Strategic Management Analysis Of Pakistan Tobacco Company 2008


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Strategic Management Analysis Of Pakistan Tobacco Company 2008

  1. 1. Strategic Management Pakistan Tobacco Company G R O U P •Lalarukh •Jawad •Noor •Shaima •Fahad
  2. 2. Agenda • Introduction • Environmental Analysis • Industry Analysis Industry Analysis • Pakistan Tobacco Company Industry Analysis • Lakson Tobacco Company Industry Analysis • Recommendations Recommendati ons • Conclusion
  3. 3. Environmental Analysis
  4. 4. Environment Topics Range Ranking World Democracy Audit overall ranking 1-150 114 Political Rights 1-7 6 Civil Liberties 1-7 5 Press Freedom 0-150 106 Corruption 0-145 110 World Audit Report
  5. 5. Economy GDP Growth Rate 7% ( last five years) Inflation 17% Economic Survey 2007
  6. 6. Legal Environment Legal System is conducive and easier than other countries in the region Procedure takes longer time but costs less World Bank Report on Pakistan,2007
  7. 7. Technology 35 % growth in computer usage 35 Million of software exports Ministry of Information website
  8. 8. Industry Analysis
  9. 9. Pakistan Tobacco Industry Largest yield than any crop Employs 1 million Pakistanis Tobacco usage rate is growing at 1.7% in the developing countries Figures taken from Pakistan Tobacco Board website
  10. 10. Pakistan Tobacco Industry 27 cigarette manufacturing factories &15 Tobacco companies Average installed capacity of plants is 126 billion packs Average installed capacity of plants is 126 billion packs
  11. 11. Pakistan Tobacco Industry Cigarette manufacturing in Pakistan-duopoly Pakistan Tobacco Lakson Tobacco company (PTC) Company (LTC)
  12. 12. Usage of Tobacco in Pakistan Cigarettes Huqqa Snuff Pan Others 61% 13% 22% 10% 5% Pakistan Tobacco Board, 2007
  13. 13. Industry Attractiveness Porter’s Five Force Bargaining Power of Buyers (medium to high) Threat of Competitive Threat of New Entrants Rivalry Substitutes (low to medium) (medium to high) (low to medium) Bargaining Power of Suppliers (low to medium)
  14. 14. Pakistan Tobacco Company
  15. 15. History From Imperial Tobacco Company of India to Pakistan Tobacco Company Parent Company: British American Tobacco Incorporated in 1947 PTC produces high quality tobacco products to meet the diverse preferences of millions of consumers The company works in all areas of the business - ‘from seed to smoke’
  16. 16. Vision First Choice for Everyone
  17. 17. Mission Statement Mission Statement: We strongly believe that real business success is not just about profits measured in numbers but also as importantly, about how those numbers are achieved. Our corporate strategy clearly reflects this strong commitment balancing responsibility firmly alongside people, growth and productivity • PTC’s New Mission Statement: Transform PTC to perform responsibly with the speed, flexibility and enterprising spirit of an innovative, consumer focused company
  18. 18. Evaluation of Mission Statement Components of a Statement Previous Current Customers No Yes Products or Services No No Markets No No Technology No No Concern for Survival, Growth and Yes Yes Profitability Philosophy Yes Yes Self Concept No No Concern for Public Image Yes Yes Concern for Employees Yes No
  19. 19. Other Guiding Forces Long-term Objectives Business Principles • Growth Values • Productivity • Mutual Benefit • Responsibility • Responsible Product • Strength from • To Become A Diversity Winning Stewardship • Good Corporate • Open Minded Organization Conduct • Freedom through Responsibility • Enterprising Spirit
  20. 20. SWOT People and HRM Lack of Complete Weakness Strength Financial Muscle Vertical Integration BAT Backing Product Innovation PTC is part of the BAT Marketing Group compared to Operations/Supply Chain local manufacturers it CSR cannot respond to Technology changes in the Brand Equity business environment Quality Factory Location quickly because Influence on Government decision making Value Leadership consumes time Distribution Channels Market Leader Enterprising Spirit Large share in the premium segment
  21. 21. SWOT (contd.) Threats Opportunities FCTC Industry Growth TV Ads Banned Young Smokers Anti-Smoking Ordinance Promising Mid Tar Segment 2002 Local Firms Gaining Share and Experience Smuggling TFI-Pakistan Phillip Morris takes over LTC Tax Changes Controversy over Support Price (Possible Hike)
  22. 22. SWOT & Strategy Formulation SO Strategies Capacity enhancement to meet demands (S2-O1) Introduce new int’l brands, Lucky Strike for young adults (S3, S4, S9-O1, O2, O3) Brand extensions: medium nicotine & tar e.g. Dunhill Lights, (S4, S9-O3) ST Strategies Hasten elimination of illicit trade (S12-T5) Aggressive strategy against Lakson (All S-T7) Influence PTB to prevent harmful tax changes (S12-T8) Improve image among farmers: resolve support price controversy w/o raising the costs (S7, S8, S12-T9) Wipe out local competition with international expertise
  23. 23. WO Strategies Maintain reliable suppliers and more involvement with farmer community (W1-O1, O2, O3) Structural & cultural changes for more decentralized decision making & frequent communication so PTC can exploit opportunities as they come (W2-O1, O2, O3) WT Strategies If possible acquire a tobacco supplier and gain control over the entire process and resolve the controversy over tobacco support prices (W1-T9) Acquire local firms to gain the expertise and flexibility of local firms (W2-T4, T7)
  24. 24. Internal Factor Evaluation Matrix Exten Factor Weight Rating ded Strengths People and HRM 0.05 4 0.2 Financial Muscle 0.10 3 0.3 BAT Backing 0.10 4 0.4 Product Innovation 0.10 4 0.4 Marketing 0.10 3 0.3 Operations and Supply Chain 0.10 3 0.3 Strategically Located Manufacturing Facilities 0.05 3 0.15 Technology 0.10 3 0.3 Brand Equity 0.10 3 0.3 Quality 0.10 3 0.3 Corporate Social Responsibility 0.025 3 0.075 Influence on the Government of 0.025 3 0.075
  25. 25. External Factor Evaluation Matrix Factor Weight Rating Extended Opportunities Industry Growth 0.30 3 0.9 Smoking Trend on the Rise among Youth 0.10 3 0.3 Promising Mid Tar Segment 0.05 3 0.15 Threats in the Process of Implementing FCTC 0.025 3 0.075 Tobacco Ads on Television Banned 0.025 4 0.1 “Prohibition of Smoking and Protection of Non-Smokers Health” Ordinance 2002 0.025 3 0.075 Controversy over Tobacco Support Price (Possible Hike) 0.025 2 0.05 Tax Evading Sector 0.15 2 0.3 TFI-Pakistan 0.05 2 0.1 Phillip Morris International (PMI) takes over Lakson Tobacco Co Ltd 0.20 4 0.8 Changes in Taxation 0.025 2 0.05 Local Companies Gaining Market Share and Experience 0.025 4 0.1 Total 1.00 3.00
  26. 26. Internal External Matrix
  27. 27. Internal Audit Pakistan Tobacco Company Limited was incorporated in 1947. Current number of employees in PTC is 90,000 in 180 countries. PTC employs over 2000 people country wide. PTC had its first factory in Karachi in 1948, Jehlum in 1955, and Akora Khattak in 1976. Rationalization Strategy – Karachi Factory Closed in 1991.
  28. 28. Human Resource Management PTC is the best employer in Pakistan PTC is an indirect source of employment through its business partners in packaging, publishing and media houses
  29. 29. Compensation & Rewards Paid Overtime Workers Retirement Fund (7% contribution by employer) 10% Employer Contribution to Provident Fund Housing Allowance Car Allowance Other Retirement Provisions Hajj Schemes Scholarship Schemes Motorcycle Draws Employee of the Month Free Medical Sessions
  30. 30. Recruitment, Induction & Training Exporting Talent – Growth Academy – To Induction Training Recruitment Exchange Programs to develop internal talent harness global talent and leadership Campus Campaigns Amaze Yourself - In Internships 2007, a new on-line tool for new inductees was launched. Amaze Yourself provides the Management Trainee entrants with an Program opportunity to learn about the Company, its values, systems and processes, on-line Guiding Principles Mastermind Playshop (GPMP) – to provide new employees with a better understanding of the company’s Guiding Principles
  31. 31. Production, Operations and Supply Chain Rs 1.2 billion investment in tangible fixed assets in 2007 Running the factories 24 hours a day, 7 days a week and 358 days during the year Achieved the highest ever production of 38 billion sticks Cigarettes Per Man-Hour (CPMH), a key productivity metric, improved to 17,750 in 2007 (15,271 in 2006)
  32. 32. Marketing PTC has implemented several initiatives in the following categories Market Development – Introducing Dunhill in its super premium brand Market Penetration – 10 HL and Menthol variant of John Players Gold Leaf Product Development – Transforming Capstan International into Capstan by Pall Mall (Repositioning) Aggressive Distribution Responsible marketing Trade marketing expertise Promotional strength Strong brand portfolio
  33. 33. Brands Available in Pakistan Super High and Premium Premium • Dunhill (Rs.85) (>Rs.50) • Gold Leaf • Benson & Hedges Medium Low Category Category (<Rs.20) (Rs.20 –Rs.30) • Embassy • Capstan • Gold Flake • Wills Kings
  34. 34. Finance
  35. 35. Finance
  36. 36. Finance
  37. 37. Corporate Social Responsibility The ACCA/WWF awarded PTC the Best Social Report Award for, its 2004- 05 Social Report in 2007 Better Health Facilities Water Related Initiatives Education
  38. 38. BCG
  39. 39. Strategic Options for Different Brands Cash Cow (Capstan) Dunhill) Flake) Stars (B&H, JPGL, Question Marks (Gold Integration (Backward, Intensive strategies Product development Horizontal) • Market penetration Concentric Market Penetration – • Market Development diversification Dunhill embarking on • Product Development an e-marketing route Retrenchment Divestment –Gold Market Development Flake is the volume Product Development – driver and has 2007 was a year of achieved high levels innovation for John of growth: divestment Players Gold Leaf (10 is not an option HL pack and a cool menthol variant) Joint Ventures
  40. 40. Strategic Position & Action Evaluation Matrix Competitive Advantage Rate Financial Strength Rate Market Share -1 Return on Investment 6 Product Quality -1 Leverage 6 Product Portfolio -2 Liquidity 6 Brand Equity -1 Working Capital 6 Technology -2 Cash Flow 6 HR -1 Profitability 6 Support of Int’l Player -1 Share Price 6 Marketing, Sales & Distribution -2 Average 6 Price Competitiveness -2 Cost Control & Productivity -1 Internal Strength Of Influence on Government -2 Factory Location -2 PTC: Quantification Control over Suppliers & Distributors -3 CSR -1 Average -1.57
  41. 41. Strategic Position & Action Evaluation Matrix Environmental Stability Rate Industry Strength Rate Political Stability -6 Growth Potential & Size 6 Economic Prospects -4 Industry Profitability 4 Social/Demographic Trends -1 Bargaining Power of Customers 6 Technological Advancements -2 (lower is better) Legal/Regulatory Environment -3 Bargaining Power of Suppliers 3 Environmental Concerns (Pressure -3 (lower is better) Groups, Activists, WHO’s FCTC) Threat of New Entrants 6 Average -3.2 Threat of Substitute Products 6 Vulnerability (legislation, tax 2 External Position changes, agricultural cyclicality ) Competitive Structure (Oligopoly) 2 Quantification Intense Competition Ease of Capacity Expansion 4 Average 4.33
  42. 42. Strategic Position & Action Evaluation Matrix
  43. 43. Grand Strategy Matrix
  44. 44. Quantitative Strategic Planning Matrix • Introduce Lucky Strike (a brand popular among young adults) and other international brands in Strategy 1 the Pakistani Market • Increase CSR spending particularly concerning the tobacco farming community. Invest in agricultural technology to make processes more efficient ad hence increase output with the same Strategy 2 input.
  45. 45. Strategy 1 Strategy 2 Attractiveness Score 6.65 5.65 Strategy 1 is the more attractive alternative since it scored 6.65 against a score of 5.65 by Strategy 2
  46. 46. Lakson Tobacco Company (LTC) • Public Listed company on Karachi Stock Exchange • Employees are more than 5000 • Market leader in low price segment • Largest leaf processing plant • Largest Exporter • Factory Locations at – Dadu – Sahiwal – Rawalpindi – Swabi
  47. 47. Philip Morris International Inc & LTC Increased its share up to 97.62 percent in 2007 Increased its share up to 97.62 percent in 2007 Increased its share up to 97.62 percent management was changed on 9th March 2007n 2007
  48. 48. Brands of LTC Red & Royals White Diplomat K2 Morven Gold Advertising through BTL activities
  49. 49. LTC Vision We maintain transparency in our financial practices towards shareholders and institutions by assiduously following the laws of business, while working for continuous increases in share holder value to extent allowed by macro- economics environment. We enact high ethical values while implementing all our management policies and procedures, internally and in our interaction with our suppliers and distributors, with a view to fostering long-term relationships.
  50. 50. LTC Mission To exceed the expectations of our customers by producing and supplying high quality products while executing with strong ethical standards, total transparency and complete fairness in all areas of our business.
  51. 51. Evaluation of LTC Mission Statement COMPONENT PRESENCE Customers Yes Products Yes Markets No Technology No Concern for Survival ,Growth and Profitability Yes Philosophy Yes Self Concept No Concern for public image Yes Concern for employees No
  52. 52. Organizational Chart of LTC
  53. 53. Strengths Weaknesses Patronage and Support of an Transfer of management control international player i.e. Philip Morris might hurt the company International performance in short run SWOT Second largest cigarette Bad reputation and legal cases manufacturer in the country with the taxation authorities Analysis of Strategic location of factories and established distribution network Lack of trained workforce and processes LTC Largest Leaf Processing Factory in the country Brand is weaker than the other competing firms Successful Brands in the country Strong network of sister concerns and availability of financial resources Dedicated workforce Opportunities SO Strategies WO Strategies Agriculture support is Increase marketing and sales efforts Train workforce and improve the increasing which is leading in the Middle East market human resource systems to better crop of tobacco Explore new markets with the Improve the financial reporting Wide market accessibility experience of Philip Morris system and settle tax law suits under WTO Educate and train farmers to get best Improve brand awareness Licensing of brands from quality raw material multinationals Increase the production capacity Business friendly Launch new brands and types of government cigarettes to attract young generation Increased access to the general public with the emerging marketing
  54. 54. SPACE Matrix INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION Financial Strength (6 is the best) Environmental Stability (-1 being best) Return on Investment 5 Technological Changes -3 Leverage 2 Rate of Inflation -1 Liquidity 5 Demand Variability -3 Working Capital 5 Price Range of Competing Products -2 Cash Flow 4 Barriers to entry into market -2 Competitive pressure -3 Ease of exit from market -2 Price Elasticity of Demand -5 Risks involved in business -3 Competitive Advantage (-1 being best) Industry Strength (6 is the best) Market Share -2 Growth Potential 3 Product Quality -4 Profit Potential 3 Product Life Cycle -3 Financial Stability 3 Customer Loyalty -4 Technological Know-how 2 Competition Capacity Utilization -5 Resource utilization 3 Technological Know-how -5 Ease of Entry into market 1 Control over suppliers and distributors -5 Productivity, capacity utilization 2
  55. 55. SPACE MATRIX LTC Conservative
  56. 56. BCG Matrix
  57. 57. Financial Analysis 2006 Gross Profit • Better cost and increased by 2.4% expense control Operating Profit • Increased Marketing & Decreased by 7.4% Distribution Expense EPS 25.25 • Issue of Bonus Shares Sales • Constant on Previous year level
  58. 58. Competitive profile Matrix Key Success Factors Weight PTC PTC Lakson Lakson Rating Extended Rating Extended Product Innovation (R&D) 0.12 4 0.48 3 0.36 Manufacturing Technology (R&D) 0.12 3 0.36 2 0.24 & Quality Human Resource 0.07 4 0.28 3 0.21 Selling & Distribution 0.07 3 0.21 3 0.21 Supply Chain Strength 0.1 3 0.3 2 0.2 Financial Muscle 0.1 3 0.3 3 0.3 Patronage and Support of an 0.2 4 0.8 4 0.8 International Player Government Lobbying 0.05 3 0.15 3 0.15 Brand Equity 0.12 3 0.36 3 0.36 CSR 0.05 3 0.15 1 0.05 Total Score 1 3.39 2.88
  59. 59. Recommendations Grow and • Use integrative strategies Build Vertical • Acquire a tobacco supplier and gain control over the Integration entire process Horizontal • Acquire local firms to gain the expertise and flexibility Integration of local firms
  60. 60. Recommendations (contd) • Introduce internationally available Market famous brands of BAT such as Kent, Development Lucky Strike, Rothmans and Pall Mall into Pakistan’s market Introduction of • QSPM Matrix scores for introducing Lucky star brand in Pakistan is higher, Lucky Strike making it more favorable Responsiveness to Changing • Quicker decision making process Market
  61. 61. Recommendations (contd) Market penetration Delegation of Authority Below the Line marketing
  62. 62. Conclusion Conclusion
  63. 63. Question and Answer