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(THE CONTEXT: Foreign investment in the United States is burgeoning, while oublic consciousness of this perennial phenomenon has been raised by the prospect of Middle Eastern oil money buying large pieces of American corporations and real estate. The traditional investors in the U.S. have been the Europeans, but in recent years, nouveau investors…the Japanese, the Arabs, the Iranians…have appeared on the American horizon. An understanding of the impact of foreign money and foreign ownership is obscured by a lack of knowledge. The following article describes the concentrated evolution of a traditional Arab family trading company into the early stages of a growth-oriented multi-national corporation.)
Kutayba Alghanim is a man of pragmatic ideas who has skillfully molded a large Kuwaiti family trading company into a modern corporation which he is currently reshaping into a multi-national business complex.
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- An investment banker, sitting in London’s “City”, speaks with contempt of the floundering, controversial moves by Arab interests to acquire pieces of corporate America — with contempt for all but Alghanim’s smooth, almost silent purchase of Kirby Buildings Systems, a manufacturer of prefabricated steel buildings with plants in Texas and Tennessee, with sales in excess of $26,000,000 in 1975.
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- A United States foreign service officer who specializes in the economics of the Arab states of the Gulf Region says, don’t bother looking around Kuwait for another company like Alghanim. “There is nothing comparable.”
The new international Alghanim organization is something unique — at once rooted in the history of Kuwait and now grasping the opportunity of the great surge of the Middle Eastern oil wealth to flourish across national boundaries and around the world. Kutayba Alghanim has a business perspective forged in the meeting of challenges. The present challenge is to match the efficiency, productivity and achievements of the Western multi-national corporations.
Kutayba, now only 31 years old, took over his family’s trading company, Yusuf Ahmad Alghanim & Sons, five years ago over the opposition of entrenched executives who considered him a boy with wild Western ideas — and who didn’t want to be replaced. The young man’s wild ideas involved the shattering of the established Middle Eastern concept of one-nan, dictatorial rule in the family business; instituting planning — which was and still generally is unheard of in Middle Eastern businesses; investing heavily in human resources; and creating an atmosphere of adaptability to change.
From the age of 11 through college, Kutayba had been educated in the West — first in Great Britain and then the United States, where he graduated with a degree in business administration from the University of California at Berkeley. The result: “I have a tremendous admiration and respect for Western civilization,” Kutayba said, “What it has been able to achieve in terms of the technological aspects and also in terms of the return to a lot of the spiritual aspects…Here everybody was calling the Americans materialists and the most materialistic nation on earth. You come back (to the States) and find the movements away from materialism… I was really amazed by the capacity for change this society has.”
More Exciting Than Rockets
In searching for the reason for the American people’s ability to adapt to changing situations, Kutayba said he found: “the United States has no cultural hangup…The Arabs, the Italians, the Greeks, the British, the French, they can all point back and say, ‘A thousand years ago we had a tremendously big empire.’ This gets in their ego, gets in the way of advancement and the way of change. They’re saying, ‘Don’t change because in the old days we had something great going for us.’ While in the U.S., I find that there is not this kind of barrier…a new idea is accepted, people’s minds are open…This concept was very, very exciting. It was much more exciting than the highways or the rockets…to see the human mind working there.”
When Kutayba first returned to Kuwait in 1970, he took a menial job as a parts picker in the family business which centered on the sale and servicing of General Motors products. Working his way up — even quickly–in his father’s business didn’t appeal to him. He himself had a hangup: he wanted to be his own man and to succeed on his own terms. He went into his own furniture business for about a year. Kutayba was drawn back to the family trading company by the realization that the company’s chief executive, an Iraqi who once taught at Oxford, had been building barriers to keep him out. Kutayba took the Iraqi executive’s unconscious challenge.
Reentering the business, he began to fight for control. Even though he was the son of the owner, Kutayba was a young man in a part of the world where age is often equated with wisdom. “I had a tremendous struggle,” he said, “a coup d’etat. I had to intrigue and wheel and deal with all the other executives… I managed finally, to make a long story short, to get hold of the controlling aspects of the company and with my father’s blessing… He could see I could possibly run it.” It was now 1971, two years before the skyrocketing of the price of oil and the shift of a large part of the world’s wealth to the Middle Eastern OPEC nations. The new chief executive of Alghanim & Sons prepared to meet his next challenge: transforming the disarrayed company into a modern corporate machine.
In recent years, the Alghanim company had been sliding along, making money in prosperous Kuwait where almost any import or agency business could have made money. Chief executives had moved through the company at a disenchantingly quick pace, lasting anywhere from six weeks to six months. Yusuf Alghanim, the family patriarch, filled the chief executive’s slot himself on occasion between the hiring of new candidates for the job. There was a serious question of whether Kutayba could hang in where older, more experienced men failed.
Recalling that time, Kutayba said: “It (the company) was really run down. The morale was very bad. The chief executive, if he happened to be Egyptian, he employed all Egyptians. If he happened to be Palestinian, he employed all Palestinians. Therefore, everybody was very depressed, was scared. They had a lack of security.”
“My first intent,” Kutayba said, “was to try to break up the groups, the different Arab nationalities who were at war with each other. That was a tremendous challenge…I saw that as a beginning of breaking the barriers for human interaction and having people recognize others simply as people, not as branded with a separate nationality.” More than half of Kuwait’s population is composed of non-Kuwaitis — Indians, Pakistanis, Jordanians, Palestinians, Egyptians — some refugees of the Arab-Israeli wars, many others drawn there by the opportunity to work. The Alghanim organization has 36 different nationalities among its 2300 employees.
Kutayba began his exercise of corporate power by gathering his staff to tell them: “We have all the politicians talking about Arab unity…Well let us not talk about it, but let us implement it here. Let us really be a company that is professional in its aspects, in its systems, in its procedures, and up to date… Our culture has slipped back in the 20th Century. We have got to recognize that we cannot jo back a thousand years and say we had a great empire stretching from Spain into India. Unless we recognize this, we’re not going to advance.”
Rejecting A Sexist Symbol
At the outset, Kutayba recognized the need for a symbol to express the new motivation of the company. The leading suggestion offered by the company’s executives was a circle (the motor vehicle orientation of the firm) with arrows extending from it in many different directions. Kutayba, interested in forging an efficient organization with a single sense of direction, countered that with his own offering — a circle with one broad arrow replacing the numerous arrows. Showing his own flexibility of mind, he realized that his circle with a single arrow could be misconstrued to be the male sex symbol — so that was abandoned. His reason: “We have a tremendous number of Arab women being educated (more than 60 percent of the students at Kuwait University are women) and we’d like to attract them as much as we attract men.
Kutayba had decided that within two or three years, the company would be decentralized, with each division head running his own operation, assuming an authority that was undreamed of in the Middle East. The company Kutayba took over was structured in the traditional way around the single father figure of the chief operating executive. Every check had to be signed by that person, every decision had to be made by him. “The paper was all coming to me to be signed,” Kutayba said. “This was supposed to ensure control in the organization, which was a lot of bullshit.”
Even then the Alghanim organization had a veneer of progress: a computer. “The computer was making the air in the office efficient,” Kutayba said, “It was something to be proud about, but was really not functioning at all. It was only (turning out) the payroll.” In the process of developing new uses for its own computer, the new Alghanim organization formed a computer management consulting firm, Inter-Consult, which develops software systems for clients throughout the Middle East.
Before his ambitious decentralization plan could be carried out, Kutayba realized that he had to impose the basic outlines of a modem corporation on his family’s business. He began hiring Western managers with the knowledge he needed. In mid-1970, Raymond W. Craig, who had 12 years experience behind him with the Mobil Oil Corporation, had been taken on as a consultant. As Kutayba emerged in control of the company in 1971, Craig was hired on a full-time basis and is now the chief operating officer of the Alghanim organization. Kutayba’s title is president. They began the transition to a modern corporation by installing an accounting system, a financial system, a management reporting system, an employee appraisal system and a salary structure.
It took about a year for the new Alghanim organization message to sink in. Kutayba explained why: “We had a credibility problem because most people had lied to them so much they didn’t believe anybody anymore.” By 1972, the nationality groups had been decimated. Pay was no longer attributable to connections or prejudices. The company had done a survey of 60 benchmark jobs, grading each slot and equalizing pay envelopes. Kutayba sald that some salaries were frozen, and some doubled or even tripled. The atmosphere changed, he said, “when everybody saw that equal jobs got equal pay, and you didn’t get twice as much as others simply because you were Egyptian, and the last chief executive who was Egyptian doubled your salary and kept the Palestinian down, or vice versa.
Eliminating the system of advancement through sycophancy created a new aura about the Alghanim organization. “There was none of this shouting and yelling. This boss-down relationship, no degradation…They really began to feel they were part of the organization and we had the beginning of, the feeling of an organization. Not loyalty to me as such, but loyalty to the whole organization, to the interests of the organization.” The Alghanims were in the process of developing that familiar figure of the Western Corporate World: the organization man, whose advancement is tied to his performance on behalf of the corporation.
During the earliest stages of this new corporate development, Kutayba said he looked around the Middle East, but failed to find any companies which could serve as models for what he had in mind. He was impressed however by an absence of investment in human resources in his region. “The biggest bottleneck in the Middle East is human resources,” Kutayba said. “We said if we develop our human resources (he tends to speak in the corporate “we”), and invest money into that area, as the years come and other alternatives open to us in terms of industrialization, in terms of doing things that are more complicated, then we will have the capability to do these things and to put our company in a position where its organizational ability would be unmatched…That would help our country and help the Middle East and establish a sense of pride. If we could match western companies in terms of efficiency, productivity and achievement then here we had the beginnings of something one could be truly proud of.” Referring to the billions of dollars flowing into the OPEC countries from the oil bonanza, Kutayba said: “these things are really a jackpot, and one cannot be truly proud of a jackpot.”
As the big money began flowing into Kuwait and the rest of the Middle East from the dramatic increases in the price of oil during the 1973-74 period, the Alghanims had the basic organization in place to exploit the tidal wave of wealth. The company, claiming annual sales in excess of $200-million, expects to sell 14,000 cars this year. It is the largest General Motors dealer outside the United States. But along with cars, trucks, heavy construction equipment and modern efficient plants to service these products, the Alghanim organization is also in shipping, food distribution, travel, electronics and construction. The company holds 86 franchises. Craig said that since Kutayba took over in 1971, profits have multiplied by a factor of 20, but he declined to reveal precise figures.
The Million Dollar Mistake
Craig said that by 1974, the Alghanim organization had decided to go international. “We came to the conclusion that the comnany was headed in the right direction for Kuwait,” he said, “but realized that it was not going to be that much fun doing the same thing year after year…We were concerned with our profit base being fundamentally tied up in one country, and in two or three franchises selling someone else’s product…We wanted to become more international, more multi-national.
The consulting firm of Cresap McCormick & Paget was enlisted to help map the company’s strategy for the future. “The area was booming,” Craig said, “it needed almost anything involved with construction and leisure time…the area was barren of any entertainment facilities.”
An early move to exploit the need for construction materials was the ungrading of a tiny quarrying operation, owned by the Alghanims since the 1920’s, into a modern, high volume, processing plant. “We got the biggest piece of earth-moving equipment in the Middle East,” Craig said, “but we ran into maintenance problems, breakdowns, product quality and competitive problems…and lost a million dollars.” The project was abandoned. “After that million dollar mistake, we’re a lot more careful. That was a very important input into the acquisition program,” Craig said.
Their first venture into the leisure field stumbled too. This time, the problem lay in the quagmire of the Egyptian bureaucracy. With costs estimated at upwards of $150-million, the Alghanim organization decided to develop a 1,000-room tourist hotel complex on the banks of the Nile about ten minutes from downtown Cairo. “The Nile Center” would have included a casino, cinema, marina and shops in a setting designed by the noted American architect, John Portman. “We have pulled back from the whole thing,” Craig said. “We reached the conclusion a year ago that others are reaching now (about doing business in Egypt)…They could not understand what we were talking about. It was like trying to explain the sunset to a blind man.”
July 13, 1949
“Below the ministerial level,” Craig said, “the guys are in who are the same old guys…The same bureaucrats are there who served under Nasser 20 years ago.” In the course of one of the negotiating sessions in Cairo, an executive noticed a dusty calandar atop a desk. He tore off a page; it was dated July 13, 1949. “It was a summary of what we were up against,” Craig said.
These two setbacks were minor happenings in the burgeoning Alghanim business. But Kutayba was anxious to begin developing his company beyond the stage of a trading company. “As the largest private enterprise (in Kuwait), we felt that we wanted to participate and start doing things that are more complex than just trading… We recognized we had to first get the know how…We decided the best thing was to go through an acquisition route, to buy companies and bring them into our area. We set a list of prerequisites: The company must be a well-managed company; a successful company; and a company that has a denth of management in order that they can spare some people to send to the Middle East without effecting their operations domestically.” He said domestic strength was important to give the Americans brought to the Middle East to train Arabs the feeling that promotions lay ahead of them back home if they succeeded in their overseas mission. “They’re not going to feel: ‘oh, I’m going to train them for two or three or four years, then they’re going to take my job and where am I?'”
Sitting down to go over available ideas, Craig said they considered projects involving the manufacture of razor blades, light bulbs and even a vehicle assembly plant before realizing that Kirby Building Systems, the firm they had hired to build the Alghanim organization’s new headquarters building, measured up ideally to all of the standards they had set for an acquisition.
Craig said: “We had decided to build a new head office building…We had a construction manager who convinced us that we should be looking into things other than the big, thick, heavy concrete construction (which predominates in the Middle East).” Several U.S. and British firms were invited to bid on the proposed, two-story office building which was to be a pre-engineered, steel building. “Kirby not only responded with a telex, but the chief engineer and vice president for sales arrived and were sitting downstairs while others were still asking questions,” Craig said. Kirby got the contract.
In the initial stages, Kirby and Alghanim discussed the possibility of going into business together in a joint venture involving the construction of a Kirby plant in Kuwait to serve the Middle East. “The factory looked like it would cost eight to nine-million dollars,” Craig said, and Kirby Industries, the parent of Kirby Building Systems, wanted 49 percent of the joint venture in return for providing management and technology. “‘We decided why should we give a big piece of the action to them that cheap…Finally we were sitting in London discussing it with their president, and we said: ‘why don’t we just buy the company.”
The decision to buy was at an opportune moment. Kirby Industries at the time was in the process of liquidating pieces of its corporate organization with the proceeds going to the existing stockholders to forestall the possibility of raiders who might take over the company to strip it of its assets.
“We jumped on the plane and flew over to Houston and met with the chairman and president of Kirby Industries,” Craig said, “and agreed in principle to buy the company at ten times earnings.” He added: “Earnings were depressed.” With the price set at $11-million, the sales agreement was signed in May, 1975 — and finalized the following Nov. 3. Kutayba got 95.75 percent of the stock of Kirby Building Systems for his money. The balance of the stock is owned by the management of Kirby Building Systems, who came with the deal.
The only thing unusual about the transaction was the absence of publicity that accompanied it. The purchase was made at a time when the American press was headlining any Arab-connected venture in the United States, but the only national publication to note the deal was the Wall Street Journal with a brief, stark story.
The entire management of Kirby Building Systems was retained, and the firm’s headquarters remained in Houston. The company, which has about three percent of the American market, is among the ten top companies in the States. Factories in Houston and Portland, Tenn. turn out the prefabricated steel buildings which are sold through 200 franchised dealers in 46 states.
Sitting in his office in Kuwait, Willie Doyle Godley, vice president and general manager of Kirby-Kuwait, recounted his 23 years in the business. He was production manager of Mes-Tex Building Company when Kirby Industries acquired it in 1966, subsequently turning it into Kirby Building Systems.
Godley, who supervised the construction of Kirby’s new Portland, Tenn. plant, said: “We started the plant site in Kuwait on November 20, and had the building essentially completed in 90 days. The erecting crew were the same guys who put up the Tennessee plant.”
The end product of the Kuwait factory, “which is like an erector set” whose parts fit together to build factories, warehouses, hospitals and schools, will be distributed through franchised dealers throughout the Middle East — just as in the states, Godley said. The factory, located within a short drive of Saudi Arabia and Iraq, is expected to begin production in July. Godley said that “Kirby is one of the lowest-cost producers in the industry.” The primary advantage of developing the plant in the Middle East near the booming construction markets is the trimming of shipping costs from the U.S. Godley said transocean shipping in the past represented 60 percent of the cost of the product.
“One of the jobs we have to do,” Godley said, “is to convince the people here to use it. They’ve been using brick and mortar for many years and any people are reluctant to change.” He said Kirby’s selling points will be “economy, speed and flexibility… on average it’s 20 to 40 percent cheaper and takes half the time of conventional construction.”
Kirby Building Systems was just a beginning for Alghanim in the United States. As Craig put it: “There are a lot of small, well-managed companies…it’s the natural place to look…and it’s a big, secure place where you don’t have to worry about repatriation of funds.” Gearing up for the corporate leaps forward, Alghanim Industries has been expanding its own supply of human resources. The company has 2300 employees. “We could do with 1800,” Craig said. “We carry extra for the growth rate of the future.”
While the quadrupling of oil prices in 1973 can be defined as the catalyst which thrust the Alghanim organization towards a new destiny as a multi-national corporation, the Alghanims were an established business family long before prosperity happened to Kuwait. The family can trace its history right back to the conception of the future city-state around 1710 when drought in central Arabia forced the Bedouin tribesmen to migrate in search of new pastures and sweet water to the present site of Kuwait on the northwest shore of the Persian Gulf. Through the years, and in spite of the continuous onslaught of enemy tribes — right into the 20th Century, the Kuwaitis survived on their small piece of shoreline as fishermen, pearlers, traders and builders of their famous dhows.
The Kuwaitis were still being harassed by their enemies when the Anglo-Persian Oil Company first expressed an interest in searching for oil there in 1911. In his book, “The First Kuwait Oil Concession (A Record of the Negotiations for the 1934 Agreement)”, Archibald H.T. Chisholm recounts that the British Political Resident told the company that conditions were “too disturbed” to permit such an operation. From 1899 to 1961, Kuwait lay within Britain’s sphere of influence.
Finally in 1922, Winston Churchill, then head of the British Colonial Office, authorized Anglo-Persian to proceed with the negotiations for the oil concession. “When APOC (Anglo-Persian, which later became British Petroleum Ltd.) was developing its sales organization in the Gulf in 1925, Ahmad Muhammad Alghanim, then head of the family, was recommended by Kuwait’s ruler, Shaikh Ahmed, as the best person to represent them in Kuwait, and he subsequently included their agency among his business interests,” Chisholm wrote.
Chisholm, sitting in his room at the modern, luxurious Kuwait Hilton, recently recalled the days of his own arrival in Kuwait to negotiate on behalf of Anglo-Persian in 1932. Chisholm is the only surviving signatory of the 1934 concession agreement which resulted in the development of Kuwait’s oil industry.
The city was still surrounded by the wall, built to fend off attackers. “It was a little, quiet pearling village,” Chisholm said, “There wasn’t even a bridge four (of Europeans)…There was the American mission, but they were too holy to play bridge.”
“In my first year here, I continually got hurry-up calls from my bosses in London to get on with it (how impatient they must have been, waiting since 1911 for the concession). I finally sent a letter to London saying: ‘You must remember, we’re arguing with a Middle Eastern potentate who is a devote Moslem and trader. He doesn’t smoke or drink; no cinema; he doesn’t play games. He has no interests except bed and business. He is enjoying this business negotiation as much as any Englishman could enjoy a bottle of whiskey, a Beethoven Sonata or a round of golf. He’s enjoying it and it’s going on and on…”
When Chisholm arrived, there were four cars in all of Kuwait, including those owned by the Sheikh and the Alghanims. The lanky, young Englishman quickly developed a friendship with Yusuf Alghanim, a friendship that was to last through the years, bridging the history of Kuwait from a small village on an obscure coastline to a city-state capable of influencing world economics. Yusuf, the present patriarch of the family, had been educated at the American Mission School in Kuwait and then went to Glasgow, Scotland, to study marine engineering. “Yusuf is 72 or 73, about my age,” Chisholm said, “and to this day can do any mechanical job better than any of his experts.”
Yusuf Alghanim was a perceptive businessman, who established the quarrying operation at Subiya in the 20’s, building the family’s trading business through the 30’s and into the 40’s. Just after World War II, he seized the great opportunity to sell General Motors products in Kuwait, creating the platform of the Alghanim, organization’s present business empire. “A lot of these rich people sat back,” Chisholm said, “but Yusuf ran a hell of a good show.”
Chisholm, whose Arabic nickname translates into the “tall one,” an appropriate description, said at the time of the negotiations “the entire budget for the whole royal family and palace was 18,000 rupees.” That sum translates into $7,500. Oil has raised Kuwait from the edge of poverty to the level of the richest nations of the earth. The first major oil find came in 1938, but World War II prevented development of the fields. Abdallah Yaccoub Bishara, Kuwait’s ambassador to the United Nations, put the escalation of the nation’s new wealth in perspective at a recent luncheon speech to the U.S.-Arab Chamber of Commerce in New York. He said: “In 1948, Kuwait’s GNP was no more than $100,000; in 1952 our income was about $18-million…in 1972, $2.2-billion and in 1975, $8.6-billion.”
The Pressure on Kutayba
Kuwait as a whole is goaded by the thought that some day in the foreseeable future the oil will be depleted — with the reaction that the present riches must be invested and the country developed wisely to provide against that future. That sense of national mission obviously created a pressure on Kutayba Alghanim to expand the perimeters of the family company.
To create a middle management for his organization, Kutayba has been recruiting vigorously in the United States with an emphasis on finding college-educated Arabs with a couple of years’ business experience to lure them back to the Middle East to work for Alghanim Industries Inc. The return for many is a reverse culture shock after the material luxuries and freedoms of American society. About 75 percent of the recruits stay, Kutayba said. “I keep telling them, look, if each one of us adopted a very small thing that he put his mind to and wanted to change, multiplied by the number of people that would come back, that this would help tremendously toward change and toward improvement.”
“This is really the beginning,” Kutayba said, “of finding an alternative to the oil base. Our only real asset is human development and unless we meet that challenge and we can get people to be well trained and professional, competitive in the 20th Century, then we don’t stand a chance.”
Last summer, in 1975, Kutayba carried out his promised reorganization restructuring the company into four distinct groups capable of retaining and expanding the existing franchise businesses while gearing for growth through acquisitions, joint ventures and the development of new businesses. The new name, Alghanim Industries Inc., was developed in recent months and the old trading company, Yusuf Ahmad Alghanim & Sons, became just another part of this emerging conglomerate company.
The emphasis Kutayba puts on human development is reflected in another manner: His organization has created a combination of scholarships and loans for students who will agree to become teachers in the Arab world. There are about 60 students in the program now, including about a dozen in the U.S. “We feel we have an obligation for the whole Middle East, and we can fill this obligation through education, which is the single most important thing we have to tackle in the Middle East. It’s more important than having doctors, than having administrators, than having business, than factories. I think you start there (with educators) and you end up with all the other fields that are necessary for a country.”
Some Conclusions:
Kutayba Alghanim is symbolic of the Arab investors to come. He is a pathfinder in recognizing and accepting the challenge of developing a complex multi-national business organization capable of carrying out acquisitions and running the companies absorbed. Kutayba is building towards an international business empire from the narrow base of a small country, more in the tradition of the Swiss and the Dutch than the Americans or the British with war machines to back up their corporate adventurers. Therefore, he has to be an international man. He is forced into it by the circumstances of birth, geography, history and economics.
Received in New York on May 11, 1976
©1976 Kenneth C. Crowe
Kenneth C. Crowe is an Alicia Patterson Foundation award winner on leave from Newsday. He is studying the investment and movement of foreign funds into the United States with emphasis on the OPEC nations’ oil monies. This article may be published with credit to Newsday and Mr. Crowe as a Fellow of the Alicia Patterson Foundation.
