06-398-87-1 aoatag TEXTILES LIMETED "I am definitely excited,” satd Belal Ahmed, Managing Director of Amar Textiles Limited, Lahore, Pakistan. "and naturally a Little apprehensive too, Our meeting tonorrow can very well result in a sink-or-svin situation for us," he continued. It vas late February, 1986, and Belal was scheduled for a meeting with the Vice President (Merchandizing), of Harper Tndustries. Uarper Zndustrier vas a gubsldiary of Harcrest, Listted, 2 multi-sillion dollar sport house in the United States representing such retail outlet chains as J.C. Penny and Sears Bele) had to prepare e negotiating strategy for ehis meeting and decide upon various tasues involved {h exporting merchendize. Gompany Background Ammar Textiles Linited (Ammar) was the brainchild of Belal. His fondly was engaged in manufacturing hand-knotted carpets, most of which were exported, Bela? spant about eix years in’ the carpet business helping hie faaily and beconing fantiier with the ‘export processes. When the fanily installed 'Fak Punjab woolen Mélis', Belal soved to that location and decane the Managing Director of the firm where he spent about eight years. Te vas his first experience in an indyserial environment. Although he gsined experience ic che planing process, he felt that his Sacerest was in the knitting process. After doing extensive research on the knitting processes and the knitted products available in Pakistan he became confident that « knitting project producing high-quality knitwear would meet with success in Pakistar Tas cave was written by Ehean-ul-laque, Asadezant Professor, at Lahore Business School, fo serve an che basis for clase discussion rather thon co illustrate either effective or sneffective handling of an adninistretive situation. This material should not be quoted, photocopied, or reproduced 1m any form without the prior written consent of the Lahore University of Management Sciences. @ 1987 Lahore University of Manegemant SetencesLAHORE BUSINESS SCHOOL asd 04=398-87-1 Although it was also possible to export such products Belal. wanted to ensure the product quality and acceptance in the domestic market first before venturing abroad. Thus, Anmar was incorporated in September, 1981, and Belal became the Managing Director of the firm. ‘The early years of the company were very hectic. "I must have made around six or seven trips to Europe and America in the first year," said Belal. He contacted the International Wool Secretariat in London, talked to various knitting machine manufacturers in Europe and Japan and collected lots of samples of knitted products from Europe and United States. "I was trying to feel my way in the high-quality segnent of the knitwear market. I knew that the only reason I was going into this business was to produce knitwear of the highest international standards. Otherwise there were many producers in Pakistan already. I was lucky that during these visits I got to know two people who helped me a lot", said Belal. One of these people was Mr Tom Tongue a textile engineer who had about forty years! experience in knitwear. The second person was Ms Zina Roworth, @ British designer, who had a good understanding of the latest styles and designs. With the help of these people Belal selected various knitting, dying and finishing machines. In the meantime Mr Yasir Waheed, a young graduate in textile designing from the National College of Arts, Lahore, was offered a position in the company. Yasir was in Britain and slightly confused about his future plans. Belal and his team arranged for him to study knitwear designing for two years in the fanous textile engineering school in Leicestershire, Britain. "I felt that if we wanted to succeed we would have to invest a lot in people. Anybody can buy the latest machines if he has the money. But running then properly is another matter. I have a strong belief that it is the quality of the people which makes the difference", said Belal. "In the near future I am sending Anila, another young graduate from the National College of Arts, for a two year stint at Leicestershire at our expense", he continued. While construction of the factory and installation of the machinery were in progress, Mr Tom Tongue agreed to join Anmar for an initial period of two years as General Manager of Production, He came to Lahore in November, 1982, and soon after his arrival started helping Belal in training the local employees as well as preparing designs for the first offering in the domestic market. e Domestic Experience Belal thought that there was a strong demand for high-quality knitwear products like sweaters, cardigans, T-shirts and other sports and leisurewear in Pakistan. In his opinion people were becoming more affiuent due to the remittances coming from the Middle East and also were becoming more fashion and quality conscious. He believes char a significant population of upper- middle-class consuners had emerged over the years mainlyLAHORE BUSINESS SCHOOL Las? 04-398-87-1 Although it was also possible to export such products Belal wanted to ensure the product quality and acceptance in the domestic market first before venturing abroad. Thus, Ammar was incorporated in September, 1981, and Belal became the Managing Director of the firm. The early years of the company were very hectic, "I must have made around six or seven trips to Europe and America in the first year," said Belal, He contacted the International Wool Secretariat in London, talked to various knitting machine manufacturers in Europe and Japan and collected lots of samples of knitted products from Europe and United States. "I was trying to feel my way in the high-quality segment of the knitwear market. I knew that the only reason I was going into this business was to produce knitwear of the highest international standards. Otherwise there were many producers in Pakistan already. I was lucky that during these visits I got to know two people who helped me a lot", said Belal, One of these people was Mr Tom Tongue a textile engineer who had about forty years’ experience in knitwear. The second person was Ms Zina Roworth, 2 British designer, who had a good understanding of the latest styles and designs. With the help of these people Belal selected various knitting, dying and finishing machines. In the meantime Mr Yas{r Waheed, a young graduate in textile designing from the National College of Arts, Lahore, was offered a position in the company, Yasir was in Britain and slightly confused about his future plans. Belal and his tean arranged for him to study knitwear designing for two years in the famous textile engineering school in Leicestershire, Britain. "I felt that if we wanted to succeed we would have to invest a lot in people. Anybody can buy the latest machines if he has the money. Bue running them properly is another matter. I have a strong belief that it is the quality of the people which makes the difference", said Belal. "In the near future I am sending Anilz, another young graduate from the National College of Arts, for a two year stint at Leicestershire at our expense", he continued. While construction of the factory and installation of the machinery were in progress, Mr Tom Tongue agreed to join Ammar for an initial period of two years as General Manager of Production. He came to Lahore in November, 1982, and soon after his arrival started helping Belal in training the local employees as well as preparing designs for the first offering in the donestic market. The Domestic Experience Belal thought that there was a strong demand for high-quality knitwear products like sweaters, cardigans, T-shirts and other sports and leisurewear in Pakistan. In his opinion people were becoming more affluent due to the remittances coming from the Middle East and also were becoming more fashion and quality conscious. He believed that a significant population of upper- middle-class consumers had emerged over the years mainly et ee ee eeLAHORE BUSINESS SCHOOL LBs 04-398-87-1 due to successful traders and small businessmen. "Our target market was the middle- and upper-middle classes, mostly youngsters, college-going boys and girls, the same people who were buying smuggled or imported products because of their better quality,” said Belal. Although there were many other famous names in Pakistan in the knitwear business, Belal felt that they were not in the same class as Ammar. Many brands like 'Omega', ‘Bonanza’, 'Oxford' ana ‘Kanal’ had turnover many times higher than Ammar had planned for itself. Both woolen and blended cotton products were available from these competitors. They had a well established distribution system where the products were sold directly to retailers. Heavy media advertising was also carried out by these companies. Anmar introduced its first product line, the summer collection, in June, 1983. A heavy advertizing blitz was carried out both on TV and in the print media. The products were launched in a much publicized fashion show held at the Hilton Hotel, Lahore. The products, mainly polo shirts made of 100% Egyptian cotton, were rated as of the highest quality by most of the customers. However, the prices were thought to be high. The ist offering met with disaster when it was found out that the colours of the products were not fast and tended to bleed. Anmar recalled the products and extensive research and developnent efforts were started to prevent this problem in the future. Later on other collections were offered. All this time product quality and price were fine-tuned for the Pakistani environment and the distribution system was also streamlined. According to Belal the offerings in 1985 met with resounding success. "All dn all we can say that our domestic of evings met with mixed success," said Belal. "Although our target market was correct, our estimation of their buying power was incorrect, We alnost priced ourselves out of prices down by as much as 40%, problens in marketing, finance Production and quality control Let me tell you one thing. It high quality standards here. the market and we had to bring our Then there were a host of other and most of all in production. are the weakest links in Pakistan. is almost impossible to maintain Our people do not share these concepts. I am talking about our workers. Making then understand that each stitch, each colour shade, each knitting cell is as important as the whole product is difficult, All we expect of then is consistency in their work quality. But believe ne it is tough. We had to train, cajole, even threaten our workers so that they started sharing aur concept of quality control. We may not have made have done business in Pakistan a lot of money in the few years we but let me assure you we have learned a lot. We are confident now that we can consistently produce knitwear of international standards. Our knitting, dy: and stitching departments have all learned their lessons. Our designers can produce top quality f=brics in pleasing styles ane our marketing people know what it takes to sell the products.”LAHORE BUSINESS SCHOOL Last 04-398-87-1 By late 1984, Anmar's name was established as a producer of good-quality fashion wear. Meanwhile, some agents of foreign import houses had contacted them for business, but Anmar had declined. They wanted to get on a firm footing before taking up exports. Developing the Export Market Belal knew that once they ptoved to themselves that they could produce high-quality material, getting into exports would be the next logical step. "The quality and the kind of materials which we are producing have a place in Pakistan. But they definitely have a much bigger market abroad. We are destined to get our share in that market", seid Belal. In September, 1984, Yasir came back from Britain and started working at Anmar, Soon afterwards Belal started seriously thinking of exporting. Although he was constantly in touch with the market trends in the west, thanks to Zina and Tom and now Yasir, he felt that he needed first-hand knowledge. He visited top-class retail houses like Harrods, Saks Fifth Avenue and Bloomingdale's in the west and sampled their products. He attended various international fairs like the Leicestershire Yarn Tex in the UK and Expo Fil in France. He also met some importers whom Zina had introduced to him to find out thedy requirements. “This extensive market research gave us a fairly good idea of what we should produce," said Belal. "There are some trends in the market favouring us. Our major potential competitors are exporters from the Far East, Hong Xong, Taiwan, etc., or knitting houses in Turkey, Spain and Portugal. Fortunately, or I must say due to our own intensive training efforts and latest machines, we can match these competitors in product quality. We can meet British Institute of Textiles standards anytime. Our capabilities in styling, our neatness in stitching and sewing and our dye fastness are all up to scratch. However, we can safely price our products 10% to 30% below our international competitors prices because of our lower labour costs. Also there is a generai revival of interest in cotton fabric in the west, and Pakistan by the grace of Allah, produces enough cotton of the highest quality. We hope to capitalize on the relatively cheaper availability of raw material as well. To top it all most of the competitor countries have hit the quota limits in the importing countries. This gives us another advantage." Equipped with information on the needs of foreign buyers Anmar went into a long designing phase. Various fabric designs, knitting patterns, and colour schemes were experimented with. The result was an exhaustive range of fabric designs and styles. During discussions with foreign buyers Belal found out that they were extremely concerned with, (i) consistency in product quality (44) assurance of technical competency, (iii) capacity constraints, and (iv) reliability in timely delivery. Sone of the importers had had unpleasant experiences with Pakistani _ BEEBE REEBERERHE BEBE RB HEEB SE UBSe ee a ee] LAHORE BUSINESS SCHOOL LBs¢ 04~398-87-1 exporters. Also the quality range Ammar was targeting was an extremely sensitive range for the buyers. Ammar went about ensuring these capabilities for themselves. Belal felt that in order to build credibility with the buyers and project an image that Anmar was a sophisticated operation everything had to be done professionally. With the help of some agents, and also with the introductions made previously, a presentation to potential buyers was arranged in New York. The head of the import division of Carter Hauley Hale Stores was among the interested parties. A special brochure “From Prelude to Symphony" was printed in which the technical capabilities of Ammar were highlighted with artistic, coloured photographs and almost literary script work. (See Exhibit 1). Blow-ups of various critical processes were made. Armed with these brochures and two suitcases full of product samples Belal reached New York in February, 1985. "The presentations went very well. I had to sell Pakistan first. Then-came the company and then the products. The participants were visibly impressed by our products. Naturally some remained skeptical. But our strategy was not to sell anything yet. 1 challenged them to test our capabilities, our commitment and our seriousness first and do business later," said Belal. The rest of 1985 was extremely hectic. Most of the potential import houses sent test samples to Anmar to check its production quality, "It was a madhouse. They sent all kinds of things. Sometimes a sample, sometimes a sketch, sometimes just a description of the product. We worked almost twenty-four hours daily producing those materials. Our designers, our workers went to great lengths to meet the specifications. Zina, our consultant designer, came to Lahore once or twice. I had to make further trips to the States. Meeting the deadlines was another problem. There were times when the logistics completely broke down and we had to arrange special deliveries. Once I had to pack my bags just to deliver samples to an important customer in New York only to come back by the next flight. But we did a marvelous job. I am proud of our creations during this last year", said Belal. Meanwhile some importers placed small orders, 500 dozen pieces or so, which were fulfilled satisfactorily. These oxders streamlined Anmar's export division. A person was hired to take care of the documentation and other official formalities of the exporting business. A line of credit was established with a local bank which could negotiate the letters of credit with most of the foreign banks. Customs’ clearance and shipping procedures were streamlined. Most of all, international quality packaging was learned. The Meeting In December, 19¢5, Ammar received a letter from the Vice Fresident of merchandizing at Harper Industries saying that he was interested in doing business with Ammar. The letterLAHORE BUSINESS SCHOOL LBs# 04-398-87-1 mentioned that he would be in Pakistan in early 1986 and would like to discuss the terms and conditions with Anmar. Harper was looking at Ammar as a possible source for their summer and winter collections in 1986, The letter charged up the atmosphere at Ammar. Harper was a major import house. They were famous for buying the entire year's production of various manufacturing units. "I feel that our efforts are finally being answered", said Belal. A meeting of top management was called. Various issues and concerns were raised. “We debated almost all the facets of marketing policy,” said Belal. "We do not want to loose this lucrative offer but on the other hand we also do not want to get into a contract which may Limit our future progress. The question of whose brand or label was discussed. Concerns were raised that if we get into private labeling then it will be difficult for us to establish our identity in the market. We will be just another anonymous supplier. Should we insist on our brand name? Should we have a clause which may enable us to create a niche for our brand name? How will this company react? Will they be accomodating or will they laugh at us and leave? “Pricing was another issue. At present most of the sales from Pakistan bring around $10 per dozen pieces. The products from Hong Kong, Italy or Spain command a price ranging anywhere from $40 per dozen to over $100 per dozen. We know what our costs are. What we do not know is what will be a reasonable price to ask. Do we negotiate? How firm should our stand be? We go not want to price ourselves out, but we also do not want to loose potential revenue which we might earn. Our price will be determined a lot by the buyers perception of our quality. "The question of shipment also came up. Do we send F.0.B. Pakistan or not? What should be the terms of payment? We would prefer an irrevocable letter of credit payable on sight but who knows, the buyer may try to squeeze in some credit. Thirty to sixty days' credit is not unknown in this part of the world. "then there is the question of capacity utilization. We have optinal productior. runs for one style or size. These generally run into a mintmun of 1,000 dozen pieces. Do we accept order sizes less than this? What if they book our yearly production and next month we get a better offer from somewhere else? "TZ tell you doing business is not easy." Belal felt that satisfactory answers to these questions should be found before the meeting. And he knew he was the-oniy person to find them.ee [cae as aS Sell eEllUerllUcaeerllUaeerhlUraeerlUcaerhlUraerhlUraelCUe CO Exhibit 1 AMMAR TEXTILES LIMITED Excerpts from Ammar’s Brochure From Prelude To Symphony The Creation of an Ammar Classic 04-398-87-1Exhibit I(page 2) AMMAR TEXTILES LIMITED Excerpts from Ammat’s Brochure 04-398-87-1[-a a Ggeeewtwec se #2 8 2 SB SB ESB SB 42 AE Exhibit 1(page 3) AMMAR TEXTILES LIMITED Excerpts from Ammar’s Brochure 04-398-87-1 Packing oe ArmerarClsics, Source: Company Records