NISHAT MILLS LTD Strategic Management Plan

BY

Muhammad Salman Rasheed (Roll #:04)

Zeeshan Tauqir (Roll #:10)

Abdur Razaq (Roll #:01)

Section: B

TABLE OF CONTENTS

Page No.TOPICS

3Company Profile

4Vision Statement, Mission Statement5-7SWOT Analysis

8THE STRATEGY FORMULATION ANALYTICAL PROCESS

9STAGE 1ST ----- INPUT STAGE

10-11CPM-Competitive Profile Matrix12External Factor Evaluation (EFE) Matrix13Internal Factor Evaluation (IFE) Matrix14STAGE 2ND ----MATCHING STAGE

15-16SWOT Matrix17-18SPACE Matrix19-20The Boston Consulting Group (BCG) Matrix21-22The Internal-External (IE) Matrix

23Grand Strategy Matrix

24STAGE 3RD ----DECISION STAGE

25-27The Quantitative Strategic Planning Matrix (QSPM)28Recommendations29References

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COMPANY PROFILE

The Nishat Group:

Nishat has grown from a cotton export house into the premier business group of Pakistan with 5 listed companies, concentrating on 4 core business; Textiles, Cement, Banking and Power Generation.

Today, Nishat is considered to be at par with multinational operating locally in terms of its quality products and management skills.

Annual turnover of 17 billion rupees.14 billion from textiles.Earn foreign exchange of US $ 236 million.Pay taxes and levis of 2,080 million rupees annually.

Nishat Mills Ltd:

Flagship Company established in 1951.Most modern, biggest composite unit of Pakistan.Professional and client oriented marketing.Green company.ISO 9001 and IKO-TEX 100 Certified.SA 8000certification currently in progress.

NML today has 1, 73,000 spindles, 284 sulzer shuttle less looms and 244 TSUDAKOMA air jet looms. NML also has the most modern textile processing unit, 2 stitching units and power generation plant with a capacity of 33.6 MW.

NML total export for the year 2009 is 38.8 billion rupees. Due to the application of prudent management policies, consolidation of operations, a strong balance sheet and an effective marketing strategies, this trend is expected to continue in the years to come. The company’s production facilities comprise Spinning, Weaving, Processing, Stitching, and Power Generation.

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Vision Statement:

To transform the Company into a modern and dynamic yarn, cloth and processed cloth and finished product manufacturing Company with highly professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

Mission Statement:

To provide quality products to customers and explore new markets to promote/expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company.

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STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT) ANALYSIS

Strengths Weaknesses

ISO 9001 and IKO-TEX 100 Certified.

Biggest composite unit in Pakistan.

Highest credit rating by PACRA.

Self owned power plant.Largest dyeing facility in

South East Asia.

Relying on international market only.

High cost of production.High employee’s turnover.Transit time is more as

compare to foreign competitor.

Opportunities Threats

WTO regime implementation.Cost reduction by using

modern and technology.Local market development.Entering in Energy sector.

(Subject to Government permission)

Export of raw cotton and yarn.WTO regime implantation.Exchange rate fluctuations.Instable political and

economical conditions.Government policies.

INTERPRETATIONS:

A- STRENGTHS

1- ISO 9001 and IKO-TEX 100 Certified: As NML is mainly focusing on international markets, and with the implementation of WTO regime, these types of certifications are very helpful to win the customer’s satisfaction.

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2- Biggest Composite Unit in Pakistan: NML is enjoying the status of being the biggest textile composite unit of Pakistan, this strengths is helpful to create economies of scale that is key to success in international markets.

3- Highest Credit Rating by PACRA: NML has been awarded highest investment grade by Pakistan Credit Rating Agency (PACRA), which will make it easy for the NML to raise long-term funds.

4- Self Owned Power Plant: Now a days, having your own power plant is of crucial importance, because it make sure un-interrupted supply of energy at very low cost, which is helpful to be compatible at international level.

5- Largest dyeing facility in South East Asia: NML’s processing division got the largest dyeing in South East Asia, making it a candidate to accept those contracts from other companies that involve out sourcing of dyeing facilities.

B- WEAKNESSES

1. Relying On International Market only: as mentioned earlier that NML has been focusing on international markets so there are chances that this strategy may hurt its sales as there are rapid fluctuations in international markets, competition and buyers preferences.

2. High Cost of Production: All Pakistani firms including NML is suffering from high cost of production as compared to the other countries like,; India, China and Bangladesh, they are cutting our throats by being cost completive day by day while at the same time producing high quality stuff as compared to Pakistani firms.

3. High employee’s Turnover: Trends has been seen in workforce data to leave the NML on permanent basis, this is especially true for the lower level staff.

4. Transit time is more as compare to Foreign Competitor: Foreign countries like India, Bangladesh and China are very much efficient while completing and consigning their orders to foreign buyers. NML has more transit time as compared to its international competitors. The reason may be the contracts with shipping companies or some internal process problems.

C- OPPORTUNITIES

1. WTO regime implementation: with the abolishment of quota system, now its an opportunity for the NML to capture the international market share by providing low priced and high quality goods to international customers. In this regard is cost competiveness is a special concern.

2. Cost reduction by using modern Technology: As WTO regime has opened the doors for free trade for the whole world, now the only survival of the firms would on the

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minimization of production cost and offering innovative, high quality goods with competitive price. NML got strong financial support from Nishat Group can do so.

3. Local market development: Nishat Mills Limited is presently focusing on foreign markets, so it’s an opportunity for NML to cash its name in the local market by introducing a local retail store chain just like Chen One. (Chenab mills ltd.)

4. Entering in Energy Sector: NML may get the privilege of generating and providing electricity for residential and commercial areas of Faisalabad, by negotiating with the government of Pakistan. Al though local rules make it difficult but still there is a huge opportunity to capitalize.

D- THREATS

1. Export of Raw Cotton and Yarn: Recent trends in the Pakistan to export raw cotton and yarn to foreign countries is hitting like nails on the heads of textile value addition units, although NML has its own spinning facilities but to some how export of raw cotton is dangerous for it.

2. WTO regime implantation: Abolishment of quota system presents a opportunity as well as a biggest threat to the Pakistani firms including NML, as other countries are free to capture the market, we the Pakistani firms are suffering with high cost of production may be driven out of the competition.

3. Exchange Rate Fluctuations: NML most of the sales are comprising exports, it is to be received payment in foreign currency especially American dollars, ultimately these sales proceeds are to be converted to Pakistani rupees, here come s the magic of exchange rate whose fluctuation can change a profitable deal into a bad loss. Finally, if Pakistani rupees got strength against other currencies we will get lower value for our proceeds.

4. Instable Political and Economical Conditions: Changing Governments, war on terror, decreasing buying power and altering buying trends and preferences of customers are posing big threats to NML, in this regard we are confronting with local an well as international political and economical conditions.

5. Government policies: Government polices like high rates of taxes, VAT, duties on international trades, high energy cost, re-organizing unions are causing a serious damage to the performance of over all industry including NML.

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THE STRATEGY-

FORMULATIONANALYTICAL

PROCESS

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STAGE: 1st ----------- INPUT STAGE

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A- COMPETITIVE PROFILE MATRIX (CPM)

Competitive Profile Matrix

Industry: Vertically Integrated Textile Mills

Sample Company: Nishat Mills Ltd.

 CRITICAL SUCCESS FACTORS

NISHAT MILLS LTD.

CRESCENT TEXTILE MILLS

CHENAB TEXTILE MILLS

WEIGHT Rating

Weighted Score

Rating Weighted Score

Rating

Weighted Score

Product design 0.07 4 0.28 3 0.21 3 0.21

Technological up-gradation

0.11 3 0.33 4 0.44 3 0.33

Research & development

0.10 4 0.40 3 0.30 2 0.20

Market Segmentation

0.07 2 0.14 2 0.14 4 0.28

Distribution & promotion

0.07 3 0.21 3 0.21 2 0.14

Capacity utilization

0.08 3 0.24 3 0.24 2 0.16

Persistence in product quality

0.09 4 0.36 3 0.27 4 0.36

Efficient procurement of raw material

0.09 3 0.27 3 0.27 3 0.27

Effective management

0.08 3 0.24 4 0.32 2 0.16

Trained manpower

0.07 4 0.28 3 0.21 3 0.21

Cost competitiveness

0.10 2 0.20 2 0.20 1 0.10

Customer 0.07 3 0.21 3 0.21 2 0.14

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satisfaction & loyaltyTOTAL 1.00 3.16 2.98 2.56

INTERPRETATIONS:

A Nishat mills limited is dominating in the industry as compared to local players. There are several competitors like Agzard 9, Kohinoor textile mills, etc, but above taken competitors are the major ones.

CPM scores for NML showing aggressiveness as compared to the crescent and Chenab textile mills.

NML is number one company within the local environment; it is basically leading the industry in the following aspects:

Product design.Research & development.Persistence in product quality.Trained Manpower.

Moreover, crescent textile mills is resides at the second number and leading industry in effective management style. Finally Chenab textile comes at number 3rd with leading position in persistence in quality and market segmentation.

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B- EXTERNAL FACTOR EVALUATION (EFE) MATRIX

KEY EXTERNAL FACTORS Weight Rating Weighted Score

OPPORTUNITIESWTO regime implementation.

0.124 0.48

Cost reduction by using modern and technology.

0.13 3 0.39

Local market development. 0.10 1 0.10

Entering in Energy sector. (Subject to Government permission)

0.11 2 0.22

THREATSExport of raw cotton and yarn. 0.12 4 0.48

WTO regime implementation. 0.10 4 0.40

Exchange rate fluctuations. 0.09 2 0.18

Instable political and economical conditions.

0.12 4 0.48

Government policies. 0.11 1 0.11

TOTAL 1.00 2.84

INTERPRETATIONS:

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EFE score of 2.84 indicating that the NML is taking the external opportunities and avoiding external threats quite well, however there is room for improvement is well.

This score suggest NML to be aggressive but the degree of aggressiveness needs to be little moderate, it should not go for diversification, rather it should go for penetration in the existing market, further developing local or foreign market or it may design a new product.

C- INTERNAL FACTOR EVALUATION (IFE) MATRIX

KEY INTERNAL FACTORS Weight Rating Weighted Score

STRENGTHSISO 9001 and IKO-TEX 100 Certified. 0.11 3 0.33

Biggest composite unit in Pakistan. 0.10 4 0.40

Highest credit rating by PACRA. 0.13 4 0.52

Self owned power plant. 0.15 4 0.60

Largest dyeing facility in South East Asia.

0.12 4 0.48

WEAKNESSES Relying on international market only. 0.10 2 0.20

High cost of production. 0.12 2 0.24

High employee’s turnover 0.06 2 0.12

Transit time is more as compare to foreign competitor.

0.11 1 0.11

TOTAL 1.00 3.00

INTERPRETATIONS:

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IFE score of 3.00 indicating that the NML is an internally strong organization, it represent that it is excellent in its overall internal strategies when it come to explore strengths and weaknesses.

Overall the main strength is financial support by the Nishat Group.

STAGE: 2ND -----MATCHING STAGE

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A- SWOT MATRIX

STRENGTHS WEAKNESSES

1. ISO 9001 certified & IKO-TEX 100 Certified.

2. Biggest composite unit in Pakistan

3. Highest credit rating by PACRA

4. Self owned power plant

5. Largest dyeing facility in south east Asia

1. Relying on international market only

2. High cost of production3. High employees

turnover4. Transit time is more as

compare to foreign competitor

OPPORTUNITIES S-O STRATEGIES W-O STRATEGIES1. WTO regime

implementation

2. Cost reduction

technology by using

modern and advanced

technology

3. Local market

development

4. Diversification in energy sector (Subject to Government permission)

1. provide electricity to residential areas ( S4, O4)

2. capture local market by providing facility of outsourcing and introducing company products through its retail outlets (S2, S5, O3)

1. Import modern technology (W1, W2, O2)

2. Company can enter in new market through retail outlets (W1, W4, O3)

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THREATS S-T STRATEGIES W-T STRATEGIES1. Export of raw cotton and

yarn2. WTO regime

implementation3. Exchange rate fluctuations4. Instable political and

economical conditions5. Government policies

1. Penetration in foreign market (S1, T2)

2. Make future contracts to avoid currency fluctuations (S3, T3)

1. Focus on local market (W1, W2, W4, T2, T3)

2. Import modern technology, and do agreements with suppliers to secure your supply of raw material (W2, T1)

INTERPRETATIONS:

Critical Region is WO. Nishat Textiles can import new technology to reduce its cost of production. Company can thus be able to penetrate in the market and capture more shares by improving quality of goods and services, and provision of goods at lower prices.

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B- SPACE MATRIX

 Financial Strength  Rating  Environmental Stability   RatingLeverage 4 Rate of inflation -3net income 6 Technological changes -3E.P.S 5 Competitive pressure -3R.O.E 5 Risk involve in business -2       Average 5 Average -2.75

Y-Axis strength 2.25 Competitive Advantage Rating  Industry Strength    RatingMarket share -1 Growth potential 5product quality -2 Financial stability 3customer loyalty -3 Resource utilization 3Technological know how -2 Profit potential 2       Average -2 Average 3.25

X-Axis strength 1.25

INTERPRETATIONS:

For the purpose of evaluating financial strength we have compared our concerned co. with industrial average.

Leverage used by Nishat mills was significantly low as compared to industrial average that why we have ranked it at point 4.

Net income of Nishat mills was highest in industry that’s why it is given 6 points.

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Conservative Aggressive

CompetitiveDefensive

FS

ISCA

ES

It’s E.P.S & return on equity was also high as compare to industry that’s why they were ranked 5.

Market share of Nishat mills was highest about 12% that why it is given -1 marks.

There product is of good quality & there customers are loyal but customers can’t be very loyal in this industry that’s why they were ranked at -2 & -3.

They have new & advanced technology that’s why they are ranked -2.Rate of inflation is increasing its C.G.S & technological changes its

depreciation as well as there is heavy competitive pressure from china & Bangladesh that’s why they were rankes-3.

There is high risk now a days in this business but due to being as industrial giant in Pakistan they are not in such a risk that why it is given -2.

There is high growth potential in industry because now recovery period have been started.

Industry is less financial stable as well as most of the companies are producing very below then their capacity that’s why they are ranked at 3.

Due to increase in cost the profit potential has been declined that why this is ranked at 2.

Directional vector point is :( 1.25, 2.25)

INTERPRETATIONS:

According to our calculations the score of our company is 1.25 on x-axis And 2.25 on Y-axis

Which is showing that our co. should go for aggressive strategy

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Further more it is telling us that our financial strength is the dominating factor in industry

Our concerned strategies can beBackward ,forward ,horizontal ,integrationsMarket penetrationMarket developmentProduct developmentDiversification(related or unrelated)On the other hand, Nishat Textiles also has the opportunity to enter and

capture the local market. Company can do this through opening retail outlets in the local areas and provide better goods and services to its domestic customers.

C- THE BOSTON CONSULTING GROUP (BCG) MATRIX

Market Share

High Low

Stars Question Mark

Cash Cow Dogs

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High

Industrial

Growth

Low

INTERPRETATIONS:

Nishat Textiles is a composite textile unit of Nishat Group. Total number of players in the industry is 60, and Nishat Textiles is the market leader. It captures 12% market share as a whole. In 2009, the industrial overall growth rate is 11%, but that of Nishat Textiles is 24% as compare to the sales of 2008.Source: KSE (Karachi stock exchange) data for 2008, and 2009.

The industrial growth is high and Nishat Textiles has high market growth as well. So, it lies in the first quadrant (Stars) of the BCG matrix. It implies that, company has the opportunity to go for Market penetration to capture more share in the existing market by using new technology, and increasing promotional activities. It also has a tremendous option of local market development.

Other feasible strategies may be the backward integration to secure the supplies in order to tackle with the threat of exporting of local raw material to foreign markets. Also Nishat Textiles goes for forward integration to minimize its weakness of transit time of goods and services to its customers.

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D- THE INTERNAL-EXTERNAL (IE) MATRIX

E- IFE TOTAL SCOREF- G- Strong Moderate LowH- I-

J- K- L- M- N- O- P- Q- R- S- T- U- V- W- X- Y-

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EFE TOTAL

SCORE

High

Medium

Low

I

Grow and Build

II

Grow and Build

III

Hold and Maintain

IVGrow and Build

VHold and Maintain

VIHarvest

VII

Hold and Maintain

VIII

Harvest

IX

Divest

Z- AA-

INTERPRETATIONS:

IFE Total Score (As per IFE Matrix) = 3.00EFE Total Score (As per EFE Matrix) = 2.84

BB-

It implies that Nishat Textiles is in a much strong position. But, comparatively it is stronger internally as compare to its external position.

As per IE Matrix, Nishat Textiles lies in fourth cell, which implies that it should go for aggressive strategies that is grow and build strategies. The possible strategies for Nishat Textiles may be the integrations, intensive, and diversifications.

Nishat Textiles has the opportunity to go for Market penetration to capture more share in the existing market by using new technology, and increasing promotional activities. It also has a tremendous option of local market development.

Other feasible strategies may be the backward integration to secure the supplies in order to tackle with the threat of exporting of local raw material to foreign markets. Also Nishat Textiles goes for forward integration to minimize its weakness of transit time of goods and services to its customers.

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E- THE GRAND STRATEGY MATRIX

Rapid Market Growth

INTERPRETATIONS:

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WeakCompetitiveAdvantage

StrongCompetitiveAdvantege

Slow Market Growth

Quadrant II Quadrant I

Quadrant III Quadrant IV

Total number of players in the industry is 60, and Nishat Textiles is the market leader. It captures 12% market share as a whole. In 2009, the industrial overall growth rate is 11%, but that of Nishat Textiles is 24% as compare to the sales of 2008.As the market growth is high, and Nishat Textiles has strong comparative position in the market. So, it lies in the first quadrant of Grand strategy matrix, which implies that it should go for aggressive strategies. The possible strategies for Nishat Textiles may be Market Development, Market Penetration, Backward and Forward Integrations.

STAGE: 3RD -----DECISION STAGE

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THE QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

Strategy 1

LOCAL MARKET DEVELOPMENT

Strategy 2

PENETRATING IN FOREIGN MARKET

KEY INTERNAL FACTORS

Weight AS TAS AS TAS

STRENGTHS ISO 9001and IKO-TEX 100 Certified. 0.10 1 0.10 3 0.30

Biggest Composite Unit in Pakistan. 0.11 4 0.44 2 0.22

Capacity utilization. 0.13 3 0.39 2 0.26

Self-Owned Power Plant. 0.14 2 0.28 3 0.42

Largest Dyeing Facility in South East Asia.

0.12 2 0.24 1 0.12

WEAKNESSES

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Relying on international markets only. 0.10 4 0.40 2 0.20

High Cost of Production. 0.12 3 0.36 4 0.48

Market Segmentation. 0.07 3 0.21 1 0.07

Transit time is more as Compared to Foreign Competitors.

0.11 2 0.22 1 0.11

SUBTOTAL 1.00 2.64 2.18

Strategy 1

LOCAL MARKET DEVELOPMENT

Strategy 2

PENETRATING IN FOREIGN MARKET

KEY INTERNAL FACTORS

Weight AS TAS AS TAS

OPPORTUNITIES 

WTO regime Implementation. 0.12 1 0.12 4 0.48

Cost reduction through introducing modern technology.

0.13 2 0.26 4 0.52

Local market development. 0.11 3 0.33 1 0.11

Entering in Energy Sector. 0.11 - - - -

THREATS

Export of raw cotton and yarn. 0.12 3 0.36 2 0.24

WTO regime Implementation. 0.1 1 0.10 3 0.30

Exchange rate fluctuations. 0.09 2 0.18 1 0.09

Instable Political and Economic Conditions.

0.11 3 0.33 2 0.22

Government Policies. 0.11 2 0.22 3 0.33

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SUBTOTAL 1.0 1.90 2.29

GRAND TOTAL 4.54 4.47

INTERPRETATIONS:

I.S.O certification will only be helpful in market penetration so that’s why it is given high marks.

Biggest composite unit & less capacity utilization will be helpful or will be used better by open chain store rather then market penetration so it is given higher marks.

Increasing sales in foreign will better use energy rather then chain store so it is given higher marks.

Largest dying facility has its goodwill so we have ranked it higher in chain store.

Reliance on international market can be decreased by opening chain store that’s why it is given higher marks.

Higher cost of production can be decreased by exporting more quantity but opening new store will increase expenses for that’s why penetration is given higher marks.

Open chain store will increase our segmentation & it will decrease on reliance on exports so problem of transit time will impact us less that’s why these are given higher marks.

WTO regime will be useful only in penetration so it Is given higher marks.Local market development will be done only in that case when we will go for

chain store so it is given higher marks.If we will open chain store we will be able to charge higher prices due to our

goodwill so yarn’s export problem will not affect us as it is effecting.WTO regime implementation will be covered only in that case when we will

go for market penetration.

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Exchange rate fluctuation will impact us only in that case when we will go for foreign trade so opening retail store will reduce its impact that’s why it is given higher score.

Due to bankruptcy of foreign customers the political & economical conditions will have less impact on us if we will go for chain store that’s why it is given higher marks.

Government polices regarding opening a new store can be difficult to meet so it is given lower marks.

RECOMMENDATIONS

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REFERENCES

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