Marketing of Metropolitan Steel Corporation - Research Paper Example

Marketing plan component - SWOT analysis Metropolitan Steel Corporation: Introduction: Metropolitan Steel Corporation Limited was established as a Private Limited Company by Fancy Group in the year 1951 and was later converted to a Public Limited Company. It was nationalized in December 1971 and denationalized in May 1992. At present, a consortium of financial institutions led by National Development Finance Corporation (NDFC) controls it. Other major shareholders are NBFL1, UBL2, and HBL3 It is also listed on the Karachi Stock Exchange. The factory is situated in industrial area and spread over two plots of land measuring 75 acres (Company Profile). The complex includes Wire Rod & Bar Mill, Hoop Mill, Structural Mill, Mild Steel and Special Steel Wire, Cold Profile Plant, Fabrication shop for making Transmission Tower and Galvanizing Plant. General Manager Administration, Human Resources, Marketing & Production, Mr. Iqbal Jamil Abbasi looks after the Administration, Marketing, Human Resource & Production. He has done his Masters in Management from the Asian Institute of Management, Philippines, and was in management cadre, Pakistan Steel Mills Limited for eight years. Mr. Iqbal Jamil Abbasi was highly cooperative in providing excellent information about Metropolitan Steel. He was extremely cooperative and provided all of the required information. Following is the set of questions, which were asked from Mr. Abbasi during the interview; Kindly talk about the history of your organization What is your product line and you customers What are the external factors that affect your organization What you think are your strengths, weaknesses, opportunities and threats Who are your main competitors How do your run your processes Are you vertically integrated How do the politico-economic issues affect your organization Which energy sources do you use Products Hot rolled products of various sizes e.g. Mild steel rods, bars, tor-steel bars, deformed bars, angles, flats, channels, and bailing hoops. Wire plant products include Bright, Annealed, Galvanized, Pre-stressed Stay and Strand, High Tensile and Mild Steel Wires, besides Wire Ropes, Barbed Wire, Bead Wire and Field Telephone Cable Wire. Cold formed Sections 11 KV, L.T., H.T. Structures, 66 KV, 132 KV Transmission Towers. Politico-Economic Issues: There is inconsistency prevailing in the political environment due to ever changing policies and unstable political scenario. Every Government comes in with a new set of rules, which are impracticable to implement, therefore creating hassles instead of facilitating the processes. Another drawback is the ever-lessening coordination between different governmental departments with rampant corruption. Even for a fair deal bribe has to be offered. Due to the following reasons economic policies towards industries are not favorable: Ban on imports, levy of general sales tax, excise duty, higher rates of electricity gas and water. Essential deduction of SESSI and EOBI contribution Political strikes cause transportation hampering, laborers cannot reach the factory. Previous one year has proved to be stable for MSC. Due to nationalization overheads increased decreasing the profitability. Shelving of major national projects like Prime Minister's housing scheme, Kalabagh4 dam, and extension in highway network. Tax collection laws are inefficient and unfair with a biased tax collection system. Mini budgets hamper the over all plan and result in frequent increases in billet prices by Pakistan Steel. Pakistan Steel's monopoly in raw material sector. Pakistan steel used to increase prices at every mini budget, which resulted in low profit margin for MSC leading to subsequent loss. Now, MSC's policy has been amended and product price has been related to the increase in prices of Pakistan Steel billets. Even then frequently increased prices may results in cancellation of the orders there by forcing a loss on both the customer and the manufacturer. When raw materials are imported, they cost half the price than that of Pakistan Steel, however, import of any raw material that is produced by Pakistan Steel is banned by law. In the other case Pakistan Steel as well as the Ministry of Production issues No Objection Certificate in case of billets. In such cases MSC pays only 10% concessionaire duty instead of 35%. If the material is imported for export purposes sales tax is exempted and the duty is withdrawn. Staff salaries, marketing and advertising expenses increase due to inflation running expenses; thereby increasing the overall product cost resulting in decreasing profits and restricting cash flow. This is the same reason for quite a many vacant posts as utilization of production capability is limited due to the financial crunch. Society and Culture An important issue socially is of Equal employment opportunity. This is only provided by pharmaceutical industries in Landhi Industrial Area. MSC is also interested in doing the same but due to the engagement of crude workforce in the steel industry it does not seem possible in the near future. Regarding women in workforce there are opportunities for induction of female executives but it will take time to educate workforce for their acceptance. Another issue worth addressing with reference to steel manufacturing is the number of holidays. Steel Manufacturing is a continuous process where the furnaces need to be kept operational round the clock; however, the temperature is brought down during idle hours. In case of holidays the furnaces are required to be switched off in order to save energy. Reheating of furnaces after holiday takes 4-5 hours before bringing into operation. Technological advancement & advantage: MSC was the first and used to be the largest re-rolling mill in Pakistan. MSC has no plans to expand mainly due to the slow business activity. However, diversification is being planned i.e. changing output into value added goods. Sometime back for the first time MSC participated in a bid invited by WAPDA being financed by Islamic Development Bank for the fabrication of 500-kVA transmission towers. Though MSC was not technically qualified for this particular item but they have collaborated with a Korean leading company for technical assistance. MSC, now, is capable of taking the task. Environment: There is no environmental hazard in the process of re rolling and wire making, since no chemicals are involved. Enforcement and implementation is not being done and the whole environmental hype is in the stage of planning. Backward Vertical Integration: There is no plan of backward vertical integration since basic raw materials are not available in Pakistan and setting up a manufacturing plant is quite expensive. Pakistan Steel, although being a leading supplier of raw material to the local steel industry lacks facility to manufacture a number of constituents. Chemical composition and physical properties are tested before forwarding the material to various production units for further processing. Enforcement and implementation is not being done and the whole environmental hype is in the stage of planning. Quality control is an integral part of marketing department, production according to order is also entertained depending upon the end use. Suppliers Local raw materials consist of steel billets from Pakistan Steel, which has a monopoly in this sector. Subsidiary raw material is also available locally, however, the quality is not outstanding. Others that need to be imported include Aluminum rods, Zinc ingots & High Carbon wire rods. Aluminum, although available in Pakistan, is not used because of low purity i.e. below 99.7%. Major countries from where raw materials are imported, are Singapore, Malaysia, Germany, Italy, and Russia, however, Dubai is preferred when time factor is crucial. Various countries for efficient and speedy delivery dump material at Dubai. MSC has a policy of multi-sourcing due to the fact that they have advantage of price, quality and timely delivery. Raw material is tested in laboratories at MSC. Supplier's Quality Assurance Report is also asked for. All Imports are directly carried out by MSC. The equipment has a blend of Swedish, German and Japanese technology. Major breakdowns do not occur because of the preventive maintenance, which is done using MSC's own resources. However, for major breakdowns, foreign specialists are called. The energy resources mainly in use are Natural Gas, supplied by Sui Southern Gas Company, and Electricity from Karachi Electricity Supply Corporation. In addition to this water is also quite crucial for the steel industry, used for cooling purposes. Karachi Water & Sewerage Board supplies it. Oil is also used but the quantity consumed is very low. This is resulting in problems like, frequent power breakdowns and unscheduled load shedding by Karachi Electric Supply Corporation, and gas leakages in the pipes to the furnace resulting in frequent temperature surges, which should be maintained by Sui Southern Gas Company. With respect to water, there is no environmental hazard in the process of re-rolling and wire-making as no chemicals as such are involved, and the water being used is filtered for dirt and other physical impurities and reintroduced into the process. The governing consortium mainly provides the funds. Another source of finance generation is recovering earnings of one consignment and investing in the next; however, extra care has to be taken to retrieve money from market in time. Overall, the company is going through a financial crunch with the mill working at 10% of its capacity, and quite a many vacant posts, however, it is expected that production up to 60% of capacity is attainable as soon as the firm acquires financial stability. Clientele: Customers usually approach MSC responding to advertisements or by their own means. More than 50% of MSC's customers are governmental organizations and agencies. They include Army, WAPDA, Pakistan Railways, National Highway Authority, Telephone Industry of Pakistan, Pakistan Cables, AEG, WAPDA, Pioneer Cable (wires), independent architect firms and other projects relating to national infrastructure. For all companies, supplies are made against order. MSC also has a customer services department, which attends to complaints against quality and quantity. Credit facility to established customers has also been worked out to boost market share and attract customers. Technical advisory service is also available to assist in usage of materials supplied by MSC as per end use. Mostly the parameters defining quality by customer include finishing, hardness, standard of galvanization, chemical composition and physical properties and final packing. Hardness depends upon the grade of billets as well as the temperatures in the furnace. Individual customers by large are discouraged because manufacturing in small quantity is expensive and unfeasible. Competitors: MSC, when it was at peak had been holding a market share of 60% as compared to these competitors that has now been reduced to 10% due to financial crisis that has constrained MSC. MSC is facing challenges from other players in the market, who produce substandard goods using raw materials from Ship breaking and Scrap melting, and sell at very cheap prices. These have become healthy competitors and a force to reckon with. Secondly, the financial constraints have forced MSC to cut down its production. Almost in all product lines MSC is facing hard time in marketing, however, as soon as the production level is brought up, it will be capable of getting back its market share. Human Resource: MSC is not offering jobs nowadays. At time of hiring the criteria includes experience, qualification, age and physical fitness. Downsizing has currently been halted. All the recruitment is done by MSC itself. At the time of privatization in 1992, direct and indirect employment was about 2500, which were cut down to 250. Present strength is 500, increasing employment opportunity by 100% within 8 years in spite of the financial crunch just to reserve the technical workforce, which were ultimately moving to other cities in search of employment. MSC does not discriminate on demographic factors. Because of over all unemployment and abundance of both skill and professional expertise, there is no problem in recruiting if required. During the course of training, practical as well as theoretical know-how in the production organization is offered. This results in employers getting trained professionals with higher efficiency therefore bringing the production cost down. In the first stage the job specification for a particular job requirement is devised where in the qualification; experience and age factor and physical fitness are kept under consideration. At second stage, the job description is prepared where in the details of job to be performed by a particular individual are noted. The individual is selected and put on in house training for a period of forty-five days. On completion of successful training, he is assigned a job according to the job description. The concerned sectional executives evaluate his performance and compensate accordingly. Afterwards he is sent for further training to other institutions within the country and promoted to the next higher grade if performs well. SWOT Analysis Strengths Machinery and Equipment Technical Manpower Competent Management Quality Produce Desirable Market Share Weaknesses Financial crises Non-availability of Spares for maintenance Dependence on KESC for electricity generation Opportunities Abundance of skill Acceptance of products in market Threats Monopoly of Pak Steel in raw material sector Ship breaking. Conversion of scrap into bloom Government taxes Competitors manufacturing substandard material on lesser cost. Conclusion & Recommendation: Currently MSCL is not performing at its peak and is very receptive to even very minor changes in its environment, which results in sudden fluctuations in its profitability. All in all it is a very organized facility, which has suffered due to unfair policies of the government. References: Introduction - Company Profile, Metropolitan Steel Corporation Ltd. Mr. Iqbal Jamil Abbasi, General Manager Marketing, Production, and HRM Read More