strategic management- final report 12
TRANSCRIPT
FAUJI FERTILIZER BIN QASIM LIMITED
STRATEGIC MANAGEMENT
TERM PROJECT
Submitted By
Abida Ali (5700)Bushra Bashir (6498)Salwa Saleem (6262)
Madiha Minhas (6225)Niha Chhutwani (6706)
Hooria Khan (6920)
Section: A
Submitted To
Mr. Javaid Ahmed
Submitted On
December 9th, 2009
ACKNOWLEDGEMENT
We would like to thank Mr. Javaid Ahmad for his support throughout the semester and
for making us understand the course so thoroughly and making it enjoyable along with it.
LETTER OF TRANSMITTAL
December 9TH, 2009
Mr. Javaid AhmedCourse Instructor, Strategic ManagementInstitute of Business Management, Karachi
Dear Sir
This is the term report on “Strategic Management at FFBL 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 4 months.
The report is ready for your perusal. For any query contact the following members.
Sincerely
Abida Ali (0300-2735398)Bushra Bashir (0322-2708146)Hooria Khan (0332-3766016)Madiha Minhas (0322-2290434)Niha Chhutwani (0334-2823728)Salwa Saleem (0345-3137106)
TABLE OF CONTENTS
COMPANY INTRODUCTION............................................................................................................6
OVERVIEW OF THE FERTILIZER INDUSTRY......................................................................9
PORTER’S FIVE FORCES MODEL..............................................................................................11
OVERALL MACRO-ENVIRONMENTAL PEST FACTORS...............................................18
EXTERNAL FACTOR EVALUATION (EFE).............................................................................19
COMPETITIVE PROFILE MATRIX (CPM).............................................................................24
GENERIC STRATEGY.........................................................................................................................25
INTERNAL COMPANY RESOURCES........................................................................................26
CORE COMPETENCIES....................................................................................................................27
COMPANY VALUE CHAIN..............................................................................................................30
STRATEGIC COST ANALYSIS.......................................................................................................33
FINANCIAL TREND ANALYSIS....................................................................................................37
INTERNAL FACTOR EVALUATION...........................................................................................38
RECOMMENDATIONS......................................................................................................................41
INPUT/MATCHING/DECISION MODEL..................................................................................42
TOWS........................................................................................................................................................42SPACE MATRIX.........................................................................................................................................44BOSTON CONSULTING GROUP (BCG) MATRIX..............................................................................46IE MATRIX.................................................................................................................................................47GRAND STRATEGY MATRIX.......................................................................................................................49
MATRIX ANALYSIS AND TOWS SUMMARY........................................................................50
QSPM..........................................................................................................................................................51
STRATEGY IMPLEMENTATION..................................................................................................55
STRATEGY IMPLEMENTATION..................................................................................................56
STRUCTURE............................................................................................................................................56RESOUCRES............................................................................................................................................57CULTURE.................................................................................................................................................57LEADERSHIP...........................................................................................................................................58
BALANCE BUSINESS SCORECARD..........................................................................................59
DIAGNOSTIC SURVEY OF PRIMARY AND SECONDARY MANAGEMENT PRACTICES..............................................................................................................................................62
CONCLUSION........................................................................................................................................69
Recommendation...................................................................................................................................69
COMPANY INTRODUCTION
Fauji Fertilizer Bin Qasim (FFBL) was established on November 17, 1993 and was initially named FFC-Jordan. The major shareholders were Fauji Fertilizer Company (FFC), Fauji Foundation (FF) and Jordan Phosphate Mines Co. (JPMC) with shareholdings of 30%, 10% and 10% respectively. The company was listed at the Karachi Stock Exchange in May 1996 and started its production in January 2000; however, due to some technical, financial and managerial problems, the company reported a loss of PKR 6.5bn and ceased operations.
In the year 2003, JPMC sold all its equity in the company and resultantly, raw material supply agreements with Jordan also ceased. FFC – Jordan was then renamed as Fauji Fertilizer Bin Qasim (FFBL).
Presently, FFBL has total share capital of PKR 9.341bn. Major shareholders of FFBL are Fauji Fertilizer Company (FFC) and Fauji Foundation (FF) with 50.88% and 17.29% of total shares respectively. FFBL announced its first dividend in the year 2004 and achieved ISO certification in March 2006.
CAPACITY AND PRODUCTION
FFBL deals in Granular Urea and Di Ammonium Phosphate (DAP). It is the only producer of DAP in the country. For DAP, FFBL imports phosphorous from Morocco. Granular Urea is available as “Sona Urea” and DAP as “Sona DAP” in the market.
It has manufacturing facilities at the Eastern Zone of Bin Qasim, Karachi which is beneficial in terms of freight charges for raw material imported from Morocco for manufacturing DAP.
MARKET SHARE
The total production capacity of Pakistan is 5.655mntpa. While FFBL production capacity is 0.627mntn for Urea and 0.495mntn for DAP. This translates into 13% market share of urea and 31% market share of DAP for FFBL.
VISION Be a leading fertilizer company with a diverse product base Continue to excel in operations Commitment to business ethics, safety, health, environment and involvement in
the community Remain a good corporate citizen Be one of the best corporate employers Keep exploring other project investment opportunities to remain progressive,
flexible and viable
MISSION
Pursue as a team, the progressive strategy based on the principle of maintaining the spirit of excellence to remain among the best companies for delivering competitively priced quality products, achieving sustainable growth rate in all activities and generating optimum profits to the satisfaction of all stakeholders.
Items present in the mission statement include: Concern for survival, growth and profitability Self concept Products or services
Items not present are: Customers Philosophy Technology Concern for public image Concern for employees Markets
ANALYSIS:
By reading the above mentioned mission statement, it fails to inspire the reader in any way. The essence of the organization seems to be survival, growth and profitability. It wants to maintain a “spirit of excellence” which indicates its self concept. Very little is mentioned about the products or services.
It absolutely ignores customers and how to cater to their needs, what markets to serve in, lacks concern for public image, no mention about philosophy, technology or concern for employees. What comes across is a highly profit driven focus of the organization. Another important aspect is that most of the managerial staff is unaware of their vision and mission statements and neither is it visible at the premises. The vision and mission of the company do not appear to have received a proper buy-in from different levels of the organization. These appear to have been developed at the senior level management as a result of the SECP requirements and are also seen as an HR initiative.
CHAPTER 1
MACRO-ENVIRONMENTAL ANALYSIS AND INDUSTRY
ATTRACTIVENESS
OVERVIEW OF THE FERTILIZER INDUSTRY
There are two types of fertilizers available to farmers in Pakistan: Nitrogen (78%) and Phosphorus (20%).Each types of fertilizer benefitting the soil in a different manner. The fertilizer industry in Pakistan is an oligopolistic market, with 9 firms in the industry. Industry capacity has been increasing steadily over the past decade at a Cumulative Average Growth Rate (CAGR) of 5.5% from 1990 to 2006, whereas sales have increased at a CAGR of 5.3% in the same period.
Urea currently dominates the domestic fertilizer market. Besides FFBL (11.4% market share) two other major Urea manufacturers are FFC and Engro Chemicals Limited (Engro), enjoying 50% and 21.4% shares of the total fertilizer market respectively. In the DAP market FFBL is the only local producer and caters to 30% of the market. The fertilizer industry has established brand identities and within each region of Pakistan people farmers purchase a specific brand.
There are 9 firms in the fertilizer industry but a large number of buyers. All the farmers in Pakistan are buyers of fertilizers. They all purchase in small amounts relative to the size of their land. Farmer awareness and literacy is low .They lack information of the type of fertilizer to apply and of the quantity of fertilizer to apply. Farmer awareness and literacy being low, many producers of high quality fertilizers face challenges in acceptability of their products due to a lack of customer knowledge. There yet has been no solution to this gap of lack of consumer knowledge. Like due to its rising prices, many farmers have started to use urea as a substitute for DAP but they fail to realize that these fertilizers contain different nutrients and application of nitrogen fertilizer cannot help increase the yield when soil is deficient in phosphorus.
Customers of fertilizers that are the farmers are highly price sensitive. Farmer’s do earn a good return on reaping good crops but there is always uncertainty of adverse weather and floods which may bring a huge loss for the farmer. When there is a rise in fertilizer prices some farmers even resort to using traditional fertilizers such as cattle dung. However, these alternatives are considered inadequate to fortify the fertility of the land as soil requires different types of nutrients to enhance the yield. It is for this reason the government brought in the fertilizer policy in 2001 which provides an indirect subsidy to fertilizer manufacturers by providing them with feedstock gas at preferential rates, currently 50% lower than prices available to commercial consumers. The GoP has developed a new financing scheme on group based methodology for small farmers in an effort to improve their accessibility to finance.
On the raw material side, Phosphoric Acid, Sulphuric Acid, Ammonia, Carbon Dioxide and Nitrogen are key ingredients for the company. Phosphoric Acid suppliers are few in number .The raw material for manufacturing DAP is phosphoric acid obtained from phosphorous rock which is not available in Pakistan and is imported. FFBL has ensured the continued availability of Phosphoric Acid by entering into a joint venture with Office Pherifien Des Phosphates (OCP) Group of Morocco in September 2004, forming a new
company called Pak Maroc Phosphor in Morocco. Another key input in the production of fertilizer especially urea fertilizer is Natural Gas. The fertilizer industry is the second highest consumer of Natural Gas at 20.7%, second only to the electricity generation sector. Its supply is expected to reduce in the coming years. Due to shortage of gas supply, the Government of Pakistan (GoP) has adopted the policy of readjustment among different sectors to overcome its shortfall. Furthermore, Pakistan is in the midst of an energy crisis which has crippled the manufacturing sector.
The raw materials for fertilizer industry are differentiated which include Phosphoric Acid, Sulphuric Acid, Ammonia, Carbon Dioxide, Nitrogen and natural gas. However natural gas, one of the major raw materials for Urea is fast becoming a limiting factor; by 2010 FFBL might face a serious gas shortage, along with high gas prices because of this shortage. This factor is largely outside the control of FFBL management. Also they are looking at importing liquefied gas through Fauji Oil Terminal Company (FOTCO), but the project is still in its infancy
Distribution of natural gas is difficult as pipelines have to be laid from gas fields in rural areas and transportation of gas requires high cost. Any new comer would face issues in accessing raw material, distribution channel and supplies. Pharma fertilizer incurred a set up cost of $600 billion.
There is no exact substitute of fertilizer in Pakistan. As fertilizer provides important nutrients to the soil. However high yielding seeds which help increase the acres per yield and cow dung which also is known to benefit the soil are the substitutes of fertilizer. However, these alternatives are considered inadequate to fortify the fertility of the land, especially in comparison to granular urea and DAP, which are FFBL’s main product lines.
Demand for fertilizers in Pakistan, currently estimated at 6.8 mntpa, is currently in excess of industry supply, estimated at 5.8 mntpa15. As a result, all local manufacturers are in a position where they can sell as much as they can produce. By 2010, industry supply is expected to reach 7.5mntpa. This will result in a situation where manufacturers will for the first time need to fight for market share in order to ensure that their full production is sold.
FFBL and FFC together command a stable 55.1% market share in indigenous urea market with FFC having 43.7% and FFBL having 11.4%26. However, capacity increases by Engro by 2011as well as new entrants are expected to reduce the market share of FFC to 34% and FFBL’s to 9%.
As a result of global food shortages, fertilizer consumption is on the rise across the globe as efforts are redoubled to increase yields.1 According to estimates by the International Fertilizer Industry Association (IFA); world fertilizer consumption is expected to reach 175.8 million tonnes per annum (mntpa) in 2008/9 from 163.9 mntpa in 2006/7. There is a Government policy of subsidizing farmers who buy fertilizer, at the retail price level. In
addition to subsidies at the retail level, also been providing gas subsidies to the fertilizer industry to keep their cost bases low.
The government brought in the fertilizer policy in 2001 which provides an indirect subsidy to fertilizer manufacturers by providing them with feedstock gas at preferential rates, currently 50% lower than prices available to commercial consumers.
PORTER’S FIVE FORCES MODEL
Applying Porter’s five forces Template to the Fertilizer Industry allows us to analyze the attractiveness in terms of profitability of the industry.
A THREAT OF NEW ENTRANTS
YE
S
(+)~
NO
(–)
Do large firms have a cost or performance advantage in your segment of the industry?Are there any proprietary product differences in your industry?
Are there any established brand identities in your industry?
Do your customers incur any significant costs in switching suppliers?
Is a lot of capital needed to enter your industry?
Is serviceable used equipment expensive?
Does the newcomer to your industry face difficulty in accessing distribution channels?
Does experience help you to continuously lower costs?
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 or qualifications that are difficulty to obtain?Can the newcomer expect strong retaliation on entering the market?
LOW HIGH
Interpretation
Threat of Entrants is low and this factor is favorable to the industry.
The barriers to entry are strong as the fertilizer industry has an oligopoly structure with homogenous product .The major barriers to entry are government subsidies, heavy capital intensive and raw material cost.
B BARGAINING POWER OF BUYERS
YE
S
(+)~
NO
(–)
Are there a large number of buyers relative to the number of firms in the business?Do you have a large number of customers, each with relatively small purchases?Does the customer face any significant costs in switching suppliers?
Does the buyer need a lot of important information?
Is the buyer aware of the need for additional information?
Is there anything that prevents your customer from taking your function in-house?
Your customers are not highly sensitive to price.
Your product is unique to some degree or has accepted branding.
Your customers’ businesses are profitable.
You provide incentives to the decision makers.
LOW HIGH
Interpretation
The bargaining power of buyer is low in the industry
There are 9 firms in the fertilizer industry but a large number of buyers. All the farmers in Pakistan are buyers of fertilizers .They all purchase in small amounts relative to the size of their land. However, Farmer awareness and literacy is low .They lack information of the type of fertilizer to apply and of the quantity of fertilizer to apply. There yet has been no solution to this gap of lack of consumer knowledge. Like due to its rising prices, many farmers have started to use urea as a substitute for DAP but they fail to realize that these fertilizers contain different nutrients and application of nitrogen fertilizer cannot help increase the yield when soil is deficient in phosphorus. DAP fertilizers are unique and FFBL is the only company manufacturing DAP. Due to low literacy level of farmers and fertilizer industry being a capital intensive industry hence this function cannot be easily be taken over by customer.
C THREAT OF SUBSTITUTES
YE
S
(+)~
NO
(–)
Substitutes have performance limitations that do not completely offset their lowest price. Or, their performance is not justified by their higher price.
The customer will incur costs in switching to a substitute.
Your customer has no real substitute.
Your customer is not likely to substitute.
Interpretation
LOW HIGH
There is no exact substitute of fertilizer in Pakistan .Due to DAP rising prices, many farmers have started to use urea as a substitute for DAP. In extreme cases, some will even resort to using traditional fertilizers such as cattle dung. However, these alternatives are considered inadequate to fortify the fertility of the land, especially in comparison to granular urea and DAP, which are FFBL’s main product lines. High yielding seeds are also considered substitute of fertilizer but it cannot provide nutrients to the soil only increases the acres per yield. Overall, the threat of substitutes is low.
D BARGAINING POWER OF SUPPLIERSYES
(+)~
NO
(–)My inputs (materials, labor, supplies, services, etc.) are standard rather than unique or differentiated
I can switch between suppliers quickly and cheaply.
My suppliers would find it difficult to enter my business or my customers would find it difficult to perform my function in-house.
I can substitute inputs readily.
I have many potential suppliers.
My business is important to my suppliers.
My cost of purchases has no significant influence on my overall costs.
Interpretation
The raw materials for fertilizer industry comprise of both standard and differentiated materials. On the raw material side, Natural Gas, catalyst, Ammonia, Carbon Dioxide and Nitrogen are ingredients common in the manufacturing of all fertilizers. Whereas the differentiated product in manufacturing DAP is phosphoric acid which is imported.
LOW HIGH
The company cannot switch between suppliers. Phosphoric Acid suppliers are few in number. The raw material for manufacturing DAP is phosphoric acid obtained from phosphorous rock which is not available in Pakistan and is imported. FFBL has ensured the continued availability of Phosphoric Acid by entering into a joint venture with Office Pherifien Des Phosphates (OCP) Group of Morocco in September 2004, forming a new company called Pak Maroc Phosphor in Morocco. Another key input in the production of fertilizer especially urea fertilizer is Natural Gas.
The fertilizer industry is the second highest consumer of Natural Gas at 20.7%, second only to the electricity generation sector .Natural Gas is obtained from Mari Gas fields.Its supply is expected to reduce in the coming years. Due to shortage of gas supply, the Government of Pakistan (GoP) has adopted the policy of readjustment among different sectors to overcome its shortfall.
E DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITIONYES
(+)~
NO
(–)
The industry is growing rapidly.
The industry is not cyclical with intermittent overcapacity.
The fixed costs of the business are a relatively low portion of total costs.There are significant product differences and brand identities between the competitors.
The competitors are diversified rather than specialized.
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 competitor.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.
Interpretation
LOW HIGH
The intensity of rivalry is high..
OVERALL INDUSTRY RATING
Favorable ModerateUn-
favorableImplications
Threat of new entrants 8 3 1Threat of new entrants is LowFavorable
Bargaining power of buyers
4 3 3Bargaining power of buyers is LowFavorable
Threat of substitutes 4 0 0Threat of substitutes is LowFavorable
Bargaining power of suppliers
2 3 2Bargaining power of suppliers is moderateFavorable
Intensity of rivalry among competitors
3 1 5Intensity or rivalry is High
Unfavorable
Total 21 10 11 Attractive
Interpretation
Overall, the industry is a favorable as the threat of new entrants, bargaining power of buyers, and threat of substitutes is low. The bargaining power of suppliers is moderate and only the intensity of rivalry within the fertilizer industry is high. Hence within this industry a company has chances of growing.
OVERALL MACRO-ENVIRONMENTAL PEST FACTORS
POLITICALGoP provides an indirect subsidy to fertilizer manufacturers by providing them feed stock gas (88% of cost of sales for FFBL) at preferential rates, currently 50% lower than prices available to commercial consumers, which can increase the threat of new entrants, can raise the bargaining power of buyers as they are getting at lower prices. If the government grants subsidies to local competitors, the rivalry will increase. The Government of Pakistan (GoP)’s fertilizer policy passed in 2001 has also fueled competition by bringing new entrants and making weaker players more competitive.If GoP impose taxes on the import of raw materials, the threat of new entrants will be low. The Government of Pakistan (GoP)’s fertilizer policy passed in 2001 also gives confidence to people to invest in the fertiliser industry.
ECONOMICAgriculture is still the largest sector of the economy, contributing 21% of GDP. Demand for fertilizers in Pakistan, currently estimated at 6.8 mntpa, is currently in excess of industry supply, estimated at 5.8mntpa. As a result, all manufacturers are in a position where they can sell as much as they can produce, and it can also be the incentive for new entrants therefore threat of new entrants will increase. High interest rates on loans for purchasing plant and machinery also inhibit new entrants in the industry. Global recession and inflation has reduced purchasing power of farmers. They cannot afford to buy expensive fertilizer. There aren’t many substitutes of the fertilizer industry. However, decrease in the purchasing power of the farmers could lessen their purchase of fertilizers thereby increasing the threat of substitutes which are available at cheaper rates. If better substitutes are provided to farmers such as seeds at lower prices could increase the threat of substitutes.
SOCIALAgriculture continues to be the single largest sector and dominant driving force for growth. GoP continues to identify agriculture as a priority area for addressing problems of unemployment, poverty alleviation and underdevelopment. Fertilizer industry has benefited from Government incentive which can increase the threat of new entrants. Farmer’s awareness and literacy being low, many producers of premium fertilizers face challenges in acceptability of their products due to a lack of customer knowledge. If the trend of using fertilizers would increase, rivalry will increase.
TECHNOLOGICAL Technology has made it possible for competitors to affectively reduce cost, thereby, enabling to match each other and copy the others competitive advantage. This will increase the rivalry between competitors. Recent technology in the industry is the BMRE technology used to enhance operating efficiency of plant. Hence, reducing the threat of
new entrants. Furthermore technology might lead to a faster and cheaper subsitute of fertilizer.
EXTERNAL FACTOR EVALUATION (EFE)
EFE MATRIX FOR FFBL
Critical Success Factors Weight RatingWeighted
ScoreOpportunities
Rise in fertilizer consumption across the globe due to food shortage 0.08 3 0.24
Industry capacity has increased at a capacity of CAGR of 5.5% 0.05 3 0.15Currently high demand(6.8 mntpa) for fertilizers not met by the current supply (5.8 mntpa) 0.08 3 0.24
Indirect subsidy from GoP of feedstock gas at preferential rates 0.07 3 0.21
New financing schemes from SBP for small farmers 0.04 1 0.04
BMRE technology to enhance the operating efficiency of plant 0.05 4 0.20Import of liquid gas through Fauji oil terminal company (FOTCO) in future 0.04 2 0.08Upsurge in the global prices of DAP. Demand for DAP would grow steadily and is still well in excess of supply. 0.06 4 0.24
Increasing farmer awareness of the superior efficacy of DAP and Granular Urea over regular urea 0.06 3 0.18Threats Farmers low literacy rate and awareness affects the acceptability of premium fertilizer products 0.06 3 0.18A global depression in DAP 0.06 2 0.12Shortage of gas supply 0.08 1 0.08Rivalry among competitors expected in 2011 0.04 2 0.08Capacity increases of Engro by 2011 0.05 2 0.10
High threat of new entrants because of GoP’s fertilizer policy 2001 0.03 1 0.03Global recession reduces the purchasing power of farmers and they shift towards substitutes. 0.06 1 0.06
The tendency of dealers to engage in black marketing and hoarding 0.04 3 0.12Prices for imported raw materials have been affected both by increased global demand and by the depreciation in the value of the Rupee. 0.05 1 0.05
TOTAL 1.00 2.40
INTREPRETATION
The total weighted score of 2.40 indicates that FFBL is below average in its effort to pursue strategies that effectively capitalize on opportunities and avert threats.
GLOBAL FOOD SHORTAGE
Global food shortage has increased the consumption of fertilizer which can be seen as a benefit for both fertilizer companies and the farmers. FFBL has to fully utilize this opportunity by fulfilling the demand of users through its efficient supply. Farmers have to use premium quality fertilizers instead of relying on traditional fertilizers which have other nutrients.
DEMAND EXCEEDS SUPPLY
Demand of fertilizer is excess of its supply, which is an opportunity for fertilizer manufacturers. Fertilizer manufacturing companies should fully take the benefit by producing sufficient quantity of fertilizer. This has increased industry capacity of fertilizer production. DAP which is an essential fertilizer is demanded despite the fact that its price is rising globally. FFBL is the only local producer and it has to cash this benefit.
FINANCING SCHEMES AND SUBSIDIES
Small farmers are also the users of fertilizer through SBP financing schemes. The Government of Pakistan provides an indirect subsidy to fertilizer manufacturers by providing them with feedstock gas (88% of cost of sales) at rates 50% lower than prices available to commercial consumers
IMPORT OF GAS
In order to overcome the threat of shortage of natural gas FFBL is looking for different avenues for attaining natural gas. The project of importing liquefied gas under consideration by FOTCO is one of the avenues. FOTCO comes under the umbrella of Fauji Foundation.
TECHNOLOGY
In any industry if a new technology is used by one firm, other firms will also have to switch to the new technology other wise they will be left behind. This increases rivalry among competitors but also provides an opportunity for weaker firms to gain market share. Recent technology in the industry is the BMRE technology used to enhance operating efficiency of plant and hence, reducing the threat of new entrants. Furthermore technology might lead to a faster and cheaper substitute of fertilizer.
EDUCATION TO FARMERS
Farmers in the country are not educated regarding the usage of fertilizer and they rely on traditional fertilizer like cattle dung when fertilizer price increases. If they become aware regarding the advantage of using DAP and Granular urea over local urea for their crop they would change to superior fertilizer.
ENGRO'S EXPANSION
Engro is undergoing expansion in the form of a new urea plant with annual production capacity of 1.3mn tones, expected to be commissioned in 2010. The increased production will help take Engro’s market share to 35%.
SCARCE GAS RESERVES
Scarce gas reserves could place pressure on the provision of gas supply; any further increase in the cost could lead to contraction in margins. FFBL realizes this upcoming challenge but has yet to take any concrete countermeasures.
BLACK MARKETING AND HOARDING
FFBL has taken countermeasures for this threat by ensuring through its sales representatives that their dealers do not indulge in such activities. It’s their policy to cancel dealers’ licenses if found indulging in black-marketing and hoarding.
INCREASE IN PRICE OF RAW MATERIALS
The increase in price of phosphorus powder emerged as a threat but FFBL successfully overcame it by doing joint venture with a Moroccan firm in forming a company by the name of Pak Moroc Phosphor in Morocco. FFBL exports phosphoric acid through thiscompany.
STRATEGIES
Educate farmers regarding the use and advantages of DAP and Granular Urea over regular urea.
Attract small farmers for usage of DAP and Granular Urea for their soil.
CHAPTER 2
COMPANY AND COMPETITOR ANALYSIS
COMPETITIVE PROFILE MATRIX (CPM)
FFBL ENGRO FFC Critical Weighted Weighted WeightedSuccess Factors Weight Rating Score Rating Score Rating Score Market Share 0.25 2 0.50 3 0.75 4 1.00Price Competitiveness 0.20 3 0.60 3 0.60 3 0.60Financial Position 0.15 3 0.45 3 0.45 4 0.60Product Quality 0.25 4 1.00 3 0.75 4 1.00Consumer Loyalty 0.15 2 0.30 3 0.45 3 0.45
Total 1.00 2.85 3.00 3.65
ANALYSIS:
FFBL is the weakest firm overall as indicated by a total weighted score of 2.85.
GENERIC STRATEGY
ANALYSIS:
Fauji Fertilizer Bin Qasim is following a broad-differentiation strategy. Reasons being it firstly caters to a broad market that is one of the largest sectors of our economy agriculture. Agriculture sector contributes to 21.8% of Pakistan GDP. Fertilizers are being used by a large number of farmers on. FFBL is following differentiation as it is the only fertilizer complex in Pakistan producing DAP fertilizer and Granular Urea thus making significant contribution towards agricultural growth of the country by meeting 45% of the demand of DAP and 13% of Urea in domestic market. FFBL has ensured the continued availability of Phosphoric Acid.It has done so by entering into a joint venture with Office Pherifien Des Phosphates (OCP) Group of Morocco in September 2004 forming a new company called Pak Maroc Phosphor in Morocco. For its premium product DAP, Fauji Fertlizer charges a higher price than the price of urea fertilizers.
CHAPTER 3
MICRO-ENVIRONMENTAL ANALYSIS
AND INTERNAL COMPANY
RESOURCES
CORE COMPETENCIES
FFBL enjoys the following core competencies:
1. FFBL is the only local manufacturer of DAP (Di-Ammonium Phosphate) which is technologically superior to Urea and caters to 40-45% demand of DAP.
2. It has an elaborate maintenance programs and a sharp preventive maintenance team.
Some parts of the Ammonia manufacturing facility date back to 1965 when they were constructed in Louisiana and subsequently imported by FFBL. FFBL has successfully kept it operational through elaborate maintenance programs. On the bright side, the ageing facility has over the years contributed to the development of a sharp preventive maintenance team at FFBL. The Maintenance and Planning departments make a concerted effort in tandem with Administration and Procurement to prevent unplanned outages and meticulously plan, execute and follow-up planned stoppages, called turnarounds.
Four categories of maintenance are: (1) Preventive maintenance: maintenance jobs are done at predefined intervals. Preventive maintenance reduces breakdown. Profitability depends on how quickly unplanned outages are addressed;(2) Predictive maintenance: maintenance is done when problems occur through online monitoring of parameters;(3) Corrective maintenance: problem is attacked after occurrence. (4) Routine maintenance: done on daily basis.
3. FFBL has ensured continued availability of Phosphoric Acid.
It has done so by entering into a joint venture with Office Pherifien Des Phosphates (OCP) Group of Morocco in September 2004 forming a new company called Pak Maroc Phosphor in Morocco.
Phosphoric Acid suppliers are few in number; therefore reducing dependence on suppliers was a positive step, which consequently reduced price pressure. Ensuring regular supplies of Phosphoric Acid has always been a matter for high priority for FFBL, and was the reason behind the earlier ill-fated relationship with JPMC. The company’s target for production is 375,000 MT of Phosphoric Acid per year which covers FFBL’s needs completely. The project has been running well so far, with timely completion of plant setup and production commencing on schedule. Presently the project is running smoothly, and steady supplies of this key ingredient are a key success factor for the company. The choice of Morocco as the location for this venture was based upon the fact that the country has large naturally occurring reserves of Phosphorous.
4. FFBL obtained ISO 9001, 4001 and 18001 certifications for Quality Control, Environment and Occupation, health and safety respectively.
These certifications bring prestige, ensure standard formatting, and are helpful in meeting export requirements. Numerous signs placed throughout the plant premises showing concern for and adherence to SOPs.
Moreover, the department responsible for safety is Safety, Hazop and Training. Its main objective is to create awareness among employees about safety and safety procedures. Safety talks are regularly conducted and literature is frequently distributed within the company. Housekeeping awards for the cleanest department are distributed monthly. Motivational courses and training programs for staff and engineers are in place in order to boost worker morale with feedback. It also plans to set up clinic and sponsor schools in adjoining areas. It is due to this fact that it was given safety award for 1 million safe hours.
FFBL is particular about compliance to Environmental Protection Agency regulations. Waste is treated and then released in environment in such a way so as to prevent pollution of environment. Employees are required to wear safety shoes, helmets and goggles in certain areas of the facilities without which access is denied.
5. An exclusive website reserved for farmers and dealers.
FFBL has reserved a website www.ffc.sona.net.pk for farmers and dealers through which farmers and dealers can post their queries. Free literature and documentaries are available on this website.
6. Increased production capacity of ammonia (2004) and DAP plants (2006 and 2008) by 24% and 56% respectively due to BMRE.
The modernization drive also included increasing the degree of automation in production activities, resulting in increased productivity and reduced labor dependence. The plant can now be run at more than 100% capacity for longer, with reduced risk of breakdowns of the aging machinery.
7. Emphasis on providing technical and management training based on management staff input.
The FFBL Technical Training Centre is responsible for management and leadership development, based on recommendations and nominations of senior managers. This is done because the complex chemical process plant of Urea and DAP of FFBL requires a
small army of technically sound men to keep it operating smoothly. Middle management tiers as well as new recruits into the management cadres are the chief recipients of this training, and it is not uncommon for middle managers to nominate themselves for an offsite course that they feel would be especially beneficial.
8. FFBL owns a utilities plant which provides power, steam and water as required by the manufacturing plants.
FFBL has ensured self sufficiency in power generation to reduce downtime, which could have adversely affected production.
COMPANY VALUE CHAIN
PRIMARY ACTIVITIES
Inbound Logistics:
The fertilizer industry is all about production and production is all about having greater control over the raw materials.
On the raw material side, Phosphoric Acid, Sulphuric Acid, Ammonia, Carbon Dioxide, Natural Gas and Nitrogen are key ingredients for the company. Regular supplies of Phosphoric Acid are done from Pakistan Maroc Phosphor. Natural gas a major raw material for urea is a limiting factor as gas resources are expected to deplete by 2010. Several proposals are under review like a project to produce liquefied gas under the umbrella of FFC.
FFBL benefits from the integrated warehouse network of FFC, connected through a field support system, which ensure efficient inventory management for timely order fulfillment.
Operations:
There are three major plants; Ammonia Plant, Urea Plant and DAP Plant. Ammonia Plant is a second hand plant, bought from Louisiana, USA. The plant functions for 24 hours inthree 8 hour shifts. Input from the marketing team is sought to forecast the production requirement for the coming year. Currently they are facing excess demand despite all plants being run at greater than full capacity. Production targets are set at the beginning of the year. These must be met efficiently and safely without hurting any team member.
If continued production is at a risk to safety then the decision is taken to cease production. Spares are an important requirement. Spares are ordered from abroad. Materials management is important.
Urea is a nitrogen-rich fertilizer. Its production involves a complex chemical process. It is produced by converting Natural Gas (main constituent is 90% and above of Methane) into Ammonia and Carbon Dioxide. Natural Gas and weather are limiting factors for urea production.
FFBL performed De-bottle necking (DBN) on Ammonia Plant to increase its capacity. The operation was successfully completed and the plant capacity increased by 24%. Similar DBN operations were performed successfully on the DAP plant as well, which has increased this plant’s capacity by 56%. The planning process for production takes place annually in August.
Outbound Logistics, Marketing and Sales
Marketing agreement was signed between Fauji Fertilizer Company Limited and FFBL enabling FFC the right to sell products produced by FFBL. This agreement also stated that FFBL will be marketed with the brand name “Sona Urea”, which is the brand name for fertilizer manufactured by Fauji Fertilizer Limited Company. The brand name was kept same to avoid competition between FFBL’s and FFC’s products. Thus, cost reduction was done by utilizing FFC marketing division for both companies.
The product is marketed in regions in which its less costly to transport the product. FFBL products are mainly marketed in Punjab and Sindh as its expensive to transport FFBL products to NWFP and areas like Sargodha.
FFBL employs FFC marketing department who possess nationwide distribution network. For marketing distribution purposes, Pakistan has been divided into three zones which are South, Center and North. There are 14 regions in it and 64 sales districts all over Pakistan. There are 3500 dealers of FFC. Every sales district has 50-60 dealers in it. Districts are situated at a distance of 70-80 km.
Market targets are calculated annually by basing the number of Urea and DAP bags to be sold on the potential area under cultivation and ten years history. Then, these targets are divided into regions and then district. Sales officer gives inputs about area being cultivated and is also responsible for environmental scanning. Expected growth rates are given by sales officer on the basis of which regional targets are calculated. Annual growth is generally at 3-3.5% in fertilizer industry.
Urea bags are normally booked in advance. Dealer pays full credit and books some number of bags which are made available to him after 2 to 2.5 months. Company informs him of the rate at which the product is to be sold though black market is affecting pricing of urea bags adversely. Dealer interacts with the farmer and the company interaction is through the dealer not directly. Dealer either pays full cash in advance or uses secure credit to book Urea bags. At the moment DAP bags are not being booked as DAP is very expensive for farmers even with subsidized rates.
FFBL products are stored in FFC warehouses which are connected with each other through Field Support System. If the demand increases, the product is stored in warehouses (extendable 3 Lac Ton capacity) until orders are placed.
FFBL has reserved a website www.ffc.sona.net.pk for farmers and dealers through which farmers and dealers can post their queries. Free literature and documentaries are available on this website.
Service:
The main differentiating factor among players in industry is the customer service, not the product. FFBL provides customer service through FFC technical service centers which are distributed nationwide. There is one technical service center in each district. Technical service perform services like showing documentation, agriculture informative movies, distributing agriculture educational literature, promotion through stalls in village fairs and organizing village meetings. Technical centers also uses demonstration plots to promote products. One of the unique features in customer service is the movable laboratories which commute to different cities. These laboratories provide guidelines to farmers by identifying soil and crop requirements through soil testing and water testing.
STRATEGIC COST ANALYSIS
The fact that FFBL does not have any in-house marketing department, and is completely reliant on FFC for its distribution is not considered an impediment to the continued good profit performance of the company, as demand for its products is far in excess of supply, notwithstanding the fact that FFBL products are entirely unavailable in the NWFP as FFC considers the transport costs prohibitively high for the minimal charge it makes to FFBL for its distribution and sales support. Not having to focus at all on the marketing and distribution of its products is considered a blessing by FFBL management, who can then concentrate on what they consider their highest priority; producing as much as possible. Thus, cost reduction is done by utilizing FFC marketing division for both companies
FFBL manufacturing cost is very high as compared to others FFC and ENGRO. This is due to the fact that FFBL is the only company to manufacture both Urea and DAP fertilizer and DAP’s manufacturing process is costlier.
FINANCIAL RATIO TRENDS
In 2008, FFBL achieved:
Highest-ever yearly productionAmmonia: 488,349 TonnesUrea: 667,697 TonnesDAP: 470,999 Tonnes
Highest-ever earnings after taxRs 2.9 Billion
Highest-ever dividend declaredRs 2.7 Billion
FERTILIZER INDUSTRY
Manufacturer Urea Capacity Market Capacity Utilization Share=========================================FFC 1,904,000 118% 45%Engro 850000 107% 20%FFBL 551,100 105% 13%Dawood 445,500 91% 11%HerculesPak American 350,000 100% 8%Pak Arab 92,400 124% 2%Total 4,193,000 110% 100%=========================================
FINANCIAL TREND ANALYSIS
PROFITABILITY
During 2007 due to functional problems and BMRE several fertilizer manufacturers showed dismal results. But in 2008 operating profits rose.
During CY08 FFBL posted profit after tax of Rs2.9 billion (EPS: Rs3.10) depicting an increase of 14% YoY, along with the results a dividend per share of Rs2.85 was also announced. High financial charges, exchange (Rs1.2 billion) and inventory losses pegged back the bottom line growth. Financial charges increased by a staggering 343% YoY due to company's higher short term financing which increased to as high as Rs18.2 billion since there was delay in subsidy payments by the GoP. Its ROA for 2008 was 5.37% and ROE 26.87%.
The profitability of FFBL has improved compared to past years with an overall increase in ROE and decrease in ROA, but it’s still less than the competitors in the industry.
ACTIVITY
The sales of the FFBL increased to Rs26.8 billion, 119% YoY mainly because of higher volumetric urea sales and higher urea prices. Its gross profit margin for 2008 was 30.67%.
FFBL enjoyed higher sales than its competitors with a gross profit margin of 30.67% which is greater than the GP margins of Engro n FFC.
LEVERAGE
Total Debt to Total Assets for the year 2008 was 0.78% whereas Total Debt to Total Equity was 49:51.
FFBL compared to its competitors is more leveraged though its reliance on debt has declined compared to past years.
INTERNAL FACTOR EVALUATION
IFE MATRIX FOR FFBL
Critical Success Factors Weight RatingWeighted
Score
Strengths Support and backing of a strong parent company FF and shareholders like FFC 0.06 4 0.24
Cash rich, and getting richer. Profit margins for the company and EPS have increased over the past year 0.05 3 0.15
Only local manufacturer of DAP and caters to 40-45% demand of DAP 0.06 4 0.24
Elaborate maintenance programs and a sharp preventive maintenance team 0.04 4 0.16
Marketing and distribution functions being operated by FFC completely which results in cost reductions 0.05 4 0.20Pakistan Morocco Phosphore covers FFBL’s needs for Phosphoric Acid completely 0.06 4 0.24Obtained ISO 9001, 4001 and 18001 certifications for Quality Control, Environment and Occupation, health and safety respectively. 0.06 4 0.24Extremely clear lines of command and control throughout the organization 0.04 3 0.12Increased production capacity of ammonia (2004) and DAP plants (2006 and 2008) by 24% and 56% respectively due to BMRE 0.05 4 0.20
Owns a utilities plant which provides power, steam and water as required by the manufacturing plants 0.05 4 0.20
Weaknesses
Delays and disconnects in information sharing and getting approvals 0.05 1 0.05
Products are entirely unavailable in NWFP and some parts of Punjab 0.04 2 0.08
Conflict in management style between military and civilian 0.05 2 0.10
Lack of continuity in management 0.05 1 0.05
Improper handling of a variety of technical and administrative problems 0.04 2 0.08Bureaucratic environment exists within the company. Workers are just cogs in a machine; the boss is the king and always right. 0.05 1 0.05Despite an extensive BMRE initiative, current capacity is still not sufficient to meet demand 0.05 1 0.05
Maintenance expenditure- a major overhead for the Company 0.05 1 0.05
Decline in sales over the last few years
0.05 2 0.10 Lack of response to competitor actions 0.05 1 0.05
TOTAL 1.00 2.65
INTERPRETATION
The total IFE score is 2.65, indicates a relatively strong internal position which means that FFBL is effectively making use of its strengths which in turn is somewhat covering the weakness of FFBL.
ONLY LOCAL PRODUCER OF DAP
FFBL's prime strength is being the only local producer of DAP. It has increased it production capacity of Ammonia and DAP since 2004 through the use of BMRE technology.
SUPPORT OF PARENT COMPANYMarketing of any product is a costly activity for any company. For FFBL all its marketing and distribution is done by its parent company FF, which results in cost decline for the company. It has strong support of its parent company FF and shareholders like FFC.
OWNS UTIILITIES PLANTFFBL owns a utilities plant which provides power, steam and water as required by the manufacturing plants. It has given the highest weightage because manufacturing of fertilizer is highly dependent on power, steam and water. FFBL does not have to rely on other sources to get these essential ingredients for production of fertilizer.
UNAVAILABILITY OF PRODUCTSFFBL's products are unavailable in NWFP and in some parts of Punjab. An effective strategy of company is to distribute its products all over the country. FFBL has to cater to the NWFP market and untapped areas of Punjab. This can help increase its overall market share in the industry.
MANAGEMENTAt top positions both retired army officers and non army officers exist in FFBL. They have different management styles of handling management issues which sometimes lead to conflict within organization. To overcome this factor there has to be one pattern of dealing with issues so that conflict will not arise.
BUREAUCRATIC ENVIRONMENTIn FFBL bureaucracy exists. Whatever senior managers decide implements in the organization. Workers are not given chance to participate in any problem solving phase. They are just given their work to perform and don't get chance to show their knowledge and skills.
NO RESPOND TO COMPETITOR'S ACTIONSA company gets competitive advantage when it provides something to its producers not provided by other companies. FFBL does not take any action when its competitors take certain actions. In order to compete in a fertilizer industry it should not ignore this factor otherwise it would loose its customers and hence its market share would also decrease.
STRATEGIES
o Market and distribute products in NWFP and uncovered areas of Punjab.o Produce sufficient quantity of DAP and Ammonia to meet demando Respond immediately to competitor's actions.
CHAPTER 4
STRATEGIC ANALYSIS AND
RECOMMENDATIONS
INPUT/MATCHING/DECISION MODEL
TOWS
Strengths Weaknesses
1. Support and backing of a strong parent
company FF and shareholders like FFC1. Delays and disconnects in information
sharing and getting approvals
2. Cash rich, and getting richer. Profit margins for the company and EPS have increased over the past year
2.Products are entirely unavailable in NWFP and some parts of Punjab
3. Only local manufacturer of DAP and caters to 40-45% demand of DAP
3.Conflict in management style between military and civilian
4. Elaborate maintenance programs and a sharp preventive maintenance team
4.Lack of continuity in management
5. Marketing and distribution functions being operated by FFC completely which results in cost reductions
5. Improper handling of a variety of technical and administrative problems
6. Pakistan Morocco Phosphore covers FFBL’s needs for Phosphoric Acid completely
6. Bureaucratic environment exists within the company. Workers are just cogs in a machine; the boss is the king and always right.
7. Obtained ISO 9001, 4001 and 18001 certifications for Quality Control, Environment and Occupation, health and safety respectively.
7. Despite an extensive BMRE initiative, current capacity is still not sufficient to meet demand
8. Extremely clear lines of command and control throughout the organisation
8. Maintenance expenditure- a major overhead for the Company
9. Increased production capacity of ammonia (2004) and DAP plants (2006 and 2008) by 24% and 56% respectively due to BMRE
9. No proper buy-in of Vision and Mission of the company from different levels of the organisation.
10. Owns a utilities plant which provides power, steam and water as required by the manufacturing plants
10. Lack of response to competitor actions
Opportunities S-O Strategies W-O Strategies1. Rise in fertilizer consumption across the
globe due to food shortage1. Plant Expansion of DAP fertilizer (O8, 09,
S2, S3)1. Use technology to make gain
operating efficiency and reduce un neccesary expenses(O6,W5,W8)
2. Industry capacity has increased at a CAGR of 5.5%
2. Manufacture other types of phosphate fertilizers such as triple super phosphate phosphoric acid and mono ammonium
2. Increase expenditure in research and development inorder to meet growing demand and to become
phosphate (O1, O8, O9, S1, S2) competitive(O3,W1,W10)
3. Currently high demand(6.8 mntpa) for fertilizers not met by the current supply (5.8 mntpa)
3. Design programs inorder to educate farmers on when to use DAP fertilzer and on the quantity of fertilizer (O9, S5)
3. Making the product available in Punjab and NWFP (O2, O1, W2)
4. Indirect subsidy from GoP of feedstock gas at preferential rates
5. New financing schemes from SBP for small farmers
6. BMRE technology to enhance the operating efficiency of plant
7. Import of liquid gas through Fauji oil terminal company (FOTCO) in future
8. Upsurge in the global prices of DAP. Demand for DAP would grow steadily and is still well in excess of supply.
9. Increasing farmer awareness of the superior efficacy of DAP and Granular Urea over regular urea
Threats S-T Strategies W-T Strategies1. Farmers low literacy rate and awareness
affects the acceptability of premium fertilizer products
1. Taking advantage of certifications it should export fertilizer in other countries where people know the advantages of DAP.(T2,T7,S7)
1. Eliminate unneccessary processes from value chain to become cost efficient and make fertilizers cheaper.(T7,T8)
2. A global depression in DAP 2. Maintaing strong contracts with the suppliers (S6, T4, T8)
2. To diversify and invest in FFCL(T3,T6,W2,W5)
3. Shortage of gas supply 4. Rivalry among competitors expected in
20113. Investment into an independent power
generation company to increase capacity.(T4,T5,T6,S1,S2)
5. Capacity increases of Engro by 2011 6. High threat of new entrants because of
GoP’s fertilizer policy 20014. Introduce promotional offers(T7,S6,S10)
7. Global recession reduces the purchasing power of farmers and they shift towards substitutes.
8. The tendency of dealers to engage in black marketing and hoarding
9. Prices for imported raw materials have been affected both by increased global demand and by the depreciation in the value of the Rupee.
ANALYSIS
The highlighted strategies are the best and most applicable to enhance the overall position of FFBL as they effectively handle the important strengths, weakness, opportunities and threats.
Backed by their strengths and weaknesses I think FFBL should adopt either of the following strategy:
Manufacture other types of phosphate fertilizers such as triple super phosphate phosphoric acid and mono ammonium phosphate.
Taking advantage of certifications it should export fertilizer in other countries where people know the advantages of DAP.
SPACE Matrix
Conservative FS Aggressive
CA IS
Defensive ES Competitive
A firm in the Aggressive quadrant should use its internal strengths to (1) take advantage ofexternal opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. Therefore,market penetration, market development, product development, backward integration, forwardintegration, horizontal integration, conglomerate diversification, concentric diversification, horizontal
diversification, or a combination strategy can all be feasible.
SPACE WORKING
ENVIRONMENTAL STABILITY
technological changes -2rate of inflation -4demand variability -1price range of competing products -3barriers to entry into market -2competitive pressures -5ease of exit from market -5price elasticity of demand -3risk involved in business -2
-27 -3
INDUSTRY STRENGTH
growth potential 5
FINANCIAL STRENGTH
ROI 5
Leverage 5
Liquidity 3
working capital 2cash flow 4
inventory turnover 4
EPS 2
price earning ratio 530 3.75
COMPETITIVE ADVANTAGE Market share -3product quality -3product life cycle -2customer loyalty -4competitions capacity utilization -2technological know how -2control over suppliers and distributors -1
-17 -2.42857
profit potential 5financial stability 4technological know how 4resource utlization 5ease of entry into market 3productivity, capacity utilization 6
32 4.571429
ANALYSIS
The result of space matrix shows that FFBL should follow aggressive strategies and use its internal strengths to take advantage of external opportunities, overcome internal weaknesses, and avoid external threats. The various strategies that FFBL can use are market penetration, market development, product development, backward integration, forward integration, horizontal integration, conglomerate diversification, concentric diversification, horizontal diversification, or a combination of these.
STRATEGIES
MARKET DEVELOPMENT
Taking into account FFBL’s external and internal success factors it can follow market development and diversification as it has not catered to the NWFP market and some parts of Punjab. It can seek a suitable site for a second plant closer to its end customers. This site should have the space to house satellite plants for both related and unrelated diversifications as needed. It would be vital in this activity to engage the services of specialists in the various relevant fields through this project, and also to continue to engage experts after the plant has been commissioned in the operational and decision-making processes of the company. This would also improve the distribution reach of the company as transport costs to NWFP will no longer be prohibitive.
PRODUCT DEVELOPMENT
Besides market development, FFBL can also pursue product development and manufacture other phosphate fertilizer as it has the resources to do so in form of steady supply of phosphoric acid.
UN RELATED DIVERSIFICATION
FFBL can also diversify into oil sector by investing in Fauji oil terminal company, though it is an unrelated diversification it will help to spread the risk and supply of liquefied gas will be steadier.
BOSTON CONSULTING GROUP (BCG) MATRIX
INTERPRETATION:
Fertilizer Industry is a high growth industry and fertilizer provides important nutrient to the soil. Urea dominates the domestic fertilizer market. FFBL has 11.4% market share. Two other major Urea manufacturers are FFC and Engro Chemicals Limited (Engro), having 50% and 21.4% shares of the total fertilizer market respectively. In the DAP market FFBL is the only local producer and caters to 30% of the market.
FFBL can pursue intensive strategies like market penetration, market development or product development. Market Development is a viable option for FFBL’s as its products are distributed jointly with those of FFC. They are of a nature where ensuring wide access is quite important in order to ensure availability to customers in remote rural locations. FFBL could therefore choose to devote considerable resources to bringing influence to bear on FFC to ensure the widest possible availability of FFBL stock to locations especially in N.W.F.P. Since there is a great deal of local demand and the Government is likely to also resist, exporting products is not a viable option at this point. However, with the capacity expansion of Engro and Fatima Fertiliser due to come online in 2011, the company does need to open lines of communication with the GoP in order to look into the possibility of exports once the local industry reaches a position when supply exceeds demand. At this point, wider distribution will also become greater importance to the company as a source of competitive advantage.
STARSQUESTION MARK
CASH COW DOGS
FFC FFBL
Strategies: Timely availability of DAP and Urea to existing farmers. Make products available in NWFP and Punjab. Produce sufficient quantity of fertilizer to meet deman
IE Matrix
HOLD AND MAINTAIN
According to IE matrix, FFBL should hold and maintain its current position. Hold and Maintain strategies include Market Penetration, and Product Development hence following the intensive strategies.
MARKET PENETRATION
A market penetration strategy seeks to increase market share for present products or services in present markets through greater marketing efforts.
The farmers of our country purchase fertilizer in lesser quantity compare to the size of their land. They are unaware of the usage of fertilizer for their soil. They can be educated through training programs and increase selling effort by the company. Further more; farmers need to be aware of the fact that Urea contains different nutrients and application of nitrogen fertilizer cannot help increase the yield when soil is deficient in phosphorus.
If farmers will become aware of the use of fertilizer, they will be able to reap good crop and continuous purchase will increase the sale of fertilizer which will benefit the company.
PRODUCT DEVELOPMENT
Product development is a strategy that seeks increased sales by improving or modifying present product or service.
There is no exact substitute of fertilizer in Pakistan, as fertilizer provides important nutrients to the soil. However high yielding seeds which help increase the acres per yield and cow dung which also is known to benefit the soil are the substitutes of fertilizer.
Currently the demand of fertilizer is more than its supply and the company is able to sell as much as it produces. Due to global food shortage, demand of fertilizer will further increase so the company has to make sure that it produces enough which would cater the need.
Besides meeting the demand, FFBL has to make sure that quality of fertilizer will not be affected as a result of more production. Even if supply of Natural Gas stops it should adopt alternative methods for production of Urea and DAP. Timely delivery of fertilizer to the farmer is also necessary for high yield.
STRATEGIES
Educate farmers regarding the use of Fertilizer over traditional fertilizer which is cattle dung.
Through BMRE FFBL can try to produce low cost product for small farmers.
Grand Strategy Matrix
Market developmentMarket penetrationProduct developmentForward integrationBackward integrationHorizontal integrationConcentric diversification
Product Development: Since FFBL now has competition emerging in the DAP category and will not remain the only producer of it, it should focus on improving or adding value to Sona DAP since it is its strength and it should maintain it.
Backward Integration: It can use its resources to explore gas and have its own gas plant instead of buying it from the government to save costs.
Horizontal Integration: It can buy a competitor’s business with a view to expand geographically to increase the market share or to benefit from the economies of scale.
Market Penetration: It can be done by having its own marketing department that can promote its unique products or it can influence FFC into ensuring that separate marketing activities are opted for FFBL.
Forward Integration: It can obtain increased control over its distributors or retailers to make sure they recommend and provide FFBLs products on time.
MATRIX ANALYSIS AND TOWS SUMMARY
Matrix Analysis and TOWS Summary
Alternative Strategies IE SPACE GRAND COUNT
Forward Integration X 1Backward Integration X 1Horizontal Integration X 1Market Penetration X X X 3Market Development X 1Product Development X X X 3Concentric Diversification - 0Conglomerate Diversification - X 1Horizontal Diversification - 0Joint Venture - 0Retrenchment 0Divestiture 0Liquidation 0
QSPM
QUANTITATIVE STRATEGIC PLANNING MATRIX FOR FFBL
Strategic Alternatives
Critical Success Factors Weight
Manufacture other types of
phosphate fertilizers.
Investment into an independent
power generation company to
increase capacity.
Strengths AS TAS AS TAS
Support and backing of a strong parent company FF and shareholders like FFC 0.06 4.00 0.24 3.00 0.18
Cash rich, and getting richer. Profit margins for the company and EPS have increased over the past year 0.05 3.00 0.15 4.00 0.20
Only local manufacturer of DAP and caters to 40-45% demand of DAP 0.06 4.00 0.24 3.00 0.18
Elaborate maintenance programs and a sharp preventive maintenance team 0.04 3.00 0.12 2.00 0.08
Marketing and distribution functions being operated by FFC completely which results in cost reductions 0.05 1.00 0.05 2.00 0.10
Pakistan Morocco Phosphore covers FFBL’s needs for Phosphoric Acid completely 0.06 3.00 0.18 2.00 0.12
Obtained ISO 9001, 4001 and 18001 certifications for Quality Control, Environment and Occupation, health and safety respectively. 0.06 ---- ----
Extremely clear lines of command and control throughout the organisation 0.04 ---- ---- ---- ----
Increased production capacity of ammonia (2004) and DAP plants (2006 and 2008) by 24% and 56% respectively due to BMRE 0.05 ---- ---- ----
Owns a utilities plant which provides power, steam and water as required by the manufacturing plants 0.05 2.00 0.10 3.00 0.15
Weaknesses
Delays and disconnects in information sharing and getting approvals 0.05 2.00 0.10 1.00 0.05
Products are entirely unavailable in NWFP and some parts of Punjab 0.04 1.00 0.04 2.00 0.08
Conflict in management style between military and civilian 0.05 ---- ---- ---- ----
Lack of continuity in management 0.05 ---- ---- ---- ----
Improper handling of a variety of technical and administrative problems 0.04 ---- ----
Bureaucratic environment exists within the company. Workers are just cogs in a machine; the boss is the king and always right. 0.05 ---- ---- ---- ----
Despite an extensive BMRE initiative, current capacity is still not sufficient to meet demand 0.06 2.00 0.12 1.00 0.06
Maintenance expenditure- a major overhead for the Company 0.05 1.00 0.05 4.00 0.20
No proper buy-in of Vision and Mission of the company from different levels of the organisation. 0.04 ---- ---- ----
Lack of response to competitor actions 0.05 3.00 0.15 4.00 0.20
SUBTOTAL 1.00 1.54 1.60
Critical Success Factors Weight
Manufacture other types of
phosphate fertilizers.
Investment into an independent
power generation company to
increase capacity.
Opportunities AS TAS AS TAS
Rise in fertilizer consumption across the globe due to food shortage 0.08 4.00 0.32 1.00 0.08
Industry capacity has increased at a capacity of CAGR of 5.5% 0.05 3.00 0.15 2.00 0.10
Currently high demand(6.8 mntpa) for fertilizers not met by the current supply (5.8 mntpa) 0.08 3.00 0.24 2.00 0.16
Indirect subsidy from GoP of feedstock gas at preferential rates 0.07 ---- ----
New financing schemes from SBP for small farmers 0.04 2.00 0.08 3.00 0.12
BMRE technology to enhance the operating efficiency of plant 0.05 3.00 0.15 2.00 0.10
Import of liquid gas through Fauji oil terminal company (FOTCO) in future 0.04 ---- ---- ----
Upsurge in the global prices of DAP. Demand for DAP would grow steadily and is still well in excess of supply. 0.06 3.00 0.18 3.00 0.18
Increasing farmer awareness of the superior efficacy of DAP and Granular Urea over regular urea 0.06 ---- ---- ----
Threats
Farmers low literacy rate and awareness affects the acceptability of premium fertilizer products 0.06 ---- ---- ----
A global depression in DAP 0.06 3.00 0.18 2.00 0.12
Shortage of gas supply 0.08 ---- ---- ----
Rivalry among competitors expected in 2011 0.04 3.00 0.12 4.00 0.16
Capacity increases of Engro by 2011 0.05 2.00 0.10 3.00 0.15
High threat of new entrants because of GoP’s fertilizer policy 2001 0.03 2.00 0.06 4.00 0.12
Global recession reduces the purchasing power of farmers and they shift towards substitutes. 0.06 1.00 0.06 2.00 0.12
The tendency of dealers to engage in black marketing and hoarding 0.04 1.00 0.04 2.00 0.08
Prices for imported raw materials have been affected both by increased global demand and by the depreciation in the value of the Rupee. 0.05 1.00 0.05 2.00 0.10
0.00 ---- ---- ---- ----
SUBTOTAL 1.00 1.73 1.59
SUM TOTAL ATTRACTIVENESS SCORE 3.27 3.19
RESULT
The attractive strategy is to manufacture other types of phosphate fertilizers with a score of 3.27, although the other strategy of investing into an independent power generation company to increase capacity has a score of 3.19 which shows that both the strategies are very attractive for the company with a difference of few points. If the company has enough resources then it can pursue both the strategies as it will affect it positively, although the suggested strategy is manufacturing other types of phosphate fertilizers
CHAPTER 5
STRATEGY IMPLEMENTATION
STRATEGY IMPLEMENTATION
STRUCTURE
Organizational structure: Bureaucratic; hierarchical; centralized; one-to-one reporting and assessment. The organization is (claimed to be) a meritocracy - performance is rewarded, resources are available when needed and learning is encouraged.
The organization is such that they make sure to avoid experimentation in order to dodge possible failure and acute risk aversion at the expense of significant gain. Organization is indestructible because FFC’s support is always available and workers are just taken as cogs in a machine because the boss is the king and always right.
FFBL’s senior management comprises almost exclusively of retired military personnel, who bring their significant administrative skills to bear. There are extremely clear lines of command and control throughout the organisation, and long chains of approval ensure that all expenditures for replacement parts and other expenditures are thoroughly vetted and approved. Retired military personnel are attached to FFBL on 5 year contracts, after which they are replaced in their respective positions by a new incumbent of the same pedigree. Military personnel are thin on the ground in junior and middle management positions, and likewise senior management cadres are comprised entirely of military personnel.
The company’s military genes are very visible in the layout of the offices, with long corridors and spacious offices for the more senior members of staff being the order of the day. Military men (mostly top managers) are good managers but lack technical understanding, thus need to make technical presentations in non-technical manner. Military people are in charge of approving projects which are technical in nature but do not have the necessary technical background. Despite the acknowledged differences in technical backgrounds, managers were uniformly positive about their superiors in Rawalpindi. In the words of Rao Jamil Hamid, Electrical and Instrumentation Manager:
“It can sometimes be difficult to explain the technical details and reasons behind a particular project to the senior management, as they have difficulty understanding the
technical terms or engineering stakes involved. However, we have learnt how to make these reasons understandable to them, and manage to get out point across.”
RESOUCRES
There are three major plants; Ammonia Plant, Urea Plant and DAP Plant.
FFBL’s major share holders in 2007 were FFC and Fauji Foundation (FF) with a stake of 50.8% and 17.3% respectively. The benevolent shadow of FFC and the GoP is a further source of comfort for the company; it has been bailed out of financial difficulties in the past.
Having cash reserves to burn, the company has invested in capacity, its first priority such as BMR of Ammonia and DAP plants and is looking to emulate other players in the industry to diversify its interests.
CULTURE
FFBL’s paradigm is protected by its cultural web of:
Stories: Reasons behind senior executives’ transfers and promotions; turnaround anecdotes.
Symbols: Head office location; size of office proportional to position in hierarchy and power vested in position; office layout separating departments; safety signs.
Rituals and routines: Follow SOPs; promotion based on direct supervisor’s evaluation.
Power structure: Retired military officers constitute top brass; technically qualified professionals eventually encounter the glass ceiling; seniority on the basis of time in service.
Controls: Regular inspections to avoid outages; auditor involvement; automation; standardized procedures.
FFBL has inherited consciousness for safeguarding its reputation from FFC. Concern for and adherence to Standard Operating Procedures is part of the DNA of the organization, and something that employees are reminded of regularly through numerous signs placed throughout the plant premises. It has obtained ISO 9000, 14001 and 18001 certifications for Quality Control; Environment; Occupation, health and, safety respectively. Standard
Operating Procedures, a necessary condition for ISO certification, come naturally to the senior management given their military backgrounds. Any changes in SOPs have to be monitored by IMS. The Integrated Management Systems department communicates the procedures throughout the organization.
FFBL has a high emphasis on following standards for health and safety. They also hold safety talks in the beginning of every week. Motivational courses for staff and engineers are in place in order to boost worker morale. As a step towards social responsiveness they are planning to set up clinic and sponsor schools in adjoining areas. FFBL is conscious of its responsibility to the environment and abides by the guidelines of the Sindh Environmental Protection Association (SEPA). Emission levels are monitored via monthly reports. Housekeeping awards for the cleanest department are distributed monthly. Employees are required to wear safety shoes, helmets and goggles in certain areas of the facilities without which access is denied.
FFBL is seen by many managers as an employer for life. Once through the apprenticeship program, engineers have a long and well-defined career path that takes them to the highest levels of management at the plant. Reporting lines are clear and unambiguous, and ultimate responsibility resides at Headquarters, making working at FFBL a stable and regimented experience.
LEADERSHIP
After FFBL bounced back from its unfortunate production shutdown in early 2000, the then GM Plant Mr. Naeem ur Rehman was determined not to repeat the past mistakes. The aging plants needed to be revamped and prospects of an extensive BMR exercise were looked into. These renewal efforts bore fruit and production capacities of both Ammonia and DAP plants were increased due to efficient leadership.
FFBL’s senior management view the finance function as an integral part of the company’s decision making process. The annual budgeting process kicks off in August each year, and is the only planning exercise which engages Plant staff; there is a team based at Headquarters which reviews new initiatives.
Despite the company’s future being secure, the management at FFBL is determined to keep the company moving forward. This is partly inspired by major competitor Engro’s successful diversification ventures and partly by the fact that there are several avenues within the Fauji group where the funds of the relatively cash-rich FFBL can be diverted.
The first of these was the planned investment in an independent power company, Foundation Power Company (Dharki) Limited (FPCDL). FFBL plans to invest an amount of up to Rs. 1.5 Billion in this venture. With the rising spectre of increasing electricity shortages in the future, FFBL looks to have backed another winner in FPDCL.
FFBL is also considering diversification and investment into Fauji Cement Company Limited (FCCL) expansion project as part of its strategy to puts its money to profitable use. FCCL plans to expand its existing operating capacity from 1.17 MTPA to 3.51 MTPA (200% expansion). FFCL is one of the most well managed and efficient cement plants in Pakistan. Therefore, investment in such a company will also help in building FFBL image, as well as ensure that surplus money is invested in profitable ventures. The cement industry is an area of enterprise which has not enjoyed any significant government largesse in the past, in terms of indirect subsidies and tax breaks, and in those terms is a new frontier for FFBL.
Other than investments in other Fauji Group companies, FFBL is also evaluating a variety of diversification options under its own direct umbrella. Chief among these is a venture into the food industry. The company has a ready-made example in front of it to emulate; Engro has made a success of a similar venture in recent months, establishing a blueprint for similar ventures.
Similarly, emphasis on safety is driven by top management which led to the achievement of Safety award for 1 million safe hours.
BALANCE BUSINESS SCORECARD
The balanced scorecard is a strategic planning and management system that helps everyone in an organization understand and work towards a shared vision. A completed scorecard system aligns the organization’s picture of the future (shared vision), with business strategy, desired employee behaviors, and day-to-day operations. Strategic performance measures are used to better inform decision-making and show progress toward desired results. The organization can then focus on the most important things that are needed to achieve its Vision and satisfy customers, stakeholders, and employees.
The Balance Scorecard is a strategic approach and performance measurement system that enables organizations to translate a company’s vision and strategy into implementation, working from four perspectives:
1. Financial Perspective: To succeed financially, how should we appear to our shareholders?
2. Customer Perspective: To achieve our vision, how should we appear to our customers?
3. Business Process Perspective: To satisfy our shareholders and customers, what business processes must we excel at?
4. Learning and Growth Perspective: To achieve our vision how will we sustain our ability to change and improve?
Each of these perspectives is evaluated through objectives, measures, targets and initiatives.
Objectives Measures Targets Initiatives
Financial 1. To grow revenues 2. To increase profits and ROI
1. Capturing more new markets2. Financial RatiosAnd Trend analysis
1.Increasing revenues by 30% by the end of 20092.Increasing ROI by 15% by end of 2009
Introduce fertilizers with different contents to meet needs of new markets and increase profits.
Customer 1.To attract and retain more customers2. To Lower cost of fertilizers for the price sensitive farmers.
1. Increased customer database.2. Market survey and lower unit price.
1. Increasing sales volume by 35% by end of 20082. To increase market share to 60%
1. Stabilizing delivery networks and distribute fertilizers in Northern areas.2.Total quality management and elimination of un necessary processes.
Internal 1. To attain operating efficiency with BMRE technology.
1.Increased production capacity of ammonia and DAP plants due to BMRE
1. Driving costs out by 40%
1.Increased degree of automation in production activities
Learning and Growth
1. To increase the expertise and skills of employees.2.Accelerate R&D role
1. Reduction in number of technical and administrative problems reported.2. Employee feed back and participation in decision making
1. yr. 1 70% yr. 3 90% yr. 5 100%
1. Training of employees
2. More product research and development
FINANCIAL PERSPECTIVEFFBL’s foremost objective in terms of financial perspective is to increase its revenues and ROI. Since the target market of fertilizer industry is the farmers, the measurement of these financial objectives can be made through capturing new markets in Pakistan, such as in NWFP and Punjab. FFBL can develop their market in new geographical regions thus increasing revenue. Since a bigger proportion of revenue is generated from the Phosphorous fertilizer (DAP), introducing fertilizers with different contents to meet needs of new markets will generate more revenues and thus will increase ROI.
CUSTOMER PERSPECTIVESince FFBL is opting for market development, it can firmly constitute its objective of attracting and retaining customers by reducing cost of fertilizers for the price sensitive farmers. The attainment of these objectives can be measured by the increased customer database, market survey and lower unit price with the target of increased sales and market share.
Moreover, FFBL can make its delivery network more effective and strong and distribute fertilizers in Northern areas to meet the needs of the customers. Another initiative that can be taken to attract and retain customers is through initiating total quality management and elimination of un necessary processes
INTERNAL PERSPECTIVEFFBL can attain operating efficiency with BMRE technology. The attainment of this objective can be measured by increased production capacity of ammonia and DAP plants due to BMRE. The whole process can drive out the costs on an estimation of 40%.
FFBL can increase its productivity and production capacity of ammonia and DAP plants by initiating increased degree of automation in production activities.
LEARNING AND GROWTHSince the strategies proposed and the objectives undertaken revolves around the market and product development, FFBL need to put great emphasis on the training and development of the employees in managing these objectives and to further training the newly hired employees in accordance to the increasing operations. The company needs to increase the expertise and skills of employees in order to encourage the workforce move vigorously in implementing the strategies. Also since,
FFBL is recommended for product development i.e. introducing more phosphorus fertilizers, another objective of FFBL’s shall be to accelerate the R&D activities in introducing new products to meet the needs of new market. These objectives can be achieved through more product research and development, and training employees. The attainment of these objectives can be measured by reduction in number of technical and administrative problems reported, with the target of 70%, 90% and 100% in 1st, 3rd and 5th year and by employee feed back and participation in decision making.
DIAGNOSTIC SURVEY OF PRIMARY AND SECONDARY MANAGEMENT PRACTICES
Answer the following questions using a scale from 1-5, where 1=inferior to industry peers, 3=about the same as industry peers, and 5=superior to industry peers.
Strategy Inferior Average Superior
The company has a clearly articulated and widely understood strategy. 1 2 3 4
5
The company has strong external antennae and quickly anticipates external shocks, emerging opportunities, and market downturns.
1 2 3 4 5
The company has a very good understanding of its competitors and can anticipate competitors’ moves.
1 2 3 4 5
The company is focused on extending/improving its core business or businesses and is committed to growing them aggressively.
1 2 3 4 5
Subtotal of Strategy score:
Execution Inferior Average Superior
The company’s products and services consistently meet customer expectations. 1 2 3 4
5
The company consistently improves employee productivity. 1 2 3 4
5
The company’s programs and initiatives consistently achieve desired outcomes. 1 2 3 4
5
The company’s IT systems enhance its ability to execute its value proposition. 1 2 3 4
5
Subtotal of Execution score:
Culture Inferior Average Superior
The company sets demanding performance standards for all of its employees.
1 2 3 4 5
The company consistently raises the performance bar. 1 2 3 4
5
The company’s culture is exciting, engaging, and fun. 1 2 3 4
5
The company has clear values that people in the company abide by. 1 2 3 4
5
Subtotal of Culture score:
Organizational Structure Inferior Average Superior
The company makes decisions quickly. 1 2 3 4 5
The company minimizes bureaucracy. 1 2 3 4 5
The company’s business processes are simple. 1 2 3 4
5
The company effectively cooperates across the organization. 1 2 3 4 5
Subtotal of Organizational Structure score:
Talent Inferior Average Superior
The company has great “talent” and “bench strength” at each position. 1 2 3 4
5
The company successfully develops talent. 1 2 3 4
5
The company designs jobs that intrigue and challenge talented employees. 1 2 3 4
5
The company’s senior management is personally involved in recruiting and developing talent.
1 2 3 4 5
Subtotal of Talent score:
Quality of CEO/Board Leadership
Inferior Average Superior
The CEO is uncanny at spotting opportunities and problems before others. 1 2 3 4
5
People at all levels of the organization feel connected to the CEO. 1 2 3 4
5
The CEO matches words with actions (“walks the talk”). 1 2 3 4
5
The company’s board members know the business and have a significant stake in the success of the company.
1 2 3 4 5
Subtotal of CEO/Board score:
Innovation Capability Inferior Average Superior
The company is continually transforming or reshaping its industry. 1 2 3 4
5
The company’s products, devices, or innovations are better than those of its competitors.
1 2 3 4 5
The company does not hesitate to cannibalize its existing business or businesses.
1 2 3 4 5
People who have new ideas are respected and enjoy high status in the company. 1 2 3 4
5
Subtotal of Innovation score:
M&A Growth Inferior Average Superior
The company consistently identifies good M&A possibilities. 1 2 3 4
5
The company rarely overpays for mergers & acquisitions. 1 2 3 4
5
The company is consistently better than its competitors at integrating mergers and acquisitions.
1 2 3 4 5
The company’s mergers and acquisitions achieve most of their projected cost and revenue benefits.
1 2 3 4 5
Subtotal of M&A score:
Total score
If you scored above 120, your organization is doing well in these practices
compared to your peers. Don't forget to maintain this success as you continue to juggle these practices in the future.
If you scored between 72 and 119, your organization is performing well or adequately in some areas of these practices and at or below your peers in other areas. Look for practices with subtotal scores under 12. You need to concentrate on improving those weak areas.
If you scored under 72, your organization is performing below your industry peers in these practices. You need to focus on overall improvement.
ORGANIZATIONAL STRUCTURE SCORES 2 1 3 2 Subtotal = 8
INNOVATION CAPABILITY SCORES 3 3 2 2 Subtotal = 10
M&A GROWTH SCORES
4 3 3 3 Subtotal = 13
EXECUTION SCORES 3 2 2 2 Subtotal = 9
STRATEGY SCORES 1 2 2 4 Subtotal = 9
CULTURE SCORES 3 2 2 2 Subtotal = 9
TALENT SCORES 2 2 2 1 Subtotal = 7
QUALITY OF CEO/BOARD LEADERSHIP SCORES 1 2 2 3 Subtotal = 8
TOTAL SCORE = 73
RESULT
The score indicates that FFBL is performing well or adequately in some areas of practices and at or below its peers in other areas. The weak areas include organizational structure, innovation capability, , strategy, culture, talent and quality of ceo/board leadership.
It is weak in its organizational structure because it doesn’t reduce bureaucracy or simplifies work and there is no timely exchange of information. It is weak in its innovation capability because the senior management doesn’t relentlessly pursue disruptive technologies or apply new technologies to enhance all operating process neither does it anticipates disruptive events in the industry because of the lack of expertise in the management. It is weak in its execution as it lacks quality control and does not meet the demand. It has a weak strategy because it doesn’t appear to be implementing any strategic level initiatives within the organization due to the lack of expertise of senior management which points to the lack of strategic outlook. Due to retired military personnel filling in for senior management positions, they naturally resist delegation of decision making to lower levels, however, there are motivational courses and learning is rewarded. There is a lack of talent as the jobs do not intrigue or challenge best performers and there is no continuity in senior management. And lastly leadership suffers because it is administratively strong but lacks technical awareness and industry knowledge which limits their spotting of opportunities and problems early.
In spite of all its weaknesses, it has a relatively better score for mergers and acquisitions growth as it is focusing on entering businesses that compliment its core strengths. Thus FFBL should maintain this strength while it should focus on improving its weaknesses.
CONCLUSION The fertilizer industry is attractive as shown by the porter’s five forces model and the macro environment conditions are also favourable. FFBL has many opportunities in the market that can help the firm to be profitable and grow. Currently it’s not exploiting the opportunities to its full potential as shown in the input stage in EFE matrix. It needs to build on its strengths and core competency-only DAP producer in Pakistan, for which the demand is already high. It further needs to invest in technology to increase the production of DAP and ammonia to cater to the growing demand. In the matching stage several strategies were developed with the help of various matrices and two strategies were selected for QSPM and of these two, manufacture other types of phosphate fertilizer seems more adequate taking into account the external opportunities, threats and internal strength, weaknesses.
RECOMMENDATION
FFBL should take into account the competitive situation in the future and prepare to respond because in 2011 the new entrant Fatima fertilizer would be operational and Engro Chemicals Ltd is already diversifying and is in the process of commissioning the world’s largest Ammonia/Urea plant, also due to start operations in 2011. Hence FFBL should follow product development and manufacture other types of phosphate fertilizer as this strategy is favored by the QSPM since it has steady supply of phosphoric acid and other internal and external factors make this strategy more attractive.