PESTEL & SWOT analyses of FFCL (Fauji Fertilizer Co Ltd)

PESTEL & SWOT analyses of FFCL (Fauji Fertilizer Co Ltd)

SWOT is the acronym for the internal strengths and weaknesses of a firm and the environmental opportunities and threats facing the firm. SWOT analysis is a technique that is easy to use for managers to get a quick overview of a business’s strategic position. (Cathy H.C. Hsu, 2001)

Limitations:

• A SWOT analysis may overemphasise internal strengths and downplay external threats
• It can be static and can ignore risk from changing circumstances
• A strength is not necessarily a source of advantage (John A. Pearce, Richard B. Robinson, Amita Mital, 2007)

The PEST analysis is a framework that is used to scan the external environment in which a company operates. PEST is an acronym of the following:
Political factors
Economic factors
Social factors
Technological factors (www.valuebasedmanagement.net)

Limitations:

• A problem could arise because it is based on past information and events collected within past environmental conditions
• PEST is only a starting point for strategic analysis, and has its limitations; other factors need to be considered when stressing the need to test the results and findings against the reality. (Johnson, G. and Scholes, K., 1993)

Company history and profile
FFCL was a joint venture between Fauji Foundation and Haldor Topsoe A/S of Denmark. The company was incorporated in 1978 as a private limited company. The company’s key activities are to produce, purchase and market fertilisers and to invest in other fertiliser and chemical manufacturing operations. (www.wrightreports.ecnext.com).

FFCL started production of urea on a commercial basis in 1982, with annual capacity of 570,000 metric tons. The production capacity of the existing plant increased to 695,000 metric tons through De-Bottle Necking program. Production capacity was further enhanced in 1993 by establishing a second plant with an annual capacity of 635,000 metric tons of urea. (www.ffc.com.pk)

SWOT

Strengths

• FFCL is the market leader in the fertiliser industry having 48% of the market share.
• Being the market leader it sets standards for the industry
• Strong financial strength
• FFCL devotes considerable time and effort to promoting awareness regarding good farming techniques and methods among the growing community
• FFCL is using a single brand name (SONA) for its products, like SONA urea and SONA DAP, helping farmers to remember the name, as many are highly illiterate in the country.
• FFCL has a strong dealer network all over country that helps availability even in far-flung areas.
• FFCL has developed a well-planned network of 170 field warehouses to ensure that fertilisers are available to the farmers in an uninterrupted supply
• FFCL has an innovative education-oriented advertising policy utilising electronic/ print media and road side advertising
• ISO certification

Weaknesses

• The large size of the company produces administrative problems.
• Lengthy organisational hierarchy
• Sales force faced a tough time when being moved to distant areas in other provinces to ensure they were spread equally. This also contributed to high transportation costs for the company.

Opportunities

• Urea demand is expected to remain buoyant on the back of improved farmer economics and seed varieties. The off-take is forecast to remain above industry capacity even after upcoming expansions due by mid-2010.
• Increased support prices of crops like wheat sugar etc. (Geo TV, 2008)
• Domestic fertiliser demand is going to be strong in the coming cropping season due to higher farm income from recently harvested crops. ( Economic survey of Pakistan, 2008-09)
• Having a strong financial position company can start production of the new product line.
• The government is going focus on the agriculture sector due to its major contribution towards GDP, and important issues like soil conservation, farm mechanisation, land reclamation and plant protection. (Pakistan assistance strategy report, 2009)

Threats

• The manufacturing costs pertaining to the fertiliser industry were impacted by inflationary factors, combined with escalations in the prices of feed and fuel gas (The Dawn, 2007)
• Shortages of natural gas in the country can limit the opportunities for the company in future (The Financial Daily, 2010)
• New competitors in the industry like Fatima Fertiliser Company can reduce the market share of FFCL (The Nation, 2009)

PEST analysis

Political

• To fulfill local demand for fertilisers at affordable prices, the Government is providing subsidy on the production and import of fertilisers. (Shayan Hassan Jafry IGI, 2007) Investors will be allowed to relocate second hand plant and machinery, with the same concession/exemption as applicable to new plants.
• Import by manufacturers of Rock Phosphate and Phosphorous of fertiliser free of customs duty.
• Tax relaxation has also been offered by the Government, giving export benefit to suppliers of capital goods for new/modernisation projects involving fertiliser. (Federal Board of Revenue, 2009)

Economical

• Tax relaxation has been offered in order to attract new entrants andto reduce the dependence on imported fertilisers by enhancing the local production capacity.
• The Government is providing a subsidy on the production and import of fertilisers. A massive subsidy of Rs.27billion in the supply of urea and DAP in FY09. (Zee News, 2010)
• Ban on the export of fertiliser is also imposed for the economic stability.

Social

• Although the adverse effects of this industry is very high because of the improper handling of the waste. Due to this, many diseases like asthma, kidney diseases, hepatitis etc are caused. Still, the usage of the fertilisers cannot be stopped because it gives farmers so much ease in terms of saving time and actuallyusing it.

Technological

• In order to meet the expectation of fertilisers in the country, a strong technological base is required in the planning and development of specific engineering and expertise in project management and execution.
• The fertiliser industry is also carrying out several schemes, including energy saving and de-bottlenecking in their current plants to improve the capacity and reduce the energy consumption per ton of product.

Conclusion
FFCL is a growth-oriented leading fertiliser company in Pakistan with highest market share and its focus is to deliver performance through excellence in the fertiliser industry by utilising its strengths. By using them wisely the company wants to maximise returns to its shareholders and provide optimum value to all stakeholders. There are some weaknesses, like lengthy hierarchy, that can create administrative problems. Through exploring the opportunities, the company is trying to sustain production through the application of innovative technology to obtain maximum productivity in the presence of curtailment of gas by the government for longer periods. However, FFCL also takes measures to mitigate the threats that it faces. However, due to a shortage of gas in the country and new urea plants, further expansion and growth opportunities for the company are limited in the production of urea.

After analysing the political, economic, social and technological factors it can be concluded that the external environment of the country is highly compatible with growth in the fertiliser sector. There are some fears but the strong performance of FFCL along with other companies in the fertiliser sector is expected to continue in view of rising DAP and urea prices, along with substantially higher demand for fertilisers from the agricultural sector. By providing good quality fertilisers and services to its customers and by having the passion to excel, take on new challenges, set fresh goals and take initiatives for development of profitable business ventures, FFCL is committed to play its vital role in industrial and agricultural advancement in Pakistan.

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