International Islamic University

Islamabad

Analysis of Gul Ahmed Subsidiary in Bangladesh

Subject:
International financial management

Submitted To:
Ch. Mazhar Hussian
Submitted By:

Usama Rehman (6276-FMS/MBA/F13)

Hamayun Iqbal (6279-FMS/MBA/F13)
Ozair Ali (6273-FMS/MBA/F13)
Abdul Mohid (6270-FMS/MBA/F13)

Table of contents
Introduction

03
Company
profile
..03
Nature of
Business
.03
Values

04
Mission

.04
Vision
..04
Goals
04
Strategies
.05
Business continuity
plan
.05
Subsidiaries
companies
..06

Motives of
DFI
07
Benefits of
DFI
08
Subsequent
decision
.08
Role of host Govt.

..08
Calculations of cash
flows.
09
Conclusion and
recommendations
.10

Company profile
Introduction
The story of textile in the subcontinent is the story of Gul
Ahmed. The Group began trading in textile products in the early

1900s. The Group entered the field of manufacturing with the

establishment of today's iconic name of Gul Ahmed Textile Mills
Ltd (the Company) in the year 1953.
The Company was incorporated on April 1, 1953 in Pakistan as
a private company with its liability limited by shares. The
Company was converted into a public limited company on
January 07, 1955 and got listed on the Karachi Stock Exchange
(KSE) in 1970. Currently, the Company is listed at all the three
Stock Exchanges of Pakistan

Nature of Business
With an installed capacity of more than 110,000 spindles, 4,800
Rotors, 300 state-of-the-art weaving machines and most
modern yarn dyeing, processing and stitching units, Gul Ahmed
is a composite unit making everything from cotton yarn to
finished products. Gul Ahmed has its own captive power plant
comprising gas engines, gas and steam turbines, and backup
diesel engines. Believing in playing its role in protecting the
environment, Gul Ahmed has also set up a waste water
treatment plant to treat 100% of its effluent, bringing it to
NEQS levels.
Gul Ahmed is playing a vital role not only as a textile giant, but
also as a strong player in the retail business as well. The
opening of its flagship store - Ideas by Gul Ahmed - marked the
Group's entry into the retail business. Starting from Karachi, Gul
Ahmed now has an extensive chain of more than 65 retail
stores across the country, offering a diverse range of products
from home accessories to fashion clothing.
More than 60 years since its inception, the name Gul Ahmed is
still globally synonymous with quality, innovation and reliability.

Values
In achieving its vision and fulfilling its mission, the Company
shall operate on the following core values: Integrity Passion
Creativity Teamwork

Mission
To deliver value to our stakeholders through innovative
technology, teamwork and by fulfilling our social and
environmental responsibilities.

Vision
Setting trends globally in the textile industry. Delivering the
best products and services to our customers.

Goals
Lead textile industry
Manufacture prime quality products
Create new opportunities for business growth and
diversification
Be an environment-friendly and socially responsible Company
Maintain operational, technological and managerial
excellence

Strategies
Investing in state-of-the-art machinery to ensure quality
Investing in technology to fulfil the manufacturing
requirements of the diversified portfolio
Implementation of the Enterprise Resource Planning software
to integrate all the operations of the Company
Strong quality management system to ensure that products
not only meet the customers requirements but are also safe for
use both by adults and children
Outsourcing

 Retaining and hiring competent and experienced

staff/workers at competitive remuneration and benefits
Paying benefits to the employees competitive to the labour
market, considering the welfare of employees as well
Nurturing of creative talent and skills in relevant human
resource who can visualise and create new fashion trends
Ensure that the workforce is fully aware of the safety
measures which they have to take while performing daily
assigned jobs and/or in case of any emergency
Encouraging the employment of females and special persons
Zero tolerance against child labour
Effective marketing to secure highest growth rates in terms of
sales and earnings per share
Diversification of products is the core strategy. Depending on
the latest fashion trends the Company must be able to fulfil the
requirements of different customers
Retain and develop a green environment
Maximum possible recycling of waste
Save energy, water and ensure minimum possible carbon
emissions Employee stock option scheme

BUSINESS CONTINUITY PLAN (BCP)

BCP refers to the activities required to keep the Company
running during a period of displacement or interruption of
normal operation.
Disasters may occur anytime and the Company is fully
prepared to face those disasters. As we are the largest
composite textile mill in the industry having several factories
running with systems, fixed assets and inventories worth
billions of Rupees, the disasters may cause severe damage to
the operations.
A comprehensive and rigorous BCP is prepared to achieve a
state of business continuity where critical systems and
networks are continuously available. Arrangement of a Hot Site

is in place to mitigate the risk of prolonged halting of

operations. Backup of the data and system is maintained on
daily basis in remote place so that it may be recovered
immediately in case of disaster.
The Company has also arranged the security of all factory sites
and offices along with tight surveillance through CCTVs. Fixed
assets and inventory are insured and properly safeguarded.
Very effective firefighting systems along with the team of
professional and well trained firefighters are present at every
location round the clock.

SUBSIDIARY COMPANIES
The Company has following three wholly owned subsidiaries
which are engaged in trading of textile related products:
1. Gul Ahmed International Limited (FZC) incorporated in UAE
on November 27, 2002.
2. GTM (Europe) Limited incorporated in United Kingdom (UK)
on April 17, 2003 is a wholly owned subsidiary of Gul Ahmed
International Limited (FZC).
3. GTM USA Corp. incorporated in United States of America
(USA) is a wholly owned subsidiary of GTM (Europe) Limited

Motives of DFI
The first objective of Multinational Company is to have
international diversification, by adding more and more projects
in their portfolio. With it risk is lessen as majority of the MNC
have their subsidiaries with negative co-relations with each
other. As if there is worst situation in one Era Company can
compensate it from the other era.
The basic purpose of Diversification is to improve profitability in
term of increase in Revenue or decrease in cost. One of the
basic compulsion of MNC is to maximize the shareholders
wealth due to which it has to move towards those countries
where they may find cheap labour, land, capital and building
I.e., cheap factor of production.

The major motive of foreign direct investment is.

attract new sources of demand
enter-market where superior profits are possible
Exploit monopolistic advantages
Reaction to trade restrictions, and
Diversify internationally.
The international project reduces the firms cost and overall risk
of the company .the major aspect of international
diversification is selecting foreign projects whose performance
levels are not highly co-related with the help of it various
international projects do not experience poor performance all in
one time. The major motive of cost related direct foreign
investment is.
Fully benefit from economies of scale
Using foreign factor of productions
Using foreign raw materials
Exchange rate movement

Benefits of DFI
International diversification gives the benefit to the company of
securing exchange rate fluctuation. They choose such type of
countries where they may find cheap cost of investment and
less risk of loss. Companies take such type of decisions after
analysing and thinking a lot about, whether the company
should expand their operations, should company moves
towards that specific country should all the earnings should be
remitted to the parent company or subsidiary should use it by
itself.
Here the company also looks towards the rules of the host
government related to the direct foreign investment related to
their sector in which they are going to invest.

Corporation often reaches to a stage where the companys

growth reaches at its maximum limit in its home country due to
multiple factors such as intense competition or its market share
reached at its potential peak. So company tries to move out of
the Country where they see potential demand in which the list
of less developing countries comes first of all in front of their
eyes. Such as Bangladesh. Although in the beginning MNC may
faces multiple barriers in term of its progress in that country.
But with a passage of time by giving best quality services or
products company easily makes its place in the market of that
specific country.
One of the biggest problems that a multinational face is control
of their cost. For this purpose they tried to obtain economies of
scale. The potential benefit from DFI very with the countries
such as region of Asia v/s region of Europe as problem in one
region may affect their earnings, on the other hand the earning
of the other region will support that company and risk will be
minimized.

Subsequent Decisions of Direct Foreign

Investment
Once DFI takes place few decisions are necessary to determine
about the further expansion in the given location. When the
project earns the MNC must decide whether funds should be
remitted to the parent company or should remain to the
subsidiary. If subsidiary is in need of money the funds should be
more beneficial for subsidiary and it should be used by it, not to
the parent. Of-Course certain percentage of the funds will be
needed to maintain operations but the remaining funds should
be send to the parent or sent to any other subsidiary or reinvest for expansion purposes. The appropriate decision
depends on the economic conditions in the subsidiaries country
and the parents country and restrictions imposed by the host
government.

ROLE OF HOST GOVERNMENT

Government can play an important role related to the DFI

through the following tools.
Incentives to encourage DFI
Barriers to DFI
Protective Barrier
Industry Barrier
Red Tape Barrier
Environmental barriers
Political Instability
Ethical differences, and
Regulatory Barriers
Some governments allow international acquisition but imposed
special requirements such as acquiring local firm or does not
threaten the local market share of the local companies. The
MNC may even be required to retain all the employees of the
target firm so that unemployment and general economic
conditions should not be disturbed or adversely affected.
The purpose of this section is to identify the role of theories in
direct foreign investment
1. Monopoly Theory of Advantage
According to it MNC possess Monopolistic Advantage over the
local firms of Host Country. The firm Enjoys Monopolistic
Advantage due to Superior Knowledge and Advance technology.
( intangible skills , technologic processes unique product
differentiation ).
2. Product Life Cycle Theory
According to it first of all company operates in home country
then export its products after that it itself moves to that specific
country and then have competition there.
3. Eclectic Theory

It deals with the following factors country specific, companies

specific relating to trade and foreign direct investment.
Country specific deals with geographical
environment, Government regulatory framework,
production and transportation cost, research and
development advantages, political environment,
taxes and fiscal policy and cultural environment.
Company Specific deals with managerial
effectiveness and technological advantages.

Calculation of cash flows

1

2500000
0
Variable cost (125000
00)
Fixed cost
(845000
0)
EBT
4050000

2700000
0
(135000
00)
(845000
0)
5050000

2800000
0
(140000
00)
(845000
0)
5550000

2900000
0
(145000
00)
(845000
0)
6050000

3000000
0
(150000
00)
(845000
0)
6550000

TAX@15%

607500

757500

832500

907500

982500

EAT

3442500 4292500 4717500 5142500 5567500

(+)DEP EXP

6000000 6000000 6000000 6000000 6000000

100% Remit

9442550 1029250 1071750 1114250 1156750

0
0
0
0
(566550) (617550) (643050) (668550) (694050)

Revenue

(-)WHT@6%

After tax
Remits.
Salvage
Value
Amount*E.R(
1.33)
Amount/
(1+k)^n
k=0.20
C.N.P.V

8875950 9674950 1007445 1047395 1087345

0
0
0
3000000
0
1180501 1286768 1339901 1393035 4087345
4
4
9
4
0
9837510 8935890 7754060 6719900 1642823
5
((1527460 8247360 2467559
1516249 6226600
5
0
)

Conclusion and Recommendation

In a nut shell, we have decided to open a subsidiary in
Bangladesh just due to the reasons that we have found
Bangladesh as a profitable place for us in order to generate
profit, for the parent company. As it is crystal clear that there is
no other service provider like us who is working there at the
moment. As our corporate social responsibility will try to set up
health care unit as well. Due to the international diversification
and the addition of one more project in our portfolio our risk will
be minimized and revenue will get a boost. Company will also
get benefit in such a way that the remittances what the parent
would receive would be more as compared to the amount of
investment.
The project is feasible. But of course there are certain elements
and incentives that encourage us to invest in Bangladesh.
When we have discussed about the management in our project
the management team and the policies of the management are
very enthusiastic and energetic. They planned their future
activities and are very stick to their policies and monitor
consistently about the performance.
They consistently monitor the actual performance with the
planned performance. As there is other current textile Brand
services provider in Bangladesh it is expected to be that the
market is very attractive and the people would definitely like to

show interest which helps us to progress affectively and also

increase the revenues , profit of the organization. As they are
very professional peoples they do not take risk blindly but take
risk by calculating different factors and then take which best
suits the organization with maximum return.
They always up to date with the factors and take multiple
decisions for the benefit of an organization. As in the present
situation the exchange rate is comparatively low and is
expected to be increased with the passage of time so the cost
of investment is low and also because of the cheap labour
available.
One of the major problem that the company would face is the
factor of downplay and the anti-sentiments that would prevail
in Bangladesh is labour strikes. But company have made
different policies to overcome such a situation as well. It is
dealing in other nations as well so if the project fails the
company would minimize risk from the other profitable nations.