SM FINAL REPORT.docx

AL-KARAM TEXTILE PVT LTD

INSTITUTE OF BUSINESS MANAGEMENT

Researching ‘Firm level level Strategy and Competitiveness’ Competitiveness’ … 2012 April 16, 2012 Section: B

textile private limited Enterprise/Corporation/Institute: Alkaram textile Address: H-T/11, landhi industrial area, Karachi-22- Pakistan

Name and rank of research partners: Mr. Aijaz Hussain (manager accountancy) Mr. Shahzad Ali Sayed (senior manager industrial engineering) Mr. Attiq-ur-Rehman (manager of internal audit)

Name of IoBM researchers: Quratulain Siraj (8726) Muhammad Fahad Sheikh (8702) Naveen Zehra (9411) Sakina Javed (9246) Francis Ubaldo D’souza (6276) (6276) Hamza Arshad

IoBM STRATEGIC MANAGEMENT

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Table of Contents

ACKNOWLEGEMENT ........................................................................................................................................... 5 LETTER OF TRANSMITTAL ............................................................................................................................... 6 EXECUTIVE SUMMARY ....................................................................................................................................... 7 OVERVIEW OF TEXTILE INDUSTRY IN PAKISTAN .................................................................................. 8 COMPANY PROFILE

............................ .......................................... ............................ ............................. ............................. ............................ ............................ ............................ ...................... ........ 11

ABOUT ALKARAM .............................................................................................................................................. 12 HISTORY HISTORY ........................... .......................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................ ............................ .................... ...... 12 OUR VISION VISION ............................ ........................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................. ........................... ............ 13 MISSION STATEMENT: ............................................................................................................................... 14 Proposed Mission Statement: .............................................................................................................. 14 EXTERNAL ANALYSIS

............................ ........................................... ............................. ............................ ............................ ............................ ............................ ............................ .................... ...... 15

PORTER’S FIVE FORCES ............................ .......................................... ............................ ............................ ............................ ............................ ............................ ............................ .................. .... 16 THREAT OF NEW ENTRANTS .................................................................................................................. 16 BARGAINING POWER OF BUYERS.......................................................................................................... 17 THREAT OF SUBSTITUTES ........................................................................................................................ 18 BARGAINING POWER OF SUPPLIERS ................................................................................................... 18 THREAT OF RIVALRY AMONG EXISTING FIRMS .............................................................................. 19 PEST ANALYSIS ON PORTERS FORCES ..................................................................................................... 21 THREAT OF NEW ENTRANTS .................................................................................................................. 21 BARGAINING POWER OF BUYERS.......................................................................................................... 22 THREAT OF SUBSTITUTES ........................................................................................................................ 22 BARGAINING POWER OF SUPPLIERS ................................................................................................... 23 THREAT OF RIVALRY AMONG EXISTING FIRMS .............................................................................. 23 PORTER’S GENERIC POSITIONS AND STRATEGY ............................ .......................................... ............................ ............................. ......................... .......... 24 EFE MATRIX MATRIX ........................... .......................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................. ........................... ............ 25 CPM MATRIX MATRIX.......................... ......................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................. ........................... ............ 26 INTERNAL ANALYSIS

........................... ......................................... ............................ ............................. ............................. ............................ ............................ ............................ ...................... ........ 27

VALUE CHAIN ...................................................................................................................................................... 28 SUPPORT ACTIVITIES: ................................................................................................................................ 28 Firm Infrastructure .................................................................................................................................. 28 Human Resource Management ........................................................................................................... 28 Technology Technology........................... .......................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................ .................... ...... 29 Procuremen Procurementt........................... ......................................... ............................ ............................ ............................ ............................ ............................ ............................ ............................. .................. ... 29 IoBM STRATEGIC MANAGEMENT

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PRIMARY ACTIVITIES: ................................................................................................................................ 29 Inbound Logistics ..................................................................................................................................... 29 Operations Operations............................ ........................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................ .................... ...... 29 Outbound Logistics .................................................................................................................................. 29 Marketing and Sales ................................................................................................................................ 30 Service Service........................... .......................................... ............................ ........................... ............................ ............................. ............................. ............................ ............................ ............................ ................ 30 CORE COMPETENCY OF ALKARAM ............................................................................................................ 31 Home Textiles Products and Fashion Garments ............................................................................... 31 Yard Dyed Home Textiles ........................................................................................................................... 31 Branded Customers ...................................................................................................................................... 31 One Floor Operations ................................................................................................................................... 32 More than 10,000 labor force ................................................................................................................... 32 STRATEGIC COST PROCESS MANAGEMENT ........................................................................................... 32 FINANCIAL RATIO TRENDS ........................................................................................................................... 32 IFE MATRIX MATRIX ............................ ........................................... ............................. ............................ ............................ ............................ ............................ ............................ ............................. ........................... ............ 33 STRATEGIC ANALYSIS & CHOICE

........................... ......................................... ............................ ............................ ............................ ............................. ........................... ............ 34

GRAND STRATEGY MATRIX .......................................................................................................................... 35 SPACE MATRIX .................................................................................................................................................... 36 TOWS MATRIX MATRIX ........................... ......................................... ............................ ............................ ............................ ............................. ............................. ............................ ............................ ...................... ........ 38 INTERNAL EXTERNAL MATRIX ................................................................................................................... 40 BCG MATRIX......... MATRIX....................... ............................ ............................ ............................ ............................ ............................ ............................ ............................ ............................. ............................. ................. ... 41 STRATEGIC DECISION & RECOMMENDATION ............................ .......................................... ............................ ............................. ........................... ............ 42

MATRIX ANALYSIS AND SUMMARY ........................................................................................................... 43 QSPM........................... ......................................... ............................ ............................. ............................. ............................ ............................ ............................ ............................ ............................ ........................... ............. 44 STATEGIC IMPLEMENTATION

............................ .......................................... ............................ ............................ ............................ ............................. ............................. ................. ... 46

STRATEGIC LEADERSHIP LEADERSHIP MODEL FOR AL-KARAM TEXTILE MILLS MILLS ......................... ............... .................... .............. .... 47 THE FOUR HURDLES TO STRATEGY IMPLEMENTATION ............................................................ 47 Resource Resource Hurdles Hurdles ............................ ........................................... ............................. ............................ ............................ ............................ ............................ ............................ .................... ...... 47 Cognitive Hurdles ..................................................................................................................................... 47 Motivational Hurdles .............................................................................................................................. 47 Political Hurdles ........................................................................................................................................ 47 BALANCED BUSINESS SCORECARD

.......................... ......................................... ............................. ............................ ............................ ............................ ...................... ........ 48

Framework for balanced business scorecard: ................................................................................... 48 Matrix for Balanced Business Scorecard:............................................................................................. 48 IoBM STRATEGIC MANAGEMENT

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Financial perspective: ............................................................................................................................. 48 Customer perspective: ............................................................................................................................ 48 Internal perspective: ............................................................................................................................... 48 Learning & Development perspective: ............................................................................................. 48 DIAGNOSTIC SURVEY OF PRIMARY & SECONDARY MANAGEMENT MANAGEMENT PRACTICES ................... 49 .......................................... ............................ ............................ ............................ ........................... ............. 51 ALKARAM IN BLUE OCEAN STRATEGY ............................ Implementation of Blue Ocean Strategy in Alkaram should deliver:- ...................................... 52 ERRC GRID FOR ALKARAM: ...................................................................................................................... 53 REFERENCES REFERENCES:: ........................... ......................................... ............................ ............................ ............................ ............................ ............................ ............................ ............................. ......................... .......... 53


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ACKNOWLEGEMENT ACKNOWLEGEMENT “We owe our profound thanks and deepest gratitude to almighty Alla h, most merciful, who blessed us with determination, strength, ability and divine help to complete this piece of research work”.

We would like to thank the entire team of ALKARAM TEXTILE MILLS AND RETAIL OUTLETS, including Mr. Aijaz Hussain the manager accounts, Mr. Shahzad Ali Sayed senior manager industrial engineering department and Mr. Attiq-ur-Rehman manager of internal audit, who has provided us with valuable information regarding their Organization, and also helped us in gaining constructive information regarding our strategic management course. We would like to thank our family members, friends & colleagues for their love and support, bearing our swings of moods and frustration moments and above all for helping and motivating us. Lastly we are very grateful in acknowledging our whole hearted appreciation to our teacher Mr. Javaid Ahmed who steered and stimulated us to complete this report.

Regards, All group members.


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LETTER OF TRANSMITTAL April 16, 2012

Mr. Javaid Ahmed Instructor, Strategic Management Institute of Business Management, Karachi.

Dear Sir, This is the term report on “Strategic Management at Alkaram textiles (Pvt.) Ltd Pakistan”. This report consists of the macro-environmental analysis and industry attractiveness, the company and competitor analysis, micro-environmental analysis and internal company resources, strategic analysis and recommendations and strategic implementation. The report has been completed after the perpetual hard work, determination and devotion of past 3 and half months. If you have any additional questions, we would be pleased to answer them.

Thanking you. Sincerely, Quratulain Siraj Mohammad Fahad Sheikh Naveen Zehra Sakina Javed Francis Ubaldo D’souza Hamza Arshad


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EXECUTIVE SUMMARY Alkaram textile private limited is a progressive textile mill having the highest Quality Standards, currently engaged in Manufacturing and Marketing of garment wear as well as home furnishing Products. It also runs its own retail outlets to sell its product directly to consumers market. According to Porter’s 5 forces in the textile Industry, the threat of new entrant is moderately low because barriers to entry being high. Moreover, the bargaining power of buyers is quite high; among many reasons contributing to this one of them is the large number of buyers with relatively small purchases as well as many players in the industry offering the product though being differentiated but resulting increasing the available brands for the buyer to choose from without incurring any significant switching cost. The threat of substitutes is low as the potential customers are already caged in brand equity trap and are not willing to replace it with unbranded clothing. In addition to that, supplier has low bargaining power also being in large numbers with holding standard material. The rivalry among the competitors is intense. All of this, in addition to the macro environment factors contributes to the industry being convincingly attractive in the industrial analysis. Alkaram’s core competencies are the fact that they provide price competitive products which are significantly below from other players operating within the textile industry and also they have the most widely distributed retail networks with continuous supply of stock, thus through these they have captured large chunk of consumer market, not only locally but also in export business. Moreover, alkaram has an efficient supply chain management system, which gives it an advantage of knowing exactly what is going on with its suppliers and have effective and timely deliveries of raw material. Furthermore, it has also introduced a new concept of having its own retail outlets all over the major cities, and started ecommerce for convenience international consumer market along with creating ecatalogue for on-site promotion. Currently Alkaram is only focusing on consumer market which has lots of competitors such as Gulahmed, Nishat, Lucky, Karma etc, which relatively highest market share. Thus when we analyzed the strategies by doing different matrixes such as SPACE, TOWS, IE, GRAND STRATEGY we chose two strategies that they can adapt: one of them being product development by introducing either menswear or ready to wear garments through strategic partnership with well known designers and the other being a strategy related to the penetration of existing markets in through making more ef fort in promotion of e-commerce to gain more market in export business. QSPM showed that product development is a better strategy for Alkaram. The implementation of the strategy is explained through the balanced business score card. Furthermore; Alkaram has a conservative management style following seth culture, which would have to be changed to implement the strategy. Their employees and leader should be prepared to face a few years of loses, as lots of products will have to be cut down. Moreover, a lot of employees will have to be let go, to implement this strategy. IoBM STRATEGIC MANAGEMENT

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OVERVIEW OF TEXTILE INDUSTRY IN PAKISTAN Pakistan is one of the largest cotton-producing countries of the world. Both directly and indirectly, textile sector employs the largest number of the human resource. The contribution of industry to the country’s total exports is more than 60% (US $ 9.6 billion). The contribution to GDP of textile industry is 8.5% (: Pakistan Economic Survey, SBP, and TDAP). Pakistan is 8 th largest exporter of textile products in Asia and catering for 38% employment. At the time of independence, Pakistan had 2 textile mills with 80,000 spindles and 3,000 looms. In 1990s, import duty on textile machinery was removed which brought huge expansion in the spinning sector during the first 5 years of 1990s. Currently, major losses are incurred by this industry with foreclosure looming around. This decline is largely due to high cost of production as an outcome of increase in energy costs. Depreciation in rupee has resulted in high cost of import. High cost of financing and high inflation rate has also hampered the growth in textile sector. In the first 4 months (JulyOctober of FY2011), the sector witnessed the decline of 10.20% in output. The growth of textile industry is appreciable and progress and development of Pakistani textile sector is really good. The industry’s overall contribution of taxes in 2011 -12 is expected to reach Rs. 23.5 billion, including payments of withholding taxes & applicability of lower rate of sales tax of 4-6% on local supplies. Textile exports stood at $12.5 billion from July 2010 to May 2011. TEXTILE INDUSTRY'S ECONOMIC CONTRIBUTION 2008-09 Exports 54% OF TOTAL EXPORTS (US $ 9.57 BILLION) Manufacturing 46% OF TOTAL MANUFACTURING Employment 38% OF TOTAL LABOUR FORCE GDP 8.5% OF TOTAL GDP Investment US $ 7.0 BILLION Market Capitalization 5.0% OF TOTAL MARKET CAPITILIZATION (Listed Companies) Source: Pakistan Economic Survey, SBP, TDAP

The textile sector is one of the most organized and regulated sectors of Pakistan. All Pakistan Textile Mills Association (APTMA) is the chief organization that determines the rules and regulations in the Pakistan textile industry. APTMA represents 391 textile mills out of which 309 are spinning, 45 are weaving and 37 are composite units. The role of APTMA is to facilitate textile industry to obtain and sustain global standing. A leading textile exporter said that the Ministry of Textile had issued three notifications to facilitate the industry in the past. Textile manufacturers will receive 3% drawback on garments, 2% on home textile and 1% on fabrics. The government has yet to issue any notification in the extension for these facilities. The previous fiscal period starting from June 2010 to June 2011 experienced severe blows as a result of massive destruction of cotton crops due to massive floods and heavier rains IoBM STRATEGIC MANAGEMENT

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throughout the country. Despite such positive figures and statistics, textile and garment industries in Pakistan have not shown any considerable progress in producing valuedadded items. Our neighboring countries like India and China, on the other hand, have achieved the largest share in the global market by exporting value-added textiles and garments products, while local manufacturers in Pakistan are way behind in this. Another mistake we have already made is that we tend to export raw materials to the global textile buyers, and the same raw material comes back to the Pakistani market in form of finished value-added textile products and fashion accessories on higher prices. According to Mr. Abdul Saboor, one of the leading experts from the textile sectors, "On a domestic front, Pakistan has hardly any cotton left in the fields and stocks at ginners are not that much to feed the mills till the next crop comes. From price perspective Rs. 12000 to 13000/maund or $ 1.68/lb has now become a usual norm. These prices are driven from NY futures, World A index and India's restriction on cotton exports. Pakistani mills are still short of their minimum consumption requirements and more and more players are finding it difficult to make decisions about buying raw material at these skyrocketing prices with yarn fabric demand showing the resistance and receivable issues from the clients. Credit limits have burst for many as cotton has reached over 150% of price since start of this season. Another interesting point is the ratio of raw material price and conversion cost in total cost of product as today raw material price makes for almost 90% of the total cost of the product, as compared to 60% a year back". Additionally, there is more focus upon supplying raw material to global textile manufacturers. Though this helps us earn much-needed foreign revenues but also eliminates the possibilities to turn the same raw material into value-added finish products locally.        

Lack of Research & Development (R&D) in Cotton Sector Lack of Modernize Equipment Increasing Cost of Production Internal issues Energy Crisis Tight Monetary Policy Lack of new investment Raw material Prices increasing double digits

Thus, this is no doubt the toughest periods for the industry in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues also affected Pakistan’s textile industry very badly. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year which has significantly raised the cost of imported inputs.


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Furthermore, double digit inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's textile exports in turn have gone down during last three years as exporters cannot effectively market their produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and more difficult for the exporters to travel abroad. Pakistan’s textile industry is lacking in research & development (R & D).The production capability is very low due to obsolete machinery & technology. Textile and garments sector is the bone of our entire national economy that needs to be further strengthened by applying investor-friendly policies and revised trade policies. It would be quite rational if our local textile manufacturers stop supplying raw materials to global buyers, and just focus upon manufacturing value-added items and textile products and fashion accessories. For this purpose, we will, definitely, need a technology which, once taken, enables us to produce high-quality standardised textile goods locally, without investing our money on the import of the same. Moreover, we also need a safe working environment in our textile and garments manufacturing industries where both genders are treated equally, and share equal respect and status, without any sort of discrimination or gender bias. It is high time that alternative sources of energy such as coal, solar and wind power should be should be considered without any loss of time. Pakistan is sitting on one of the richest deposits of coal in the world. According to renowned scientist Dr Samar Mubarakmand, Thar coal reserves have potential to generate 5000 MW electricity for 800 years. Incredibly, Thar has 850 trillion cubic feet coal which far greater than the total oil reserves of Saudi Arabia and Iran put together! Coal gasification is already being used successfully by some forward looking players in the textile industry. Through such ingenious and creative solutions, dependency on the gas and power companies can be curtailed significantly for the industry to meet its full potential. In the coming issues PTJ will highlight for our readers such unique and highly practical solutions to meet growing energy requirements of the industry.


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COMPANY PROFILE


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ABOUT ALKARAM The Alkaram group was founded in March 1986 with a vision to be a provider of innovative textile solutions worldwide. They are a manufacturer and supplier of distinguished fabric for apparel, home and industrial markets with clients all over the world. Their ability to create forward-thinking solutions that give their clients a competitive advantage is what sets them up apart. Their core services include:  Fiber manufacturing  Spinning  Weaving  Knitting  Dyeing and printing of woven and knitted fabrics Designing  Cutting and Stitching With a constructed area of over one million square feet, Alkaram has the capacity to fulfill small, medium and large scale orders. They are one of the few vertically integrated operations in Pakistan. Offering a diversified range of products, their customers can mix and match from a wide variety of print, yarn dyed, solids, dobby and jacquard. They also deal in twill, sateen, basket weave and percale, knitted to woven fabric; and thread counts ranging from 130 to 1000. At AlKaram they also provide their customers with complete inhouse design solutions. Their creative center is equipped with state of the art designing and sampling equipment and skilled textile artists.

HISTORY The Group has its origins in the early 1900s when it started the trade of grains and oil in the subcontinent. Entrepreneurial skills and acumen have always been the driving force behind the success of the Group. Based in Karachi, the Alkaram Group has unfolded its vision of growth and established its multifaceted concerns countrywide and abroad. Following opportunities in the newly created state of Pakistan, the Group nourished in the fields of textiles, F & B, salt mining, hospitality, trading and distribution. A melting pot of skilled employees and advanced technology, Alkaram has been brushed upon the wall of success using a simple formula; short lines of communication were kept, along with consistently quick yet well thought-out decisions by managers that have been part of the Alkaram mix since the start. In using this simple philosophy, they have ensured that the identity of Alkaram has not been lost along the way and that the ladder of success they have been climbing has been leaning against the right wall. Soon the Group became the largest business family of the country by creating the most modern textile units that went on to become household names of the country. Alkaram Group Alkaram Textile Mills Pvt. Ltd. founded in 1986 as a vertically integrated composite textile mill, Alkaram is a household name when it comes to Fashion Fabrics. Alkaram Textile mills creates everything from shower curtains to apparel for men and women.


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1) Amna Industries: completely integrated Spinning & Finishing mill specialized in knitted Fabric. 2) Pakistan Synthetics Producer of PSF Fibre under technology from Teijin japan, producing 80 Tons per day feeding into the Textile Spinning Sector of Pakistan. PSL Caps Specializes in producing plastic and crown caps for the Beverage industry, PSL caps is proud to have the most modern and advanced high speed machines. 3) Dhabeji Salt Producer of salt for Chemical Industries and table salt. 4) Satter Ltd Local Trading House. The Retail Arm of the Group: Realizing the growth in retail, the Group's vision is to become the largest modem retailer by providing mid to upper markets brands to fulfill customer needs. With customer needs at the forefront, we have created private brands and have franchised international specialty brands to bring the best retail experience and value for our customers.

OUR VISION “To be a leading textile solution enterprise operating on a global scale, from the products we weave, to the markets we reach.” We do not intend to simply meet customer but also,  Create satisfaction. Make excellence a habit through passion.   Develop human capital to fulfill their potential.  Equality and justice to all.  Give back to the environment and community as it has given to us. Long-term thinking for safety and health.   Be research and development oriented.  Invest in education and training.

A Spectrum of Products Alkaram boasts a wide range of products. Our spectrum is diverse, from fabrics such as Yarn Dyed, to finished products such as shower curtains.

YARN Capabilities: All Types of Cotton Yarn Polyester & Knitted Yarn Twisted & Special Yarns. Products: Ring spun Yarn Compact spun Yarn Lycra Yarn Novelty Yarn

FABRIC Greige fabric Prints Plain dyed Dobby Jacquards Yarn Dyed fabrics


FINISHED PRODUCTS Quilt covers/comforters Sheets from t144 to t1000 Curtains Shower Curtains Kitchen linen Pyjama suits Bed in a bad Fashion apparel

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MISSION STATEMENT: Al Karam will remain an undisputed leader in providing high quality products & services to its customers. Al Karam will continue to provide superior quality Home Textiles and Fashion Apparel. Self Concept Customer and Services Concern for growth Philosophy Technology Concern for public image Concern for employees

   

× × ×

Proposed Mission Statement:

Alkaram Textile Mills Pvt Ltd through its ground-breaking technology, efficient management aims to maintain high ethical and professional standards by contributing positively to the socio-economic growth of Pakistan by achieving excellence in all spheres of related activities. It aims an effective management and well synergized workforce by maintaining core values of commitment, integrity, teamwork and transparency.


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EXTERNAL ANALYSIS


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PORTER’S FIVE FORCES In order to apply Porter’s five forces to the textile industry in Pakistan, we used the following template; out of which we were able to analyze the attractiveness of this industry for firms in Pakistan, as well as to evaluate the potential success and profitability of the firms in this industry. THREAT OF NEW ENTRANTS A

2.

THREAT OF NEW ENTRANTS Do large firms have a cost or performance advantage in your segment of the industry? Are there any proprietary product differences in your industry?

3.

Are there any established brand identities in your industry

4. 5.

Do your customers incur any significant costs in switching suppliers? Is a lot of capital needed to enter your industry?

6.

Is serviceable used equipment expensive?

7.

Does the newcomer to your industry face difficulty in accessing distribution channels? Does experience help you to continuously lower costs?

1.

8. 9.

11.

Does the newcomer have any problems in obtaining the necessary skilled people, materials or supplies? Does your product or service have any proprietary features that give you lower costs? Are there any licenses, insurance / qualifications difficult to obtain?

12.

Can the newcomer expect strong retaliation on entering the market?

10.

Yes (+)

~

No ( – )

3 1

10

The threat of new entrants is very low, since the barriers of entry are high. The major reasons for the threat of entry to be low are because there is a huge amount of capital needed to enter into the industry, due to the need of updated design technology and knowledge to set up the businesses and the difficulty in accessing these for the textile industry. Moreover, the large companies existing in the industry are able to obtain huge cost advantage which would be difficult for new entrants to obtain. Along with that there is a large amount of cost to obtain the license which is not affordable for new companies. Also, there is a need of a lot of market research to keep updated with customers changing trends and life style, which is costly for the firms. Not only the cost of capital and R&D, there is a lot of competition among the existing firms that make it difficult to enter into the industry, namely nishat, gulahmed, lucky textiles etc. These well established firms make it IoBM STRATEGIC MANAGEMENT

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tough for firms to enter into the industry, because of the strong brand image that these firms have in the market. It is not easy to convince customers to change the companies they already deal with. So new entrants will face very heavy resistance from the already well established brands who not only have very high brand equity, but also with their experience they can lower down their prices without considerable damage to their brands to force the new entrant out of business. Thus this low threat of new entrants makes it a favorable industry. BARGAINING POWER OF BUYERS B

BARGAINING POWER OF BUYERS

1.

Are there a large number of buyers relative to the number of firms in the business?

2.

Do you have a large number of customers, each with relatively small purchases?

3.

Does the customer face any significant costs in switching suppliers?

4.

Does the buyer need a lot of important information?

5.

Is the buyer aware of the need for additional information?

6.

Is there anything that prevents your customer from taking your function inhouse?

7.

Your customers are not highly sensitive to price.

8.

Your product is unique to some degree or has accepted branding.

9.

Your customers’ businesses are profitable.

Yes (+)

~

No ( – )

10. You provide incentives to the decision makers.

7

1

10

The above study demonstrates that there is a high buying power in this industry. There are enormous numbers of buyers in industry compared to the firms that already exist; but each of this these many diversified customers only purchase in small amounts. Even though there is little cost associated with customers switching suppliers, however, there is a massive amount of information that customers need about the products plus they are aware of the need of additional information. Moreover, the customers cannot take the firm’s functions in-house and also the customers have profitable businesses. Since the product is quite differentiated and has strong brand identity, the customers are therefore not so sensitive to pricing; however there is vast number of firms producing the same product in the industry so this provides many choices to chose from hence increasing IoBM STRATEGIC MANAGEMENT

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customer’s power over the industry. Thus, with this analysis, we can conclude that this industry is fairly unattractive, since the bargaining power of buyers is quite high. THREAT OF SUBSTITUTES C THREAT OF SUBSTITUTES

1.

Substitutes have performance limitations that do not completely offset their lowest price. Or, their performance is not justified by their higher price.

2.

The customer will incur costs in switching to a substitute.

3.

Your customer has no real substitute.

4.

Your customer is not likely to substitute.

1

Yes (+)

2

~

No ( – )

10

There is a low threat of substitutes in this industry, since there is very negligible chance that the potential customers will substitute the firm’s products mainly because of the low quality and sub-standard designs of the product and also due to the s trong influence of elite oriented society where buying the firm’s product is considered as status quo. Moreover, the substitutes which are available, they do not meet the performance of the firm’s products and therefore are not able to compete even with the lowered prices. Also, potential customer is seemingly falling in the brand equity trap which makes it even more possible of customers to remain with the firm’s product. Another important point is that since firm’s products closest substitutes are locally sold unbranded clothing, so in the contemporary sense there is no real substitute for these branded products available in the market, which eventually makes the threat of substitutes very low. Thus, there is a low threat of substitutes, therefore making the industry favorable and attractive. BARGAINING POWER OF SUPPLIERS D

BARGAINING POWER OF SUPPLIERS

YES

(+)

~

NO

(-)

1. My inputs (materials, labor, supplies, services, etc) are standard rather than unique or differentiated. 2. I can switch between suppliers quickly and cheaply. 3. My suppliers would find it difficult to enter my business or my customers would find it difficult to perform my function in-house. 4. I can substitute inputs readily.


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5. I have many potential suppliers. 6. My business is important to my suppliers. 7. My cost of purchases has no significant influence on my overall costs.

3

1

10

This chart indicates bargaining power of suppliers being quite low. The supplier for the textile industry mainly consists of wool and cotton thread suppliers, as well as the dyes of the different colors and the design stamps /prototype molders to give finished clothes a unique and appealing pattern. These suppliers are mainly local. The industry has a lot of such suppliers to choose from which gives the industry an edge over the suppliers. The industry can switch suppliers quickly and these suppliers will find it difficult to enter into the industry, along with this the business is important for the suppliers. However, the inputs needed are mainly standardized and have no uniqueness or differentiation; therefore these inputs can easily be replaced and substituted. There is no considerable addition to total costs due to the costs of purchases. Thus above analysis shows that the bargaining power of the suppliers is fairly low, making the industry reasonably attractive. THREAT OF RIVALRY AMONG EXISTING FIRMS E

DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION

1.

The industry is growing rapidly.

2.

The industry is not cyclical with intermittent overcapacity.

3.

The fixed costs of the business are a relatively low portion of total costs.

4.

There are significant product differences and brand identities between the competitors.

5.

The competitors are diversified rather than specialized.

6.

It would not be hard to get out of this business because there are no specialized skills and facilities or long-term contract commitments, etc. My customers would incur significant costs in switching to a compe titor.

7. 8. 9.

Yes (+)

~

No (-)

My product is complex and requires a detailed understanding on the part of my customer. My competitors are all of approximately the same size as I am.

1


8

10

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The above study signals high rivalry existing in the textile industry. This industry in Pakistan has substantial competitive enmities, there is a rapid growth in the industry, the industry is not cyclical and there are notable product differentiations and brand identities. There are high fixed costs relatively to the total costs of the business. Also it is not easy to exit the industry since there are long-term commitments and specialized needed. There is varying cost differences that the customers would incur in switching to competitors, depending on which rival it is going for. Moreover, all the major competitors are almost the same size. Thus, this analysis shows that the rivalry among existing competitors in the industry is quite high, which make the industry somewhat unattractive.

F

1 2 3 4 5

Overall Industry Rating Threat of new entrants. Bargaining power of buyers. Threat of substitutes. Bargaining power of supplier Intensity of rivalry among competitors.

Favorable

Moderate

Implications

1

Un favorable 3

8 6

3

1

Fairly high

3

0

1

very low

5

0

2

6

1

3

moderately low Very high

TOTAL SCORE

28

5

10

attractive

quiet low

An over-all study of the 5 forces of porter’s model shows that the industry is convincingly favorable. The threat of new entrants is very low, so as the bargaining power of suppliers and the threat of substitutes barely exists. However, the very high bargaining power of buyers and the extremely high rivalry among the competitors does give an unfavorable development for the textile industry. But by aggregating the results as well as the comprehensive study of each of 5 forces shows that the textile industry is a persuasively favorable and attractive industry.


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PEST ANALYSIS ON PORTERS FORCES THREAT OF NEW ENTRANTS POLITICAL: The major issue that firms in Pakistan face is the Political unrest in the economy, this has led to inconsistent policies in the country, and this makes it difficult for people who would invest into anything that costs huge amounts of capital. As a consequence of the war on terror, the law and order situation still remains volatile, with sporadic blasts and suicide attacks taking place in major cities, and therefore it causes the threat of new entrants to be low . This makes the industry attractive. There are a large amount of license fee that the textile industry in Pakistan has to pay, along with that these firms need to make considerable payment of taxations to start the manufacturing and selling of the textile products. This results in a lowered threat of new entrants, and hence making the industry attractive. ECONOMIC: There is a lack of adequate storage and transportation facilities for woolen fiber roles. The Retail boutiques also do not keep sufficient amount of the material for sale because of threat of changing customer preferences and also don’t have adequate shelf facilities to store a season stock. This affects the supply order of the products and also adds to the costs. So this additional cost for firms, eventually decreases the chances of the new firms to enter the industry, and hence makes the industry more attractive. Moreover, Pakistan has poor roads and rail network. Therefore, the transportation time is higher. This calls for higher inventory carrying costs and longer delivery time. All this adds to the invisible costs. It is only during the last couple of years that good quality highways have been constructed, that too only in selected areas excluding Faisalabad, Rawalpindi which is the heart centre of clothing lines. Therefore, again the increased cost causes a decrease in the chance for new firms to enter industry, & hence, makes industry attractive. Also, The energy deficit proving to be a major obstacle as the economy strives to gain momentum towards recovery. Therefore, this increases the costs of energy for the textile firms, which in turn causes the barriers to entry to rise. This results in a lowered threat of new entrants, and hence making the industry attractive. The high inflation, fiscal deficits and impending external debt payments pose risks for the economy coupled with low tax revenues and foreign investment. The decrease in the tax revenues leaves less or no amount of spending for the textile sector of the economy, along with that a decreased amount of foreign investment means that there are less amount of spending on this sector. Therefore, there is a decrease in the threat of new entrants . Hence, making the industry more attractive. TECHNOLOGICAL: There are advanced automated machines available that have increased the output and reduced the cost, also with the computerization results in an increased efficiency of the textile Industry, at the same time decreasing barriers to entry, and hence causing an increase in the threat of new entrants. This makes the industry less attractive. With an increased need for consistent and regular investment in market research, the new advanced technology is outdated quickly, which is not easy for new firms which therefore


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make it more difficult for new firms to enter. Therefore, a decrease in the entry chances of new firms, thus making the industry attractive. BARGAINING POWER OF BUYERS POLITICAL The economy remains stressed in the repercussion of the unprecedented floods and also due to the continued delays in the implementation of key economic reforms. This leads to an increased need for clothing of the unbranded local supply. Thus this factor is acting as replacement for branded industry product resulting in harming the textile business. This causes an increased bargaining power of buyers , hence making the industry unattractive. ECONOMIC The per capita income of an average Pakistani is low; therefore, spending on the branded clothing takes a low priority. An average class Pakistani, which forms the majority class of the society, would buy this branded product only when there is a special occasion. Therefore, there are lesser amount of customers, with relatively smaller purchases and hence increasing the bargaining power of buyers. This hence, decreases the attractiveness of the industry. SOCIAL Increasing status quo concept as well as changing customer preferences, demographics and standard of living is adding to the favorable and relatively increase demand for the branded clothing. Moreover Pakistan is among those countries of the world where a major lump of the income is bound to spend on clothing and eating. This adds to positive demand increasing however, increasing choices provided by different competitors within the textile industry eventually divides the overall inclining demand, leaving a small portion for each firm. This therefore, causes a increase in the bargaining power of buyers and hence making the textile industry unattractive. THREAT OF SUBSTITUTES ECONOMIC The high inflation, fiscal deficits and impending external debt payments pose risks for the economy coupled with low tax revenues and foreign investment. The decrease in the tax revenues especially due to the payment of circular foreign debt along with its interest leaves less or no amount of spending for the textile sector of the economy, also besides that a decreased amount of foreign investment means that there are less amount of spending on this sector. Therefore, there is a decrease in the threat of substitutes and hence, making the industry more attractive. SOCIAL In Pakistan major chunk of people, falling under middle class segment, prefer using local unbranded clothes and stuff handed down for generations from local small shops which provides exact replica of the branded items although at low quality but also at low price,


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this is a potential threat for the textile firms, which results in increasing the threat of substitutes, at the same time causing the industry to be less attractive. BARGAINING POWER OF SUPPLIERS POLITICAL As the Government support to the textile industry has increased recently with in last decade, which resulted in inducing the textile companies to avail local suppliers as well as export orientation. This would increase the bargaining power of suppliers. ECONOMIC Due to weakening of the rupee, the supplier switching cost would be high. Hence, this would increase the bargaining power of suppliers. THREAT OF RIVALRY AMONG EXISTING FIRMS POLITICAL As the number of gigantic firms is increasing in the market, taking advantage of newly implied government policies for textile sector support, resulting in major textile companies producing more patterns and designs especially in women segment to grab bigger chunk of market share. Thus creating cut throat competition in the market. Moreover, fight is not only for local customers’ attention, but also due to easy international licensing & increasing demand of Pakistani textile in international market firms’ export orientation has also become a platform of rivalry. Hence, this would increase the rivalry among existing firms. ECONOMIC Due to weakening of the rupee as well as inclining inflation, the local textile firms operational cost would be high. So this gives rise to local competitors to undertake price wars. Hence, this would increase the rivalry among existing firms. SOCIAL Since with the changing trends of customer preferences as wells as living standard of living of people of Pakistan, and also with the increasing demand of Pakistani textile all around the world, the local textile firms are keen to capture more and more customers attention. Hence, this would increase the rivalry among existing firms. TECHNOLOGICAL Usage of state of art manufacturing plants and latest printing and designing technology, give firms products a new life to compete and gain more market share, thus indulging other competitors to change to more advanced technology in order to bring break through styles and quality in their products. Hence this would increase the rivalry among existing firms.


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PORTER’S GENERIC POSITIONS AND STRATEGY The Porter’s Generic Positions as illustrated in the above figure have two positions, that is:  Cost leadership  Differentiation.

Alkaram is currently using focused differentiation strategy as its target market caters to narrow buyer segment i.e. retail consumer market and its current strategic approach falls under differentiation product tactic with unique proprietary features and design patterns. Moreover, Alkaram has also competitive rim over its cost in operations and management of resources, which is seemingly visible in its low priced products although quality remained as good as any other competitor in textile industry. Thus, Alkaram’s current strategy comes under product differentiation targeted to narrow consumer base along with cost competent standing. However, this cost efficiency makes it low cost leader in the focused differentiation quadrant, eventually giving it cost competitive edge in textile production and retailing industry. Pros of Focused Differentiation  Possibility of gaining higher market share in chosen segments by offering a diversified bunch of products  Allows specialization in the chosen segments  Allows streamlining of costs  Increased credibility among opinion leaders (designers)


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EFE MATRIX CRITICAL SUCCESS FACTORS OPPORTUNITIES Pak has 16.98 million population with a growth rate of 2.69% including more than 65% women Implementation of the textile education and fruitful policies by government over the last decade. Prospect of export of readymade garment and menswear segment being it untapped. Cheap labor and domestic raw material available Growing popularity of knitting industry in all over the world More participation in international clothing exhibitions like Hetrimax etc. THREATS Production cost of textile mills has risen due to the increasing interest rate Low R&D in the cotton sector resulted in low quality of cotton in comparison to rest of Asia Tough competition from India, China in value-added textiles & garments products especially in export market. Due to load-shedding, textile production capacity of various sub-sectors has been reduced by more than 30% annually. Intense seasonal demand variability in the market with changing customer preferences TOTAL

WEIGHT RATING WEIGHTED SCORE

0.07

3

0.21

0.05

1

0.05

0.15

4

0.60

0.10 0.06

3 2

0.30 0.12

0.15

2

0.30

0.02

2

0.04

0.07

3

0.21

0.13

4

0.52

0.08

3

0.24

0.12

3

0.36

1

2.95

The EFE score is 2.95 which is a little above average score, indicates that Alkaram isn’t taking full edged advantage of its opportunities and not minimizing the threats in an efficient manner. It is just doing it in an average way. However, Alkaram can increase its revenue and market share by utilizing the opportunities and minimizing the threats. It can take advantage of the growing market share, growing population, can acquire local companies and can do expansion into other areas. On the other hand, it can minimize the threats such as the counterfeiting of medicines and can increase its revenues.


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CPM MATRIX

Critical Success Factors

Weight

Rating

Weighted Score

Rating

Weighted Score

Rating

Weighted Score

Rating

Weighted Score

Advertising R&D Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share E-Commerce

0.10 0.03 0.15 0.05

3 1 3 4

0.30 0.03 0.45 0.20

2 2 3 2

0.20 0.06 0.45 0.10

4 2 3 2

0.40 0.06 0.45 0.10

1 3 2 2

0.10 0.09 0.30 0.10

0.02 0.15

2 3

0.04 0.45

2 3

0.04 0.45

1 3

0.02 0.45

2 4

0.04 0.60

0.10

3

0.30

4

0.40

2

0.20

2

0.20

0.12

2

0.24

1

0.12

2

0.24

3

0.36

0.20 0.08 1

3 4

0.60 0.32 2.93

4 2

0.80 0.16 3.14

2 3

0.40 0.24 2.56

1 1

0.20 0.08 2.88

ANALYSIS: Alkaram textile is dominating in industry over many local competitors including Nishat textile limited and lucky textile mills, however followed by Gulahmed in the textile industry in terms of overall rating indicated by the competitive matrix, by securing 2.93 weighted score. Thus CPM score shows aggressiveness of Alkaram in this industry over most of its competitors.

Moreover, Alkaram has highest price competitiveness over all its rivals along with good promotional tactics. Also, its online commerce is also its best feature all over the industry, supported by convincing customer loyalty and compelling market share capturing. Furthermore, Alkaram has also pretty strong standing in the financial position in the textile industry along with fine product quality giving an edge over its competitors. However, the main factors where it lacks to gain competitive perimeter includes: low investment in research and development as well as technological up gradation, little less efforts in global expansion and also disgruntled management system because of undeniably influencing Seth culture with the unit.


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INTERNAL ANALYSIS


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VALUE CHAIN

SUPPORT ACTIVITIES: Firm Infrastructure Al-Karam is constructed area of over one million square feet; Al-Karam has the capacity to fulfill small, medium and large scale orders. It has warehouses for 10 different categories (including dyes warehouse, chemical warehouse, stitching warehouse, lubricants warehouse). Al-Karam ensures safety for its workers and provides employees with safe and healthy workplace in compliance with all applicable laws and regulations, ensuring fire safety, adequate lighting and ventilation. For ensuring fire safety, Al-Karam has fully equipped fire fighting department with fire alarms and extinguishers installed in every single room. There’s also an extension in processing unit in order to raise the efficiency of processing department. Human Resource Management Al-Karam ensures to pay workers compensation required by law and provides all legally mandated benefits to encourage worker creativity and productivity. Al-Karam beliefs in: Respect to Human, transparency and teamwork. At al- Karam, there’s highly experienced, qualified and professional staff (which includes FCAs, CAs). The head of the department also appoints a mentor for the new hires who gives orientation and class room training to the new ones


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Technology Al-Karam invests a lot in technology that allows al-karam to consistently produce highly differentiated products. Alkaram creative center is equipped with state of the art designing and sampling equipment. The management of Al-Karam follows the policy of re-investing in technology. It is expanding its state-of-the-are production process unit. Al-Karam Textiles have imported the latest machinery from Europe. Their machinery comprises of equipment used in spinning and weaving. They use the latest type of loom, called the shuttle-fewer looms in their operations which is the latest technology and which is capable of producing a very high thread count rate, in the range of 100 threads per sq inch (the normal is 30-40). Therefore, their products are capable of meeting international standards of weaving, dyeing and printing, for example using dyes that do not irritate the skin. This is being done to get a competitive edge over rival firms so that when the WTO promulgates free economy in the whole world, Al-Karam will have no problem in competing with international competitors. Al-Karam has a policy of continuously upgrading its machines to remain among the most modern and efficient textile mills in the country. Procurement As Al-Karam is an ISO Certified company so it relies on the best and high quality raw materials in order to meet the expectations of its buyers (including Walmart, IKEA) and to maintain its standard. Al-Karam also emphasizes on purchasing high quality replacement parts for its state-of-the-art machinery. PRIMARY ACTIVITIES: Inbound Logistics Al-Karam has alliances with best suppliers of raw materials in order to maintain the standard and quality of its products. Al-Karam has preservation system for the handling of raw materials in order to minimize the damage and for maintaining the quality of the products. Operations Al-Karam ensures that its products never stay far from its goal. From the first step of operations, the creation of fibers via spinning, down to the last, of stitching the finished fabric, products are constantly checked to ensure they end up exactly how Al-Karam’s customers want them. Each step is carefully planned. Al-Karam has a fully integrated services facility that uses the latest technology across all parts of the products' voyage. AlKaram allows its customers to get the products according to their requirement. Outbound Logistics Al-Karam has responsive order processing procedures. It ensures deliveries of products to its customers on time and rapidly. It has warehouses for 10 different categories (including dyes warehouse, chemical warehouse, stitching warehouse, lubricants warehouse). AlKaram has its own different retail outlets namely Alkaram studio, Baby shop. It has outlets in different cities of Pakistan. There are 2 outlets in Islamabad, 5 in Lahore, Karachi has 3 outlets and in Faisalabad, they are planning to open an outlet very soon.


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Marketing and Sales Al-Karam takes part in international exhibitions where Al-Karam places its stall to attract customers from different countries. e.g. Heimtex is a very famous international exhibition for textiles .This exhibition took place every year and Al-Karam sent a representative or marketing managers and some other personnel to manage their stall in the exhibitions and show the products properly. It is a culture in export marketing/sales department of AlKaram that every salesperson or merchandiser must dress up formally. Because they do meetings with managers from other organizations (for example Supplier, buyer, middlemen etc). So the dressing of sales person gives impression about the company especially in B2B selling. In case of home textile exports of Al-Karam, the sales person uses target market techniques for different buyers. For example IKEA and WAL-MART are its two big customers; they present different products according to the needs of each of them. If a specific buyer demands development of new product and gives specifications and design for the product, the sales person communicates it to the company and then the procedure of development for the new product is followed. The marketing/sales department of AlKaram is working with merchandisers who perform the sales function. The company has its own sales force that is involved in the selling function. The company didn’t out source its selling function. Al-Karam textiles have divided the export marketing department into different markets as per countries or buyers to which it caters. The number of senior and junior merchandisers is assigned to each market according to the size of market. And the sales team in each market will use strategies according to the needs of its specific customers. Service Al-Karam is committed to provide a safe and healthy environment for its employees, customers and visitors. Al-Karam invests in educating rural and urban communities.


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CORE COMPETENCY OF ALKARAM A core competence is the result of a specific unique set of skills or production techniques that deliver value to the customer. Such competencies empower an organization to access a wide variety of markets. Executives should estimate the future challenges and opportunities of the business in order to stay on top of the game in varying situations. . A core competence should be "competitively unique". Home Textiles Products and Fashion Garments Home Textiles products market is very vast and it has lot of players in it. Al-Karam mainly exports all of its home textile products to different countries. As the exports of home textiles is flourishing from past few years. So the company is gaining advantage by acquiring new customers from different markets and the main players of home textiles in Karachi are YTM, Al-ABID etc. Al-Karam is making following home textile articles: • Kitchen wear • Windows • Bed linen • Jersey Knits for home textiles • Bed in a bag • Room in a bag The annual sale of Home Textiles (exports) by A-Karam is about $100 million. And the following table shows the share of different markets of Al-Karam: COUNTRIES Spain Germany U.K France U.S.A Sweden Others

TURNOVER (%) 2 4 2 8 35 40 9

Yard Dyed Home Textiles Al-Karam Textile Mills is the largest yarn dyed manufacturer in Pakistan. There are only few manufacturers of yarn dyed in Pakistan. Al-Karam Textile Mills export high quality yarn dyed home textiles like curtains, kitchen linen. Yarn Dyeing Capabilities: - Capacity of 18 tons per day. - All machines are air-packed. - One-time dyeing capacity ranges from 2 lbs - 4000 lbs Branded Customers Al-Karam Textile Mills’ sales are largely based on exports. Its sales accounted for 85%-90% of exports. Al-Karam Textile Mills have got branded customers namely IKEA, Wal-Mart, Tommy Hilfiger, Calvin Klein, Ralph Lauren etc. Al-Karam also provides its customers with complete in-house design solutions .Al-Karam’s creative center is equipped with state of the art designing and sampling equipment and skilled textile artists. IoBM STRATEGIC MANAGEMENT 31 | Page


One Floor Operations Al-Karam Textile Mills has got one floor operations. Its operation process includes from spinning, weaving, yarn dyeing, wet processing/finishing, cuttting and stitching to retail and distribution. The cotton enters the mill as raw material and it gets out of the mill as a product like bed linen, fashion apparel etc. More than 10,000 labor force Al-Karam Textiles employs about 10,000 workers, who work in three shifts of eight hours each throughout the day. They are very motivated because they are paid better than other people in textile mills, and they like the atmosphere of working at Al-Karam. There is alabor union in AlKaram Textiles, but relationships between the union and the management is amicable and not acrimonious. The best indication of the amicable relationship is that that there has been not a single strike at Al-Karma Textiles since its inception.

STRATEGIC COST PROCESS MANAGEMENT • Oracle Financial ERP Business Suite 12i Al-Karam Textile Mills has updated its cost management system. According to Mr. Shahzad Ali Sayed, Al-Karam Textile Mills have adopted Oracle financial ERP business suite 12i. This required extensive off shoring to their key users. It is an integrated financial accounting system in which everything is incorporated from top to bottom. This is the most sophisticated and latest system and it is perfect for manufacturing companies.

FINANCIAL RATIO TRENDS Mr. Aijaz Hussain, Manager Accounts of Al-Karam Textile Mills and Mr. Attique-ur-Rehman, Manager Internal Audit did not disclose much information regarding financial position of company as Al-Karam Textile Mills is a private limited company and the financial results are not available for general public. But, Mr. Attique-ur-Rehman gave an overview of AlKaram Textile Mills’ financial position. According to Mr. Attique-ur-Rehman, Al-Karam Textile Mills grow by 10%-15% per year, sales turnover is around 35%-40%. Al-karam seems to be in a better financial standing as compare to its efficiency. The company has alower turnover ratio for both, the assets and the inventory showing high amount of sales and effectiveness. Al-Karam has been rising in its profitability continuously, showing improvementsin return on net worth and return on total assets. The company is funded both by debt and equity.


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IFE MATRIX CRITICAL SUCCESS FACTORS

WEIGHT

RATING

WT. SCORE

State-of-the-art equipment Strong brand awareness in target market Diversified product portfolio with Home textile products and fashion garments More than 10000 labor force of young & energetic work force plus efficient designers ISO certification for Alkaram products and processes Self-owned power generation system Strategic partnership with designers like Umer Saeed to bring ready to wear garments segment within the existing women lawn portfolio Yarn dyed home textiles (there’re very few manufacturers of Yard dyed home textiles in Pakistan) One floor operation (when cotton enters as raw materials and it exits from the mill as bed linen, fashion apparel etc) Branded customers like IKEA, Wal-Mart 85%-90% sales comes from export

0.08 0.15 0.10

2 3 4

0.16 0.45 0.40

0.07

1

0.07

0.10 0.03 0.05

2 2 4

0.20 0.06 0.20

0.05

3

0.15

0.03

2

0.06

0.10

4

0.40

0.10 0.05 0.03 0.04

2 1 2 4

0.20 0.05 0.06 0.20

STRENGTHS

WEAKNESSES

Weak R&D facilities Lack of HR training & development Weak Information Systems ‘Seth’ culture resulting in discouraging of the mere accountability in compensation processes. Transit time is much more as compared to foreign competitor High reliance on international market for profitability

0.03

3

0.09

0.04

3

0.12

TOTAL

1

2.29

The IFE score of Alkaram is 2.29 which show that it is utilizing its strengths and reducing its weaknesses in a sub-standard way. However, it should capitalize on its strength of efficient field force and utilize the strong R&D to increase its market share and revenues. Alkaram can also utilize its alliances with well known designers to increase its revenues. Moreover, the rate of R&D at Alkaram is very low. Mostly, the sales are coming from its old brand names. Therefore, it should do new product launches to increase its market share. Alkaram has recently acquired strategic partnership with Umar Saeed, and is launching ready to wear garment segment in few months by mid summers, which is rather a good sign. Also, it should increase its marketing activities locally as well as create more customer awareness through e-commerce in export business. The turnover rate needs to be reduced at Alkaram. IoBM STRATEGIC MANAGEMENT

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STRATEGIC ANALYSIS & CHOICE


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GRAND STRATEGY MATRIX

INTERPRETATION The grand matrix of ALKARAM falls in the 4th quadrant. This mix proposes the following strategies to be undertake by Alkaram: Market Development: It can improve on its market share by targeting areas that were not targeted previously e.g. children or menswear or ready to wear segment. Market Penetration: It can focus on seasonal products only to penetrate more into the consumer market e.g targeting gigantic retail outlets more shelf space. Also they can grab more of local market through good advertising. Plus export market is needed to be captured more through customer awareness by efficient use of online catalogue and more work into e-commerce. Backward Integration: they can acquire yarn manufacturing houses with good quality thread production to counter fluctuating cotton cropping & gain more control on suppliers. Forward Integration: more retail stores can also be built within the city in crowded areas as well as all around the Pakistan by extending to major cities like Lahore, Faisalabad, and Peshawar.


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SPACE MATRIX INTERNAL STRATEGIC POSITION

EXTERNAL STRATEGIC POSITION

Financial Strength

Environmental Stability

Return on Investment

3

Rate of inflation

-4

Leverage Liquidity Cash flow

2 2 4

Demand variability Barriers to entry Competitive pressures

-6 -4 -5

Inventory turnover

4

Ease of exit from Market

-3

Gross profit

5

Price range of competing products Price elasticity of demand

-3

Average Score

3.33

Competitive Advantage

Average Score

-1 -3.71

Industry Strength

Market share

-2

Growth potential

6

Product quality Customer loyalty

-1 -2

Profit potential Financial stability

4 5

Product life cycle

-2

Resource utilization

3

Control over suppliers

-1

Ease of entry into market

2

Average Score

-1.6

Y - Axis:

Financial Strength Environmental Stability TOTAL

Average Score

4.0

X - Axis:

3.33 -3.71 -0.38


Competitive Advantage Industry Strength TOTAL

-1.6 4.02 2.40

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Analysis: Alkaram falls at (+2.4,-0.8) points in the above template which indicates that it has pretty good competitive advantages in a moderately growing industry. Thus, following are the strategies to be pursued by Alkaram textiles; Backward Integration : Alkaram textiles mills may acquire cotton crop farms to have its own high quality cotton buds production and picking. Moreover it may have its thread/yarn manufacturing houses. Market Penetration: It can improve on its consumer market share by reaching consumers moreover through e-commerce by providing online catalogue marketing to its targeted customers; and also improving on their existing exporting services through more product awareness at international scale. Market Development: They can target new local markets in the menswear segment since there’s less competition and foreseen projected incline in de mand in this segment. It may also reach to unexploited international consumer markets like Far East & Europe areas in order to increase their market share. Product Development : It can develop menswear product segment such as men’s seasonal clothing etc. to capture their untapped market.


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TOWS MATRIX STRENGTHS (S) 1. State-of-the-art equipment 2. Strong brand awareness in target market 3. Diversified product portfolio with low competitive prices than rivals 4. Young, highly motivated and energetic work force plus efficient designers 5. ISO certification for products & processes 6. Self-owned power generation system 7. Strategic partnership with well-known designers to bring seasonal garments within its existing women product line 8. Branded customers like IKEA, Wal-Mart 85%-90% sales comes from export market 9. One floor operation 10. Yarn dyed home textiles

WEAKNESSES (W)

Weak R&D facilities Lack of HR training & development Weak Information Systems ‘‘Seth’ culture resulting in discouraging of the mere accountability in compensation processes. 5. Transit time is more as compared to foreign competitor 6. High reliance on international market for profitability 1. 2. 3. 4.

OPPORTUNITIES (O)

1. Pak has 16.98 million population with a growth rate of 2.69% including more than 65% women 2. Implementation of the textile education and fruitful policies by government over the last decade. 3. Prospect of export of readymade garment and menswear segment being it untapped. 4. Cheap labor and domestically available raw material resources 5. Growing popularity of knitting industry all over the world participation in international 6. More clothing exhibitions like Hetrimax etc to bring in customer awareness abroad.


1. 2. 3.

4.

5.

THREATS (T) Production cost of textile mills has risen due to increasing interest rate Low R&D in cotton sector resulted in low quality of cotton than rest of Asia Tough competition from India, China in value-added textiles and garments products especially in export market. Due to high load-shedding, textile production capacity of various subsectors has been reduced by more than 30% annually. Intense seasonal demand variability in the market with changing customer preferences

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







S-O STRATEGIES Leverage the opportunity existing due to increasing population by adding the category for men’s wear (S3, S5,O1)

Promotional activities to attract more branded customers in export market in order to increase market share of ecommerce through participation in international clothing exhibitions held worldwide. (S8, O6) Introduce ready to wear garment for the existing potential female clientele base through strategic partnership with well know designers. (S5, S7, O1,O3)

S-T STRATEGIES There is projected decline in profitability due to low price set than competitors for similar products, coupled with inclining production cost as result of inflation & operation cost ad-ons. (S3,T1,T4)

W-0 STRATEGIES 



More investment in R&D leading to new & differentiated design patterns, not already existing in market, to gain competitive advantage over competitors in response to continuously changing customer preferences (W1,O1,O2) To step into more constructive & participative culture to gain advantage of cheap and abundant supply of Pakistani labor by turning seth management system into organized & equitable environment resulting in increased employee productivity. (W4, O4)

W-T STRATEGIES




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INTERNAL EXTERNAL MATRIX IFE total weighted score = 2.29 EFE total weighted score = 2.95

Analysis:

Alkaram falls under quadrant 5, keeping in mind total weighted scores of both IFE and EFE matrices, which indicates Hold and Maintain Strategies to be followed in the best interest of its future growth. Thus, under this following approach is best for alkaram to pursue; Market Penetration: It can improve on its consumer market share by reaching consumers moreover through e-commerce by providing online catalogue marketing to its targeted customers; and also improving on their existing exporting services through more product awareness at international scale. Product Development : It can develop menswear product segment such as men’s seasonal clothing etc. to capture their untapped market.


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BCG MATRIX

Alkaram is positioned in quadrant III that is called cash cow, which represents having relatively good market share standing but competing in low growth industry. It enjoys a soaring relative market share due to its unique product designs available at competitively low price but widely distributed at all retail outlets. Furthermore, the industry is unfortunately suffering from the slow growth rate because of high demand variability and fast changes in product life cycle, hence making it little less attractive for the industry. Falling in the cash cow quadrant, the strategies that could be adopted are as follows:    

Product development Diversification Retrenchment divestiture

Among these, being a strong cash cow, alkaram should go for the following tactic; Product development: by bringing in menswear segment for local customers or may be by using strategic partnership with designers like umer saeed it can introduce ready to wear garments for existing potential female customers. Diversification: alkaram can enter into curtain and bedcover manufacturing; it can also step into customize tailoring based on customer choice or consumer ad-ons.


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STRATEGIC DECISION & RECOMMENDATION


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MATRIX ANALYSIS AND SUMMARY ALTERNATIVE STRATEGIES

GRAND

COUNT

Forward Integration

X

1

Backward Integration

X

1

Horizontal Integration

X

1

X

X

3

X

X

2

X

4

Market Penetration

IE

X

Market Development Product Development

X

Concentric Diversification

SPACE

X

BCG

X

X

Conglomerate Diversification Horizontal Diversification

1 0

X

X

Joint Venture

0

Retrenchment Divestiture

2

X

Liquidation

X

2

X

2 0

Thus, above analysis of all the matrices indication the following two strategies to be pursued for quantitative strategic planning matrix in order to extract best strategy under strategic decision of Alkaram textile mills; Product development: by bringing in menswear segment for local customers or may be by using strategic partnership with designers like Umer saeed, Deepak Perwani or Asim jofa etc, it can introduce ready to wear garments for existing potential female customers. Market Penetration: It can focus on seasonal products only to penetrate more into the consumer market for instance, targeting gigantic retail outlets more shelf space. Also they can grab more of local market through good advertising. Plus export market is needed to be captured more through customer awareness by efficient use of online catalogue and more work into e-commerce.


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QSPM STRATEGIC ALTERNATIVES CRITICAL SUCCESS FACTORS

WEIGHT

STRENGTHS

Market Penetration

Product Development

AS

TAS

AS

TAS

State-of-the-art equipment

0.08

----

----

----

----

Strong brand awareness in target market

0.15

4

0.60

3

0.45

Diversified product portfolio with Home textile products and fashion garments More than 10000 labor force of young & energetic work force plus efficient designers ISO certification for products & processes Self-owned power generation system Strategic partnership with designers like Umer Saeed to bring ready to wear garments segment within the existing women lawn portfolio Yarn dyed home textiles

0.10

3

0.30

4

0.40

0.07

2

0.14

2

0.14

0.10 0.03 0.05

2 1 3

0.20

0.30

0.15

3 2 4

0.05

----

----

----

----

0.03 0.10

---3

---0.30

---2

---0.20

Weak R&D facilities

0.10

2

0.20

4

0.40

Lack of HR training & development Weak Information Systems

0.05 0.03

-------

-------

-------

-------

‘Seth’ culture resulting in discouraging of the mere accountability in compensation processes. Transit time more than foreign competitor

0.05

----

----

----

----

0.08

2

0.16

3

0.24

High reliance on international market profit

0.07

3

0.21

2

0.14

SUBTOTAL

1.00

One floor operation Branded customers like IKEA, Wal-Mart 85%90% sales comes from export market

0.20

WEAKNESSES

CRITICAL SUCCESS FACTORS

WEIGHT

OPPORTUNITIES

2.26

Market Penetration

2.47

Product Development

AS

TAS

AS

TAS

Pak has 16.98 million population with a growth rate of 2.69% including more than 65% women Implementation of the textile education & fruitful policies by government over the last decade.

0.07

4

0.28

4

0.28

0.05

----

----

----

----

Prospect of export of readymade garment and menswear segment being it untapped.

0.15

2

0.30

4

0.60


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Cheap labor & domestic raw material available

0.10

----

----

----

----

Growing popularity of knitting industry

0.06

----

----

----

----

More participation in international clothing exhibitions like Hetrimax etc.

0.15

3

0.45

1

0.15

Production cost of textile mills has risen due to the increasing interest rate Low R&D in the cotton sector resulted in low quality of cotton in comparison to rest of Asia

0.02

----

----

----

----

0.07

1

0.07

2

0.14

Tough competition from India, China in valueadded textiles and garments products especially in export market. Due to load-shedding, textile production capacity of various sub-sectors has been reduced by more than 30% annually. Intense seasonal demand variability in the market with changing customer preferences

0.13

3

0.39

3

0.39

0.08

----

----

----

----

0.12

----

----

----

----

SUB TOTAL

1.00

THREATS

TOTAL SCORES

1.49

1.56

3.75

4.03

Analysis: Strategy 1 - market penetration (Targeting export markets through using e-commerce, by promotion of e-catalogue locally as well as internationally) Strategy 2 - product development (alkaram may have strategic partnership with well known designers to step into ready to wear garments)

Hence, the two strategies i.e. Market Penetration and Product Development are evaluated through QSPM matrix. The total attractiveness scores of Market Penetration and Product Development are 4.95 and 4.55 respectively. Since 3.75<4.03 therefore, product development would be the most suitable strategy for Alkaram. Thus, with strong finances and equity Alkaram can acquire local companies, and with strong R&D & qualified designers and professionals it can do product development. This strategy is already been started by creating strategic partnership with Umer Saeed a well known designer and Alkaram is now going to introduce ready to wear garment from coming summer for the existing potential female clientele base.


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STATEGIC IMPLEMENTATION


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STRATEGIC LEADERSHIP MODEL FOR AL-KARAM TEXTILE MILLS RESOURCES

STRUCTURE

CULTURE

production

Al-Karam has a separate division for strategic planning

Al-Karam encourages training & learning for its technical staff

It has sophisticated process management system Oracle ERP Highly motivated and young workforce of 10,000 people

It has a divisional structure with an HOD of every division

It recognizes & respects right of workers to exercise lawful rights of free association. It considers opinions of its employees and take consensus on different issues

State-of-the-art plants

The goals of organization are communicated clearly across the organization

Enhancing production capacity in order to take more orders Own retail outlets in different cities of Pakistan

THE FOUR HURDLES TO STRATEGY IMPLEMENTATION Resource Hurdles Al-Karam is a company of around 10,000 workers & around 2,500 staff, it is growing 1015% every year, sales turnover is around 35-40%, it has skilled labor. However, it faces no such hurdle in strategy implementation & manages assets without problem in allocation. Cognitive Hurdles Al-Karam considers its employees as an important part of the company. Everyone in the company knows about organizational goals. Al-Karam also encourages cross-functional teams to get the feedback from employees and to educate them about the strategy of the company. So, there’s no cognitive hurdle when it comes to strategy implementation. Motivational Hurdles Alkaram focuses on keeping highly qualified, young and talented workforce. It ensures safe & healthy workplace for its employees in compliance with all applicable laws and regulations, ensuring fire safety, adequate lighting and ventilation. It also provides incentives, bonuses, health insurance to its employees which shows importance which it gives in keeping employees motivated. It also provides technical training program for technical staff when new machine enters Alkaram. The technical staff goes to that country from where it has imported that machinery. Training programs along with reward programs support it in strategy implementation. As result, there’s no dis-motivation. Political Hurdles Political instability badly hampers the production process in form of deteriorating law & order situation, resulting in frequent strikes & ultimately closure of businesses which causes huge loss per day. In addition to it, inflation is rising which has resulted in high cost of production & lesser profit margins. It is effectively handling these political hurdles, but these hurdles are out of their control which causes problems in implementation of strategy.


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BALANCED BUSINESS SCORECARD Framework for balanced business scorecard:

Matrix for Balanced Business Scorecard: Financial perspective: As AlKaram is not a listed company, its financial objective does not include maximizing share price for shareholders. However, it does owe profits to its stakeholders to keep them positively engaged in the company. Knowing the increasing number of competitors coming in each year, it is extremely important for AlKaram to relate its value to the customers to keep them brand loyal. This would help them in increasing revenues. On the other hand, frequently motivating and compensating employees to make them feel obliged to be productive for the firm could control costs. Customer perspective: Retaining customers is a highly difficult task especially in such a competitive industry where switching costs aren’t too high. The buying power to customers is high because there are so many other alternatives for them. To keep customers loyal to you, giving them pre & post service is also necessary because this would make them feel important. AlKaram could come up with a huge design magazine to attract customers before launch. However, during the launch designers could be available at outlets to give an idea of how a dress could be stitched. Customers may be provided with several designs to choose from. Once the sale has been done, AlKaram can make them fill a comment card, contact them asking about their service and if the product was suitable to their requirement. Also, to come up with innovative products that are customer oriented keep customers glued to firm. Internal perspective: It is really necessary for a firm to be strong internally in order to keep a strong image externally. It’s a fact that if firm’s employees aren’t happy, their customers won’t be happy either because bad image spreads like wildfire. Therefore, it is important for the operations to be well equipped, relations to be strong, continuous growth to exist and a well-built image in the society. Learning & Development perspective: Whether an employee has been working since long or is newly recruited, building their competencies is essential because these are crucial to organizations. They are paid for their area of specialization and they are ought to be polished accordingly. This would even help the organization to retain them easily. The firm should basically promote a building culture along with teamwork in order to let other employees fill in the weaknesses of their


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colleagues. Also, this would help in sharing knowledge, expertise and advices amongst employees which would help a few less productive ones improve themselves.

DIAGNOSTIC SURVEY OF PRIMARY & SECONDARY MANAGEMENT PRACTICES STRATEGY

Inferior

Average

1

3

It has clearly articulated & widely understood strategy It has strong external antennae & quickly anticipates external shocks, emerging opportunities & downturns. It has very good understanding of its competitors & can anticipate competitors’ moves. It is focused on extending/improving its core business & is committed to growing them aggressively. Subtotal of Strategy score:

EXECUTION Its products consistently meet customer expectations It consistently improves employee productivity. Its programs/initiatives always get desired outcomes. Its IT systems enhance ability to execute value prop. Subtotal of Execution score:

CULTURE It sets demanding performance standards for all its employees. The company consistently raises performance bar. The company’s culture is exciting, engaging, and fun It has clear values that people in the company abide by. Subtotal of Culture score:

ORGANIZATIONAL STRUCTURE


4

5

X X X X 11

Inferior

Average

1

3

2

4

Superior 5

X X X X 8

Inferior

Average

1

3

2

4

Superior 5

X X X X 6

Inferior 1

The company makes decisions quickly. The company minimizes bureaucracy. The company’s business processes are simple. Company effectively cooperates across organization.

2

Superior

2

Average 3

4

Superior 5

X X X X

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Subtotal of organizational structure score:

TALENT It has great talent & bench strength at each position The company successfully develops talent. It design jobs to intrigue / challenge talented employees The company’s senior management is personally involved in recruiting and developing talent. Subtotal of talent score:

MERGERS & ACQUISITIONS

9

Inferior

Average

1

3

5

X X X 6

Inferior

Company consistently identifies good M&A possibilities Company rarely overpays for mergers & acquisitions. The company is consistently better than its competitors at integrating mergers and acquisitions. The company’s mergers and acquisitions achieve most of their projected cost and revenue benefits. Subtotal of M&A score:

It is continually transforming or reshaping its industry It’s products/devices/innovations are better than rivals It doesn’t hesitate to cannibalize its existing business(s) People with new-ideas are respected & enjoy high status Subtotal of Innovation score: TOTAL SCORE:

4

X

1

INNOVATION CAPABILITY

2

Superior

2

Average 3

4

Superior 5

X X X X 10

Inferior

Average

1

3

2

4

Superior 5

X X X X 13 63

INTERPRTATION:

The above result indicates that Alkaram is performing well in some areas but it is behind it competitors when it comes to innovation and research. This needs to be improved, through deeper penetration in the existing consumer market. Another area where they are lacking is their culture. The current Seth culture does not promote modernization and also it suffocating new ideas and breakthrough thinking which is basic required for growth and stability. Thus, upgrading need to be introduced in the culture, to motivate the employees to perform efficiently.


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ALKARAM IN BLUE OCEAN STRATEGY


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Companies for ages have been engaged in head-to-head competition to have sustained, profitable growth by for competitive advantage, highest market share, and above all for differentiation. Yet in today’s overcrowded industries going head on head with competitor and resulting in Red Ocean”, a strategy which is increasingly unlikely to crea te profitable growth in future. By creating “blue oceans” of uncontested market, company can ripe growth by “value innovation” that is increase value for both the firm and its buyers, making rivals obsolete and creating new demand. Blue ocean strategy is all about making the competition irrelevant and creating uncontested market by creating value & demand break value and cost trade off. Blue Ocean Strategy charts a bold new path to winning the future by turning over traditional thinking. Following are the six principles that every company has to work on successfully to formulate and execute blue ocean strategies. o

o

o

o o o

Reconstruct market boundaries:- Alkaram needs to look around for and define new markets that have potential gaps to enter, grow and earn profits. When doing so they cannot they cannot dissatisfy their current customer market so they have to trade them along by keeping view of the benefits that keep them stick to alkaram. AlKaram also required to continuously improve against the potential competitors Focus on the big picture:- Alkaram has to keep a broader picture in mind and analyze thoroughly what is best for them. They should first analyze the structural conditions in which its operating, its resources and capabilities and its strategic mindset. Reach beyond existing demand:- Alkaram should be well assured before implementing blue oceans that it should lead it to higher demand and better profits. Get the strategic sequence right:- implement steps efficiently Overcome organizational hurdles:- It should solve all its internal issues first Build execution into strategy:- alkaram needs to formulate strategy which aligns with its competencies and capabilities.

In order to do so Alkaram textiles needs to do a thorough internal and external analysis, look into the environment its currently operating in and also evaluate its current strategy. Implementation of Blue Ocean Strategy in Alkaram should deliver:Value proposition: This is the most important aspect for implementation of blue ocean strategy. It suggests that the buyer benefit should be the first priority. Thus the value should be strategically priced. Currently people are delivered value by Al karam by getting good quality fabric and colours by paying prices that are reasonable and lower than some competitiors. Profit proposition: Strategic price minus desired profits is target cost. Yet if the price does not meet the expectations of the customers, volume market cannot be created. However, if strategic price is used to set the sales price, this will attract more customers. Thus the fact that Al karam textiles charges comparatively lesser prices on good quality cloth cannot be overlooked. The state of art equipment that they use and further that they are importing helps them to lower the cost of production.


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SM FINAL REPORT.docx

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