(The interview was published in the Aurora's Jan-Feb 2016 issue)
AURORA: What made the Bestway Group go into cement?
ZAMEER CHOUDREY: For context, the Bestway Group started off in retail in 1963. We expanded the business and in 1976 we went into wholesale. Next, we ventured into ethnic foods and real estate. We entered into cement in 1995 and banking in 2002 and the pharmacy sector in 2014. Today, our wholesale business is the second largest in the UK, with a turnover of about 2.4 billion pounds per annum and employs about 5,000 people. Our pharmacy business is the third largest retail pharmacy in the UK; it has a turnover of over £800 million and employs about 7,000 people. Our businesses have been very successful and we are always looking for new opportunities. We first came to Pakistan in 1990 and we became the first company to import Pakistani rice into the UK. In 1992, we bought a rice mill and today Bestway’s rice brand (known as White Pearl), is the second biggest brand in the UK. In 1992, the Government of Pakistan started to look at privatising the cement industry and we decided to take a look at it and it proved to be an interesting opportunity. If a country is to develop and progress, one of the basic industries that support this development is cement, through infrastructure building and housing. We started our cement business in 1995 and by 1998 we had built our first plant in Hattar; it was the quickest cement plant to be built in Pakistan and it set a record for the industry. Subsequently, we acquired Mustehkam Cement in 2005, built two plants at Chakwal and last year we bought Lafarge (Pakcem). Today, we are the largest cement producer in Pakistan with a capacity of eight million tons and we employ over 4,000 people.
A: To what do you attribute Bestway Cement’s success in this industry?
ZC: We work harder and smarter than the next guy.
A: Is this a labour intensive industry?
ZC: Not really; it is highly mechanised.
A: How difficult is it to find skilled manpower?
ZC: We have developed our manpower and we have a massive training programme. This is one of the things that makes us different from the other players. When we first entered the market there were shortages. To manage, operate and maintain our plants we required labs, workshops and other facilities and today our facilities are the envy of any training institution in Pakistan. We recruit a significant number of fresh engineering graduates – mechanical, electrical, instrumentation and chemical. When we started we knew we would grow, so our policy has always been to hire excess engineers and even today, typically we take in about 45 graduate engineers, which is a lot more than we require. We select graduate engineers from various disciplines and put them through six months intensive training. At the end of it, we hire about five and the remaining 40 will go and find jobs in the market, either in the cement industry or in other industries. We also train technicians, welders, carpenters and workshop engineers. In fact, we do this at every level because the idea is that fresh graduates may not always be able to find jobs, but if they train under us, the chances are that they will more easily find an opportunity with another company. This is a service we provide to the community and the country – and we are very proud of it. For years we have been creating a talent pool, and even those who leave us always aspire to come back to us.
A: What else distinguishes Bestway as a cement company?
ZC: We are very honest, very transparent and we respect our staff and colleagues. Most members of the founding team that established the business in 1995 are still part of the integral management. We like to promote from within and these are people who worked their way up and are now at director level. It is not only about the money; we value and trust our employees and give them the responsibility and space to contribute and succeed. As a result, there is very little turnover at senior level.
A: How price sensitive is this market?
ZC: To some extent it is. A better perceived product will be able to sell at a premium above the base price.
A: What do you mean by perception?
ZC: Bestway is perceived as an international company providing exceptional products. Of course, these perceptions are then verified by the experts; architects, consultants and contractors who periodically test the quality of the end product, especially when a large contract is in play.
A: Does the fact that Bestway is perceived as a British company work to your advantage?
ZC: We are a British owned company and a subsidiary of Bestway Group, which is a UK based registered company; so we are a British company – whether we are perceived as one or not, I don’t know.
A: Has this perception helped you in the market?
ZC: We like to think so. We have introduced a different culture. When we first entered the market, people thought we would need to be physically present in order to run the business. I think we have shown Pakistan’s corporate sector that it is possible to live and work in London and still run a business in Pakistan, grow and expand and become the largest cement producer in the country.
A: How is your product marketed?
ZC: From the very beginning, we have endeavoured to provide a top quality product. Our first plant was set up with state-of-the-art quality control laboratories. In fact, even before we began to quarry, we already knew the quality of the material in the different mountains or fields, so we mixed and matched to obtain a particular quality when the material is blended. The quality control process is ongoing; at every stage quality is checked and reconfirmed right until the end of the process. We sell directly to institutional clients in the construction sector in mass housing or infrastructure development as well as through our sales offices in all the main cities for our walk-in customers who come mainly through word of mouth recommendations from people who have used our cement before. Finally, there is our distribution network; transporters and dealers who have agreements with various retail outlets they supply to.
A: How large is your distribution network?
ZC: It depends on the size of the market. For example, if we were to supply the Karachi market (which we don’t) we would split the city into 10 segments and appoint 10 different dealers depending on their capacity to service the network. Some already have their own network of shops and their own transport. Of course, you have to manage those relationships. Develop trust and confidence; monitor performance and reward those who are performing and weed out those who are not.
A: Does mainstream advertising play any part in your marketing efforts?
ZC: There is some advertising, but cement is not a sexy consumable product in the way other product categories are. Advertising works when it is a question of impulse buying; when people differentiate and pick up a product as opposed to another one on the shelf. As our customers are not able to do that, advertising to the public in the general media is not relevant; typically if you have 100 people, 99 of them are not building a house at that point in time.
A: How important is the government to this industry?
ZC: The government determines the taxation policy – and cement is heavily taxed. We pay excise duty, sales tax, import tax and regulatory duties. So government plays a big part in the sense that if we were to do a value addition chart, it would account for a big chunk of this value addition. However, apart from this aspect, the government is not really relevant; we are a private sector company and provided that we comply with the rules, which we do, there is not that much need for interaction. We produce and sell the product in the market and account for the taxes and duties payable to the government on a monthly basis and that’s it. Having said this, government policies affect our pricing, because a big chunk of the price is excise duty and sales and other taxes. If the government wants volumes to grow, it would have to reduce the tax rate on every bag of cement; the net prices will then go down and consumption will go up.
A: A lot of people complain that the price of cement is going up all the time.
ZC: One of the reasons why it goes up is because we have to pay excise duty as well as sales tax, which is now at 18% and even a super sales tax on top of that.
A: As an industry what is the ratio in terms of your production for domestic use versus exports?
ZC: It varies from year to year and it all depends on the supply and demand dynamics. As a north zone based company, since 1998 we are the largest exporter of cement to Afghanistan and since 2007 when the Indian border opened up, we are the largest exporter to India. We also export cement to Central Asian countries, such as Kazakhstan. There was a time when the Middle East and Africa were booming and we were exporting a lot of cement. In fact, although our plants are based in the North, we transported our cement to Karachi for export to Dubai, Iraq, the Ivory Coast and South Africa. However, this is no longer the case. Now we hardly export anything via shipping, because the demand has dried up. Karachi based companies are able to meet that demand. When the demand was very high, it was met from the north.
A: Why have exports declined?
ZC: In the case of Afghanistan, primarily because the Americans are not pumping in as much money as they used to and the economy there is very much dependant on dollar contributions; the money is drying up and construction activity is going down. As for the other importing countries, they have now developed their own capacity. The same thing applied to Pakistan. There was a time when we were importing cement because demand was higher than what we could produce. Now we are at the stage where we have the capacity to produce more than we can consume and we are looking for export markets.
A: This is an industry that is very much based on location and transportation; is this confined to Pakistan or is it a global dynamic?
ZC: It is a global dynamic. This is a very bulky product and because the costs of transportation are significant, location and where the demand is are very relevant.
A: Is the environmental impact of cement a source of concern for Bestways Cement?
ZC: We are an extremely environmentally conscious Group. Cement plants consume and waste a lot of power and we were the first cement company in Pakistan to set up a 15MW waste heat recovery plant in August 2010. This has had a major impact on the environment, as we are reusing the heat which would have been produced without burning any fuel. So whereas previously we used to consume 40MW from the national grid, we now only require 25MW and the load on the grid has been reduced. Since then we set up two smaller plants of eight and seven MW each at our plant sites in Chakwal. In August 2015 we announced plans to set up for another 12MW plant at the Pakcem site; this is under construction and will come into operation in the first quarter of 2017.
A: How do you foresee growth in this industry over the next few years?
ZC: Growth in the cement sector is very much correlated to the state of the economy. So if the GDP grows by four percent, we will grow by eight percent. If the economy continues to grow, then the demand will also go up and if the economy starts declining, demand will also decline.
A: Does the Bestway Group plan to invest in countries other than Pakistan?
ZC: We have no immediate plans and there is plenty of scope in Pakistan. But yes, if a time comes when we feel that the opportunities to expand here are limited, we will look at other markets.
Zameer Choudrey was in conversation with Mariam Ali Baig. For feedback, email email@example.com