ARAB OPEN UNIVERSITY FACULTY OF BUSINESS STUDIES (MBA) B 713 I FUNDAMENTALS OF SENIOR MANAGEMENT TUTOR MARKED ASSESSMENT – Spring 2015/16 SEMESTER II B 713 –I- – TMA 02- Spring – 2015/2016 Semester II Cut-off Date May 2, 2016 (23.hrs GMT) _________

ARAB OPEN UNIVERSITY
FACULTY OF BUSINESS STUDIES
(MBA) B 713 I
FUNDAMENTALS OF SENIOR MANAGEMENT
TUTOR MARKED ASSESSMENT – Spring 2015/16 SEMESTER II

B 713 –I- – TMA 02- Spring – 2015/2016 Semester II
Cut-off Date May 2, 2016 (23.hrs GMT)
__________________________________
Please read these instructions carefully, and contact your tutor if you require any further clarifications. You should submit your completed assignment to your tutor to arrive no later than the cut-off Date May 2, 2016 (23.hrs GMT)
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Plagiarism
The Arab Open University Definitions of cheating and plagiarism
According to the Arab Open University By-laws, “The following acts represent cases of cheating and plagiarism:
• Verbatim copying of printed material and submitting them as part of TMAs without proper academic acknowledgement and documentation.
• Verbatim copying of material from the Internet, including tables and graphics.
• Copying other students’ notes or reports.
• Using paid or unpaid material prepared for the student by individuals or firms.
• Utilization of, or proceeding to utilize, contraband materials or devices in examinations.”

Penalty on plagiarism
The following is the standard plagiarism penalty applied across branches as per Article 11 of the university by-laws:
1) Awarding of zero for a TMA wherein more than 20% of the content is plagiarized.
2) Documentation of warning in student record.
3) Failure in the course to dismissal from the University.
All University programmes are required to apply penalties that are consistent with the University by laws.
Examples of Plagiarism
Copying from a single or multiple sources, this is where the student uses one or more of the following as the basis for the whole, or a good part, of the assignment:
• Published or unpublished books, articles or reports
• The Internet
• The media (e.g.TV programmes, radio programmes or newspaper articles)
• An essay from an essay bank
• A piece of work previously submitted by another student
• Copying from a text which is about to be submitted for the same assignment

Case Objectives:
The case examines how a Lebanese family business, a producer of both alcoholic and non-alcoholic beverages, confronts different opportunities to expand after its sales start to hit a growth plateau in 2013. Nayef Kassatly, managing director of the company, has to prepare for a meeting with his father and siblings to decide on the next strategic move. His father and sisters have different views of the future of the company.
The family has a strong cash flow that can be invested to expand the business and make it large enough for the next generation. In the last 10 years, the company grew due to its venturing into the ready-to-drink (RTD) beverage market. Is it time to expand the beverages portfolio and start production of beer? Or should the company invest in international markets and build factories for some of its successful RTD brands? Is it the right time to go abroad, given the uncertain political situation in Lebanon? performance improvement strategies on an on-going basis, rather than at restricted points in time.

Case
KASSATLY CHTAURA: TIME TO EXPAND ABROAD?

Ramzi Fathallah
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Permissions@hbsp.harvard.edu or 617.783.7860.

On April 9, 2013, Nayef Kassatly got a phone call from his father to confirm their meeting the following day with other family members to discuss the next strategic move of their company, Kassatly Chtaura, which was headquartered in Beirut, Lebanon. The producer of both alcoholic and non-alcoholic beverages was doing very well in terms of revenues and market share and had succeeded in building a strong cash flow. However, last year’s figures showed little growth, and the family was concerned that sales had reached a plateau. Building on the legacy of his father, Nayef wanted to expand the company and keep the family business going for future generations. Was it time to invest in international markets, given the uncertain political situation in Lebanon? Or should the company stay put and expand its operations in Lebanon?


LEBANON: ECONOMIC AND POLITICAL ENVIRONMENT
Lebanon, a small country in the Middle East, experienced a civil war between 1975 and 1990, followed by years of social and political instability. Its security institutions were inherently ineffective, being prone to continuous conflict and constant interference from the neighbouring countries of Israel and Syria. Also, there was an ongoing internal conflict triggered by different sectarian units that interfered in the administrative institution of the state. The grouping of people by religion played a critical role in Lebanon’s political and social life and had given rise to some bitter conflicts.
Lebanon had a population of around four million people and was characterized by a free market economy
and a laissez-faire commercial tradition. The Lebanese economy was service-oriented; the main growth
sectors included banking and tourism. The government did not restrict either domestic or foreign business
investments and was open to markets abroad with easy capital and labour mobility. The private sector
contributed around 75 per cent of aggregate demand. The business investment climate suffered from
corruption, arbitrary licensing decisions, archaic legislation and weak intellectual property rights.
The Lebanese economy enjoyed a relative attractiveness in 2009/2010 when it was considered a safe
haven for investments. However, after four years of 8 per cent average growth, the conflict in
neighboring Syria had slowed the country’s economic growth to the 1 to 2 per cent range in 2011/2012.
Gross domestic product (GDP) per capita was estimated to be around $15,800 in 2012. The Syrian Civil
War that erupted in 2011 had a strong spillover to Lebanon in 2013 as Lebanese political parties were divided between supporters and opponents of the Syrian government. This led to incidents of violence in some parts of Lebanon.

LEBANON’S BEVERAGE MARKET
The dynamics of the beverage market in Lebanon was different from that of Western markets because
around half of the Lebanese population didn’t drink alcohol due to religious beliefs. Thus, growth was
mostly driven by non-alcoholic drinks such as the carbonated drinks, bottled water and fruit juice. The
market for soft drinks and juices was well-developed. PepsiCo had the largest market share in the
carbonated category; Coca Cola was trying to compete by investing in promotions and out-advertising its rival. The soft drinks market was expected to continue growing by just over 27 per cent in sales value from 2012 to 2017 to reach $675 million.4 Although the market in Lebanon was growing, it was still considered small. For example, it was estimated that the soft drinks industry in Saudi Arabia was $5.2 billion in 2010.
The leading fruit juice producers in Lebanon were Bonjus, PepsiCo (Tropicana brand) and LibanJus. Another significant beverage category was bottled water, which witnessed an increase in the market due to concerns over the safety of tap water.6 Tea and coffee markets were considered relatively mature subsectors as the consumption of those drinks was part of local social traditions.
The alcoholic drinks sector was also witnessing one of the biggest growths in the region. Data from
International Wine and Spirits Research (IWSR) showed that alcohol consumption in Lebanon had
increased by 6.3 per cent from 2007 to 2012; almost one million litres of alcohol were consumed in 2012.
There were many distributors of foreign brands in Lebanon, but the market for alcoholic drinks was
sometimes affected by the country’s instability. When violence erupted, the number of tourists went down and the local market tightened. The premium or mid-level range products were usually the most consumed.
Nevertheless, by the end of July 2009, CNN reported that Beirut may be the “Best Party City in the World.” Beirut had become a very important nightlife spot, despite its instability and the political violence surrounding its borders. In 2012 and early 2013, the mushrooming of many bars in new districts helped the alcoholic beverage industry to grow.
The country’s beverage exports grew by an average annual rate of 25 per cent during the years 2009 to 2011 due to the country’s growing wine industry. Over 30 new wineries had been launched since 2000, compared to just three in 1990. Lebanon had a strong agricultural industry and a “terroir” (geography, geology and climate) that was ideal for the industry. For instance, in 2011, Carlos Ghosn, the chief executive officer of Nissan-Renault, teamed up with Lebanese wine distributors to start a new vineyard, Ixsir, with an estimated investment outlay of $10 million.

Many firms could leverage the extensive trade network of the many Lebanese who had immigrated to countries around the world in the last decades. The three largest wine exporters in Lebanon were Ksara, Kefraya and Chateau Musar. Many wineries exported more than they distributed locally. Although in 2012 there was a decline in wine exports, there was a rising export rate of other alcoholic beverages, especially as Lebanon’s beverages production expanded Arak, an anise infused drink made from distilled grapes, which turns white when water is added, was an important part of Lebanon’s culinary heritage. However, there were many commercial and homemade producers of this drink, so there were no official figures available for the annual production of arak Brasserie Almaza, owned by Heineken International, was the country’s leading brewer. It offered Almaza and Amstel popular brands and Laziza, a non-alcoholic beer.
Whisky was the number one spirit in Lebanon, dominating more than 50 per cent of the market. Vodka was the fastest growing spirit, but consumption was still lower than whisky. The popularity of vodka in Lebanon was part of a global trend. In early 2013, a Lebanese start-up enterprise began producing J2 Vodka that was distilled in Poland; it was the first Polish vodka to use Lebanese mountain water.
Johnnie Walker held 31.6 per cent of the market share in whiskey consumption, and its parent company, Diageo, a leading premium drinks business headquartered in London, United Kingdom, had a regional office in Lebanon. Its corporate relations director described the country as “the showcase of the Middle East and the leader of nightlife in the region.”


KASSATLY CHTAURA: HISTORY

Akram Kassatly, Nayef’s father, founded the business in 1974. He studied winemaking in Dijon, France and was very eager to start a winery in Lebanon. However, the civil war put his dream on hold as the town where he wanted to establish his winery was controlled by militias whose religious values prohibited alcohol. Therefore, he decided to start a bottling business for Jallab (Sweet Drind), a beloved non-alcoholic Lebanese drink.

At the time, street vendors who pushed their carts through the streets of Beirut prepared the unnamed
drink from dates and distilled rose water; to attract customers, they would call out, “Jallab!” Motivated by entrepreneurial curiosity, Akram approached one of them and asked him to prepare the drink in front of him to learn its recipe. He decided that it was a great business idea to manufacture and sell the syrup in concentrated bottles for home preparation; he named the product Jallab after the vendors’ cry. Since that day, the beloved drink had become such a huge success in Lebanon and the Arabic region that Akram had to expand his small factory to cater to local and international demand. He soon complemented Jallab with a wide range of other concentrated syrups and flower extracts. The products became successful and helped the family name prosper in the beverage market. As the factory was based in Chtaura, a town in the fertile Beqaa valley, the homeland of the largest producers of fruits and vegetables in Lebanon, Akram branded all his products with the name “Kassatly Chtaura.”

In the 1980s, the company expanded its successful syrup product range to include a wide variety of liqueurs, as well as fruit jams and finally fruit juices and smoothies in the 1990s. In the early 1990s, the company went more extensively into the food business, making pickles, jams and other canned food items. However, in 1994 when Nayef, Akram’s only son, joined the company, he opposed the company’s diversification strategy into this segment. He argued: “Kassatly Chtaura is a beverage business, and we need to leverage our market advantage in this sector to be able to grow. We could definitely use our bottling plant to make other drinks such as carbonated ones.”

Subsequently, the company focused more on beverages, developing different kinds of fruit juices, and gradually stopped the production of all food items except small 30-gram packets of jam (strawberry and apricot only). It decided to keep the jams as they helped to introduce its products to new places and clients, such as airlines, hotels and restaurants. Nayef commented: “We don’t make money out of the jam product, but it is an image focus product It is for marketing purposes.”
The company was always innovative in introducing new products and flavors. For example, it was the
first to produce mixed flavoured juices (tropical mix, banana strawberry and other mixes) when the local market offered only pineapple or orange juice. Also, it was actively involved in international exhibitions to showcase its products, making its first contact with Saudi and Kuwaiti customers at the Gulf Food show in Dubai during the early 1990s.
Kassatly Chtaura was known to focus a lot on its marketing strategy and to be a big spender on advertising campaigns to promote its products. From the period of the civil war, it always had very popular radio and TV commercials promoting Jallab, other syrups and liquors. Many of its ad jingles were memorized by a large number of Lebanese.

Akram’s other children became part of the business gradually. After Nayef joined in 1994, Ghida
followed him to lead the marketing department. Upon her return from the United States in 2011, Reem
also joined to handle export markets. Nayef was promoted to the position of managing director, and the
father was happy to have his children in Lebanon working in the family business. The company was
owned 100 per cent by the family members, and they discouraged having any non-family owners.
Nevertheless, many non-family managers joined the company in the early 1990s, starting their careers in entry-level positions, and contributed to the growth of the business. Some employees left to work for multinational corporations in the Middle East, but they returned to Kassatly Chtaura with their newly acquired experiences and visions.
The family also relied on foreign exports to help the company survive some of the seasonal political turmoil that affected local consumption. However, they did not shy away from investing and growing the business. The family always believed that the security situation in Lebanon was volatile — it could get very bad in five minutes, but five minutes later, it would be better again — so it was important to persist. Most of the management team had lived in Lebanon during past wars and turmoil, so they had the experience and the acquired flexibility to navigate the challenging business environment.

During the six-week war in Lebanon in 2006, the factory shut down for one month; many surrounding
factories were destroyed by air strikes in the Beqaa, and roads leading to the factory were blocked. That was a wake-up call for the family. They decided to buy annual political violence insurance to cover the factory. In 2012, they paid $75,000 over a 12-month period for a full coverage including business interruptions of $30 million.

KASSATLY CHTAURA: MAKING A BUZZ OUT OF READY-TO-DRINK PRODUCTS
When Nayef joined Kassatly Chtaura in 1994, the company had average yearly revenues of $3.5 million (see Exhibit 1). He wanted to expand the business as he felt that it had a strong brand and know-how in the beverage market that could be leveraged to explore many more growth opportunities.
During a personal trip to Switzerland, Nayef was amazed by the craze for vodka mix drinks in bars and dance clubs where young men and woman in their early 20s partied. It was part of a global trend as vodka mix drinks were practical and relatively cheaper than other alcoholic drinks. In 1999, Diageo, the producer of Smirnoff Vodka, launched Smirnoff Ice, a new flavoured vodka mix. Upon his return to Lebanon, Nayef asked his father: “Why don’t we produce a vodka mix drink in our facility in Chtaura? I want to do the same new products as Smirnoff in Lebanon! We can expand the factory and buy some new machines to enter the ready-to-drink [RTD19] market.” He already had a brand for this product in his mind: “Buzz.”

Kassatly Chtaura invested $2 million in the bottling machinery needed to manufacture the new drink. (The newly expanded plant could also be used to make other beverages.) In 2000, Buzz, an RTD beverage made with vodka and a variety of flavours, was introduced and became an instant success in Lebanon and other export markets. The company recognized that it was hard to compete with the brand equity of the global players, Smirnoff and Bacardi, but managed to compete on price to gain market share and build its brand.
As Kassatly Chtaura exported lots of juices to Saudi Arabia, Nayef discussed with the company’s Saudi agent the opportunity to make a product similar to Buzz but in a non-alcoholic format. The agent suggested, “Buzz non-alcoholic” as a brand for the product. Nayef preferred to create a new brand, “Freez,” so there would be no confusion, and it was launched within the year. This new non-alcoholic carbonated fruit beverage set a new trend and was quite successful.
Another addition to the Buzz line in 2003, Buzz Extra Strong Plus, was a milestone in the growth of the business. Nayef was inspired by the success of energy drinks such as Red Bull in European and North American markets as well as the rising demand among clubbers in these markets for drinks that mixed vodka and energy drinks. However, he was concerned with the side effects of these products on the health of his consumers. So, Buzz Extra Strong Plus mixed vodka (10 per cent alcohol) with a special flavor that did not contain any caffeine or taurine21 but tasted like an energy drink. In the second year of the introduction of the “Plus” flavour, the volume of its sales doubled and grew, on average, 30 per cent yearly since then.
Kassatly Chtaura’s RTD beverages had become very popular due to the company’s high quality products, a range of flavours and alcohol content and strong communication strategy (see Exhibit 2). The company made witty and funky advertising campaigns to target young consumers and kept changing its products’ flavours and packaging. The bottles had been redesigned four times so far because they were trendy products in a category that was new and growing very rapidly. The alcoholic beverages’ share of Kassatly Chtaura’s total sales grew from 20 per cent in 1999 to 38 per cent in 2003.

The campaign for these new products was ranked as one of the highest budgets spent in Lebanon for TV and billboards ads — around $500,000 in 2005, mainly on billboards, advertising Buzz and Freez.22 The company was making good margins on these products and spending money on development of the brands. It allocated certain budget amounts per box and per range of product according to the previous year’s sales to set spending on production of commercials and air time. It knew the market very well and how to communicate with its customers.
Eighty per cent of the raw materials and ingredients of Kassatly Chtaura’s products were imported. For example, the company had to start importing its glass bottles from Kuwait and Saudi Arabia after the supplier in Beqaa was destroyed in the July 2006 war. Other materials, such as vodka, were imported from European distillers; some flavours came from Switzerland. Seventy per cent of its imports came from Arabic countries with an Arabic Union certificate that translated into an exemption from customs duties.
Kassatly Chtaura relied on its own in-house distribution team to cover the Lebanese market. The factory in Chtaura covered the Mount Lebanon and Beqaa areas, and the office in Beirut covered regions in the north, south and Beirut.
The company’s markets were both on-trade and off-trade. The on-trade market consisted of restaurants, bars, clubs and beach resorts, where consumers bought the product and consumed it on the premises. The off-trade market included food and beverage retailers, grocery stores and corner stores, where customers bought the product but consumed it at home. The off-trade sector was the major market for Kassatly Chtaura as people consumed more alcohol at home, mainly because the products were cheaper when bought off-trade. However, the company had to be always present in the on-trade sector to build its brand image. Reaching the consumer was easier in the off-trade division because all the brand choices were displayed right on the shelf, and some neighbourhood grocery stores extended credit to their customers, who could then afford to buy more products. In a bar, the choice of products was influenced by exclusive deals with distributors.

EXPANDING THE BEVERAGE PORTFOLIO: GOING BACK TO WINE AND VENTURING INTO ENERGY
Kassatly Chtaura had continuous average growth of 25 to 30 per cent annually since launching the RTD products. This growth encouraged the family members to see the future of the firm on a bigger scale and to appreciate the potential of many varieties of drinks.
In 2004, the family was ready again to pursue the dream of their father in winemaking. They bought a
vineyard in Baalbek, close to their factory in Chtaura, and built the winery in six months at a cost of $1.5 million. Its first wines were bottled in 2005 under the “Château Ka” brand. At first, it was a challenge to compete with Lebanese winemaking giants such as Ksara and Kefraya. The wine business was growing, but a company needed at least 15 years to build a strong market share. Château Ka produced between 100,000 and 150,000 bottles per year and was number three in 2013 in Lebanon per volume, but it was still far from the market leaders.
Nevertheless, the success of the wine surpassed the family’s expectations as it met standards of excellence in winemaking in many European countries and earned many awards. Its fine wine became appreciated in Lebanon, the United States, Canada, France and the United Kingdom, where it was sold in high-end stores.
Although Buzz Extra Strong Plus accounted for more than 50 per cent of its Buzz products sales, Kassatly Chtaura had to reconsider its strategy in 2008 when its previous agent in Iraq started to import a new product from Germany, “XXL,” and sell it in Lebanon. The new competitor introduced XXL Vodka Mix beverages, but its most successful product was XXL Energy that mixed vodka with caffeine and taurine. Nayef commented: “My dad was very worried and was saying that XXL Energy is taking our market share. We have to do the same product to compete. But, I said no, it is dangerous, we will not do it--------------------XXL started to take a lot of our market share, and I was still stubborn.”
However, after losing a major share of the market, Nayef supported his family decision in 2009 to venture into energy drinks by offering a vodka mix with caffeine or taurine added. Kassatly Chtaura’s RTD products had been offered only in glass bottles, but the new product, Buzz Energy, was packaged in cans. As the family was late in reacting to the competition, it had to invest a lot in communication but still had to be patient before reaching 40 per cent of the market share in vodka energy drinks. Energy drink consumption in 2010 was around two litres per capita per year and the total market was around $20 million.

Changes in Government Laws and Regulations
In June 2012, the Lebanese government issued a new law allowing only energy drinks with maximum alcohol of 10.2 per cent and caffeine concentration of 0.01 per cent to be produced and sold. There was some expectation that the government would soon prohibit the sale, production and import of any product that mixed alcohol and energy substances, as new studies had shown that these drinks were dangerous. Nayef expressed his opinion: “Personally, I didn’t like Buzz Energy from its early introduction and was not convinced that Kassatly Chtaura should produce it because the product has side effects, and I don’t want to link my brand with risks to consumers’ health”
Although the family wanted to discontinue this product, it was not an easy task. As a large manufacturer, Kassatly Chtaura had ordered millions of printed cans in advance for bottling Buzz Energy. It had to incur extra costs to wrap the cans with new labels to use them for the Buzz beverages that had no caffeine or taurine added.
Although the spillover from the Syrian crisis was escalating in Lebanon, the family believed that the
beverage sector had the potential to stay healthy and even grow. Nayef remembered well the period of
civil violence and war in his country. People played cards and drank alcohol while they were in
underground shelters hiding and waiting for the bombs to stop so they could go to work. He commented:
Although the spillover from the Syrian crisis was escalating in Lebanon, the family believed that the
beverage sector had the potential to stay healthy and even grow. Nayef remembered well the period of
civil violence and war in his country. People played cards and drank alcohol while they were in
underground shelters hiding and waiting for the bombs to stop so they could go to work. He commented: “Even when there is war, people don’t stop drinking. When you are happy, you drink; and when you are sad, you drink.” Moreover, there were fewer imports reaching the Syrian market due to economic embargos from different nations, which created an opportunity for the company to continue selling in Syria through the open border. The location of the factory in Beqaa was strategic as it was halfway between Beirut and Damascus.
By 2013, Freez represented some 50 per cent and Buzz some 30 per cent of Kassatly Chtaura’s sales.
Freez was very successful in the Gulf countries — around 70 per cent of Freez products were exported to the Gulf Cooperation Council (GCC) market, while 35 per cent of Buzz production went to export
markets, mainly to Syria, Iraq and some African countries. Jallab and liquors represented only 10 per cent of the company’s turnover.
By April 2013, Kassatly Chtaura had become a leading drinks manufacturer, having grown from a $2 million business to almost $25 million in 20 years and from 20 employees in 2002 to 170 full-time and, during peak seasons, 300 employees. The new management team was relatively young and motivated to expand the business, but the company still depended on family members.
Kassatly Chtaura did not have any production or distribution facility outside Lebanon. It exported many of its products to markets in the Middle East and some other markets in Europe, Africa and North America (see Exhibit 3). Saudi Arabia was the major export market with total sales of $3.07 million in 2012. Kassatly Chtaura also exported to Kuwait and the United Arab of Emirates. In 2012, the company sold around $2.12 million in Kuwait and $1.88 million in the United Arab of Emirates. Angola was the largest market in Africa with $1.65 million. Although Syria was an important market for Kassatly Chtaura’s products, the management team considered the Syrian market as an extension of the domestic Lebanese market because many products were smuggled across the borders.
Many of Kassatly Chtaura’s products relied on raw materials and ingredients from suppliers in international markets, but everything the company sold was produced locally.

GROWTH OPPORTUNITIES
The company had been growing more than 25 per cent annually, but the sales figures were slowing. Its financial statements remained very healthy and showed a strong cash flow. Following its philosophy to always expand into new beverage production, the family wanted to expand the business, but they had different opinions regarding how to do so.
1. Freez Production Plant In Saudi Arabia
Nayef, who was interested in taking the business international, believed that Kassatly Chtaura should
venture into Saudi Arabia by building a manufacturing plant there to produce and bottle Freez products.
This was not the first time that the family had considered venturing into the Saudi market. In 2006, the six-week war in Lebanon affected many industrialists as many ports were closed, including the airport, restricting imports and exports. Nayef commented: “We thought of a plan B during the war, and it was about a new plant in Saudi Arabia, but family restrictions and emotions played a role and the situation got better, so we decided to stay.” He continued:
Today we should consider opening a bottling plant for Freez as it is very successful in the countries of the GCC, and our biggest export market for Freez is Saudi Arabia. Freez is 50 per cent of the turnover of all our business today; 90 per cent of its market is GCC, and 45 per cent of its market is for Saudi Arabia. So it is worth it, and if we go there, there is also potential to get bigger because we can start also distributing our own products.
Saudi Arabia, the largest economy in the Arab World, is a monarchy governed along Islamic lines. Nayef was very familiar with the new government’s economic reforms that promoted foreign investment in the kingdom by establishing six “economic cities” in different regions of the country.26 Growth in the beverage industry was attributed to a large and growing younger population and to the aggressive marketing activities of manufacturers, such as new product development and innovative marketing campaigns aimed to appeal to the personalities and lifestyles of this young population.
Kassatly Chtaura was a top Arab brand — number 25 according to Forbes Arabia — and it already had an official Freez Arabia page on Facebook that had many followers and loyal customers.
Nayef believed that Saudi Arabia would be the largest market for the company’s beverages, especially since the market was based on local Saudis and not expatriates, but the United Arab Emirates (UAE) and Qatar were also forecasted to show rapid growth over the next five years. He argued:
There are many advantages to investing in Saudi Arabia: energy cost is very low, transportation cost is very affordable and we can cover all the GCC countries from Saudi Arabia. Labor cost of foreign workers is very low, but we will need to recruit some Saudis to work for us following the Saudization law . . . but this should not be a problem. There are almost no taxes, and the country is relatively more politically stable than Lebanon. The state is more solid and there are stronger institutions of inspections and rules and regulations------------ Raw materials are heaper and widely available, so we will not need to depend on importing our materials from foreign suppliers and incur high costs. For example, Saudi Arabia has glass factories and sugar refineries We don’t have direct competitors in Saudi Arabia; Pepsi and its line of juices could be the only competition.
Nayef said that the family would need an investment of $15 million to open the plant; the bulk of this amount would be spent on the purchase of the machinery from European suppliers. It would require a partnership with a local player who could provide a portion of the capital and access to more local financing and local market knowledge. The family would inject $7 million for this project, an amount that was equal to their savings to date.

2. Buzz And Freez Production Plant In Angola
Ghida and Reem were also interested in expanding into international markets; however, they believed Angola in Africa was the best destination for a new production plant. Africa was ranked among the top destinations of Lebanon’s total agricultural food exports including beverages, and Angola was the top destination in Africa.28
Angola’s economy had on average grown at a double-digit pace in recent years. Ghida said:
In Angola, we have a good market for both alcoholic and non-alcoholic beverages. We are also selling our Buzz Energy drinks there as they are in high demand and not illegal. There is a lot of potential in this market. Angola’s government wants businesses to come and invest in the country and have new companies that open factories and recruit labour All our agents in African markets were encouraging us to come to the market and open a factory. They told us just to visit Angola and consider this option seriously and they would help us all along this process.

Diageo already sold spirits and beer in Africa, which accounted for almost 14 per cent of its revenues last year. Its African sales were growing very quickly to a level almost equal to its Asia-Pacific region sales, while revenues were falling in other markets.29 Angolan consumers were now richer than their regional counterparts and were able to spend more freely on alcohol. Recently, Diageo announced a new beer deal with a Portuguese brewer in Angola.30 Ghida estimated an initial total cost of $15 million to build and operate the new manufacturing plant in Angola. The biggest cost would be buying and installing the machinery, and the total investment would require a local partnership.

Reem concurred that Angola could be a good option, especially since Africa was a new, relatively virgin market that was growing fast, but she also highlighted the challenges of operating in Angola:

Much of the country’s infrastructure was still damaged or undeveloped from the long civil war, and corruption is a major challenge. We might be facing logistical hurdles and challenges to locally source our raw materials. Moreover, our numbers do not show consistency in the market. Our sales figures of the products we export to Angola keep on going up and down. One year the government increases duties on imports so sales go down, then another year they are better, and then again a new law comes up and they go down.
Moreover, Reem was concerned about the lifestyle in Angola and whether any family member would be willing to relocate and live there to oversee the new operation.

3. Beer Production Plant In Lebanon
Akram, the founder and current CEO of the company, had a different vision for the company’s future. He wanted Kassatly Chtaura to venture into a new product — beer, which would complement the company’s portfolio of beverages. He argued: “We always had one warhorse on which we built our categories of products. For example, we had Jallab, and we built all the syrups around it. Then, we had Buzz, and we built all the vodka mix products and Freez around it. Today, it should be beer. Beer would be the future of Kassatly Chtaura.”
Lebanon’s consumption of beer was 5.5 litres per capita (11 litres per capita when adjusted for the population that drinks alcohol), compared to 80 litres per capita in the United States and 75 litres in Europe. The market in Lebanon was estimated now to be around 200,000 hectolitres. Brasserie Almaza.
now owned by the Heineken group, had had a monopolistic grip on the beer market since 1933 and was the only large-scale brewer in the country. The Almaza local brand had 74 per cent of the market and the imported Heineken brand another 6 per cent, totaling 80 per cent for Brasserie Almaza. Five per cent of the market was held by 961 Beer of Gravity Brewing, a relatively new microbrewery that started in 2006 with a small plant that employed traditional brewing methods. The remaining 15 per cent of the market was made up of imports (Efes, the Turkish brand, was dominant in this category).32 Brasserie Almaza exported 10 per cent of its production mainly to Syria, the United States, Turkey and the UAE, while Gravity Brewing exported to the United States, Europe and Hong Kong and had plans to expand into Australia.

Akram thought that Kassatly Chtaura would have to expand the market of beer in Lebanon rather than compete with existing producers to grab a share of the current market. There was a low beer culture in Lebanon where around 70 per cent of people drank beer only in the summer. Akram commented:
We can create a new market and change the habits of the Lebanese consumers. We can also
invest in aggressive communication and marketing campaigns, so we will be able to double
Lebanese consumption of beer, hopefully, in five years. Also, the export markets would be in
mind. Our Syrian agent is very excited about the idea of importing beer from us if we decide to
go with this investment.
Moreover, Akram was familiar with the new incentives that the Lebanese government was offering to
Lebanese enterprises. Banque du Liban was offering business loans supported by the United States and
European Union to encourage Lebanese entrepreneurs and businesses to stay and invest in Lebanon.
Akram continued:
Half of the brewery is already available (bottling, packaging and pasteurizing) in our factory in Chtaura. When we bought our machines during the last 10 years or so, we had in mind to expand our bottling line to produce different kinds of beverages including beer. We would need an extension for brewing and fermentation. It would be an investment of $15 million ($10 million to buy the machinery, $1.5 million for construction of the extension factory, $1.5 million for utilities and installations and the remaining for other raw materials and diverse costs). We could apply for a $10 million loan backed up by the Banque du Liban, and we would need only to inject $5 million as self-investment.
Akram’s children were very concerned about the political instability in Lebanon and the region, but Akram reacted: “Kassatly Chtaura was born, developed and expanded during the war and during the persistent political instability, and it never stopped — why should we stop now? When we decide to do a project, we do it . . . no matter what!”

THE NEXT STEP
On April 9, 2013, Nayef had a very busy day at the factory in Chtaura. He also had to think about what he was going to tell his father and siblings tomorrow morning when they would meet to decide on the next strategic move of the company. Should the family venture away from Lebanon and grow in Saudi Arabia and develop the markets in the GCC? Or should the family invest their capital in the emerging markets of Africa and build a factory in Angola? These were promising markets, but they were in distant locations with different cultures. The political situation in Lebanon was unstable, but it had always been like that. Adding beer as a new product line to Kassatly Chtaura’s successful portfolio would complement its business strengths in Lebanon and accomplish a family dream

EXHIBIT 1: KASSATLY CHTAURA SALES
Year Sales US$
millions % of sales
Alcoholic % of sales
Non-Alcoholic %
Local sales %
International
Sales
1999 3.3 20 80 87 13
2003 3.2 38 62 50.5 49.5
2007 8.2 36 64 52 48
2008 10.6 37 63 51 49
2009 14.2 39 61 48 52
2010 17.9 35 65 46 54
2011 22.4 28 72 42.6 57.4
2012 23.6 37 63 45 55

EXHIBIT 2: KASSATLY CHTAURA’S PRODUCT CATEGORY SALES SHARES

Percentage of Total
Revenues 1999 2003 2011 2012
Liquors 20 20 4 2
Buzz N/A 18 19 30
Freez N/A 30 54 49
Château Ka N/A N/A 5 5
Fruit juices 15 10 3.5 2.5
Rose water; Flower
water 15 4 1 1
Syrup, including Jallab 45 12 11 8.5
Jam 5 6 2.5 2


EXHIBIT 3: KASSATLY CHTAURA’S EXPORTS BY PRODUCT CATEGORY
Percentage Exported of
Company’s Total Sales Value 1999 2003 2011 2012
Liquors 0 0 0 0
Buzz N/A 3 4.2 7.5
Freez N/A 40 45 41.4
Château Ka N/A 0 1.3 0.6
Fruit juices 1 0.3 0.3 0.2
Rose water; Flower water 3 0.25 0.33 0.2
Syrup, including Jallab 7 6 6.2 5
Jam 2 0 0.1 0.1




QUESTIONS:
Question one (Up to 50% Marks): (1250 words +/- 10 %)
Evaluate the current positioning strategy of Kassatly Chtaura, and discuss CAGE ((cultural, administrative, geographic, and economic) in relation to the case should you decide to expand into Saudi Arabia or Angola.

Question 2 (Up to 50 % Marks): (1250 words +/- 10 %)

As a consultant, discuss various considerations that the management of Kassatly Chtaura needs to consider when making the decision to expand, and explain the implications of the recommended options of your strategy

TMA Objective & Guidance:
Please prepare your views to the following questions in light of the information presented in the case. Tutors should organize and lead his/her candidates’ responses into the following three categories during TMA review in the classroom. Your answers must defend your point of view. Moreover; candidates are suggested to take into consideration the following.

Question 1: The discussion, focusing on the company’s core competencies, can be developed around four major dimensions: company objectives, product market portfolio, value proposition and core activities. i) Company Objectives, ii) Product Market Portfolio, iii) Value Proposition, iv)Core Activities
Start your argument by writing the options in three different columns on the board and asking the class what Kassatly Chtaura should do. List the arguments (pros and cons) for each option in these categories: strategic attractiveness, economic viability and organizational feasibility. The discussion should be straight to the heart of the issue where students should note that they should review growth strategies, market entry (particularly country/market analysis) and challenges that a typical medium-size family business confronts. They should introduce concepts of product development, market development and strategic fit. And discuss whether the enterprise is ready to internationalize or has more potential success by expanding in the local market. Moreover, factors that play a role in the growth decisions of many small and medium enterprises. The Saudi option had little fit with the company’s strategy because Kassatly Chtaura is known as an alcoholic and non-alcoholic beverage company. The family believes in producing and promoting both, but alcohol is largely forbidden in Saudi Arabia i) Market Development Strategy ii)Product Development Strategy . In Angola, they can produce the alcoholic range, but they have to partner with a local investor, an issue that plays against the philosophy of the family business that discourages non-family owners. The CAGE Comparator analyzes distances and differences between countries, as well as
industry-specific distance analysis

Question 2- Students should imagine being in the shoes of Nayef, Ghida, Reem and Akram. Who is willing to travel to Saudi Arabia or Angola to lead the business. If Kassatly Chtaura decides to venture into an international market (Saudi Arabia or Angola), it would diversify geographically to other markets that could help sustain its business in case of crisis in Lebanon.
Moreover, international expansion could be seen as a normal extension of the small Lebanese market.
Saudi Arabia could be an ideal location to manufacture products more cheaply due to lower raw material costs. Locating in a new country could also trigger new innovative opportunities to create new products for new markets. This option could help the company to expand its business in many other international/regional markets (whether in the GCC or Africa). On the other hand, a product development approach through the production of beer in Lebanon could help Kassatly Chtaura to enter a new product category whose demand is still underdeveloped (product Managerial preferences in a family business can have implications for reaching a family decision. The expansion plan needs at least one of the top family management team to relocate. But who is the most qualified for this assignment and who is willing to accept the new task?
Discuss how opportunities can still exist in markets characterized by political instability such as Lebanon.. Allow yourself to take the role of an entrepreneur/family member and make difficult decision as to which option for growth has the greatest potential for success.

General Marks (Up to 20% Deduction)
Marks distribution: This assignment will be graded out of 100 marks, which will be allocated to your answer for the three questions. 20% will be deducted based on the following criteria:
• 10% for improper referencing (5% in-text referencing and 5% end-text references).
• 10% for non-adherence to specified word count.

Letter Grade Distribution 100 Marks (Distribution)
Letter Grade Description Min Grade Max Grade
A Excellent Pass 90 100
B+ Good Pass 85 89
B Clear Pass 80 84
C+ Pass 75 79
C Weak Pass 70 74

Evaluation
The assignment will be evaluated on:
• The degree of insight offered and the level of critical analysis applied (as compared to description).
• The link to concepts presented in the course (the quality of the link is critical, not the number of concepts used) and the use of well referenced external resources.
• Whether the recommendations are valuable, realistic, and well supported.
Word count for TMA submissions
The overall word count is 2500 words (+/- 10%) (Excluding References).












Harvard Style - References / bibliography
How -to guide

Note: It is a requirement that all students include a header/footer of the following information on every single page of the TMA: Name, ID, Course Code, TMA #, Tutor name, section, and semester.

• You have to use the Times New Roman Font Size 12 (except for the cover page).
• Line spacing should be 1.5
• All pages should be numbered
• Keep wide margins for your instructors' comments
• Align your text to the left. Don’t justify leaving spaces between words

Harvard Style Referencing:
• There are various ways of setting out references / bibliographies for an assignment.
• “Harvard Style” is a generic term for any referencing style which uses in-text references such as (Smith, 1999), and a reference list at the end of the document organized by author name and year of publication.

In this guide, we are using a “Harvard Style” which is based on the author-date system for books, articles and “non-books”.
NOTE: When you write your list of references/bibliography, please keep in mind the following points:
• Your bibliography should identify an item (e.g. book, journal article, cassette tape, film, or internet site) in sufficient detail so that others may identify it and consult it.
• Your bibliography should appear at the end of your TMA with entries listed alphabetically.
• If you have used sources from the Internet, these should be listed in your bibliography.

FOR A BOOK
The details required in order are:
1. name/s of author/s, editor/s, compiler/s or the institution responsible
2. year of publication
3. title of publication and subtitle if any (all titles must be underlined or italicized)
4. series title and individual volume if any
5. edition, if other than first
6. publisher
7. place of publication
8. page number(s) if applicable
• One author
Berkman, RI 1994, Find it fast: how to uncover expert information on any subject, Harper Perennial, New York.

• Two or more authors:
Cengel, YA & Boles, MA 1994, Thermodynamics: an engineering approach, 2nd edn, McGraw Hill, London.
Cheek, J, Doskatsch, I, Hill, P & Walsh, L 1995, Finding out: information literacy for the 21st century, MacMillan Education Australia, South Melbourne.
• Editor(s)
Pike, ER & Sarkar, S (eds) 1986, Frontiers in quantum optics, Adam Hilger, Bristol. Jackson, JA (ed.) 1997, Glossary of geology, 4th edn, American Geological Institute, Alexandria, Va.
• Sponsored by institution, corporation or other organization
Institution of Engineers, Australia 1994, Code of ethics, Institution of Engineers, Australia, Barton, A.C.T
• Series
Bhattacharjee, M 1998, Notes of infinite permutation groups, Lecture notes in mathematics no.1698, Springer, New York.
• Edition
Zumdahl, SS 1997, Chemistry, 4th edn, Houghton Mifflin, Boston.
• Chapter or part of a book to which a number of authors have contributed
Bernstein, D 1995, ‘Transportation planning’, in WF Chen (ed.), The civil engineering handbook, CRC Press, Boca Raton.
• No author or editor
Kempe's engineer's year-book 1992, Morgan-Grampian, London.
FOR AN ARTICLE
The details required, in order, are:
1. name/s of author/s of the article
2. year of publication
3. title of article, in single quotation marks
4. title of periodical (underlined or italicised)
5. volume number
6. issue (or part) number
7. page number(s)
• Journal article
Huffman, LM 1996, ‘Processing whey protein for use as a food ingredient’, Food Technology, vol. 50, no. 2, pp. 49-52

• Newspaper article
Simpson, L 1997, ‘Tasmania’s railway goes private‘, Australian Financial Review, 13 October, p. 10
FOR A NON- BOOK
NON-BOOK
The details required are the same as for a book, with the form of the item (eg video recording, tape, computer file, etc.) indicated after the year.
Get the facts (and get them organized) 1990, video recording, Appleseed Productions, Williamstown, Vic
FORM OF ITEM
Dr Brain thinking games 1998, CD-ROM, Knowledge Adventure Inc., Torrance, California
FOR WEB SITES AND OTHER ELECTRONIC SOURCES