Bahra Cables: One of the Largest Cable Companies in Saudi Arabia

Interview with Talal K. Idriss, CEO of Bahra Cables

How easy is it to do business in Saudi Arabia and what are the difficulties that investors or people in general face? What are the obstacles? Could you also illustrate some of the funny things that happened to you? Anything that would shed more light on doing business in Saudi Arabia?

How easy is it to do business in Saudi Arabia? Basically, once you get the knack, you are in it for life. It is always difficult at start. I wouldn’t recommend somebody to jump into starting business immediately. I am talking about foreigners. Of course, if you are a local, you already know your way around. It is a very competitive, open business environment, provided you have all the requirements of any business anywhere in the world – the right offer, the right price, the right quality. That’s the same anywhere else.

Here of course, succeeding in business goes by the same factors. I believe that if you are a local, if you meet the required prerequisites, you will have a pretty straightforward business life. If you are a foreigner, it is a whole different ball game. You have a lot to learn. That would take years to perfect.

Can you list some of the most difficult aspects of doing business in Saudi Arabia?

The most difficult element in any business is to find the right people. If you have a large operation like us, being lucky enough to find a series of good people is the biggest challenge. After that, it is the financing to put it together. I also find execution the most difficult thing to do. You might have the greatest idea, the best financing, all the good concepts, but you fail to execute.

That’s a people business. Execution is related to people, nothing else. So again, we go back to the availability of the right people as the key ingredient in a successful company in Saudi as well as anywhere else in the world.

What is the outlook for the economy? We see a lot of major projects that are being built, being planned for. There is also a change in the administration. I am sure the new administration will be keen on pushing some big projects of their own. So, what is the general outlook of the economy of the construction sector in particular?

You know that oil lost 50% of its value, but you don’t see the effect in the market, the stock market or in the real business environment. That gives you an indication that the mood is very upbeat.

If a business that loses 50% of its value and remains buoyant, it is a clear sign that things are really optimistic.

There is a lot of optimism about the new king, there was always an optimism about our past king. I think the message will continue. I think the idea that the second generation is more or less in line is a very reassuring thought. People are much more at peace now, now that they know that there is a very nice and smooth continuation of the good things. I think the people picked so far are young, active and aggressive. Therefore, the mood is up, very much so.

Many people speculate that something similar happened in the 80s has recurred and the whole oil-prices issue has resurfaced. Do you think that might happen?

The situation is very different. At that time, there were no reserves like there is today. Now, we have a three quarters of a trillion dollars of reserves, which can help us wait it out. So, I don’t think that there will a recurrence of what happened in the 80s. Because the situation is totally different. We continue to invest, to grow, to build factories and we are not the only ones, everybody else is also doing it. So, I don’t think there is any possibility of that happening.

The Bahra Cables is one of the largest cable manufacturing companies in Saudi Arabia. It is an important element in the diversification strategy to not only to rely on oil and gas and petrochemical industry, but also to go into manufacturing and perhaps into exporting by creating local brands with good technology, good production. Did you see any industrial development such as your factory and manufacturing as a response to the diversification issue?

Yes, Saudi Arabia has a huge capacity to produce cables, much more than what Saudi Arabia needs. That extra supply is going into the GCC, Africa, going all around. There is a huge drive. We have one recent contract in Iraq, in Nigeria, in Ghana and of course in GCC, but we do that on a daily basis. So, around the world, the Saudi Arabia cable manufacturing industry represents about maybe 3% to 4% of the whole cable manufacturing, which is much more than what Saudi Arabia should represent.

Saudi Industrial Development Fund (SIDF) is a huge asset helping companies like ours and others grow and expand and export. It is helping us to balance out the oil exports and to just tweak it a bit into a multi-diversified natural economy, which is what the government wants to have and which is a stable solution enough to be dependent on a single source, knowing that something just dropped by 50%.

I think we are all aligned into making that happen. The companies, the government and the funds are all looking at that growth and Saudi Arabia has a tremendous potential for growth. I think there are some products that Saudi Arabia can compete with China on. It is a great place to do something of that nature. The resources are cheap, the labor is reasonable, the environment is great and the government help is abundant. All you need to do is get on with it, really.

What are these sectors that could be remarkably more competitive than China?

Good question. Chinese bid against us for cables in the government tenders. They haven’t won anything since Indians bid against us. We are usually 30% cheaper than Chinese bid for cables. It is not like 2% or 3%. That’s one thing, that’s our business, that’s what we know. If we look at other items in our electrical business, because Bahra Cables is slowly becoming Bahra Electric.

We are expanding beyond cables into switchgear, transformers, busway and so on. We feel that we can compete with those numbers. The result is that no Chinese or Indian companies have ever won a serious tender in Saudi Arabia. There is no protectionism here. It is open for all.

What makes you cheaper here than the Chinese companies?

Copper is copper. That has an international value. That constitutes 65% to 70% of the commodity. So, whether it is made in China or in Saudi Arabia, it is going to cost the same. So, you play on the remaining 30%. PVC is one of it, which is produced locally. Labor is reasonable, it’s not Chinese, but it is reasonable. Energy is cheaper. Transportation to the local areas is cheaper. So, in our business we can compete with the Chinese any given day.

What other businesses can be very competitive? Oil industry, petrochemicals, manufacturing?

All of those are no-brainers, really. All the petrochemical industries are a part and parcel of vertical and horizontal integration. The more interesting part is what we do or what somebody else does. This has nothing to do with petrochemicals, but can still compete.

Our next drive is going to be Africa.

We are looking at Africa very seriously in terms of selling and locating. We have a very big drive now going into Algeria, Nigeria, Morocco and looking at opportunities there. Also, it is not easy to transport cables. They are too heavy and too expensive to transport. They need to be localized.

We already touched a bit on your expansion strategy. Recently you secured Islamic financing from Standard Chartered, which is a major deal that will help you expand your activities. What are your strategic priorities for 2015/16 and 2017?

As I mentioned earlier, we are moving from Bahra Cables to Bahra Electric. The areas we are getting into are switchgear. We bought 2 companies and we are expanding them. We are getting into cable trays, transformers, both dry type and oil. We are getting into busway, busbar; pipes, both metal and PVC, load centers, wiring devices, anything that you can imagine can happen in the electrical business.

We will be able to meet the needs of close to 85% of any project requirements – all of it built in one place. The concept behind CPC, our partner, is to do building material projects. All the factories around you are CPC factories – they have from precast to aluminum to glass to wood to granite to metal and anything and everything in between is manufactured here under the CPC umbrella. We specialize in the electrical side and the rest carry out other special activities.

Recent statistics show that the rate of private industry sector growth is higher than that of the public sector. Do you see the manufacturing sector growing at a higher rate than the traditional industries like oil and gas, petrochemicals etc.?

Petrochemicals is our bloodline. It will always be our leading industry. But there is no way that any other industry will outgrow it. Percentage wise maybe, if we reach 10% or 15% of the market, it will be an achievement. I see growth, but I don’t see how we can compete with petrochemicals.

But to grow at a higher rate?

To grow at a higher rate than petrochemicals is not easy. We are one of the companies not related to petrochemicals, but if we take the SABICS of this world, most companies are more or less petrochemicals related, or they are a downstream, or upstream or verticals of the petrochemical concept. We try. That’s my final answer on this.

Regarding innovation, you are using a German processes, you have a lot of certifications, what do you think about local innovations and patents in Saudi pertaining to the cable industry?

I think it is very doable. If you look at the top 100 cable manufacturing companies in the world, you will find 5 of them are Saudi companies. There is a list of top 100 cable manufacturers. If you look at the valuation of some of these companies, they are at par with some of the world class competitors, in Korea or worldwide. So, that doesn’t just happen. There is innovation there. You don’t just buy German equipment and push the line. There is a lot happening around and about the systems.

We were able to develop for example certain medium voltage cable for the holy Haram in Makkah and Madinah. Usually fire resistant cables are mostly common in low voltage cables. We were able to develop medium voltage cables, which are heavy load cables with fire-resistant cables. That is totally produced and developed locally. We tried to get a license from people outside and they all declined. So, we developed on our own, tested it and it passed and we patented it and we are now selling it. Innovation is the key to any industry, because at the end of the day, making cables does not involve a lot of imagination. So, unless you have an edge, you cannot compete.

If you are able to compete in Nigeria and Iraq, which is a very competitive market, because there you have Turkish companies selling their goods very aggressively. We are able to compete head on. That means we have something to offer.

Why did you first think about procuring this technology and further developing on your own?

Because it is easily available and it is easier to procure the license. That was the option that was required, because we needed to be certified. So, that was required by the consultant. But when we couldn’t get it, we decided to develop it on our own and we got the same certifications and we succeeded in developing an excellent product at a fraction of the price.

And of course, the companies didn’t want to give it, because they wanted to sell it directly and keep that knowledge. Right now, we work closely with a lot of equipment manufacturers to develop new processes, new materials to save money and to make a more competitive product. So, we do have ongoing R&D with programs with European manufacturers on increasing our efficiency. Since we now have a large factory, we can afford to do that because it pays in the end to have cutting edge technology to produce the most efficient cable.

Do you have such partnerships with universities?

We have testing partnerships. Either they come and test here or they go and test there, depending on what specific equipment is available. We don’t have an ongoing R&D affiliation with a Saudi university.

What is your approach towards training and human resource development?

As I mentioned earlier, this is related to the execution part. We now have the big job to convince Saudi men to take on manufacturing of cable. It is a 24-hour process. The factory never closes. We work 24 hours. We now have specific lines run by Saudis on a 24-hour basis, but it is not easy, because Saudis do not working on night shifts. With the developments in the industry of labor and the drive and the training are slowly changing the concepts and people are now more interested in taking up the jobs that they would not have considered 2 to 3 years ago. We are now developing a woman-only factory to build wiring devices. Basically these are switches and the sockets on the wall. This is a new innovative concept we are trying to introduce right here in Bahra. We are recruiting heavily for that and we feel there is a great promise in this, both in terms of efficiency and profitability and in terms of serving a very good sector of the market.

What would you identify as the single most important challenge for Saudi Arabia in the future?

Reducing all dependence on foreign labor, which means improving our capabilities as a nation across the borders. If you go to Switzerland, you have to be a natural Swiss in order to be given the honor to be a garbage collector. They don’t give that job to you otherwise. I don’t know how long it will take us to get there, but that is the kind of mentality that we need. We need to go to a restaurant and be served by Saudis. It is a cultural change, but I believe that reducing dependence on foreign labor is the greatest challenge we face. Everything else will sort itself out. You have to get your people to accept jobs on every level, without discriminating between jobs taken by a particular races.

Cultures can move, they don’t change, but they can shift slowly. I think the shift is palpable. The funding that is given to these training programs is tremendous. Here, at CPC, we have a training institute for Saudis only to develop expertise in the building industry. We send people to get trained there or they send us people that they have trained, who have electrical or mechanical interests. We recruit them heavily. Now, we have put a freeze on all employment, except for Saudis. I think we are not the only company doing this.

We wouldn’t have thought about it 2 years ago. If you want people, just get visas and import. Right now, the thought pervading inside all our companies is to freeze foreign employment, bring in the Saudis, train them and work with them. This is the new culture that has hit the companies. Okay, maybe they were forced into, but eventually, they are getting it that ‘I cannot continue to operate, if I don’t do my bit’. We have put a freeze, so have a lot of other companies.

But the incentives that the government gives to Saudis, it doesn’t really motivate them. Saudis in your company have a certain lifestyle. They would get paid whether they do their job or not. Does it really motivate them to actually work, considering that they now work with the knowledge that their job is safe, whether they work or not? Now they know that you have to hire them and pay them, whether they work or not.

Private companies compete for talent with the government. We lose a lot of good people to the government. The government is not doing this intentionally. Maybe stability motivates them. A government job is more stable than a job with a private company. But all of these taboos are changing. How fast is the question. In our company it is changing very fast. In other companies I am sure it is the same.

Some companies are ahead of us. These have seen that requirement earlier on and have planned for it. So, all of us are catching up. I believe that fake saudization is disappearing. It is certainly disappearing in our company. When somebody puts a number, you try to reach it and people tend to do this fake saudization thing. I think most of the companies now are seriously eager to develop a strong work force. I am totally against any fake attempts, because that is cheating your company, and cheating the people you are supposed to be training. To pay them and ask them to stay at home. That is the worst thing you can do. You are damaging your society.

You have travelled extensively, you have met other people. What do you think is the biggest misconception about Saudi Arabia?

It is about time we give more access to foreigners to come and to travel freely. I think the government wants to introduce this and is taking steps to do it. The more you open the country with some regulations of course, the more you can see what the Saudis are like. It is getting easier to get visas etc. but it still needs a lot of other processes. Even before they come, people start imagining what it might be like. And then they have misconceptions.

The biggest misconception is that people think that Saudi Arabia is a closed country that can only survive because of oil. They don’t see the talent and creativity, because they are blocked from seeing it. But successful