On Lebanon’s Financial Crisis: We need a Shake up not a Hair Cut

At the beginning of October, the Lebanese cabinet was holding meetings to discuss the 2020 budget and the members were scraping around for financial resources to finance the payments needed to be able to meet the -7.5% budget deficit only. As usual and using the same usual tools and applying the same limited knowledge and instead of looking for ways to boost the various economic sectors that can bring in more funds to the economy – sectors like Industry and agriculture- they resorted to the most idiotic of all solutions and imposed some further taxes on the Lebanese people. Among the suggested ideas was a $6 imposed tax on using WhatsApp call, an app that is free for all in the first place.

So instead of working with the telephone companies to come with more competitive rates and offer attractive packages so that people would go back to traditional calls the government decided to do just the opposite and impose taxes. Needless to say, it was the drop the overflowed the cup and in a few hours the people were on the streets and the protests quickly escalated from small sporadic groups to sweeping masses all over Lebanon.

To make a long story short and not to go through events that everyone is already aware of the protests soon evolved and branched out to teams applying pressure on various economic and governmental sectors. Ironically for Lebanon, the only worthy economic sector is the banking sector so naturally the biggest pressure was there.

About a year earlier the Lebanese banks started feeling the pressure on their liquidity and accordingly started quietly implementing some restrictive measures to protect the cash in their vaults and started to offer high interest rates (up t0 17% in some cases) in return for freezing accounts. On the Prophets’ day 2018 a public holiday in Lebanon and some of the countries in the region but not in the global markets, the dollar versus the pound briefly shot up to 3,000 LL and then went back to the normal rates. Back then there was a brief noise about it however everyone downplayed it and soon it was all forgotten; yet a few months ago that came back to bite us with serious liquidity issues.

It was only normal that against the banks’ stringent regulations and extreme measures taken against money withdrawal that the people will have a negative reaction towards the banking system and start pointing fingers at it and at the Central Bank’s Governor blaming them both for the financial situation of the country and blaming the governor himself for faulty financial planning that has led us to this predicament and for giving special favors to the banks, big investors and politicians at the expense of regular and small time depositors.

All the above is true to a certain extent, the Governor’s policies may have not been the soundest or the wisest, but the man did what he could to protect his sector which happened to be the country’s only productive sector and while Mr. Salameh was busy protecting his bank and the commercial banks in Lebanon the government failed time and time again in doing anything to improve the industrial or agricultural sector the meant one thing: money leaving the country to buy food and products in much much bigger amounts than the money entering the country. In addition, coming out of the civil war with a totally destroyed country and a Lebanese pound that was floating freely with no signs that it will stop increasing at any point, the governor had 2 main concerns: 1- to stop the devaluation of the currency to avoid becoming like Argentina and Turkey. 2- Attract foreign capital.

In order to stop the devaluation, he resorted to pegging the currency at the rate of 1500 Lebanese Pounds to the dollar which is already very high given that our currency is the Pound and not the Thousand Pound. Of course, this came at the cost and of course it was not supposed to go on for 30 years. The economy was supposed to improve, we were supposed to have a flourishing industry and strong exports that can support a stronger currency and removing the peg all of which never happened.

Regarding the 2nd point, there are 2 ways to attract foreign capital to a country:

  • Through FDI (foreign direct investments) which means foreign companies or individuals investing in Lebanon in various economic sectors (industry, agriculture, services, etc….)
  • Through attracting big depositors to keep their money in Lebanese banks.

The problem with Lebanon is that since its inception and thanks to Michel Chiha’s vision of Lebanon, all – and I mean all – the consecutive governments shied away from investing in Industry and agriculture and they all believed that Lebanon’s future lied in the services industries and this is why since early on we were the country that continuously partied with world class festivals, had the first casino in the middle east and in addition we gave all the possible facilities for the banking industry which has cost us dearly a few times so far (intra bank crisis in the 60’s and Al Madina bank crisis in our more recent history). Therefore, it should come as no surprise that the banking sector is still the strongest in the country and has the supper hand.

So, and in order to attract capital the banking sector had always given higher interest rates than the average market rate, has always offered secrecy second to no country except Switzerland and has always supported the concept of capital free flow in and out with no real restrictions. It is worthy to note here that the higher than market average rates were one of the main reasons that led to the demise of Intra Bank, so it is not something new.

And because FDI in Lebanon was irrelevant and was limited to a few hotel ventures here and there and some trading companies at best, that meant that there was no real money coming into the country or at least we were not generating any international sales to bring in money.

For banks to make profit from the depositors’ money they have the below main options:

  • Loans to various business sectors to generate profits from the interest rates charged
  • Loans to individuals (personal, housing, cars, etc…)
  • Foreign bonds and stocks
  • Local bonds and stocks
  • A fifth dimension which is almost unique to Lebanon is the Lebanese expat’s deposits in the Lebanese banks.

Going to the previous point about Lebanon’s financial model, banks were not able to generate worthy gains from loans to the business sectors. While there were loans to individuals, the amounts coming out of those were not enough so it was normal that the banks would resort to local government bonds to generate substantial profits. What we failed to ignore were the governor’s subtle messages about this situation; we always bragged about the capital available in the banks and how much money was there but as well we always failed to notice that this capital sitting idly in the banks was a problem. Every now and then the governor would go on TV to inform the public that the government has issued “government bonds” in order to absorb the “liquidity surplus” in the banks and unfortunately we never understood what that meant and how that will come back to bite us one day. This surplus was supposed to be invested in revenue generating segments other than the bonds segments like (and going back to my main point) the industrial segment.

So now we are running in an endless circle; the government owes money to the banks and to other businesses in the country but the government can’t pay those dues because it can’t borrow money from the banks anymore and it has no other revenue sources except taxes which has reached a point that the people can’t afford to pay anymore.

Given the current dilemma we are at, I find it to be the biggest mistake to attack the banks – not because they do not deserve it but because if we do and this industry fails the whole country goes bust. When you have a headache do you cut your head off or you take ibuprofen? Now we do have a headache, mind you a very strong one almost a migraine but it can still be treated but it has to be done urgently. In order to fight that huge monster, we need to create another monster able to fight with it. The government should take immediate measures to protect whatever few remaining industries in the country and set the ground for new industrial and agricultural investments. In Lebanon, the government is the biggest real estate owner so those plots can be rented out to companies at very small rates in order to attract job creation, give free electricity till it can provide 24-hour electricity services. Removing taxes on all raw material needed for manufacturing is another option to boost the economy.

A few days ago, someone suggested a “hair cut” theory to redistribute the fortunes amassed by some of the elites through the central banks’ “financial engineering” and unrealistic interest rates given in order to inject the country with the much-needed liquidity. Despite the fact that this looks like a socialistic approach that defies the very essence of capitalism – the concept on which our economy is based – even if we do so it will be like taking a baton to a fight of giants while what you actually need is a nuclear weapon! This suggestion – if taken seriously – is at best a temporary fix the might delay the crash just a few months further. What is needed instead of collecting the money is to force those people to invest it in agriculture and manufacturing in order to create more jobs and to boost exports which is the healthiest way to bring in the much-needed dollars to the country.

If you take a haircut, sooner or later that hair is going to grow all over again; what is actually needed is a shake up to move all this country’s foundations.

The Case of Lebanon: Taxes Are Not the Answer

In 2019, Lebanon – the country that is more than 45,000 years old –is suffering from a very weak economy, corrupt political systems, a very very outdated government and a burden of God knows how many refugees because no one seems to agree on their number nor on their impact on the economy. Businesses are suffering severely, lay offs in a country that already suffers more than 40% unemployment rates are at an all time high, many individuals and companies are defaulting on their loans, scandals of huge unjustified salaries for some positions in the public sector are mushrooming everywhere and most of the banks are placing a cap on daily withdrawals of US dollars with rumors spreading around that there is a liquidity issue.

The country is on the verge of collapse – or so they say. The cabinet has been holding extensive meetings to adopt a budget for 2019 (yes, we are discussing a budget 5 months into the fiscal year) that has been branded as the most frugal and most ambitious although ironically no one really knows what is ambitious or frugal about it.

In a country where there is relatively no worthy industry, agriculture is still primitive and the tourism industry still functions on infrastructure that was built in the 90’s and laws that were drafted in the 40s and where the only sector functioning properly is the services industry and where the biggest reliance is on funds coming from Lebanese expats working overseas, the big brains of our government have decided that to bring in more funds, additional taxes need to be added.

True taxes are necessary and yes true they are an important source of government funding but to have taxes, you should have a functioning economy that is able to produce funds to be able to pay taxes, something which is not found in Lebanon. Add to that, taxes are the easiest and the least creative way to raise money.

When Lebanon was gaining its independence after the fall of the Ottoman empire and under the French Mandate in the 20’s of the last century, a group of Lebanese Elite came together to lay the foundations of the Modern Lebanon. Unfortunately, instead of doing so based on Lebanon’s need they did it based on their needs. Among those a very influential individual played an everlasting role in shaping the economy; this individual was Michel Chiha, a banker and the son of a banker who had established the Pharaon and Chiha bank in Lebanon. Naturally, his views were in favor of the banking system and the services industry and at the same time he was a staunch opponent of industry and agriculture and he firmly believed that Lebanon’s small size did not need neither industry nor agriculture.

Unfortunately, this was very short sighted and had lots of personal interest in it and for many reasons, mainly because no economy can survive without industry no matter what and because industry has propelled all the economies of the world; take Europe for example and how there was a jump from the dark ages after the industrial revolution; USA at one point lead the world with its industry and now China is the world’s economic powerhouse because of its industrial power. In Lebanon’s case, almost 100 years after Mr. Chiha laid his vision for Lebanon we are at the brink of collapse because of the vision namely.

So, in a country that is considered to be relatively virgin industrially and before the government turns on the fire alarm and starts panicking around and before adding taxes to an already overburdened population, there are many other ways to raise money that can improve the economy, create jobs, relieve the balance of payments by increasing export and decreasing import and lay the foundations for future taxes when the situation is more favorable.

The Government has already paid a ridiculous amount of money for a consulting company to come and tell us what is obvious, and which is to invest in industry, agriculture and tourism and yet despite all that no action is being taken.

Industry: Lebanese investors own or manage industries all over the world, yet they fail to do so in Lebanon because of the poor infrastructure, the outdated laws, the extreme corruption and the very high production costs. All those factors have even lured away regional and global industries that rely heavily on Lebanese in their top management. Industrial investments rely usually on 3 main factors: 1- suitable infrastructure 2- safe environment 3- Raw Material. While it is true that the only valuable raw material Lebanon has is its water, it is the infrastructure that can be used to lure investors in. Given its small geographical size, Lebanon’s seaports and airports are in a relatively close proximity to all the borders and to any geographical location a factory might be built on. This means that inland logistics costs will be very low not to mention that land freight to nearby Middle Eastern and GCC countries would be much cheaper than sea shipping. In addition to this feature, there are a few things the government can do to attract industrial investment. For Instance, the government reigns over very vast plots of land that are uselessly sitting there. Those plots can be used as an incentive to lure investors, by offering them long term rent (up to 99 years) at very low rates and in some cases offer the first 10 to 25 years for free in return of a specific number of jobs created for the Lebanese citizens.

Government Reform: Skilled labor, cheap logistics and free land would be a very attractive package for investors, but this must be coupled with a supporting government. Accordingly, for our government to be a successful one it should be run as a for profit organization. The thing about the public sector employees in Lebanon is that most of them are lazy and this is due to the lack of evaluation, performance appraisal, KPI’s, corrective action and even training. In Lebanon, once you get employed in the public sector it is employment for life. This usually leads to underperforming departments that affect the country as whole. Instilling a law where people will be accountable will inspire everyone to do their best and push for continuous improvement.

Tourism: a few days ago, there was a news report that more than 5000 companies have signed agreements to lease space in the Cascada Mall in Bekaa which is in very close to Syria. Those companies will be working in Syria and they will be eyeing investments in Lebanon as well. If each company will be represented with at least 1 Chinese citizen, this means that at least 5,000 Chinese will be coming to Lebanon anytime soon. To cater to them and to use it as an opportunity to attract more Chinese investors and tourists the ministry of Tourism should be proactive. In Dubai for example and because there is a huge influx of Chinese tourists most malls have installed signage with Chinese language to make it easy for them and the same should be implemented here as well. Universities that offer translation as courses should add Mandarin and Cantonese to their Curriculum and a marketing campaign should be launched by the ministry of Tourism dedicated to China.

Lebanon has some of the most breathtaking walking trails that are spread wherever you go. Along those trails one can always find abandoned old houses that are falling apart. Nature Tourism is one of the biggest things among young Europeans and to attract them, the ministry can organize those trails, offer guided or unguided hikes and look up the owners of these homes, buy them and refurbish them to be affordable micro hotels where tourists on a budget can stay for nights and continue their pilgrimage in nature.

Agriculture: During the Heydays of the Roman Empire, Heliopolis or modern day Baalbeck oversaw food supplies for the whole empire. This was because the Bekaa Valey had the richest soil and the most productive land in the whole region. Silk was also a Lebanese Trademark during the Ottoman Empire and there is no justification why the country can’t claim both titles especially that we live close to countries that rely on import for more than 70% of their agricultural needs. With fertile soil and abundance of water this sector needs very little investment in Technology.


In the recent crisis, almost everyone is bedeviling the Lebanese banking system, the same system that sent Lebanon to the global financial scene because it is second to the Swiss system. While there is some truth to the fact that this sector is dominating the Lebanese Economy, it is not its fault that the government did not work on improving the remaining sectors to be at the same level. At the end of the day, you can’t blame the modern-day banking system for Lebanon’s misfortunes because after all this country was built based on the vision of a banker.

At Times of Difficulty, Turn to Procurement

In the last few years, Technology has been moving so fast that it has become almost impossible to cope up with. Every day, there are dozens of new inventions or improvements that involve almost every aspect of our lives from healthcare to agriculture and from beauty to space invasion. However, not only technology has been moving that fast, as the frequency of economic crisis has been competing at almost similar speed.

The world does not seem to be able to catch its breath when it comes to those issues; in each cycle of 10 years there is almost a crisis, and this has been happening since forever (Wikipedia has a track for the crises that goes back to the first century). And every time the same cycle happens, we see the crisis coming but we close our eyes and act nonchalantly in hopes that if we do so the problem will go away; nevertheless, the crisis hits and we start panicking around taking drastic and uncalculated measures in hopes that we can weather the storm and go back to “business as usual” and “ this is how we have always done it.” What we always fail to do is to learn the lessons from each crisis and change how we do things so that come the next crisis we are better prepared.

Terms like optimization, efficiency, waste reduction, agility are unheard of when there is smooth sailing, but the minute we hit rock bottom as an organization we start scrambling around to implement them – albeit in a non-scientific way. And the most traditional approach is to take a linear comparison of costs vs. sales. So, for example if sales are down 10% costs should go down 10% regardless of the methods, tactics and/or reasoning. And the easiest way to do so is – yes you guessed it – is by what companies call “headcount optimization” which in fact just a sugar coating for mass layoffs.

But what if there was a more scientific approach to cost cutting? One which would have long term effects that go beyond surviving the crisis and that can potentially save the jobs of employees who were always loyal to their organizations? In fact, there is one and it lies in the helms of the procurement department of any company. Despite considering it as a cost center, a well-managed and well steered procurement department can actually be a revenue center and in fact can be the source of all efficiencies in any company. In times of crisis, when a company can’t push sales any further the focus becomes on increasing the margin – which is something that must be done even when sales are on the rise – however we will not discuss this point for the time being.

To increase the margins, companies most of the time turn to their fixed costs, they start thinking about green energy to cut electricity costs, online conferences as opposed to traveling, rent discounts from landlords and harsh policies regarding phones and stationaries, slashing some production lines and maybe selling some divisions. However, all the saving achieved are considered peanuts when compared to the biggest component which is employee compensation and that is where the senseless thoughtless slashing begins without taking into consideration the indirect costs of such decisions and their impact. Examples of such cost are – but not limited to- : existing employee burnout due to work overload from redistributed tasks which leads to mistakes which cost money, increased absenteeism, and most importantly a lack of job security among those who remain which again will affect productivity.

On the other hand, one can simply turn to procurement and work with them on how to become more efficient in the right way. Because although most of the costs come from the procurement department, it is not a cost department itself; instead it can be thought of it as the engine that moves the company and for the company to move smoothly and steadily in the right direction the engine should be well performing and in full throttle. The classical mistake is that companies start to remove the horsepower from this department \ to reduce “costs”. Everything goes under the knife, starting mostly with the headcount and not ending with the budget and we all know what happens to quality when everything becomes budgeted.

At times of crisis when sales can’t be pushed organically and instead of turning to inside the organization to keep profits, a company should keep its focus on the outside by working on keeping the existing customer base and making sure they come back for more or it has to stand out to attract whatever competition is left outside and this can’t be done with an understaffed organization or through buying discounted products. To differentiate or innovate you always need to get the best and procurement – and only procurement – can ensure that you can get the best, for the best price, with the right quantities and in the right time. Because procurement is not about “buying” things rather is it about ensuring a smooth operational flow. Yes anyone can buy things, but how to make sure that they are the best quality? At the best price? How does a company make sure that the supply chain is efficient and that it is not risking negatively affecting cash flow with overstocks in the warehouse or that production lines or services won’t stop because the company suddenly run out of stocks? Moreover, how does it get updates on the latest trends and the newest products that would let them develop new products or services to push sales?

The best thing about it all is that the effects will last long after the storm has passed, and this will help companies emerge more agile, more efficient and stronger and definitely more profitable. Focusing more on consumption behavior and applying metrics to know what is selling and what is not, allows a company to focus on its core procurement material that is to say on the 80-20. By doing so, the company starts cutting cost by trimming the unnecessary fat coming from slow-movers and by that liberate their stock levels and cash flow. Having done the first step, allows companies to focus on the second step which involves the focus on the biggest bulk of the purchases. Focusing energy there allows the company to have more accurate forecasts which allows for a larger room of maneuvering which will eventually lead to reducing prices either organically through getting discounts on bulk purchases (which is by the way the least preferred methods) or by reviewing prices from existing suppliers; or inorganically by widening the suppliers’ pool which allows the company to tap to new resources and most probably better prices. Then comes the innovation phase; ignoring innovation is like giving a death sentence and for a company to be a leading innovator, it always needs to be the first; the first in delivering new products and ideas and the first in getting the newest products and services out there that can help the innovation process. The only department that is well qualified to support any company on this quest is the procurement department because of all the departments, those are the people that are in the most contact with the outer world of suppliers and they are the relationship builders and a company can rely on them to always bring what is best out there.

This is just a sample of what procurement can offer to any organization in terms of efficiency, optimization and innovation. Given the right treatment and the needed authority a procurement department can offer much much more with much less resources than other departments and most importantly in an ingenious way that can always ensure a win-win situation for all parties. At the end of the day, a company has to decide as to whether it only wants to survive or to lead and how it wants that done. For any decision taken there will be an opportunity cost and a company should always make sure that they are paying the “best” cost. If anyone has doubts regarding the effect of supply chain, just take a look at Toyota….

Procurement Is Not a Support Function

“So, you buy stuff?” as a procurement professional, often times I find myself facing this question from people in various walks of life when I tell them that I work in purchasing and procurement. Generally speaking this is the broad notion of procurement: to buy stuff. However, and unfortunately for people in my industry, this does not even come close to what we really do, how we function and how we move companies forward.

Yes you read it right, it is the procurement team that can move a company forward or can stall its progress as well. And this is not just by “buying stuff” it is by planning, forecasting, designing and implementing strategies that ensure that the company gets the best products needed for the best price and in the right timing. Missing any of the 3 factors means the company will get stalled no matter what industry it operates within.

To begin with the product: any procurement team should be well aware of all the aspects of the company’s industry, and the product/service it offers in order to be able to provide the best product/raw material needed. Failing to do so will increase the risk of delivering the wrong product. No matter how accurate the data or info received from the concerned parties, if procurement is not well versed the risks are there. Take Samsung for example and their famous case of failure with their Note 7 devices which had an issue of exploding because of the faulty batteries that they had and which forced the company to kill the product before it finished its life cycle and launched the Note 8 sooner than expected which costed the company billions of dollars in lost sales and wasted R&D. Another example is the famous case of “donkey meat” supplied to McDonald’s and Burger King where the supply chain teams failed to correctly identify the product which lead to that scandal.

As for the price, this is where experience, capabilities and planning kick in. for most people, ensuring the best price can be done by increasing the volume of purchases and getting discounts. Although this has traditionally been true but it has proved to be one of the worst techniques ever and has also lead to lots of losses for the companies. The most famous example lies in the American auto industry that had traditionally relied on bulk purchases. That meant buying massive amounts of the same components which eventually lead that the production and design teams ended up making cars that were very similar in design to each other with very little differentiation and which also lead to big car overstocks (go back the designs of Chevy, GMC, Cadillac, Suzuki, Saab and Opel cars in the mid 90’s and early 2000’s). This forced the companies to end up giving rebates and marketing support to have the stocks liquidated, a practice which almost led to the demise of the American Auto industry in the 2007-2008 global crisis. The best approach to ensuring the best price is by knowing your market very well and increasing your suppliers pool and improving your relationship with them. This will increase your maneuvering power, give you access to more than once source and effectively not fall under the mercy of one supplier and ensure that you are always up to date on market changes which will allow you to command the price you want.

The third factor is the right timing. One of the biggest challenges when it comes to supply chain is the availability of the needed products at the right timing and in the needed quantities. In a challenging world which is pressed for cutting costs, most companies are turning to the Toyota supply chain model – the just in time concept which means that those companies are keeping zero to minimum inventory. This puts lots of pressure on the procurement department and to be able to succeed in that task, they need to be involved in the company’s planning phase rather than being updated at a later stage. The earlier they are informed the more agile they can be and the faster they can respond to changes and realign the company. There is nothing worse that halting a production because of missing raw material or being caught with over stock because a line/product has been discontinued or modified and the items are not needed anymore. Toyota itself presents a famous lesson where it almost fell to 0 production after the 2011 earthquake that hit Japan. In the aftermath, the company’s supply chain took a series of measures to ensure the case is not repeated so come 2016 when a similar earthquake struck the company was better prepared and was able to react faster and return to production faster than 2011.

For the reasons stated above, the procurement department in any company should not be considered as a side function which unfortunately is still the case in most of the organizations these days. Whenever a crisis hits and the company starts to sacrifice its employees this department is hit the most and is the first to undergo “restructuring”. What companies tend to ignore is the indirect cost associated with such measures from disruptions of supply to deteriorating relationships with suppliers and not to forget the structured approach to the whole “purchasing” thing. Usually after a company has finished “optimizing” its headcount, they turn to the budget and of course they start cutting from the procurement budget. This is even more serious that the layoffs, because it will definitely lead to compromising the quality to achieve the target (McDonalds’ meat is an example). Companies should know and believe that the most important KPI for the procurement department is achieving savings but they need to know that procurement is not willing to do so on the expense of the quality. This is why procurement should not come with a set budget and should have a seat whenever a company is discussing its annual budget rather than being fed a number to meet.

One of the biggest reasons for the above case is that “procurement” as a university major is still a rarity even though it should be an important major. Procurement as a function is the least automated of all the functions; yes, you can have an automated inventory system that monitors stock levels, sends a notification when an item reaches par level, monitor consumption habits and sends you metrics as to which items to focus on and increase its supply and therefore negotiate better. You can even set up a system where AI can be utilized to automatically send orders to the suppliers whenever a request must be placed. However, AI can’t negotiate for you or draft a contract or receive a sample and test it and it definitely can’t foster the needed relationship with suppliers to ensure constant flow of goods even when there are any challenges between the supplier and the company (financial challenges for example).

Not only that, companies should start moving away from the wrong concept that procurement executes requests from various departments and should start embracing the fact that the core duty of the procurement department is planning and analysis simply because you can’t develop a new product/service unless you have the needed components; components which the procurement and only the procurement can provide. Therefore, procurement should have a seat on the board just like the finance, R&D, production, marketing, etc…

In one of the job interviews I had with a company that has various divisions, one of the questions I was confronted with from the GM of one of the divisions was: “Do you think that the procurement should have a say in the pricing strategy?” my answer was of course yes because the major factor to consider when pricing any product/service is the COGS which mostly come from procurement. In addition, and since procurement is in frequent contact with the market, this is the department to go to when you want to forecast the future of the market and the prices of raw materials which are the 2 most important things to take into consideration when you want to price your product/service. Needless to say, he did not like my answer and I ended up not getting the job!

When it comes to the services industry, experts all agree that the worst kind of customers is the “silent” customer that never gives feedback whether positive or negative and this as well is the biggest challenge to procurement. This industry is based on feedback, the more feedback we get the better we become at supporting the organizations and the better we can assist in planning for the future because no, we do not just buy stuff.

Is the “Global Village” Dying?

The 90’s is the era that introduced boy bands, weird haircuts, electronic games and the popular term the “Global Village”. That was the promise of the internet; to remove barriers on communication between people and give everyone access to unlimited sources of information no matter where they were on the globe. The aim was to bring the whole world together and “virtually” remove all the borders between all the countries and bring everyone together in a “village” sort of way.

That promise came with a global economic freedom promise as well. The 90’s started with the MERCOSUR agreement or the South American Trade Agreement that aimed on easing and removing the barriers on any trade between a league of South American countries which are: Argentina, Brazil, Paraguay, Uruguay and Venezuela. Then in the mid-90s came the NAFTA agreement to ease the trade between North American Countries namely USA, Canada, Mexico in 1994. Then the decade ended up in the full economic integration of the European Union and the world got introduced to the Euro the first time ever.

Yet, it was not all roses and unicorns. And the challenges started as of day one, the internet was considered very “intrusive” in many countries and the bans started gradually on many websites that some governments had accused of spying. And while people were getting closer “virtually” they were getting further “physically” by resorting to going to the internet for everything rather than enjoying the human experience of interacting face to face.

As for the trade agreements, the challenges were there as well. The NAFTA agreement meant more jobs in Mexico since Canadian and American industries decided to shift to their southern neighbor where the labor force is abundant and very cheap compared to their home countries and where there are less regulations and taxes. And since there were no tariffs on Mexican products, that meant more profitability for those companies at the expense of job cuts and decreased government revenues in their home countries. The MERCOSUR was not in a better position either as the political conflicts were always affecting the performance and it culminated in 2016 with Venezuela’s membership being suspended. On the European side, the stringent economic regulations that were put to ensure the success of the union were stifling it and threatening to make it fall apart. The Greek economic crisis was more than enough to remove the country from the union however, Germany being the strongest country formalized a rescue plan because there was so much at stake should Greece leave the union. Then It was Britain’s turn but this time there was no rescue plan as the British people themselves voted their country outside the union. To make things worse, the Syrian crisis and the huge influx of refugees to Europe added further strain to the already shaken status of the union. Germany was the first to welcome them since the country was in dire need for a labor force to support the industrial needs of the nation but after some time the numbers were too big for the country to chew them alone. A series of meetings ensued to discuss this point and to redistribute the flow to various countries, a suggestion that was totally rejected by most countries in the Eastern Block and threatened their membership as well in the union. All this lead to a change in the political scene of Europe where the far right that had virtually disappeared after WWII started to regain momentum in small but steady steps. In France, they had a serious run towards the presidency and almost made it; In Germany, iron woman Merkel who has been on the top of German politics since 2005 lost the reigns of the majority and will soon be ousted. Terms as neo-nazis, white supremacists, majorities and minorities are resurfacing strongly.

Add to that and after a long period of economic freedom, protectionist measures are coming back in full throttle. To name a few of them: president Trump’s first act of business was to cancel the NAFTA agreement, add tariffs to imported items from China and threatened to do the same with Europe. China did not waste any time at all in retaliating and imposed tariffs as well on American products and this added tensions to the global economic markets. But long before that the global market was suffering from a series of bans and counter bans: Europe and USA had a trade ban with Russia, GCC countries had a trade ban on Qatar, Europe – except Russia – the USA and many countries around the globe had a trade ban against Iran.

But perhaps the epitome of evidence that the “global village” is dying lies in the wall that President Trump wants to build on the south of his borders with Mexico in an aim to isolate the 2 countries and stop illegal immigration. In the past across the history, walls were what identified borders between countries and even between cities within the same country. And with what is going on around us, it seems we are headed back to the medieval centuries and I only fear that someone, somewhere on this planet might commit a fatal mistake and send us technologically as well to the medieval centuries!

Carlos Ghosn: The Gaijin Who Could Never Fit In

Up until 1999 there were many things that were unknown to the Japanese culture; among those things were lay-offs; merit based promotions rather than seniority based; individualism versus collectivism, loyalty to self rather than loyalty to the organization, supplier-buyer relationship, and a non-Japanese CEO for a Japanese company.

Then came Carlos Ghosn….

Up until 1983 there was a great Japanese Car Company called Datsun, this carmaker was producing some of the greatest cars in the world and it was the 3rd most selling car in the USA but in 1984 apparently someone in the top management got extremely drunk on New Year’s Eve and decided to change the name to Nissan. The term “time will tell” has never been truer than in Nissan’s case because whoever made that decision in 1984 almost sent the company to bankruptcy in 1999, that is until Carlos joined.

Of course having a “gaijin” executive was not an easy thing since day one and those of you who understand the Japanese culture will understand what it meant (anyone knows how many non-Japanese ethnics do hold a Japanese passport for example?) the only reason Carlos cut it through was because the company was desperate to be saved and because Renault had a say in it.

I will not go into the details of how he turned around the company because almost everyone knows about the greatest turn around in modern business history but what is clear is that since day one things have been everything but “sunshine and rainbows” for the man.

Carlos did not just turnaround a company, he challenged an entire culture and that may explain his current predicament. He introduced concepts that were strange to the whole Japanese culture because prior to him there was no such thing as a lay off in Japan, there was loyalty to the company from day 1 till retirement, people did not change companies and they did not move for a better position or salary. Getting promoted was always guaranteed only it was just a matter of time. The time needed was not for one to prove their merit but rather till your senior retired or – God forbid – got deceased. The Japanese culture does not acknowledge the “one man show” at work as well because as far as far east cultures go, collectivism and group decisions are the norm.

Only by understanding the above one can start to understand the deep impact that Carlos brought to all of Japan and not only to Nissan and it can explain the current edgy relationship between Nissan and the Japanese government. It can also explain why his vice president was recently so vocal in criticizing his boss as well as in eyeing his position. And to think that all what happened was because of tax evasions or improper use of company property is – at best – naïve thinking. Why would a man do tax fraud in one country and play by the books in another? Why would one with such a compensation, benefits, power and authority misuse his company’s assets? More importantly why misuse the assets of one company and not do the same in the other 2? Why would Nissan decide to oust him from his position even before the investigations have reached a conclusion? How come prosecutors have not been able to charge him and extended his arrest for 10 days although – as they claim – the arrest came after months long of secret investigations?

Even if the case of tax evasions does hold true and which I insist is a very long shot, there has never been a case before where someone was sent to prison because of it. Japanese Authorities could have put Ghosn under house arrest for example and forbid him from leaving Japan till the investigations were over. But by jailing him, they were sending a message that is supposed to reach the shores of France and all the concerned people there that they are signaling the beginning of a new era where they will want the upper hand when it comes to Nissan.

No matter how things will unfold, one thing is guaranteed Ghosn did forever change the Japanese business scene. The high profile character who was the champion of “my way or the highway” will leave his legacy not only in Nissan but all over Japan. The clearest and most resounding proof can be seen in his long time –Now-Turned-Foe- protégé Hiroto Saikawa for never before has any Japanese assumed such a tone and such an attitude in the business world. For a country that is known for keeping a low profile he surely is not being humble at all in dealing with the case. Perhaps Carlos’s biggest sin at the end of the day was that he was a great teacher that made sure his lessons are well learnt; unfortunately for him this time he might be the victim of his preaching.

The Marketing Strategy of A Cereals Box

The late Steve Jobs is well known for a famous saying: “Customers don’t know what they want until we’ve shown them” ; a saying that holds true in many cases and which I have had the chance to experience firsthand very recently in one of its most blatant figures.

Saudi Arabia is a market mostly known to attract products from the 4 corners of the world; so if you are a fan of studying brands and comparing what they do as opposed to their competitors then here is the best place for so. Add to it that up until recently, shopping – in all its forms – had been the main source of entertainment, so there is always a competition and a struggle to attract customers in all sorts of ways. I’d like to add that this competition is not always clean or ethical – at least not when compared to CSR initiatives that many companies are taking in order to show that they care about the society and would like to give back.

I was in the cereals and morning food aisles and there was no shortage of cornflakes options at all; brands from the united states, to Europe to the Middle East were conveniently placed next to each other. One thing you need to take into consideration that in this market, all US products are sold for premium prices that is sometimes triple the price of local or middle eastern competitors because of the additional overhead needed to get the product to the shelves and because it is perceived as a higher quality. The boxes were stacked to serve a specific purpose which is to target the main customers of this category: the 7-8 year olds who are the main consumers of this commodity.

It was a classical marketing lesson: on a “relatively” higher shelf were the boxes of a cereal brand that is made in a Middle Eastern country; those come in a 1 kg packaging and for a very competitive price – 16 SAR the equivalent of $4.27. Such a box would be a sensible choice for any parent but on the lower shelves exactly at the eye sight and arms reach of the 7 year olds was a “foreign” box that came in 500 grams packaging and ran for the price of 14 SAR or the equivalent of $3.73 so when compared to the other brand you would be getting half the quantity for almost the same price – not a wise economic decision one might say. Facing those aisles was a father who was doing his regular grocery shopping for his family and he had brought his son with him.

After the father reached out for the bigger box the son told him that he wanted the smaller one; the father refused and told him that the bigger one was better but the son insisted and said that this one had a toy and he wanted it. The discussion went on back and forth for a while and you can easily predict who won that confrontation at the end…. The father had to give in to his persistent son and accept the losses that came out of it….

This is not a unique case nor were the boxes randomly placed like that; companies pay premium prices to have their products placed on shelves and levels that would attract customers the most; it is a part of their “push” strategy where they want their product to be in your face. Regardless if you really need the product or that brand specifically they create a need for you and most of the time you just go along with it. Many times you buy a product not because you need it but because you saw it in your face and something about it attracted you. A bar of soap now boasts to contain more fruit than a piece of cake, you look at the wrapping and you think that it is for a chocolate bar with pictures of all kinds of berries on it; also a strategy to attract you.

We like to believe that our choices are our own but most of the time they are planted into us; What does phone X that costs you a massive amount of money do for you that the much cheaper phone Y can’t do? Would you have bought this specific brand hadn’t it not been conveniently placed for you? More importantly do we really need that “gift” and is it really a gift when we are indirectly paying for it because we went for the more expensive choice? Big companies spend fortunes on marketing and market research in order to influence and attract customers. In one of the teen choice awards events there was a well-known company that was doing research focused only to know what is the percentage of teens who were using Facebook as opposed to those using Twitter and as opposed to other social media platforms. The reason was very simple: know where to spend the biggest chunk of their marketing budget in order to attract more people.

If there was one piece of advice that I wish that someone had given me as a child it would be: “never go after the product that has a gift or free item” ….. I’m not saying that that those products are not good but at the same time I am just questioning why was the gift placed and was it actually a gift? So the next time you go buy a cereals box ask yourself or your child if that gift is really worth it……