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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

CASE STUDY ON: ENGRO CHEMICAL PAKISTAN LIMITED SUCCESS; WITH FOCUS ON EFFORTS UNDERTAKEN BY ENGRO FERTILIZERS TO IMPROVE OCCUPATIONAL HEALTH AND SAFETY STANDARDS

Author: Beenish Ameer

Student, Department of Management Sciences, The Islamia University of Bahawalpur, Pakistan. Email: [email protected]

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

Agriculture accounts for approximately 23% of Pakistan's GDP, provides direct and indirect employment to over 70% of the country's workforce and results in earnings of over 60% of export dollars. Engro Chemical Pakistan Limited (ECPL) is a listed public company incorporated in Pakistan. In 1991, Exxon chemical fertilizer limited decided to divest its fertilizer business on a global basis. The employees of Exxon Chemical Pakistan Limited, in partnership with leading international and local financial institutions, bought out Exxon's 75% equity. This was at the time and perhaps still is the most successful employee buy-out in the corporate history of Pakistan. Renamed as Engro Chemical Pakistan Limited, the Company has gone from strength to strength, reflected in its consistent financial performance, growth of the core fertilizer business, and diversification into other businesses. The company has since diversified and expanded into several businesses ranging from dairy to bulk handling. ENGRO today consists of the core fertilizer business with a capacity of 975K tpa for urea and several subsidiaries namely Engro Foods Limited (EFL), Engro Vopak Terminal Limited (EVTL), Engro Eximp Limited (EXIMP), Engro Power Gen Limited (EPGL), Engro Energy Limited (EEL), Engro Polymer & Chemicals Limited (EPCL) and Avanceon Limited (EIAL). ECPL having good reputation in market by strong brand name and management practices and principle inherited from EXXON CHEMICAL USA, after the management buy out in 1991. The principal activities of ECPL are the manufacturing, purchasing, and marketing of fertilizers. The Company's fertilizer brand, `Engro', is the second highest selling urea brand in Pakistan. The Company's financial and management strength is denoted by its AA- rating by the Pakistan Credit Rating Agency. The fertilizer industry in Pakistan is of an oligopolistic nature, with the four major players in the market - Engro, FFC, FFBL and Dawood Hercules. Considering the urea market, FFC and FFBL have the highest share of urea production i.e. 48%, Engro 15%, Dawood Hercules 6% and 20% is imported and distributed through NFML. And considering the phosphorus market, FFC and FFBL captured high share of 47%, Engro 28%, Agri tech 2%, RG 1% and around 22% is imported. But the Engro urea doesn't command the same market premium as competitors Fuji fertilizers product sona" Sona urea is sold in the Punjab province, whereas engro has strong niche in sindh. The in-house diversification includes, NPK Fertilizer business, seed business, phosphate and micronutrient business" The demand of fertilizer was very badly affected due to soil erosion and loss of land, which is because of recent flood in Pakistan.. The demand of the urea in Pakistan stood 4.2MT compared to 4.6MT last year showing a decrease of 10%, while the demand of DAP stood 0.7MT compared to 1.2MT signifying a decrease of 40% compared to the same period last year. Considering the performance of Engro Fertilizer, the sales of the Engro urea remained 665kt compared to 688kt last year showing a decrease of 3.4% compared to average industry drop of 10% in the same period. The sales of Zarkhez have decreased to 66kt from 73kt signifying a decrease of 10% and the sale of phosphate decreased from 235kt to 196kt showing a decrease of 16.5%. The overall sales of the Engro Fertilizers in the current 9-month period were around 12 billion compared to 20 billion of the same period last year, showing a decrease of 38%.

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

Despite the decrease in the sales, the gross profit margin of the company has increased to 46% against the 23% of the last year. The gross profit margin has increased throughout the industry due to low import cost of DAP in the first two quarters and an increase in the price of urea from 730 to 830 rupees in the domestic market. The gross profit margin remained higher than average industry 40%.The demand for fertilizer has increased significantly in the year 2010, the world fertilizer sales and consumption has increased by 13% and 7% respectively due to the Rabi season, increase in the rain-fed area and water availability due to floods, increasing food prices in the country and due to general reliance on productivity to meet the food needs of the growing population. Engro Chemical Pakistan Ltd plans to build a $1 billion phosphate fertilizer plant in North Africa to feed demand in Pakistan and Western Europe, The proposed North African fertilizer plant will produce about one million metric tons a year, almost three times more than Fuji's joint venture.. The company also maintains a hybrid seed business and has made progress in the development of its own hybrid seeds. Recently in 2010, keeping in view the immense diversification of Engro Chemical Pakistan Limited, it was decided to rename the company as Engro Corporation as the holding company Engro has always emphasized quality assurance in its product and its operations. Engro has commitment to sustainable development. Engro operates in highly secure markets with stable demand being the forte of their business models, financial charges erode the earnings substantially and reduce value addition for the stake holder. ECPL is regarded as a professional company having one of the best management teams in the country practicing the highest standards of corporate governance and business strategy. The management of Engro has recently indicated interest in demerging its fertilizer(Core) business from itself by creating an entity which is solely responsible for fertilizer business. The intention is to decentralize certain functions for efficiency Purposes. The company intends to spin-off its fertilizer related assets and liabilities to a newly formed entity Engro Fertilizer Limited and renaming the parent company as Engro Corp. In addition to meeting sales targets, ECPL's marketing strategy has focused on farmers' education on the effective use of fertilizers. The market development program includes characteristics like soil testing, crop demonstrations, farmer meetings, and training its marketing manpower and dealers. Over the years, ECPL's advertising campaigns have introduced mass education to aid farmers in choosing the most favorable package for their crops. The sales and promotion efforts have provided valuable merchandising assistance to ECPL dealers. Engro is a premier regional enterprise and takes pride in nurturing a culture embodying strong ethical, pro-health and open values. We aim at fostering a culture that inspires people to innovate, act positively and contribute to the company and environment. Strong ethical practices have been fundamental to Engro's philosophy and operation. Engro embodies corporate integrity; all its employees are expected to abide by our ethical principles embedded in the `Statement of Ethics and Responsible Business Conduct'.

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

The company's approach to corporate and social responsibility (CSR) is built on respect for the environment and maintaining strong relationship with all key stakeholders. These are stakeholders of engro, employees are 1664, customers are 68000, consumers are 3,100,000, vendors are 3,500 , shareholders are 11365, dairy farmers are 51,000, students are 4,300, patient are 32,500.so total lives touched engro is 3,275,334. Engro cares for the natural environment through responsible management of resources. They promote safety in the workplace and progressive human resource practices because they benefit their employees, who are essential to their success .They, invest in their communities because strong, healthy communities provide the foundation for strong healthy relationships for company to grow. Engro has also signed up with the UN Global Compact to confirm its supports for the ten principles with respect to human rights, labor rights, the protection of the environment and anticorruption. . ENGRO is one of the most dynamic and progressive institutions in Pakistan. Its Mantra of "Energy for Growth" is well represented in the nature and business of its Subsidiaries. Undeniably, the company has become an icon of augmentation and Value addition for its stake holders. They have an opportunity to enhance business/sales activities by understanding customers' businesses better. Capitalize on competitor's weaknesses and target the market opportunities available to them. Scout for potential acquisition targets, with detailed insight into the companies' strategic, financial and operational performance. .In fact ECPL is growing by leaps and bound and they prove that they say "Growing with pride".

QUESTIONS:

Q: 1 what is mission statement for ENGRO CHEMICAL PAKISTAN LIMITED? Q: 2 what are the core values for ENGRO and how this company use its core values in decision making? Q: 3 ENGRO is most successful fertilizer company, so what do think what step it can take to get more success? Q: 4 what are the key actors and forces that enhance success of ENGRO chemical Pakistan limited? Q: 5 SWOT analysis of engro chemical Pakistan limited? Q.6 How engro management capabilities is helpful in achieving its strong performance?

QUESTIONS SOLUTION Q1. What will be mission statement for ENGRO chemical Pakistan limited?

To help farmers maximise their farm produce by providing quality plant nutrients and technical services upon which they can depend

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

To create wealth by building new businesses based on Country's strengths in Petrochemicals, Information Technology, Infrastructure and other Agricultural sectors .

Q2. What are core values for ENGRO and how this company uses its core values in decision making? Engro core values are under as follow;

Safety, Health & Environment Leadership Teamwork & Partnership Diversity & International Focus Quality & Continuos Improvement Ethics & Integrity External Community Involvement Candid & Open communication Innovation Individual Growth & Development Enthusiastic Pursuit of Profit Enjoyment & Fun

Their core values are well defined and we have a framework in place that enables them to seek the commitment from all levels and deliver on goals and expectations. Engro's commitment to sustainable development is contained in their vision, mission statement and their core value that drive their decision making process. The company's approach to corporate and social responsibility (CSR) is built on respect for the environment and maintaining strong relationship with all key stakeholders. Their Core Values reflect what we stand for and how we want to do business as a brand, as a company and as individuals. Q3. ENGRO Is most successful fertilizer company, so what do you think what step it can take to get more success?

Enhance business/sales activities by understanding customers' businesses better. Get detailed information and financial and strategic analysis on companies operating in your industry. Identify prospective partners and suppliers ­ with key data on their businesses and locations. Capitalize on competitor's weaknesses and target the market opportunities available to them. Scout for potential acquisition targets, with detailed insight into the companies' strategic, financial and operational performance.

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

- Compare your company's financial trends with those of your peers / competitors.

Q4. What are key actors and forces that enhance success of ENGRO chemical Pakistan limited? Engro has never been company to rest its laurels. The key actors and forces that enhance success of ECLP are Engro has always emphasized quality assurance in its product and its operations. Engro's commitment to sustainable development. Sustainability is at the heart of Engro's values and is central to the growth and continued success of their company. They promote safety in the workplace and progressive human resource practices, they benefit their employees, who are essential to their success. ECPL is regarded as a professional company having one of the best management teams in the country practicing the highest standards of corporate governance and business strategy. Engro is committed to supporting it leadership culture through systems and policies that foster open communication, maintain employees and partner privacy, and assure employee's health and safety. The company's approach to corporate and social responsibility (CSR) is built on respect for the environment and maintaining strong relationship with all key stakeholders. Brand leadership. Manufacturing technology. Economies of scale. Core values. Diversification of business. Management of organization is professional; they are ready to compete all challenges. In ECLP channel network is working, all company policies and information is shared with employees that's why they are going success. Corporate strategy.

Swot analyss of ECPL? STRENGTH: Strong performance management(management practices and principle inherited from EXXON CHEMICAL USA ,after the management buyout in 1991) Subsidize gas pricing during the last 10 years has resulted in strong accumulated reserve; low gearing will provide finance strength to company in coming years. 50% joint venture, ENGRO vopak has completed. Four years of profitable operations. FURTHER DIVIDE INCOME WILL HEDGE AGAINSTECPL,s core business. Strong customer and product research. Large market share of Engro innovative and chemicals. Having good reputation in market by strong brand name.

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

WEAKNESSES:

While engro vopak is performing satisfactorily deterioration in operating results of engro a SAHI could result in A SAHI calling financial support from ECPL. Engro urea doesn't command the same market premium as competitors Fuji fertilizers product sona" Sona urea is sold in the Punjab province, whereas engro has strong niche in sindh province. Unable to fulfill demand of local powder milk market.

OPPORTUNITIES:

New petrochemical projects will help to improve profitability. Reduction in business risk through capturing a larger segment of value addition chain. Agriculture business projects like blended fertilizers, and hybrid seed.etc. May merge with their global business to eliminate competitors. Has potential to innovate and differentiate company's product to sustain a competitive advantage.

THREATS:

Competitive or technological threats are highlighted. major internal factors which will affect the company's performance e.g. size, strength, cost, revenues and strategy as well as external factors e.g. competitive positioning and industry trends. Perception and price differentiation. High inflation rate. Decreasing GDP growth rate. Low purchasing power. Increase interest rate. Decreasing investment. Recessionary period in business cycle. Engro food is currently facing increase in sale tax.

How engro management capabilities are helpful in achieving its strong performance?

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Directory of Human Resource Management e.Publications June (2011) Vol. 1, Issue 1

ECPL is regarded as a professional company having one of the best management teams in the country practicing the highest standards of corporate governance and business strategy. Among its achievements are:

Strong financial performance. Ability to develop and execute cost effective and strategic expansion projects. Comprehensive approach towards diversification in the petrochemical and agro-chemical industry. Investor and market confidence; ECPL is a 22-time recipient of the Karachi Stock Exchange's "Top 25 Companies Award" (in the award's 25 year history).

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