The Abu Dhabi SME Hub is conducting a series of interviews with SMEs that, with support from the Khalifa Fund, are excelling within their respective industries.
The SME showcased this time is Abu Dhabi Pallet Industry (ADPI), a seasoned manufacturer that has been conducting operations since the year 2000.
Specializing in the production of top-grade pallets, the company was founded by entrepreneur Saeed AlMheiri. Around the turn of the century, and while studying to earn his business management degree, he had begun helping his father with his food distribution company, which significantly utilized pallets for transportation and packaging.
During this time, he came to a realization regarding the market.
“I realized that there was a better business than distribution: manufacturing,” he said. “[It] was more lucrative than business trading, since your margins are greater and you would be offering a specialized product. There was also much more support for manufacturers in the UAE than for traders, as they were of greater benefit to the country.”
For AlMheiri and his father, their breakthrough would come thanks to the oil and gas industry.
“When I proposed this idea to my father, he was initially skeptical, dismissively saying that a mere carpenter can produce these pallets,” he continued. “But when we noticed that [petrochemicals company] Borouge (a joint venture between ADNOC and Austrian firm Borealis) required much more pallets than a ‘simple carpenter’ can produce, we identified a business opportunity. This was especially true considering the precise specifications needed to produce these units, where automation would be needed to satisfy the high demand.
“To this day, Borouge is the biggest customer of the Abu Dhabi Pallet Industry firm.”
Challenges and the overall market
AlMheiri, like most entrepreneurs, had faced the usual challenges: securing funding, sourcing the raw materials, and securing high-tech machinery to produce pallets at a high volume and with precise specifications.
When it came to fulfilling the requirements of a major customer like Borouge, ADPI had to show diligence and dedication to acquire petrochemicals giant as a client.
“Borouge had a specific design that they needed for their business,” he noted.
He stated that the pallet specification utilized by Borouge is called PRS7. During production, this grade of pallets has a manufacturing tolerance of (+/-) 3mm. A single millimeter above or below this figure would lead to production jams and complications. Additionally, the build was custom to Borouge, and required a certain type of wood unavailable in the UAE.
However, ADPI persevered and succeeded in securing a high-profile client like Borouge, and it continues to be its preferred manufacturer for pallet production to this day.
“This was 20 years ago, where our singular customer was Borouge,” he stated. “Today, the market has changed significantly, and there is a much greater demand for new and used pallets. Additionally, some industries require plastic pallets as opposed to those manufactured from wood.
“Competition in the market has significantly grown, and you have to differentiate yourself. You need to be professional, and understand your customers.”
Khalifa Fund support and choosing Abu Dhabi as a base of operations
To fully set up a manufacturing business of this scale, AlMheiri needed significant capital.
“When I first started my business, I had around AED 300-500,000 at my disposal,” he explained. “I approached the Khalifa Fund, and I showed them my project and contract with Borouge, [and after two rejections], they eventually agreed to support me with the construction of my warehouse.”
Regarding being rejected twice, he reminscined that it was a great learning experience for him.
“I listened to what the committee told me and made changes according to their advice,” he said. “When they give you a reason for being rejected, you should focus on this point and address it.”
“The second time [they aided me], I had approached them for support with my company’s cash flow, as demand from Borouge was increasing and we needed to expand to match this. Demand from their end grew from 360,000 pallets to 1.5 million pallets annually, so we needed more machinery and an increase in cash flow.”
As for why he set up his business in Abu Dhabi, AlMheiri noted that the UAE capital was “where all the demand was coming from, and specifically from Borouge.”
“You shouldn’t be greedy”
During his 20 years+ of experience as an entrepreneur, an important lesson AlMheiri learned was to practice calculated expansion, and to never overreach, a mistake he noticed is common in the manufacturing industry.
“You need to be cautious that you don’t over-expand in a short period of time,” he noted. “ Every three or five years you need to make a plan and stick with it. You don’t ‘jump higher’ than the capabilities and liabilities of your [production capacity and cash flow]. You shouldn’t jump at new opportunities that demand much more than you can output. You should focus on delivering within your capabilities, and slowly growing your business from there.
“When you mess up your cash flow, everything else collapses. You should have good cash flow control, and you should follow your targets. You shouldn’t be greedy.”
“Additionally, given unprecedented circumstances such as COVID-19, it always helps to have a backup plan. It takes a lot for you and your business to be able to navigate such unpredictable conditions.”
Another lesson he wanted to share is that whenever an entrepreneur is looking for funding, it’s always advised to consider a loan last, and to prioritize non-debt related cash instruments and means of support, such as that offered by the Khalifa Fund. In his opinion, the risks that come with debt-based funding are too great for new business owners, and the cost of failing to pay back a loan immense.
Founder Saeed AlMheiri in front of Abu Dhabi Pallet Industry
Plans for diversification
As for what comes next for this veteran entrepreneur and his business, he noted that he now plans to expand his product offerings.
“My plan now is to diversify,” AlMheiri stated. “Currently, I’m making furniture, doors, packaging, and more. I can’t rely on producing pallets alone anymore.
“You shouldn’t put your eggs in one basket.
“While Borouge ADNOC represents 80% of my business, I’m trying to decrease this to 40-50%. I’m trying to diversify and expand into different fields when it comes to manufacturing wood products. If I successfully diversify, I can produce higher revenues with less risk.”