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Technology helping AVOD to expand and develop Oman in the process

Interview - October 16, 2012
Pioneering the industrialization process in Oman, Areej Vegetable Oils & Derivatives (AVOD) is today one of the 15 largest companies in the country manufacturing products for leading multinationals such as Kraft, Unilever, Heinz, etc.
Please tell us about your professional background, how you became Executive Director of Areej Vegetable Oils & Derivatives (AVOD)?

After completing Chemical Engineering studies at one of the most famous universities in India, I joined Unilever as a trainee in 1966. Eighteen years  in Unilever was a great experience in terms of learning and development.  I went up the ladder from product and process development, to production and factory management in various locations, including the UK where our head office was based. I had the opportunity to transfer technology from Unilever Research to the Philippines, Indonesia, Thailand, India and Malaysia, where I lived and worked during those years.

After that, I was offered the position of General Manager at AVOD and I came to Oman in 1984. Back in those days, the area that you see today was totally different. We were the first factory to set up our operations here and the company was based in the middle of the desert; or rather scrap land and dry hills. There was a single track road, and we were off that road. We had to generate our own electricity and bowse our own water. What you see today is a very different picture.

We were the pioneers in industrialization in Oman. The factory started its operations in 1982 with about 60 employees. Two of the most prominent businessmen at that time,  H.E. Dr. Omar Zawawi (who held the Mercedes Benz franchise) and  Mr. Mohsin Haider Darwish (who held the Land Rover franchise) got together to form a private company. In 1985, oil prices crashed, which had a huge impact on the entire economy and the factory nearly closed down. But we managed to maintain the business operational, and then in 1988 the stock market was introduced. We were one of the first five private companies to float our shares on the stock market and become a joint stock company. Since then, things have evolved very quickly. The systems have developed; corporate governance and e-governance have been introduced.

To cut a long story short, today we are a US$275 million company with state-of-the-art manufacturing systems in place. Our factory is fully automated and vertically integrated. We use the SAP management system, including the business intelligence module and we are fully computerized. We import all our technology and know-how mainly from Europe and have a very high technical capability when it comes to maintenance and project work. We are now a fully-fledged modern factory. In international terms, you could call us a medium-sized company. In Oman and GCC terms, we are a large company. Actually, AVOD is one of the 15 largest companies in the country in terms of turnover and we employ around 600 workers.

How did your product line evolve with the development of new technologies?

We are in the food business and we started off with oils and fats. Then we started producing margarine and later on butter. In the old days, butter was exported by countries that had cows (US, Denmark, New Zealand, Australia) because butter had to be refrigerated. But then technology developed where you could separate the components, transport them unrefrigerated and then put them back together and make butter. When that technology developed we adopted it and we started producing butter as well. After that, we got involved with other products like mayonnaise and today, we are expanding in other lines of foods business. We are in a fast moving consumer goods industry. In foods, as you know, the world is moving from basic foods towards convenience foods and we are in that process as well.

Other than the domestic market, you have a broad regional and international client base. How much of your production is consumed locally, and how much do you export?

First of all, it is important to understand that the entire GCC area is a free market economy. When we talk about the Middle East and the events that are taking place in the Arab world, it is important to differentiate one country from another. There are controlled economies, like Syria for example, there are mixed economies, like Egypt, and there are free economies, like the UAE and Oman. When I say free economy, I refer to the fact that there are no government subsidies.

Oman is ranked 20th out of 144 countries in the 2012 World Economic Freedom Report (according to the Fraser Institute). This means that we can run our businesses the way the western world does, without government intervention and distortion due to government subsidies. It is a free market economy. Having 100% market share in a closed economy is no real achievement. But when we say we have about 70% market share in Oman, where we compete against the best global companies, such as Procter & Gamble and Unilever, it means a lot. It is a free economy and there are no import tariffs on food items in Oman, so competition is very tough.

In Oman, we market our own brands. We are dominant in the local market with almost 70% market share in Oman which we cover with 30% of our total output. Another 60% of our balance goes to the GCC countries, and the remaining 10% goes to the Middle East. So we are a localized GCC or Middle East company, because as we go further out, our distribution costs increase and we become less competitive.

We also have niche products for exports where we partner with distributors’ brands. We value our partnerships with the leading multinational companies because that is the way we build our business. For example, we produce biscuit and cream fats for Kraft; we supply frying oil to Unilever; we produce mayonnaise for Heinz, etc. In order to be a supplier of these major global companies, we need to meet the highest and most stringent international standards. We also have strong presence in the regional market and work with the leading companies in the GCC. For example we produce pure sunflower oil for one of the biggest Saudi companies, and we supply many other products to other leading companies in the region as well. 

We are becoming the hub for supporting the manufacturing activities of multinational companies in the business of oils and fats in the GCC and North Africa. The events that are taking place in the Arab world are creating a lot of opportunities for us. For example, Heinz is seriously thinking about moving its salad dressings operations out of areas which they consider unstable, to a safer zone like Oman. So we are now in a very exciting phase of development with many future opportunities ahead.
As you grow your operations, what is your approach in terms of providing employment opportunities and training to the Omani workforce?

In this part of the world, the population is very young. The so called Arab Spring that took place last year was basically the uproar of the young people expressing their newfound power, desires and demands. The major challenge for all the systems in the region was how to cope up with those demands and satisfy their needs. Now look what is happening a year later – in many places, the spring of hope has turned into a winter of discontent. But it has not been the case in the GCC, and less so in Oman, where people are actually free to express their opinions. Today, Oman is promising a good future to its young people and harnessing its potential to deliver those promises. The whole country is working in that direction.

As an industry, we have all faced the Arab Spring as well. As a result, we have implemented the directives of the new Labor Law. Today, in this factory we employ about 600 people, 60% of whom are Omanis which is nearly twice the industry average. Our minimum wage for an unskilled worker is $800 per month, and we moved to a 5 day and 40 hour week. We give private medical insurance to all our employees. But the problem today is not just about higher wages; it is also about employing our young people.

People talk about demographic problems in China. But in Canada demography is a problem as well, and they need young people to come their country. In Oman, we have a young population, but we have to be progressive and manage our youth in the best possible manner. I believe that if we harness the potential of our youth properly, it will have a tremendous positive effect on our economy and I am really bullish about this. We have to be proactive. Even though there are skills which are not available in Oman today, we are committed to training the local workforce and developing Omanis in the skills they can pick up quickly. We are currently expanding our operations and recruiting more Omanis to train them, and we intend to continue doing so in the future.

After working almost 30 years in the country, how do you see the business environment in Oman today? What is your vision for the future of AVOD in this context?

Oman is blessed with natural resources, and the food market is growing. Our top line in terms of volume is increasing at a rate of 15% per annum, and our bottom line is increasing at a little more than that. We have just finished an expansion project and we have already met all of our objectives. The food market is growing worldwide and we have to look for niche markets for growth. The GCC is doing well in terms of economic development and we are not in a recession like other parts of the world. Besides, if you look at all the GCC countries, Oman is doing the best.

Even though some people say that times are difficult, I believe that the opportunities here are fantastic right now. Oman is strategically located and we have to take advantage of that. We have access to the Arabian Sea and the Gulf bypassing the Strait of Hormuz. In addition, the new highway that has been built next to our plant stretches from Dubai and Sohar in the North, to Duqm and Salalah in the South. It is the fastest and cheapest method of transport in the Arabian Peninsula and it is a great opportunity for us. So we want to maximize these opportunities and we are now leveling the land by cutting down the hills in order to expand further our operations and build a logistic warehouse.

Our main strengths are innovation, vertical integration of technology, and state-of-the-art machinery. That is what allows us to keep our costs down and deliver expectations. We do everything and we are the only company in the Middle East that is equipped for the entire cycle of production. So when a multinational has a specific need or problem, we are well-placed to be part of the solution.

There is a sense of security in Oman. It is a very safe place and you will not find a country in the Middle East with a better commercial law than the one in Oman. The legal system here is laid out in a transparent manner and business to business contracts are protected by the law. It is quick and fair and the agreements between two companies are implemented immediately. Unless you live in the country and get a feel of it, you will not be aware of it.

Another great advantage in Oman is its social infrastructure. Omanis are more friendly and tolerant to foreigners than any other country that I have ever visited. The society is very cultured and this is a great benefit, which people may not see at first. In Oman, all faiths are tolerated. You have Sikh temples, Hindu temples and Christian churches. Omanis are stricter in their faith than anyone else, but they are tolerant and only those who are living here can appreciate that.

Quality of life is another very important aspect in Oman. When you are at the airport in Oman, even the customs officer is polite when dealing with you. I have worked in Manila, Jakarta, Kuala Lumpur, Bangkok, India and the UK, but I would rate the quality of life in Oman on a par or even higher than in Europe. If there is paradise on Earth, I would say that Oman would be one of those places.