NISHAT MILLS LTDStrategic Management Plan

Introduction:N i s h a t h a s g r o w n f r o m a c o t t o n e x p o r t h o u s e i n t o t h e p r e m i e r b u s i n e s s group of Pakistan with 5 listed companies, concentrating on 4 core business; Textiles, Cement, Banking and Power Generation. Today, Nishat is considered to be at par with multinational operating locallyin terms of its quality products and management skills. Annual turnover of 17 billion rupees. 14 billion from textiles. Earn foreign exchange of US $ 236 million. Pay taxes and levis of 2,080 million rupees annually.

Nishat Mills Ltd: Flagship Company established in 1951. Most modern, biggest composite unit of Pakistan. Professional and client oriented marketing. Green company. ISO 9001 and IKO-TEX 100 Certified. SA 8000certification currently in progress. NML today has 1, 73,000 spindles, 284 sulzer shuttle less looms and 244 TSUDAKOMA air jet looms. NML also has the most modern textile processingu n i t , 2 s t i t c h i n g u n i t s a n d p o w e r g e n e r a t i o n p l a n t w i t h a c a p a c i t y o f 3 3 . 6 MW. NML total export for the year 2009 is 38.8 billion rupees. Due to t h e application of prudent management policies, consolidation of operations, as t r o n g balance sheet and an effective marketing strategies, this trend ise x p e c t e d t o continue in the years to come. The companys productionf a c i l i t i e s comprise Spinning, Weaving, Processing, Stitching, and

Vision Statement:T o t r a n s f o r m t h e C o m p a n y i n t o a m o d e r n a n d d y n a m i c y a r n , c l o t h a n d proces sed cloth and finished product manufacturing Company with highlyp r o f e s s i o n a l s a n d f u l l y e q u i p p e d t o p l a y a m e a n i n g f u l r o l e o n s u s t a i n a b l e basis in the economy of Pakistan.

Mission Statement:T o p r o v i d e q u a l i t y p r o d u c t s t o c u s t o m e r s a n d e x p l o r e n e w m a r k e t s t o promote/ expand sales of the Company through good governance and fostera sound and dynamic team, so as to achieve optimum prices of products of t h e C o m p a n y .

Strengths, weaknesses, opportunities and threats(SWOT ANALYSIS) Strengths

weaknesses Relying on Market international market High cost of production High employees turnover. Transit time is more as compare to foreign competitor

ISO 9001 and IKO-Tax 100 certified Biggest composite unit in Pakistan Highest credit rating by PACRA. Self owned power plant Largest dyeing facility in South East Asia

Opportunities WTO regime implementation. Cost reduction by using modern technology. Local market development. Entertaining in energy sector. (Subject to government permission)

Threats Export of raw cotton and yarn WTO regime implantation.Exchange rate fluctuations. Instable political and economical condition Government policies

INTERPRETATIONS: Strengths1- ISO 9001 and IKO-TEX 100 Certified: A s N M L i s m a i n l y f o c u s i n g o n international markets, and with the implementation of WTO regime, thesetypes of certifications are very helpful to win the customers satisfaction. 2- Biggest Composite Unit in Pakistan: N M L i s e n j o y i n g t h e s t a t u s o f being the biggest textile composite unit of Pakistan , t h i s s t r e n g t h s i s helpful to create economies of scale that is key to success in internationalmarkets. 3- Highest Credit Rating by PACRA: NML has been awarded highestinvestment grade by Pakistan Credit Rating Agency (PACRA), which wilLmake it easy for the NML to raise long-term funds. 4- Self Owned Power Plant: Now a days, having your own power plant iso f c r u c i a l i m p o r t a n c e , b e c a u s e i t m a k e s u r e u n - i n t e r r u p t e d s u p p l y o f energy at very low cost, which is helpful to be compatible at international level. 5- Largest dyeing facility in South East Asia: NMLs processing divisiongot the largest dyeing in South East Asia, making it a candidate to acceptthose contracts from other companies that involve out sourcing of dyeingfacilities.

Weakness1. Relying On International Market only: as mentioned earlier that NMLhas been focusing on international markets so there are chances that thisstrategy may hurt its sales as there are rapid fluctuations in internationalmarkets, competition and buyers preferences. 2. High Cost of Production: All Pakistani firms including NML is sufferingfrom high cost of production as compared to the other countries like, India, China and Bangladesh, they are cutting our throats by being costcompletive day by day while at the same time producing high quality stuff as compared to Pakistani firms. 3. High employees Turnover: Trends has been seen in workforce data toleave the NML on permanent basis, this is especially true for the lowerlevel staff. 4. Transit time is more as compare to Foreign Competitor: Foreigncountries like India, Bangladesh and China are very much efficient whilecompleting and consigning their orders to foreign buyers. NML has moretransit time as compared to its international competitors. The reason may be the contracts with shipping internal process problems.

OPPORTUNITIES1. WTO regime implementation: with the abolishment of quota system,n o w i t s a n o p p o r t u n i t y f o r t h e N M L t o c a p t u r e t h e international market share by provided and high quality goods to international customers. In this regard is cost competiveness is a special concern. 2. Cost reduction by using modern Technology: As WTO regime hasopened the doors for free trade for the whole world, now the only survivalof the firms would on the minimization of production cost and offeringi n n o v a t i v e , h i g h q u a l i t y g o o d s w i t h c o m p e t i t i v e p r i c e . N M L g o t s t r o n g f i nancial support from Nishat Group can do so. 3. Local market development Nishat Mills Limited is presently focusingon foreign markets, so its an opportunity for NML to cash its name in thelocal market by introducing a local retail store chain just like Chen One.(Chenab mills ltd.) 4. Entering in Energy Sector: NML may get the privilege of generating and providing electricity for residential and commercial areas of Faisalabad by negotiating with the government of Pakistan. Al through local rules make it difficult but still there is a huge opportunities to capitalize. -

THREATS Export of Raw Cotton and Yarn: R e c e n t t r e n d s i n t h e P a k i s t a n t o export raw cotton and yarn to foreign countries is hitting like nails on theheads of textile value addition units, although NML has its own spinningfacilities but to some how export of raw cotton is dangerous for it WTO regime implantation: Abolishment of quota system presents aopportunity as well as a biggest threat to the P a k i s t a n i f i r m s i n c l u d i n g NML, as other countries are free to capture the market, we the Pakistanifirms are suffering with high cost of production may be driven out of thecompetition. Exchange Rate Fluctuations: NML most of the sales are comprising exports, it is to be received payment in foreign currency especially American dollars,ultimately these sales proceeds are to be converted to Pakistan rupees, here comesthee magic of exchange rate whose fluctuation can change a profitable deal into a bad loss. Finally if Pakistani rupees got strength other currencies we will get lower value for proceeds. I n s t a b l e P o l i t i c a l a n d E c o n o m i c a l C o n d i t i o n s : ChangingGovernments,war on terror, decreasing buying power and altering buying trends and preferences of customers are posing big threats to NML, in thisregard we are confronting with local an well as international political andeconomical conditions. Government policies: Government policies like high rates of taxes, VAT, duties on international trades, high energy cost, reorganizing unions are causing a serious damage to the performance of over all industry including NML.

THE STRATEGY FORMULATION ANALYTICAL PROCESS

STAGE 1ST INPUT STAGEA: Competitive Profile Matrix (CPM)Nishat Textile Mills Critical Success FactorsProduct design Technological up-gradation Research & development Market segmentation Distribution and promotion Capacity utilization Persistence in product quality Efficient procurement of raw material Effective management Trained man power Cost competitiveness Weig ht 0.07 0.11 0.10 0.07 0.07 0.08 0.09 0.09 0.08 0.07 0.10 0.07 Ratin g 4 3 4 2 3 3 4 3 3 4 2 3 Weight ed score 0.28 0.33 0.40 0.14 0.21 0.24 0.36 0.27 0.24 0.28 0.20 0.21

Crescent Textile MillsRatin g 3 4 3 2 3 3 3 3 4 3 2 3 Weighte d score 0.21 0.44 0.33 0.14 0.21 0.24 0.27 0.27 0.32 0.21 0.20 0.20

Chenab Textile MillsRatin g 3 3 2 4 2 2 4 3 2 3 1 2 Weight ed score 0.21 0.33 0.20 0.28 0.14 0.16 0.36 0.27 0.16 0.21 0.10 0.14

Customer satisfaction &loyalty TOTAL

1.00

3.16

2.98

2.56

Interpretation:A Nishat mills limited is dominating in the industry as compared to local players. There are several competitors like Agzard 9, Kohinoor textile mills, etc but above competitors are the major ones. CPM scores for NML showing aggressiveness as compared to the crescent and Chenab textile mills. NML I number one company with in the local environment; it is basically leading the industry in the following aspects: Product design. Research and development Persistence in product quality.

Trained Manpower. Moreover, crescent textile mill is resides at the second number and leading industry in effective management style. Finally Chenab textile comes at number 3rd with leading position persistence in quality and market segmentation.

B: External Factor Evaluation Matrix (EFE Matrix)Key External Factor Weigh t 0.12 0.13 0.10 0.11 0.12 0.10 0.09 0.12 0.11 1.00 Rating Weighted score 0.48 0.39 0.10 0.22 0.48 0.40 0.18 0.48 0.11 2.84

OPPURTUNITIES WTO regime implementation. Cost reduction by using modern technology. Local market development. Entertaining in energy sector. (Subject to government permission) Export of raw cotton and yarn WTO regime implantation. Exchange rate fluctuations. Instable political and economical condition Government policies

4 3 1 2 4 4 2 4 1

Threats

TOTAL

INTERPRETATIONS:EFE score of 2.84 indicating that the NML is taking the external opportunitiesa n d a v o i d i n g e x t e r n a l t h r e a t s q u i t e w e l l ; h o w e v e r t h e r e i s r o o m f o r improvement is well. This score suggest NML to be aggressive but the degree of aggressivenessn e e d s t o b e l i t t l e moderate, it should not go for diversification, rather i t should go for penetration in the existing market, further developing local or foreign market or it may design a new product.

C: Internal Factor Evaluation Matrix (IFE Matrix)Key Internal Factor Weight 0.11 0.10 0.13 0.15 0.12 0.10 0.12 0.06 0.11 Rating 3 4 4 4 4 2 2 2 1 Weighted score 0.33 0.40 0.52 0.60 0.48 0.20 0.24 0.12 0.11

STRENGTHISO 3001 and IKO_ TEX 100 certified Biggest composite unit in Pakistan Highest credit rating by PACRA Self owned power by plant Largest dyeing facility in South East Asia

WEAKNESSRelying on international market only. High cost of production High employees turnover Transport time is more as compare to foreign competitor

Total

1.00

3.00

INTERPRETATIONS:IFE score of 3.00 indicating that the NML is an internally strong organization,it represent that it is excellent in its overall internal strategies when it cometo explore strengths and weaknesses.Overall the main strength is financial support by the Nishat Group

STAGE: 2ND MATCHING STAGEA:SWOT MatrixS01 001 ISO 9001 certified & IKO-TEX 100 certified Biggest composite unit in Pakistan Highest credit rating by PACRA Self owned power plant Largest dyeing facility in South east Asia

WRelying on international market High cost of production High employees turnover Transit time is more as compare to foreign competitor

O WTO regime implementation. Cost reduction by using modern technology. Local market development. Entertaining in energy sector. (Subject to government permission)

S-OProvide electricity to residential areas (S4, O4). Capture local market by providing facility of outsourcing and introduction company production through its retail outlets (S2, S5, S3).

W-OImport modern technology (W1, W2, and O2). Company can enter in new market through retail outlets (W1,W4, O3).

T Export of raw cotton and yarn WTO regime implantation. Exchange rate fluctuations. Instable political and economical condition Government policies

S-T Penetration in foreign market (S1, S2). Make future contracts to avoid currency.

W-TFocus on local market (W1, W2, T2, T3) Import modern technology and do agreements.

INTERPRETATIONS:

Critical Region is WO.

N i s h a t T e x t i l e s c a n i m p o r t n e w t e c h n o l o g y t o reduce its cost of production. Company can thus be able to penetrate in themarket and capture more shares by improving quality of goods and services,and provision of goods at lower prices.

B-SPACE MatrixFinancial strength Leverage Net income E.P.S R.O.E Average Competitive advantage Market Share Product Quality Customer loyalty Technological know how Average Rating 4 6 5 5 5 -1 -2 -3 -2 -2 Environmental stability Rate of inflation Technological changes Competitive pressure Risk involve in business Average Y-axis Industry strength Growth potential Financial stability Resource utilization Profit potential average X-axis Rating -3 -3 -3 -2 -2.25 2.25 5 3 3 2 3.25 1.25

INTERPRETATIONS:1. For the purpose of evaluating financial strength we have compared ourconcerned co. with

industrial average.2. L e v e r a g e u s e d b y N i s h a t m i l l s w a s

significantly low a s c o m p a r e d t o industrial average that why we have ranked it at point 4

3. .Net income of Nishat mills was highest in industry thats why it is given6 points 4. .I t s E . P . S & r e t u r n o n e q u i t y w a s a l s o h i g h a s c o m p a r e t o i n d u s t r y thats

why they were ranked 5.5. Market share of Nishat mills was highest about 12% that why it is given-1 marks. 6. T h e r e p r o d u c t i s o f g o o d q u a l i t y & t h e r e c u s t o m e r s a r e l o y a l b u t c u

s t o m e r s c a n t b e v e r y l o y a l i n t h i s i n d u s t r y t h a t s w h y t h e y w e r e ranked at -2 & -3.7. They

have new & advanced technology thats why they are ranked -2.R a t e o f i n f l a t i o n i s i n c r e a s i n g i t s C . G . S & t e c h n o l o g i c a l c h a n g e s i t s depr

eciation as well as there is heavy competitive pressure from china& Bangladesh thats why they were rankes-3.8. T h e r e i s h i g h r i s k n o w a d a y s i n t h i s b u s i n e s s b u t d u e t o b e i n g

a s industrial giant in Pakistan they are not in such a risk that why it i s given -2.9. There is high growth potential in industry because now recovery period have been started. 10. Industry is less financial stable as well as most of the companies areproducing very

below then their capacity thats why they are ranked at3.11. Due to increase in cost the profit potential has been declined that whythis is ranked at 212.

Directional vector point is :( 1.25, 2.25)

INTERPRETATION:

According to our calculations the score of our company is 1.25 on x-axis And 2.25 on Y-axis Which is showing that our co. should go for aggressive strategy Further more it is telling us that our financial strength i s t h e dominating factor in industry Our concerned strategies can be Backward ,forward ,horizontal ,integrations Market penetration Market development Product development Diversification(related or unrelated) On the other hand, Nishat Textiles also has the opportunity to enterand capture the local market. Company can do this through openingretail outlets in the local areas and provide better goods and servicesto its domestic customers.

C: Boston Consulting Group Matrix (BCG Matrix)INTERPRETATIONS:Nishat Textiles is a composite textile unit of Nishat Group. Total number of p l a y e r s i n t h e i n d u s t r y i s 6 0 , a n d N i s h a t T e x t i l e s i s t h e m a r k e t l e a d e r . I t captures 12% market share as a whole. In 2009, the industrial overall growthr a t e i s 1 1 % , b u t t h a t o f N i s h a t T e x t i l e s i s 2 4 % a s c o m p a r e t o t h e s a l e s o f 2008. Source: KSE (Karachi stock exchange) data for 2008, and 2009. The industrial growth is high and Nishat Textiles has high market growth aswell. So, it lies in the first quadrant (Stars) of the BCG matrix. It implies that,company has the opportunity to go for Market penetration to capture mores h a r e s i n t h e e x i s t i n g m a r k e t b y using new technology, and increasing promotional activities. It also has a t r e m e n d o u s o p t i o n o f l o c a l m a r k e t development.

Other feasible strategies may be the backward integration to secure t h e supplies in order to tackle with the threat of exporting of local raw material t o f o r e i g n m a r k e t s . A l s o N i s h a t T e x t i l e s g o e s f o r f o r w a r d i n t e g r a t i o n t o minimize its weakness of transit time of goods and services to its customers.

D: The Internal External Matrix (IE Matrix)High High Average LowI. grow and build IV. grow and build

AverageII. grow and build V. hold and maintain

LowIII. hold and maintain VI. harvest

VII. hold and maintain

VIII. harvest

IX. harvest

INTERPRETATIONS:IFE Total Score (As per IFE Matrix) = 3.00 EFE Total Score (As per EFE Matrix) = 2.84 It implies that Nishat Textiles is in a much strong position. But, comparatively it is stronger internally as compare to its external position. As per IE Matrix, Nishat Textiles lies in fourth cell, which implies that it should go for aggressive strategies that is grow and build strategies. The possible strategies for NishatTextiles may be the integrations, intensive, a n d diversifications. Nishat Textiles has the opportunity to go for Market penetration to capture more share in the existing market by using new technology, and increasingp r o m o t i o n a l a c t i v i t i e s . I t a l s o h a s a t r e m e n d o u s o p t i o n o f l o c a l m a r k e t development. O t h e r f e a s i b l e s t r a t e g i e s m a y b e t h e b a c k w a r d i n t e g r a t i o n t o s e c u r e t h e supplies in order to tackle with the threat of exporting of local raw materialt o f o r e i g n m a r k e t s .

A l s o N i s h a t T e x t i l e s g o e s f o r f o r w a r d i n t e g r a t i o n t o minimize its weakness of transit time of goods and services to its customers .

E: The Grand Strategy Matrix (GSM) :

Interpretation

Total number of players in the industry is 60, and Nishat Textiles is the m a r k e t l e a d e r . I t c a p t u r e s 1 2 % m a r k e t s h a r e a s a w h o l e . I n 2 0 0 9 , t h e industrial overall growth rate is 11%, but that of Nishat Textiles is 24% as compare to the sales of 2008. As the market growth is high, and Nishat Textiles has strong comparativep o s i t i o n i n t h e m a r k e t . S o , i t l i e s i n t h e f i r s t q u a d r a n t o f G r a n d s t r a t e g y matrix, which implies that it should go for aggressive strategies. The possibles t r a t e g i e s f o r N i s h a t T e x t i l e s m a y b e M a r k e t D e v e l o p m e n t , M a r k e t Penetration, Backward and Forward Integrations.

STAGE 3rd: THE DECISION STAGEA: Quantitative Strategy Planning Matrix (QSPM)Strategy 1 Local Market Development Strategy 2 Penetrating in Foreign Market

KEY INTERNAL FACTORS STRENGTH ISO 9001 certified & IKOTEX 100 certified Biggest composite unit in Pakistan Highest credit rating by PACRA Self owned power plant Largest dyeing facility in South east Asia Relying on international market High cost of production High employees turnover Transit time is more as compare to foreign

Weig ht0.10 0.11 0.13 0.14 0.12

AS1 4 3 2 2

TAS0.10 0.44 0.39 0.28 0.24

AS3 2 2 3 1

TAS0.30 0.22 0.26 0.42 0.12

WEEKNESS 0.10 0.12 0.07 0.11 4 3 3 2 0.40 0.36 0.21 0.22 2 4 1 1 0.20 0.48 0.07 0.11

competitor SUB TOTAL

1.00

2.64

2.18

KEY EXTERNAL FACTORS OPPURTUNITIES WTO regime implementation. Cost reduction by using modern technology. Local market development. Entertaining in energy sector. Export of raw cotton and yarn WTO regime implantation. Exchange rate fluctuations. Instable political and economical condition Government policies

0.12 0.13 0.11 0.11 0.12 0.1 0.09 0.11 0.11 1.0

1 2 3 3 1 2 3 2

0.12 0.23 0.33 0.36 0.10 0.18 0.33 0.22 1.90 4.54

4 4 1 2 3 1 2 3

0.48 0.52 0.11 0.24 0.30 0.09 0.22 0.33 2.29 4.47

THREATS

SUB TOTAL GRAND TOTAL

INTERPRETATION:

I.S.O certification will only be helpful in market penetration so thats why it is given high marks. Biggest composite unit & less capacity utilization will be helpful or willbe used better by open chain store rather then market penetration soit is given higher marks. I n c r e a s i n g s a l e s i n f o r e i g n w i l l b e t t e r u s e e n e r g y r a t h e r t h e n c h a i n store so it is given higher marks. Largest dying facility has its goodwill so we have ranked it higher inchain store. Reliance on international market can be decreased by opening chainstore thats why it is given higher marks. Higher cost of production can be decreased by exporting m o r e quantity but opening new store will increase expenses for thats whypenetration is given higher marks. Open chain store will increase our segmentation & it will decrease onreliance on exports so problem of transit time will impact us less thatswhy these are given higher marks. W T O r e g i m e w i l l b e u s e f u l o n l y i n p e n e t r a t i o n s o i t I s g i v e n h i g h e r marks. Local market development will be done only in that case when we willgo for chain store so it is given higher marks. If we will open chain store we will be able to charge higher prices duet o o u r g o o d w i l l s o y a r n s e x p o r t p r o b l e m w i l l n o t a f f e c t u s a s i t i s effecting. WTO regime implementation will be covered only in that case when wewill go for market penetration. Exchange rate fluctuation will impact us only in that case when we willgo for foreign trade so opening retail store will reduce its impact thatswhy it is given higher score.

D u e t o b a n k r u p t c y o f f o r e i g n c u s t o m e r s t h e p o l i t i c a l & e c o n o m i c a l conditions will have less impact on us if we will go for chain store thatswhy it is given higher marks. Government polices regarding opening a new store can be difficult tomeet so it is given lower marks.

RECOMMENDATIONS:

The total attractiveness score of local market development and penetrating the foreign marketis 4.54and 4.47 respectively that analysis indicates the business should develop local market and penetrating the foreign market.