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INTERVIEW: Why free zones are important and how to develop them for halal trade: Koen De Praetere
Photo: BENEVENTO, ITALY - 12 NOVEMBER 2012: An employee watches as bottles of olive oil travel along the production line inside a factory for the production of edible oils. /Alessia Pierdomenico / Shutterstock.com
As part of the Dubai Silicon Oasis Authority (DSOA) and Thomson Reuters' Free Zones Outlook Report 2017 that looks at how free zones enable growth of the Islamic economy, Koen De Praetere who is the CEO of Halal Balancing in Belgium, answers questions about free zones and their importance in growing the global Islamic economy and creating horizontal or vertical synergies for halal businesses. Based on his hands-on experience in production and distribution within the halal industry, Koen also provided insight on challenges and considerations for the development of a free zone that caters specifically for the halal industry.
The report can be downloaded from HERE.
Q: Why are free zones important and what is driving the overall increase in their number?
Koen De Praetere: I personally do not have much experience of free zones, but to me the key element is whether or not there are some financial advantages or synergies relevant to one’s business. If free zones remove or lower some business barriers in a sustainable way, it will work. And within the halal context, there should be some real halal synergies to make it a success.
Q: Why are they important for the Islamic economy and which free zones are currently most successful?
Free zones, apart from fnancial support, usually will try to create horizontal synergies: providing some general services that are benefcial to the different businesses within the free zone. Next to horizontal synergies, there are also vertical synergies: synergies within a business segment or in other words, the synergy within the supply chain.
So the question boils down to what is most beneficial to the Islamic economy: a horizontal or vertical synergy — synergy of clustering halal
businesses or the synergy of a halal supply chain? And is this advantage sustainable?
My biggest concern, from a European perspective, has always been of establishing a halal supply chain. Raw materials and ingredients come from all over the world, so it takes a lot of effort to create reliable halal supply chains.
Free zones cluster businesses together to create synergies. This is what most people would think would happen. So a lot depends on what kind of halal synergies the free zone can create and how sustainable it is.
There is not so much innovation in halal itself; its rules are clear and do not change. But halal execution may differ as expectations of Muslim consumers are not always the same. This complicates the creation of sustainable halal synergies within a certain free zone. And what do I do if I can fnd a better quality supplier outside of the free zone? Furthermore, halal is just an enabler not a qualifer. One does not win a customer because one is halal, one wins the customer because the product or service is better liked by that customer. Being halal is only the entry ticket to be allowed into the Islamic economy, but it is not the winning ticket.
I tend to compare it a bit with food safety. To be in the food business you need to have safe food. But this cannot be the marketing message, otherwise NASA’s food or hospital food would sell the most. The same goes for halal: it should be halal, but being halal will not give you any competitive advantage over other products or services that are halal or ‘better’ halal. The product of service will have to make the difference.
But to achieve high food safety levels, most countries focus on establishing supply chains of safe food, not ‘Safe Food’ free zones.
Vertical synergies seem to be more important than the horizontal ones, which usually boils down to providing a structure for training and (halal) knowledge transfer. This can also be organized outside free zones. So an important question will remain: is an economic free zone a success because something is free, or because of the halal synergy it is generating?
Therefore, it may be diffcult for halal parks in Muslim countries to generate sustainable synergies — it is already halal. So the non-halal advantages may be the drivers of success. In non-Muslim countries however, it may make some sense, in the right business environment.
Q: What potential is there to develop free zones that support modest fashion?
I would wonder even more about modest fashion. As far as I see it is more about how to respect the views on clothing and so on and less about how it is produced. Perhaps you can make a small hub of designers to nurture a creative environment and have it produced like normal garments. I do believe in the synergy of people working together in the same area, like in Silicon Valley.
Also in Belgium you have young people, Muslim and non-Muslim, working together to convince traditional companies to develop more halal products for the Muslim markets in Europe. Working together inspires and often realizes ‘the impossible.’
Q: What are the ingredients for success for an Islamic economy free zone?
I’m looking at it from a halal synergy point of view, so it has to be halal if it is meant to be a halal hub — otherwise you have no halal advantage. Furthermore, it is worthwhile to take some time to defne the type of synergies one wants to create and whether they are critical for success and sustainable. Halal knowledge or best practices itself, may be a weaker than expected advantage as this is often organized successfully outside of free zones. Free zones targeted at small start-up companies, however, may be worthwhile considering.
Q: What are the challenges and considerations in setting up a halal free zone?
In general, I think it makes more sense to have halal hubs outside of Muslim countries than inside them. I am not aware of that many successful halal parks in Muslim countries that get their success from the halal synergy they are creating, and not from the other services offered.
Then the challenge is to defne your advantage. If the main advantage is the clustering, this advantage may be limited to smaller companies lacking access to halal information. Logistic advantages of clustering seem to be limited as it is highly unlikely that all raw materials needed will be available at the halal free zone. And that one wants to work with the potential suppliers within that free zone. That is a lot of ‘if’ for me.
I tend to think the halal supply chain may often be more important than clustering together in halal free zones. From that perspective, it may be better to invest in training in halal and create synergies at that level to motivate people to create a halal supply chain.
Halal hubs outside Muslim countries also may not be economically viable as many non-Muslims will never touch halal products.
Because of that, most companies in Europe active in halal are doing mixed productions: halal and non-halal. Typically, the non-halal part is the biggest part and supports the business. The halal part is usually a fast-growing niche market, but too small to justify dedicated facilities. Unless one can explain to non-Muslims that halal is of high quality and the production processes are in line with those of non-halal products, dedicated halal facilities will be limited, and hence, so will be the potential of halal hubs.
I strongly believe in the synergies between halal and non-halal supply chains as they are key for sustainable growth of the Islamic economy and, in my opinion, also important for making halal hubs work. That is why I have always been a very big fan of Bosnia — now speaking as a European. Bosnia does have a European culture with Muslim heritage. It is well-situated to work out what could be halal in a non-Muslim country. Their halal agency was one of the frst (and still one of the few) to combine typical European quality thinking with halal certifcation — they are well placed to fnd those compromises. Additionally, they could set up dedicated halal companies with enough turnover to serve only halal markets as the Muslim population in Bosnia is about 50%. Those businesses could survive until non-Muslims are ready to accept halal.
Spain also has a large community of Muslims with a European culture and there has been an initiative to set up a halal hub in Cordoba, targeted at Islamic tourism.
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