assignment 1 template startegic mgmt class

8/3/2019 Assignment 1 Template Startegic Mgmt Class

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Assignment 1:

Company :

Attock Petroleum Limited (APL) is an associate company of the Attock OilGroup of Companies, which is the only fully vertically integrated Group in theOil & Gas sector of Pakistan involved in Exploration & Production, Refining &Marketing.

Attock Petroleum Limited (APL) is the 4th Oil Marketing Company in Pakistanto be granted a marketing license in February 1998. Though a new entrant inthe field of oil marketing, APL has managed to establish its presence andreputation as a progressive and dynamic organization focusing on providingquality and environment friendly petroleum products and services in Pakistanand abroad. Its steady and substantially growing market share and customer

confidence, which it enjoys, are manifestations of APL's successful policies.

Type Oil Marketing CompanyFounded 1998Employees 950-990Headquarters Islamabad, PakistanIndustry Petroleum/Oil & Gas

Competitors

Pakistan State Oil (PSO)Shell Pakistan Limited (SPL)Chevron Pakistan Ltd. (CPL)

Total-Parco Pakistan Limited (TPPL)Byco Petroleum Pakistan Limited (BPPL)

Bakri Trading Company Pakistan (BTCPL)Hascol Petroleum LimitedOverseas Oil Trading Company (Pvt.) Ltd (OOTCL)etc.

Mission:

To continuously provide quality and environment friendly petroleum productsand related services to industrial, commercial and retail consumers, andexceeding their expectations through reliability, economy and quality ofproducts and services. APL is committed to benefiting the community andensuring the creation of a safe, responsible and innovative environmentgeared to client satisfaction, end user gratification, employees' motivationand shareholders value.

Vision:

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To become a world class, professionally managed, fully integrated, customerfocused, Oil Marketing Company, offering value added quality andenvironment friendly products and services to its customers in Pakistan andbeyond.

Goals:The Corporate Goal of the Company is to become the predominant supplierof petroleum and value added products in Pakistan as well as neighboringcountries.

Industry Analysis

Dominant

characteristics

Forces of

changes

Key Survival

Factors/Attractiveness

Market size 7.9%

Life cycle stage Rapidgrowth stage

Growth rate -18%

Rivals scope-

Competitive strategies areconcerned with doing thingsbetter than rivals. APL canachieve it by two main waysof being competitive.

1. By selling goods at lowerprices than rivals.

2. By differentiating productfrom those of rivals - which

enables APL to charge ahigher price if desired.

Vertical integration

Vertically integrated(backward) in Exploration &Production (POL), & Refining

Impact ofenvironment orglobal financialconditions for e.g:

Un-resolvedproblems of circular debt,

power and gasshortages,unstable securitysituation, highinflationarypressures andworst ever floods.Owing to thesefactors,investment fell,investorconfidence

ebbed, povertyandunemploymentincreased and theoverall growth ofthe economydeclined.

The decline in the

In alignment with theiraim of continuing growthand strengtheningshareholder value, APLsfuture outlook as of 2012is condensed in thefollowing points:

Setting up of StorageFacility at Port QasimKarachi, for import ofHigh Speed Diesel andexports of Naphtha

Development of Company Financed RetailOutlets targeting hightrade areas and

highways, thereby furtherstrengthening itspresence and marketshare.

Setting up of Lubricantblending plant andincreasing focus on

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(ARL, NRL)

Industry change

Industry change for APL is ofProgressive type where thebasic assets, activities, andunderlying technologiesremained stable

Product/servicedifferentiation

APL will need to developdifferentiated valuepropositions, to improve

revenues and their bottomlines; by adopting acustomer focussedapproach and build strongbrand equity. It can beachieved by offering non-fuel products and services.Non-fuel products, whichoffer higher marginscompared to petroleumproducts, enable companiesto sustain themselves,

especially during times whenoil prices are high.

Fuel Based Proposition:

APL can sell multiple gradefuels based on the octaneratings, with different pricesat different stations, wherethe customer can hunt for abargain.

Non-Fuel BasedProposition:

To get a larger share of thecustomers' wallet, non-fuelproducts and services arenecessary. Non-fuel revenuescontribute significantly forthe petroleum retailers.

overall economicgrowth andincrease in theprice of thepetroleumproducts also had

its impact on theannual oilindustry trade forpetroleumproducts whichdeclined by 2%from 20.742million M. Tons to20.334 million M.

Tons.

marketing of GasolineEngine Oils and IndustrialLubricants.

Development of

Storage Depots locally atMahmood Kot Multan,Machike and TarujabaNWFP and Afghanistan toimprove supply to retailoutlets. Expansion of consumerbase in other petroleumproducts locally and inAfghanistan.

Increasing StorageCapacity of existing bulkoil terminal at RawalpindiBulk Oil Terminal (RBT)and Machike Bulk Oil

Terminal (MBT), at a costof Rs 322 million.

Expansion of retailoutlet network in Sindh,Upper Punjab andAfghanistan.

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The non-fuel products andservices can be broadlygrouped into 3 categories:

Convenience stores (C

Stores) Auto Care Services Ancillary Services

Economy of scale

Economies of scale for APLconsists of new capitalinvestments for new storageterminals, storage tanks, R &D, new Retails Outlets etc.

Barriers to entry

Govt. Policies

Environmental Laws

Regulations

Licenses

Huge start up capitalrequired

Access to inputs is difficult

Situation Analysis

External F=Favorable Porter S=Strong/M=Medi

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environment

5forces

um/W=Weak

Social/cultural

FavorableBased on following

factors

Location ofretailing,manufacturing,and servicebusinesses Attitudes towardbusiness Lifestyles Trafficcongestion

Inner-cityenvironments Averagedisposable income Buying habits Attitudes towardsaving Attitudes towardleisure time Attitudes towardproduct quality Attitudes toward

customer service Social programs Socialresponsibility

Buyers Medium

The power of buyersdescribe the effect thatAPL customers have onthe profitability of itsbusiness. Since APL hasmany large as well assmall buyers incl. bulkinstitutions, industries,distributors, dealers,individuals, third partiesetc.

Overall buyers have lesserpower than APL due tofact that direct consumersdo not have many optionsfor their demands.However, APL must becreative in dealing withconsumers, usually byoffering loyalty programsand increasing perceivedvalue.

APL has benefit of offeringproducts that are indemand even in strikes orin adverse conditions,firstly due to itssubstantial distribution &supply chain network &secondly due toavailability of product allthe times because of itsfacilities/terminals in boththe group refineries i.e.

ARL & NRL.

Demographic Trends

FavorableBased on followingfactors

Suppliers

Medium

For APL, one of the main

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Levels ofDisposable Income

PopulationChanges By Race,Age, & Area

Attitudes TowardsLeisure Time

Attitudes TowardsCustomer Service

Regional Changesin Preferences

RisingConsciousness forthe NaturalEnvironment

supply decisions lieswithin key suppliers, i.eNRL & ARL. Since both themain suppliers ofpetroleum products to APLlies with same group of

companies, therefore APLhas advantage of havingmutual benefits with thesuppliers.

Since the petroleumproducts prices areregulated by the govt., itmeans that APL has minorrole in supplier process.However a manageddemand & supply chain

maintained by APL canincrease the profits.

EconomicTrends


Interest Rates

Inflation Rates

Unemployment

TrendsTax Rates

Budget Deficits

Stock MarketTrends

Foreign countrieseconomicconditions

Import/exportfactors

Demand shifts forgoods/services

Incomedifferences byregion/customer

Price fluctuations

Exportation oflabor & capital

Monetary policies

Fiscal policies

Rivals Weak

Threats of rivalry can bereduced by employing avariety of tactics. Byminimizing price &distinguish products from

competitors by innovatingor improving features.Other tactics includefocusing on a uniquesegment of market,distributing product in anovel channel or trying toform strongerrelationships and buildcustomer loyalty.

There are small numbers

of competitors for APL,but they have quite largermarket share ascompared to APL. Themarket and demand isgrowing, offeringopportunities for futuregrowth without extremerivalry. However, staying

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ECC policies(Europeanpolicies)

OPEC policies(Organization ofPetroleumexportingcountries)

ahead of the rivals is thekey for future success.

Political/Legal

UnFavorableBased on followingfactors

GovernmentRegulations and

Deregulation Special Tariffs

EnvironmentalProtection Laws

Pak-ForeignCountryRelationships

Import-ExportRegulations

World Oil,Currency, andLabor Markets

The Rise ofDemocraciesWorldwide

Local, State,National, andForeign Elections

Substitutes

Weak

APL can reduce the threatof substitutes by usingtactics such as stayingclosely in tune with

customer preferences anddifferentiating its productsby branding.

Substitutes for oil industryare alternate fuels &alternate energy solutionssuch as coal, solar gas,solar power, wind energy,hydro power, wavespower and even nuclearenergy.

Customers are quite loyalto existing products. Evenif switching costs are low,customers may haveallegiance to a particularbrand.

TechnologyTrends


Technologyadoption practicesshow little sign ofchanging, althoughmuch has beenmade at industryconferences of theneed for a new

Threatof newentrant

s

Weak

APL has less threat of new

entrants to business dueto high start up cost,Govt. policies, regulations,licenses, suppliers etc.

Start up costs are hugefor new OMC businessentering the industry. Themore commitment needed

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wave oftechnology tomitigate risingoperating costsand open newresources to

development.Technology isdefinitely a keyfactor in thedecisions made bymajor resource-holding nations togrant operatinglicenses tointernationaloperators. As such,large operators are

refocusing theirresearch,development, anddeployment effortson technologyareas relevant tothe competition fornew acreage, suchas the exploitationof difficult gasresources and thesustainableproduction ofresources heavilycontaminated withhydrogen sulphide(H2S) and carbondioxide (CO2.

Given that futureperformance isbased onmanaging changeand improvingorganizational andpersonal learning,APL recognize thatnew technologyprovides return oninvestment andimprovesknowledge, agility,

in advertising, researchand development, capitalassets, the lesser is thechance of new entrants tothe industry.

Switching cost is high. Insituations wherecustomers face significantonetime costs fromswitching suppliers, it isless attractive for newfirms to enter the industryand difficult to lure thecustomers away fromtheir previous suppliers.

Enhancing APL brand

image, utilizing patentsand creating allianceswith associated productscan minimize the threat ofnew entrants.

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& communicationat all levels.

Global FavorableBased on following

factors

Populationgrowing older

Increase inyoungerpopulation

Ethnic balancechanging

Gap between richand poor widening

Overallgeneralenvironment


Over the last yearsPakistan has seena tremendousexportation oflabor. Capital isnot only left a

vacuum onorganization.Monetary policiesand Fiscal policiesare changed everyyear. The personor businessesengaged inbusinessfor profit making ornon profitorganizations

always have tokeep an eye on theeconomic structureof the countries.

As far as the taxrates areconcerned,government also

OverallCompetitiveEnvironment

PSO has been the marketleader in fuel marketingand supply industry,having a market share of68%. The 2009-2010 saleslevel of the threeindustries that make upthe sector, APL, Shell andPSO. This sectorcomparison has been

made on the basis of APL,Shell and PSO financialstatements.

In FY10, net sales of PSOstand the highest at Rs743 billion, followed byShell at Rs 198 billion andAPL at Rs 83 billion.Although being thesmallest among the threemajor OMCs, sales APL

grew by the greatestproportion. Over theperiod 2009-2010, PSOsales grew by 21.23%while APL sales showed agrowth of 33.83% andShell witnessed a growthof 26.62%.

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changes the taxrate with thepassage of time.So it affects theeconomic forces.OPEC policies have

also a major effecton the economicfactors.

Provincial ratherthan federalsolutions

Youth gettingmore independent

Steady change inethnic balance

More educated

consumers Higher averagelifespan

Increase innumber of youth

Minorities havemore say(including women)

Ethnic balancechanges due to the

migration of thepeople fromdifferent areas todifferent areas.

Thisaffects the ethicalbehavior verymuch. As thetraditions andnorms are verymuch different indifferent

areas of Pakistan,therefore thebehavior of themigrated peoplealso have a majoraffect on thebehavior ofthe residentpeople.

The earnings growth inthe sector shows that PSOwitnessed the highestearnings growth of 235%versus 16.61% for APLand -36.96% for Shell.

PSO had reported a netloss in FY09 due to theliquidity crisis, thus itprofits grewphenomenally in FY10.Although APL witnessedthe highest sales growth,the profitability growth ofAPL was the lowest,indicating inefficiency inmanagement of costs.

Fluctuation ininternational oil prices hasrendered the performanceof Oil MarketingCompanies (OMCs)unpredictable in terms ofproductivity. Sales aredirectly linked with theinternational oil prices,therefore, any increase ordecrease will affect theindustrys performanceaccordingly.

APLs sales volume ofboth diesel and petrolincreased on the back ofdeveloping retail fuellingstrategies and expansionof its retail distributionnetwork. Total industryannual trade of dieseldeclined by 3.9% whereaspetrol (Mogas) increasedby 27.0%. APL managedto increase its salesvolume and market shareof both diesel and petrolby establishing newpumps and firm marketingstrategies. However, bydistancing itself from the

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Due to theincreased gapbetween rich andthe poor, there is atremendous

change inthe social behaviorof the people.

The factors aresame as inPakistan but with alittle difference,due to thestrategies that aredifferent inorder to run the

social factors.

Furnace Oil market, inorder to keep way fromthe circular debt menace,APL lost its market shareby 280bps (from 7.32% inFY07 to 4.52% during

FY10) in furnace oil (FO)segment. Howeverbenefits obtained wereprevention of risingfinancial charges andincreased concentrationon retail networkexpansion.

The annual sales volumeof diesel and petrolincreased by 67% and

87% respectively,compared to industryaverage of 27% and -3%respectively.Consequently, APLsmarket share increasedfrom 3.5% to 6.2% fordiesel and from 3.3% to4.9% for petrol. Overall,APL recorded the highestvolumetric sales at 1.5million M. Tons for theyear under review up by7% over last year, therebyimproving its marketshare from 6.6% to 7.0%.

Competitor Environment

Major competitors:

Pakistan State Oil (PSO)

Shell Pakistan Limited (SPL)

Chevron Pakistan Ltd. (CPL)

Total-Parco Pakistan Limited (TPPL)

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Byco Petroleum Pakistan Limited (BPPL)

Bakri Trading Company Pakistan (BTCPL)

Hascol Petroleum Limited

Overseas Oil Trading Company (Pvt.) Ltd (OOTCL)

Competitive edge:

Attock Oil Group of Companies, which is the only fully vertically integratedGroup in the Oil & Gas sector of Pakistan involved in Exploration & Production(POL), Refining (ARL, NRL) & Marketing (APL).

Internal Circumstances

Core competencies:

Ethical Principles and Moral Values

APL promote a commitment to the highest moral values and ethicalprinciples, demanding both personal and professional dedication towards therealization of these values and principles.

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Commitment and Cooperation

Two core fundamentals for the success of any business are completeemployee commitment and cooperation. APL foster an environment of solidteamwork and professionalism to ensure that employees engage in bothpersonal and professional development.

Environment Consciousness

APL believe that its responsibility to safeguard natural resources for futuregenerations and actively engage in environment friendly practices, policiesand management techniques.

Corporate Social Citizenship

APL strongly believe in the promotion of societal well-being and awarenesswithin ones community, actively engaging in activities and initiatives to meetthis objective.

Maximum Stakeholder Return

Through streamlined business processes and commitment to total qualitymanagement APL seeks to ensure maximum company performance andrewards for shareholders and stakeholders alike.

Distinctive competencies:

APL is part of the first fully integrated oil company of the sub-continent. APLssponsors include Pharaon Commercial Investment Group Limited (PCIGL) andAttock Group of Companies. Pharaon Group is engaged internationally indiversified entrepreneurial activities, including Hotels, Oil Exploration,Production and Refining, Manufacturing of Petroleum Products, Chemicals,Manufacturing and Trading of Cement, Real Estate etc on the other hand, theAttock Group of companies consist of The Attock Oil Company Limited (AOC),Pakistan Oilfields Limited (POL), Attock Refinery Limited (ARL), AttockPetroleum Limited (APL), Attock Information Technology Services (Pvt.)Limited (AITSL), Attock Cement Pakistan Limited (ACPL) etc thus, the strongbackward and forward linkages give APL a strong competitive advantage.

APL is the only local oil marketing company which has its retail oultlets andoperations outside Pakistan. Currently, APLs retail outlets are operational inAfghanistan.

APL has monopoly of marketing some substantial petroleum products inPakistan namely Asphalt & Lube Base Oil, which are only produed by NRL inPakistan.

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Financial Situation:

Overall internal circumstances: Favourable

Aggressive marketing strategy combined with increase in the sales volume ofdifferent petroleum products, improved product mix and higher internationaloil prices resulted in continuation of journey on the path of success andgrowth. The Company earned profit after tax of Rs 2,753 million for the ninemonths ended March 31, 2011 (2010: Rs 2,323 million). The profitabilitytranslated into earnings per share of Rs 39.83 (2010: Rs 33.61 per share).

Resources :

Financial:

Recapitulation of the year 2010-11 shows Companyturnover and profitability

continued to record a rising trend as its turnover and gross profit for the yearincreased to Rs.109,395 million and Rs. 4,714 million respectively.

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SWOT Analysis:

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Strengths

APL is ranked at the Pakistan's 3rd largest energy company and ispositioned as a local oil marketing company headquartered in capitalcentral city Islamabad

Operates petrochemical businesses nationwide through the network of itssubsidiaries and retail outlets

Participates in Karachi Stock Exchange, and is listed in the KSE 100 Index;

APL shows strong brand loyalty for oil;

Strong brand management driven by the Turning Fuel Around slogan.

APL's net profit increase by 18% despite record increase in oil and gasprices.

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Recapitulation of the year 2010-11 shows Companys turnover andprofitability continued to record a rising trend as its turnover and grossprofit for the year increased to Rs.109,395 million and Rs. 4,714 millionrespectively.

Weaknesses Dependency of prices to OGRA tariff (Oil & Gas Regulatory Authority)

Lesser fixed assets with respect to operations

Dependency on ARL & NRL for businesses

Restricted to Govt. policies for new construction of new retail outlets

Opportunities

Investment in the research of alternative fuel methods, including

hydrogen, natural gas, wind and solar over the forthcoming decade; Expansion of operations to Afghanistan further & other neighboring

countries

Extension of strategic oil and gas acquisitions in Pakistan;

Launch of more flexible price policy to compete main rivals;

Capital investment in acquiring latest assets & R&D programs

Threats

Environmentally unsound policies due to oil and toxic spills;

Occasional refinery explosions;

Corrosion in pipelines;

Competition from PSO, Shell, Chevron etc.

Ceasing operations in a number of potential locations with their further re-branding ;

Sale of corporate-owned stations;

Lawsuits considering the companys ecological activities;

Operational Losses due to temperature rise/down, personal errors etc.

Consequential damages due to leakages, thefts etc.

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Challenges:

The biggest challenge growth companies face is dealing with the constantrange of issues bidding for more time and money. Effective management is

required and a possible new business plan.

Volatility in International Oil Prices and Regulatory Risk:

Oil prices are directly affected by its global supply and demand. Factors thatinfluence demand and supply include economic conditions, operationalissues, natural disasters, weather, political instability and conflicts or actionsby major oil-exporting countries. In addition to this, OGRA also controls theseprices through implementation and adjustment of levies, duties andsubsidies. Prices are the key drivers of an OMCs profitability. Higher pricestranslate into increased revenues and vice versa. Price fluctuations havedirect impact on Companys development and investment plans. Further,

imposition / enhancement of duties, taxes, other levies and revision in pricingformula of products remain a possibility.

The Company continues to focus on efficient mix of products maintainingsustainability and generating growth. OGRA has demonstrated a strongcommitment and taken a number of steps to deregulate the Oil and Gassector in line with the overall vision of a liberalized economy.

Security Risks:

The entire world in general and Pakistan in particular is facing securitythreats. Deteriorating law and order situation may result in disruption in thesupply chain of the oil industry at any point in time resulting in halting the

economic growth and development.

The OGRA with the support of International agencies has taken concretesteps of eliminating terrorism. The oil industry has adopted extraprecautionary security measures to avoid any such risk. The Company inparticular has taken the specific insurance cover against this risk as one ofthe precautions.

Strategic Recommendations:

Corporate level:

To enable APL to attain new heights of success through investment in humancapital, implementation of lean production methods and a commitment to

Total Quality and Environment Management, APL plans, with the help ofAlmighty Allah, to further expand its existing retail network and penetrateuntapped markets with pro-active measures and effective planning,implementation and execution. APLs objective is to successfully deliver

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premium quality products and services, which will translate into maximumcustomer satisfaction. Beyond the technical excellence of its products, APLintends to set an example in all dimensions of its entrepreneurial activities.APL sees its employees committed to the self-defined models of economic,social and ecological responsibility, which means not only economic successbut also conscientious interaction with its employees, people and the

environment.

Business Level:

The ultimate objectives of the Companys management are to come up to theexpectations of all the stakeholders and adopt a balanced approach in thisregard, which is also reflected precisely in the corporate strategy and thecore values. The priorities for action are set and reviewed at regular intervalsto grab the available opportunities and minimize the risks and threats arisingdue to change in the internal and external environment.

Overall Analysis(scale of 0 to 10):

Effective:

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5

The presence of two refineries in the Attock Oil Group augurs well for thecompany which has spread its operations rapidly in the past and is continuingto do so with aggressive expansion plans going forward. With fuel demandexpected to remain robust in the country, especially in the furnace oilsegment, volume growth is expected to register a substantial increase.

In order to meet the mid country fuel demands, a terminal was built andcommissioned at Machike recently. This terminal connects APL with MFM(Mehmoodkot-Faisalabad-Machike) pipeline and WOP (white oil pipeline). Thisterminal has a storage capacity of High Speed Diesel, Superior Kerosene Oiland Premier Motor Gasoline. This storage/dispatch facility has furtherincreased APLs market share and is a step towards companys prosperousfuture. The other major achievement is in the sector of quality assuranceunit, by setting up of quality control lab at Machike and mobilization ofanother quality control mobile unit for central Punjab.

Further, APL also entered into a Joint Venture with Askari CNG, which iscurrently operating 52 CNG outlets, to convert 20 of its existing CNG outletsinto multi-fuel facility outlets. APL was awarded the contract of DGP-ARMY for

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supply of petroleum products throughout Pakistan for the year 2010-11, ie aninstitutional customer, thereby diversifying its customer base.

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assignment 1 template startegic mgmt class

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