Interview: Family Fortunes
Hassan Baalbaki, chairman of Baalbaki Chemical Industries (BCI), tells ArabianOilandGas how from a small subsidiary of his family business, BCI became a leading independent producer of polyurethane in the region
Like most family businesses in the Middle East, Unimetco Holding owns interests in a variety of sectors, from industrial and commercial, to trade, real estate, financial services and even agriculture.
For more than a century, it has passed down from generation to generation. But in many respects it is quite different from most family empires in the region. Over the past 50 years the group has survived Lebanon’s civil war, massive currency devaluations and the wave of nationalisation of privately owned enterprises in the region.
Keeping the businesses together was what helped it survive even in the hardest of times, says Hassan Baalbaki, chairman of Baalbaki Chemical Industries (BCI), the chemical segment within the Group’s industrial arm.
“A lot of the businesses in the area break up to make up. If you look at the GCC, there are big families with big fortunes and what they normally do is separate the business — each member takes a chunk and moves on. This way you preserve the business but it is no longer one entity, it is several businesses for one family, or several members of the family,” Baalbaki told RPME.
“If you have bigger size companies you have much more momentum because it is these families in the Middle East who basically develop and create future employment opportunities.”
It was with this idea in mind that a decision to restructure the company was taken. This was back in 1997 when to convince the older generation that the business they’d spent their entire lives building needed to undergo a major transformation was quite the task.
“It wasn’t easy,” admits Baalbaki. “But luckily for us the founder had a doctorate degree from Stanford, which wasn’t very common for someone from the region in the 50s. So when we told him he needs to go to a special programme in the US which talks about family businesses from generation to generation, he thought it was a chance for him to go back to university. But instead of Stanford, we went to Harvard, where they helped us and showed us that this is doable.”
After overseeing a number of entities within the industrial segment, Hassan was put in charge of the chemicals, which despite having no formal training in, he managed to expand significantly and take to new markets in the region and beyond.
“I studied economics but chemistry slowly became a passion. I gradually educated myself. Also, each family member gets a mentor when you reach a certain age and that mentor stays with you. We believe you can learn from education but you can also learn from individuals.”
Having started on a small project basis in Saudi Arabia back in the 80s, BCI now owns distribution and warehouse facilities in Turkey, Jordan and Algeria, as well as full scale manufacturing facilities stretching from the UAE to Egypt and all the way to Europe, where it recently acquired 70% of an Italian polymer systems manufacturer Polysystems.
“The plan is to grow this business to allow it to cater to some of the products that we manufacture here in the Middle East, and the secondary goal is to penetrate the European market which is the mother market for the inflow of raw material,” explained Baalbaki.
He added: “Europe used to be a manufacturing hub and as things developed and changed it also became an exporter. They needed to move material out of Europe so the market started to need more downward integration. Over the years they bought everybody out, people like us. We felt that there was a need in Europe for what we are doing, for this type of business, a business which is versatile and has the ability to move around to meet customer demands because when you are very big you can’t do that,” says Baalbaki, who plans to turn the recently acquired factory into a full scale operational facility supplying products to European markets.
“Because of its free borders Europe is becoming a very interesting market so you are not really restricted. If you are in Italy, you can supply Austria, you can supply Romania, etc.,”
Adding to its Middle East footprint, BCI recently opened a new manufacturing plant in Sharjah, which will primarily cater to demand in the eastern parts of the GCC and open up access to new markets like Pakistan and India. The company is also laying the groundwork to build a distribution facility and an office in Iran, which continues to be a major wild card for businesses in the region. But aside from political uncertainties, Baalbaki is of the opinion that sanctions-free Iran holds incredible potential for the growth and development of specialty chemicals industry in the region.
“There is no doubt that Iran will become one of the most important markets in the area for our chemicals at least. Why? Because the industries in Iran are already sub-sectored. The GCC has no automotive industry. If you go to Iran, not only do you have the automotive industry but you also have the supporting industries for the automotive industry.
“In a car you’d get the leather, the seating, the dashboard, the steering wheel, some of the tubing inside — all of that is polyurethanes. If you go into the building industry, everything that’s been insulated is polyurethane; your mattress on your bed probably has polyurethane in it too. Then you go into the other sectors of the specialties and you realise because of the past development of Iran these industries are there, they just need to be reactivated. I’d say in the next five to ten years we will see big growth,” Baalbaki added.
But growth while needed isn’t going to solve the industry’s problems. Similarly to the petrochemical and crude oil sectors, specialty chemicals are suffering from market oversupply and global demand slowdown which has caused prices to fall. Baalbaki estimates that it will take between one to two years for prices to pick up. But with tonnes of new products set to join the market as Saudi Arabia’s Sadara comes on stream it might take much longer than that.
“With Sadara coming online, we will see one industry coming after the other and that will definitely put more pressure on the supply situation going forward. So will have to see how the dynamics will play out globally.”
Baalbaki expects prices to remain subdued for some time to come but says there is a silver lining in this for cosnumers.
“We look at it from a perspective that this could actually increase demand as an amount of kilos per population. There’s a lot of room for growth which with reduced prices could happen faster allowing more people to consume more products.”
Saudi Arabia, the GCC’s fastest growing and largest economy, home to some of the region’s most ambitious downstream projects, has been seen as the main arena for specialty chemicals in the GCC. However, Baalbaki says, it hasn’t quite yet lived up to its full potential.
“The Saudi industry was geared towards the concept of building mega plants to cater to global demand using oil. This was excellent but somewhere down the line the next steps lingered. Our sector is at the down end of the industry which at the end of the day generates the work, which generates employment. A plastics machine is pumping thousands of products a day with one utility man on it and today none at all because everything is robotics. If you go into the specialty industries, you have much more people involved in plant operations,” he said.
Baalbaki is more than half way through his tenure as chairman of BCI. Although the board has the option to extend, eventually he’ll have to pass down the reigns and focus on another passion of his.
“That for me is a lot of innovation,” he says. “Basically creating an R&D environment in the company which helps grow these industries in the area.”
When asked about the legacy he wants to leave behind, Baalbaki says: “The legacy is to retain our reputation of being a family of its word, a family of consistency and prudence. It’s not a matter of how big you are, it’s a matter of how good, well-structured and preserved you are. We believe this needs to continue as the next generation takes charge going forward.”
“That is on the family side, on the business side the legacy would be taking pride in what we do. We did not sell the business, we did not leave it in hard times so our legacy is to be able to say that our family business, amongst other things, created the largest independent operator in this line from the area for the area, and we are now also trying to grow into the global arena,” Baalbaki said.
He added, smiling: “Some day when we have someone more capable and hyped up than myself we could go into the US, China or other parts of the world.”