Filmar, an Italian Textile Company that has been struggling to keep afloat, has chosen Africa not only to survive the worst crisis ever experienced by Italian textile industry, but also as a fertile ground for its revitalization and development programme that has breathed new life into the company founded in Lombardy in northern Italy in 1958. In 2009 the CEO of Filmar set up Filmar Nile Textile at Borg El Arab, a few Kilometres from the Egyptian port city of Alexandria. Today Filmar Nile Textile boasts 470 employees in Egypt alone, and has handed the Italian group the opportunity to continue to play a role in the international market for quality cotton yarns. We interviewed the CEO Mr. Marco Marzoli about the corporate relaunch between the two continents.
When did you start thinking about looking across the border for your business?
There have been three major crises that have shaken the Italian and European textile industry, particularly cotton trade, since 2000. In 2001 China became part of the World Trade Organization (WTO). This had a huge negative impact on the cotton growers in the area between Bergamo and Brescia, which used to be referred to as the Manchester of Italy. In 2005, the end of the Multifibre agreement, which regulated the international textile trade, led to a deeper liberalization of trade which affected the Italian companies even further. Then came the financial crisis of 2008. Filmar managed to survive all the crises and to avoid contracting production elsewhere. After this difficult period, it became clear that it was time to act.
So, you decided to establish a plant in Egypt. Why there?
The plan to set up a subsidiary in Egypt began in 2007 and was merely implemented in 2009. The choice of Egypt was a logical one: we were big importers of Egyptian cotton in the 60s and the 70s. It is a reality that we were already familiar with, so we decided to move our production because of the energy costs characterised by huge consumption of gas. Energy impacts a lot on production costs in Italy making it very difficult to be profitable. The cost of energy in Egypt is lower compared to Italy, which means we have higher margins. Furthermore, it is a country where trading is done in US dollars. In 2007 for example, the euro was very strong, which meant that goods from Europe were costlier compared to those from China for example, which was trading in US dollars. This made it difficult for the European exporters to do business.
Egypt is a developing country, with a good deal of political instability: did regime changes affect your business?
No, we have never had any problems from a political point of view. Not even when the transition from Mohamed Morsi to the current President Abd-al-Fattah al-Sisi took place. There have perhaps been some concerns from the religious point of view, especially during the transition from Mubarack to the Muslim Brotherhood. It is important to note that Egyptian people are used to cohabitation and religious tolerance, which is a good thing.
What about corruption. Has it affected you in any way: according to Transparency International, Egypt is ranked 108th out of 176 countries regarding corruption … (Italy is 51st)?
Fortunately, we have never had any problems with corruption. I think it is due to our transparent approach to doing business: we are well cognisant of the fact that we are in a foreign land and that we are the objects of great attention. Currently, we have a series of projects in progress, among these is “Cotton for Life” thanks to which we have been able to integrate the value chain of high quality organic cotton. This gives us particular visibility at political level and allows us to face public officials on an even safer platform.
Setting up a business abroad, especially in countries with a lot of bureaucracy such as Egypt, is always quite complex. Have you had to lean on someone? Who were some of your partners on this path?
It was not easy at first, but things got better once we partnered with two other business friends, and a Swiss company, all of whom were non competitors in the textile sector. The Italian Embassy also gave us a lot of support. We chose to entrust the construction of the plant to a general contractor, therefore the plant was handed to us “keys in hand”, so we didn’t have to go through the difficult task of applying for permits: we simply provided the required documents while the contractor took care of the rest. It terms of financing, we made a logical decision right from the beginning to work with Banca Intesa which at the time was acquiring the Alexbank of Alexandria in Egypt, given the good relationship we had enjoyed over the years: We now collaborate with them both in Italy and in Egypt.
Delocalization is often talked of in negative terms, particularly from the point of view of workers in the country of origin who fear losing their jobs. Did you have difficulties in your company in Italy when you notified the Italian employees about the move?
I wouldn’t refer to it as delocalization, but an implementation of a project that we already had in mind. The numbers show that before opening up in Egypt, the employees in Brescia were 100; now there are 140 which is an improvement. The difficulties, however much they were, did not derail the process, partly because everyone was actively involved in the opening of the African office. The operations of the two sites differ in that, the production in Italy is more linked to fashion, so it has much tighter schedules; whereas in Egypt we do large-scale production. However, both of them are important for our business model. It’s worth noting that the expansion has strengthened our business making it truly international to the extent that we can now compete with the whole world from Egypt.
Your initiative “Cotton for Life” is your interpretation of innovation in the cotton sector. Did the communication have a positive impact?
“Cotton for Life” was a dream that has now become a reality. We are the only fully integrated company in the world: from the production of seeds and organic cotton, to the dyeing of yarn. We decided to invest in the cultivation of organic Egyptian cotton because it is of a more superior quality that is able to compete with the American Supima which is genetically modified. Here, we are “Monsanto-free” he said as he laughed. I believe innovation should focus on the sustainability of the value chain, as well as the social and environmental aspects of any successful company.
Which other countries in Africa is Filmar interested in?
Sudan would certainly be very interesting because of its type of cotton, which is perhaps better than the one from Egypt. Unfortunately, the geopolitical conditions there are highly unstable making it unfavourable for business. Another country could be Ethiopia, even though their cotton is not long fibre, which is what we use mostly.
Some lasting lessons?
It is generally difficult to find the right partners that would meet your expectations, so my advice is to be very careful about the choice of partners and consultants. If you have any doubts, I suggest you retreat immediately. My other concern is about some of the local people, who don’t always reciprocate when you treat them with respect.
Where it all began:
Piera Francesca Solinas, now Filmar’s corporate social responsibility manager, encountered the Italian company when she was an employee at the Italian embassy in Cairo. She not only inspired the project in Egypt, but also played an important role in its set up.
Was it difficult for Filmar to start producing in Egypt?
Not really, the setting up of Filmar in Egypt was quiet smooth, even though bureaucracy and the search for a qualified workforce posed real challenges. Filmar Italy was very instrumental in ensuring that the operation went well and that there was harmony with the newly opened Egyptian branch. In fact, I am very proud to say that all Egyptian personnel in Filmar Nile many of whom have come for training in Italy, currently speak good Italian. The training between the two countries is usually very active and is aimed at ensuring that the know-how circulates within the company.
Filmar invests in human resources, actually starting from schools…
The company has played a significant role in promoting education in order to enable students to work in the modern textile industry. The local Ministry of Education has developed a three-year course in a technical and professional high school through a joint programme with Filmar whereby we guarantee a number of vacancies to the students who graduate successfully from the institution. Some Italian schools and universities have also been instrumental in making up for this deficit in the Egyptian curricula by taking in some of the students and also training local teachers. The local school already had a base for the mechanical industry training, so we pushed for the textile industry training to be introduced as a specialization.
Filmar’s commitment doesn’t end there…
Students are offered a three-month internship programme in the establishment in the first year, and a monthly payment to cater for their transportation costs and everything else needed for the job. This is in addition to food, which we also provide. We have tried to create an attitude of inclusion by offering alternatives, in order to distract the youth from the thought of irregular emigration to Europe which is becoming quite common. Filmar gives them the opportunity to develop a competence in an Egyptian company, but with an international level of technical know-how.
Was it easy to talk to the Ministry to convert this into action?
It was not easy but, the Italian Embassy was supportive in pushing the agenda. Once we gained access to the Ministry, they were very receptive and willing to listen to our proposals: Egypt is focusing heavily on foreign investments. A law has recently been passed which gives many advantages to foreign investors. Clearly, it is necessary to have the ability to activate those processes. I would like to point out that there is a large Italian community in Egypt, which has remained in close contact with Italy and which can be highly instrumental in creating a strong link between the two countries.
What are the other important variables for a company that intends to set up there?
In addition to the embassy which has a wide range of networks, there is the ICE (the foreign trade institute), and the Italian Institute of Culture abroad. It is critical to see what the common interests between the two countries are, it is also very crucial to establish contact points with the local culture. It is important to understand the development policies adopted of a country. In the case of Egypt, the pull factors for foreign entrepreneurs are the reduced costs, the geographical position, the free trade agreements with strategic market regions of the world for those who produce and export, low taxation and easy availability of land. All these measures are put in place by the government as incentives for potential investors.