To many multinationals, markets around the oil-rich Persian Gulf are full of lucrative business opportunities, which explains the massive influx of foreign workers, both skilled and unskilled, to the region. Such workers comprise more than 80 percent of the population in the United Arab Emirates (UAE), according to that country’s National Bureau of Statistics. But the scorching hot weather, unfamiliar customs and Arabic language can turn into stumbling blocks for Middle East-bound businesses, including those from Taiwan, that hope to prosper in the booming Muslim economies there.
Nevertheless, a triumph in any one of the 16 nations, which are wedged at the juncture of Eurasia and Africa, can help pave the way for long-term growth for businesses, big or small, throughout the region. That was exactly the case for Sungreat Inc., a Taiwan-based exporter of auto parts, which established a presence in the UAE’s Dubai more than three decades ago and has since expanded into nine countries in the Middle East and more than 50 emerging markets around the world.
“The [major] markets in the Middle East have advanced so much that it not only requires 100 percent commitment and face-to-face visits, but also top-tier sales teams, who know their clients, markets and industries, to run the operation there,” Sungreat president Janus C.D. Sun (孫正大) says from his Taipei headquarters.
Sun founded Sungreat in 1978 in Taipei. Knowing that his start-up was too small to compete with his rivals in advanced North American or European markets, he looked to emerging economies in the Middle East region, where competition was scarce back then. In a make-or-break bid to tap the region, he used most of his start-up’s remaining assets to fund his first business trip to Dubai, Egypt, Jordan and the Kingdom of Saudi Arabia (KSA) in 1979. His first order was worth just US$1,846, but his hard work has paid off. By the late-2000s, Middle East-bound sales of the company’s auto parts and accessories, ranging from headlamps and rear-view mirrors to suspension and engine parts, had blossomed to exceed US$10 million annually.
In 2012, orders from Middle Eastern countries accounted for 30 percent of Sungreat’s annual revenue of US$42 million. Recent political tensions in Iran have affected Sungreat’s sales to that country, although Sun says business should recover as the situation eases and forecasts his company’s trade in the region will continue on a solid growth track. As a result of increased competition from Thai, Indonesian and mainland Chinese rivals, however, the profit margin of Sungreat’s auto parts exports bound for the region has dropped to single digits from an average of 15 percent in earlier years, according to Sun.
A refinery project completed in Taiwan in 2010 by CTCI. The company is able to use its extensive track record in engineering, procurement and construction to win similar bids throughout the Middle East region. (Photo Courtesy of CTCI Corp.)
Sungreat’s strategy is to offer diverse product lines at various price points so as to satisfy the most customers possible. Sun also pays extra attention to educating his clients about the correlation between price and quality, and why Taiwan-made products with a consistent level of quality justify a higher price tag than that of mainland Chinese-made products.
Regrettably, Sun’s biggest competition nowadays comes from fellow Taiwanese, some of whom claim their mainland Chinese-made products are high-quality goods manufactured in Taiwan and thus deserve a higher price tag, he says. Sungreat is the third-largest exporter of auto parts in Taiwan and the largest in Ningbo, Zhejiang province, mainland China, he says. Around 50 percent of the company’s goods sold to emerging markets are made by its mainland Chinese suppliers. The difference is that Sungreat’s goods are clearly labeled as such, a move Sun says is designed to maintain customer trust.
“I do business with dignity,” Sun says. The aim is to build long-term business relationships with clients in the region, which include original equipment manufacturers, aftermarket suppliers and repair or accessory retailers. Such long-term relationships take at least three years to cement or, conversely, to be broken by competitors, he says.
Sun says many small Taiwanese companies hire interpreters to ensure smooth communication with their clients in the region, even though many people there speak English. A good interpreter can make a big difference to a company, he says. Even better is if the business owner can speak some Arabic in order to at least chat with customers, which is why the businessman studied the language for two years.
No matter what strategies businesses employ in the Middle East, Sun says it is of the utmost importance to show respect to Muslim clients and become familiar with local culture and customs. For example, in Iran, men never share a sofa with women or even make direct eye contact, while just wearing a tie could offend some Arabic people as the article of clothing is sometimes seen as a symbol of US imperialism, Sun says. Body language is also different from that in Taiwan as some Arabic people waggle their heads from side to side to mean “yes” and tilt their heads to mean “no.” “Better to keep your mouth shut if you see anything you don’t understand,” Sun says.
The adage to “know your customers” is also part of CTCI Corp.’s formula for success in the Middle East. The company, established in 1979 by the technology-oriented CTCI Foundation, is the largest engineering, procurement and construction (EPC) service provider in Taiwan and was ranked the 116th largest contractor in the world in 2012 by Engineering News-Record, an international magazine for the construction industry.
Sun, left, discusses his company’s products at a trade show in the Middle East. (Photo Courtesy of Sungreat Inc.)
Return to the Region
Having managed projects in the Middle East as an EPC subcontractor more than two decades ago, CTCI returned to the region as an established prime contractor in 2006. That year, Saudi Kayan Petrochemical Co., a subsidiary of Saudi Basic Industries Corp. (SABIC), appointed CTCI to construct a new ethylene glycol project with an output capacity of 700,000 metric tons per year in the KSA’s largest industrial city of Jubail in the Eastern Province on the Persian Gulf coast.
Since then, the Taiwan-based company has won several more bids in the region, including projects awarded by both Saudi Kayan and Ibn Rushed in the KSA. CTCI is also active in Qatar. In 2012, a project for state-owned Qatar Petrochemical Co. involved the installation of six furnaces and one ethylene storage tank. Recently, a joint venture between CTCI and Japan’s Chiyoda Corp. signed an engineering, procurement, supply, construction and commissioning contract with Laffan Refinery Co. Ltd. 2 to build a new refinery project in Ras Laffan Industrial City, Qatar. “We expect our growth momentum [in the Middle East] to continue. And we are still cooking up more deals in the region,” says P.C. Chen (陳碧川), spokesman and an executive vice president of CTCI, in Taipei.
“Major EPC contractors must compete in the Middle East markets. You can win international recognition if you can succeed and survive the difficulties there,” Chen says. To do so, it is important that EPC contractors have expertise in procuring and allocating resources, as well as mobilizing and managing talent from neighboring countries or further abroad, as many Arabic nations in the region are rich in fuel supplies, but extremely short of other raw materials and engineering design talent. To win bids ahead of international contractors from Italy and South Korea, CTCI relies on its track record in executing EPC projects in Taiwan, mainland China and Thailand to gain a place on a clients’ shortlist, Chen says. Then the 7,500-employee company demonstrates its pricing competitiveness by keeping a lid on its cost structure, the executive adds.
In addition to its professionalism in bidding for and executing EPC contracts, CTCI remains mindful of the personal requirements of its Muslim clients and employees. The company sets aside a prayer room at its Taipei headquarters for the exclusive use of Muslim members of its client’s design team when they work in Taipei, in addition to taking care of their need for halal food, says Michael Chang (張啟鴻), a senior general manager at CTCI’s marketing and sales division. Although Muslim employees have to perform prayers several times daily and carry out a month of fasting during Ramadan, the ninth month of the Islamic lunar calendar, they are efficient workers, adds Chang, who travels to the Middle East region at least four times per year. A total of 800 staff members from Taiwan, including 200 supervisor-level engineers, currently work on-site at CTCI’s projects in the KSA and Qatar.
CTCI reported record-high consolidated revenue of NT$60.74 billion (US$2.05 billion) in 2012, an increase of nearly 8 percent year-on-year. Businesses in the Middle East contributed 19 percent of that total.
The booth of a Taiwanese hardware company at a trade show in the Middle East (Photo Courtesy of Middle East Business Association)
While CTCI re-entered the region to tap new-found business opportunities, Taiwan Fertilizer Co. (TFC), formerly a state-owned enterprise, has begun to reap gains from its foreign relations-oriented investment in the KSA. TFC was founded in 1946, with the Ministry of Economic Affairs (MOEA) as its major shareholder. In 1979, the company formed a 50-50 joint venture with SABIC to establish the Al-Jubail Fertilizer Co. in that city. The MOEA’s 50-percent stake in Al-Jubail was sold to TFC for NT$3.05 billion (US$106.4 million) in 1997, two years before the latter company was privatized in 1999.
“For the first six years after we took over [the stake], Al-Jubail Fertilizer remained a loss-making venture. The investment served a diplomatic purpose to cement Taiwan’s relations with Saudi Arabia,” says Joseph H.C. Lin (林學正), general manager of TFC’s investment department at the company’s Taipei headquarters. “The outfit’s main goal at that time was to assist Saudi Arabia to develop its chemical industry,” he adds. The company started out by producing urea, a fertilizer used for many kinds of crops, and some liquid ammonia.
Between 1980 and 1993, TFC sent more than 150 skilled experts from Taiwan to offer technological assistance to locally recruited staff members in Saudi Arabia, who nowadays make up 98.6 percent of the factory’s 360-strong workforce and oversee the facility’s daily operations.
Since 2000, however, and to TFC’s surprise, the global demand for urea has picked up, which has greatly boosted the product’s selling price. As of the first quarter of 2013, urea fertilizers were selling in the international market for between US$380 and US$400 per metric ton, the high end of the product’s price range for the past decade of US$200 to US$400 per metric ton, according to Lin.
Golden Goose
TFC further benefits from the cheap supplies of natural gas (NG) available in Saudi Arabia, as the cost is 75 to 80 percent lower than that for NG from the United States or Europe. NG is used to produce ammonia, which together with carbon dioxide are the main raw materials used in the production of urea fertilizers. The result is a higher profit margin for the fertilizer manufactured by Al-Jubail. Consequently, the joint venture has grown to become the biggest contributor of profits to TFC, totaling a net income of NT$3.14 billion (US$106 million) in 2012, or 84 percent of annual profits made by all of TFC’s investments for that year. “Indeed, Al-Jubail is now a golden goose to us at [TFC],” Lin jokes.
A TFC joint venture in the Middle East. A stake in a fertilizer plant in Saudi Arabia has become a big source of profits for the Taiwanese company. (Photo Courtesy of Taiwan Fertilizer Co.)
Since 1993, Al-Jubail has extended its product lines to include chemical plasticizer products 2-Ethylhexanol (known as 2-EH) and Dioctyl Phthalate (DOP). Today, the Saudi outfit boasts an annual output of 600,000 to 650,000 metric tons of urea fertilizer, 140,000 to 160,000 metric tons of 2-EH and 30,000 to 50,000 metric tons of DOP. One-third of the company’s urea is sold to Taiwan, with the remainder sold to countries throughout Southeast Asia.
Looking into the future, Lin sees a robust outlook for the operation of Al-Jubail since the global agricultural sector’s demand for fertilizers will remain strong, especially with farmers in the United States growing more corn to produce biofuel. That should help fertilizer prices in the future, he says. “Profits in the next five years are expected to remain strong,” Lin concludes.
Lin Jinn-jong (林進忠), head of the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia (TECRO, KSA), shares a similarly rosy view of the future prospects of Taiwanese businesses in Muslim economies in the Middle East. For instance, statistics from Taiwan’s Customs Administration under the Ministry of Finance show that bilateral trade between Taiwan and Saudi Arabia alone climbed to a record high of US$16.7 billion in 2012. Saudi Arabia is Taiwan’s largest trade partner and supplier of crude oil in the region.
Members of Taiwan’s private sector, however, urge the government to provide more assistance to help them expand into the region. Sungreat’s Sun says he hopes that the government can help build a warehousing and distribution center in the region, which would assist Taiwanese businesses in marketing exports bound for the Middle East by providing an integrated logistics solution. CTCI’s Chen says his company hopes regional authorities can address the arduous process of applying for work permits and renewing visas for Taiwanese engineers or other expatriate workers. Similarly, Taipei’s Middle East Business Association, which represents 80 Taiwanese businesses operating in the region, raises concerns over the increased difficulty of gaining visas faced by its members’ female executives, especially those who are young and unmarried, according to the group’s secretary Phoenix Huang (黃韻潔). In response, TECRO’s Lin says that countries in the Middle East region are seeking to integrate with international society, so improvements in the business environment can be expected in the future.
Despite the difficulties, the TECRO chief encourages Taiwanese businesses to tap the region’s business opportunities more aggressively by actively setting up meetings with companies in the area, rather than just waiting for potential buyers to show up at trade shows. “The region remains a land of opportunities, which are emerging in almost every sector,” he says.
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Joyce Huang is a contributing writer based in Taipei.
Copyright © 2013 by Joyce Huang