STRATEGIC MANAGEMENT ANALYSIS OF

Balochistan University of Informational Technology Engineering and Management Science Quetta

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Executive Summary

The repot at hand provides useful insight about Engro Pakistan Ltd, a private fertilizer

firm that keeps about 22 % of market share in the milk food industry Pakistan.

Established in 2005, a 100% owned subsidiary –First investment of dairy plant

Processed milk market is growing at approx. 20% per annum Olper’s achieved peak

market shares of 12.3% within 6 months of launch Other products launched –Olper’s

Cream, OLwell –High Calcium Low Fat Milk (Premium Brand) Plans to expand product

portfolio Milk processing capacity to increase by 200% to 200 million liters annually Will

become the only company in Pakistan covering the entire milk catchments area

Already has the second largest chilled milk collection system in the country Distribution

network to double from 58 towns to 119 towns by the end of 2007JV with global food

major in advanced stage of negotiation

Forces in the external environment that affect company’s performance are, political,

economic, social and technological whereas company-specific external forces are

Major Players in the food Industry, which are ten in number; Nestle being the leader

with 41 % market share. Typical packed milk consumers are the children. Therefore,

Engrofoods has a large number of consumers throughout the country.

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After the introduction The EFL mission and vision statement, External and internal

audit steeple analysis, situational analysis ie.SWOT analysis IEF matrix .EFA Matrix

BCG matrix, space Matrix, PAQSM and at the end FINANCIAL RATIO ANALYSIS of

the company has also been done. The company core competencies also discussed.

Finally, certain recommendations are also given at the end of the report.

Introduction to Engro Pakistan:

Engro Chemical Pakistan Limited is the second largest producer of Urea fertilizer in Pakistan. The company was incorporated in 1965 and was formerly Exxon Chemical Pakistan Limited until 1991, when Exxon decided to divest their fertilizer business on a global basis and sold off its equity of 75% shares in existent company. The Employees of Engro, in partnership with leading international and local financial institutions bought out Exxon’s equity and the company was renamed as Engro Chemical Pakistan Limited. Engro is a public limited company listed on the Stock Exchanges of Karachi, Lahore and Islamabad.

The principal activity of the Company is manufacturing, purchasing and marketing of fertilizers. The Company is also involved in the production and marketing of seeds and has invested in joint ventures engaged in chemical related activities. As part of its diversification strategy, controlling interest was acquired in a company offering industrial solutions in automation and control. A new milk plant has been established at Sukkur the milk is branded as Olpers.

Mission Statement:

Engro is progressing day by day because they have a vision and mission the keeps the motivated and keeps them going. Their mission as they describe as:

“Our mission is two fold, to help farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend. To create wealth by building new businesses based on company and country strengths in petrochemicals, information technology, infrastructure, food and other agriculture sectors.”

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And further describing the adoption fashion they say,” In pursuing the mission we shall at all times be guided in our conduct and decision making by our core values.”

Vision Statement:

Engro’s vision is

“To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders”.

A Diversified Conglomerate.

Fertilizer Business

Agriculture accounts for 25% of GDP and 45% of employment in Pakistan Second largest Urea producer of Pakistan .Capacity975 KT/A Market share20% Second highest phosphates sales (~400KT/A) –Market Share 23% ECPL’s Margins are by far the best in the industry. Zarkhez (NPK) Market leader -Capacity 160 KT/A –Market Share 95% Urea shortage expected to grow to 1.2 million tons/annum by 2010. World’s largest single-train Urea plant of 1.3 million tons being setup at a cost of US$ 950 million. On commencement of operations in mid 2010, cash fixed costs of the new plant will be a third of the existing plant; scale & brown field synergies Gas consumption at the new plant will be 15% less than the existing plant. Engro’s Daharki complex will become the world’s fifth largest Urea production site; 2.28 million tons, 3 plants.

Engro Energy Limited

Established in 2006-100% owned subsidiary Pakistan is facing growing energy deficit -Energy

consumption has been growing at 7% per annum Setting up a 220 MW gas based power plant at a

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cost of $220 million with commercial operation in 2009 Short-listed along with 3othercompanies for privatization of Jamshoro Power Company

Engro Innovative Automation Limited

Acquired majority stake (51%) in a knowledge based company Innovative Engineering & Automation Ltd in 2003 Market Leader in domestic Industrial Automation –Honeywell distributor in Pakistan Expanding internationally to synergize, and benefit from lower costs at home and higher demand abroad Now operating in Dubai, UAE which contributes 25% of revenue and half of the profit Company’s first IP product “iboiler”launched internationally in 2006 Acquired an automation company in the US in Dec. 2006; mandated to develop outsourcing opportunities

Engro Vopak Terminal Limited

A 50-50 JV with Royal Vopak of Holland; established 1997 Royal Vopak is the world’s largest independent tank terminal operator Engro Vopak handles 70% of liquid chemical imports in Pakistan .Setting up our country’s first Cryogenic facility for ethylene importsWell positioned for setting up proposed LNG terminal –under active consideration of the government; Cost US$ 350 –400 million.

Engro Asahi Polymer &Chemicals. Limited

Established in 1999. 80-20 JV with Mitsubishi Corp. Pakistan’s only PVC manufacturing plant; facing buoyant domestic demand since 2006 Successfully placed 22% of sales in diverse export markets from Australia to East Africa in prior years (2004 –2005) Expansion and back integration underway –imported ethylene + new caustic soda plant; EDC/VCM/PVC

Engro Food Limited.

Established in 2005, a 100% owned subsidiary –First investment of dairy plant Processed milk market is growing at approx. 20% per annum Olpers achieved peak market shares of 12.3% within 6 months of launch Other products launched -Olpers Cream, Olwell –High Calcium Low Fat Milk (Premium Brand) Plans to expand product portfolio Milk processing capacity to increase by 200% to 200 million liters annually Will become the only company in Pakistan covering the entire milk catchments area Already has the second largest chilled milk collection system in the country Distribution network to double from 58 towns to 119 towns by the end of 2007JV with global food major in advanced stage of negotiation

Food industry in Pakistan.

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The food and its allied products industry is considered Pakistan’s largest industry, and is believed to account for 27 percent of its value-added production. Trade sources estimate the sector's total value of production is over rs.46 billion (rs.58.00 equal usd 1.00 at the current exchange rate). Pakistan’s food industry produces cooking oils, hydrogenated vegetable oils, sugar, flour, dairy products such as milk, butter, yogurt, cheese and ice-cream, biscuits, breads and confectionery, fruit juices and fruit juice drinks, carbonated beverages, snack foods based on rice, potatoes, corn and pulses, processed chicken, jams, jellies, squashes, sauces, pickles, and some cereals and canned fruits. The fish, meat, fruit and vegetable sectors are underdeveloped partly for lack of adequate infrastructure, including storage and transportation facilities. Government policies and plans are expected to greatly increase the development of seafood’s industry. Development and implementation of milk standards is also essential to define milk price based on quality. Dairy science and technology education universities also need to support industry in dairy breeding, nutrition, industrial management and product quality.

Presently no under-graduate program is available in the country to support this sector. Presently, Pakistan has only a few scholars in prime principles of dairy science including animal breeding and genetics, dairy nutrition, dairy management, and dairy technology to support and develop dairy industry. It is essential because the veterinarian could only provide support to the animal industry developed on the animal production science principles. Animal or dairy production science is altogether a different subject than that of veterinary education. In conclusion, development of dairy cooperates, restructuring of Extension; research and educational institutions could perk up rural oriented dairy sector to market oriented dairy industry that guaranteed food security social and economic growth in Pakistan.

Engro Food

Engro Foods Limited is subsidiary of Engro Chemical Pakistan Ltd. which is one of the most reputed enterprises in Pakistan with more than 40 years of diversified business operations in the areas of fertilizer and chemicals. Engro Foods started its business operations in March 2006 and with the successful launch of Olpers Milk, Tarang, Olwell, and Olpers cream, it has established itself as a major player in the foods business. Engro Foods has already set up two processing plants at Sukkur and Sahiwal. With the ever expanding milk collection network and processing facilities, the Supply Chain has geared us for the growing sales of our products

We believe that our recent successes will take us to our goal: To be one of the biggest players in the food business. Our aim is to dominate the food business, and to achieve this we will settle for nothing less than the cream!

Our Brands.

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Our Affiliates

Our Values.

IntegrityWe have an open disclosure policy and transparent processes. All our business activities / transactions are carried out honestly and with fairness.Our PeopleHave passionate people with intelligent and firm approach towards business. To facilitate these people we give those challenging opportunities, training, fun loving environment, necessary resources and facilities. We publicly recognize our talent.InnovationInnovation is the way of life at EFL. It is valued, encouraged and rewarded in all aspects of our operations.CSRWe stand committed to sustainable business growth and ensure 100% compliance of CSR by ensuring the safety of our people, assets and the community in which we operate. EFL takes significant strides in poverty alleviation - both rural and urban, environmental safety and build up of farming expertise.

Consumer CentricConsumer is the reason for our existence as a business.

VisionAims at transforming the company within the next five years into first a national food industry giant, then into a regional force and finally into a global player.

MissionBuild Branded food business to improve quality of life by offering tasty, affordable and

highly nutritional products to our consumers while maximizing stake holders' value

Objective and goals

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Engrofoods main objectives are to supply everyone their favorite olpers Milk and to satisfy the consumer needs and wants. Engrofoods second main objectives are to provide profit to the shareholders and increase the market share.

EFL dreams to be BIG. We want to be a major player in the food industry which is also evident in our vision, "Elevating Consumer Delight Worldwide". EFL wants to challenge the industry norms and surprise whoever has eyes on EFL.

ANALYSIS OF MISSIONComponent of mission Description Addressed or not?

statementCustomers Who are the firm’s customers? yesProducts or services What are the firm’s major products? yesMarkets Geographically, where does the firm yes

compete?Technology Is the firm technologically current? noConcern for survival, Is the firm committed to growth and yesgrowth, and profitability financial soundness?Philosophy What are the basic beliefs, values, yes

aspirations, and ethical priorities of thefirm?

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Self-concept What is the firm’s distinctive yescompetence or major competitiveadvantage?

Concern for public image Is the firm responsive to social, nocommunity, and environmentalconcerns?

Concern for employees Are employees a valuable asset of the nofirm?

STRATEGIC Internal and external Audit

i. STEEPLE Analysis

No organization exists in a vacuum; the environment within which the firm has to operate will

affect the way that strategy is both planned and carried out and changes in the environment is

also the most likely reason for making changes in the strategy. Changes in the environment

are also the most likely cause of failure of strategic plans. The most carefully calculated

strategy would be able to drive the market in the favor of the organization and will maneuver

the external environment in the best possible way. Engro Foods like all the organizations they

also have to face such kind of environment which is very dynamic. Being in the market as a

challenger they have to face all the external factors and have to cope up with them accordingly

S - Social Factors

Engro food has helped to bring about a change in life style of the Pakistani People by

introducing UHT Milk, as the literacy rate is improving and it is resulting in a better

awareness of the olpers and Tarang UHT treated milk and is helping them improve their

sales and Milk with its basic benefits has helped improve the image and more usage has

been seen in the past years. Special awareness Campaigns can also be launched and

can help portray a better image of the product in front of the customers. The attitudes of

the people are also changing with the passage of time so as a result the usage of open

gawala milk is changing and people are opting out the usage of standardized packed milk.

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T - Technological Factor

The type of the technology available within the industry states the competitive environment

because creative use of new technology is what often gives firm there competitive advantage.

This environment does not change that much quickly but the changes that come are strong

enough that can change the way the industry is currently running. Haleeb production process

uses UHT (Ultra High Treatment) technology. Engro food administrators claim that their plant

adopted the latest technology for milk processing and thus it had an edge over other around

twenty plants in competition including Haleeb, Milkpak as all other plants were based on

obsolete European technology. The idea behind UHT investment was to provide consumers

with the best quality of packaged dairy and food products that no other company can produce.

E - Economical Factor

Engro Foods is strongly affected by both the Economic and the Demographic environment around

and have to keep on taking different steps to respond accordingly. There is no sales tax on the

milk. Hence it is a real plus point. Material supply and shortages are faced by the company for both

Packaging and for the product it, as milk’s production is seasonal and keeps fluctuating and

adequate steps are required to be taken in order to keep it working smoothly. Haleeb also don’t

charge interest on its products which also makes a huge difference economically.

E - Environmental Factor

As, the environment always effect the way strategies are being carried out and

implemented. Engro Foods like all the organizations they also have to face such kind of

environment which is very dynamic. Being in the market as a challenger they have to face

all the external factors and have to cope up with them accordingly. Haleeb have the

strategies to positively engage the staff in work and boost up their moral. Engro food has a

friendly environmental culture within the organization to make their employees comfortable

and to deal with the external problems. There are few seasons in which the availability of

milk reduces that effect the production of milk and left Engro food with fluctuated sales.

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P - Political Factor

Engro food also abides by the rules formed by the Government and set their strategies

that are according to the laws and legislations of the Government they are working under.

Tetra Pack (brick pack), that was for the first time that milk came in that form soon

followed by the Nestlé’s Milk Pak which as a multinational rocked the UHT Milk industry of

Pakistan. They are not actually bound under any sort of trade agreements. As far as the

employment laws are concerned Engro food abides to laws set by the government for

trade policies, government policies and completes its responsibilities in a better manner.

L - Legal Factor

Engro foods always stand by the rules and legal conditions imposed by the Government and

set their strategies that are according to the employment laws and legislations of the

Government they are working under. Engro food always keeps its department updated about

what is happening in the sector or milk industry, and that will help them to make their

strategies accordingly. Engro foods have the legal laws like, Minimum wage, working time,

Food stuffs, Engro foods don’t believe in Under 18 working, Occupational/ industrial Training,

Environmental regulations, Consumer protection Industry-specific regulations etc.

E - Ethical Factor

Engro foods are well renowned company operating in the milk industry since 2002. And

the reason for this is importantly their ethical values. They don’t sale on credit or on

interest because they consider it unethical and not according to the law of our religion.

ii. PORTERS FIVE FORCES MODEL

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1.

THREAT OF NEW ENTRANTS:

The average entrepreneur can't come along and start a large food company. The threat of

new entrants lies within the food industry itself. Some companies have carved out niche

areas in which they underwrite dairy supply. These food companies are fearful of being

squeezed out by the big players. Another threat for many food companies is other food

services companies entering the market.

Capital requirements

Competing in a new industry requires resources to invest. Production of packed products requires

huge investment of financial, human, technical, and marketing resources. At the moment Engro

Olper’s have some threats like from new entrant’s goodmilk product of shskargang food.

Economy of scale

Economy of scale determines entry because they force potential competitors either to enter on a

large scale bases (a costly and perhaps risky move) or to accept a cost disadvantage. Moreover,

new entrants in the pasteurized milk business may encounter scale related barriers not just in the

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production, but in the advertising marketing, distribution, financing, and raw milk

purchasing as well, Engrofoods achieved its breakeven in 2003

2. BARGAINING POWER OF SUPPLIERS:

The suppliers of food might not pose a big threat, because of the reasons;

Number of suppliers

Raw milk is standard commodity and is available in the open market from a large number

of milkmen. If anyone refuses to sell its product then company can buy it from others who

are already willing to sell to company.

Importance of volume to supplier

Suppliers also have less leverage to bargain over price because the company is purchasing

the large volume of their milk and suppliers don’t have much option to sell milk to others.

3. BARGAINING POWER OF BUYERS:

The individual doesn't pose much of a threat to the food industry. Large clients have a lot

more bargaining power with food companies. Large corporate clients like airlines and

retailers pay millions of dollars a year. There are large numbers of distributors, who are

buying and distributing the product, so their bargaining power is low and company have

leverage to dictate implement its terms and conditions to distributors.

Backward integration

Another reason of low bargaining power is that no buyer/distributor has the resources to

start involve in backward integration.

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4. AVAILABILITY OF SUBSTITUTES :

This one is pretty straight forward, for there are plenty of substitutes in the food industry. Most

large food companies offer similar suites of services. Companies focusing on niche areas

usually have a competitive advantage, but this advantage depends entirely on the size of the

niche and on whether there are any barriers preventing other firms from entering.

5. COMPETITIVE RIVALRY :

The food industry is becoming highly competitive. The difference between one Food Company and

another is usually not that great. As a result, food industry has become more like a commodity - an

area in which the food company with the low cost structure, greater efficiency and better customer

service will beat out competitors. Food companies also use higher investment returns and a variety

of food investment products to try to lure in customers. In the long run, we're likely to see

more consolidation in the food industry. Larger companies prefer to take over or merge

with other companies rather than spend the money to market and advertise to people.

Not only local but attempts by cross border competitors or companies to gain stronger foot

hold in each others domestic market boosts the intensity of rivalry, especially when the

foreign rivals have lower cost or very attractive products. In case of Engro foods so far

nestle and hale are the only diverse rival and another players that has just joined the UHT

Milk sector is goodmilk, no doubt the competition between Engrofoods and Haleeb is quite

intense both are engaged in consistent homework just to break and attract the customer

towards each other but goodmilk is adding to the competition between the sector.

SWOT Analysis

StrengthEngro’s back.

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Olper’s is a brand of ENGRO foods. This means that consumers can relate their former image

of ENGRO foods to Olper’s. ENGRO is a well established brand name in Fertilizer, IT and

infrastructure business. The brand is well known so customers will automatically have a brand

association with Olper’s and see it as a premium quality product. ENGRO is world renowned

so it can easily attract foreign investors in backing it against other competitors such as Nestle.

ENGRO foods can easily afford research and development costs for Olper’s have in order to

introduce new products. It can also distribute the brand through better channels because of its

long term relationship with distributors in the agriculture sector.

PR with farmers

ENGRO has been interacting with the farmers for fertilizers and has gained quite a good

reputation over the years. It has led to a strong bond and long term relationship with the

farmers who are willing to supply milk to the company. This is an added advantage and

strength for the company because it will never be short of milk production. The farmers

also won’t have to look elsewhere to sell their milk.

Positive response from customers

In first year, EFL crossed 1.4 billion sales figure which shows customers’ satisfaction upon

EFL’s products. 4. Its taste, quality proposition and world-class quality proposition system.

Strong consumer & product research

Olper’s done a strong consumer & product research before and after launching the product. This

has provided them the perfect launching pad to eventually emerge as a global player in the food

industry. To develop its future portfolios, EFL has hired various global research partners like AC

Nielsen, Mindshare, JWT Asiatic and MARS marketing and advertising agencies.

Third-Generation PlantEFL only, has the third-generation UHT milk plant in the country. EFL plant is the only plant in Pakistan that uses Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene. Moreover, it is also setting up another milk processing plant in Central Punjab (Sahiwal) with an investment of Rs. 2 billion (US $ 33 million).

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· Worldwide fame of Engro.

· Efficient milk collection system.

· Keeping high quality standards.

· Integrated distribution and warehousing facilities.

· Successful related diversification.

· Generic brand name of Olper’s

· Large market share of Engro innovative and chemicals.

· Having Good reputation in the market by strong brand name i.e. Engro

Weaknesses

Olwell TVCOlwell ad which is based on Western life style, ENGRO foods brand management showed a man who put off his clothes & remain just in his undergarments, or half nude lady in a cat walk or men admiring the figures of a lady in mix gender health club. In this ad they are creating associations with the brand through the stripes, which is a highlight of Olwell packaging. Half naked people have been shown with tattoos of the same stripes in order to show that they are loyal consumers of Olwell. Also, the talent, situations and locations connects well with the ad to give Olwell a premium positioning. The brilliant marketing people at ENGRO Foods failed to analyze is that the market they are targeted the ad on, is Pakistan, where practicing Muslims reside, who have strong religious beliefs. When making the ad, the brand managers were focused on, making an ad that should give the brand the most premium look and feel amongst the target consumers but on the other hand they were least bothered about the ethics, religious beliefs and cultural values.Owning Red ColorThe company has not owned the color red like Nestle has a green Milkpak; Haleeb has a blue carton etc. This may create problems because when a consumer enters a grocery shop, then he/she might have problems in recalling the brand because there is no color association attached to Olper’s. The company may need to find a suitable color in which to focus its upcoming marketing strategies.

Low Quality MilkEFL is not having its own dairy farms; it largely collects loose milk from farmers & gwalas through its 40 milk collection centers, which sometimes is of low quality and impure because they addvegetable oil to milk to get higher prices.PackagingEFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is the only option available to Olper’s for packaging because it is having monopoly in the packaging sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it could increase the production costs.Milk collection & distribution costs

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EFL’s 34 out of 40 milk-collection centers are located in Punjab, where as its only milk processing facility is situated near Sukkur (Sindh). It increases the milk collection & distribution costs; and also increases the chances of milk getting spoiled because of increased traveling time.Narrow brand portfolioIt has been more than a year now, when EFL launched its first dairy product, Olper’s Milk on March20, 2006. But EFL’s brand portfolio still consists of just 3 products i.e. Olper’s Milk, Olwell Milk and Olper’s Cream. Whereas its competitors like Nestle and Haleeb Foods have a much diversified line of dairy products.

· Unable to compete in price sensitive segment of UHT milk market.

· Under-utilization of the capacity.

· Unable to fulfill the demand of local powder milk market.

· Not yet ISO certified

Opportunities

Increased funding by GovernmentGovernment has decided to increase farmers’ funding. This is an opportunity for ENGRO foods because previously due to weather conditions and other reasons there was lots of wastage of milk but now that can be reduced as farmers will be better able to store milk for longer time periods.Increased consumption of PLMCompetition may create opportunities for the company because each competitor in the milk industry wants to increase penetration of processed liquid milk and so they will create awareness for consumers through different advertising media. This will ensure the increase in the consumption of processed milk instead of lose milk and so will in turn lead to increase in sales for the company. Therefore there will be an opportunity for accelerated growth.AwarenessGrowing dissatisfaction with loose milk and increasing awareness about health and hygiene issues have led to increased processed milk consumption.Third largest producer of milkPakistan is the Third largest producer of milk in the world with a total production of 32 billion liter of milk a year, whose value is more than that of the combined value of wheat and cotton, from a total herd size of 50 million milch animals (buffaloes and cows). Livestock accounts for 46.8 percent of agricultural value added and about 10.8 percent of the GDP. Milk is the largest

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commodity from the livestock sector accounting for 51 percent of the total value of the sector. Due to the steps taken by the government and private sector, country’s annual milk production is expected to grow at an additional 3 billion liters in the next few years. This is quite an opportunity for ENGRO foods as there is lot of growth in this part of the sector.

· Improving Economy

· Population growth rate.

· High urbanization rate.

· High literacy rate.

· Flexible government policies for food industry.

· Have significant growth opportunities

· Has sufficient capital to expand.

· Has the potential to innovate and differentiate the company's products to sustain a

competitive advantage

· May merge with other global businesses to eliminate competitors.

· Having Capable of expanding into other markets of the world

Threats

CompetitionCompetition may pose a threat because the company will have to maintain its leadership in an expanding market so that it doesn’t lose its market share to its competitors. For Olper’s it might be difficult to penetrate in a market where the loyalties exist for such brands as Nestle and Haleeb. These brands have been in the milk industry far too long and have left a mark in the minds of consumers in terms of quality. Competition seems to be getting tougher as a result of new players entering the dairy market.Perceptions and Price DifferentialsConsumers’ perceptions and price differentials can cause a threat for the company. It is important that Olper’s comes up to the expectations of the customers and fulfills its conformance quality that is the company meets its promised specifications. Consumer’s preferences change with time and prices might create certain barriers in terms of the profit margins for Olper’s. For example, lose milk is still cheaper than packaged milk and that is also one factor that people still prefer to buy lose milk.Has many major global competitors with its main one being Nestle Pakistan, Haleebfoods can be substituted by other milk producer made by its competitors.These competitors may develop marketing strategies to eliminate The Engrofoods Olpers. There may be an economic downturn in the business cycle.

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· High inflation rate.

· Low purchasing power.

· Decrease in GDP growth rate.

· Increasing interest rates.

· Decreasing investment.

· Recessionary period in business cycle

· Competition with Nestle, Engro Foods and the new entrants.

· Engrofoods is currently facing are increase in Sales Tax

INDUSTRIAL SWOT ANALYSIS

Strength

· Endowed with the very good breed of buffalos and cows

· Highest per capita consumption of milk in Asia

· Regular culling of less productive/unproductive animals

· A high ratio of agricultural land to agricultural ratio

· An emergence of commercial dairy farms on a large scale

Weaknesses

· Small and scattered animal holding

· Prevalence of traditional raw milk marketing system

· Poor quality of milk; lack of remunerative producer price for milk

· Milk processing predominantly dependant on obsolete UHT technology

· Mushrooming growth of cattle colonies in suburban areas; High cost of milk

· Production; a long chain of middle men

· Inadequate infrastructure and institutional facilities and support

· Low utilization of installed capacity of dairy plants

· Poor quality of animal health care and breeding services; lack of professional management

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Opportunities

· Huge unsatisfied demand of milk and milk products.

· Substantial scope for increasing milk production through improvement in the

marketing system by ensuring a year round remunerative price to milk producers

· Increase consumer awareness of healthy eating

Threats

· Unregulated imports of dairy products at cheap prices

· Inadequate public and private investment in modernization of the sector

· Vested interests in perpetuating the dependence on imports of dairy commodities

What is SWOT matrix?

The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental idea behind the SWOT model. To present the model in a more understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the SWOT framework.

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The above is a schema of how SWOT works. You start at the top level and go down to

details. When this is filled with content, it gets the shape of a matrix, such as Example below:

SWOT Matrix for Engrofoods.

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Strengths Weaknesses1. Worldwide fame of Engro.

EXTERNAL FACTOR ANALYSIS1.Unable to compete in price2. Efficient milk collection system. sensitive segment of UHT milk3. KeepingForhighEngrofoodsqualitystandards. market.

INTERNAL FACTOR ANALYSIS2.Under-utilization of the capacity.4. Integrated distribution and 3. Unable to fulfill the demand of

facilitiesEngrofoods

Key Strategic Factors Weight Rating Weighted Score

OPPORTUNITIESSTRENGTHS

Raw Material 0.1 4 0.4

0.08 4 0.32Availability

innovative and chemicals.0.03 3 0.09

7. Having Good reputation in theMarket Capitalization 0.08 3 0.24

0.05 3 0.15market by strong brand name i.e.

Diversification 0.07 2 0.140.08 4 0.32

Engro

Exports 0.07 3 0.218. Strong0.07R&D 3 0.21

Haleeb Bottle 0.04 1 0.040.08 4 0.32

Credit Policy 0.06 2 0.12SO

0.04 3

WO0.12

Joint Ventures 0.06 3 0.180.02 3 0.06

1.THREATS milk

cater the unsatisfied demand(S2,O2,O8) they should fulfill the demand as EFLNew Entrants 0.08 3 0.24

2. 05 4 0.

have the ability to expand.(W3,O8).

3. Changing Season 0.05 2 0.14.

They should02go in the product line3 of 0.06

powdered milk. (S8,O2,O5) They should make a strong distributionSales Tax 0.06 3 0.18

5. 4 24

system to cater to avail the full benefit ofSuppliers 0.07 3 0.21

WEAKNESSES

6. Economic Conditions They should0.05increase their exports. 2 0.10.05 1 0.05

They should cater the wide range of They should adopt affective marketingPrice Sensitive People 0.06 2 0.12

0.09 2 0.18

7. unsatisfied demand by improving their strategies for the promotion of their

Gawala Milk 0.1 4 0.4distribution networks product.(W2,O1)

0.06 2 0.12

Small Target Market 0.05 2 0.10.05 2 0.1

8. Total 1 2.780.03 1 0.03

Threats Political ConditionsST WT

1. Market Demand 0.05 2 0.12. Striker Terms And

Invest more on the dairy product line as The co-ordination between differentthere is still a large chunk of the market departments of EFL should be improved

3. 0.03 1 0.03

4. Conditions which require modernization(S6,T5) it will lessen the bureaucratic cost and

increase the efficiency of the company.5. Promotion Introduce0.05new technology for quality2 0.16. assurance and better productivity(S4,T7)

Total 1 2.83

Engro must get the ISO certification

7. Competition with Nestle, as to beat their competitors(W4,T8)Engro Foods and the newentrants.

8. Engrofoods is currently facing

are increase in Sales Tax

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Competitive Profile Matrix (CPM)

OLPERS NESTLE HALEEB

Critical Success Factors Weight Rating Score Rating Score Rating Score

1 Research & Development 0.08 3 0.24 3 0.24 4 0.32

2 Advertisement 0.09 3 0.24 4 0.36 3 0.27

3 Financial Position 0.09 3 0.27 3 0.27 3 0.27

4 Market Share 0.07 2 0.14 4 0.28 3 0.21

5 Product Quality 0.08 3 0.24 3 0.24 3 0.24

6 Price Competitiveness 0.11 3 0.33 3 0.33 2 0.22

7 Management 0.10 3 0.30 4 0.40 3 0.30

8 Global Expansion 0.08 3 0.24 4 0.32 3 0.24

9 Customer service 0.06 3 0.18 3 0.18 2 0.1210 Sales And Distribution

Network 0.09 3 0.27 4 0.36 3 0.27

11 Production Capacity 0.07 2 0.14 3 0.21 4 0.28

12 Alliances 0.08 3 0.24 4 0.32 3 0.24Total

1.0 2.76 3.51 2.98

For Engrofoods.

REASONS

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The IFE matrix for AFL is given above. Note that the strength for the company is Research

and Development, Pakistan based and having a highest production capacity so got 4

rating. The major weaknesses are Price competitiveness customer service and planning

for the future state of the AFL. The total weighted score of 2.76 indicates this large milk

Production Company is above average in its overall internal strength. But it’s very close to

average limit as well. So it really needs to improve its weaknesses and build its strength.

CORE COMPETENCIES & KEY SUCCESS FACTORS:

There are several core competencies of EFL given below;

· EFL foods Pvt. Ltd has been able to build a good brand name in a number of years.

There are several consumers who are loyal to the brand and do not shift to other

brands. Building a good brand name is not easy. It takes years to build a brand

image by providing the best quality to its consumers which Haleeb Foods have

done. They have consistently delivered which provides a competitive advantage to

the company of having a good name in the market.

· EFL. Is only the recognizable food company which is doing business without interest, which

means that they do not take loan or take advantage of the interest income which they can

easily do? If they want loan and they cannot find anyway out they go for Islamic Financing

like mudarba and musharka. It is their strength as majority of the people in Pakistan are

Muslims and Muslims are advised to remain away from interest income.

· EFL has one of the most modern plants which has the latest technology and has a high

production capacity. They produce 80,000 liters of milk in a day which is not a small

amount of milk. They have an advantage of higher production as people are demanding

more and more packed milk so they can meet the increasing demand easily.

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· HFL has one of the most extensive distribution networks across the nation. It has

one of the best distributions if we compare it with other major players like nestle and

all because EFL has over 600 distributors across Pakistan which enables them to

deliver their products into far of small towns as well as villages. It is their major

strength which is driving their revenues very quickly.

.

KEY SUCCESS FACTORS:

· Research & Development

· Financial Position

· Market Share

· Product Quality

· Price Competitiveness

· Management

· Global Expansion

· Customer service

· Network Sales And Distribution

· Production Capacity

· Alliances

COMPETITIVE ANALYSIS

The strategic priorities of Nestle Pakistan are claimed to be focused on delivering

shareholder value through the achievement of sustainable, capital efficient and profitable

long-term growth. Improvements in profitability would be achieved with due respect to

quality and safety standards at all times.

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In line with the above objective, Nestle Pakistan aims at growing into a number one food

company in Pakistan in the shortest possible time with the unique ability to meet the needs

of consumers of every age group - from infancy to old age, for nutrition and pleasure,

through development of a large variety of food categories of products with highest quality.

Nestle Pakistan envisions that the company should develop an extremely motivated and

professionally trained work force, which would drive growth through innovation and

renovation. Special training programs have been designed for employees at each level to

keep up with and develop this vision.

The study concludes that Nestle has a significantly high growth rate (36%) and has grown and

developed at a high pace in short span of time. On the other hand Haleeb has a market share

of 28%. And Engrofoods having 21% the major contributor toward this growth and

development are human resource, marketing and sales departments. The major contributor is

its appropriate strategy particularly its relationship with the social and environmental sectors.

Perhaps this is the reason that it in spite of being a multi-national has been well accepted in

Pakistani culture. There are ample chances of its survival in future.

· Keeping new players such as Olper’s, and the old one’s like Haleeb, Nestle focused

more on advertising.

· Nestle have been experiencing a constant increase in cost with raw material

contributing the larger part of this increase. Haleeb having their own suppliers so

the raw material cost is bit low.

· Nestle maintained its value of gross profit margin around or above 30% to ensure that it

has a strong control over its costs, and the efficiency of production. But on the other

hand, Haleeb faced a bit of down fall when Olpers introduced their campaign.

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SPACE MATRIX STRATEGIC MANAGEMENT METHOD

The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake. The Strategic Position & Action Evaluation matrix or shorta SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysi s , BCG matrix model, industry analysis, or assessing strategic alternatives ( I E matri x ).The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis. -CA values can range from -1 to -6.- IS values can take +1 to +6?

-The FS and ES dimensions of the model are plotted on the Y axis.- ES values can be between -1 and -6.- FS values range from +1 to +6.

Engrofoods factors for SPACE MATRIX

Axi

x X

Internal Strength Position External Strength PositionCompetitive Advantage(CA) Industry Strength(IS)

(Worst -6,Best -1) (Worst +6,Best +1)

-1 Product Quality +5 Barriers to entry-1 Product Life Cycle +4 Growth Potential-3 Market Share +4 Access to Financing

-2 Brand and image +6 Consolidation

Average Score = -1.75 Average Score = 4.75

Total X-Axis score: 3.00

Financial Strength(FS) Environment Strength(ES)

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(Worst +6,Best +1) (Worst -6,Best -1)A

xis

+5 ROA -2 Inflation+5 Leverage -1 Technology+4 Leverage -2 Demand Elasticity

-4 Taxation+6 Cash Flow

Average Score = 5 Average Score = -2.5

Total Y-Axis score: 2.75

Space Matrix for Engrofood

Consertvative AggrasiveFS

-6

-5

-4 Suggested Strategy type

-3 (3,2.75)

-2

-1

CS 1 2 3 4 5 6

-6 -5 -4 -3 -1 -1 IS

1

2

3

4

5

6

Defensive ES Competitive

Conclusion

This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our company has a strong competitive position it the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. This can include product development, integration with other companies, acquisition of competitors, and so on.

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BCG Matrix Model

The BCG matrix or also called BCG model relates to marketing. The BCG model is a well-known portfolio management tool used in product life cycle theory. BCG matrix is often used to prioritize which products within company product mix get more funding and attention.

The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's.

The BCG model is based on classification of products (and implicitly also company business units) into four categories based on combinations of market growth and market share relative to the largest competitor.

Division wise data for Engrofoods BCG Matrix

Percent Percent Percent PercentDivision Revenues Revenues Profits Profits Market Value Growth Rate

Olper’s 49.90% $2000 41.62%60 +8

$4500

Olwell TVC$2550 24.87%

$1500 31.21% 25 -6

Tarang $3200 31.21%$1305 27.18% 35 +4

Total = $10250 100% 4805 100% ---- ----

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BCG Matrix for EFL

Relative Market share position in industry

high Medium Low

.1.0 0.5 .0.0

High 10

IndustrysalegrowthRte% Medium 0 0

Low-10

Internal External (IE)Matrix

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The Internal-External (IE) matrix is another strategic management tool used to analyze working conditions and strategic position of a business. The Internal External Matrix or short IE matrix is based on an analysis of internal and external business factors which are combined into one suggestive model.

The IE matrix is a continuation of the EFE matrix and IFE matrix models.

IE matrix for Engrofoods.

Strong = 3.0 to 3.99 Average = 2.0 to 2.99 Weak 1.0 to 1.99

High = 3.0 to 3.99 Grow I And II Build III

Medium = 2.0 to 2.99 Hold IV And V Engrofoods Maintain VI

Low = 1.0 to 1.99 Harvest VII And VIII Divest IX

1. Score from the EFE matrix -2.75- this score is plotted on the y-axis 2. Score from the IFE matrix -2.83- plotted on the x-axis

As blue lines indicate

Conclusion

This IE matrix for Engrofoods tells us that our company should hold and maintain its position. The company should pursue strategies focused on increasing market penetration and product development

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Grand Strategy Matrix.For Engrofoods

Rapid market growthRate

Quadrant II Quadrant I

Engrofoods

Weak competitive Strong competitivePosition Position

Quadrent III Quadrant IV

Slow market growthRate

Conclusion

The grand strategic Matrix for EFL is show that it lies in the first quadrant which recommend that for EFL continued concentration on the current Market (market penetration and market development)and products(product development)is an appropriate strategy.

Quantitative Strategic Planning Matrix or a QSPM

The Quantitative Strategic Planning Matrix or a QSPM approach attempts to objectively select the best

strategy using input from other management techniques and some easy computations. In other

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words, the QSPM method uses inputs from stage 1 analyses, matches them with results from stage 2 analyses, and then decides objectively among alternative strategies.

Stage 1 strategic management tools...

The first step in the overall strategic management analysis is used to identify key strategic factors. This can be done using, for example, the EFE matrix and IFE matrix.

Stage 2 strategic management tools...

After we identify and analyze key strategic factors as inputs for QSPM, we can formulate the type of the strategy we would like to pursue. This can be done using the stage 2 strategic management tools, for example the SWOT analysis (or TOWS), SPACE matrix analysis, BCG matrix model, or the IE matrix model.

Stage 3 strategic management tools...

The stage 1 strategic management methods provided us with key strategic factors. Based on their analysis, we formulated possible strategies in stage 2. Now, the task is to compare in QSPM alternative strategies and decide which one is the most suitable for our goals.

The stage 2 strategic tools provide the needed information for setting up the Quantitative Strategic Planning Matrix - QSPM. The QSPM method allows us to evaluate alternative strategies objectively.

Conceptually, the QSPM in stage 3 determines the relative attractiveness of various strategies based on the extent to which key external and internal critical success factors are capitalized upon or improved. The relative attractiveness of each strategy is computed by determining the cumulative impact of each external and internal critical success factor.

QSPM OF Engrofoods

Based on strategies in the stage 1 (IFE, EFE) and stage 2 (BCG, SPACE, IE), company executives determined that Engrofoods needs to pursue an aggressive strategy aimed at development of new products and further penetration of the market. They also identified that this strategy can be executed in two ways. One strategy is acquiring a competing company. The other strategy is to expand internally. They are now asking which option is the better one.

(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 = most acceptable; 0 = not relevant)

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Acquire a competing InternalInternal External Factor Weight company expansion

Strength AS TAS AS TAS1. Worldwide fame of Engro. 0.08 3.00 0.24 4.00 0.322. Efficient milk collection system. 0.10 3.00 0.30 3.00 0.303. Keeping high quality standards. 0.10 3.00 0.30 4.00 0.404. Integrated distribution and warehousing

0.12 4.00 0.48 4.00 0.48facilities.5. Generic brand name of Olper’s 0.08 0.00 2.00 0.166. Large market share of Engro innovative and

0.08 3.00 0.24 0.00chemicals.

Weakness1. Unable to compete in price sensitive segment of

0.10 1.00 0.10 2.00 0.20UHT milk market.2. Under-utilization of the capacity. 0.10 1.00 0.10 2.00 0.203. Unable to fulfill the demand of local powder

0.08 0.00 0.00milk market.4. Not yet ISO certified 0.08 0.00 0.005. Unable to compete in price sensitive segment of

0.08 2.00 0.16 0.00UHT milk market.

1.00Opportunities1. Improving Economy 0.12 2.00 0.24 0.002. Population growth rate. 0.06 3.00 0.18 3.00 0.183. High urbanization rate. 0.11 2.00 0.22 1.00 0.114. High literacy rate. 0.12 0.00 2.00 0.245. Flexible government policies for food industry. 0.13 1.00 0.13 1.00 0.136. Have significant growth opportunities 0.06 1.00 0.06 1.00 0.06Threats1. High inflation rate. 0.122. Low purchasing power. 0.063. Decrease in GDP growth rate. 0.124. Increasing interest rates. 0.055. Decreasing investment. 0.05

Total 1.00 2.75 2.78

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Doing some easy calculations in the Quantitative Strategic Planning Matrix QSPM, we came to a conclusion that Expansion internally a is a better option. This is given by the Sum Total Attractiveness Score figure. The expansion strategy yields higher score than the acquiring of competing company. The acquisition strategy has a score of 2.75 in the QSPM shown above whereas the internal expansion strategy has a smaller score of 2.78

FINANCIAL RATIO ANALYSIS

) Liquidity Ratios

LIQUIDITY RATIOS

/Current Assets= Current Ratio Current Liabilities

= Quick Ratio /Current Assets—InventoryCurrent Liabilities

YEARCURRENT RATIO QUICK RATIO

20080.88

0.45

2009 0.94 0.46

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