Engro Fertilizers Limited – Success in the rural sector

In this report I will aim to analyze the success of Engro Fertilizers in the rural
sector of Pakistan with respect to the management practices adopted within
the organization. We will aim to showcase how these practices continue to
help Engro Fertilizers grow year by year.

A Principles of Management Term Report

Omer Farooq Butt – BBA 3 Section 2

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Table of Contents: Page

1. Introduction
…3
2. Comparative position
…5
3. S.W.O.T. Analysis
…7
4. Problems faced and the management’s response
… 10
5. Management Functions
… 11
6. Conclusion
… 13
7. References

… 14

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1. Introduction

Engro Fertilizers Limited, a wholly owned Engro subsidiary, is a premier fertilizer manufacturing and

marketing company with products that focus on balanced crop nutrition and increased yield. The

company markets primary and secondary fertilizers like Engro Urea, Engro DAP, Engro Zorawar,

Engro Zarkhez and Zingro.

Engro Fertilizers has successfully developed a loyal customer base all across Pakistan, not only by

providing farmers with quality fertilizers, but also through extensive market development activities.

A premier brand and nationwide presence of the company ensures sellout production. Additionally,

the company sells phosphate fertilizers for balanced fertility and improved farm yields. Engro’s share

of Pakistan’s phosphates market mirrors or exceeds its urea market share.

The Company’s expansion plans include the world’s largest single train urea complex, which is being

set up with an estimated cost of US$ 1.05 billion, and is on track for completion by mid 2010. 1

Engro Fertilizers Limited (EF) has set an excellent example of success in the rural markets of Pakistan

and therefore in what is to follow, we will hope to understand how efficient management skills have

led to this success and how Engro Fertilizers continues to prosper as a learning organization.

In this report we will aim to first establish Engro Fertilizers’ comparative position among key firms in

the fertilizer sector that cater to Pakistan’s agricultural needs. This will help us identify the

competition and establish EF’s approach with characteristics of a learning organization that

continually prospers. Then we will take a look at the S.W.O.T. (Strengths, Weaknesses,

Opportunities, Threats) Analysis of Engro Fertilizers Limited to identify the key areas the

management can focus on, internally and externally. We will also aim to identify other problems

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that may concern Engro Fertilizers either directly or indirectly for instance the recent floods,

increasing costs of production and fall in production due to various factors of both controllable and

uncontrollable nature. And we will further analyze how the management responds to these

problems in order to maintain a steady rate of growth and revenue. To further our cause of

understanding the efficient policies undertaken by the management at Engro Fertilizers, we will also

bring the Management Functions in the spotlight and establish how employees at the management

level transcend their simple job descriptions.

Through this report we will aim to bring some of the concepts taught in the Principle of

Management course into perspective with Engro Fertilizers as the industry example which will be

under analysis. We will aim to understand how the success of Engro Fertilizers can be credited to the

management’s policies regarding different internal and external factors that cushion growth and

profits, year after year.

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1
http://www.engro.com/our-businesses/engro-fertilizers-limited/

2. Comparative position

Seeing as how Engro Fertilizers came into existence long after the former Exxon had already

developed a modest customer base with its urea and phosphate products for the domestic farmers,

it is important to understand Engro Fertilizer’s market share of present so that we can better

understand how its management is able to successfully draw the local farmers towards Engro

Fertilizers. Engro Fertilizer’s presence in the market is highlighted in the pie charts below.

Engro Fertilizers’ continuous growth in the face of stiff competition from Fauji Fertilizers has been

the result of strong relations with the farming community, especially that of the southern part of

Pakistan.

[Type text]statistics have been taken from the Security Analyst Briefing report for the 3rd quarter of 2010
The above
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From the above chart we can tell that Fauji Fertilizers (FFC) poses the greatest amount of challenge to

Engro Fertilizers, therefore we will take a comparative look at Engro’s operating performance with that

of FFC (see table below). It is important to note that Engro Fertilizers’ vision differs greatly from that of

FFC, therefore their primary aim is not to replace FFC as market leaders, thus the management’s

practices are in line with their long-term goals. Furthermore, with Engro Corp’s highly diversified fields

of business, Engro Fertilizers   Engro Chemical Fauji Fertilizer

certainly has an added advantage of Market 19% 40%

quality with the Engro name. share

Capacity 850,000 tons per annum (2 1,300,000 tons per annum (1

Owing to the unprecedented floods
plants) plant)
there has been a fall in the urea abd
Products Aside from sale of Engro urea, Sells prilled urea.  
phosphate sales but the note worthy ECPL also sells imported DAP,
NP, MOP and NPK fertilizers Affiliate (FFC Jordan)
fact here has been the increased
and hybrid seeds. manufactures granular urea &
urea market share. The loyal
DAP.
customer base it has established is
Brand Engro Urea – popular brand in Sona urea – very popular
also owing to the extensive market southern part of the country. product, esp. in northern
Pakistan. Sona is granular urea
development activities performed
which is perceived to be
by Engro Fertilizers.
better.

Vision To become a diversified Setting up industrial units in

chemical company operating
internationally. A number of
This chart has been taken from an online report projects involving backward &
published on Engro by Khwaja Naveed Haider, at
scribd.com forward integration are under
consideration.
the fields of petroleum
refining, paper & pulp, mineral
acid, & off-shore fertilizer
manufacturing.

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3. S.W.O.T. Analysis

As Engro continues to grow, it needs to periodically reevaluate its progress and reconstruct its

strategy to achieve its long term goals. And, as a learning organization it needs to constantly monitor

both the internal and external factors that play a part in its well being. Therefore, each one of Engro

Corp’s subsidiaries needs to perform their own Strengths, Weaknesses, Opportunities and Threats

Analysis.

Strengths

 An Engro Corp subsidiary, therefore brand loyalty and trust for quality .

 Strong, professional management (management practices & principles inherited from Exxon

Chemicals USA, after the management buyout in 1991).

 Subsidized gas pricing during the last 10 years has resulted in strong accumulated reserves. Low

gearing will provide financial strength to the Company in coming years.

 50% joint venture, Engro Vopak, has completed fourth year of profitable operations. Future

dividend income will hedge against core-business risk.

 Well knit social network among employees

 Strong public relations with both the media and Government

 Research and innovation

 Cheaper than imported substitute goods

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Weakness

 While Engro Vopak is performing satisfactorily, deterioration in operating results of Engro Asahi

could result in Asahi calling on financial support from ECPL.

 Engro Urea does not command the same market premium as competitor Fauji Fertilizer’s

product ‘Sona’. However, Sona urea is sold mainly in the Punjab province, whereas Engro has a

strong niche in Sindh province.

Opportunities

 New petrochemical projects will help improve Group profitability through 1) clear synergies, and

2) reduction in business risk through capturing a larger segment of the value-addition chain.

 Agriculture business projects like blended fertilizers, hybrid seeds etc.

 EnVen Plant – Engro Fertilizera expansion project. Production was expected to start from the 4 th

Quarter of 2010.

Threats

 Dumping of imported fertilizer in the local market. Government action is often protracted.

During 1999, ex-Soviet states dumped huge quantities of urea in Pakistan. Even though the

government imposed 10% regulatory duty, it was too little and too late to be effective.

 Takeover by the Burewala Group. The takeover attempts may subside, however the

management of Engro may become too drawn into this battle while it continues causing

reduced focus on operations.

 Floods have directly affected demand. Engro urea sells primarily in southern part of the country

which has been ridden with massive floods of recent.

Most of the information contained in the SWOT Analysis has been derived from
[Type text] an online report published on Engro by Khwaja Naveed Haider, at scribd.com
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Apart from the SWOT Analysis, it is imperative that we look at the finances and production levels of

Engro Fertilizers to better understand the competitive strategy that the management would want to

implement.

Engro Fertilizers Limited YTD September – 2010 YTD September - 2009

Revenue 13232 11767
(millions Rs.)
Profit After Tax 2879 1633
(millions Rs.)

Engro Fertilizers Limited YTD September – 2010 YTD September - 2009

Urea 665kT 688kT
Phosphates 196kT 235kT

From these tables we can see that overall profits have increased over the past year, however

sales have fallen. This can be explained by inflation and the unprecedented floods.

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4. Problems faced and the management’s response

In pursuit of growth in the long run, Engro Fertilizers will have certain problems to counter. Those

that we were able to establish it would have to resolve in the near future, have been mentioned

below along with the possible solution the management could adopt.

1. Considering the fact that Engro Fertilizer’s ‘Star Crop’, with respect to the BCG Matrix are its urea

fertilizers, the Company should focus on product development and on capturing greater market

share. For this, the company should seek to find develop a product that can rival against the FFC

Sona urea and permeate into the Punjab with its fertilizers.

2. Seeing as how Engro Fertilizers’ phosphate products are hugely dependant on imports and how

the rupee is highly unstable, the Company could seek to initiate on projects that could reduce the

dependency on expensive imports, either by setting up the required facilities to extract/produce the

raw products at home or should look for cheaper alternatives from the international market.

3. The recent floods have reaped havoc in the agricultural lands of Sindh, but the province is slowly

recovering with local and foreign initiatives being taken. Engro Fertilizers can help give birth to and

bring to prosperity Sindh’s farmers as part of its Corporate Social Responsibility programme in the

coming year. This will help create longer lasting bonds with the local farmers.

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5. Management Functions

Management is the attainment of organizational goals in an effective and efficient manner through

planning, organizing, leading and controlling organizational resources, according to Danny Samson

and Richard Daft, authors of ‘Management’, published by Thomson. Looking at this definition of

management helps one realize how much effort goes into bringing out the best in an organization

on all different levels. Below, we will aim to understand how these 4 major Management Functions

fall perfectly in tandem at Engro Fertilizers.

1. Planning:

At Engro Fertilizers, managers at different levels define their goals, devise strategies aimed at achieving

these goals and then developing plans to integrate and coordinate the tasks.

At Engro Corp, all the mangers are involved in the planning function. The chairman with the help of all

the directors, set some long term and short term goals, and then the directors and manager make the

strategies to accomplish these goals.

2. Organizing:

Managers are also responsible for arranging and structuring work to accomplish the organizational

goals. When mangers organize, they determine what tasks are to be done, who is to perform them, how

the tasks are to be grouped, who reports to whom, and where decisions are to be made.

In organizing managers at Engro Corp allocate and arrange human and non-human resources so

that their plan can be carried out successfully. For instance, the role of allocating the machinery

and advanced technology required in the production line in order to achieve the organization’s

goals, is a part of the Organizing function.

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3. Leading:

Every organization includes people, and a manager’s job is to work with and through people to

accomplish organizational goals. When mangers motivate subordinates, help resolve work

group conflicts, influence individuals or team as they work, select the most effective

communication channels or deal in any way with employees’ behavioral issues, they are

leading.

Managers at Engro Corp influence others’ work behavior. In order to motivate employees and to

acknowledge their hard work, effective managers set up reward systems etc. to keep a healthy and

productive work environment.

4. Controlling:

The final management function is controlling. After the goals and plans are set (Planning), the tasks and

structured arrangements determined (Organizing), and the people hired, trained and motivated

(Leading), there has to be some evaluation of whether things are going as planned. To ensure that goals

are being met and that work is being completed as it should be Engro Corp’s managers regulate

organizational activities so that actual performance conforms to expected organizational standards and

goals e.g. Engro Corp’s goal is to help farmers maximize their farm produce by providing quality plant

nutrients and technical services upon which they can depend, the mangers must monitor and evaluate

performance. Actual performance must be compared with the previously set goals. If there are

significant deviations, it’s management’s job to get work performance back on track.

Most of the information contained in the Management Functions has been derived
[Type text] from an online report published on Engro by Khwaja Naveed Haider, at scribd.com
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6. Conclusion

Based on everything we have been able to learn about Engro Fertilizers through this report, I feel it

is safe to say that the company is doing considerably well and that over time, with guidance in the

right direction from the management, we will find the figures for Engro Fertilizer’s market share and

its revenue rising. Even in times of falling investor confidence, Engro has shown stability and in the

long run sustainable growth can be expected. Engro seems to value its stake holders, employees and

customers quite a bit and also has commendable Corporate Social Responsibility programs under

way. Also, we see that Engro Corp has vastly diversified its businesses and continues to do so year

after year as it helps build investors’ confidence in the Pakistani economy. This kind of diversification

minimizes risks and helps spread losses in some businesses over excessively large cumulative profits.

From this report we are able to see how Engro Fertilizers has been able to establish a firm

foundation in the rural sector of the country through different customer relationship building

programs with the farmers rather than using media as the primary source of creating brand

awareness in the rural areas.

Hopefully, we will see Engro Fertilizers grow exponentially from the new projects that it has

underway for expansion and product development and continue performing to its optimal with the

successful management practices in play.

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7. References

http://www.engro.com/our-businesses/engro-fertilizers-limited/

http://engro.com/wp-content/themes/engro-v1.0/pdf/Security-Analyst-Briefing%20-%203Q-2010.pdf

http://engrozarai.com/

http://www.scribd.com/doc/28856135/Engro-Group-Pakistan

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