Ace Is The Place With The Afghan Hardware Man

Via Emerging Markets Frontier blog, an article on Ace Hardware’s planned entry to Afghanistan:

Growing uncertainty swirls around Afghanistan’s economic climate as the country inches closer to December 2014, when U.S. and international combat troops are expected to withdraw from an increasingly unpopular war. Many Afghans believe the end of the war also means the end of international investment in their country.

But there is a team of Afghans working with Americans hoping to ease at least some of those worries.

Ace Hardware has become the first American business to announce a partnership with an Afghan corporation to open a franchise in the war-riddled country.

At a press conference in Kabul at the end of May, the group Safi & Safi, represented by Najib Safi and Abdul Karim Safi, announced a multimillion-dollar partnership with Ace.

The Safi name is well-known in Afghanistan’s private sector. Safi & Safi is an offshoot of the already powerful financial player the Safi Group, which runs hotels, malls and an airline in the country.

But this new venture means more to the Safis than just another business opportunity. For them it is a way to bring the United States and Afghanistan together after a decade of war that has tarnished their relations.

“The Afghans’ perceptions toward the Americans in terms of what they did in rebuilding Afghanistan is unfortunately not very positive,” Karim Safi said during an interview with NBC News.

But he believes that the private sector can change that perception.

“Ace is something that will bring [quality] standards, service and job opportunities,” Safi said.

Afghanistan has a $20 billion economy, but a whopping 90 percent of that comes from international assistance. That number is expected to drop significantly as the war winds down. But the country and its partners hope that the private sector can ease that economic hit by investing and playing a bigger role in Afghan development.

“The shift from a war economy to a market economy will be painful in many ways for Afghanistan,” said Thomas M. Muenzberg, the deputy commercial officer at the U.S. embassy in Kabul. “But businesses that are committed long term in Afghanistan are looking forward to the market correcting itself, as lesser companies will be weeded out under a heightened level of competition, creating a healthier private sector.”

Muenzberg said that Afghanistan is entering a critical phase of development as it proceeds through that transition, and that the U.S. government will continue to assist and support the Afghans to help entice new companies into the country.

“Franchising is a proven market vehicle for both employment and economic growth that offers Afghan entrepreneurs the ability to diversify and succeed as the market economy transitions away from military-funded contracts,” he said. “It provides investors with a local opportunity and will help prevent capital flight during the transition.”

And picking the right investors is key.

“What better business than one that provides the tools to help rebuild a society in need of infrastructure?” said Najib Safi.

Another reason Safi & Safi chose Ace over other American and European corporations was because Ace allows its franchises to incorporate locally made products as 40 percent of their inventory—provided those products meet company standards.

“That got our attention because in that way we can support our local industry and sort of motivate them to bring in their products,” Karim Safi said. “This 40 percent has a motivating factor that allows [Afghan] industry to flourish.”

Safi & Safi paid $1 million for a licensing fee, and they plan to invest $40 million to $50 million more in the next 10 years. The plan is to open at least 10 to 15 stores throughout the country. The first is expected to open by the end of the summer in Mazar-e-Sharif, in the country’s relatively peaceful north. A main distribution center will be in Kabul.

“The right place for us was Mazar-e-Sharif because it’s a secure city and there are a lot of other regional places we can target from there,” Najib Safi said.

In the near future, the Safis hope to expand their business to neighboring countries such as Tajikistan, Uzbekistan and Turkmenistan—an idea Ace Hardware encourages.

‘We’re Making History’

“Ace has great experience in being the first in emerging markets,” Alberto Vidal, the company’s international business development director, told NBC News by phone.

Vidal added that although most of the financial burden falls on the individual franchises, Ace gives them a “toolbox of training and support.”

“We work with them with retail support, logistic, distribution training and consumer marketing training,” he said.

“We are making history,” said Bob Moschorak, president of Ace Hardware International. “It’s the first U.S. franchise to make it to Afghanistan and the first time Ace is in that part of the world.”

When asked why Ace would chose Afghanistan, Moschorak had a simple answer.

“Why not?” Moshchorak asked. “This is a win-win both in terms of politics and economics.

His advice to other U.S. companies setting their sights on Afghanistan: “You have to align yourself always with the right partners, otherwise you are always doomed for failure. We go in with local entrepreneurs who already know the landscape and are used to operating in the country.”

Ace plans to open its first store in Iraq later this month.

This entry was posted on Friday, July 19th, 2013 at 5:16 am and is filed under Afghanistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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