Arafa holding: Supply chain design and operations for luxury men’s wear made in Egypt

Abstract

Labor intensive industries, such as apparel, tend to migrate from developed countries to developing countries in search of cheap labor. For Egypt, a country with a population of 84million, the apparel industry, in addition to providing new job opportunities for low to medium skilled laborers, represents a good starting point for an export-driven industrial development. Egypt offers a good migration option for apparel companies due to the relative competitive advantages of operating from Egypt: low cost of production, access to major markets (e.g., USA, and EU) through many trade agreements, industry base, and good support from the government. The government prior to 25 January 2011 revolution had a focused reform program aiming at increasing the base of exporters and promoting backward integration. As a result of that, during the period from 2006 to 2008, Egypt witnessed major investments in apparel and textiles, local companies were expanding their capacities and many foreign investors (Turkish and South Asian) were starting new investments in Egypt, and buying offices for major retailers or brands starting to source out of Egypt. Operating from a developing country, such as Egypt, poses a set of challenges that might be different than operating in a developed country. Despite operating in a less-than-favorable environment, some apparel and textile companies from developing counties have managed to compete effectively through innovative business models for operations and supply chain design. In this paper we present a case study on such a company operating in Egypt, Arafa Holding. We study and analyze the core operational competencies that Arafa Holding has developed and the supply chain strategies that they have followed to grow from a family-owned business to a vertically integrated group with retail distribution channels in the USA and Europe, and to flourish in tough market conditions and under the current non-conducive environment in Egypt. Some of those strategies and core competencies developed include a focused operation on tailored men’s wear, vertical integration and in particular forward integration into retail groups in Europe, proper management of financial risk resulting from global operations, and the human factor. We will also discuss practices that Arafa Holding has adopted to manage the knowledge accumulated through partnerships and joint ventures with many premium brand owners. New challenges were brought by the 25 January 2011 revolution, including security, the shortages in fuel, and labor strikes. We will discuss how Arafa holding has dealt with those challenges. We conclude by discussing the outlook for the company.