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Tile industry in Pakistan has 4-5 major players namely Shabbir Tiles, Master Tiles, Karam Tiles and National Tiles. The market comprises of urbanized and semi-urbanized population which is huge market for these players to cater to. The GDP growth rate however it is not appreciable but it suggest that the market will further increase by the GDP growth rate. With the presence of this huge market every company in the tile industry large number of customers.
Tile industry is also rapidly capturing the marble floor users because marble-tiled floors require polishing in the facility where they are places and this is additional cost that marble flooring requires over tile flooring. Although comparing marble tile with respect to quality and functionality it enjoys the benefits that include durability, aesthetics, hardness, higher abrasion resistance and better water resistance than other tiles no matter how hard a tile is.
Tiles as a product would lie in the high involvement consumer buying behavior because buyers require a lot of information as they are not in a habit to purchase it as the need arises when a new residence or office is built or the old tiles are after a long life are now in a bad order and needs to be replaced. Buyers are well aware that they have to make the decision after careful and keen selection and this is why their behavior is variety seeking.
Price except for luxury product matters in every product, but as the buying behavior is not of frequent in nature and the buyers are not well informed about the price change occurring in the market therefore the market is not price sensitive
Marketing efforts in the Tile industry are not up to the mark and most of the companies are only selling their products on corporate branding basis. But their corporate brand image is strong enough to clearly differentiate itself with others.
Since the tile market includes urbanized and semi urbanized population of the country it can be assumed that the customers are profitable.
All these factors make bargaining power of buyers extremely low. This can be explained with the help of Template on Bargaining Power of buyers which follows next.Template on Bargaining Power of BuyerEffect of Macro Environment on Bargaining Power of Buyers - PEST Effect
No apparent affect
Due to double digit inflation in the country there has been a huge impact on the demand of the every commodity other consumer packaged goods. Ceramic tiles industry dependent on construction industry is also a victim of the high inflation in the country and their demand has also declined to some extent. This fact is evident from the past trend from which it can be observed that demand has become comparatively slower as compared to previous years. Since most of the tiles customers are industries, the recession has led the trend of construction downwards. Hence the buyers are negatively affected by this economic condition.
Social Trends favors the industry as the population of the country is mainly status conscious and are concerned with the material benefits greatly. Since Tiles as a trend is in the focus the buyers have no choice rather than to go with the trend and this benefits the Tiles industry in general.
The customer expects the companies in the industry to provide them with the latest designs, colors and patterns for better customer satisfaction and this requires the latest technology to keep them updated with the trends. There are imported tiles in the market which give buyers a variety to select which somewhat increases the bargaining power of buyers.
Threat of New Entrants
The Fixed cost in the Tile Industry accounts for 50%-80% of the Total Cost. Per unit cost declines with every additional unit produced. Economies of scale production can significantly benefit in cost saving and this clarifies that large firms have a cost advantage.
There is huge potential in the industry for marketing efforts. It has also mentioned earlier that the companies existing in the industry are merely capitalizing on corporate brand image and there is no efforts done to create brands for different tile products or its variants. However the existing corporate image also differentiates companies with each other but with product branding or product variants branding companies can command premium and can increase customer lifetime equity.
Every industry has its own dynamics. Some industries are capital intensive and some are not. Some industries are labor intensive and for some industries to survival are dependent on continuous technological change. Tile Industry is not capital intensive nor requires hi-fi technology. In Pakistan not much automation is done in this industry and the startup cost is for the Tile industry is also not quite high.
Serviceable Equipment is expensive because due to the political situation in Pakistan Plant and Machinery providers are not willing to come to provide after sales services, even they are reluctant to come for installation of the Plant and machinery.
Since the market is big enough and there is a potential that new comers can be accommodated there will be no retaliation from the existing players towards the new entrants and there will be no hurdles to secure distribution channels or sources of supply new entrant may not face any difficulty entering the industry.
No restrictions as such are imposed by the government on the ceramic manufacturers but the regular inspection and interference by the government officials on the processes of the companies is an obstacle for the manufacturers. Hence, the new comers to this industry will face unnecessary interference by the government.
There no such product differences in this industry and relatively, they will not have many problems in obtaining skilled people, materials or supplies. Hence, there will not be any legal barriers at the time of entry but government inspection is a challenge for the new comers.
Increasing inflation and increasing fuel cost in the country greatly impacts the Tiles Industry. Fuel Cost comprises of major proportion in the total cost of production of Tiles and this is why this has a direct impact on overall cost of production and this factor is not only vulnerable for the existing players but also potential obstruction for new comers. The magnitude factor cannot be insignificant or of low importance.
Growing population and increasing shift towards urbanization makes the industry potentially attractive and there are not much competition in the industry so social factor is pulling Threat of New Entrants towards high however the magnitude of pull effect towards high cannot be higher because lower competition are not only factors to induce New Entry.
There is a slow growth in the technology required for the production of ceramic products. The invention of new, improved and higher productive capacities of new machines tend to create unconventional barriers but being a labor intensive industry it is slow paced. They are unskilled and not readily accepting the new processing techniques and programming logics.
The industry in concern is the Ceramic Tiles Industry. Buyer has variety of substitutes available that include marble tiles, granite tiles and mosaic (out dated). Marble flooring and Granite flooring are better alternates to Tiles (ceramics) and they are also expensive than Ceramics Tiles. Marble flooring is durable and enjoys aesthetics as well but it requires to be polished with in the facility where they have to be floored, but it is better alternate in performance in functionality than Tiles on the attribute that include: low or no water absorbing and has low abrasion rate. Granite Tiles are also a good alternate but they is also expensive than Ceramic Tiles and they more share other dynamics of marble tiles.
These substitutes are real and buyers can substitute them with ceramic Tiles however it has also been observed that trend is towards ceramic tiles and people are moving away from marble and granite flooring. This analysis shows that threat of substitute is high. It can also explain with the help of Template.
Template for Threat of Substitutes
No apparent affect
Inflation and lower GDP growth rates indicate that prices of the alternates matter. This benefits the cheaper alternate which is ceramic tiles. Ceramic Tiles cost lesser than marble and granite and another important point is that Ceramic Tiles do not require polishing.
Nowadays aesthetics have become extremely important for the customers. They demand for designs and convenience in maintenance of their floor. Ceramic Tiles are comparatively cheaper and easy to maintain than Marble and Granite. Granites and marble both are well liked by buyers on the basis aesthetics as the aesthetics are natural however tiles are also aesthetically designed and are no less than in aesthetics to their comparable alternates. There is also a shift from marble tiles to ceramic tiles as well therefore the magnitude of this force is very low on the low side
With the constant advancement in technology, new methods and equipments are being introduced in ceramic manufacturing. Hence, the company needs to update according to the trends in the industry keeping in view both local and international markets.
Low Medium High
Overall Picture of Threat of Substitutes
L(1) M H(10)
Bargaining Power of Suppliers
The Inputs required for ceramic tiles manufacturing include clay and chemicals. These inputs are of standard quality in nature. National Tiles are also using standard inputs. There are no complications in procurement of these inputs, a lot of potential suppliers are available and suppliers can be switched easily. The Nature input suppliers is such that they are doing their businesses on short to medium scale and this clarifies that suppliers are not in a position to enter into the Tile Industry's business. For these suppliers, the companies in the Tile Industry are their important customers because there are not many companies in the Tile Industry, hardly 5-6 major players, this makes customer base scarce for the suppliers. The suppliers have to maintain good relations with these companies in order to remain profitable.
Costs of Purchases of these inputs are relatively a small portion of the overall cost as the major portion of the cost is on overheads which include consumption power and gas. This all sums up and the analysis implies that the bargaining power of suppliers is low.
Template for Bargaining Power of Supplier
The law and order situation in the country is a problem for the suppliers as companies acquire the raw material from mines in the northern areas of the country. The unstable political conditions become a barrier for the suppliers to provide the manufacturers with raw material on time and in proper condition.
Inflation may cause increase in cost of raw material, but there are not a lot of companies in the market therefore the suppliers have a low bargaining power as the cost of purchase does not merely depends on the raw material but even other overheads which form a constituent portion of the cost of material in manufacturing tiles and ceramics.
No apparent affect
No apparent affect
Rivalry among Competitors
Tile industry growth is linked with the construction industry. GDP growth rate can give an idea about the growth rate of any industry in an economy of a country. Since the GDP growth rate in the past oscillated around only 2.5-3%, the growth of Tile Industry cannot be rapid because the industry itself is in the early stage of maturity.
It has also been stated previously that fixed costs in industry is around 50-80% so it covers the major portion of the total cost. Product differences are significant in the Tile industry. National Tiles are known for their durable tiles most suited for the industrial sector of the industry whereas Master Tiles are popular for their aesthetic quality.
National Tiles Limited focuses on one attribute and specialized in it which is durability and hardness whereas other players of the industry are well diversified.
Alternates to Tiles (ceramics) are expensive and they also require other cost to be incurred like marble requires polishing so there is presence of switching cost.
The competitors are of much bigger size than National Tiles. National Tiles production is 2000 meters per day whereas all the other competitors are producing within the range of 15000-2000 meters per day which is many times greater than the production of National Tiles. One reason of National Tiles having low production output and still performing well on the industry is that the customers of National Tiles are Industrial and Commercial Users whereas the customers of the competitors are mainly residential users.
Most of the foreign companies are not willing to make investment in Pakistan due to the law and order situation in the country. This inversely affected the businesses in the country but at the same time it is opportunity for the local manufacturers to flourish as they van expect that they are not going to have competition from a Global Company coming to Pakistan,
People are seeking aesthetics in the tiles and the companies that are good at designing the Tile can save themselves from the rivalry from the competitors.
The industry is labor intensive more than capital intensive. With huge and modern technology, companies in the industry can compete on the basis of modernized technology in which they have invested but a huge portion of manufacturing tiles depend on the number of labor. Therefore more than technology, the industry is dependent on the labor efficiency.
Overall Picture of RivalryOpportunities and Threats
Declining rural population due to improved living conditions, however 63.8% of Pakistan's population still lives in rural areas which remains an un-tapped market
Supply of power and gas remain the key cost- related issues that impact the industry
Low rivalry among competitors in industrial tile sector
No incentives from the government to improve competitiveness of the industry i.e., tax-free zones, subsidy, and continuous power supply etc.
Abundant availability of cheap labor (15.6% of total labor force has primary education only)
Due to lower import tariffs, local producers are finding it difficult to compete with Chinese tile imports
Demand growing for different designs and variety in tiles by people who are in the category of upper middle & upper income group
T he tile industry is highly dependent on the construction industry therefore the dynamics of construction industry also effects Tile Industry
Large surplus capacities in the international markets
Competitive Profile Matrix -CPM
a. Value Chain Analysis
About 60% input materials are produced by National Tiles itself which includes ceramic colors and other materials where as 40% input materials for manufacturing tiles are purchased from 'Mian-Waali' and 'Saree' area of Pakistan which includes minerals (chemicals) and clay. The company is not heavily relying on its suppliers to provide them the whole material rather it prefers to have modest vertical integration which is a competitive edge for the company.
The Operational activities of National Tiles Limited are aligned with the quality conformance. German technology is used in the process of manufacturing tiles which assures the specification conformance of the Tile. Plant in Nooriabad operates with the capacity of 2000 meter per day, currently company plans to expand its production capacity from 2000 to 4000 meter per day, for which they are setting up a separate plant.
The Process of Manufacturing tiles at NTCL consist of following activities:
Slip Preparing & Glaze Making
For the slip preparation the raw materials are mixed up with water as per the requirement. Proper composition along with the sufficient amount of water then gets loaded to the all mills for grinding
Casting and Drying
Slip is cast into plaster moulds, due to absorption of water the surface becomes thick with time then the tiles are dried to a low water content to increase the strength of body, which is called drying.
Then tile is brought for glazing which involves smoothing the surface of the tile to give it a glassy shape.
Then the tile is brought for firing in kiln, as a result the bodies will take place a series of physical and chemical reactions, and will take a fixed shape.
Inspection, repairing, Re-firing & packing
As a final step, NTCL inspect the finished products to check its conformance to the quality and then sent for final packing, in case a big portion of tile is out of specifications, the tile is repaired and re-fired.
About 90% distribution is done by National tiles itself, and they are engaged in forward integration that doesn't make them rely on others to distribute their product, in fact national tiles believes that they are doing well than others in distribution area because it is well designed by their expert people which doesn't leave any major weakness that may cause delay in availability of the product to the customers. Since industries are their main customers whom they directly supply the tiles at the place where the tile is required to be floored. The major portion of their sales is in Karachi so distribution is not very wide since most of the industries are located in Karachi where as they also supply tiles to the industries in Punjab mainly in Faisalabad.
Marketing and Sales:
Marketing is done mainly through Personal Relationship (PR) and company contacts. This is necessary as 90% of the sales are done directly through the company showrooms, only about 10% of the sales are through the involvements of intermediaries or dealers. The company has developed good PR relationship overtime with the customers and potential customers. National Tiles Limited is not involved other marketing activities but still the corporate image has earned good name and goodwill for the company.
With the help of the sales team of the company the company has negotiated and signed a contract with Pakistan State Oil for decorating all the petrol stations' flooring with National Tiles. Secondly the company has been able to successfully execute the contract with CDGK to decorate Karachi city. For this purpose National Tiles were used at the beach strip pavements and sitting areas at Sea View as well to decorate the underpass at Clifton.
National Tiles - Head Office, Factory and Showrooms:
NTCL is a public limited company and the sole manufacturer of Extruded Vitrified Split Tiles. The company factory is situated 80 km from super highway near Nooriabad which makes it easier to procure and transport the required raw materials. Also it provides the opportunity of expansion if required in future as this area has many empty plots still available.
NTCL has strategically placed its head office at 8th floor, Al-Sehat Center, Annexe Regent Plaza Hotel, Rafiqui Shaheed Road, Karachi. This helps them to be situated at a place which is easily reachable. Furthermore, being near to a luxury hotel makes it easier to meet technical experts from abroad.
The company has more than 80 dealers who take care of the sales and distribution of tiles throughout the country. Since the sales efforts are done directly by the company, to cater to this purpose they have established showrooms in all the major cities like Karachi, Faisalabad, Lahore, etc. These offices showcase all the product samples, color catalogues and designs for the customers to observe, choose and order from.
The company has 6 national offices in Lahore, Islamabad, Peshawar, Faisalabad, Multan and Hyderabad to help sales throughout Pakistan. Their main sales and display center for Karachi city is in saddar behind Hotel Metropole while sales outlet is in Golimar, Ghousia Colony.
Management at National Tiles has plans to appoint dealers in international market like Gulf States, Singapore, Malaysia & Bangladesh and other such regions. At the moment they are exporting split tiles to UAE through direct sales for specific projects, however the quantity is very low.
Material Procurement - Local and Imported:
NTCL procures 40% of raw material from the local market while the remaining 60% of raw material is manufactured by them at their factory plant through crushing of stones. They buy 'clay', which is one of the main components for the tile body, from Mianwaali and Saree.
Previously the company used to buy chemicals and dyes from imported chemicals' market in sadder. The suppliers till present remain unfixed as the chemicals are procured from suppliers in the open market.
Next they would test them in their laboratories before usage in their production process. This was done in order to check if the chemicals are of the same consistency and purity levels or not as is required by the tile formula they implement.
Presently the company's R&D has made them self sufficient in dye production. This has also helped in reducing the procurement cost as the dyes were an expensive material due to import duties, etc.
At the time of company's starting years approximately 80% of the total material used to be imported, however the company has progressed and brought this figure down to about 20% of total material procurement.
Use Of Technology:
National Tiles are the sole user of German technology in their manufacturing plant in Nooriabad. They started their operation with the technical collaboration of M/s. Agrob Anlagenbau GmbH, Germany. They have best machineries from China and Germany to crush stones to make dust and clay. They have plans to establish another plant with automated machineries. For technical assistance they have local engineers who have skills to work with heavy machineries operated in NTCL.
Another aspect of technological development at National Tiles is the usage of Split Technology for the tile manufacturing. This enables the production of two tiles in the one cycle thus reducing the cost of separate production.
Furthermore, the company under consideration is the only one in Pakistan to make vitrified tiles which sustain harsh weather conditions and many other tests of abrasion and durability. This is made possible through firing them at very high temperature (approximately 1180oC) in a 'kiln' which is operated 24 hours.
Management and Employees - building a strategic asset:
National Tiles maintains stringent policy to recruit new employees. The recruitment and selection process is practiced internally. New selection for vacant position is done after interviews and inspection of past experience as well as academic records.
The total workforce appointed by the company is approximately 300 people. Out of this total, about 200 workers are assigned to the factory and the production process while 80 employees fall under the head of marketing and sales. All the employees are professionally trained as per the company requirements.
Executive Management of NTCL comprises of:
Agha Tajammul Hussain (Chairman & Managing Director)
Agha Tahir Hussain (Deputy Manageing Director)
Agha Babar Hussain (Director Production)
Agha Afsar Hussaib (Director)
Agha Athar Hussain (Director)
Mrs. Niaz Fatima (Director)
Mrs. Shafiq Fatima (Director)
Agha Mustafa Hussain (Director Sales & Managing)
Agha Murtaza Hussain (Director)
c. Trend of Key Financial Ratios
Financial Ratio Measures the financial health of a company and gives a quick picture of firm's strengths and weaknesses lied in operating, investing and financing activities. These financial indicators are quite helpful while formulating the strategy.
NTCL's financial position and performance is very surprising as indicated by each ratio in each year because the trend of almost all ratios is not consistent in all 3 years.
INDICATORS TO LIQUIDITY:
Company's ability to meet the short term obligations is declining over the last 3 years, which is negative sign for the company's short term creditors; company is consistently falling short of liquid asset to pay the amount due from the creditors which may cause company to lose its short term credit borrowing for its operating activities.
In year 2008, company is having only 30% of the easily cash convertible assets to pay the liabilities which are almost 3 times of the most liquid assets this ability further goes down in year 2009 and recovering slightly in 2010. The difference between quick and current ratios shows that in year 2009 and 2010 the company is keeping adequate inventory which is not supposed to be easily cash convertible this may cause uneasy feeling to short term creditors/supplier to lend material to the company on credit.
INDICATORS TO PROFITABILITY
Gross profit margin shows that on average 82% is the cost of goods sold over the period of 3 years, gross margins of the company are very inconsistence due to slight decline in the sales and slight increase in cost of goods sold that reflects declining efficiency in the operational cost management.
For first two years the operating margin is having increasing trend that shows the company is able to reduce its operating activities expenses but margins goes for very down in the 2010 that shows inconsistency in managing operating activities expenses.
Net Profit Margin:
As compared to last two years 2008 and 2009, margins have declined in 2010 due decrease in the sales of the company that declined the net profit margins which were increased in last year.
Return on Asset:
Assets invested in the company are not getting up to the mark return except a little return in 2009 and again decline in 2010.
Overall profitability ratios are marginally affected by declining in 2010 after some increase in 2009 as compared to 2008.
INDICATORS TO SOLVENCY:
Due to heavy losses in past years company has substantial accumulated losses in 2008, that could cause company to lose its equity which made them to go for more long term debt in year 2009 and 2010, and according to company's policy directors can invest in giving interest free unsecured loan to company in case of any crises so that company should not be fall short of funds for any expansion.
Times Interest Earned:
The company's ability to pay interest from its EBIT has increased in year 2009 the ratio increases because of increase in the sales that increased EBIT but this ratio goes down again in 2010 due to decline in sales thus this inconsistency would give red signal to external debt holders (other than directors of company) to avoid lending money to the company.
INDICATORS TO ASSET MANAGEMENT:
On average company is able to convert inventory into sales 1.94 times in a year in 2008 and this trend is more or less maintained in next two years 2009 and 2010 this performance very slow but consistent over 3 years.
Total Asset Turn Over:
On average in all 3 years the assets generate about a half unit sales per unit and this trend is declining over last 3 years which indicated the inefficiency of assets to generate reasonable per unit sales.
INDICATORS TO SHARE HOLDERS:
Due to small amount of income in 2008 EPS is below average but it has improved in 2009 due to increased sales and increase profitability but EPS goes down again in 2010 which is unattractive for an equity investor to invest in NTCL.
Return on Equity:
Though company had some profits in all three years but their equity turned into negative due to heavy accumulated losses from past years which make return n equity negative in all 3 years but it tends to come in positive due to profit generation in last three years and expected profit generation in coming years too.
d. Strategic Cost Management Processes:
Cost management has become a critical survival skill for many firms in today's highly competitive environment. But it is not sufficient to simply reduce costs. Instead, costs must be managed strategically. Strategic cost management is the application of cost management techniques so that they simultaneously improve the strategic position of a firm and result in reduced costs.
Though NTCL follows traditional cost accounting techniques to manage cost like other companies in the industry that determine the cost. Comparing those with the standards to find out variance and taking actions to reduce variances. Yet to some extent NTCL is involved in strategic cost management by focusing on the cost of each value chain factor. Mainly their operations derive the major cost portion, which is about 60% of the total cost. The company needs to manage it effectively. The breakdown of their operations cost is: Raw material is about 10-15%, labour about 20%, other over heads 10% but energy and gas cost is the major chunk of their total operations cost which is about 55%, due to high cost involved in the operations company has adopted following process to reduce some of the above costs, and avoid other new costs.
The company uses split technology in its operations in which two tiles are produced in one cycle that reduces the cost. Moreover, they have stand by system of electricity to avoid suspension of production in case of any major breakdown of electricity that may cause stoppage of production that increases the idle time of labor, and idle of time of machinery, delay in on time delivery of orders to the customers. To avoid poor quality and defect costs, the company follows prevention cost measures whose cost is less than what it costs in poor quality and defects by having quality planning, Quality improvement team meetings, quality education and training, process capability evaluation. Company is able to control over cost to some extent but it has not achieved its full objectives of reducing cost and improving efficiency as shown in company ratio trends in profitability ratios which are inconsistent due to cost of sales up and downs. Though company has strategic cost management process but the problem lies in execution of process.
Strengths and Weaknesses
Competitive Sales Force
Company's liquidity condition is weak
90% of the distribution is handled directly by the company.
Low marketing efforts to promote product.
R & D Department Develops Dyes itself which saves the high importing cost.
Not much importance given to brand building.
Monopoly of providing tiles to the industrial sector.
Lack of technical skills in labor.
Acid & Alkaline proof tiles with low abrasion.
Very low production of 2000 meter / day.
Sole user of German Technology for manufacturing.
Usage for decorating front elevation as tiles do not fall off
National Tiles and Ceramics Limited (NTCL) offers Tiles that are mainly designed to suit Factory/Industry architecture needs. This is also stated earlier that the company is after the segment of Industrial consumers who want to install tiles to become at par with the quality standards so that they can attract foreign customers and investors for themselves. Their main concerns are that the tile should be durable, alkaline and HCL proof, water and chemical proof. They are least concerned with the variety of colors, design or other aesthetics of the tiles. Keeping all this in view National Tiles is the only company that caters to all such requirement and this is why we characterized their strategy as Focus Differentiation. For this a diagrammatic presentations is as follow:
National Tiles is in the fourth quadrant and the company enjoys a monopoly situation there. Being in the fourth quadrant National Tiles have made the Industry structure more attractive for themselves as the buyers are not the same as the other industry players are not focusing to this segment alone. Their source of clay from suppliers are specific and since they are the alone customers for that kind of clay which suits the high temperature, the supplier power over them is zero as there is no other player demanding that clay. Being in the fourth quadrant they have no direct competitor so rivalry has further gone down.
Competitors that include Shabbir Tiles, Master Tiles and Karam Tiles are all differentiating their products to cater the wide audience which is the residential segment. Residential segment is significantly bigger than the Industrial sector. All of them are not specialized in one type of Tile offering but they are quite diversified. Shabbir and Master Tiles not only offer beautiful ceramic tiles but also offer porcelain and granite Tiles. Porcelain tiles are equally abrasion resistant than then the National Tile's Industrial Tile offering but porcelain is an expensive alternate. Karam ceramics Limited as the name suggest also offers other ceramic products and variety of bed room, bath room, kitchen and drawing and dining room tiles. This is the reason that all of them are placed in the same quadrant that is Broad Differentiation.
Fred David's Input/Matching/Decision Model
Initiate operations and supply in untapped areas (S1, S2, O1)
Efforts can be made to brand the tiles which can generate huge revenues (W2, W3, O4)
Company should introduce new range of tiles in colors and designs to cater to the household sector (S1, S3, O4)
Provide basic technical training to unskilled workers (W4,O3)
Company can introduce customization in thickness of tile to cater the needs of industrial customers accordingly (S1, S6, O2,)
Increase production to cater to increasing demands (W5, O3, O4)
Spend to improve awareness on tile feature which are important for industrial sector (S1, S4, S5, O2)
Build on brand & marketing expense for tile usage on front elevation of houses and offices, havelis, etc. (O1,O4)
Company can go for backward integration and acquire suppliers of raw material - clay and mitti (T1, T2, S3)
Negotiate with government to increase import tariffs on foreign tile products (T3)
Initiate activities to build brand with available funds to create branding barriers for new entrants (W3, T5)
The Financial Strength of the company is in a very weak position. The company did not suffer operational losses but the profit after tax is also not commendable. Shareholders Equity has been turned negative because of the heavy losses suffered by the company in the previous years which has made Return on Equity also negative. Negative return on equity indicates that it is not in a safe position. Current Ratio, which determines the short term debt paying ability, is also in a terrible position. Current ratio is calculated by dividing current assets over current liabilities. National Tiles current ratio for the years 2008-2010 is less than one, which indicates there are not adequate current assets available to meet up the short term claims of suppliers and creditors.
Inventory turnover is also low. In 2010, Inventory turnover was 2 times. This means that inventory supplied to the market only required two times to be restocked again, however due to the nature of product it cannot be 7-8 times that markets demands inventory to be restocked but it could be around 4-5 times but in the case of National Tiles the customer they are targeting is mainly Industries, the ratio is poor but justified. Return on Total Assets remained positive during 2008-2010 however the lower rate of return is also very poor performance indicator of the company. Operating profit is also not in a good position which leads it towards the worst side in the Space Matrix presented after the explanation of the other factors.
In the Ceramic Tiles Industry, there are no significant barriers which can restrict the entry of potential competitors and this has also been explained in the Industry Analysis presented in the earlier part of the report. Technology in the manufacturing of Tiles has not drastically changed and the automation in the Industry is also not very high, but the Technology in use by National Tiles Ceramics Limited is quite old and this also results in high fuel and gas consumption as the plant is not cost effective, keeping this in view further Technological changes can have unfavorable impact on National Tiles. Rate of Inflation in the country has long moved to double digit figure of 10% CPI. The nature of product is such that price changes have not much impact on demand; it may be possible that the consumption may increase a bit in the ongoing construction and development in the country, if the prices will go down, but it cannot induce more consumption because other economic factors (GDP rate, inflation, unemployment etc) have more impact on demand than just price.
Market share of National Tiles is very low. According to company official, production capacity for National Tiles is 2000 meters per day whereas competitor's production capacity on an estimate basis ranges between 15,000-20,000 meters per day. This information can be used to depict market share of National Tiles.
Product Quality of National Tiles is superior as it matches with needs of its Industrial customer. The features of the product are hardness, durability, Alkaline and HCL, proof and water absorption resistant. The product has been marketed to the clients through effective PR with clients so overall customer relationship of the company is also good. National Tiles has plant which is not up-to-date but due to technological know-how they have been able to make dyes and some chemicals that undergo as raw material input in the production of Tiles. Company has forward integration i.e. 90% of the distribution is done by the company's authorized sales outlets and it has been explained in the Industry Analysis that supplier power over the companies in Tile industry is none.
Industry has growth potential because people are moving away from alternates like marble and mosaic towards Ceramic Tiles and urbanization rate in metropolitan cities of Pakistan increasing. On aggregate basis there is not much branding done so with branding and other marketing and quality improvement initiatives the industry profit potential may increase. Resources and production capacity are well utilized in the industry which can be attributed to the fact that the total production or capacity utilization of the companies' matches with the demand for tiles as there is not much competition in the industry.
Internal External Matrix (IE)
National Tiles falls in the fifth cell which represents HOLD AND MAINTAIN strategy. It denotes that the National Tiles is a fairly stable organization that is continuing to build upon its strengths, along with working well to take advantage of most of the opportunities that arise and avoid the threats that exist in the external environment.
The company is in a strong position internally as well as externally, which is why the best strategy for it would be to sustain this position in the industry. This requires the formulation of intensive strategies like market penetration, and/or product development. Therefore National Tiles should focus on these strategies and decide which one is most appropriate to adopt.Grand Strategy Matrix:
Upon evaluating National Tiles on competitive position and market (industry) growth, we see that it falls into the first quadrant which means that it is in an excellent strategic position. For National Tiles, market penetration, market development, and product development would be appropriate strategies to adopt.
Since it already has a well-established competitive advantage in the tile industry and there is high potential, therefore National Tiles should introduce new range of tiles in colors and designs to cater to the household sector, and it should initiate operations and supply of tiles in the untapped rural areas of the country. The company can also build upon its competitive advantage by branding its product and spreading awareness to the potential through promotion.
Quantitative Strategic Planning Matrix (QSPM)
Develop home tiles by adding line of home tiles which involves manufacturing tiles with different designs with aesthetic and colors, since consumer tiles have a good potential for growth since everyone wants tile in their homes as the living standard of people have raised over the past years. They spend more on furnishing their homes with different things in which flooring their homes with tiles is also included. Rapid urbanization is also a supporting factor for developing a new product to cater homes, since rapid urbanization increases the construction activities thus increases the potential for home tiles. International market players are having surplus capacity and they may bite the big chunk of Pakistani Market share by entering into Pakistan since China is already increasing its export to Pakistan. To cater to this competition, it is the need of the hour to develop the product that delivers more than what an international player offers to customers in Pakistan.
Since company has an edge of having German technology, which can be upgraded for consumer tiles development without purchasing completely new machinery that will minimize the cost to purchase the new machinery company can avail this opportunity to develop the product and share the resources of industrial tile segment. Company's ability to have Acid & Alkaline proof tiles with low abrasion can also be shifted to home tiles which will also create a new strength for a company to compete master tiles, shabbier tiles and karam tiles in home tile segment and it will help the company to increase its market share in tile industry.
National Tiles with Split Technology produces two tiles in one cycle thereby making it possible to market them at an affordable attractive price. With superior quality and aesthetics, other companies like Shabbir Tiles and Master Tiles offer higher prices. However, National tiles mostly cater to the industrial sector making customized tiles of 15mm thickness as required by the factories, thus they are able to charge a higher price from their industrial clients, thus positioning them at a place higher than its competitors on the canvas.
Shabbir Tiles were the first one to introduce installation material in Pakistan and update their equipments. Following them is the performance of Master and Karam. National Tiles rank lowest in performance on this aspect as the tiles require special bonds secured installation.
National tiles are corrosion and abrasion resistant. As they are mostly used outdoor they have sun fast colors and weatherproof. Karam, Shabbir and Master tiles are equally good when it comes to quality and standard and needs to be polished to maintain the shine and look of the tiles. Furthermore, if installed at a place with direct exposure to sun will result in faded colors and chipping of tiles. However, this is not the case with national tiles, thus making them superior in quality.
Tiles are available in various sizes by all these companies. It starts from 8x8 to different sizes for floors and walls. Shabbir Tiles was the pioneers of large size ceramic tiles in Pakistan and offer a wide range of sizes for indoor and outdoor tiles. However, now all the companies are offering tiles in multiple sizes. National tiles rank lowest because they offer relatively lesser size variety, justified as they cater mostly to the industrial sector.
The company should completely eliminate wrong delivery orders completely. This will ensure that the customers' loyalty rises. For this they will require to have a strong communication between the showrooms, ordering-taking department, factory and transportation department. Furthermore, they will have to be vigilant over the amount of inventory they are keeping at hand. Also, if one showroom falls short of inventory, strong communication will help covering the shortage through immediate supply form nearest location.
The company should reduce the overall cycle of product sales; starting from the order form and ending at the delivery and inspection of the product. Usage of latest soft-wares available in the market for handling the complete order-delivery process can be utilized.
The company should raise three value giving features for the customers.
Brand name: National Tiles should work on making their name an icon of quality and uniqueness in the tile industry. This will make customers use their name with pride as 'brand names' are now a vector for measuring living status. Associating themselves with branding will help the company in harvesting on to over-looked aspects and features.
Aesthetics: NTCL should further develop their product by raising the aesthetics in the tile offering. Raise should be made in color, designs and patterns.
Easy Installation: National tiles, presently ranks lowest on this value vector. Installation is the first point at which the customer actually experiences the product he has bought. You get highest points for giving the best first experience. NTCL should try to cash in on this aspect by providing easy installation. This could be done through sending a company representative to guide the labor, etc.
These are three new value vectors which will help the company in creating an un-contested space and giving them a sustainable competitive advantage over their competitors. These are:
Environment friendly recycled content: They can follow the latest trend of 'going green' and making environment friendly products. For this they can use recycled material for the tile manufacturing which is durable. This will save cost and give them a competitive advantage over other tile manufacturers.
Tiles with Fabric Top: Presently tiles are being offered in different top finishes like glazed, unglazed, matte, porcelain style, etc. The company can bring in a new idea of tiles with fabric top finish. This will be an effort towards combining the carpet industry with the tile industry and creating an un-contested space.
Customization: Another creation vector can be customization of the tile. This will be a combination of product and service. The company representative will provide consultancy services to the client to choose the customized pattern, color, etc according to the theme of the room or area in which the tile is going to be installed. This will be workable as nowadays people are demanding decoration, theme, styles, etc when designing their homes or offices.
Completely eliminate miscommunication amongst employees. This will help in achieving all the other value vectors explained above. Furthermore it will support in efficient working of all the departments in the company as well.
Unhealthy conflicts which can lead to disruptive behavior should be reduced. This can be done through listening to employees and making the organization into a learning organization.
Customer Support to Clients: Dealers at the showroom and sales persons should improve their support services. This can be done thorough training the sales team for after sales services.
Hiring experienced labor: According to a Harvard professor's research, hiring experienced and talented labor at all levels in the organization paves a smoother way towards company's success. The company should raise this aspect to help in company achieving its objectives.
Technical knowledge of employees should be created as presently the technical knowledge is not at par with international standard. They can send their employees to international training sessions or courses to learn skills required to achieve the new strategy.
Raise the automation levels through soft-wares as stated above. This will also help in achieving the 'reduce' objectives, thus giving n overall impact.
Create: Order Online: The Company should support online ordering thus reducing paperwork and time. Customers (especially from the present generation) will also feel convenience in the online ordering method. For this they should create an interactive portal to give ease to customers
IMPLEMENTATION OF CHOSEN STAREGY THROUGH TIPPING POINT LEADERSHIP
Obstacles are attached with any action plan to develop product or in the introduction of new product. According to the researchers there are usually four hurdles that come across during implementation of new strategies and action plans in any organization. Those hurdles are:
To overcome these hurdles, the company can use the newly researched model of The Tipping Point Leadership. This is quite the opposite of the conventional wisdom. Conventional wisdom only focuses on the mass of the company, majorly consisting of the employees of the organization.
On the other hand tipping point strategically focuses on extremes; the people and their activities that have an influence over the company performance. Advantage of using tipping point is that it can be implemented without raising the cost and the change is fast. You act upon only on a few focused aspects and generate faster results.
Cognitive hurdles are the blockage in employees realizing that their organization needs a change. Most often companies, to awaken their employees, insist that company must accomplish superior results. However, this is not so easy to accomplish. To gain the employee interest, change the attitude on must let the employees see and experience the need to change.
To overcome the cognitive hurdle it is recommended to let the employee know their worst operational problems and dissatisfied customers. In national tiles, to adopt change and implement the decided strategies, it is needed to give knowledge to their employees about the customer's feedback and other problems that need to be worked out by bringing out changes in process and products. But first and foremost step would be to communicate the chosen strategy at all levels.
Motivational hurdles, as the name suggests, are the hurdles to motivating employees in working with new strategy like strategies extracted from The Reconstructionist View. Once the company senses the need to change in an organization, it becomes very important for managers to ensure that their employees proceed in a direct, significant and persistent manner. It's quite common that strategy fails because top employees didn't succeed in execution of strategy properly. The three focused factors of reducing demonization are kingpins, fishbowl management and atomization.
At National Tiles, the management can overcome motivational hurdles through following techniques:
Identify the kingpins within the factory employees and the sales teams. Involve and train them about the new strategy. Provide him with the pathway to make an impression which other employees pick up on for following. For example the kingpin is a certain manager of showroom to whom his team mates look up to. Brief him about the product development strategy and his position in the organization. Train him for the implementation of the new action plan, like convincing and negotiating orders with new customers
Another method can be the fishbowl. For this all the executives and managers can be made to sit in one room to brainstorm actions, hurdles, constraints and issues which can arise during the implementation phase and then collaborating and suggesting ways to solve them.
Resource hurdles are the obscurity that managers faces while bringing changes with limited resources and time. It is believed that company needs more resources to execute greater shift in strategy. However, company hardly ever has the resources they feel they needed to get planned strategic results.
Research says that leaders that apply tipping point leadership rarely need to spare their time and energy to obtain extra resource. In fact, they have already identified their cold spots (activities that greater resources input but low performance impact) and hotspots (activities that have low resource input need but large expected results) in their companies.
In NTCL they have marketing and sales team who can mark their cold and hot spots and arrange their efforts accordingly. These cold and hot spots can be the clientele. Also the company can manage inventory by maintaining a proper forecast system in order to avoid blocking their monetary resources in overstocked inventory. Furthermore the company can work on the aspect which they are already implementing, that is, producing the raw materials themselves and also the chemicals required. This will save cost and also they will avoid the risk of running short of raw materials as well as fluctuation in its price.
Balanced Business Scorecard
If the company is to pursue strategy of product development (introduction of fabric-layered tiles), its first goal should be to attract new customers from the household sector, and retain the current ones. Because such tiles would mostly be demanded by interior decorating companies and residential sector as people would have much more variety in color, design and size to choose from when they decorate their homes. Also they would be widely used by companies in offices because they are durable and would give a more professional look compared to carpets. Besides, companies don't want to face the hassle of getting the carped cleaned or changed every week. Such tiles prove to be more durable and worthwhile. To ensure awareness among the target market for these new tiles, the company would have to greatly focus on and enhance their marketing and promotion activities.
The above goals could be measured by the percentage increase in the sales of the company.
To capture 10 percent of the previously non-catered market (i.e. residential sector and business offices).
The Company would take the initiative to start customer awareness programs to clear any misconceptions they may have about the product. For example; they would be made aware that the glue and chemicals used in the carpet tiles would be nontoxic, and would not be health hazardous or contribute to indoor pollution.
To attract New customers for New Product (fabric layered tile)
Percentage of increase in Sales from the New Product
To capture 10% of the residential Tile market
Initiate a campaign to create awareness about the new product
To liquidity (quick ratio) of the
Increased inventory turnover and increased quick ratio
To improve quick ratio from 0.31 (2010) to 0.5 of the total current liabilities
Incentivize sales reps to increase sales.
Internal Perspective (Value Chain)
Integration of internal information systems
Reduced days in over all time to complete order till delivery cycle
No more returns / complaints due to wrong orders
20% Reduction in Lead time
100% Elimination of wrong order deliveries
Implementation of ERP & SAP systems
Strategies should be consistent with the company objectives.
Individual employee involvement and contribution
Proper two-way communication of strategies
Encourage feedback from employees
To generate creative New product ideas
To have 1 product idea per employee per month
Enabling a Culture where everyone can participate and contribute