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East African Foundry Work was established in 1972 and it has become a successful engineering and metal products Company. Could you tell us how you started and what have you accomplished since your inception?
The company was started by my father with a friend of his, back in September 1972. At the onset we were a very small company. We started a service industry just trying to give service to a former employer of my father who had a local brewery. My father had worked for him for 18 years and he then took retirement and started his own place. In 1976 we ended up buying a foundry. Previously we were called Elite Engineers but after the purchase of the foundry we changed the name to East African Foundry Works Inc. Then in 1982 we moved to our current premises. In fact we have been a growth oriented group all along. The partnership turned out to be excellent. We actually looked at development and tried to get a quality product trying to supplement what an imported product could be. So the whole organizationīs focus has been in trying to give a service equivalent to international standards so that we would just go away from buying imported products and that its where even presently the focus falls. This led us to increase the amount of services we could provide and the kind of products we could produce. I joined the company in 1986 plant as head of the overall Financial and Administration of the factory. My brother joined in in 1982, and he is now heading the technical aspects of the firm. That is how it started off. So by 1986 when I joined in then it became four of us in the management of the Co.
In 1990, we started a new company: Alloy Steel Castings Ltd. which is just located next door, that is, we began commercial operations. That is the project that I took on and the only reason for its creation was that there was no steel casting facilities in the whole of Kenya, in fact in the whole of East Africa. In fact, all the steel castings requirements were coming from overseas. We were concentrating on the machine shop, but all the requirements that were coming through were either only castings, so there was a limited amount of machines we could do. It was to compliment the current facility that we ended up opening the steel foundry, which took off extremely successfully for the company, Alloy Steel Castings. I am the Chief Executive of that Company.
We were the first company to get the ISO-9002 certification in Kenya in 1996. The reason was because I went to school in the United States and I have always had an interest to go back and try to have some sort of business link with that country, so I went back in 1993 and 1994. Part of my studies were concerned with trying to get a hold on international markets. The requirements were of course ISO Certification and of course a good quality product. Our first entry into the international market has just been recently in the Hannover Fair in Germany, and it has had a wonderful response in terms of what we cover for our services here. I think we cover East and Central Africa very well, we are very well known engineering concern within the region. We manufacture for cement companies, sugar company, actually any industry would know us because we would have done something for them at one time. So in terms of our reputation, I think we are a pretty well reputed company.
In May 1998 we started a paper conversion plant (CEMPACK), the reason was because we are dealing with some main plants and tea industries. Until we started working with them their packaging materials were coming from overseas. Again, import substitution is the reason why we started the plant and it turned out to be quite successful. We are now key shoppers with EAFW (East African Foundry Works) Group. CEMPACK stands for Cement PackING, but now we are doing packaging material for the tea industry as well as for all the cement line industries and that goes from Kenya all the way to Zambia, including Rwanda as well. So within the East and Central Africa region we are pretty well spread, we have a very good market in Johannesburg. Since we have sort of exhausted the current market, we are pretty well geared in terms of our quality and our products to get into the international market, and that is exactly what we have been trying to penetrate right now.
What is your line of products?
In East African Foundry, the foundry section is doing everything for the building industry, right from manhole covers, drainage covers, weights, etc. Then it produces castings for the requirements of the local industry. Kenya and the neighboring countries being agricultural based, have got a lot of tea, coffee, sugar processing, and the few mining activities we have -Tanzania has also got gold mining, cement, lime stone, etc. The requirements is what we cater for ourselves.
Then we started manufacturing machines that are for technical institutions like lake machines, shapers, etc. which is what training institutions usually use. These are conventional machines, and the reason we are in conventional machines is that, Europe, which was producing this type of equipment before, suddenly started going extremely high-tech with computers and all that. Our local population is not trained for that. Here there is only a first or second generation that is going to be running equipments. So if you suddenly put them in front of a machine which is computerized they won't know how to run the equipment. So we then started making started making the gap there was in between, i.e., making conventional machines for any industry: for the metal industry, woodworking industry, if people wanted machines for sanding, special purpose machines, we would design and develop them. If a customer comes with his requirement we produce an equipment for him.
We are just thinking of starting to develop a new product, a small diesel engine. The reason is that the whole of East and Central African region does not have electricity in most of the rural areas, and there is a need for electricity for pumping water, for milling, etc. All that is done by the small diesel engines or rather by the generating power of diesel engines. These are all being imported right now, so it is a product we are looking at very seriously at the moment. In fact we will deal with any product that we can think of, but when we are looking at the international market it is to trade our castings.
It seems so far you are quite centered in marketing your products in Eastern Africa. What plans do you have in order to expand your operations to the rest of the world?
The focus of the company has always been to expand. We were initially focused only here in Kenya. From 1986 we started expanding and going into our neighboring countries. We are now in East and Central Africa. The current focus is to go international. The reason is that we have to go into volumes of production. We have a very high quality product, we have a very low cost product compared to India for instance, and to most developing countries. I can compete with Spain, Romania, Bulgaria and Portugal. In fact I am beating them on price. The reason for that is that our cost of labor is cheaper. Our labor is pretty well skilled, very cheap, and our raw materials are also quite cheap. This gives us an edge into what we can enter into. Europe (Hannover Fair) was an experience for us this time. We were taken on as a surprise. People thought that we were extremely well placed, in fact our prices were lower than most people were offering, and to us those were good prices. Entering into the European and American markets will be fairly easy for us. Right now we have a number of inquiries, and I think we do not have enough production facilities to accommodate all of them.
You mentioned that the machinery that is being manufactured in Europe or in the USA is becoming increasingly sophisticated incorporating a lot of high-tech elements.
It is the machinery itself, i.e., the equipment that is used in the local industry. Machines that are used in the local metal works industry, or woodwork industry, even lake machines from Europe most probably are a computer controlled equipment. Our power sources in Africa are not that great, the power fluctuates a lot, so the equipment would not even survive there, with all sorts of bugs coming in and all the breakups that we have. We need an extremely conventional equipment, and there are very few conventional equipments manufactured in Europe.
But how does this type of equipment fit in the European or American markets?
What we are trying to supply is the raw materials or, basically, the bigger casting on which they can then work and improve them setting on their specialization. I would be able to do the main frames of the equipment, I would be able to do the bulk castings, the bulk machining for them, they would then take on and put on their computer controls and set all their mortars and their fancy gadgets on that. | In other words, the structures would be built here. In fact, that is what Europe and the U.S. really need right now because foundries are dying industries in Europe and in the U.S. Also the cost production out there is just outrageous. When I was I Canada, three months ago, we went to a factory there and they are paying their worker $46 an hour. I wouldn't pay that for a whole month's wages here. That is how different the wages are. And obviously that reflects on the final price of the product. And there environmentally there too many restrictions. Not that we are not environmentally restricted here as well, but we have much larger open spaces, so things tend to work a lot better here. For instance, I use sand as my major raw material in the foundry, and it is available 500 km down the road, from the coast and it costs me a fraction of what it would cost me in Europe.
Where do you get your technology and your raw materials from? Do you have any contact with multinational Companies who want to work in joint ventures with you?
We have taken at some point some technical help. We have taken it from a few companies in India which have a fantastic technology. We have then recruited technical people to come and teach our local staff. They come on a five year mission where they would act as General Managers, Heads of Department, etc. Their duty is to teach our people take over this. In time we have developed our own people to work on all these equipments. As such we do not have a problem with people.
In terms of raw materials the best part is that in a foundry scrap is the biggest raw material, and there are very few people who convert scrap in this country in fact, convertors of steel scrap and iron scrap are very few. That keeps the prices of the foundry materials pretty low. Sand is a major raw material for us as well, and that is coming through the coast. Fuel is of course electricity, which when we look at it internationally is a very low scale. There are some materials which we are getting from South Africa, and some from Europe. That is because we do not have an industrial base to produce them locally. If there were more foundries and more engineering shops here, there would be scoop for those industries to come up here.
The industrial base is still very little developed in Kenya, nevertheless there is a lot of room for expansion. Do you have any direct competitors, and do you expect other companies, mainly foreign to get establish here?
We are yes, there will have to be strategic alliances that we will have to make in time, especially in terms of technology and also for capital investment because of the expansion we will need to make in time to come. But as such, right now we do not have a lot of competition. We are quite unique, we are into a niche market, and what happens is that whatever is required we will supply at the shortest delivery times for good price. So that is when we can enter into a market, and in particular it is the European market we are trying to get into. Companies from that market are dealing a lot buying bulk, in fact, they even have plannings for a whole year. Whatever shortfalls they have, they have to get some smaller companies to supply. It is the same principal we have here. Bulk supplies are still coming from Europe because fortunately or unfortunately, people still are not that educated in our country and they do not have the technical qualifications to decide if they have to go to a sub-contractor or to buy their goods from an equipment manufacturer. That is where our major problem is today. Educating our clients has been one of the major tasks we have ever had. For instance if he has a Ford vehicle you have to teach him that he does not have to buy the spares from Ford directly, that someone else can supply to him at half the price. However, once they get into the routine it becomes a lot easier.
You have obtained the ISO-9000 certificate of quality. How has it helped you improve your sales?
What really motivated us initially to get the ISO certificate was that our competitors, who were all overseas companies, when supplying goods they always put a certificate in front of a client, telling them they how good they were and that they could supply them with good quality products.
When we started to look into new markets we then started looking into it a little more carefully, and realized that it could not only improve our quality, but it could also improve the systems that we have internally to give it consistency. It was going to management tool as well. That was the biggest attraction that we had, because in any manufacturing organization the biggest problem that they have is consistency in quality, how to get consistency. And this is just the ideal tool for that.
We then introduced that within our plan and had discussions with our factory managers and all the concerned people. It was taken very positively from us. Obviously we did not have the know how. We then went into BVQI (Bureau Veritas) who have an office here. They gave us a good guideline as to how we could go about doing the whole certification. So we now have got Alloys certified and we are about to get E.A. Foundry certified. We want to get the whole group certified. We then had to get ourselves management representatives, who would assist us in making all the quality formats and the documentation. It lasted for 3 years and a lot of hard work, but at the end it was a positive result. We have had the certificate for 3 years. It has been a great achievement and great tool for management because for once we have got quality that is consistent. The system made sure that we do repeated work over and over again and we do not make mistakes. We just succeeded with that, in fact it has been a total success for us.
How do you perceive the American Market?, is there any possibility for you of exporting there or are you already do so?
The American market is absolutely huge. No matter what we do here, we are just going to be a drop in that ocean. The thing about Europe is they are extremely quality conscious, which makes it very difficult to penetrate, in fact, they feel they are very quality conscious, although they may not be, but they are always bragging about their quality over the Americans. In fact, America, I feel, has been a lot more receptive towards us. The only reason we are turning to Europe is because the distance is shorter. But the people in the United States are much more receptive and easier to work with. Particularly for me due to my educational background. My experience with Americans has been that you can penetrate their market much faster. If I were to deal with two or three companies there that would be more than we can produce. On the other hand before European Union came up, there was a collection of small markets. The EU is still trying to get its act together, which will take time. Maybe Europe is a stepping stone for us, it is the way we have looked at it. America is more receptive towards us in trying to get them a finished product. Europe is still looking at us just to provide them with the shells or the structures only, they want to do the finishing themselves. But Americans and Canadians have actually discussed with us to give us the technology so we will finish the product and ship it out to them.
Can you give us some basic figures: turnover, employees, production, exports, sales, etc.
Last year we had a group turnover of just over US$ 7 million. Most of our quotations are in dollars. For the last 15 years we have had a growth of about 15% every year. When we originally started my father had the equivalent of US$ 150. Now we have over 600 employees. The export sales out of Kenya are 50% of the turnover, mostly to the neighboring countries like Uganda, Tanzania, Kenya, Zambia, Rwanda and Malawi.
What are your future expansion plans?
We have basically expanded a lot and we are into some many different fields, that we now need to focus and get into specialization. Our specialization is machine castings and that is what we are trying to get into. That is what our focus is going to now, and that is where we need to increase our bulk in terms of quantities in producing. That is the only way we can see a growth in terms of turnover. As I mentioned to you before, we have already nearly exhausted our local market and we cover it very well. Now we would like to look at 2 or 3 fields and specialize ourselves, that we can do by increasing our bulk, reducing our costs further and giving a better product and service.
Kenya, like the rest of East and Central Africa, does not have original equipment manufacturers, so we are talking of the replacing the market. We are talking about 100 pieces maximum. Whereas the American market is a huge market, the quantities they are talking about are enormous for us. That is why we think we could fit in. The country's demand has tuned us to be very active and have a short delivery time and small runs and that is where I think we have got our market: giving larger quantities at a short delivery time, since we work on Just-On-Time management. And in 27 years we have never had labor problems, no strikes. We have not had problems of any kind.
Do you have any final message for our readers?
Our message to the readers is that they should consider Kenya in terms of business and not to think of it just as a tourist attraction. They should know that we also have some industries that need some support from American investors. |
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© World INvestment NEws, 1999.
This is the electronic edition of the special country report on Kenya published in Forbes Global Magazine.
November 29th 1999 Issue.
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