of the strife and some of the things that happened in the Middle East, people still need to consume food, they need medicine. There is a substantial opportunity for logistics to be a part of value proposition for any company which is looking to do business in these exciting markets.

You have done business in many places. When you compare Kuwait to other countries, what are some of the difficulties here?

To be honest, by definition, emerging markets are all more complex than developed markets, with the exception of a few countries like Singapore and Dubai. Kuwait is one of those countries where we have a little bit more complexity than we should for a country of our size. Having said that, countries of the Middle East have become a uniform region. Saudi Arabia, for instance, has made remarkable improvements in being friendly and easy to establish business in. We are seeing countries in the Gulf gradually moving in the direction of being easier places to do business. Kuwait has taken some steps but there is still a lot of work to do. We cannot say that we are there yet, but at the end of the day, our customers need solutions to do business in countries where it is more difficult. Agility has a lot more value to add in emerging markets where it is difficult to do business than in a developed market where it is quite easy.

How do your potential customers choose logistics companies? Why do they choose you and not some other logistics company?

Two things make a big difference. First, there is the ability to engage the customer in a one-to-one basis, to treat them as unique and work with them on a very personal level, which we do very well. Second, our platform in emerging markets truly differentiates us. By being present in those countries and understanding them, we are able to offer a more consistent solution in the most interesting markets that are going to be yielding the most economic growth.

 
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