Cody Hart PHAUS & Lebanon MKT 365T. Wilson

Political and Legal Analysis: Lebanon

Lebanon, a country in the Middle East, has had a contentious history when it comes

to political and legal systems structures. The Middle East has always had a heterogeneous,

divided populous. Being on the fringes of the Western World and Eastern culture, Lebanon

is at the forefront of such ideological divide: a perennial struggle or dichotomy. The issues

discussed center around the impact of the collapse of the Ottoman Empire, the Sunni-Shia

religious-factional divide, Israel and Syria.

Lebanon, from Roman times on, has swapped hands in terms of cultures and

influence. In Roman times, Lebanon was part of the Judea-Palestine province. Following the

collapse of the Roman Empire, Eastern influence descended onto the lands of the Levant, a

historical geographical region of present-day Jordan, Israel, Lebanon, and Syria. The

Ottoman Turks to the North, influenced the region for nearly half a millennium, from 1299-

1923. The events following the collapse of the Ottoman Empire in 1923, have a left heavy

impact on current Western-Middle East political relations. It must be understood by

western marketers involving political interests.

During WWI, the Arab Revolt, backed by Western powers, overthrew Ottoman

dominance in the Levant. Arab support by Western powers during WWI was largely fueled

by the German-Ottoman pact during WWI. Upon aiding the Arabs in overthrowing the

German aligned Ottomans, Western forces, namely the British, bargained an implied

political autonomy to the Arabs. However, following the end of the war, such a pleasant

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pact with the Arabs and Western powers turned sour. The promise for Arab political

autonomy in the Levant was ignored. It was the British and the French who occupied and

controlled the former Ottoman provinces of the region from WWI until the years following

WWII. This historical-political frame has engendered negative attitudes projected to the

West from Arabs within the region. For the marketer, it is worth noting policy which has

contributed to negative attitudes toward westerners and Western enterprise, especially if

the product in question is engineered and financed with American and European capital.

More presently, Lebanon has experienced the displeasure of turmoil and unrest

from its neighbors. In the 1980s, Israel invaded territory in southern Lebanon provoked by

the anti-Israeli, Palestinian aggression. This incursion sparked tensions within the factional

Lebanese political system, and thus an ugly civil war soon followed the invasion. Lebanese-

Maronite Christian factions joined the Israeli-backed coalition in the invasion, while

Muslim leftist factions, and Hezbollah, emboldened by the invasion, launched a counter-

offensive. Precipitating Israeli retreat, the divide sparked by the invasion burgeoned

hostility and ultimately a full-fledged civil war.

The civil war’s reflection on life in Lebanon is also key in understanding the political

and legal background of the Lebanese market. Lebanon, like a child in the middle seat,

stuck in between two siblings grappling for attention, becomes a victim if not influenced by

his siblings on either side. Lebanon, for the longest time, has had to wrestle if not jockey for

control of its own cultural and political sovereignty from two adjacent countries: Syria and

Israel. In the 1980s, it was Israel who jockeyed Lebanon for political sovereignty, now

today, its Syria who jockeys Lebanon’s political sovereignty.

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Diversity is indicative in Lebanese political structure and formation following

independence in 1943. Regionally, there is the presence of Christian, Jewish, and Muslim

populations. Upon gaining independence, political power was divided into a triad. The

office of president was assigned for a Maronite Christian, while the offices of the prime

minister and the parliamentary speaker were designated respectfully for a Sunni Muslim

and a Shiite Muslim (Library of Congress, 2015). Such structure has constitutional bias and

provides for equal representation politically for the interrelated religious-political factions.

The Republic of Lebanon is a parliamentary democracy, with 128 representatives.

Lebanon’s judiciary system is divided into four main courts: a judicial court, an

administrative court (Majlis al-Shura), a military court, and a religious court. The Majlis al-

Shura serves as the court responsible for matters regarding administrative decisions made

or issued by parliamentary agencies and institutions (Library of Congress, 2015).

Therefore, the Majlis al-Shura is the court of concern when dealing with such a passive

housing venture and has legal jurisdiction in allowing commerce.

Five parties have the largest shares of seats in the Lebanese parliament. There is the

Sunni-Muslim Future Movement, the Christian-backed Free Patriotic party, the Shia-

Muslim-backed Amal Movement, Shia-Muslim fundamentalist-backed Hezbollah, and the

Druze-backed Progressive Socialist Party (Samaha & Chugntai, 2015). The political parties

widely are influenced by religious preference and either extremists or moderates.

The instability in Syria has had a grip on Lebanese politics and alliances. Though no

party has a simple majority in the Lebanese Parliament, they do have opposition and

majority coalitions, predominantly based on attitudes toward Syria. Since 2005, given the

turmoil plaguing Syria, cross-party alliances have been forged with roots in foreign,

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external politics. The March 14th alliance is the anti-Syrian faction in the Lebanese

Parliament, whereas the March 8th alliance is the Shiite-Syrian backed faction. The March

8th alliance is currently the majority coalition, whereas the March 14th alliance is the

opposition coalition (Samaha & Chugntai, 2015). The convoluted politics of Lebanon with

it’s various unconventional cross-party partnerships, is a facet the marketer must keep in

mind when operating in Lebanon.

Largely fueled by the Shia-Sunni divide in the Middle East, Lebanon still is a

microcosm. It is a hot spot of the perennial conflict between the Sunni and Shia populations

in the overall Middle East. This fact is evident in the present political structure and

coalitions in Lebanese government when dealing with the issue of Syria. Shiite aligned

Muslim parties tend to be more favorable to Syria, so too does Hezbollah, who sponsors

present incursions into Syrian territory to fight alongside fighters of Iranian backed

President Bashar al-Assad. Conversely, the majority of Muslim based parties in the March

14th alliance align with Sunni-Saudi backed ideologies.

When entering the market, it’s worth noting, Lebanon is less than ideal given its

political and infrastructural instability. The country is increasingly heterogeneous, divided,

and has occasional flare ups in its political sectarian structure. Michael J. Totten,

contributing editor at World Affairs & City Journal, states:

To say Lebanon is a nation of contradictions is a cliché, but it’s a cliché because it is

true. It is simultaneously Western and Eastern, Christian and Muslim, modern and

feudal, democratic and illiberal, secular and sectarian, cosmopolitan and parochial,

progressive and reactionary, tolerant and aggressively hateful. This is because there

is more than one Lebanon (Totten, 2013).

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Diversity is attractive, however, when coupled with instability and lack of order, Lebanon is

a precarious place for any investment to grow. Although polar opposite ideologues can

incite violence and destruction, it is important to cater to the moderates in each party to

engender peace and order. This practice will improve commerce, development, and

infrastructure in the country.

Lebanese citizens might question the acquisition of passive housing. Is it even a safe

investment, in a country so unstable? Is it worth the investment if, in the future, the value

of the house is decimated by prolonged and lasting sectarian violence? Going forward, the

historical political instability is a factor that must be addressed if the product is to be

secure. The wounds of the past are still open; they are pervasive in the sense of both

politics and infrastructure.

Lebanese infrastructure was torn apart in the civil war in the 1980s as noted

previously. Most building conditions are poor, if not dillapidated after hostilities. Poor

conditions have put a strain on infrastructure demand. Another strain attributed to

Lebanese politics, geography, and history is the presence of foreign refugee populations

from both Syria and Israel. For Israeli refugees, these are poor Palestinians escaping

destitute, cramped living-conditions. For Syrian refugees, these are citizens fleeing carnage

in the Syrian civil war; evading chemical weapon assaults and death. By early 2015, there

were over 1.2 million Syrian refugees in Lebanon officially registered with the UN High

Commissioner for Refugees, severely straining local resources and services. The influx of

refugees fleeing from Syria puts pressure on Lebanon’s political and infrastructure.

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This refugee factor adds to the strain on infrastructure in Lebanon and must be

addressed by central planners in the future. Will Lebanon continue to be a place of

dilapidated, poor infrastructure with remnants of the civil war 35 years prior? Or will the

Lebanese improve public infrastructure and housing? This is of value to the marketer

because passive housing policies can be advanced if the latter is piqued.

Recently it was announced in 2014, the government of Lebanon was ending its rent

control policy. The move comes as more and more foreign developers have transformed

city infrastructure. The move was aimed at increasing ownership by boosting the economy,

yet also give way to the private sector as well as improve the infrastructure (Lebanese

American University, 2014). The dilapidated state of Lebanese infrastructure, coupled with

the government rent control reductions adds value to the passive housing concept. The

reduction will force the consumer market toward ownership. For a passive housing

marketer, this is important. The Lebanese will see the price of rent rise as conditions fall

and they may be exposed to the idea of passive housing ownership. The value in the passive

housing is its cost advantage attributes, engineering, savings, and ecological conservation.

In all, Lebanon is largely a diverse, convoluted country with a history of bloody

turmoil. The legal system, in theory, is viable enough to encourage and support the

prospects of passive housing ventures in Lebanon. However, given the political instability,

the influx of refugees from Syria, and the Shia-Shiite political divide in the country;

Lebanon’s fragile state raises questions about the procurement and acquisition of passive

housing.

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Product in the Lebanese Market

The product of passive housing (PH) in Lebanon has serious potential benefits:

diminished energy expenses, engendering the value of conservation, and developing new

green techniques to combat climate change. The PH method in general “consumes 80

percent less energy than a standard house” (Solovitch, 2015). However, given the relative

economies of adoption in the United States and Northern Europe, the capital intensive

product may suffer hiccups in Lebanon given its incongruence to such economies. Capital is

the main concern to the consumer and the supplier. On average, the PH method in terms of

construction is 10-15 percent costlier to the consumer, limiting demand and thus affecting

supply. In capitally endowed countries like the US, it is worth noting PH’s market demand

growth since its beginning has been steadily slow (Solovitch, 2015).

The Passive House Alliance-United States (PHAUS) is a membership organization

that consumers, suppliers, developers, and consultants all enamored by PH ascribe to.

Various metrics and standards are benchmarked by PHAUS. PHAUS also serves to connect

industry enthusiasts to a global network. Greater contingency and flexibility must be

considered when it comes to organizational structure in Lebanon, because of PH’s verdure

to the region. The primary focus of PHAUS and other international governing associations

is to enter the market and provide the greatest flexibility for the market to bud and then

flourish. To achieve this flexibility, attention should be focused more on local brand

development than by marketing adherence to stringent codes and association by-laws.

When considering market entry, with regards to Lebanon, it is in the interests of PH

firms to segment the population and profile the target consumer. PH is not limited to

domestic construction efforts, such as single–housing constructs, but also can be either an

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option of retrofitting present or future public buildings. Nearly 25,000 buildings in Europe

have been certified under PH membership and guidelines. Some of these buildings include

supermarkets, schools, churches, factories, and hospitals (Solovitch, 2015). In other

markets, public buildings and housing have been retrofitted to meet PH codes and cut

down on energy consumption and cost. This model can be adopted by Lebanese PH

developers and builders.

In terms of organization, the PH industry is a foreign and international concept first

developed in Germany. Much of its international organization can be streamlined into the

Lebanese market, with a Lebanese flare. Working alongside as sister ventures of the PH

industry are the Certified Passive Housing Consultants (CPHC) and certified PH builders. If

this model can be emulated in the Lebanese market, the industry is set for success. The

main concern for the marketer is the lack of capital in the economy of Lebanon, as well as

Lebanon’s lack of supply chains needed for PH’s successful adoption.

PHAUS must market with foreign capital and developers in pitching and testing

these new architectural standards in Lebanon. There is not a massive local effort already in

existence. However, as foreign commerce and developers enter into the cities, they bring

with them various options for bettered infrastructure. For the PH firm, there should be

industry-wide liaisons working with the public and private sectors. These liaisons work

locally in conjunction with the public and private sectors to promote the idea to the

developing market. The public liaison would lobby with various developers to win bids for

public constructs of prime societal endowments: government agencies, hospitals, and

universities. The private liaison would work directly with developers, promoting the idea

of PH and its benefits to the target market. PH’s benefits include dramatically reduced

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energy consumption and sustainable architecture. Foreign developers with a local footing

in Lebanon’s public and private sectors would provide essential avenues for PH adoption.

The idea of local centricity in Lebanon for PH firms, if they choose to enter the

market is key. Lebanon is in the Middle East where being foreign is a negative facet to

business. Being local, honest, and loyal to the consumers of this region is imperative for the

firm. Connecting face-to-face with the consumer will add to the value proposition of PH to

the Lebanese consumers. “Business in the Middle East is personal, and it is largely based on

good manners, so building strong personal relationships and trust with your

counterparts… is really important” (Vollmer, 2015). It is important to have an emphasis on

local interaction as opposed to an emphasis of viral interaction via the internet. For the

consumer, local interaction reduces consumer dissonance and supports the product,

especially because PH is a new product and concept to Lebanon. Local interaction is

analogous to the Middle East’s cultural norms; a local footing can bolster PH’s brand

perception in the region and can contribute to higher levels of product acceptance.

PH acts as luxury product, even to most advanced developed nations’ consumers. PH

is defined as a luxury good; PH is not essential and typically consumed by consumers with

high incomes. “Luxury goods are products that are not essential but are highly desired and

associated with wealthy or affluent people. They are bought for several reasons: to support

self-worth and status, or for the product's quality and craftsmanship” (YourDictionary,

2016). PH as a luxury good can be purchased for its cost and conservatory measures, as

well as its affective inducing greenness.

In recalling the Income Elasticity of Luxury Goods model of economics, as income

levels increase, a greater level of consumption is devoted to luxury goods (EconPort, 2006).

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As a luxury good, PH’s demand curve is relatively inelastic. A decrease in price, seldom

reaps large quantities sold in most markets. In Lebanon, the short run economic

profitability of the product for the seller, PH, may be slim to marginal. The Lebanese elite

class, because of its higher income, is more likely to purchase this luxury good, one that is

10-15 percent costlier than traditional construction methods. Given the luxury status of the

product, the marketer must price such a product in accordance with higher-income

earners.

When marketing the product to more aspirational consumers, it is important to

address the green techniques of the building standards and their effects on energy

consumption. When developing the perception of the product, for the marketer, it is

important to not singularly address the functional value of the product, but also the

hedonic value. The marketing of PH’s value is scored by its attributes: energy savings or

functional value, and combating climate change or hedonic value. After all, the premise of a

luxury good is “…. [to tell] stories. Story telling might be the best way to popularize a niche

brand. The end consumer picks up a few points and of course has something to talk about

to his friends” (Som, 2013). Marketing to higher income earners the value proposition of

PH is key in developing brand perception and knowledge.

Given the initial cost increase of 10-15 percent on construction compared to the

alternative, the long-run benefit quickly diminishes the intensity of the short-term cost.

Typically, 75 percent of a home’s total energy consumption is attributed to the cost of

space-heating. However, once the building is PH-code compliant, the heating-percentage of

a home’s total energy consumption is dramatically reduced to 10 percent. In relative terms,

“… comparing a 1,500 square-foot standard-built home with [PH codes and methods], the

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savings for space heating is estimated to be $1,400 per year” (GO LOGIC, 2016). The short-

term cost to the consumer may seem daunting. However, when put into perspective, the

long-term benefits outweigh the cost. PH must take this into consideration when marketing

to consumers in Lebanon. The increased cost in the short term, in general, will require

more capital to finance, which is not not readily apparent to the Lebanese consumer.

When segmenting the market, further market research must be performed to find

what general demand conditions exist for such a product. Receding back to the notion of

the product as a luxury good, the marketer should market the product to the socially elite:

the banking, ruling, and commercial classes inside Lebanese society. By marketing to such a

segment, the process of product diffusion is essential to public sector growth within the

industry. Most individuals in this segment have the capital needed to finance and support

such construction efforts, such individuals have regulatory, public, and market influence as

well. If an elite man in the finance sector in Lebanon is aware of the long-term and hedonic

value of the PH model, he is most likely to diffuse the product to others in his echelon of

wealth.

This form of target marketing can have a precipitous impact in garnering bids for

public works, for instance, universities and government agencies. In most developing

countries like Lebanon, if the product is diffused to the elite the product will then diffuse

down the income earning slope. This form of target marketing and market entry strategy

can impact successful implementation. This means targeting to the high-income earners

who have the capital and influence necessary to expand the product’s market.

A question that must be asked of the PH industry, if it chooses to enter Lebanon is

who will finance the construction of such architecture? Will it be an individual within the

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industry, who has ties to the target market in a safe and secured location, possibly in the

financial district of Beirut? Or a foreign developer who wants to build a swanky

condominium complex along the coast for the rich to play or get away for the weekend? Or

maybe it could be for a government agency seeking the product’s long-term investment

benefits showcasing Lebanon’s progressive, economic, and climatic motives in its public

infrastructure? All options for PH represent possible buyers and financing agents of the

product in the present Lebanese market.

Costs to PH more than likely will be high due to the lack of proper supply channels

and capital needed for minimal return on investment. The overall economy in Lebanon,

when compared to developed countries where the product sells well, is less than ideal.

High-income earners are proportionally more evident in Northern European and North

American economies to support the industry-wide PH market. In these markets it is worth

noting the main finance agents of such product tend to be affluent, single-families. For

attracting and catapulting the industry within Lebanon, PH marketers must augment their

accustomed Northern European and North American strategy where capital is more

abundant. To diminish Lebanon’s weaknesses in sufficient supply channels and capital, the

PH marketer must rely on foreign capital, local Lebanese finance-giants, and government

expenditures.

The marketer should be unsettled by the political fragility of the region and country

as well. What is to happen if political dissidence once again descends onto the country from

either the North or South? A loss of capital needed to sustain and grow such industry would

be catastrophic. It would be better to market such a product to a safer, more secure nation,

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one who’s economy is more bountiful and more align with the North American and

Northern European dominance.

In all, PH must augment its North American and Northern European strategy if it

hopes for a successful Lebanese market strategy. Two main concerns PH must keep in mind

is the unrest of the region and lack of capital in the Lebanese economy needed to sustain

the industry. Product issues must be resolved when considering the Lebanese market.

Greater contingency must be integral for PHAUS and other PH international associations

when attracting membership. Industry wide liaisons must be employed to work locally

alongside the private and public sectors of Lebanon. A local interaction will be key to

successful implementation given the cultural norms of the Middle East. Lastly, because the

product acts as an economic luxury good, the marketer must segment the population to

find the target market of choice based on high income earners and the product’s short-term

costs.

However, product issues alone, regional issues trump and hamper the conditions

necessary for successful product implementation. The lack of capital and amount of unrest

in the region spells doom for PH. If the consumer cannot be certain about the political and

regional future of the product’s location, why bother with the investment if the product’s

long-term benefit, likewise, is uncertain? Regional issues tied indirectly to product issues

preclude market entry and expansion of PH in Lebanon.

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Works Cited

Econ Port. (2006). Income Elasticity. Experimental Economics Center. Retrieved from:http://www.econport.org/content/handbook/Elasticity/Income-Elasticity.html

GO LOGIC. (2016). The Financial Benefits of Investing in a Passive House. Retrieved from:http://www.gologic.us/passivhaus/cost-benefit-of-a-passive-house/

Library of Congress (2015). Legal Research Guide: Lebanon. Retrieved from: https://www.loc.gov/law/help/legal-research-guide/lebanon.php

Lebanese American University (2014). We need an overhaul of Lebanon’s housingmarket! Retrieved from: http://www.lau.edu.lb/newsevents/news/archive/we_need_an_overhaul_of_lebanon/

Som, A. (2013). The Logic of Luxury Goods in Emerging Markets. ESSEC Business School.Retrieved from: http://knowledge.essec.edu/en/strategy/the-logic-of-luxury-inemerging-markets.html

Solovitch, S. (2015). The House that Could Save the World. Politico Magazine. Retrievedfrom:

http://www.politico.com/magazine/story/2015/09/the-house-that-couldsave-the-world-213159

Samaha, N & Chugntai, A . (2015). Al Jazeera. Lebanon: At the crossroads. Retrievedfrom:http://interactive.aljazeera.com/aje/2015/lebanoncrossroads/

Totten, M. J. (2013, July). Dreaming of a Lebanon at Peace with Its Neighbors. The Tower.Retrieved from: http://www.thetower.org/article/dreaming-of-a-lebanoncompletely-at-peace/

Vollmer, S. (2015). How to mind your manner in the Middle East. Journal of Accountancy. Retrieved from:

http://www.journalofaccountancy.com/issues/2015/jan/middleeast-business-culture.html

Your Dictionary. (2016). Examples of Luxury Goods. Retrieved from:http://examples.yourdictionary.com/examples-of-luxury-goods.html

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