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

Strategic Choice

Strategy Implementation

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 longterm 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, bestcost, 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

Matching Stage Decision Stage

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 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, its 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

Fred David 12 edition, Strategic Management

th

Textile Industry in Pakistan, Facts and figures The textile industry is one of the most important sectors of Pakistan. It contributes significantly to the countrys 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 countrys 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.

http://www.osec.ch/internet/osec/de/home/export/countries/pk/export/economic_report.-RelatedBoxSlot98778-ItemList-97522-File.File.pdf/bb_Pakistan-Marktstudie-Textilindustrie2007_en.pdf

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 Pakistans 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

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 Ahmeds 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 companys 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 Ahmeds 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 Markets Technology Concern for survival, growth and profitability Philosophy Self concept Concern for public image Concern for employees X X X X 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

PORTERs FIVE FORCES

THREAT OF NEW ENTRANTS 1 2 3 4 5 6 7 8 9 10 11 12 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? YES (+) ~ NO ()

LOW INTERPRETATION

HIGH

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 1 2 3 4 5 6 7 8 9 10 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.

YES (+)

NO ()

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 1 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.

YES (+)

NO ()

2 3 4

LOW INTERPRETATION

HIGH

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 1 2 3 4 5 6 7 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. YES (+) ~ NO ()

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 1 2 3 4 5 6 7 8 9 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.

YES (+)

NO ()

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 Threat of new entrants Favorable 9 Moderate 1 Unfavorable 2 Implications

Threat of new entrants is low Favorable Bargaining power of buyers 5 5 Bargaining power of buyers is Low Moderate Threat of substitutes 2 2 Threat of substitutes is Low Favorable Bargaining power of suppliers 3 2 2 Bargaining power of suppliers is low Favorable 2 6 Intensity or rivalry is High Unfavorable Favorable

Intensity of rivalry among competitors Total

21

15

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 its 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 thats 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

EFE MATRIX Critical Success Factors Opportunities New style and Trends Demands New market segments around the world Abolition of Quota Existing production Capacity Lower cost competitiveness Advanced Technology 0.10 0.25 0.05 0.04 0.06 0.05 3 2 2 4 2 3 0.30 0.50 0.10 0.16 0.12 0.15 Weight Rating Weighted Score

THREAT Strong Local competitors Strong international Competitors Economic Downturn Change in Government Policies Lack of conducive Environment of Business Rise in utilities expenses TOTAL 0.08 0.15 0.10 0.04 0.04 0.04 1.00 3 4 1 1 2 2 0.24 0.60 0.10 0.04 0.08 0.08 2.47

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.

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 Ahmeds 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 Critical Success Factors Market Share Price Competitiveness Management Financial Position Advertising Technology Customer Loyalty Product Quality & hygiene Employee Productivity Branding TOTAL Weight 0.22 0.14 0.06 0.08 0.08 0.08 0.04 0.10 0.08 0.12 Rating 3 3 2 4 2 4 3 3 2 1 Wt. Score 0.66 0.42 0.12 0.32 0.16 0.32 0.12 0.30 0.16 0.12 2.7 NISHAT MILLS Rating 4 3 2 3 2 4 3 3 3 1 Wt. Score 0.88 0.42 0.12 0.24 0.16 0.32 0.12 0.30 0.24 0.12 2.92 KOHINOOR TEXTILES Rating 2 2 2 2 1 2 2 2 2 1 Wt. Score 0.44 0.28 0.12 0.16 0.08 0.16 0.08 0.20 0.16 0.12 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.

INTERNAL ANALYSIS

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 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, sheetings, 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 2009 Profiability Ratios
Gross profit ratio EBITDA margin to sales Net profit to sales 16.81 13.37 0.58 15.14 12.49 0.88 14.98 11.9 1.67 18.2 6.5 5.3 14.4 31.2 29.97 12.6 13.07 6.31 3.33

NISHAT 2007 2009 2008

KOHINOOR

2008

2009

2008

-4.4 -5.19

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

0.84 0.49
0.84

Rate of Return ROE Return on capital Time Interest coverage ratio 2.73 21.82 1.16 3.79 19.14 1.28 6.62 16.45 1.54 6.6 4 2.03 22.1 14.5 8.05 -2.74 14.06 -7.3 -2.6 -

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

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

-6.34 -3.43

Gross Profit Margin Gul Ahmeds 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 Kohinoors gross profit margin stood up to 12.6% only.

EBITDA margin to sales Gul Ahmeds 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 competitors i.e Nishat 5.3% and Kohinoor 3.33%.

Current Ratio Gul Ahmeds current ratio is somewhat in line with the industrys, where as its competitors 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 Ahmeds 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 Ahmeds 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 Ahmeds 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.

INVESTORs 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 Nishats 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 Ahmeds P/E ratio increased from 21.51 in 2008 to 26.79 in 2009 where as Nishats P/E ratio rose from 2.3 in 2008 to 13.4 in 2009, Kohinoors P/E ratio was in slump and showed a value of -3.43.

GENERIC STRATEGY

KOHINOOR

NISHAT

GUL AHMED

EXPLANATION 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 Ahmeds 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 Economy of Scale ISO and other compliance certification State of the art Equipment Brand Name Availability of Cheap Workforce Diverse Product Range Strong Suppliers Strong Buyers (Walmart etc) Weaknesses international Branding Management hierarchy (Seth culture) Lack of workforce training Poor Marketing Capacity Utilization Supply chain TOTAL 0.13 0.04 0.06 0.08 0.06 0.04 1.00 1 1 2 1 2 2 0.13 0.04 0.12 0.08 0.12 0.08 2.29 0.08 0.07 0.03 0.08 0.08 0.06 0.05 0.04 0.08 4 3 4 3 4 2 3 2 2 0.32 0.21 0.12 0.24 0.32 0.12 0.15 0.08 0.16

 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 todays 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 Ahmeds 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 Ahmeds 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 Quality 2. Economy of Scale 3. ISO and other compliance certification 4. State of the art Equipment 5. Brand Name 6. Availability of Cheap Workforce 7. Diverse Product Range 8. Strong Suppliers 9. 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 1. S5,O2 3 Gul ahmed can explore to new markets like china and Russia

W-O Strategies 1. 1. W1.O4 6

1. New style and Trends Demands 2. New market segments around the world

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

3. Abolition of Quota 4. Existing production Capacity 5. Lower cost competitiveness 6. Advanced Technology

2. 2. S6,O2 3 4 Gul Ahmed can use its cheap labor force to effectively utilize its existing capacity to serve new markets

W6 3.O2 Gul 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. W3 6.T1 2

1. Strong Local competitors 2. Strong international Competitors 3. Economic Downturn 4. 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

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

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.

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, peoples 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 Financial Strength (FS)
Return on equity Liquidity Inventory turnover Earnings per share Price earnings ratio Financial Strengths (FS) 2 2 2 1 4 2.2

External Strategic Position Environmental Stability (ES)

Technological changes Demand variability Price range of competing products Barriers to entry into market Competitive pressure Ease of exit Environmental Stability (ES) -2 -3 -2 -4 -4 -5 -3.33

Competitive Advantage (CA)

Market Share Product Quality Customer loyalty Control over suppliers and distributers -2 -2 -2 -3

Industry Strength (IS)

Growth Potential Profit Potential Financial Stability Technological know-how Ease of entry into market Productivity, capacity utilization Industry Strength (IS) 5 4 3 5 3 2 3.67

Competitive Advantage (CA)

-2.25

Financial Strength: 2.2 Environmental Stability: -3.33

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

Competitive Pressure: -2.25 Industry Strength: 3.67

each of the variables making ES and CA.

Y-axis: 2.2-3.33 = -1.13 X-axis: 3.67-2.25 = 1.42

FS and ES make up the X-axis whereas CA and IS makes up the Y-axis.

FS Conservative
+6 +5 +4 +3 +2 +1

Aggressive

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

IS

Defensive

-5 -6

Competitive ES

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

QUADRANT II

QUADRANT I GUL AHMED STRONG COMPETITIVE

WEAK COMPETITIVE POSITION QUADRANT III QUADRANT IV

POSITION

SLOW MARKET GROWTH

ANALYSIS:

After the internal, external audit of the industry structure and Gul Ahmeds 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.

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 Introducing Of Private Brand In International Market AS 2 3 TAS 0.16 0.21

CRITICAL SUCCESS FACTORS STRENGTHS Cotton yarn Quality Economy of Scale ISO and other compliance certification State of the art Equipment Brand Name Availability of Cheap Workforce Diverse Product Range Strong Suppliers Strong Buyers (Walmart etc) WEAKNESS International Branding Capacity Utilization Poor Marketing Lack of workforce training Management hierarchy (Seth culture) Supply chain SUBTOTAL CRITICAL SUCCESS FACTORS

Weight

Expansion To China Market AS TAS 0.16 0.21

0.08 0.07

2 3

0.03 0.08 0.08 0.06 0.05 0.04 0.08

3 3 4 3

0.24 0.24 0.20 0.24

3 4 4 -

0.24 0.32 0.20 -

0.12 0.06 0.06 0.08

4 2 -

0.24 0.12 -

4 4 4 -

0.48 0.24 0.24 -

0.06 0.05 1.00 Weight

Expansion To

Introducing Of Private Brand In

China Market

International Market AS 2 TAS 0.20

OPPORTUNITIES New style and Trends Demands New market segments around the world Abolition of Quota Existing production Capacity Lower cost competitiveness Advanced Technology 0.10

AS 2

TAS 0.20

0.25 0.05 0.04 0.06 0.05

4 2 3 2 2

1.00 0.10 0.12 0.12 0.10

3 2 3 2

0.75 0.10 0.12 0.10

THREATS Strong Local competitors Strong international Competitors Economic Downturn Change in Government Policies Lack of conducive Environment of Business Rise in utilities expenses 0.08 0.15 0.10 0.04 3 3 0.24 0.45 1 2 0.08 0.30 -

0.04 0.04

SUBTOTAL

1.00

3.98

3.74

STRATEGY 1 EXPANSION INTO CHINA MARKET (ADIOPTED) Pakistans 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 Ahmeds 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.