Crisis Management During the Arab Spring: Case of an Egyptian Company

Abstract

The Egyptian revolution has converted the Middle-East firms radically in many ways. As the number of deaths increased, the economy of Egypt was ripped, regional economic relationships were falling apart and businesses collapsed. The protests affected the politics, security, safety and economy of Egypt. The new government made new regulations which made it harder for businesses to operate. The aim of this study is to investigate the crisis management practices of an Egyptian import company during the Arab spring. This investigation has been done by the general manager by taking the right actions of different practices in order to face the crises that had an influence on the company. In addition to that, the article discusses the Arab spring, the Egyptian pound crisis and the crisis management literature which might be useful for decision making. Since there have been a number of empirical studies on crisis management, the present study aims to contribute to the related literature by using a qualitative methodology, including in-depth interviews with a top executive of a firm operating in Egypt. The analysis indicated that crisis management is very vital for a company. In addition, it proved that in as much as it is essential and necessary to prepare a plan to adjust to a crisis situation, flexibility is equally important in adjusting to the different circumstances which a company might be faced with.

Keywords: Arab Springcrisis managementcurrency crisiseconomyEgypt

Introduction

The Arab spring phenomenon made a direct impact on several countries including Tunisia, Egypt, Libya, Yemen and Syria. The impact was related to several aspects of each country mainly politics and the economy. All companies operating in any of the five main countries were influenced by the Arab spring. Businesses are threatened by different factors that occur due to abnormal reasons, and in order to have a chance to deal with any difficulty, a company needs to analyze the factors that might affect the business and prepare a plan to deal with each factor. Most companies don’t consider having proactive actions which decrease the chance of turning a threat into an opportunity. Crisis management helps companies to know what factors might have an impact on the business and how to deal with those factors. Crisis management also helps companies to know the different phases of a crisis and how to deal with every crisis in each phase. Previous studies have validated the importance of crisis management in dealing with different situations. Hence, this study aims to highlight the importance of both proactive actions and the flexibility of the manager in charge of reacting to the crisis. A good manager needs to have the ability to take the right actions when faced with a crisis even if a plan was not prepared in advance. The Arab spring was unexpected by many companies which led to the closure of many businesses. The new governments, new regulations and new standards of living were all factors affecting businesses. Companies which had the skills were able to face the revolutions and some of them had the ability to turn the problems into opportunities. Managers do not know every crisis that might influence the business, which is why companies need to have the right skills to face a crisis even when it was not prepared for. The right reaction is as important as the proactive actions. The chance to turn the threat into an opportunity is decreased due to the absence of a proactive action but the chance still exists with the right reactions. The purpose of this study is to investigate crisis management practices of an Egyptian import company during the Arab spring. This investigation was done by examining the different practices taken by its general manager.

Literature Review

Crisis Management

A Crisis Defined

A crisis is a “turning point for better or worse”, it is also “a situation that has reached a critical phase ( Merriam-Webster's collegiate dictionary, 2019). This situation is faced by companies in their life cycle as it is faced by human beings in their personal lives. In both cases a plan should be prepared to face those situations. A crisis could come in different ways. There could be little or a lot of warnings; it could happen anytime or anywhere; could happen to international or national business; and it could be faced by small, medium or large companies ( Fink, 1986).

Crisis management is “the art of removing much of the risk and uncertainty to allow you to achieve more control over your own destiny” ( Fink, 1986, p.15). This art would allow managers to either turn the crisis into a better situation or at least to come out of the crisis with minimum loses. It is the place where managers are aware that a certain situation has happened or about to happen and all efforts should be put to fix or stop the situation while making sure that the daily operations are still working normally.

Crisis management is not a quick-fix solution. It includes knowing what the problem is, studying and analyzing the problem, and knowing how to deal with it or maybe even prevent it from happening ( Darling, 1994). Crisis management includes reacting to certain events during and after they have occurred, taking into consideration that each crisis is unique and should be handled in a different way, with different experiences ( Johnson & Peppas, 2003). But crisis management is not seen nor is it aimed to be a reaction for one certain event ( Crandall, Parnell, & Spillan, 2013).

Phases Of Crisis

The players and contents of each crisis might be different but the four phases of a crisis are the same. Not every crisis will go through these four phases though, but no crisis has more than these four phases. Knowing these phases assist managers to deal with a crisis. Fink (1986, p.20-28) discussed these four phases as follows:

  • Prodromal Crisis Stage: This stage works as a proactive stage. If managers want to be proactive, they need to be ready before something happens. In this stage managers try to know the crisis before it happens and to either prevent it or be ready to deal with it. Doing an internal and external analysis as mentioned before helps knowing what kind of crises management might be facing. Knowing the kinds of crises helps managers through the other three stages.

  • Acute Crisis Stage: At this point the crisis event and damages begin and become noticeable. This phase is influenced by the previous stage. If the right proactive actions were put in place, the percentage of damages is decreased. If the wrong proactive actions were taken or if there was no proactive actions in the previous stage, the percentage of the upcoming damage increases. In this phase the crisis becomes visible outside the organization.

  • Chronic Crisis Stage: This stage could be referred to as a period of recovery. A period to know how much time those effects are going to last. A crisis might happen fast but its’ effects could last for a long time. Management could use this time to plan more and maybe in a different way. They could try to know what went right or wrong by analyzing the events and changing their plans if needed. After handling the situation, they become more experienced in crisis management and thus, this could help them to deal with subsequent crisis better. That experience could be what to do, what not to do, when to do it, how to do it and if to do anything at all.

  • Chronic Crisis Stage: This is the final stage that indicates the ending of the crisis. Although everyone will see this as a goal, it cannot, nor should it, be rushed into. Management cannot jump the first three stages but having the right strategies help in ending the crisis faster. Also, after the crisis ends, management should try to understand the situation better so as to avoid or prevent such situation from happening again in the future. Although most companies tend not to plan during their safe situations, it might be impossible to plan during the crisis, because organizations would be put into a situation that would probably make them take the wrong decision ( Darling, 1994).

Managing Crisis

To manage could be defined as “Succeed in dealing with or withstanding something” ( English Oxford dictionaries, 2019). It can also be defined as “successfully achieving something even though there might be some difficulties” ( Merriam-Webster's collegiate dictionary, 2019). The achievement of managing a crisis – having control over the outcomes – might change according to the time a manager start taking actions to face the crisis. A crisis might be looked at as it has a before, during and an after phase, and each one would be handled in a different way ( Crandall et al., 2013).

Crisis management is a process and a plan that includes strategies to deal with certain situations. It should be a part of the strategic planning of the company. Putting a long term plan for a business contains analyzing the factors that might have an effect on that business. One way to identify potential crisis is through using SWOT analysis ( Crandall, Parnell, & Spillan, 2013). SWOT analysis would help identifying the opportunities and threats that have to do with the external environment, and the strength and weaknesses that have to do with the internal environment ( Wheelen & Hunger, 2012). A factor that might have a positive effect on the business could turn into a negative one if managers do not take advantage of it in the right way. After identifying the factors that might turn into a crisis, managers should deal with them according to priority. A plan should give priority to the ones that have high impact on the business and have high probability of happening. Knowing what you might be faced and having a plan that shows how you should face it, is what should be done in the pre-crisis stage before the crisis hits. It is always easier to take proactive actions than to face a crisis after it hits the business. But a crisis might also happen because of external factors. Factors that managers have no control over. Planning helps managers in dealing with different kinds of crises. A plan is organized steps that helps managers find a way to deal with a crisis, but does not the crisis.

New Government, New Rules

The Beginning of the Arab Spring

Whenever there is a change in politics, a change in economics will follow. In order to understand the change in economics, political changes should be understood first. The economic change in Egypt began with what was later called Arab spring. The Arab spring is a series of anti-government uprisings that affected the Arab countries of North Africa and the Middle East beginning late 2010. It was a way of expressing what the citizens of those related countries wanted. It moved across several countries with people aiming and demanding for justice and for a better life ( Abdou & Zaazou, 2018). This was a movement that started by one man refusing to give up the source of his living and ended up being a revolution for several years in more than one country.

The revolutionary wave started with the Tunisian revolution and later on spread to other countries, including Libya, Egypt, Syria and Yemen. It all started after a young man called Mohamed Bouazizi set himself on fire in his hometown on December17th, 2010. His action was prompted by an incident that involved him and the police in which his cart that he used to sell fruits and vegetables – his source of living – was taken from him by the police because it was not licensed, according to the laws of Tunisia. The incident lead to the beginning of a series of street demonstrations that started in Sidi Bouzid, the hometown of the young man Mohamed Bouazizi, and then reached other cities in Tunisia and was the reason for the arrest and death of many citizens. The protest that had started off by citizens who refused the way the police handled the situation, later evolved into demanding the resignation of president Zine El Abidine Ben Ali and on January 14 th, 2011, the president was forced to flee the country to Suadi Arabia.

After the Tunisian protests succeeded in removing the president, the Egyptian society which had been suffering from problems like the constant increase in corruption and human rights violation decided that it was time for a change ( Wafa, 2015).

The Egyptian revolution started on the 21st of January 2011, Thousands of Egyptians took part in the protests with the aim of forcing the president to step down from his position. After the loss of many lives, the president left his position. This Situation turned Egypt into a country ruled by the military for about one and a half year which lasted until 30th June 2012 when the next president Mohammad Morsi was elected. Mohammad Morsi served in the role for one year until June 30 th, 2013 – on his first anniversary as president – when a new wave of protests started demanding his immediate resignation. The following day, the military that was led by Abdel Fattah El-Sisi gave Morsi a 48 hour time limit to fulfill the demands of the people. By the end of that time limit, the military took over the presidency from Morsi and on the July 4 th, Adly Mansour was named as the temporary president of Egypt and served till 2014 when Abdel Fattah El-Sisi became president by winning the elections that year. It is important to mention that 578 citizens lost the lives in these protests with an additional 4200 people sustaining injuries.

The Implications of Arab Spring on Egypt

The revolutions that happened mainly to change the political spectrum had other consequences for each country aside from the political ones. As citizens looked for freedom and change, it was inventible to achieve what they wanted without some negative consequences.

According to QadirMushtaq and Afzal, ( 2017), some of the consequences of the Arab spring were:

  • Removal of the Authoritarian Rulers from Tunis, Libya, and Egypt.

  • Granting of Political and Social Rights in other countries such as Oman, Saudi Arabia, Bahrain and Morocco. These countries gave better economic and social rights to their citizens, in order to not face the same circumstances as Egypt, Tunisia or Libya.

  • Development of Public Political Sphere: The protests raised the idea of discussing issues related to their countries in public places and enable them to ask for changes and have expectations that can be achieved.

According to Khalofi ( 2016), the Egyptian revolution affected three aspects of the country:

  • Political and security aspect: the 25 th January revolution led to an unstable and unsecure country. After Hussni Mubarak, the country had continuous protests during the 18 months that were led by the military. Even after Morsi was elected, the protest did not stop completely. It lasted until July 3 rd when Morsi also stepped down as president.

  • Economic aspect: After the revolution, Egypt had a negative economic growth in the fiscal year 2010-2011, which was -4.2% in the third quarter of the year, and was the first negative quarterly growth rate since 2001-2002. The tourism sector had a -19.5% growth rate during 2010-2011. Although it got better in the first quarter of 2012-2013 by increasing to 7.8%, it declined again to -5.2% in the fourth quarter of that year. The FDI in the petrol sector that represents 70.9% of the total FDI in Egypt was 3.59 billion dollars in 2009-2010 and it decreased by710 million dollar in the first quarter of 2012-2013.

  • Social aspect: Because of the decrease in the FDI of the country, the return of the Egyptian workers from Libya and the decrease in the revenues of tourism sector, the unemployment rate increased by 3% in one year to reach 12% in the year 2010-2011. The poverty rates reached 25.2% in 2010-2011 after it was 21.6% in 2008-2009. The inflation rates increased from 10.4% to 11.9% in 2010-2011.

The Exchange rate crisis in Egypt

A currency crisis is defined as “a situation in which the value of a currency becomes unstable, making it difficult for the currency to be used as a reliable medium of exchange” crisis (currency crisis in business dictionary, 2019. The effect of a currency crisis can be mitigated by sufficient foreign reserves. A currency crisis is a type of financial. It could also be defined as “a term used to refer to a type of financial crisis that encompasses an acute devaluation of a currency. That is to say, there is a sudden and often severe drop in the value of a currency” (currency crisis in Study.com 2019).

The revolution also affected the country’s currency as its value started to decrease for more than one year, due to the existence of black markets that were eventually shut down by the government. This crisis made the government to take a decision to float the currency on November 3 rd, 2016 partly to improve the value of the EGP which will encourage foreign investors to invest in the country and partly to fulfil the condition of the International Monetary Fund to give Egypt a loan of 12 billion dollar. Nonetheless, by the floating the currency means it is no longer controlled be the government and it is not pegged to another currency either. Hence, it fluctuates freely on a daily basis. Thus, after floating the currency, the EGP value declined by 48% against the dollar and reached a 13.5 rate per dollar in the morning of the floating decision, and by the end of that month, it had fallen in value to 18.16 per dollar. During the next month, the EGP reached its’ lowest value ever, getting to 19.52 against each dollar and ended the year at 18.83 per dollar.

The decision to float the currency was seen as a right decision by some people and for others it was a wrong decision completely or at least the right decision but at a wrong time. Nevertheless, floating the EGP had some positive implications as well as some negative ones. Negative consequences included the increase in the inflation rate from 13% before the floating to 35% after the floating which caused an increase in the cost of living in Egypt. The positives outcomes of the floating decision are the local and international trust that Egypt got and was the reason for having 60 billion dollars in 8 months, and as well as Egyptian banks receiving up to 7.8 billion dollar (Karima, 2017).

Research Method

Sampling

A quantitative case study of a trading Egyptian company was used for this paper. The company imports products from Jordan and sells them in Egypt. The company has been working since 2008 and was chosen for this study because it is an importing company that was affected by both the Arab spring and the EGP crisis.

Analysis

The study uses in-depth interview technique as a research methodology for data collection. The qualitative study was designed to check for factors that influenced the company in Egypt because of the Egyptian revolution in terms of the new laws, currency crisis and crisis management. A semi structured interview was made with the general manager of the company. The whole case was analysed to understand how crisis management affected the company, what changes happened in Egypt as a result of the revolution, how external factors affect a business and what the company did to face the crisis.

Findings

The revolution that happened in Egypt affected the whole country. The effect that the revolution had on the country made each business stop for a certain amount of time but this particular company stopped operating completely for only two or three days. After former president Hussni Mubarak left his position, the chaos started and it was the beginning of the crisis for the company. The chaos led to postponing the future plans of the company as well as a decline in sales percentage. The main goal of the company was to survive. The company was influenced by the new restrictions which were implemented by the new government of president Abdel Fattah El-Sisi. The problems that happened in Egypt politically had a negative influence on the economy of the country and one of those influences was related to the currency. The company imported products that it paid for in USD and sold them in EGP, which meant that the EGP crisis affected the company heavily.

The company in general did not have a crisis management plan or team as it did not predict or see warnings before the revolution started nor did it see the beginning of the revolution as a crisis. Once the revolution succeeded the company started to reduce its products in the market and used security to protect its stock because of the decrease in the safety of the country. The unstable environment was the reason for the decrease in the business of the company. The company studied the market and saw an opportunity in the real estate business so it invested in the real estate to recover some of the losses that occurred from the decline in their sales.

After the country had a new government it also had new rules which caused a real challenge for the company to survive. The interview with the general manager revealed some the following new legislations:

  • A heavy increase of start-up fees for newly established companies. The existing companies had to pay the difference between the old and the new fees.

  • The registration of the original factory (Jordanian Factory) of the imported products. This step needed lots of work and documentations.

  • No importing is allowed if the product price was not paid in advance through the Egyptian banks.

  • Prepaid Sales tax was introduced by the new government (6-14%)

  • A shipment that contained a product with a defect in the physical side will no longer be on accepted. The whole shipment would be rejected.

  • Licensing the warehouses that contain the imported inventory.

  • A certificate had to be obtained by successfully completing a training course that should be attended by the CEO of all importing companies.

Legislation 1 caused a decrease in the number of competitors which the company considered as an opportunity. Legislation 2 was accomplished by the company as fast as possible as the company was one of the first two companies to register their factory which gave it an advantage over those who postponed the registration. The 3 rd legislation had a negative influence on companies that were short on cash deposits and thus the real estate investment that the company started was affected. Legislations 5 and 6 involved many paper work and extra costs for getting a certificate for a licensed warehouse. A business was created by people who had licensed stores and were selling those certificates to companies that did not have them. After the requirements were fulfilled by the company, it got registered on the white list which negated the obligation to check each product in each shipment and also negated the cost of licensed stores.

The currency crisis had a huge impact on the company as the company was buying in dollars and selling in Egyptian pound leading to a loss each time the value of the EGP dropped. Thus, the company had to re-evaluate each shipment separately and had to reduce the amount of products, stores, and employees as it is faced with a problem of different prices each month. However, since this was a temporary situation, many stores and customers accepted the solution. The company refused the customers who wanted to pay in instalments and concentrated on customers who would pay cash in advance. In addition, the company seeks a fixed price strategy, so it would study each market to know the appropriate amount to be provided in order to avoid reducing the price. To cover some of the losses that occurred from the currency crisis, the company studied the market to see which products are the easiest to import and started to import cosmetics. The foundation for selling cosmetics was ready, as the variable costs of the products was the only extra cost.

The difference from other companies was the continuity in the daily business and the fast actions taken by the company which led it to be put on the white list. As the company struggle to end the crisis, other problems and changes such as increase in oil price, electricity cost, etc. started to popup in the country which makes the situation even more complicated.

Discussion and Conclusion

Discussion

The revolution in itself was not the crisis for the company. The aftermath of the revolution which was characterized by chaos, new obligations and EGP depreciation were the main crises for the company. I follow the four different crisis phases proposed by Fink ( 1986), to dissect and explain the company’s crisis:

  • Prodromal: The prodromal phase for the company was the beginning of the protests. This stage needed a proactive action which was not taken by the company. The company did not have a crisis management plan to face such situation so when the country started getting affected by the Arab spring, the company had to decrease sales and postpone any growth plans or investments. It was not able to do anything but to fight for survive.

  • Acute: This stage for the company was the beginning of the new laws and the EGP crisis that came as a result of the revolution and the new laws. At this stage, the company started to face the crisis handling each rule separately from the daily work of the company. The main goal of the company was to survive but since those regulations forced many companies to close, there was less competition. The company increased the working capital because no credit was allowed which also affected the investment in the real estate section. The registering of the factory was not an easy step, but the company was one of the first two to complete it. Hence, allowing them to enter the white list, this excluded them from rules 5&6. When the EGP crisis started and the currency began to lose value, the company started having different prices for each month. The analysis that was done before the revolution, helped to know which product, employee and store made more profits for a long period of time. They stopped dealing with the stores that refused the different prices and were not profitable according to the analyst. It was a temporary situation and some of them were back after that crisis ended. Another step was to look for new products that were easy to get into the country. After studying the market, they concluded that cosmetics were the right product at the time. The foundation of the new products, the employees, the stores, and the markets were ready. They realized that the only additional cost they would incur was the variable cost of the new product. This allowed them to enter into the new market relatively easy and cover the losses that came as a result of the EGP crisis. After the currency was floated, the company made the prices of their products fixed, and because they did not want different stores to have different prices. They would monitor the amounts given to each store so that they would not be able to reduce the prices.

  • Chronic: This stage was the beginning of the end, the time where the rules were clear, the currency was floated and the company started to recover from the damage that happened.

  • Resolution: The crisis did not totally end yet because the situation in Egypt is not fully safe or stable. Floating the currency had some bad effects and the currency is not 100% fixed. Some new decisions like raising the prices of oil and electricity are discussed which could be the beginning of a new crisis.

A SWOT analysis would show that the main strength was the flexibility of the manager. The main weakness of the company was that they neither foresaw nor prepared for the future eventualities or crisis. The opportunities were adjusting to the new regulations very faster than their competitors which gave them a competitive advantage. However, the new regulations coupled with the fluctuation in the currency and the security problems in the country could be seen as a threat.

When we analyze the crisis in the company, we can notice that there was no pre-crisis stage. The crisis was noticed in the acute stage and managed with reactions toward the crises. They were flexible enough to react to each problem immediately and they were successful in separating the crisis from the daily work they were doing. When the circumstances showed that it is better to remain stable, they took a chance in bringing new products into the market. To have a new product was a positive step which helped in the years after the revolution as well, but the investment in the real estates was not the right decision at the time. The company had a clear goal which was to continue in their business and did all that was needed by the producers to reach that goal. In the end, the risks they took were beneficial in the long run and made the company gain profits in the years following the revolution. The manager was flexible and had a strategic way of managing which helped not only in surviving but also in getting what happened to be the start of something new and to have it as an advantage which led to more profits in the years following the crisis than even in years before the crisis.

Conclusion

In this research, crisis management practices of a company in Egypt that was affected by the Egyptian revolution were explored. The new government, the currency crisis and the revolution itself were problems needed to be addressed by the company. The lack of proactive actions and the absence of doing a SWOT analysis were their main weaknesses. If a SWOT analysis has been made at the prodromal stage, the company could have bettered its financial situation, reduced its cost and satisfy its customers. But the possession of the right management skills to take the right reactions helped the company in passing through the crises and increasing its’ profits during a time when their main competitors were having losses. The ability to be consistent and to have a clear vision were the keys to achieving success in such tough times. And even though a complete plan for dealing with upcoming situations was missing, having the right skills to deal with the crisis in the acute stage raised the percentage of turning a negative situation into a positive one. A manager should always be flexible enough to handle different situations, as some situations occur due to external reasons that were not expected by the company. This study showed the importance of crisis management and proved that as much as a prepared plan is necessary, it is also important to have the flexibility to adjust to the different circumstances faced by the company.

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30 October 2019

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Yalcintas, M., & Al-Fares*, S. (2019). Crisis Management During the Arab Spring: Case of an Egyptian Company. In & M. Özşahin (Ed.), Strategic Management in an International Environment: The New Challenges for International Business and Logistics in the Age of Industry 4.0, vol 71. European Proceedings of Social and Behavioural Sciences (pp. 346-355). Future Academy. https://doi.org/10.15405/epsbs.2019.10.02.32