Strategic Planning & Decision Making

Term Report on Key Strategic Concerns

CHAPTER 1
INTRODUCING STRATEGY & STRATEGIC MANAGEMENT

1.1 OVERVIEW OF STRATEGIC MANAGEMENT

Strategic Management is concerned with making decisions about organization’s future
direction and implementing those decisions. Strategic Management process is divided
into two major phases; Strategic Planning & Strategy implementation.

Strategic Management is equally applicable to public, private, non-profit and religious

organizations. Strategic Management concepts are equally useful to local restaurants, a
small office supplies firm etc against private enterprise organizations.

1.2 KEY TERMS

1.2.1 Mission
A mission defines the current and future business activities of an organization
keeping in view the essential purpose of an organization.

1.2.2 Objectives
The Objectives represents the desired result of an organization.

1.2.3 Strategies
The Strategies are the way or path of achieving the Objectives.

1.2.4 Tactics
These are the small and specific activities contributing towards the strategy.

1.2.5 Strategic Management

The process of making and achieving objectives by combination of strategies and
leading the organization towards its mission is called Strategic management.

1.2.6 Strategic Change

The change in objectives and strategies of an organization according to the
business environment essential for growth / survival of firm.

1.2.7 Strategic Awareness

The strategic awareness is the overall understanding of the managers within the
organization about the current business strategies, their effectiveness in
comparison with their competitors’ strengths & weaknesses and any
improvement / change in the strategy which benefit the organization.

1.2.8 Synergy
Synergy is achieved when two or more separate business organizations or two
different divisions in the same organization merge or increase cooperation to
obtain additional benefits for added value.

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1.3 STRATEGY CREATION

The strategy creation process consists of following: -

1.3.1 Opportunities for Change

“A wise man will make more opportunities than he finds”. The managers must
be aware of both the opportunities and threats of the competitive market and must
maintain a perfect balance between them. Following two approaches are used to
explore opportunities and potential threats:

 Bird’s eye approach

 Squirrel approach

A bird’s eye approach is used when manager needs to compare the organization
with the entire world and find the opportunities. This will provide overall view
thus providing unlimited opportunities and introducing large risks in parallel. A
squirrel approach is applicable when managers start with analyzing own
organizations’ strength and weaknesses and explore the opportunities
accordingly.

Based on the available opportunities the strategy is formed and a strategic change
is introduced in the organization.

1.3.2 Planning & Strategy Creation

Once an opportunity is identified, planning is done to achieve the newly set
objective through a defined strategy. Planning is essential to provide direction
and to ensure that the appropriate resources are available as and when needed in
pursuit of objectives.

A formal strategic planning is useful in stable and predictable environment where

opportunities and potential threats are forecasted. When business environment are
less predictive and turbulent, planning must be flexible enough to cater for any
abrupt changes in the strategy.

1.3.3 Visionary Leadership

Another dimension of setting up a strategy is through strong leadership instead of
formal planning process. This mode is feasible when the strategic leader has full
confidence of the organization and is well influential so that others will follow his
ideas and implement the strategies successfully.

For newly appointed chief executives, following five questions holds key
importance in order to define any strategy.
1. What are the basic goals of the company?
2. What is the strategy for achieving these goals?
3. What are the fundamental issues facing the company?
4. What is its culture? and
5. Is the company organized in a way to support the goals, issues, and
culture?

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CHAPTER 2
STRATEGIC MANAGEMENT PROCESS
2.1 KEY STRATEGIC CONCERNS:
This chapter describes the major Strategic concerns which should be considered by an
organization during development and implementation of Strategy.

2.1.1 Strategic Leadership

The strategic leader of an organization plays a vital role in the success of
business. Its job is to tie up the team as a single unit which has one common
objective achieved through combination of various strategies of individual
department. The strategic leader must be very clear about the mission, strategy to
be followed in various situations and strategic resources.

2.1.2 Culture and Values

The culture is the way that the organizational members behave and the values
important to them. It is essential for success of an organization to maintain these
values as it dictates the way that decisions are made.

2.1.3 Environmental fit & Stake holder satisfaction

The success of an organization also depends on the awareness of environmental
forces, potential opportunities and threats with respect to the environment. A
PEST (Political, economic, social and technical) analysis can provide the basis
for analyzing the external environment.

Strong relations with its all stake holders contributing towards the company
growth ultimately benefits in terms of profitability which will satisfy all key stake
holders. Innovation serves as an important tool for being competitive in the
market. Continuous improvement in products and services keeps the organization
fit in environmental forces.

2.1.4 Strategic Positioning

SWOT (strengths, weaknesses, opportunities and threats) analysis is a well
known technique practiced to find the position of an organization. The
organizations’ strategic resources should match with the environmental pressures
and demands. Two types of strategies are used for strategy creation and / or
strategic change.

Market Driven Strategy

This is strategy is employed when an opportunity of business is identified to
follow and the customer / consumer needs are well understood. The strategic
resources are developed and deployed according to the requirement. However,
the perspective on the products or services will vary according to the industry
trade choose by the organization.

Resource based Strategy

Once the organization clearly identified its core strategic competencies &
resources, it will explore new markets where these resources can be utilized to
establish its customer pool and provide its products and services. This
arrangement is known as Resource based strategy.

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2.1.5 Key Success Factors

Key success factors are those things which company must do well if it is to be an
effective competitor. There will be many key success factors in general or
specific to the business. Following are some key factors: -
 High and consistent quality
 Low costs
 Fulfilled timely delivery promises and low delivery time.
 Low response time & fast product customization etc.

2.1.6 Core Competencies

Any organization must develop its core competencies to meet respective key
success factors. Following are distinctive skills which provide competitive
advantage.
 Access to important market areas
 Customer satisfaction and benefits
 Difficult for competitor to replicate.

These competencies are based on following three bases.

 Technology
 Process capability
 Strategic Architecture

2.1.7 Strategic Capabilities

The strategic success of a company is based on the strategic process capabilities.
As an example an good distribution channel of garment products with low cost
and lower delivery times to the consumer wins the market place. Any specific
technology with regards to a product will also provide a leading edge in winning
the major market share.

2.1.8 Value Addition

A business must add value if it is to be successful. Value addition is done to
ensure that the customer’s needs are completely fulfilled and at the same time
providing the customer with the economy of scale (low costs) with highest
possible efficiency (minimizing the total and attributed value addition costs).

2.1.9 Competitive Advantage

Competitive advantage is obtained by a firm through improved productivity,
employee involvement for product innovation and utilization of resources to
produce the products effectively and efficiently.
Competitive advantage is also facilitated by good internal and external
communication, empowerment of employees in contributing ideas for
improvement and innovation. Company’s previous image and reputation in the
market also holds a key importance for winning advantage over its other
competitors.

2.2 KEY STRATEGIC CNOCERNS OF JAVEDAN CEMENT:

Some of the above noted concerns are studied in detail as regards to Cement Industry in
Pakistan and Javedan Cement Limited is considered. Details are discussed in Chapter no.
10 of this report.

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CHAPTER 3
CULTURE & VALUES

3.1 CULTURE
Culture is a set of habitual and traditional way thinking, feeling and reacting to problems.
Organizational culture is the pattern of beliefs and expectations shared by the
organization’s members, which powerfully shape the behavior of individuals and groups
within the organization.

3.2 ASPECTS OF CULTURE

The culture of any organization is built by people working for that organization. The
belief and expectations contribute significantly. The way of communication i.e. open or
close also affect the culture of the organization. It bring good results if employee of any
level knows about its organization status in the market in comparison with its
competitors and can freely share his / her ideas of improving the business.

Power or influence of a person mostly in case of a single owner company also

contributed to the overall culture of the organization. In such case, the company is
generally directed by the decisions of the owner. Politics plays an important role in
setting up an organizational culture.
3.3 DETERMINANTS OF CULTURE
There are five key determinants of culture are:

3.3.1 Environment and Key Success Factors

It is related to the organizational strategic approach for being an affective
competitor for e.g. innovation & lower delivery times.

3.3.2 Values
The values that a strategic leader considers important and followed in the
organization for e.g. employee reward system etc.

3.3.3 Heroes
Those persons who created the culture for e.g. product innovator, creative
persons etc.

3.3.4 Rites and Rituals

It is the behavior pattern which leads the culture. For e.g. involvement of
coworkers when one is in some difficulty or attitude of a sales person with a
prospective Customer etc.

3.3.5 Cultural Network

It is the communication system surrounding the employees which determines the
awareness of employees with the essential issues.

3.4 IMPLICATIONS OF CULTURE

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Following are the seven aspects, the significance of which vary from industry to
industry.
 Extent of market orientation
 Relationship between management and staff
 Commitment of people for target achievement
 Attitude towards innovation
 Attitude towards costs & cost reduction
 Commitment and loyalty (felt & shown)
 Attitude towards technology change

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CHAPTER 4
ENVIRONMENTAL ANALYSIS &
STRATEGIC POSITIONING

4.1 UNDERSTANDING THE ENVIRONMENT

There are two types of environment under which organizations operate: -

 Internal Environment – Organization’s internal environment

 External Environment – The business environment for a firm

It is very important for survival and success of an organization to react to the

environmental pressures i.e. potential threats and changes required to take hold of
prospective opportunity.

4.1.1 PEST Analysis

PEST analysis is usually done by companies in order to determine the
prospective opportunities or potential threats. A PEST (Political, Economical,
Social and Technological) Analysis reveals the external environmental business
opportunity of a potential markets or threats for which an organization must be
prepared to be successful.

Two other factors Environmental and Legal are also added to PEST making it
PESTEL analysis.

4.2 STRATEGIC POSITIONING

Strategic position ensures that corporate strategic resources meet and satisfy key success
factors for customers and markets. To manage its environment, an organization will need
strong strategic positions. This involves taking the advantage of opportunities to add
value to the business that are important to Customers which will ultimately result in
overall benefit of organization.

An organization must find an effective blend between the opportunity driven approach to
strategy creation and the resource based approach. In this way an organizations seeks to
exploit there core competencies and capabilities to add value to their products or
services. It is of prime importance that the benefit of the added value should not go only
to one specific share holder, consumer or company itself but it should be divided in such
a way that Organization will always be available strategic resources for further value
addition in future.

4.3 SWOT ANALYSIS

After identification of an opportunity in an environment, it is necessary to evaluate the
opportunity in terms of its appropriateness with respect to its available resources. This
evaluation is done by SWOT (Strengths, Weaknesses, Opportunities and Threats)
analysis. The Strengths & Weaknesses comes from the analysis of organization’s inernal
environment while opportunities and threats are created in external environment.

SWOT analysis provides a valuable framework for evaluating the position of an

organization in relation to its environment.

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CHAPTER 5
STRATEGIC PLANNING

5.1 PLANNING
Planning is the process by which one determines whether to attempt a task, work out the
most effective way of reaching desired objectives and prepares to overcome unexpected
difficulties with adequate resources. Planning is the start of the process by which an
individual or business may turn empty dreams into achievements.

5.2 STRATEGIC PLANNING

It is a comprehensive plan or action orientation that sets critical direction and guides the
allocation of resources for an organization. It is a focus for action that represents a “best
guess” regarding what must be done to ensure longer-run prosperity for the organization
or one of its subsystems.

There are four stages in Strategic Planning process:

1. Appraisal phase
2. Choice phase
3. Implementation phase
4. Evaluation phase

5.2.1 Appraisal phase

In the appraisal phase, managers examine their organization’s competitive
environment to determine its relative strengths and weaknesses. This examination
involves assessing the resources available to the company from within, and
taking stock of the opportunities and threats that lie without.

5.2.2 Choice phase

With this analysis as a guide, various strategic alternatives can be devised and
discussed and a choice can be made.

5.2.3 Implementation phase

Once a suitable strategy has been settled on, the process moves into
implementation, when supporting plans are developed, techniques and procedures
are refined and the company’s human and financial resources are mobilized.

5.2.4 Evaluation phase

The activated plan must undergo periodic evaluation, so that its success in
accomplishing its purpose can be measured and any necessary mid-course
corrections can be made.

5.3 PORFOLIO MANAGEMENT

Managing diverse businesses with different strategic plans and challenges is often called
Portfolio Management.

Because most companies offer not just one product on the market but a diversity, all with
in the same industry, it would be expected that not all these products would show the
same level of profitability. Knowing how to manage such a mix of strengths and

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weaknesses calls for a knowledge of product strategy and the Boston Consulting Group
(BCG) was largely responsible for developing the concept of Portfolio Management.

STARS
QUESTION MARKS
Low profit
(Unprofitable, investment for
future)

Market
Growth

CASH COWS DOGS

(Profitable) (Marginal profit)

High Market Share Low

As illustrated in above figure, a product’s management strategy is determined by its

market share and its rate of market growth.

5.3.1 Cash Cows

If the product has low market growth but a high market share (in other words, it
is a mature product), it often generates a large amount of cash. Such a product is
called a Cash Cow because it can be milked for resources to fund other activities.

5.3.2 Stars
If the product has both high growth and a high market share, it is a Star with short
term profitability as well as long term potential.

5.3.3 Question Mark

A Questioned mark also known as Problem child is high in growth potential but
low in market share. These products often receive resources milked from the cash
cow, in an effort to achieve market share and become a Star.

5.3.4 Dogs
A product lie in the lower right hand quadrant (low growth and low market share)
is a Dog and is usually a candidate for divestiture.

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CHAPTER 6
ENTREPRENEURSHIP & INNOVATION

6.1 ENTERPRENEUR
A person who habitually creates and innovates to build something of recognized value
around perceived opportunities.

An entrepreneur (a loanword from French introduced and first defined by the Irish
economist Richard Cantillon) is a person who undertakes and operates a new enterprise
or venture and assumes some accountability for the inherent risks. Entrepreneurship is
often difficult, as many new ventures fail. In the context of the creation of for-profit
enterprises, entrepreneur is often synonymous with founder.

Most commonly, the term entrepreneur applies to someone who creates system to offer a
product or service in order to obtain certain profit.

Business entrepreneurs often have strong beliefs about a market opportunity and are
willing to accept a high level of personal, professional or financial risk to pursue that
opportunity. Business entrepreneurs are viewed as fundamentally important in the
capitalistic society.

Some distinguish business entrepreneurs as either "political entrepreneurs" or "market

entrepreneurs." Entrepreneur is sometimes mistakenly equated with "opportunist". An
entrepreneur may be considered one who creates an opportunity rather than merely
exploits it, though that distinction is difficult to make precisely.

6.2 INTRAPRENEUR
An INTRAPRENEUR is the person who focuses on innovation and creativity and who
transforms a dream or an idea into a profitable venture, by operating within the
organizational environment. Thus, Intrapreneurs are Inside entrepreneurs who follow
their founder’s example.

6.3 INTRAPRENEURSHIP
Intrapreneurship is the practice of entrepreneurial skills and approaches by or within a
company or at home. Employees, perhaps engaged in a special project within a larger
firm are supposed to behave as entrepreneurs, even though they have the resources and
capabilities of the larger firm to draw upon. Capturing a little of the dynamic nature of
entrepreneurial management (trying things until successful, learning from failures,
attempting to conserve resources, etc.) is claimed to be quite valuable in otherwise static
organizations.

6.4 INNOVATION
An innovation is a new idea applied to initiating and improving a process, product or
service. The process of innovation is closely allied with the entrepreneurial role in
organizations, particularly since that role relates to discovering and exploiting new
opportunities.

The classic definitions of innovation include:

1. the process of making improvements by introducing something new

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2. the act of introducing something new: something newly introduced (The

American Heritage Dictionary).
3. the introduction of something new. (Merriam-Webster Online)
4. a new idea, method or device. (Merriam-Webster Online)
5. the successful exploitation of new ideas (Department of Trade and Industry, UK).
6. change that creates a new dimension of performance Peter Drucker (Hesselbein,
2002)
7. A creative idea that is realized [(Frans Johansson)] (Harvard Business School
Press, 2004)
8. "The capability of continuously realizing a desired future state" ([John Kao, The
Innovation Manifesto, 2005])

The term innovation may refer to both radical and incremental changes to products,
processes or services. The often unspoken goal of innovation is to solve a problem.
Innovation is an important topic in the study of economics, business, technology,
sociology, and engineering. Since innovation is also considered a major driver of the
economy, the factors that lead to innovation are also considered to be critical to policy
makers.

While innovation typically adds value, innovation may also have a negative or
destructive effect as new developments clear away or change old organizational forms
and practices. Organizations that do not innovate effectively may be destroyed by those
that do. Hence innovation typically involves risk. A key challenge in innovation is
maintaining a balance between process and product innovations where process
innovations tend to involve a business model which may develop shareholder satisfaction
through improved efficiencies while product innovations develop customer support
however at the risk of costly R&D that can erode shareholder returns.

6.4.1 Types of innovation

Scholars have identified at a variety of types of innovation, including for

example:

 Business Model innovation involves changing the way business is done in

terms of capturing value e.g. Compaq vs. Dell.
 Marketing innovation is the development of new marketing methods with
improvement in product design or packaging, product promotion or
pricing.
 Organizational innovation involves the creation or alteration of business
structures, practices, and models, and may therefore include process,
marketing and business model innovation.
 Process innovation involves the implementation of a new or significantly
improved production or delivery method.
 Product innovation, involves the introduction of a new good or service
that is new or substantially improved. This might include improvements
in functional characteristics, technical abilities, ease of use, or any other
dimension.
 Service innovation, is similar to product innovation except that the
innovation relates to services rather than to products
 Supply chain innovation where innovations occur in the sourcing of input
products from suppliers and the delivery of output products to customers

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6.4.2 Failure of Innovation

Attaining goals must be the ultimate objective of the innovation process.

Unfortunately, most innovation fails to meet organizational goals.

Figures vary considerably depending on the research. Some research quotes

failure rates of fifty percent while other research quotes as high as ninety percent
of innovation has no impact on organizational goals. One survey regarding
product innovation quotes that out of three thousand ideas for new products, only
one becomes a success in the marketplace. Failure is an inevitable part of the
innovation process, and most successful organizations factor in an appropriate
level of risk. Perhaps it is because all organizations experience failure that many
choose not to monitor the level of failure very closely. The impact of failure goes
beyond the simple loss of investment. Failure can also lead to loss of morale
among employees, an increase in cynicism and even higher resistance to change
in the future. Failure of innovation occurs mainly due to following reasons:

1. Poor Leadership
2. Poor Organisation
3. Poor Communication
4. Poor Empowerment
5. Poor Knowledge Management

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CHAPTER 7
STRATEGY EVALUATION

Strategy evaluation is the final stage in Strategic Management. Managers desperately

need to know when particular strategies are not working well; Strategy Evaluation is the
primary means for obtaining this information. All strategies are subject to further
modification because external and internal factors are constantly changing. Three
fundamental strategy evaluation activities are:

1. Reviewing external and internal factors that are the bases for current strategies.
2. Measuring performance
3. Taking corrective actions

Strategy evaluation is needed because success today is no guarantee of success

tomorrow! Success always creates new and different problems; complacent organizations
experience demise.

Certain factors influence the effectiveness of strategies which are:

 Appropriateness
 Feasibility
 Desirability

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CHAPTER 8
DECISION MAKING

8.1 DECISION MAKING

It is the process through which managers identify organizational problems and attempt to
resolve them.
Or
It is the cognitive process leading to the selection of a course of action among
alternatives; It is the core of planning. Managers must make choices on the basis of
limited or bounded rationality. That is, they must make decisions in light of every thing
they can learn about a situation, which may not be everything they should know.

Every decision making process produces a final choice. It can be an action or an opinion.
It begins when we need to do something but we do not know what. Therefore, decision
making is a reasoning process which can be rational or irrational, and can be based on
explicit assumptions or tacit assumptions.

Common examples include shopping, deciding what to eat, when to sleep, and deciding
whom or what to vote for in an election or referendum.

Decision making is said to be a psychological construct. This means that although we

can never "see" a decision, we can infer from observable behavior that a decision has
been made. Therefore, we conclude that a psychological event that we call "decision
making" has occurred. It is a construction that imputes commitment to action. That is,
based on observable actions, we assume that people have made a commitment to affect
the action.

8.2 STEPS IN DECISION MAKING

Steps in Decision making process:

1. Identify the problem

2. Generate alternative solutions
3. Evaluate and choose among alternative solutions
4. Implement and monitor the chosen solution.

8.3 DECISION MAKING MODELS

Following are two major types of model regarding how managers make decisions:

1. Rational Model
2. Irrational Model

8.3.1 Rational Model:

A model that suggests that managers engage in completely rational decision
processes, ultimately make optimal decisions and possess and understand all
information relevant to their decision at the time they make them.

8.3.2 Irrational Model:

Models that suggest that information gathering and processing limitations make it
difficult for managers to make optimal decision.

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CHAPTER 9
RISK & CRISES MANAGEMENT

9.1 RISK MANAGEMENT

It is the process of measuring, or assessing, risk and developing strategies to manage it.
Strategies include transferring the risk to another party, avoiding the risk, reducing the
negative effect of the risk, and accepting some or all of the consequences of a particular
risk. Traditional risk management focuses on risks stemming from physical or legal
causes (e.g. natural disasters or fires, accidents, death, and lawsuits). Financial risk
management, on the other hand, focuses on risks that can be managed using traded
financial instruments.

Risk management also faces difficulties allocating resources. This is the idea of
opportunity cost. Resources spent on risk management could have been spent on more
profitable activities. Again, ideal risk management minimizes spending while
maximizing the reduction of the negative effects of risks.

Steps of Risk Management:

9.1.1 Risk Clarification:

The first main step in risk management is clarifying the risk involved. There are
four elements:
 Personal Risk
 Opportunity Risk
 Environmental Risk
 Resource-based Risk

9.1.2 Risk Assessment:

Once risks have been identified, they must then be assessed as to their potential
severity of loss and to the probability of occurrence. These quantities can be
either simple to measure, in the case of the value of a lost building, or impossible
to know for sure in the case of the probability of an unlikely event occurring.
Therefore, in the assessment process it is critical to make the best educated
guesses possible in order to properly prioritize the implementation of the risk
management plan.

9.1.3 Potential Risk Treatments

Once risks have been identified and assessed, all techniques to manage the risk
fall into one or more of these four major categories:

Risk Avoidance:
It includes not performing an activity that could carry risk. An example would be
not buying a property or business in order to not take on the liability that comes
with it. Another would be not flying in order to not take the risk that the airplane
was to be hijacked. Avoidance may seem the answer to all risks, but avoiding
risks also means losing out on the potential gain that accepting (retaining) the risk
may have allowed.

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Risk Reduction:
This involves methods that reduce the severity of the loss. Examples include
sprinklers designed to put out a fire to reduce the risk of loss by fire.

Risk retention:
Risk retention involves accepting the loss when it occurs. True self insurance
falls in this category. Risk retention is a viable strategy for small risks where the
cost of insuring against the risk would be greater over time than the total losses
sustained. All risks that are not avoided or transferred are retained by default.

Risk Transfer:
This means causing another party to accept the risk, typically by contract or by
hedging. Insurance is one type of risk transfer that uses contracts.

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CHAPTER 10
KET STRATEGIC CONCERNS OF
JAVEDAN CEMENT LTD.

10.1 CEMENT INDUSTRY OF PAKISTAN

In 1947 at independence, there were only four cement plants, in Pakistan, with a total
production capacity of half a million tons per annum as compared to its demand of over a
million tons. At present there are 26 cement plants in the country, out of which 24 are
operating. One operating unit is in the public sector, while the remaining 23 units are
owned by the private sector. Two of the three public sector units have been closed down.
Annexure 2.1 presents installed capacities and operating status of the cement production
plants of Pakistan, for Year 2001-02.

Following table presents province-wise numbers and installation capacities of the

operating cement production units.

Province Operating Unit Installed Annual Capacity

Millions tons
Islamabad 1 0.625
Punjab 8 6.891
Sindh 9 3.643
NWFP 6 5.324
Balouchistan 1 0.630

Total 25 17.113

As shown in above table, in year 2001-02, total installed capacity of the plants was about
17 million tons, against a total domestic demand of approximately 10 million tons, which
is only about 60% of the installed capacity. Presently, three additional cement production
plants, with total installed annual capacity of about 1.5 million tons are in the final stages
of completion, despite the available excess capacity in this sector.

Until 1970 the cement plants were installed on wet process or semi-dry process
technology, while the plants installed after 1980 are manufacturing cement by using dry
process. Dry process consumes approximately 50 % less energy than the wet process.
Presently most of the plants have dry process. Cement industry has benefited a lot from
the recent development in cement manufacturing technology. Employment of dry
process, pre-heaters, pre-claimers, process automation, online analyzer s and electrostatic
precipitators has resulted in environmentally better and energy efficient industries. Table
2.3 presents main processes and kilns types employed by the local cement plants

The production of cement is a continuous process and is highly energy intensive. Lime
stone, clay and gypsum are used as major raw materials in the production of cement. The
raw materials for cement manufacturing are available in abundance in Pakistan. It is
estimated that Pakistan has raw material deposits for over 100 years.

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All over the world twenty types of cements are produced. In Pakistan following four
types of cements are manufactured mainly:

 Ordinary Portland Cement (OPC)

 Sulfate Resisting Cement (SRC)
 Blast Furnace Slag Cement (BFSC)
 White Cement

10.2 JAVEDAN CEMENT LIMITED

10.2.1 Brief History

Javedan Cement Limited (JCL) is a public limited company incorporated in
Pakistan on 8th June, 1961 under Companies Act, 1913 (Now Companies
Ordinance, 1984). The shares of the company are listed on Karachi Stock
Exchange since October, 1962. The principal activity of the company is to
manufacture and sell ordinary Portland cement, blast furnace slag cement and
sulphate resisting cement. The company was incorporated in the name of Valika
Cement Limited and nationalized under the Economic Reforms Order, 1972 by
the Federal Government on 2nd January, 1972 and the name of the company was
changed to Javedan Cement Limited on 19th February, 1973.

10.2.2 Designed Capacity

In the beginning, the factory consisted of 2 Kilns of semi dry process with a
designed capacity of 500 tons per day each (total 1,000 tons per day and 300,000
tons per year capacity), which started commercial production in year 1964-65.
The production facilities were expanded by installing a dry process Kiln of 1,000
tons per day capacity (300,000 tons per year) in 1979. Total installed annual
capacity of the company is 600,000 tons.

10.2.3 Products
The company manufactures and markets following products
 Ordinary Portland cement
 Portland blast furnace slag cement
 Sulphate Resistance cement

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Term Report on Key Strategic Concerns

10.3 KEY STRATEGIC CONCERNS OF JAVEDAN CEMENT LTD.

10.3.1 Capacity Expansion

The economy has
grown strongly over
the past 3 years, at an
average Pace of
7.5%. After
expanding at high
rates in the preceding
2 years, the economy
slowed in FY2006
(ended 30 June
2006), but still
maintained a robust
outturn of 6.6% ,with
this rate of growth
expected to remain
consumption of
cement will increase considerably. Nearly all the other cement plants have
increased there capacity but the capacity of Javedan Cement remains stagnant at
2000tons/year with no planning of capacity expansion in years to come.

With Governments mega projects being constructed all around the country in full
speed and feasibility study of BHASHA-DIAMIR DAM in progress with the
chances that the proposed construction of the dam will start by 2008, it is
expected that most of cement consumption for this dam would be fulfilled by the
northern plants in Punjab and NWFP but as a whole cement demand will shoot
up rapidly. EMAAR PROPERTIES of UAE announced construction of two
islands near Karachi Port that will take the cement demand to unprecedented
levels. If the current productions levels are not increased by JAVEDAN
CEMENT soon they would be left out of this race.

Hurdles for Capacity Expansion

The country is in a grip of severe energy crisis that has made the utility providers
unable to meet the growing industrial demand at present JAVEDAN CEMENT
uses electricity from KESC grid. The utility provider has shown its inability to
provide extra supply. Other major cement manufacturers have established there
own in-house captive power generation units for meeting there entire electricity
requirement. In order for JAVEDAN CEMENT to meet there electricity demand
for future expansion they have to establish there own Power Generation Setup.

For large manufacturing concern like a cement plant, capacity expansion requires
huge investment, with the current high interest rates prevailing it is very
expensive for any company to acquire huge loans on high interest rates the
company would either go for the stock exchange to get the required amount or
ask the government to get some subsidy for cement plant expansion and
modernization, it is for the company to decide which option it would follow.

10.3.2 Refurbishment of Existing Plant

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The two production lines were established in the early 60’s and the second line
was commissioned in the 80’s,both these production facilities have covered there
operating life, there are frequent break down and the maintenance staff have to
spend hard time keeping machines in running condition.

The cement plant is located in area which is now being used for residential
purpose. The Dust collecting units of the plants is not properly working and
malfunctions mostly and is an environmental hazard effecting area of 2 miles in
radius. This is causing lungs and throat problems for population of around 2 lacs
human beings residing in adjoining area.

There is an urgent need for major machine refurbishment and replacement as if

the current machines are kept in service without major refurbishment for
continuous period the number of breakdown will increase and production output
will further go down. Furthermore, Javedan Cement officials must take this
problem as of very serious concern and repair of dust collectors is required on
immediate basis.

10.3.3 Manufacturing Cost

Energy constitutes more than 50 per cent cost of production of cement. Until
fifties cement industry was using coal as fuel for clinkering of raw material. After
discovery of natural gas, all cement plants were converted into gas. In early
eighties, the then government decided to preserve gas for fertilizer and domestic
consumption. All the cement plants were advised to switch over to furnace oil.
Since furnace oil prices have taken a quantum jump during recent years which
has resulted in increasing the cost of production almost to double. The increased
level of furnace oil prices strongly suggests that Pakistani cement industry should
switch over to coal firing system. Cost of coal firing is estimated to be 2/3rd of
the cost of furnace oil, if imported and local coal is used in the ratio of 50 per
cent.

JAVEDAN CEMENT is yet to be converted to coal firing and is still using the
expensive furnace oil for the clinkering process. The competitors have switched
over to coal firing and enjoying the low cost of coal and producing the same
product with much lower manufacturing cost.

10.3.4 Export Market, High Tax Rates And WTO

Pakistan is surrounded by a number of countries which have to import cement,
either because they do not have limestone reserves or are short in limestone
deposits. Expected annual demand is listed below.
 Bangladesh: 5 million tons
 Sri Lanka: 3 million tons
 Singapore: 5 million tons
 Egypt: 4 million tons
 Myanmar: 1 million tons
 Vietnam: 1 million tons
 Malaysia: 2 million tons
 Maldives: 3 million tons

Pakistan has historically been exporting cement whenever it had surplus capacity.
Pakistan has exported considerable amount of cement during decades of sixties

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and seventies besides meeting the entire need of the then eastern part of the
country, which are now Bangladesh.

In today’s time Pakistan export cement to Afghanistan and to some Middle

Eastern countries. Biggest hurdle for cement export are high manufacturing cost,
taxation and low production capacity. The government will only allow export of
cement when there is excess capacity available. With JAVEDAN CEMENT
unable to increase its capacity beyond 2000tons/day the company is only
focusing on meeting local demands and looks like not interested in the export
market that can double there profits. JAVEDAN CEMENT is located very close
to the recently developed northern by-pass that links directly to Karachi Port that
can give them easy excess for there export consignments.

High rate of excise duty and general sales tax also is a big factor that takes the
final product price up and makes it unfeasible for export, the government should
think of bringing this taxation level down so that Pakistani cement becomes
feasible in the global market.

Overall taxation on cement in Pakistan is 37 per cent, India 18 per cent, Indonesia
10 per cent, Philippines 10 per cent, Iran Nil; Egypt 10 per cent while it is 7 per
cent in Thailand.

With the government fast signing up free trade agreements with many countries
in the region there is a sense of anxiety among the manufacturer about how they
will be competing with the imported cement from China and India. The
government should form a committee to look into this matter and suggest
incentives for the survival of cement industry in the years to come which will be
dominated by a market filled by regional players.

10.3.5 Availability of Raw Material

Main constituents of the cement are lime, silica, alumina, iron, magnesia and
some other trace ingredients. Following raw materials are used to obtain these
constituents.

a) Limestone
b) Clay
c) Iron Ore
d) Bauxite
e) Gypsum

JAVEDAN Cement is located in an area rich in limestone deposits. These

Limestone deposits can be explored and extracted with conventional methods of
using standard earth moving machinery. With regard to gypsum deposits it is
transported from Daud Khel Areas. In the near future if JAVEDAN CEMENT
decides to expand there capacity availability of raw material will not be a
problem as geological survey has revealed that the raw material deposits are
sufficient for the next 20 years to come.

10.3.6 Political Situation

General Pervez Musharraf, the president and chief of army staff, faces the
challenge of a presidential election in 2007. The president will be chosen by an

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electoral college before the next parliamentary election, which is scheduled to

take place by October this year. Given the absence of strong political opponents
within Pakistan and the support that General Musharraf currently commands in
parliament, he is expected to win the presidential contest.

If everything goes as planned then no trouble ahead for the economy but if
something abnormal do happens and it looks like it will then the economy is
going to be affected one way or the other that cant be predicted because there are
two many unknowns in this area and time will surely tell and straighten things
out.

10.4 CONCLUSIONS AND RECOMMENDATIONS

In view of the above discussion, this report recommends that Javedan Cement should
expands the plant and decrease the price of the products based on the following: -

i) Because of its increase business and rapid export process, the plant needs to expand
from 2000 tons per day to 3500 tons per day production capacity.

ii) The refurbishment and rehabilitation of the old plant is also essential keeping in view
of the future target production requirement to avoid breakdowns during peak work
load.

iii) Dust collecting units requires immediate repairs and rehabilitation. They are a serious
hazard for environmental pollution creating various health problems for adjacent
vicinity.

iv) All other cement plants in Pakistan had already converted to coal from natural gas as
fuel for production. Urgent measures must be taken to install coal firing
equipments so that the cost of production will decrease and profitability will
increase.

v) The plant is located at very suitable location near northern by-pass connecting to
Karachi port. This already available infrastructure can be utilized to transport
cement from production plant to Karachi sea Port for export.

vi) Suitable measure should be taken for special tax free agreements enabling Pakistan’s
cement industry to compete with international cement manufacturers in the
international market.

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