LITERATURE

REVIEW

Review of Literature

"Strategy is the direction and scope of an organization over the long-term: which achieves advantage

for the organization through its configuration of resources within a challenging environment, to

meet the needs of markets and to fulfill stakeholder expectations".

Johnson and Scholes

Strategic Analysis

Strategy ImplementationStrategic Choice

i) A strategic vision is a roadmap of a company's future-providing specifics about

technology and customer focus, the geographic and product markets to be pursued, the

capabilities it plans to develop, and the kind of company that management is trying to

create.

ii) A company's mission statement is typically focused on its present business

scope-"who we are and what we do"; mission statements broadly describe an

organization's present capabilities, customer focus, activities, and business makeup.

iii) Strategic objectives relate to outcomes that strengthen an organization's overall

business position and competitive vitality; financial objectives relate to the financial

performance targets management has established for the organization to achieve.

Strategy making is fundamentally a market-driven and customer-driven entrepreneurial activity-the

essential qualities are a talent for capitalizing on emerging market opportunities and evolving

customer needs, a basis for innovation and creativity, an appetite for prudent risk taking, and a

strong sense of what needs to be done to grow and strengthen the business.

The match of external and internal developments dictate that a company's strategy change and

evolve over time-a condition that makes strategy making an ongoing process, not a one-time event.

A strategic plan consists of an organization's mission and future direction, near-term and long-

term performance targets, and strategy.

The faster a company's external and internal environment changes, the more frequently that its

short-run and long run strategic plans have to be revised and updated-annual changes may not be

adequate. In today's world strategy life cycles are growing shorter, not longer.

Strategy implementation concerns the managerial exercise of putting a freshly chosen strategy

into place. Strategy execution deals with the managerial exercise of supervising the ongoing pursuit

of strategy, making it work, improving the competence with which it is executed, and showing

measurable progress in achieving the targeted results.

Strategy execution is fundamentally an action-oriented, make-it-happen process-the key tasks are

developing competencies and capabilities, budgeting, policy making, motivating, culture-building,

and leadership.

A company's vision, objectives, strategy, and approach to implementation are never final; evaluating

performance, reviewing changes in the surrounding environment, and making adjustments are

normal and necessary parts of the strategic management process.

Strategic management is a tightly knit process; the boundaries between the five tasks are

conceptual, not fences that prevent some or all of them being done together.

Managers are not prepared to decide on a long-term direction or a strategy until they have a keen

understanding of the company's strategic situation-the exact nature of the industry and competitive

conditions it faces and how these conditions match up with its resources and capabilities.

An industry's economic features help frame the window of strategic approaches a company can

pursue.

A company's competitive strategy is increasingly effective the more it provides good defenses

against the five competitive forces, shifts competitive pressures in ways that favor the company, and

helps create sustainable competitive advantage.

Successful strategists seek to capitalize on what a company does best its expertise, resource

strengths, and strongest competitive capabilities.

Strategic cost analysis involves comparing how a company's unit costs stack up against the unit

costs of key competitors activity by activity, thereby pinpointing which internal activities are sources

of cost advantage or disadvantage.

A company's value chain identifies the primary activities that create value for customers and the

related support activities.

A company's cost competitiveness depends not only on the costs of internally performed

activities (its own value chain) but also on costs in the value chains of suppliers and forward channel

allies.

Benchmarking the costs of company activities against rivals provides hard evidence of a company's

cost competitiveness.

The challenge of competitive strategy-whether it be overall low-cost, broad differentiation, best-

cost, focused low-cost, or focused differentiation-is to create a competitive advantage for the firm.

Competitive advantage comes from positioning a firm in the marketplace so it has an edge in coping

with competitive forces and in attracting buyers.

To achieve a low-cost advantage, a company must become more skilled than rivals in controlling

structural and execution cost drivers and/or it must find innovative cost-saving ways to revamp its

value chain. Successful low-cost providers usually achieve their cost advantages by imaginatively and

persistently ferreting out cost savings throughout the value chain. They are good at finding ways to

drive costs out of their businesses.

Differentiation strategies seek to produce a competitive edge by incorporating attributes and

features into a company's product/service offering that rivals don't have. Anything a firm can do to

create buyer value represents a potential basis for differentiation. Successful differentiation is

usually keyed to lowering the buyer's cost of using the item, raising the performance the buyer gets,

or boosting a buyer's psychological satisfaction. To be sustainable, differentiation usually has to be

linked to unique internal expertise, core competencies, and resources that give company capabilities

its rivals can't easily match

Companies opt to expand outside their domestic market for any of four major reasons: to gain

access to new customers for their products or services, to achieve lower costs and become more

competitive on price, to leverage its core competencies, and to spread its business risk across a

wider market base. A company is an international or multinational competitor when it competes in

several foreign markets; it is a global competitor when it has or is pursuing a market presence in

virtually all of the world's major countries.

Building a strategy-supportive corporate culture is important to successful strategy execution

because it produces a work climate and organizational esprit de corps that thrive on meeting

performance targets and being part of a winning effort. An organization's culture emerges from why

and how it does things the way it does, the values and beliefs that senior managers espouse, the

ethical standards expected of organization members, the tone and philosophy underlying key

policies, and the traditions the organization maintains. Culture thus concerns the atmosphere and

feeling a company has and the style in which it gets things done.

Strategic Management Process

Input Stage:

Consists of the internal factor evaluation (IFE), external factor evaluation (EFE) and competitive

profile matrix (CPM) of the firm. Once the company is well aware of its strengths, weaknesses,

opportunities & threats, it has a fair idea of how to step in the external environment before its

Input Stage

Matching Stage

Decision Stage

competitors. Analyzing competitors and industries key success factors, gives a firm a spot light to

focus on certain areas to stand out and make its mark in the industry.

Matching Stage:

This stage is a phase in which a firms internal and external analysis makes full use of and

development of strategies takes place. TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix and Grand

Strategy Matrix are matrixes that help in formulating more strategies.

Decision Stage:

This is the last stage at which we have to decide among the many strategies extracted from the

above two stages and then are listed together, duplicates are deleted and then each strategy is given

its weightage and its ratings, together then comes out the decision as to which strategy is best to

implement.

Implementation:

90% of all air crashes take place during the landing period. Giving the demonstration of reality, that

when a firm formulates, extracts, and finally decides which strategy to go ahead with, it’s not that

phase which is most difficult, but the difficult and most challenging phase is How to implement the

chosen strategy in the prevailing situation.1

1 Fred David 12th edition, Strategic Management

Textile Industry in Pakistan, Facts and figures

The textile industry is one of the most important sectors of Pakistan. It contributes significantly to

the country’s GDP, exports as well as employment. It is, in fact, the backbone of the Pakistani

economy.

Established capacity

The textile industry of Pakistan has a total established spinning capacity of 1550 million kgs of yarn,

weaving capacity of 4368 million square meters of fabric and finishing capacity of 4000 million

square meters. The industry has a production capacity of 670 million units of garments, 400 million

units of knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units engaged in spinning. There

are around 124 large units that undertake weaving and 425 small units. There are around 20600

power looms in operation in the industry. The industry also houses around 10 large finishing units

and 625 small units. Pakistani textile industry has about 50 large and 2500 small garment

manufacturing units.

Moreover, it also houses around 600 knitwear-producing units and 400 towel-producing units.

Contribution to exports

According to recent figures, the Pakistan textile industry contributes more than 60% to the country’s

total exports, which amounts to around 5.2 billion US dollars. The industry contributes around 46%

to the total output produced in the country. In Asia, Pakistan is the 8th largest exporter of textile

products.

Contribution to GDP and employment

The contribution of this industry to the total GDP is 8.5%. It provides employment to 38% of the

work force in the country, which amounts to a figure of 15 million. However, the proportion of

skilled labor is very less as compared to that of unskilled labor. The World Textile and Apparel

industry is undergoing a tremendous era of changes characterized first by the rapid relocation of the

majority of productions out of western countries and secondly the increasing level of competition

among new supplying countries with China and India, expected to rapidly gain control over global

textile and apparel trade.

Post quota scenario has dramatically changed the global trade pattern. With the opening of world

markets and increased global competition, there is a new focus required for textile companies to

increase their success rate. The winning formula now is much more based on internal competences

and performance than on protected political and trade policies.

Many developing countries including Pakistan are highly dependent on textile and apparel export,

which accounts for a significant share of their total industrial goods export and hence export

earnings, creating a high degree of dependency on this sector.

In this context national governments of leading textile countries are constantly intervening playing a

relevant role in determining the overall competitiveness of their commodity textile industry through

various kinds of incentives.2

The Cabinet Committee on Textile has restricted yarn export to 50 million kg a month and

offered 2% rebate to yarn manufacturers for supplying their product to the local

downstream industry. The Committee had recommended that yarn export should not go

beyond 550 million kg against average export of 525 million kg over the last three years.

According to The Federal Secretary Ministry of Commerce, Zafar Mehmood, the government

had capped yarn export at 50 million kg a month, but the move was not in line with the WTO

regime and it should be considered temporary. He said yarn prices increased because of

shortage of cotton in the world market and our yarn export went unnecessarily high, first

local demand should be met.

According to Jawed Bilwani, Chairman Pakistan Apparel Forum Chairman, Pakistan is the

fourth largest cotton producer but is not listed among top apparel exporters. Bangladesh,

which does not produce cotton, exports apparel worth $13 billion while Pakistan’s apparel

exports are only worth $6 billion.

The Federal Secretary Ministry of Commerce, Zafar Mehmood, said the government was

doing a lot of diplomacy to win access to US and EU markets, but due to the World Trade

Organization (WTO) regime they had to go through the system. The EU and USA have agreed

to talk on free trade agreement with Pakistan.3

2 http://www.osec.ch/internet/osec/de/home/export/countries/pk/export/economic_report.-RelatedBoxSlot-98778-ItemList-97522-File.File.pdf/bb_Pakistan-Marktstudie-Textilindustrie2007_en.pdf3 http://www.ptj.com.pk/Web-2010/01-10/Textile-Briefs-National.htm

ABOUT

GUL AHMED

COMPANY PROFILE

Gul Ahmed is a brand synonymous with quality, innovation & reliability not just in Pakistan but all

over the world. The mill is a composite unit, making everything from cotton yarn to finished product

Manufacturing takes place in decentralized production unit, strictly focusing on specialization all

under one recognized & reputed name.

Gul Ahmed’s textile products represents a unique fusion of century old tradition of the east and the

latest textile technology of west, the purest of cotton fibers are spun, woven & processed into the

finest quality cotton & blended products, through a combination of cutting edge technology & highly

skilled craftsmanship. Products include bed linen, curtains, fabric and yarn. The company’s spinning

line specializes in medium to fine count cotton yarns & is also capable of producing wide variety of

synthetic fibers.

Gul Ahmed has introduced new fashion trends and dictated the style of the day with its classic yet

contemporary designs. In house designers are constantly striving to keep up with the latest fashions

and come-up with innovative designs that became fashion statements of the day.

MISSION AND VISION

VISION STATEMENT

“Setting Trends globally in the textile industry. Responsibly delivering products and services to its partners”

EVALUATION OF VISION STATEMENT

Gul Ahmed’s vision statement is quite vague in terms of scope as it does not outline the quality

parameters that they should set up and also where they ultimately want to go in the long run, it

covers only the global trends which they inspires to set up on the contrary the consumers sets up

the trends and companies follow it.

PROPOSED VISION

“To be a world class textile organization one that lead and serves as the benchmark for others”

MISSION STATEMENT

“To deliver value to its partners through innovative technology and teamwork. Fulfilling its social and environmental responsibilities”

EVALUATION OF MISSION

Customers

Products or Services X

Markets X

Technology

Concern for survival, growth and profitability X

Philosophy

Self concept X

Concern for public image

Concern for employees X

PROPOSED MISSION

“Our mission is to give our customers locally and internationally a competitive advantage through

superior textile products and services at best prices. We will meet and exceed our customers'

expectations of service through timely delivery and supreme quality. To achieve tangible benefits by

promoting efficiencies, productivity and professionalism we aim to provide competitive prices and

genuine products to our clients. We aim to use state of the art technology and best workforce

available to ensure the concern for our service to our clients, employees and effective use of the

natural resource available.”

Customers

Products or Services

Markets

Technology

Concern for survival, growth and profitability

Philosophy

Self concept

Concern for public image

Concern for employees

INDUSTRY

ANALYSIS

PORTER’s FIVE FORCES

THREAT OF NEW ENTRANTS YES

(+)~ NO

(–)1 Do large firms have a cost or performance advantage in your segment of

the industry?2 Are there any proprietary product differences in your industry?

3 Are there any established brand identities in your industry?

4 Do your customers incur any significant costs in switching suppliers?

5 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?

8 Does experience help you to continuously lower costs?

9 Does the newcomer have any problems in obtaining the necessary skilled people, materials or supplies?

10 Does your product or service have any proprietary features that give you lower costs?

11 Are there any licenses, insurance or qualifications that are difficulty to obtain?

12 Can the newcomer expect strong retaliation on entering the market?

LOW HIGH

INTERPRETATION

The threat of new entrants is relatively lower in the textile sector of Pakistan, as there are many

potential textile manufacturers in the country. The industry is growing at a satisfying rate and new

technology and skilled labor is putting life into the industry. Companies are providing new, up to

date products to their customers that meet international standards and the competition is very high.

In a country like Pakistan, where there is a problem of economic and political instability, there are

certain issues in setting up a mill or plant in the country. Government is providing incentives though,

but a huge amount of capital is required to setup the business.

BARGAINING POWER OF BUYERS YES

(+)~ NO

(–)

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 in-house?

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.

10 You provide incentives to the decision makers.

LOW HIGH

INTERPRETATION

Bargaining power of buyers is somewhat moderate for the industry. Manufacturers provide products

in bulk and on fixed price to their retail outlets, whole sellers etc. Prices of these products depend on

the cotton cultivation, government policies, and in a country like Pakistan, inflation and current

economic conditions are favoring this industry.

THREAT OF SUBSTITUTES YES

(+)~ NO

(–)

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.

LOW HIGH

INTERPRETATION

The threat of substitute is moderate; there is no such potential substitute available for this type of

products. The textile industry of Pakistan is diversified and is providing varieties in their products.

BARGAINING POWER OF SUPPLIERS YES

(+)~ NO

(–)1 My inputs (materials, labor, supplies, services, etc.) are standard rather

than unique or differentiated2 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.

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.

LOW HIGH

INTERPRETATION

The bargaining power of supplies is relatively low, as there are no unique input for the industry, and

Pakistan is an agricultural economy, so there are many potential suppliers available in the country.

RIVALRY AMONG EXISTING COMPETITORS YES

(+)~ NO

(–)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.

7 My customers would incur significant costs in switching to a competitor.

8 My product is complex and requires a detailed understanding on the part of my customer.

9 My competitors are all of approximately the same size as I am.

LOW HIGH

INTERPRETATION

Rivalry is very high in this industry which makes this industry a bit unfavorable. There are many

known competitors in the market. Textile manufacturers are providing products according to

international fashion industry and are competing on the basis of technology, designs, prices, quality

and availability.

OVERALL INDUSTRY ANALYSIS

OVERALL INDUSTRY RATING Favorable Moderate Un-favorable

Implications

Threat of new entrants 9 1 2Threat of new entrants is low Favorable

Bargaining power of buyers 5 - 5Bargaining power of buyers is LowModerate

Threat of substitutes 2 2 -Threat of substitutes is LowFavorable

Bargaining power of suppliers

3 2 2Bargaining power of suppliers is lowFavorable

Intensity of rivalry among competitors

2 - 6Intensity or rivalry is HighUnfavorable

Total 21 5 15 Favorable

PEST ANALYSIS

OVER ALL MACRO ECONOMIC PEST FACTORS

POLITICAL FACTORS

Following are some of the political factors:

Tax policy

Rebate

Quota

Industrial policy of Government in term of garments manufacturer

Subsidies from Government

Labor policy

Political situation

Law and order

All of these factors positively and negatively impact the textile industry depending on the situation

prevailing. Currently in Pakistan political situation is changing on a routine basis and government is

negatively impacting the industry, Government has made efforts to strengthen the sector by

providing subsidies on R&D but suspicion remains on the trenchancy. Currently the textile turmoil

prevailing is of cotton crisis. Pakistan is rich in cotton but government in this fiscal year has exported

a major chunk of cotton to china and now the industry is importing it back on higher prices.

Moreover, during the cold war that took place between Russia and America, Pakistan supported

America. This is the reason Russia is not willing to be our buyer even for less prices.

ECONOMIC FACTORS

No doubt that it is the period of recession and about almost the entire industrial sector got affected

from it and in this case declining period of textile sector is a natural phenomenon. Economic

scenario in Pakistan and all over the word has several affect on the textile sector

Following are some of the economic factors:

MINIMUM WAGE LAWS

Minimum wage is constantly increasing and all organizations are expected to abide by the rules laid

out by the Government. Previously the minimum wage was Rs.4000 and now the Government of

Pakistan has increased this amount to Rs.6000. This law has been implemented from July 2008

onwards.

INTERNATIONAL POLICIES

Due to international recession, the Government policies of US and European countries are

constantly becoming rigid towards the third world countries like Pakistan, India, Bangladesh and this

rigidity of policies causes the change in rate and tariff and increases it to several times.

PRICING OF RAW MATERIAL

Due to increased global demand of cotton, the production of cotton and other fibers is decreasing

and this in turn is constantly increasing the price of Cotton. The rising price of cotton has increased

the prices of Yarn too much.

SOCIAL FACTORS

Due to increase in education and technological sector, the buying power of the customers is

increasing at a speedy rate.

They are becoming aware about the brands and latest fashions. Due to this, they are

demanding high fashion at a low price in international market and so the fashion trends are

changing at a very fast pace.

Besides this, the population of youngsters in foreign countries is increasing day by day and

they are demanding latest trends at large quantity and styles. To achieve greater quantity,

they have to opt for latest machinery and skilled staff to produce more and more to fulfill

the demands of the international buyers.

People are becoming health conscious also and it’s necessary to focus on the welfare of the

employees by providing them a neat clean and a healthy environment to work in. It is also

mandatory for the company to educate and inform people living near the industrial areas

about the environment. They should keep the environment non hazardous.

TECHNOLOGICAL FACTORS

Technology is also a key sector in terms of external environment for garments industry. The

technology is working as a substitute for man power with more efficiency. The industrialist has a

solid point that it can save cost in terms of

Error reduction

Less labor cost In order to compete internationally the organization must have to depend

on new and advanced technology

PEST ON THREAT OF NEW ENTRANT

Though it is easy to enter in the textile business but to enter in the position of a vertical unit is very

difficult because of the huge amount of initial investment involved. At this point on time where the

world is in the phase of recession and there are very few buyers available, and already established

brands functioning, it is very difficult for a new entrant to earn their business. But on the shorter

scale as far as CMT (Cut Manufacture and Trims) unit are concerned it is far easier to compete

because of the low profit margins.

Also it is worth clarifying here the present economic turmoil in country makes it extra difficult for

new companies to work because of the duties and higher amount of utility burden involved. Also as

per IMF program Pakistan is bound to increase its tax structure and utility expenses which will

further aggravate the situation.

But the huge factor here is international competition. Countries like china, India, Bangladesh and

Srilanka are giving severe competition to Pakistani textile companies and are taking their business

away because of cheaper labor available there and also lesser utilities expenses as compared to

Pakistan which is a major threat to our textile industry.

Also the termination of the MFA (Multi fiber Agreement) and the entrance in the free quota regime

invites all companies all over the world to enter in the textile business.

LOW HIGH

PEST ON BARGAINING POWER OF BUYER

The global economic slowdown and the declining buying power makes buyer more conscious

towards prices and now they are competing for a single cent even. “Recently we had a conversation

with a Merchandiser in a textile company he said that we lose the business to US retail Gaint Gap to

Bangladesh just because of few cents”.

Buyers today particularly in textile business are demanding higher quality but they are not willing to

augment the price easily. We talked in various textile companies one merchandiser in Al-karam

textile says that the margins are reduced drastically as compared to what the margins they were

earning 10 years back.

LOW HIGH

PEST ON THREAT OF SUBSTITUTES

Threat of substitute in textile industry is pretty low in spite of the fact that there has been a lot of

research on alternative clothing like creped tissue paper sheets but they have not gain any

popularity and their implementation at mass scale is very difficult. There has been a shift in textile

industry as now more of plastic wire and tarpaulin is used instead of a weave but that segment as a

very low contribution in the overall textile sector.

LOW HIGH

PEST ON BARGAINIG POWER OF SUPPLIERS

Bargaining power of suppliers is not very high because of the fact that cotton is normally the raw

material that’s used more and the cotton growers and ginners cannot bargain much because of the

international pricing mechanism of commodity exchange. But the bargaining power of suppliers of

accessories likes:

zippers

labels

tags

poly bags

Their bargaining power is much higher because of the few players like YKK etc.

LOW HIGH

PEST ON RIVALRY AMONG COMPETITORS

The rivalry among competitors is extremely high as the margin of having order in the textile industry

is as low as to few cents both domestically and internationally. Also the recession has further

intensified this rivalry as buyers are shutting down and the existing numbers of buyers are getting

lesser so all the textile companies are running to get their business.

LOW HIGH

OVERALL PEST

LOW HIGH

EXTERNAL AUDIT

EFE MATRIX

Opportunities and threats are extracted out of the analysis of five forces of Porter and social,

technological, political and economic trends of the environment the company is operating in, so

based on our previous analysis of all these factors has led us to come up with EFE Matrix

ANALYSIS

New style and Trends Demands

The growing customer demand of new styles and designs is an opportunity for Gul Ahmed as they

are equipped with modern technology of air jet looms and advance printing and dyeing machines so

they can cope with it quite well.

EFE MATRIX

Critical Success Factors Weight Rating Weighted Score

Opportunities

New style and Trends Demands 0.10 3 0.30

New market segments around the world 0.25 2 0.50

Abolition of Quota 0.05 2 0.10

Existing production Capacity 0.04 4 0.16

Lower cost competitiveness 0.06 2 0.12

Advanced Technology 0.05 3 0.15

THREAT

Strong Local competitors 0.08 3 0.24

Strong international Competitors 0.15 4 0.60

Economic Downturn 0.10 1 0.10

Change in Government Policies 0.04 1 0.04

Lack of conducive Environment of Business 0.04 2 0.08

Rise in utilities expenses 0.04 2 0.08

TOTAL 1.00 2.47

New market segments around the world

The problem that Gul Ahmed is facing is that of limited exposure in the markets. They are catering

only to US, Europe, Spain etc. But there are also other markets of Russia, China and others which

they are not covering which can give Gul Ahmed exceptional returns.

Abolition of Quota

The abolition of quota after 2005 gives the company advantage to increase their capacitites and

cater as much exports as they can.

Existing production Capacity

The existing production capacity of Gul Ahmed is well enough to meet the Demand of the buyers but

most of their units are working on below capacity.

Lower cost competitiveness

Gul Ahmed is completely vertical unit they are making their own yarn till packaging stuff so the lower

cost competitiveness gives them an incentive to better compete in the market .

Advanced Technology

Gul Ahmed possesses state of the art technology in almost all of the departments which include:

Spinning

Weaving

Wet Processing

The analysis of the critical factors of the EFE matrix and their weighted score reveals that the new

market segments around the world is the most important aspect of the matrix as it has the highest

weight associated but the rating is very low which means Gul Ahmed is not successfully catering it.

On the threats strong international competitors is the biggest threat to Gul Ahmed at this point in

time since the textile business is quota free and any country can export to any other depending on

efficiency.

The total weighted average score of 2.47 conveys that Gul Ahmed is working on below the average

score of 2.5 which means that Gul Ahmed is not doing well enough in taking the advantage of

opportunities and avoiding the threats facing the firm.

We can see that Gul Ahmed has sufficient existing capacity but they are not efficiently utilizing it,

which means though Gul Ahmed has available resources but they just need to channelize it. The

Growth in Bangladesh, china and others countries textile share is a warning signal to Pakistan since

Pakistan share is on decline.

STRATEGIES

1. MARKET PENETRATION

Pakistan have a huge opportunity to cater the china and Russian textile market as Pakistan woven

products are acknowledge all over the world for its best quality and yet we are not exporting to

these two giant buying nations. At this point in time Gul Ahmed is exporting yarn to China but they

are not exporting bed linen and home textiles to these two countries.

2. EFFICIECNCY IN CAPACITY UTILIZATION

Most of the Gul Ahmed’s units are running on below efficiency where as we see the capacity

utilization off Bangladesh and china are much higher.

3. ADJUSTMENTS IN PRICING

To compete in the international market Gul Ahmed need to lower down its prices for that they need

to remove the bottlenecks and need to improve the efficiency level of the units production

COMPETITIVE PROFILE MATRIX

GUL AHMED NISHAT MILLS KOHINOOR TEXTILES

Critical Success Factors

Weight Rating Wt. Score Rating Wt. Score Rating Wt. Score

Market Share 0.22 3 0.66 4 0.88 2 0.44

Price Competitiveness

0.14 3 0.42 3 0.42 2 0.28

Management 0.06 2 0.12 2 0.12 2 0.12

Financial Position 0.08 4 0.32 3 0.24 2 0.16

Advertising 0.08 2 0.16 2 0.16 1 0.08

Technology 0.08 4 0.32 4 0.32 2 0.16

Customer Loyalty 0.04 3 0.12 3 0.12 2 0.08

Product Quality & hygiene

0.10 3 0.30 3 0.30 2 0.20

Employee Productivity

0.08 2 0.16 3 0.24 2 0.16

Branding 0.12 1 0.12 1 0.12 1 0.12

TOTAL 2.7 2.92 1.80

ANALYSIS

The analysis of the competitive profile matrix reveals that Gul Ahmed is second to Nishat AND IS

DOING BETTER THAN Kohinoor textiles. The overall market share of nishat is much higher than Gul

Ahmed also the productivity of the nishat workforce is much better where as Gul Ahmed is

performing much better as compared to Nishat in terms of financial position. It appears from CPM

that Gul Ahmed need to tap more markets to gain extra market share.

VALUE CHAIN ANALYSIS

Spinning

Cotton value chain starts from

Ginning that adds value to it by

separating cotton from seed and

impurities. However, spinning can

be called as the first process in

INTERNAL ANALYSIS

the chain that adds value to cotton by converting it into a new product i.e. conversion of ginned

cotton into cotton yarn. Spinning is the foundation process and all the subsequent value additions

i.e. Weaving, Knitting, Processing etc.

Weaving

Weaving is the process of making cloth, rugs, blankets, and other products by crossing two sets of

threads over and under each other. Weavers use threads spun from natural fibers like cotton, silk,

and wool and synthetic fibers such as nylon and Orlon. But thin, narrow strips of almost any flexible

material can be woven.

Wet Processing

Wet processing is the process of dyeing finishing of fabric. Wet processing is the most important

step of a textile value chain since after this the product is really worth selling it adds highest amount

of value after woven into textiles products.

Finishing

Finishing is the process of checking, accessories addition and packaging of textile products. This is

the process after which the textile products are finally ready to get shipped.

Transport

This is the final step in the textile value chain the products can be transported by air or by ship,

generally ship is the means usually adopted as it is less costly but for urgent delivery air

transportation is used.

STRATEGIC COST MANAGEMENT

COTTON YARN

Gul Ahmed is cutting cost in their yarn production. Gul Ahmed has two spinning units. The machinery

used in these units is made in the U.K., Japan, Germany & the U.S.A.

The ring spinning operation comprises of a total of 130,296 spindles. A wide range of yarns are

produced in these units: 100% cotton from 50 NM for knitting and weaving, up to 135 NM for light

weight dress fabrics. Poly Cotton, Poly viscose and 100% viscose yarns are also produced from 7 Ne

to 100 counts.

WEAVING (USE OF AIR JET LOOMS)

These air jet looms are the most advanced looms. The units have 223 air jet looms. The air jet looms

come from Tsudakoma in Japan. The latest installations of air jet looms operate in a new custom

built weaving facility supported by the most modern yarn preparation equipment and are

comparable with the finest available yarn preparation equipment anywhere in the world.

These units produce fine quality lawns, sheeting’s, twills, drills, dobbies, satins, and other fancy

fabrics with a width of up to 330 cms.

WET PROCESSING

The wet processing unit is equipped with a wide range of state of the art machines which gives Gul

Ahmed a flexible processing possibility and an edge over its competitors.

Gul Ahmed has 4 sophisticated rotary printing machines Capable of printing up to 21 colours on

fabrics as wide as 320 cm.

Processing and Finishing Machinery are very advanced and that is where Gul Ahmed is cutting costs

some machinery include:

Computerized Colour Kitchen

Calender

CAD/CAM System

Colour Scanner

Dyeing Range

Embroidery Machine (20 head 9 colour)

Film Plotter etc.

CORE COMPETENCIES

A competitively important activity that a company performs better than other competitively

important activities is termed as core competence. Following are some of the core competencies of

Gul Ahmed:

HOME TEXTILES QUALITY AND DESIGNS

Gul Ahmed is known for its supreme quality in bed line and new designs that it offers in home

textiles ranging from:

Curtains

Bed sheets

Bath products

Drapery

Cushions etc

DIFFERENT COUNT YARN 78x54

Gul Ahmed have 3 spinning units, located in Karachi which consist of over 190 ring frame, with daily

production capacity of more than 180,000 lbs of yarn, with flexibility to produce from count Ne 10/s

to Ne 160/s. Gul Ahmed is using discharge printing which is not used commonly.

TECHNOLOGY

Gul Ahmed re competencies are teams of highly trained professionals and state of the art

machinery, imported from Japan, Germany, England, Switzerland, Italy, France, Belgium and China.

FINANCIAL RATIO ANALYSIS

GUL AHMED NISHAT KOHINOOR

2009 2008 2007 2009 2008 2009 2008Profiability Ratios

Gross profit ratio 16.81 15.14 14.98 18.2 14.4 12.6 13.07EBITDA margin to sales 13.37 12.49 11.9 6.5 31.2 6.31 -4.4Net profit to sales 0.58 0.88 1.67 5.3 29.97 3.33 -5.19

Liquidity Ratios

Current ratio 0.95 0.9 0.95 0.86 1.19 0.74 0.84Quick ratio 0.39 0.42 0.47 0.38 0.8 0.66 0.49Debt to equity ratio 0.98 1.07 0.85 0.63 0.51 1.13 0.84

Rate of Return

ROE 2.73 3.79 6.62 6.6 22.1 -2.74-

14.06Return on capital 21.82 19.14 16.45 4 14.5 -2.6 -7.3Time Interest coverage ratio 1.16 1.28 1.54 2.03 8.05 -

Capital Efficiency

Inventory turnover 107 95 104 70 85 36Debtor turnover 66 72 74 - - - -Creditor turnover 76 61 56 - - - -Fixed asset turnover ratio 2.27 2 2.08 2.13 1.7 0.96Total asset turnover 1.07 1.05 0.98 0.76 0.51 0.81

Investors Information

Earnings per share 1.45 1.86 3.11 5.2 24.2 -0.36 -6.34Price to earning ratio 26.79 21.51 14.68 13.4 2.3 -3.43

Gross Profit Margin

Gul Ahmed’s gross profit margin as compare to the industry is quite good (16.81%) but its slightly

lower than its competitor Nishat Textiles which is only 18.20%. On the other hand Kohinoor’s gross

profit margin stood up to 12.6% only.

EBITDA margin to sales

Gul Ahmed’s EBITDA margin to sales is far better than its competitors, it stood up to 13.37% whereas

its competitors reached only up to 6.5% and 6.31% of Nishat and Kohinoor respectively.

Net Profit to Sales

Gul Ahmed showed an astonishing net profit to sales of 58% which is much higher than its

competitor’s i.e Nishat 5.3% and Kohinoor 3.33%.

Current Ratio

Gul Ahmed’s current ratio is somewhat in line with the industry’s, where as its competitor’s current

ratio is slightly lower than Gul Ahmed, which is 86% for Nishat and 74% for Kohinoor textiles.

Quick ratio

As quick ratio for Gul Ahmed is 39% where as its current ratio is 95%, it is very obvious that a large

amount of their current assets is tied up with their inventories. Similarly the same is with one of its

competitors i.e. Nishat whose quick ratio also shows 38% where as its current ratio was 86% in 2009.

Return on equity

Gul Ahmed’s return on equity declined from 2008 to 2009 whereas the same pattern was shown by

both of its competitors as well. But Nishat mills shows a larger chunk of drop i.e. 22.1% in 2008 to

just 6.6% in 2009, on the other hand Kohinoor was not doing well in managing its equity so it

occurred a loss in both the years.

Inventory Turnover

Gul Ahmed’s inventory turnover rose from 95 in 2008 to 107 in 2009, but an opposite pattern was

observed at Nishat mills where their inventory turnover dropped down from 85 in 2008 to 70 in

2009.

Fixed Asset Turnover

The fixed asset turnover of Gul Ahmed showed an increase from 2 in 2008 to 2.27 in 2009, a similar

behavior was shown by Nishat as their ratio also increased from 1.7 in 2008 to 2.1 in 2009.

Total Asset Turnover

No major change have been observed in Gul Ahmed’s total asset turnover because it only rose to

1.07 in 2009 from 1.05 in 2008, but on the other hand Nishat had a lower total asset turn over in

2009 as compared to Gul Ahmed but it increased by a greater proportion i.e. 0.51 in 2008 to 0.76 in

2009.

INVESTOR’s INFORMATION

EPS

From an investors point of view Gul Ahmed as well as Nishat , both have shown decline in their EPS,

where Gul Ahmed declined from 1.86 to 1.45 in 2009 whereas Nishat’s shareholders were on a

greater losing side as an EPS of 24 in 2008 dropped down to 5.2 in 2009. This might not be a

favorable investment for investors.

Price Earnings Ratio

The P/E ratio of both the companies i.e. Gul Ahmed and Nishat showed increase. Gul Ahmed’s P/E

ratio increased from 21.51 in 2008 to 26.79 in 2009 where as Nishat’s P/E ratio rose from 2.3 in 2008

to 13.4 in 2009, Kohinoor’s P/E ratio was in slump and showed a value of -3.43.

KOHINOOR

GUL AHMED

GENERIC STRATEGY

EXPLANATION

NISHAT

Gul Ahmed is pursuing broad differentiation strategy since Gul ahmed products include bed linens,

curtains, garments. These products are of high quality and Gul Ahmed is selling them to

geographically distributed buyers as well as in domestic market. This indicates that Gul Ahmed is

pursuing a broad strategy. Also Gul Ahmed’s products since are of high quality and have intricate

designs and prints, their prices are generally higher which shows that they are not going for lower

cost product lines.

SUGGESTIVE STRATEGY

They should stick to the same strategy, as it is where their competitive strength lies. Gul Ahmed

should go for more diverse market and deliver their value added curtains, bed sheets and other

home textiles to augment their market share.

INTERNAL AUDIT

INTERNAL FACTOR EVALUATION

IFE MATRIX

Critical Success Factors Weight Rating Weighted Score

Strengths

Cotton yarn Quality 0.08 4 0.32

Economy of Scale 0.07 3 0.21

ISO and other compliance certification 0.03 4 0.12

State of the art Equipment 0.08 3 0.24

Brand Name 0.08 4 0.32

Availability of Cheap Workforce 0.06 2 0.12

Diverse Product Range 0.05 3 0.15

Strong Suppliers 0.04 2 0.08

Strong Buyers (Walmart etc) 0.08 2 0.16

Weaknesses

international Branding 0.13 1 0.13

Management hierarchy (Seth culture) 0.04 1 0.04

Lack of workforce training 0.06 2 0.12

Poor Marketing 0.08 1 0.08

Capacity Utilization 0.06 2 0.12

Supply chain 0.04 2 0.08

TOTAL 1.00 2.29

Cotton Quality

Gul Ahmed is producing yarn of various counts in a very high quality because of its advanced

spinning unit count rages from 10-160

Economy of Scale

Since Gul Ahmed is among the largest vertical unit of the country therefore Gul Ahmed hold the

advantage of economies of scale where they can cut easily for easily

ISO and other compliance certification

Gul Ahmed holds various compliance certification which include ISO 9000 also in today’s era these

certification are very helpful since most of the big buyers urge these textiles companies to get these

certification.

State of the art Equipment

Gul Ahmed possesses advanced technology in almost its entire value chain. Some of the technology

includes:

Laser Engraver

Mercerizing

Rotary Printing including 21 colour and upto 280 cm width

Singeing & Desizing

Stentor

Sanforizing

Washing and Drying Range

Wax Engraver

Brand Name

Gul Ahmed’s name is its biggest asset as the name Gul Ahmed itself signifies the importance of

quality reliability and service.

Availability of Cheap Workforce

In Pakistan there is easy availability of workforce as most of the people that work in the textile units

are not educated but recently government has raised the wage level up to RS6000. This is causing

hindrance for these textile units to compete against Bangladesh where labor is cheaper.

Diverse Product Range

Gul Ahmed holds the wide range of products which includes:

Curtains

bed sheets

cushion covers

garments

kurtas etc

Strong Suppliers

Gul Ahmed is working with well reputed suppliers of accessories as well as other textile products like

YKK.

Strong Buyers (Walmart etc)

Gul Ahmed holds the portfolio of big and quality buyers which include JC penny Walmart etc

Supply chain

In order to cut cost Gul Ahmed needs to work extensively over its supply chain as most of the orders

that gets delayed is due to the loop holes in their supply chain.

Capacity Utilization

Gul Ahmed has not been running on its existing capacity. This is the reason why they are not

successfully catering every order and there cost is getting higher.

Poor Marketing

It is just in recent times that Gul Ahmed has started working on marketing domestically.

Internationally they are not marketing that much they are not exploring new small buyers but on the

contrary they are just running for big orders.

Lack of workforce training

Gul Ahmed has now started giving importance to its HR division but still the training of labor force is

not up to the mark of what competitors like china and Bangladesh are following.

Management hierarchy (Seth culture)

The traditional Seth culture which is the forte of our textile industry also prevails in the Gul Ahmed

and most of the marketing is done by the owner himself rather than delegating it to the marketing

and merchandising staff.

International Branding

Gul Ahmed is not at all marketing its products internationally. There are no Gul Ahmed’s brands in

any of the market they are exporting in spite of the good quality image Pakistan posses in home

textile products.

STRATEGIES

INTERNATIONAL BRANDING

IFE reveals that Gul Ahmed should start branding its products in the international market because

these will help them gain extra revenue. China has already started branding its textile products

which is not the case for any of the Pakistani Textile company.

SMALL BUYERS

IFE matrix reveals that Gul Ahmed is quite strong in its brand and yarn quality; therefore it should

move towards catering small buyers also as most of the small buyers give very advance work but the

margins are very high. Since Gul Ahmed has a very strong brand image they can dictate their terms

quite well here.

TOWS MATRIX

Strengths Weaknesses

1. Cotton yarn Quality2. Economy of Scale3. ISO and other compliance

certification4. State of the art Equipment5. Brand Name6. Availability of Cheap

Workforce7. Diverse Product Range8. Strong Suppliers9. Strong Buyers (Walmart

etc)

1. Supply chain

2. Capacity Utilization

3. Poor Marketing

4. Lack of workforce training

5. Management hierarchy (Seth culture)

6. international Branding

Opportunities S-O Strategies W-O Strategies

1. New style and Trends Demands

2. New market segments around

1. S5,O2 3Gul ahmed can explore to new markets like china and Russia

1. 1. W1.O4 6

Gul Ahmed can use its supply chain more efficiently to utilize the existing capacity and lower down its cost

the world3. Abolition of Quota4. Existing production

Capacity5. Lower cost

competitiveness6. Advanced

Technology

2. S6,O2 3 4

Gul Ahmed can use its cheap labor force to effectively utilize its existing capacity to serve new markets

2. W6 3.O2Gul ahmed can go towards international branding and marketing to cater new market segments around the world like china and russia

Threats S-T Strategies W-T Strategies

1. Strong Local competitors

2. Strong international Competitors

3. Economic Downturn4. Change in

Government Policies

5. Lack of conducive Environment of Business

6. Rise in utilities expenses

1. S2, O3

Gul ahmed can use its economies of scale to cut down its cost to comepete in this economic downturn better than its competitors

2. S7 3 2, O1 2

Gul Ahmed can use its compliance certification diverse product range and economies of scale to compete with both domestic and international competitors.

1. W3 6.T1 2

Gul Ahmed can better do marketing and branding of its products to compete local and ionternational players.

ANALYSIS

The highlighted strategies are the best and also the most applicable to enhance the overall position of

Gul Ahmed as they effectively handle the important strengths, weakness, opportunities and threats.

Backed by their consistency in good quality yarn, strong Brand Image and opportunities (such as growing

market, people’s need for trends and styles ) and with weakness (such as poor international branding

and poor capacity utilization) and threats (such as International and domestic competitors, and

economic downturn) the highlighted strategies are the best and most applicable to enhance the overall

position of Gul Ahmed as they effectively handle the important strengths, weakness, opportunities and

threats.

SPACE MATRIX

Internal Strategic Position External Strategic PositionFinancial Strength (FS) Environmental Stability (ES)

Return on equity 2 Technological changes -2Liquidity 2 Demand variability -3Inventory turnover 2 Price range of competing

products-2

Earnings per share 1 Barriers to entry into market -4Price earnings ratio 4 Competitive pressure -4

Ease of exit -5Financial Strengths (FS) 2.2 Environmental Stability (ES) -3.33

Competitive Advantage (CA) Industry Strength (IS)Market Share -2 Growth Potential 5Product Quality -2 Profit Potential 4Customer loyalty -2 Financial Stability 3Control over suppliers and distributers

-3 Technological know-how 5

Ease of entry into market 3Productivity, capacity utilization 2

Competitive Advantage (CA) -2.25 Industry Strength (IS) 3.67

Financial Strength: 2.2

Environmental Stability: -3.33

Competitive Pressure: -2.25

Industry Strength: 3.67

Y-axis: 2.2-3.33 = -1.13

X-axis: 3.67-2.25 = 1.42

Numerical values that are assigned ranges from +1

(worst) to +6 (Best) to each of the variables that

make FS and IS and -1 ( Best) to -6 (Worst) for each

of the variables making ES and CA.

FS and ES make up the X-axis whereas CA and

IS makes up the Y-axis.

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

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

ES

FS

Conservative Aggressive

Defensive Competitive

ISCA

ANALYSIS

As can be seen from the graph above Gul Ahmed lies in the Competitive quadrant of the space matrix.

The graph illustrates traits of a firm which has a major competitive advantage in a high growth industry.

The strategies that Gul Ahmed can undertake are as follows:

Backward, forward, horizontal integration

Market penetration

Market development

Product development

Gul Ahmed may choose to pursue the aforementioned strategies in the following ways:

Backward, forward and horizontal integration Gul Ahmed can choose to acquire a competitor to make a strong foothold in the market.

Market Penetration The company can invest more on Advertising for raising brand awareness or sending reminders

to customers of their offerings and also other sales promotion techniques such as summer sales

encouraging more purchase of their products.

Market development China and Russia are two potential markets for Gul Ahmed so it should avail this opportunity.

Product Development Gul Ahmed already are into diversification but in order to gain market share they can further

seek to introduce new product categories such as they can also start making sofa covers or

carpets.

GRAND STRATEGY MATRIX

GRAND STRATEGY MATRIX:

RAPID MARKET GROWTH

WEAK STRONG COMPETITIVE COMPETITIVE

POSITION POSITION

SLOW MARKET GROWTH

ANALYSIS:

After the internal, external audit of the industry structure and Gul Ahmed’s value chain and internal

processes, it is quite evident that Gul Ahmed lies in the first quadrant of the grand strategy matrix as the

industry is growing rapidly. The company enjoys a strong competitive position in the market place too.

QUADRANT II QUADRANT I GUL AHMED

QUADRANT III

QUADRANT IV

SUGGESTED STRATEGIES:

For a company like Gul Ahmed strategies like market development or penetration and forward,

backward or horizontal integration are best suited. The company can explore new markets like china

and Russia and market their products there, because these markets offer considerable growth prospects

both now and in the future. The firm has ample resources to further integrate backward, forward or

horizontally or it can pursue market penetration to concentrate on its current markets to overcome

underutilization of its capacity and resources.

QUANTITATIVE STRATEGIC PLANNING MATRIX

Strategic Alternatives

CRITICAL SUCCESS FACTORS WeightExpansion To China Market

Introducing Of Private Brand In International Market

STRENGTHS AS TAS AS TAS

Cotton yarn Quality 0.08 2 0.16 2 0.16

Economy of Scale 0.07 3 0.21 3 0.21

ISO and other compliance certification 0.03 - - - -

State of the art Equipment 0.08 3 0.24 3 0.24

Brand Name 0.08 3 0.24 4 0.32

Availability of Cheap Workforce 0.06 - - - -

Diverse Product Range 0.05 4 0.20 4 0.20

Strong Suppliers 0.04 - - - -

Strong Buyers (Walmart etc) 0.08 3 0.24 - -

WEAKNESS

International Branding 0.12 - - 4 0.48

Capacity Utilization 0.06 4 0.24 4 0.24

Poor Marketing 0.06 2 0.12 4 0.24

Lack of workforce training 0.08 - - - -

Management hierarchy (Seth culture) 0.06 - - - -

Supply chain 0.05 - - - -

SUBTOTAL 1.00

CRITICAL SUCCESS FACTORS WeightExpansion To China Market

Introducing Of Private Brand In International Market

OPPORTUNITIES AS TAS AS TAS

New style and Trends Demands 0.10 2 0.20 2 0.20

New market segments around the world 0.25 4 1.00 3 0.75

Abolition of Quota 0.05 2 0.10 2 0.10

STRATEGY 1 EXPANSION INTO CHINA MARKET (ADIOPTED)

Pakistan’s exports to China lack diversity and both the countries are competitors in the textile sector.

Diversification of exports from Pakistan in the non-traditional items will lead to minimizing the trade

imbalance. Another important factor of our trade deficit with China is growing exports of Chinese

products to Pakistan. Since these are more economical, businessmen are inclined to buy more from

China. Pakistan therefore, should be looking at China as an export market also since Pakistan has a huge

export potential of home textiles in china.

STRATEGY 2 INTERNATIONAL BRANDING

Gul Ahmed is only exporting to the retail buyers rather we think that they should start their own brand

as Pakistan home textiles are world famous for its quality. And all Gul Ahmed’s products which are going

to Europe and other countries are going under the label made in Pakistan which means that people care

about Pakistani products and so we think Gul Ahmed should open their own retail outlets in countries

of Europe.