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German University in Cairo

Faculty of Management Technology

Assignment

MODERNA TEXTILES- 2010


Presented By:

Naglaa Ahmed Raouf Hamed


(ID 30-0350)

Presented To
Dr. Raghda El Ebrashi

Course Name

Strategic Management (STRA 703)

Moderna Textiles
Introduction
Moderna Textiles is one of the largest manufacturers of textile fabrics, upholstery
and curtains in Egypt since 1936.
Moderna Textiles origins were created by the Kabbani family almost a century ago.
Abdullah Kabbani started his textile business in Syria. Then partnered with other
Syrian families and started investing in the Turkish market as well. The Kabbani
family immigrated to Egypt in 1936 and started the Eastern Company of Weaving and
Spinning. However following the nationalization of Egyptian companies in 1952, the
company was left with one shop and one factory that were solely owned by the
Kabbani family, which were then given the current name of Moderna.
What is the vision and mission of Moderna Textiles?
Moderna Textiles states on their official Website that their Mission & Vision are as
follows:

Mission & Goals:


We will achieve our mission through continuous improvement, flexibility,
collaboration and innovation.
We deliver customer-focused products to a diverse community, build world
class collections.
We are well known for our outstanding quality standards supplying 5 stars'
hotels, and many European countries with the highest quality Textile products.
Being so close to each customer and market has always provided us perfect
conditions for steady growth and systematic development to meet our clients
requirements and assure delivering a highly qualified final product claiming
71 years of tradition.
Our main goal, is to deliver a highly qualified final product through selecting
the finest of materials combined together to ensure producing the right blend
and ultimate quality in the finished product.

Vision:
We are a leader in the textiles' industry. We Keep up with current trends and
seek out opportunities for learning and renewal. We Develop innovative
policies, procedures, and programs; and assess them to make sure that we are
achieving the desired results. We promote the Textiles' Library as a test site
for new products, Assess areas that require improvement by encouraging and
maintaining regular communication with our customers and our colleagues.

What are the economic, social, political, and technological factors affecting the
textile industry at the time of the case?
Economic factors
By 2010, Egypt was the fourth-largest economy in the Middle East. Recent economic
performance has been positive, with 4.75% annual GDP growth from 2001 to 2010.
Per capita GDP remains relatively low compared to regional peers.
Egypts economy is diversified as compared to its largest regional neighbors, many of
which depend heavily on commodity petroleum exports (Saudi Arabia, Iran, and the
UAE). As of 2010, the largest sector in the economy was the manufacturing sector
(16.9%), followed by mining (14.4%), and agriculture (14%). Exports are
concentrated in the hospitality and tourism, transport and logistics, and petroleum
products clusters. Egypts shifting export product mix over the past 20 years is
symptomatic of a broader economic change from a singularly natural resourcefocused economy to one that is less factor-driven.
Egypts strongest competitive advantages lie in its natural endowments. The countrys
position at the crossroads of three continents has made it a historic trading hub,
amplified by the construction of the Suez Canal in 1869. Roughly 10% of the worlds
maritime volume has passed through Egyptian waterways, and the canal spawned a
robust shipping and logistics cluster that facilitates export of goods like textiles.
The Nile Delta, an area of northern Egypt where the Nile River spreads into
distributaries and drains into the Mediterranean Sea, has served as Egypts breadbox
for over five millennia (Baines, 2011). Until the river was dammed in 1902, the upper
reaches of the Nile would flood annually, creating a vast delta of fertile soil necessary
for high-quality crops that sustained the early Egyptian economy. Building on this
endowment has allowed Egyptian farmers produce the highest quality-graded cotton
in the modern world.
Social and Political factors
Twenty years of redistributive economic policies have left Egypt with inefficient,
low-quality social institutions the nation boasted a 29% illiteracy rate despite 96%
enrollment in primary education. In an economy characterized by a high degree of
centralized planning, Egypt spent only 3.7% of its government budget on education
and 6% on healthcare.
Corruption and underactive centralized economic planning constitute major challenge
to Egyptian macroeconomic competitiveness. Although some Nasser-created SOEs
were privatized under Sadat and Mubaraks regimes, a new form of centralization
emerged. A small group of Egyptians relied on the partial and selective process of
economic reform to acquire wealth and political linkages to secure it over time,
giving rise to a class of oligarchs who have generally stood in the way of national
development (Sfakianakis, 2004).

Macroeconomic Policies
Rents have long-constituted a significant portion of Egyptian government revenue
an uncertain source of income compared to taxes, and one that frequently reduces
citizens investment in government policy-making. Rent as a proportion of total
government revenue raised to 23% in 2010, with fees from the Suez Canal (7%) and
oil-based export royalties (16%) constitutes the largest sources of rent income.
Remittances and aid compose the other two legs of a tripod that often constrains
macroeconomic competitiveness in developing nations. Nearly two million Egyptians
work abroad, mostly in Saudi Arabia and Kuwait, and remittances totaled $8B in
2010, about 8% of Egypts GDP. Although aid as a percentage of GDP has fallen,
foreign assistance in 2010 composed about 1.5% of national output, and Egypt was
the second largest recipient of American development aid.
Inflation has been a perennial scourge of Egyptian macroeconomic competitiveness.
Throughout the last two decades, Egypts persistent inflation in has exceeded that of
its.
Microeconomic Competitiveness
Microeconomic factors tell a mixed story: while Egypt succeeded in building a
relatively sophisticated economy with various clusters (several of which may have
linkages to the textile cluster), the country struggled to implement reform initiatives
aimed at improving the business climate and increasing investor confidence.
Corruption and bureaucracy remain serious worries for foreign investors, especially in
the absence of strong legal infrastructure.
Egypts national business environment boasts several positive factor conditions and a
large domestic market, but suffers from enduring structural challenges:

The Egyptian government historically leveraged Egypts location as a trading hub by


investing in physical infrastructure, resulting in air transport and railroad
infrastructure that is ranked in the top-50 globally (WEF, 2011). The country also
benefits from a semi-bilingual society: while Arabic is the official language, English
and French are also widely understood (CIA, 2012). While the secondary education
enrollment rate is at 90%, the quality of the Egyptian education system is ranked
131st of 139 countries, with the quality of management schools and staff training
being amongst the lowest in the world. Female labor participation is among the lowest
globally (ranked 130 of 138 countries). Egypt also lags many Arab countries in
contract enforcement and in government-imposed challenges to free enterprise. In
2011, Egypt ranked 94 out of 183 countries in ease of doing business (WEF, 2011).
The Global Textile Industry
As for the Global Textile Industry, countries export intermediate goods at every stage
of the value chain, and the total value of products exported increases significantly at
every stage. Global cotton lint exports are valued at $18.8B, while global cotton fabric
exports are valued at $31.3B. Although the United States and India account for over
50% of global lint exports, cotton fabric exports are dominated by Mainland China
with 36% share of the global market (UNCTAD, 2011).
The nominal value of global textile exports increased at an annual growth rate of
28.3% from 1990 to 2010, and currently exceeds $250B (WTO, 2010). Clothing and
apparel embody an even larger market. Mainland China dominates the global market,
with a 41% share of global exports by value, and Hong Kong accounts for an
additional 7.6% of the $314B export market. Developed nations constitute the largest
textiles and apparel importers. The United States, Japan, and Western Europe together
account for 85.9% of all global clothing/apparel imports (WTO, 2011).
Recent Trends in International Textiles
The sunset of the Multi-Fiber Arrangement (MFA), a global quota system that
governed international trade of textiles and garments, exposed many nascent textile
clusters to unmitigated competition (McNamara, 2008). China now represents the
largest global share of textile exports, having grown from 7% of the global textiles
export market in 1990 to 31% of the global market in 2010. China, Europe, India, the
US, South Korea and Turkey represent 12 the five largest textiles clusters and
together comprise over 75% of all textile exports, while Egypt is responsible for
roughly 1% of all exports (WTO, 2011). Both India and the US grow much of their
cotton domestically and source over half of all cotton lint imported by other clusters.
Cotton lint is also exported by Uzbekistan (9% of market), Australia (5%), and Brazil
(5%), while cotton fabric is also exported from Pakistan (7%), Hong Kong (6%), and
Italy (6%) (UNCTAD, 2011). China is the top global player in cotton fabrics, textiles,
as well as clothing and apparel exports, where India and Europe also have strong
positions. A 2001 study by the US Department of Commerce found that China alone
owned 41% of all low-technology shuttle looms, while Eastern Europe held the

dominant position in the higher-technology space, owning 25% of all shuttle-less


looms (US DOE, 2001).
Why is the Syrian and Jordanian textile industries competitive compared to the
Egyptian textile industry?
1. The Jordanian governments liberal policies for exports to U.S. firms through
QIZ and FTA (Free Trade Zones)
QIZ offers the following advantages:
Duty free and quota free access to the US Market
Total income and social services tax exemption
Duty free entry of fixed assets and spare parts
Skilled labor force at very competitive wages
Full repatriation of capital, profits
Stable political environment
Market oriented economy
World-class buildings, infrastructure and communication
2. The continued demand for high-quality industrial and high-income home
fabrics such as curtains and upholstery.
3. The existing prices for European imports of upholstery and curtains into the
Middle East are much higher
4. Prices in Jordan are much higher for the same quality products as in Egypt
5. Potential Syrian customers place high value on quality
6. The textile industry in Syria accounts for 30 percent of industrial employment
7. The textile industry in Jordan is focused on apparel, and imports upholstery
How can Moderna Textile expand and where? What are the strategies that it can
follow in expansion?
Moderna Textiles has Opportunities and Strengths that allow it to expand in the
Syrian and Jordanian Market:
Opportunities:
1. There is continued demand for high-quality industrial and high-income home
fabrics such as curtains and upholstery.
2. The existing prices for European imports of upholstery and curtains into the
Middle East are much higher than the prices for similar products by Moderna.
3. Prices in Jordan are much higher for the same quality products as in Egypt,
which is Modernas manufacturing and distribution base.
4. Syria is as labor-intensive as Egypt (the original manufacturing base of
Moderna)
5. Potential Syrian customers place high value on quality.
6. The Jordanian government encourages exports to U.S. firms through QIZ and
FTA.
7. The textile industry in Syria accounts for 30 percent of industrial employment

8. The industry in Egypt constitutes 25 percent of the countrys non-oil exports


9. The textile industry in Jordan is focused on apparel, and imports upholstery
10. There is scope for expansion of the business and for improving production
efficiency
Strengths
1. Moderna has the advantage that their products are reputed for traditional and
classic designs, quality, and reliability.
2. Moderna is a well-established company with 70 years experience
3. The company has a stable and well-trained workforce of 150
4. Sales are made directly to customers without intermediaries
5. Customers include five-star hotels and prominent personalities
6. It is one of the leading manufacturers of textiles, upholstery, and curtains.
But at the same time they have to face the below Threats & weaknesses:
Threarts
1. Global economic conditions are worsening
2. Regional geopolitical instabilities prevail in Jordan and Syria
3. There is real risk of imitations and trademark violations due to slack copyright
laws in Syria
4. Substandard factories exist for local manufacture in Syria
5. There is competitive threat of economical production and export by China and
India
6. Italy is entering the luxury textile segment with high pricing
7. There is a trend towards modern fabrics, rather than classic, in Jordan and
Syria
8. Eastern European nations are poised to compete in the high-end textiles
market
Weaknesses
1. Production efficiency needs to be improved to combat competition
2. Current market is limited to Egypt with over 50 percent living below the
poverty line
3. Moderna, despite its name, is a traditional and classic textile manufacturer
4. The company caters only to premium customers, neglecting middle- and lowincome customers
5. Moderna is narrowly rooted in the Middle Eastern culture and economy
6. The company may be lacking in possible intermediaries to expand the market
Accordingly Moderna Textiles should consider the following:
8. Promote Modernas high reputation over 70 years as a strength to enhance
customer awareness of its products
9. Continue to be price leader in each market segment geographically and
structurally
10. Establish and focus manufacturing of high quality fabrics to Syrians who
value quality, and have a labor-intensive, industrial workforce.

11. Establish manufacturing and overseas distribution presence in Jordan to


benefit from the Jordanian governments liberal policies for exports to U.S.
firms through QIZ and FTA (Free Trade Zones)
12. To combat instability in global economic conditions and political situation in
Jordan and Syria, establish a small but skilled and stable labor force composed
mostly of locals in these countries
13. Due to the risk of cheap duplicates, slack trademark and copyright laws, and
untrustworthy factories in Syria, avoid manufacture of high-quality products in
Syria, and do not use intermediaries in Syria by selling directly to premium
customers.
14. Market expansion, particularly within the familiar Egyptian base, could widen
the scope to target all three market segments premium, middle-class, and
low-income especially as more than 50 percent of the Egyptian population is
below the poverty line
15. Moderna could advertise its name to market modern fabrics that are
increasing in demand in the Middle East
16. Moderna could use intermediaries to expand the local Egyptian market, as
well as regional and overseas markets
17. Production costs need to be minimized consistent with quality and competitive
pricing by outsourcing fabrics for the lower-income customer base, to China
18. Production methodologies need to be revamped in tune with modern
technology
19. Use only trustworthy manufacturing locations, intermediaries, and legal
environments for manufacture, distribution, and marketing
20. Advertise Modernas unique strengths widely, especially in new markets to
minimize imitation
Moderna Textiles can use all below strategies in its expansion:
1.
2.
3.
4.
5.
6.
7.

Market development
Market penetration
Product development
Backward integration
Related diversification
Forward integration
Horizontal integration