Business Policy

Report on Engro Foods

Submitted To:

Prof. Rabiha Salman

Submitted By: Muhammad Abu-Baker Waseem Azam Danish Aftab Waqas Aziz Fahad Tariq Almas Omer

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Submission date: 06-08-2010

Table of Contents
Acknowledgement ...................................................................................................................... 7 Executive Summary .................................................................................................................... 8 Introduction to Engro Pakistan .................................................................................................... 9 Mission Statement .................................................................................................................... 10 Vision Statement ....................................................................................................................... 10 Diversified Portfolio of Engro Pakistan ..................................................................................... 11 Fertilizer Business ................................................................................................................. 11 Engro Energy Limited ........................................................................................................... 11 Engro Innovative Automation Limited .................................................................................. 12 Engro Vopak Terminal Limited ............................................................................................. 12 Engro Asahi Polymer &Chemicals. Limited .......................................................................... 12 Engro Food Limited .............................................................................................................. 13 Board of Director ...................................................................................................................... 13 Board compensation Committee............................................................................................ 13 Board audit committee .......................................................................................................... 14 Organizational Chart ................................................................................................................. 16 Business Executives of different Divisions ................................................................................ 17 Food Industry In Pakistan ......................................................................................................... 18 Engro Foods ............................................................................................................................. 19 Our Brands............................................................................................................................ 19 Our Affiliates ........................................................................................................................ 19 Our Values ................................................................................................................................ 20 Vision and Mission Statement of Engro Foods .......................................................................... 20 2

Vision ................................................................................................................................... 20 Mission ................................................................................................................................. 21 Objectives and Goals ................................................................................................................ 21 ANALYSIS OF MISSION........................................................................................................ 22 Market Segmentation ................................................................................................................ 23 Demographic Segmentation .................................................................................................. 23 Psychographic Segmentation................................................................................................. 23 Behavioral Segmentation ...................................................................................................... 23 STRATEGIC Internal and external Audit .................................................................................. 24 STEEPLE Analysis ................................................................................................................... 24 S - Social Factors .................................................................................................................. 24 T - Technological Factor ....................................................................................................... 25 E - Economical Factor........................................................................................................... 25 E - Environmental Factor ...................................................................................................... 25 P - Political Factor ................................................................................................................ 26 L - Legal Factor .................................................................................................................... 26 E - Ethical Factor .................................................................................................................. 26 Porters 5 Forces Model ............................................................................................................. 27 Threat of New Entrant............................................................................................................... 28 Capital requirements ............................................................................................................. 28 Economy of scale .................................................................................................................. 28 Bargaining Power of Suppliers .................................................................................................. 29 Number of suppliers .............................................................................................................. 29 Importance of volume to supplier .......................................................................................... 29 Bargaining Power of Buyers ..................................................................................................... 29 3

Backward integration ............................................................................................................ 29 Availability of Substitutes ......................................................................................................... 30 Competitive Rivalry .................................................................................................................. 30 SWOT Analysis ........................................................................................................................ 31 Strengths ............................................................................................................................... 31 Engros Back..................................................................................................................... 31 PR with Farmers ............................................................................................................... 31 Positive Response from Customers .................................................................................... 32 Strong consumer & product research ................................................................................. 32 Third-Generation Plant ...................................................................................................... 32 Weaknesses ........................................................................................................................... 33 Olwell TVC ...................................................................................................................... 33 Owning Red Color ............................................................................................................ 33 Low Quality Milk.............................................................................................................. 33 Packaging.......................................................................................................................... 34 Milk collection & distribution costs................................................................................... 34 Narrow brand portfolio ...................................................................................................... 34 Opportunities ........................................................................................................................ 34 Increased funding by Government ..................................................................................... 34 Increased consumption of PLM ......................................................................................... 34 Awareness ......................................................................................................................... 35 Third largest producer of milk ........................................................................................... 35 Threats .................................................................................................................................. 36 Competition ...................................................................................................................... 36 INDUSTRIAL SWOT ANALYSIS .......................................................................................... 37 4

Strength ................................................................................................................................ 37 Weaknesses ........................................................................................................................... 37 Opportunities ........................................................................................................................ 37 Threats .................................................................................................................................. 38 Competitors Analysis ................................................................................................................ 38 What is SWOT matrix? ......................................................................................................... 41 SWOT Matrix for Engro foods.................................................................................................. 43 Internal Factor Evaluation Matrix ............................................................................................. 45 External Factor Evaluation Matrix ............................................................................................ 47 Competitive Profile Matrix (CPM) ............................................................................................ 49 Reasons................................................................................................................................. 50 CORE COMPETENCIES & KEY SUCCESS FACTORS ........................................................ 50 Key success factors ................................................................................................................... 51 Research & Development ...................................................................................................... 51 COMPETITIVE ANALYSIS.................................................................................................... 51 SPACE MATRIX STRATEGIC MANAGEMENT METHOD ................................................. 53 Engro Foods factors for SPACE MATRIX................................................................................ 54 Result.................................................................................................................................... 56 BCG Matrix Model ................................................................................................................... 56 Division wise data for Engro foods BCG Matrix ....................................................................... 58 Internal External (IE)Matrix ...................................................................................................... 59 Result.................................................................................................................................... 59 Grand Strategy Matrix for Engro foods ..................................................................................... 60 Results .................................................................................................................................. 61 Quantitative Strategic Planning Matrix or a QSPM ................................................................... 62 5

QSPM OF Engro Foods ............................................................................................................ 63 FINANCIAL RATIO ANALYSIS ............................................................................................ 65 Liquidity Ratios .................................................................................................................... 65 Remarks ............................................................................................................................ 66 Leverage Ratios .................................................................................................................... 67 Remarks ............................................................................................................................ 67 Activity Ratios: ..................................................................................................................... 68 Remarks ............................................................................................................................ 68 Profitability Ratios ................................................................................................................ 69 Remarks ............................................................................................................................ 69 Achievements ........................................................................................................................... 70 Engro Foods expansion on a bigger scale .................................................................................. 71 Dairy science and Technology in Pakistan ................................................................................ 71 SUGGESTIONS AND RECOMMENDATIONS...................................................................... 72 REFERENCES ......................................................................................................................... 73

Acknowledgement
In the name of Allah, The Most Gracious, The most Merciful. First of all we are thankful to Allah Almighty for giving us the Mind to think, Heart to feel the consequences of our business idea, strength to complete and Ability to work successfully on our project. All members of our team are involved in making this project to groom it from conceptual stage to the point where one can hold it in his hands. To all those group members, who have contributed greatly to the usefulness of this project. Although some of what the project contains was designed through the hard way. These are not just the white papers that are necessary but also the conversations with colleagues who provide answers to our questions and solutions to our problems discussed. Our team would also like to express gratitude towards our instructor Miss. Rabiha Hassan for guiding, helping and providing us with the opportunity to make us able to produce this plan. To all of these people and the many others, who helped us a lot and we did not remember their names; we heartily give them big thanks. Our final thanks go to our families, our teachers who have always uplifted us through their moral, professional and technical support.

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 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 increased 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 companys 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. After the introduction The EFL mission and vision statement, External and internal audit steeple analysis, situational analysis i.e., 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 Exxons 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. 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
To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders.

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Diversified Portfolio of Engro Pakistan

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% ECPLs 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. Worlds 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. Engros Daharki complex will become the worlds 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 cost of $220 million with commercial operation in 2009 Short-listed along with 3 other companies for privatization of Jamshoro Power Company.

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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 Companys 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 worlds largest independent tank terminal operator Engro Vopak handles 70% of liquid chemical imports in Pakistan .Setting up our countrys first Cryogenic facility for ethylene imports Well 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. Pakistans 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.

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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.

Board of Director
Board compensation Committee
The Board Compensation Committee meets at least once every quarter to review and recommend all elements of the compensation, organization and development policies relating to the senior executives remuneration and to approve all matters related to the remuneration of executive directors and members of the management committee. The President attends Board Compensation Committee meetings by invitation. The mandate of the Board Compensation Committee is as follows:  To ensure human resource policies effectively deliver robust talent management process across various Engro companies  To take decisions on the performance evaluation, development and succession of company CEOs and Corporate Center Executives  To establish specific standards/policies for basic alignment in fundamental beliefs across companies.

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Shabbir Hashmi

Chairman

Arshad Shahzada Dawood Director Arshad Director Nasar Director

Nasar Shabbir Hashmi

Tahir VP

Jawaid Human and

Resources

Board audit committee

The Board Audit Committee meets at least once every quarter to endorse the accounts prior to their approval by the Board. The Chief Financial Officer regularly attends the Board Audit Committee meetings by invitation to present the accounts. The Board Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in the following areas:  To assess the adequacy and effectiveness of the system for assessment and management of risk in the Company and subsidiaries/joint ventures under its management control

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 To review financial reporting process, system of internal control, audit process, and process for monitoring compliance by the Company with Securities and Exchange Commission of Pakistans Code of Corporate Governance, and other laws and regulations  To ensure effectiveness of internal control measures, compliance with policies on Corporate Governance and Business Conduct and applicable laws and regulations by the subsidiaries/ joint ventures under management control of the Company

Shabbir Hashmi

Chairman

Naveed

Hashmi

Isar Director

Ahmed

Aliuddin Ansari Director

Abdul Samad Dawood Director

General Manager

Naveed General

Hashmi Manager

Corporate Audit

Engros Board of Directors includes eight non-executive directors and five executive directors, who share the collective responsibility of ensuring that the affairs of the organization are managed competently and with integrity. The Board has been reconstituted as of April 2009, supplementing the number of non-executive directors.

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Organizational Chart
Shabbir Hashmi

Chairman

Asad Umar

President

Isar Ahmad

Director

Khalid Siraj Subhani Director Abdul Samad Dawood Director Shahzada Dawood Director Muhammad Aliuddin Ansari Director
Arshad Nasar

Director
Shabbir Hashmi

Director
Ruhail Mohammed

Director
Khalid Mansoor

Director
Asif Qadir

Director
Saad Raja

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Director

Business Executives of different Divisions

Khalid Siraj Subhani Senior Vice President

Engro Corporation Limited

Sarfaraz A. Rehman President and Chief Executive Officer Engro Foods Limited Asif Qadir President and Chief Executive Officer Engro Polymer &

Khalid Mansoor President and chief Executive Officer Engro Powergen

Abdul Samad Khan President and Chief Executive Officer Engro EXIMP Private Sheikh Imran-ul-Haque President and Chief Executive Officer Engro Vopak Terminal Bakhtiar Wain President and Chief Executive Officer Avanceon Limited 17

Food Industry in Pakistan

The food and its allied products industry is considered Pakistans 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.85.00 equal us$ 1.00 at the current exchange rate). Pakistans 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 seafoods 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.

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Engro Foods
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

Our Affiliates

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Our Values

ntegrity

We have an open disclosure policy and transparent processes. All our business activities / transactions are carried out honestly and with fairness. Our People Have 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. Innovation Innovation is the way of life at EFL. It is valued, encouraged and rewarded in all aspects of our operations. CSR We 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 Centric Consumer is the reason for our existence as a business.

Vision and Mission Statement of Engro Foods

Vision
Aims 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.

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Mission
Build Branded food business to improve quality of life by offering tasty, affordable and highly nutritional products to our consumers while maximizing stake holders' value.

Objectives and Goals

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.

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ANALYSIS OF MISSION

Component of mission statement

Customers Products or service

Description

Addressed or not?

Who are the firms customers? What are the firms major

Yes Yes

products? Markets Geographically, where does the firm compete? Technology Is the firm technologically No Yes

current? Concern for survival, growth Is the firm committed to growth and profitability Philosophy and financial soundness? What are the basic beliefs, values, aspirations, and ethical priorities of the firm? Self-Concept What is the firms distinctive competence or major competitive advantage? Concern for public image Is the firm responsive to social, community, and environmental concerns? Concern for employees Are employees a valuable asset of the firm? No No Yes Yes Yes

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Market Segmentation
Demographic Segmentation
Engro Foods products are not bounded to any particular age, gender or lifecycle stage. The brand is meant for all the users in higher upper or middle class families.

Psychographic Segmentation
Engro Foods have segmented the market more towards achievers who are goal-oriented and focused on their careers, and those who are seeking variety in the milk sector.

Behavioral Segmentation
Engro Foods products have been segmented on the basis of benefits that consumers seek in the milk. People look for a brand that can be used for all purposes from drinking to, tea whiteners as well to feed the animals.

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STRATEGIC Internal and external Audit

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 milks production is seasonal and keeps fluctuating and adequate steps are required to be taken in order to keep it working smoothly. Haleeb also dont 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 25

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.

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 Nestls 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 dont 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 dont sale on credit or on interest because they consider it unethical and not according to the law of our religion.

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Porters 5 Forces Model

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Threat of New Entrant

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 Olpers have some threats like from new entrants 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 production, but in the advertising marketing, distribution, financing, and raw milk purchasing as well, Engrofoods achieved its breakeven in 2003

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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 dont have much option to sell milk to others.

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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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.

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.

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SWOT Analysis
Strengths

 

Olpers is a brand of ENGRO foods. This means that consumers can relate their former image of engro foods to Olpers. 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 Olpers 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 Olpers 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.  

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 wont have to look elsewhere to sell their milk.

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 In first year, EFL crossed 1.4 billion sales figure which shows customers satisfaction upon EFLs products. 4. Its taste, quality proposition and world-class quality proposition system.   Olpers 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. 
 EFL 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).  Worldwide fame of Engro.  Efficient milk collection system.  Keeping high quality standards.  Integrated distribution and warehousing facilities.  Successful related diversification.  Generic brand name of Olpers  Large market share of Engro innovative and chemicals.  Having Good reputation in the market by strong brand name i.e. Engro

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Weaknesses
 Olwell 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.  The 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 Olpers. The company may need to find a suitable color in which to focus its upcoming marketing strategies.  EFL 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 add vegetable oil to milk to get higher prices.

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 EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is the only option available to Olpers 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.   EFLs 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.  It has been more than a year now, when EFL launched its first dairy product, Olpers Milk on March 20, 2006. But EFLs brand portfolio still consists of just 3 products i.e. Olpers Milk, Olwell Milk and Olpers 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

 Government 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.  Competition 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

34

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.  Growing dissatisfaction with loose milk and increasing awareness about health and hygiene issues have led to increased processed milk consumption.  Pakistan 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 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, countrys 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

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Threats
 Competition may pose a threat because the company will have to maintain its leadership in an expanding market so that it doesnt lose its market share to its competitors. For Olpers 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 Differentials Consumers perceptions and price differentials can cause a threat for the company. It is important that Olpers comes up to the expectations of the customers and fulfills its conformance quality that is the company meets its promised specifications. Consumers preferences change with time and prices might create certain barriers in terms of the profit margins for Olpers. 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.  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.

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 Engro foods is currently facing an 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

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

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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.

Competitors Analysis
Brands like Milk Pak (owned by Nestle) and Haleeb Milk (from Haleeb Foods) had led the dairy market in the worlds fourth largest milk producing country for nearly two decadeswithout any real sustained competition. Engro Foods, in contrast, had only recently been established by Engroa traditional giant in Pakistan's chemical and fertilizer. Branding experts could not imagine how Olpers could distance itself from its parent companys incredibly unappetizing, chemical-laden, and non-edible roots. Yet, by the end of 2006, sales for Olpers Milk had reached Rs.1 billion (approximately US$ 15 million) and in 2008, the brand has a market share of close to 22 percentsecond only to Milk Pak (estimated at 40 percent). The critics had to grudgingly accept that the new entrant to the multi-billion rupee packaged milk category meant business. The packaged milk category was originated in 1981 by (quaintly named) Milk Pak, which pioneered tetra pack milk in Pakistan. The supply chain involved collecting milk from rural areas across Punjab, processing the milk through UHT (Ultra-High Temperature Processing) treatment, and selling it to consumers in uniquely colored triangular and rectangular packs designed to prolong the milks quality. Milk Paks Milk Packs were very well-received and the brand soon became synonymous with quality milk. Its first real competition came in the form of Haleeb, which introduced distinctively blue tetra packs to the market in 1986. Milk Pak, however, further grew in stature when Nestle used it to break into Pakistan's marketplace. By 2006, the dairy milk category was growing at 20 percent annually, and Milk Pak 38

and Haleeb were well-entrenched brands with distinctive colors and brand promises of providing high quality, natural and healthy milk. Milk Pak was identified by its green and white packagingthe colors of the countryand offered a brand backed with the strong equity of Nestle, coupled with its own traditional heritage. Haleeb was recognized as the blue brand, and professed to have the "naturally thickest" milk. With the market dominated by two strong, familiar, and widely respected brands, the marketplace appeared completely impervious to newcomers. Olpers, however, stepped into the foray by launching a massive campaign that started off with an introductory slice-of-life television commercial featuring some of the biggest stars in Pakistan. Billboards went up at key locations in the major cities, and soon the brand had become a voice above the media cluttera voice that differentiated Olper's brand from the others. Rafey Nisar Zuberi, the marketing manager for Engro Foods, says, From the onset, we wanted to introduce a true paradigm, bringing the dairy brand to the fore. The name itself made it sound like a foreign brand, giving the perception of quality, and was unlike anything previously experienced by Pakistani consumers. Rafey continues, We wanted consumers to consider Olpers as a contemporary and modern brand, and all of our communication and brand attributes were geared toward ensuring that end. To a large extent, they were successful. It was certainly a campaign with its own unique identity, says Farah Jamaluddin, a media professional. All of their communication was aesthetically on the mark and had a sense of synergy about it, she explains. The campaign highlighted and expanded upon the various occasions in which milk could, and should, be enjoyedand kept driving home that message through its various promotions. Olpers became the "All Purpose Milk" and could be consumed with breakfast or blended with tea (arguably the most popular beverage for the masses in Pakistan), and appreciated by all members of the family. Engro Foods utilized a dynamic campaign, and during Ramazan (the Muslim month of fasting), molded its message to talk about the "All Purpose" nature of their brand during both Iftaar (breaking of the fast at dusk) and Sehree (pre-dawn food before the fast). We are aiming to own the religious month and our special edition packaging, Ramazan relevant ATL

39

(Above The Linetelevision, radio, etc.) and tailor-made iftaar activations, are aimed at building the necessary association we want in consumers minds, Rafey points out. Other avenues of BTL (Below The Linebrochures, flyers, etc.) have also contributed to the brands success. The World of Olpers, for example, involves reaching out to the different locations in various cities and having the housewives participate in learning and showcasing milk-based recipes. The intention is to purely build trial experiences, says Rafey. We are in our third year, and so far we have had close to 350,000 contacts, he adds with pride. The Olpers Consumer Relationship Party is another ongoing BTL based program, which intends to create and maintain loyalty amongst the brands users. In its launch, Engro Foods has made a conscious and concerted effort to distance its milk brand from its parent companys chemical and fertilizer roots to ensure that no negative connotations or cross-pollination of brand identities were manifested in the minds of consumers. Interestingly though, the company has been able to use Engros historical equity with rural farmers positively toward growing its milk collection network in the province Our milk collection network has grown exponentially post launch, says Rafey. So much so that we reached our supply capacity within six months and had to begin using a second UHT plant within three months, he adds. Today, Engro Foods aims to become the only company to utilize all of the milk collecting areas in Pakistan and also plans on developing the biggest dairy farm in the country. The companys reputation as a local giant actively involved with community welfare in remote areas has also been a positive add-on for Engro Foods.

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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.

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:

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42

SWOT Matrix for Engro foods.

Strengths
Worldwide fame of Engro.

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

Efficient milk collection system. Keeping high quality standards. Integrated distribution and warehousing facilities. Generic brand name of Olpers Large market share of Engro innovative and chemicals. Having Good reputation in the market by strong brand name i.e. Engro Strong R&D

Under-utilization of the capacity. Unable to fulfill the demand of local powder milk market. Not yet ISO certified

Opportunities Improving Economy

SO Strategies
Increase production of quality milk to cater the unsatisfied demand(S2,O2,O8)

WO Strategies

As per the increase demand of the milk

Population growth rate.

They should go in the product line of powdered milk. (S8,O2,O5)

they should fulfill the demand as EFL have the ability to expand.(W3,O8).

High urbanization rate.

They should make a strong distribution

High literacy rate. Flexible government policies for food industry. Have significant growth opportunities May merge with other global businesses to eliminate
They should cater the wide range of unsatisfied demand by improving their distribution networks(S4,O8)) They should increase their exports. (S1,O6,O7)

system to cater to avail the full benefit of the growing market.(W3,O2

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competitors. Having Capable of expanding into other markets of the world

They should adopt affective marketing strategies for the promotion of their product.(W2,O1)

Threats
High inflation rate.

ST Strategies
Invest more on the dairy product line as there is still a large chunk of the market which require modernization (S6,T5)

WT Strategies

The co-ordination between different departments of EFL should be improved

Low purchasing power.

it will lessen the bureaucratic cost and increase the efficiency of the company. Introduce new technology for quality

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

assurance and better productivity (S4,T7)

Engro must get the ISO certification as to beat their competitors (W4,T8).

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Internal Factor Evaluation Matrix

Key Strategic Factors

Weights

Ratings

Weighted Scores

Strengths
Brand Image Growing Sales Market Share Distribution Channel Product Quality Capacity Innovation Customer Oriented Qualified force R&D Business Interest Exporting 0.06 Weaknesses Local Company Centralized Decisions 0.05 0.09 1 2 0.05 0.18 4 0.09 without 0.05 0.02 4 3 0.2 0.06 Work 0.07 0.08 0.04 0.02 0.01 3 4 3 3 3 0.21 0.32 0.12 0.06 0.03 0.08 0.03 0.05 0.08 4 3 3 4 0.32 0.24 0.15 0.32

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No Sales on Credit High Price Uncertain Economic & Conditions Market Demand Striker Terms And Conditions Promotion Political

0.06 0.05 0.03

2 2 1

0.12 0.1 0.03

0.05 0.03

2 1

0.1 0.03

0.05

0.1

Total

2.83

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External Factor Evaluation Matrix

Key Strategic Factors

Weights

Ratings

Weighted Scores

Opportunities
Raw Availability Market Capitalization Diversification Exports Haleeb Bottle Credit Policy Joint Ventures 0.07 0.07 0.04 0.06 0.06 2 3 1 2 3 0.14 0.21 0.04 0.12 0.18 0.08 3 0.24 Material 0.1 4 0.4

Threats
New Entrants Sales Tax Changing Season Suppliers Economic Conditions Price People
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0.08 0.05 0.06 0.07 0.05

3 2 3 3 2

0.24 0.1 0.18 0.21 0.1

Sensitive

0.06

0.12

Gawala Milk Small Market Total Target

0.1 0.05

4 2

0.4 0.1

2.78

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Competitive Profile Matrix (CPM)

Critical Success Factors

1 Development 2 3 4 5 6 7 8 9 10 Advertisement Financial Position Market Share Product Quality Price Competitiveness Management Global Expansion Customer service

Weight

Rating
Research & 0.08 3

Score
0.24

Rating Score
3 0.24

Rating Score
4 0.32

0.09 0.09 0.07 0.08 0.11 0.10 0.08 0.06

3 3 2 3 3 3 3 3 3

0.24 0.27 0.14 0.24 0.33 0.30 0.24 0.18 0.27

4 3 4 3 3 4 4 3 4

0.36 0.27 0.28 0.24 0.24 0.40 0.32 0.18 0.36

3 3 3 3 2 3 3 2 3

0.27 0.27 0.21 0.24 0.22 0.30 0.24 0.12 0.27

Sales And Distribution 0.09 Network

11 12

Production Capacity Alliances Total

0.07 0.08 1.0

2 3

0.14 0.24 2.76

3 4

0.21 0.32 3.51

4 3

0.28 0.24 2.98

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Reasons
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 its 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

50

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. 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. 51

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 Olpers, and the old ones 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 short a 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 analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix).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.

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Engro Foods factors for SPACE MATRIX

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55

Result
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.

BCG Matrix Model

The BCG matrix or also called BCG model relates to marketing. The BCG model is a wellknown 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.

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Percent Division
Olpers
Olwell TVC

Percent Profits
$2000 $1500 $1305 4805

Percent Market Value

Percent Growth Rate

Revenues
$4500 $2550 $3200 $10250

Revenues
49.90% 24.87% 31.21% 100%

Profits
41.62% 31.21% 27.18% 100%

60 25 35

+8 -6 +4

Tarang Total =

..

..

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Division wise data for Engro foods BCG Matrix

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Internal External (IE)Matrix

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

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

Result
This IE matrix for Engro Foods 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 Engro foods

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Results
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.

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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 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. 62

QSPM OF Engro Foods

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)

63

64

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

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  This ratio indicates to what extent cash on hand and disposable assets are enough to pay off short term liabilities. A current ratio of assets to liabilities of 2:1 is usually considered to be acceptable. Acceptable current ratios vary from industry to industry. If a company's current assets are in this range, then it is generally considered to have good short-term financial strength.  If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets.  In the case of Engrofoods current ratio has increase from year 2008 to 2009 which indicates that it has improved to pay short term obligations as compared to the last year.

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Leverage Ratios

  The Debt to Asset Ratio takes into account all debts of all maturities to all creditors. A value of less than 1 in this ratio means that the company could not cover all of its debt by selling all of its assets. Engrofoods assets are mainly financed by outsiders or debts. This ratio measures the percentage of total funds provided by creditors versus by owner.  Look for a debt to equity ratio in the range of 1:1 to 4:1. Debt-Equity ratio indicates thatcapital structure of Engrofoods is mainly based on debt financing.  This ratio for Engrofoods is showing that out of total funds available for long term, major portion is equity. As compared to the last year the companys position is improved as they have made more investments. 67

Activity Ratios:

 It shows that in how many days company sold the entire inventory. The higher the ratio the more is inventory being managed efficiently. Because inventories are the least liquid form of asset, a high ratio is generally positive. This ratio measures how productively the firm is managing its fixed assets to generate sales. For every Dollar in Assets how much sale we have generated. Higher the ratio greater will be the resource utilizations. It indicates that how effectively Engrofoods is utilizing its resources. This

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gives indication of how fast we can sell product. So we will see how fast we collect on those sales. Engrofoods receivable turnover is improving. Therefore on average Engrofoods collection period is decreasing, so its recovery performance is improving day by day.

Profitability Ratios

   This ratio indicates the amount of income that the company earns on each RS of sales. The gross profit margin is related to the net profit margin, which assesses the profitability of an organization after including fixed costsThe trend in this ratio from month to month can show how well the company is managing their operating or overhead costs. The 69

margin has not changed in the current year which shows that the companys operations are stable. This shows the amount available to stockholders or owner of the company, so higher the ratio there will be higher earning and dividend for stockholders.  ROA measures profit per rupees of assets. We can compare this rate to the interest rate that the company pays to borrow funds. If the return on assets is above the borrowing rate, the company is profitable.  ROE measures profit per rupees of equity. This ratio indicates what return the company is generating on the dollars invested by its owners. High values for this ratio indicate that the company is less likely to require debt or additional equity investments. Engrofoods return on equity is declining.  This ratio shows the amount of earning per share and a company with earning per share. This ratio indicates that the company with high earning per share will be in a position to declare the high dividend. This ratio has improved this year.

Achievements
Olpers achieve a lot with in short span of time. In December2 006: Engro Foods Limited has cross Rs 1 billion in sales for its Olper's Milk, launched in March this year. The Rs 1 billion rupee was achieved at the end of October, in less than 8 months of the launch of the new pack milk brand and by the end of 2007; the sales figure is expected to reach Rs 1.4 billion. In a statement issued here, the marketing director of Engro Foods Ltd, Ali Akbar said, "We believe we have set an all time record as far as sales of a new milk brand are concerned and in a very short time Olper's has opened in over 50 towns in Pakistan, becoming a national brand." "This is all the more remarkable since we entered a market with very strong existing players and our success has come primarily because the people of Pakistan clearly felt Olper's to be a higher quality product," he added. Olper's Milk is produced at the company's modern production facility in Sukkur and goes through several stringent quality checks starting from the milk collection points, before it 70

reaches the consumers. He said, the demand for Olper's has come not only from first time users of packaged milk but also from users of other brands who have shifted to the Olper's brand owing to its taste and quality proposition and its convenient Availability all over the country. He said, the company is now in the process of setting up another production plant in the central Punjab region. Engro Foods had also launched Olper's Cream in September this year and is now poised to further expand.

Engro Foods expansion on a bigger scale

Engro Foods Limited who had recently set up Dairy industry in Central Sindh (UHT Milk plant) by investing about Rs one billion, further plans to set up a similar set up in Central Punjab and also emerging as Food Giant firstly on National Level and secondly as world class International Food Giant by adding a large number of other food products through investment of $200 million plus, probably envying to emerge as an international food company on similar lines as NESTLE did. The company plans exporting its products to central Asia and Middle East.

Dairy science and Technology in Pakistan

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 undergraduate 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. 71

SUGGESTIONS AND RECOMMENDATIONS

Following are the suggestions and recommendations for EFL.  The co-ordination between different departments of EFL should be improved it will lessen the bureaucratic cost and increase the efficiency of the company.  The activities like customer satisfaction day should be performed on regular basis so the company should know the feedback and satisfaction level of customers regarding the product and the image of the company.  The shopkeeper complains that EFL is not providing replacement for the expired products, EFL should provide proper replacement to the shopkeeper to enhance the image of the company, and create better working relations with such an important stakeholders.  EFL has shifted to branding concept but it really has not adopted it fully, for smoother working of the different brands, the sales teams should merged with respective brand management.  There is no check on the performance of the distributor, and this has led to huge problems in the delivery of many products in some areas of the city  They should also start to manufacture powder milk in order to meet the domestic demand and so that it can be helpful in saving the foreign exchange that is expensed in importin the powder milk from foreign countries.  The company should explore the market potential in a way, so that it can utilize its full capacity in order to gain economies of scale in the production.  At the moment the company is using focus marketing approach that only that segment is approached which highly attractive for the company but it should also develop the marketing program that distinguishes the characteristics of existing available substitutes to their highly quality & hygiene oriented product.  The company should also develop an integrated awareness plan in order to aware the people about the quality of the UHT milk as compared to other pasteurized or loose/fresh milk. 72

REFERENCES
1. Strategic Management concept and cases by FRED R DAVID 12th edition. 2. Marketing Management by Kotler 11th Edition. 3. http://www.maxi-pedia.com 4. www.olpers.com.pk 5. www.engrofood.com.pk 6. www.engrochemicals.com 7. www.Engro\web search\marketing-sales.aspx.htm 8. www.Engro\web search\about-us.aspx.htm 9. www.google.com 10. www.wikipedia.com *************

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