Strategic Audit

of
( ABC Company Inc. )

CONTENTS Part 1 : Introduction Part 2 : Analysis

1-Analysis of Internal Environment
A. Strategic Posture

b. Corporate Governance
board of Directors Top Management 1. Corporate Structure 2. Corporate Culture 3. Corporate Resources a. Marketing b. Finance c. Research and development d. Human Resource Management e. Information System 4. summary of Internal Factors

2-Analysis of External Environment

Societal Environment Task Environment ( Industry )

3-Summary of Strategic Factors Determination of Strategy, using Strategic Factors Determination of Strategy, using Strategic Factors
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Part 3 : Conclusions & Recommendations

the Part 1
Introduction to The Case
Background
ABC company was founded more that 100 year ago , worked under the public sector umbrella since it was privitalized on 1996 , after privitalization , the management changed the policy from gaining cash from winner products ( cash cows ) to improve quality and distribution channels aiming to absorbe higher market share. The company used to own three factories producing alchohol , non-alchohol beers and soft drinks where those factories located in cairo , Alexandria as well as sharkeya . but finally closed the factories of alex and cairo and replaced them with factory of el obour city which will be assigned to produce the alchohol beer.

After privitalization , the company has to be changed in some issues , one the most important issue is personnel , as they can not compete right ( even with a high quality products ) without high skilled team of management , they acquired the appropriate ones .

Also , another thing they did is entering into four strategic alliances with international companies to gain technical know how that put them on the required track and assest them in penetrating international markets.

Also , for the integration purpose , the abc acquired the ginaclis factory which was owned previously by the government and was producing specially wines and has been highly improved under the abc management . The company has full coverage over the Egyptian market with only one competitive which is ( el gouna organization )

Products The company is producing four categories of products whose can be classified as follow : 1- Alchoholic beer 2- Non-alchoholic beer 3- Carbonated soft drinks 4- Wines. ABC is considered the biggest beer prodicer in Egypt , the company has substantial market share for both alchoholic and non-alchooholic beer and company has a core competency in the non-alchoholic beer market because of two reasons: 1- they have actually no competition. 2- They have the industry know how.

While the compny`s main problems comes as far as the following is concerned : 1- soft drinks , low market share , low sales high competition . 2- the company is not penetratring the international markets and this can be a very strategic assistant factor in case of severe problems may happen in the principle country ( egypt ) specially if we know that sales are relying on tourism . 3- Low per capita consumption due to diminishing rate of GDP growth.

Part 2
Analysis of The Case
3. Analysis of the Internal Environment
Strategic Posture
1.Mission
there is no any stated mission statement for the company . , and this can be a kind of weaknesses for the company as this kind of information show the purpose of the existence of the company and the business it is already in , so. The absence of the mission statement supply unclear picture for employees to know their company current situation.

2-objectives 1- to take the alchoholic beer sales up by 13% and the non-alchoholic beer sales by 35% and wine sales by 30 %. 3- Strategies
the company followed a variety of strategies as follow : 1- growth strategy through building the art brwery factory and this will increase the capacity and relatively will decrease the cost per unit . 2- forward integration in establishing the reach distribution company as well as the owned retail stores. 3- Since the company plans to expand its business into neghboring markets , hereby it is adopting the horizontal integration. 4- The company used the cooperative strategy when it signed contracts with the international companies to benefit its technical know how.
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5- Also the company used the cooperative strategy when they absorbed brand

names on the base of under license in producing kaliber and birell nonalchoholic beer.

4- Policies There are no stated policies but they are looking forward to reduce cost through investing in the state of the art for higher capacity which lead to lower cost per units.

2.Corporate Governance
Board of Directors
There is no mention for the board of directors

B. Top Management Mr. Ahmed el zayat the executive chairman Mr.Ahmed el shamy the chief financial officer(who came from B&g) They are both coming from challenging backgrounds and well experienced. 1-Corporate Structure

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2-Corporate Culture
actually the case did not refer to any internal culture values. Since the nonalchoholic beer is being marketed as an alternative for the rest soft drinks .i conclude that this is the perceiption of the marketing team and the rest of employees accordingly. And this take the company away from difficulty of marketing the alchoholic beer as a forbidden drink or the non-alchoholic drinks as a misperceived drink.( non-alchoholic drinkers may be misperceived).

3-Corporate Resources a-Marketing marketing is highly relying on the tourism situation .

ABC is considered as a monopoly in the Egyptian beer market with market share over 90% in alchoholic beer market and 95% or more in the nonalchoholic market. There are plans to go globalizing to reduce the risk in working or operating only in Egypt. They are following multi-segmentation strategy in their product mix. Low market share in soft drinks business. Green marketing strategies adopted in producing healthy alternatives. The home delivery concept which means being available every where through a well working distribution channels plus the company outlets.

b-Finance the company is financially growing ( regardless the profitability of each individual product) as the net operating profit is increasing as it was59 m.in 1998 and became 68 m. in 1999
the company invested in new danbrew factories .

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 the roi ratio is strong as well as the roe ratio and this justify the investment the company is doing .

c-R& D
the company trys to satisfy the whole market through diversifying its product lines like stilla , stilla export , stilla premium .

d-HRM

highly skilled personnel and top managers. Know how and expertise.

622500 shares in the form of options to be given to employees and top management as an incentive plan .

e-Management Information System

the case did not refer to the job of the management of information system.
B. Summary of Internal Factors

Internal Factors Analysis Summary ( IFAS )

Internal Strategic Factors Strengths A strong, respected and trusted brand name in the Consumer Products market Increase in gross profit Vertical integrations Strong distribution channels Innovation and r&d Weaknesses Lack of international orientation Collapse in soft drinks sales No clear mission statement Total scores 00.2 00.05 00.05 00.2 00.05 00.2 00.2 00.05 1.00
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Weight

Rating

Weighted Score 0.8 0.15 0.20 1.00 0.20 0.4 0.2 0.05 3.00

Comments

4 3 4 5 4 2 1 1

The brand is enjoying great awareness Distribution channels

Retrenchment Create staff confusion

4.Analysis of the External Environment

A. Societal Environment
1-Political

legal Environment

the Egyptian government stated that every brewery producer after ABC will not enjoy the 10-year tax holiday which mean that every potential entrer producer will add said taxes to his costs. Customes duties for imported alchohol beer of 300% and 55% for non-alchohol beer.and this will - sure protect local manufacturers like ABC.

2- Economical Environment
there is a little decrease in the GDP growth about 4%. The alchohol consumption per person ( percapita) in Egypt is tremendously low even when compared to other muslem countries . Potential declines in sales volumes by 2005 due to - WTA - zero customes dutes for imported products and therfore the tough competition expected .

3- Socio cultural Environment

the model of consumption nowadays in Egypt is moving toward the western patterns and this justifys the high sales volumes of both alchohol and nonalchohol beerproducts. By the process of American products boycott in arab countries , there is great potential for the ABC products in neighboring countries.

4- Technological Environment
the company emphasizes on technological efforts and this is highly showen in the strategic alliances and acquiring the essential technical know how . productivity enhancements through establishing factories operating according to the latest technology in the market place.

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A. Task ( Industry ) Environment, using Porter Model

1-Competition among existing rivals

there is very light competition and does not represent any kind of threat and only in the alchohol beer while there is no any competition in the nonalchohol beer market.

2-Threat of new entrants

in terms of imported products there is high customes duty for either alchohol or non-alchohol beer. Any new entrant will not enjoy the 10-years tax holiday and this means more costs in the new entrants pricing.

3-Bargening power of suppliers * since the ABC is one of the big market players , there is no bargaining power of
suppliers as the ABC is supposed to be paying tremendous amounts of money for raw material supplement for its suppliers who are relying heavily on the regular funds of ABC.

4- Bargening power of buyers * after forward integration adopted by ABC as well as the company`s own
outlets , this supply high reachness for potential buyers and therefore low bargaining power of buyers .

5-Threat of substitute products or services

there is no threat in this concern , while in the same time the marketing team of ABC is pushing the concept of substituting soft drinks with the nonalchoholic beer .

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6-Special Interest Groups

government is putting high customes duties for imported similar products as well as the taxes that local prospective manufacturers will have to pay and this of course will represent an advantage for ABC as a current manufacturer.
a. Summary of external Factors

External Factors Analysis Summary ( EFAS )

External Strategic Factors Weight Rating Weighted Score Comments

Opportunity
Potential expansion into international market Expanded uses of companies basic resources Diversificdation of product line Monopoly over the beer market Potential increase of tourists numbers Unmet market demand High entry barriers 00.2 00.1 0.1 0.15 0.15 0.1 0.1 0.05 0.05 1 2 5 5 5 5 4 5 5 4 0.4 0.5 0.5 0.75 0.75 0.4 0.5 0.25 0.2 4.25

Threat
High resk in operating in one single market Seasonal sales

Total

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5. Summary of Strategic Factors

A. Situational Analysis ( SFAS)
Strategic Factors Analysis Summary ( SFAS )

Strategic Factors 01- potential expansion into international markets 02- Big usage of companies resources 03- high resk 04 seasonal sales volumes 05- brand equity 06-strong distribution channles 07 lack of international orientation Collapse in soft drinks sales Total score

Weight 0.2 0.1 0.2 0.05 0.05 0.1 0.2 0.1 1.00

Rating 3 5 3 2 5 5 3 4

Weighted Score 0.6 0.5 0.6 0.1 0.25 0.5 0.6 0.4 3.55

Comments

* the total score is 3.55 which means that the company benefiting of opportunities and strenghts and avoidance of threats and weaknesses is measured average.

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The Strategic Position and Action Evaluation ( SPACE ) Matrix Of ABC Company

Internal Strategic Position

Financial Strength ( FS )
Return on asset in the year 1999= 15% this ration is high compared to running bank interest , which is about 10 % Net operating profit in the year 1999 = 68.310 e.p. , which is 20 % over the year 98 Total value of fs factors Average value of fs

Rating
+4 04 +8 +4

Competitive Advantage ( CA)

The highest market share in Egypt Strong distribution channels Diversified peoducts Total value of CA Factors Average value of CA

Rating
-1 -1 -1 -3 -1

External Strategic Position

Environmental Stability ( ES )
Barriers to entry beverage industry
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Rating
-1

No competition almost Seasonability os sales Total value of ES Factors Average value of ES

Industry Strength ( IS )

-1 -4 -6 -2

Rating
+4 +2

Very high gross potential High financial stability Total value of IS Factors Average value of IS

+6 +3

RESULTS
External Strategic Position Factors
Environmental Stability ( ES ) = -1.5 Industry strength ( IS ) = +5

Internal Strategic Position Factors

Financial Strength ( FS ) = +4 Competitive Advantage ( CA ) = -1

Directional Vector Coordinates of X axis = ( IS ) + ( CA ) = ( +5 ) + ( -1 ) = + 4 Directional Vector Coordinates of Y axis = ( FS ) + ( ES ) = (+4 ) + ( -1.5 ) = + 2.5

Determination of Strategy using Graphical Presentation of Results

of

The Strategic Position and ACtion Evaluation ( SPACE ) Matrix Conservative

FS
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Aggressive

+6 +5 +4 +3 +2 +1 CA -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 +1 +2 +3 +4 +5 +6 IS

Defensive CONCLUSION

ES

Competitive

The Graphical representation of results indicate that ABC is in a strong financial position, and operates in a growing industry , therefore ABC should adopt an Aggressive Strategy

Conclusions & recommendations

WE HEREBY WILL RECOMMEND THE FOLLOWING : 1-

Part 3 : Conclusions & Recommendations

Based upon the above analysis , ABC should follow the following strategies : Growth horizontal integration to penetrate international markets 1 Will recommend backward integration to maintain competitive position 2 3 Divestment of the soft drinks line as it does not compete well in the market due to huge competition.

4 Benchmarking ABC product portfolio of competitors to identify strong features & Specifications and modify the design accordingly .
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5 More emphasize on R & D

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