Clariant International Limited Pakistan – Business Report

Business Overview

 

Clariant is a leading global fine and specialty chemicals company with about 29,500 employees and annual sales of more than 9 billion Swiss francs. The young company has grown out of the Sandoz Chemicals division, which was floated on the stock market as a spin-off in the summer of 1995, and was extended significantly through the integration of the Hoechst specialty chemicals businesses in the summer of 1997. Clariant operates worldwide with more than 100 Group companies in five continents. It is domiciled and headquartered in Muttenz near Basel/Switzerland. The products and services of the six divisions Textile, Leather & Paper Chemicals, Pigments & Additives, Masterbatches, Functional Chemicals, Life Science & Electronic Chemicals and Cellulose Ethers & Polymerisates are based on specialty chemicals, which play a decisive role in the clients’ manufacturing processes, and upgrade their end-products.

 

Divisions and business units

 

The business operations of Clariant International Limited are handled by six independent but coordinated divisions that are active worldwide, each with a distinct strategic objective: Textile, Leather & Paper Chemicals, Pigments & Additives, Masterbatches, Functional Chemicals, Life Science & Electronic Chemicals and Cellulose Ethers & Polymerisates. As top-level profit centers, the divisions report directly to the Board of Management and are accountable for their business worldwide. Their objective is to reach and maintain leading positions in all markets that have substantial growth and earnings potential. They have all the necessary operational resources such as research & development, production, marketing, sales and controlling. Each division comprises three or more business units, which are organized to meet the specific requirements and opportunities of their markets; where necessary, they are vertically integrated in some areas.

 

Textile, Leather & Paper Chemicals Division

 

Thanks to accelerated innovation, the division made headway, reinforcing its already strong position amidst a very poor market environment. Numerous new products were launched successfully by the division’s business units.

 

Facts and Figures (as of March 1, 2000)

 

Headquarters                        Muttenz/Switzerland

Sales                                      CHF 2,259 million

Operating profit                     CHF 299 million

Business units                       * Textile Dyes

* Textile Chemicals

* Paper

* Leather

 

Key products:

 

Dyes and chemicals for the textile, leather an paper industries

Reactive, direct, sulfur, disperse, acid and metal complex dyes

Pretreatment, dyeing, printing and finishing chemicals

Optical brighteners

Process chemicals

 

Textile Dyes business unit

 

In 1998 the Textile Dyes business unit witnessed a noticeable fall-off in demand as a result of the Asia crisis and the subsequent economic downturn in Latin America. However the anticipated recovery in these markets did not materialize this year. Continued excess production capacity had an adverse impact on development impact on developments. The main problem was that traditional textile finishers in Europe and the USA were squeezed b commodity products from recovered producers in the Far East. This increase the pressure on pries, especially in dispersion and reactive dyes. In addition, the consolidation of in the industry – including mergers between competitors-exacerbated competition.

 

Even so, Clariant was able to defend its market position thanks to its high-value products. The unit also held margin erosion in check despite reduced sales. New product lines were launched in 1999, achieving satisfactory growth rated, for example: Drimaren CL, a reactive dye for cellulose, and Diresul EV, a new series of sulfur dyes,

 

By improving its prime costs through process optimization, by purchasing intermediates at low prices, and by eliminating low-profit products, Clariant  has put itself  in a pole position for the expected recovery of the textile industry,

 

Textile chemicals business unit

In 1999 the textile chemicals business unit began to recovery from the crisis that broke out at the en d of the previous year. The improvements in textile markets in Asia surpassed expectations, while weak demand continued in southern Europe and Latin America.

 

The textile finishing industry is also experiencing deep-seated change since years. Traditional textile/denim finishing is increasingly shifting to the developing countries.

 

By contrast, the area of technical textiles is growing in the industrialized nations. With a nearly complete product range, Clariant is able to supply an extremely wide range of industries that use textile components. In the automotive industry, for example, Afilan, a line of preparation agents for synthetic fibers, is used to manufacture woven belts for tires. Our Nuva, Cassurit, Pekoflam and Fadex brand products are used to improve the application characteristics of insulating materials, trim, carpeting and automotive upholstery with respect to oil, water and soiling repellence, flammability and UV protection.

 

Thanks to a high rate o innovation, price pressures were largely offset in classical textile processing applications. About 50 new products were successfully launched in the product lines: fiber finish, pretreatment, optical brighteners, dyeing and printing chemicals and fabric finishing. The unit increasingly offered comprehensive process solutions instead of individual products, the goal being to maximize the customer’s ability to add value. Through close cooperation with the manufacturers of textile machines throughout the world, countless new plants were started up using Clariant recipes recommended by our own pretreatment specialists.

 

Research is being driven by the prevailing market trends:e.g. improving the authentic characteristics of textiles and providing environmentally compatible products at attractive prices. For example, new enzymes for all applications are enhancing our eco line Bactosol, and the successful backward integration of silicon emulsions for fine finishes on washable textile are making a major contribution to improving the profitability of these systems.

 

Paper business unit

The Paper business unit experienced a satisfying development. Both eastern and southern Europe as well as Asia reported good growth, while in the NAFTA region and in South America business was weak at the beginning of the year, though the markets subsequently recovered.

 

The restructuring trend in the paper industry continued in 1999. Mergers are leading to larger and larger paper producers, who are faced with ever new challenges. Along with tthe pressure to manufacture quality products economically, the paper companies are having to cut water consumption, improve wastewater quality, and use increased percentages of recycled fibers. In these areas, Clariant has the chemical know-how and the technical customer service to offer cost-optimized solutions.

 

The demand for optical brighteners remained buoyant in volumes, and the global trend toward higher brightness levels continued. A series of new products was launched based on Clariant’s broad experience in the area of leasing-edge brighteners. The paper chemical prodduct line was expanded throughout the year, in particular to meet customer demand for cheaper raw materials, more fillers, and recycled paper. Cartabond TSI liquid establishes new associations between the cellulose fibers, binders and pigment particles on the paper surface. This product has proven to be a cost-effective surface reinforcing agent for paper and cardboard, with sharply improving sales.

 

In the area of paper colorants, the unit is pushing ahead on development of an environmentally compatible prodduct line feature unique, brilliant colors. One example is the product Cartasol Brilliant Blue RF liquid. This colorant allows the paper producer to produce reddish blues while minimizing the use of fixatives and the impact on wastewater.

 

Leather business unit

 

Despite weak business in the first half of the year, the Leather business unit reported an upward trend in the last quarter of 1999. Systematic restructuring of the wet-side business accompanied by a substantial streamlining of the product porfolio, and a clear orinetation toward high-growth markets in the area of leather finishing helped to unit to solidify its market position, despite the difficult market fundamentals. The core competency of this unit is the ability to identify trends early on and to offer the customer specific solutions. The launch of compacted colorants simplifies use for the tanner and substantially improves work from an ecological standpoint.

 

Research and development work is focusing on manufacturing metal- and chromefree leathers and on developmental efforts to improve expensive high-tech leathers. Special emphasis is being placed on the automobile industry. Here, a new generation of aqueous polyurethane emulsions is helping to produce soft, stylish finishes that optimally meet the industry’s strictest service specifications. “Upgrading” continues to play a key role in terms of profitability. The Melio-Foam system allows even poor hides to be processed into high-quality leather products.

 

The world of fashion also constantly demands new colors and new ways of protecting leather, all of which much meet strict environmental requirements. Newly developed products such as Neosan 2000 casein-free aqueous pigment emulsions and Floriderm Black AMF, an amine- and metal-free black dye having excellent fastness properties, are meeting these needs. Remacor dyes, recently introduced worldwide, offer new market opportunities in the low-price segment. To satisfy increased demand, the production capacity at our plant in Leinfelden, Germany was expanded through the installation of two new polyurethane reactors.

 

 

 

Masterbatches Division

 

The Masterbatches division posted also in 1999 a strong performance. This improvement resulted from the strategic focus on customers and product and service innovations. Economic recovery in Asia also contributed to this positive outcome.

 

Facts and Figures

 

Headquarters                        Muttenz/Switzerland

Sales                                                CHF 1,065 million

Operating profit                     CHF 125 million

Business units                       * Europe/Middle East/Africa region

* Asia-Pacific region

* Americas region

 

Key Products:

 

Highly concentrated pigment and additive preparations for technical plastics, spin dyeing and packaging

Clariant offers its services through a worldwide network of local companies that can respond quickly to customer needs in the various regions

 

The division improved both sales and operating profit compared to the previous year. While sales rose by +9% in Swiss francs and +7% in local currencies to CHF 1,065 million, the operating profit was lifted to CHF 125 million. Quicker achievement of the Clariant Group’s strategic goals required the leveraging of marketing and technology capabilities across key markets and continents. The division is uniquely positioned to take full advantage of industry trends including the increasing use of “color to sell” in applications ranging from personal care packaging to automotive to home electronics.

 

Clariant extended its marketing efforts to product designers, helping expand their concepts for the use of special effects, colors and textures to create exceptional new products. To this end, the division successfully sponsored the world’s first “Forecast for Colours for Plastics”, an influential market forecast created specifically for this target audience.

 

With a clear emphasis on growth fueled by innovation, the division’s new strategic direction has resulted in a heightened interest in acquisitions for new technologies and/or regional capability enhancement.

 

As the leading supplier of color and additive masterbatches, the division looks forward to capitalizing on the industry trend towards globalization by accelerating innovative product development and leveraging its global network of over 50 production sites to provide unparalleled service to this rapidly changing market place.

 

Americas Region

 

The Americas region’s solid performance was driven by an emplosion of interest from consumers for special effects in personal care packaging, the increasing use of color for product differentiation, the introduction of highly loaded concentrates for maximum coloring efficiency, and flourishing relationships with major resin producers. The division’s focus was to rapidly increase the Hydrocerol additive masterbatch business and implement key market strategies for packaging, automotive and engineering resins that will provide future growth in market share.

 

Europe/Middle East/Africa Region

 

The Europe/Middle East/Africa region had a positive year-end finish, although business was negatively influenced at the beginning by a wead economy and the tough introduction of a new IT based enterprise resource planning system in most sites. The focus on marketing to designers and the expansion of key customer relationships in concert with the successful use of the “Forecast of Colours for Plastics” study resulted in a host of new opportunities for the business. The automotive market remained strong, as did the electrical/electronic and packaging segments, and new product introductions for color laser marking, additive, and special effects masterbatches continued to reinforce the division’s leadership in this region.

 

Asia/Pacific Region

 

In addition to a recovering economy in many countries, the Asia/Pacific region achieved very promising results through seamless technology transfers from NAFTA and Europe for multinational customers desiring improved speed to market. Clarinat’s market share was also enhanced by improved fiber masterbatches sales throughout the region and its preeminent position in additive masterbatches with the addition of the Hydrocerol product lines. Strong sales from the Sang Ho Mercantile Co., Ltd. Acquisition in Korea in specialty masterbatches and compounds authenticated the division’s solid position in the region.

 

Cellulose Ethers & Polymerisates Division

 

After getting off to a slow start in the early months of 1999, the Cellulose Ethers & Polymerisates Division saw its business pick up substantially towards the end of the year, and the division can look back on a successful year on the whole.

 

Facts and Figures

 

Headquarters                        Muttenz/Switzerland

Sales                                      CHF 1,026 million

Operating profit                     CHF 121 million

Business units                       * Cellulose ethers/Emulsion powders

* Emulsions

* Polyvinyl alcohol/-butyral (PVA/PVB)

 

Key Products:

 

Cellulose ethers, emulsion powders and emulsions for the production of coatings, mortars, building materials, adhesives as well as for  the use in food, hygiene and pharmaceuticals

Polyvinyl alcohol and ppolyvinyl butyral for the manufacture of adhesives and paper and for use in textile processing, for printing inks, paints and as laminates for safety glass

 

 

Cellulose Ethers/Emulsion Powders Business Unit

 

The Cellulose ethers/Emulsion powders business unit posted a small increase in sales over the year-back period. However, the considerable price pressure in core product groups could only be offset through a big increase in sales volumes. Two new players have entered the market for methyl cellulose and emulsion powders in Europe, thereby stepping up competitive pressure even further. Business in eastern Europe contracted owing to local markett conditions, but this downturn was more than offset by expansion of business outside Europe.

 

In Wiesbaden and in Frankfurt-Hochst new production facilities for hydroxyethyl cellulose (HEC) respectively for emulsion powders were brought on stream. The new capacities help the business unit keep pace with the market’s growht but also broadens the product spectrum owing to the new technical features available. Business with specially developed methyl hydroxypropyl cellulose (MHPC) products for the pharmaceutical industry got off to a successful start. The unit has also entered the market with MHPC for the manufacture of PVC, while the new biostable HEC products for the dye industry are strengthening positions in this segment.

 

To ensure that the new capacity is utilized as quickly as possible, the business unit has stepped up its marketing efforts: its global Key Account Management system can respond more efficiently to the needs of customers with worldwide operation. By merging the development of cellulose ethers and emulsion powders, technical development is now better positioned to provide integrated solutions for use in the construction industry.

 

Emulsions Business Unit

 

In the Emulsions business unit, restructuring has had a positive impact. This involved creating local business units with accountability for results. By delegating accountability for results to the operating level, the business unit was able to launch an aggressive cost-cutting program.

 

At Frankfurt-Hochst a new plant for vinyl acetate ethylene copolymer emulsions (VAE) was brought on stream. Thanks to this product line, Clariant was able to reinforce its leading posittion as a provider of low-emission and environmentally compatible boding agents. Binders made from VAE emusions owe their success to the fac taht the require no solvents when being made up int paints. Thanks to intensive research, these solvent-free and thus low-emission coatings, once dried, are extremely waterproof and rugged.

 

The Emulsions business unit’s research and development is already working on further alternatives to solvent-containing systems for th next-generation products. The immediate goal is to develop binders for silky sheen coatings which are still the preserve of products containing solvents.

 

Polyvinyl Alcohol/-Butyral Business Unit

 

The Polyvinyl alsohol/-butyral business unit considerably improved its bottom line despite flat sales. Competition in the product group polyvinyl alcohol (PVA), sold worldwide under the brand name Mowiol, has hotted up in Europe. In particular overcapacity in Asia (exacerbated by the Asian crisis) produced powerful import pressure in Europe. To cope with the loss of market share in certain segments, the business unit altered its marketing strategy for the European market and stepped up its sales efforts in non-European markets. Whereas in the past this product group was present in regional markets, globalization of trade has now made a global presence necessary here too.

 

The product group polyvinyl butyral (PVB), sold under the brand name Mowital, reported gratifying growth rates for use in films for laminated safety glass. To keep pace with the boom, capacity was expanded towards the end of the year. A further capacity expansion project is already on the drawing boards.

 

 

 

Clariant Pakistan Limited

 

HISTORY

Sandoz started production of textile dyes as early as 1886 in Basle, Switzerland. They diversified into dyes and chemicals for paper in 1919, and expanded the business to include textile chemicals in 1926. Production of leather dyes started in 1931 and in 1948, the company shifted its production to the Muttenz plant near Basle.

In 1963, Sandoz (Pakistan) Limited was incorporated. Within two years manufacturing of chemicals and dyestuff had started in Karachi. In 1970, the production of chemical products commenced in Jamshoro, and in 1980, the manufacture of dyestuff was also shifted to Jamshoro, making it the largest Sandoz production facility in Pakistan. Sandoz continued to expand its chemicals business in Pakistan and in 1989 leased a second factory in Lahore, which was subsequently acquired in 1995. The masterbatches plant was set up in Karachi in 1994.

 

In the summer of 1995, Sandoz de-merged globally and Clariant International Limited is the result of the spin off of the Chemicals Division of Sandoz. The main objective of the de-merger was to have a sharper focus on the core business and to improve its performance through a qualitative change in the general and financial management of the company. The company head office is in Muttenz, near Basle in Switzerland. As a result of the global de-merger, the chemicals business of Sandoz was incorporated as Clariant Pakistan Limited in October 1996. In 1997, the Speciality Chemicals Business of Hoechst was integrated with Clariant.

 

Clariant Pakistan Limited is a subsidiary of Clariant International Limited. Clariant Pakistan Limited is a public limited company, listed on the Karachi Stock Exchange. Clariant employs about 700 people and its head office is in Korangi, Karachi. It has 3 production facilities: in Karachi, Jamshoro and Lahore. Its major operations include manufacturing and selling chemicals, dyestuff and masterbatches. Clariant Pakistan employs 700 people. Clariant’s Head Office is in Korangi and it has three manufacturing facilities. The Masterbatches factory is in Korangi, the chemical and dyes plant is in Jamshoro, and there is a dyestuff manufacturing plant at Lahore. In 1997, Clariant acquired the cellulose business of Hoechst.

 

A growth of 10% in turnover is recorded during the year of 1999 despite difficult business environment resulting from the aftermath of economic sanctions imposed on Pakistan after the nuclear test in May 1998.

 

Continued low activity in textile processing units and extremely depressed production in the leather industry forced the consumption industries in general to maintain lower end of their production activity. The Clariant Pakistan Limited has, however, been able to increase its market share by product improvisation and providing quality service from its Scientific Centre in Karachi and other satellite laboratories in the country. The pressure on selling prices nevertheless remained throughout the year on account of aggressive pricing policy adopted by suppliers from China, India and other Far Eastern countries. Sales of Masterbatches and Cellulose, Ethers and Polymerisates have once again recorded good growth fully demonstrating the ability to provide satisfactory products and services to the customers.

 

The control on working capital has shown positive results. Net current assets, after ddeducting trade creditors and other current liabilities, have increased by only 3% which is a fracton of the inflation and growth in volume.

 

Under difficult conditions, the increase in operating profit by 13% over 1998 reflects well on the resilience of Clariant Pakistan Limited. Financial charges were 5% lower than the previous year mainly due to the Company’s ability to repay the repatriable USD 10 Million offshore loan taken in 1997 for financing the purchase of assets of Hoechst Specialty Chemicals Business. This became possible because the State Bank of Pakistan eased restrictions on the remittance of foreign exchange. During 1998 the roll over of this loan was forced at exorbitant cost resulting form a major change in the exchange rate mechanism and high forward cover cost.

 

 

DIVISIONS

 

Clariant worldwide has 6 divisions, however, in Pakistan it considers it profitable to operate in 3 divisions, which are TLP (textile, leather and paper), Masterbtaches, and CEP (Cellulose, Esthers and Polymerisates). A division head is in-charge of each division and there are product managers working under each division head.

 

Textile, Leather and Paper Division

The TLP division (Textile, Leather and paper) accounts for 80% of the total sales. The demand for Clariant’s products is highly dependent on how the textile, leather and paper industries are performing.

 

Leather

Dyes and chemicals for leather and textile have extensive application in the Pakistan’s pivotal and export oriented industries (leather and textile). It has a market share of 20% in the industry . In leather, chemicals and dyes are used to transform the raw material into high quality leather for value added articles of clothing and upholstery, in addition to traditional products. 95% percent of the leather produced in Pakistan is exported, so the tanneries operating in Pakistan prefer to buy from a multi national, which adheres to worldwide standards. There are 300 tanneries in Pakistan and all are Clarinet’s customers . Clariant has 300-400 dyes and chemicals, which vary according to seasonal demand.

 

Textile

Textile dyes and chemicals contribute to 71% of the total TLP division and 57% of the total net sales. It is the market leader in textile dyes having a market share of 26-27% and textile chemicals of 17-18%. The major contributor to current year’s(July-April, 1999-2000) export earnings are the textile manufacturers, which has a share of 65% in the total exports   and heavy local consumption as well. In textile, these applications cover the whole spectrum of textile industry starting from sizing to finishing. Clariant provides a comprehensive range of products in chemicals and only the major range in textile dyes . In chemicals there are 5 product lines. These are sizing and fiber finishing, Pre-treatment, OBA’s (Optical brightening agents), Finishing and Dyeing and printing chemical. In textile there are 4 kinds of dyes that are Reactive Dyes (exhaust and continuous), Reactive Dyes (printing), Disperse Dyes, and Direct dyes. There is high potential for growth in the textile sector, given the encouraging government draft policy.

 

Masterbatches

It is the only multi national company manufacturing masterbatches in Pakistan, which contributes 9% of the company’s sales. Masterbatches are small particles, which are used for giving smooth and finished coloring to plastics and other products.  The masterbatch division manufactures two types of products, standardized and other customized. Main use of masterbatches is in the plastic industry and Fibre (carpets, upholstery). Substitute of masterbatches is pigments used by the local chemical industries. Its customers are spread all over the country with maximum concentration in Karachi. 50% of the customers in Karachi, 30% in Lahore and 20% rest of the country

 

CEP

CEP accounts for 11% of the total net sales. Pigments are used in printing inks, paints, decorative paints, plastics and special areas such as cosmetics. CEP has extensive application in the paint industry, cigarette industry, carpentry, Textile mills and construction. Clariant has a market share of 20%  and predicted industry growth of  5-6%.

 

Finance and Accounts

 

The combined effect of higher sales, control on working capital and containing costs, the profit after tax at Rs 48.12 Mio, against Rs 4.87 Mio in 1998, recorded a highly satisfying increase. Together with the unappropriated profit of Rs 0.23 Mio brought forward from the previous year, a total of Rs 48.35 Mio is available for appropriation. The Directors are pleased to propose a cash dddividend of 25%.

 

 

The proposed appropriation of profit of the Company is as under:

(Rs ‘000)

 

Profit for the year after taxation                                          48,124

Unappropriated profit brought forward                                    230

 

Profit available for appropriation                                         48,354

Proposed cash dividend @ 25%                                         38,992

 

Unappropriated profit carried forward                                   9,362

 

Holding Company

 

The Clariant Pakistan Limited is a subsidiary of Clariant International Limited incorporated in Switzerland.

 

Auditors

 

The present auditors are, Messrs A.F. Ferguson & Co., retiring on the date of Annual General Meeting, being eligible, have offered themselves for reappointment.

 

Future Outlook

 

Growth in Company’s sales and profitability largely depends upon the business environment, economic policies of the Government towards industry in general and those sectors in particular which directly affect Company’s products, viz.; textiles, leather, plastics, construction and paints etc. Government’s efforts to bring the economy back on rail and restore normalcy in all areas, especially banking and finance, should bring  the desired improvement to allow Clariant Pakistan Limited to play its role in meeting its customers’ demand for quality products at economical prices and supportive technical back up.

 

Sale volume of Masterbatches and products belonging to the Division Cellulose, Ethers & Polymerisates is increasing despite intense domestic competition and cheaper imports. Clariant Pakistan Limited has taken appropriate steps to maintain this growth momentum by increasing in future the production capacity and optimizing the product range.

 

The pressure on selling prices is likely to increase due to the upward trend in prices of chemicals and intermediates used by Clariant Pakistan Limited. Efforts will continue to mitigate the effects of this inflationary phenomenon and remain competitive in the market through further improvement in productivity, containment of costs and control on working capital.

 

Themanagement of Clariant Pakistan Limited wishes the Government success in its efforts to maintain a conducive and stable business environment, which will allow the industrial sector to make its due contribution to the economy and enable Clariant Pakistan Limited to maintain its competitive edge in the new Millennium.

 

 

INDUSTRY OVERVIEW

 

Suppliers Environment

The Chemical and Pharmaceutical sector had the largest direct foreign investment prior to the massive investments in the Power sector. However, on the basis of the number of foreign companies this sector remains the largest and has the largest number of listed companies.

In Pakistan there are many multinational companies operating in the chemical industry. The main players are BASF, Henkel, Croda, Union Carbide, Akzo Nobel, Fina, Albright & Wilson, Clariant, Bayer, ICI, Mitsui and Mitsubishi. However, it is interesting to note that except for Clariant none of these MNC’s have production facilities for dyestuffs and leather chemicals. There is a high pressure on the profit margins of the companies in the sector due to the devaluation of the Pak Rupee as 90 % of the raw material is imported. High inflation compounded by regulatory duty on imported raw materials also exerts upward pressure on costs and downward pressure on profits.

Pakistan does not produce any basic raw material for chemicals because of its general lack of knowledge in this area and the low volume of demand. There are also highly volatile and fluctuating government policies. Governments in Pakistan have gradually driven out stability from the country’s fragile economy. Even if industries wanted to manufacture chemical raw materials they would not be too encouraged by the fast changing tariff structure of the government. Importing seems to be the safest and least risky way to provide chemicals and dye stuff to Pakistan’s industries.

 

Buyer Environment 

Clariant’s chemical products have extensive application in Pakistan’s two pivotal and export oriented industries namely leather industry and textile industry. In textile industry, these applications cover the whole spectrum of textile industry starting from sizing to finishing. In leather it covers the application and its treatment to transform the raw material into high quality leather for value added articles of clothing and upholstery in addition to traditional products. Of the total leather produced in Pakistan, 95 percent is exported abroad, that is why the tanneries operating in Pakistan prefer to buy from a multi national companies. The reason for this is that all of these multi national companies adhere to worldwide standards of quality. There are nearly 300 tanneries in Pakistan and almost all of them are customers of Clariant.

Masterbatches Industry growth is predicted to be 6-8% , however Clariants has targeted growth of 12-14% for year 2000. Price consciousness in the market promotes Far Eastern products from Taiwan, China, Malaysia, Indonesia, Korea and smuggled products from India. Customers in the industry frequently compromise quality over price in order to compete in the local markets.

Quality conscious customers are found in the segment that wishes to maintain international standards of quality. These are generally customers in the production of export business, as they prefer quality in order to comply with the high demand for quality from their buyers. Generally speaking, chemical products from the Far Eastern Asian countries are forcing  European and American MNC’s to lower their prices so that they can compete in a price conscious market like Pakistan.

 

Anticipation of Growth in Textile And Leather

The buying industries of Textile and Leather are highly correlated. In times when there is growth in Textiles, Leather follows suit. Growth in textiles is anticipated, as there is the prediction of a bumper cotton crop. The government’s export policy is also aimed at creating growth in textiles. The prospects for Leather, however, are subdued. The reason for this is the prices of the raw hides in the local as well as international market are currently at expensive levels. Secondly, environmental issues regarding tanneries and more strict control in the future on pollution elements will reduce the cost competitiveness of the Pakistani leather industry. However, Leather units in Pakistan are merging into larger firms so that the expansion in the resource base will be able to offset the increased investments.

As far as the future for plastics and carpet industry with regards to masterbatch production is concerned there is no foreseeable trend indicating growth. Also, the cellulose and polymesirites business is dependent on the construction industry, which is correlated with GDP growth. In the absence of adequate GDP growth rates it is also seen that depressed conditions will continue.

 

GOVERNMENT POLICY

The policies of the government in the current scenario seem to be a mixed bag for the chemical industry. On one hand it touts the attraction of foreign investors and on the other it is unable to create an environment conducive to local manufacturing. Its duty structure is formulated so that it is cheaper to import a finished good than it is to import raw material for production. However, some of the policies of the government spell a favorable outcome for registered companies. The ongoing documentation drive will force backyard producers to go out of business once they are brought into the tax net and even the customer organizations are forced to buy from producers who provide documentation of their sales.

Additionally, the government’s effort to encourage exporters by stream lining their tax-rebate disbursements will also improve cash situations for exporters. The new textile policy of the government is also designed to promote the export of value added textile goods and discourage export of gray cloth. However, constant devaluation of the Rupee forces the price of raw material up.

CLARIANT’S COMPETITORS

The competitors for Clariant are divided into two segments namely

Traditional Suppliers and Non-Traditional Suppliers. Traditional Suppliers are multinational companies operating in Pakistan. Non-Traditional Suppliers are producers from Far Eastern countries and those from India and China. In the Leather segment Clariant has the highest market share which is 20%. In this segment BASF and Bayer are the closest competitors of Clariant Pakistan Limited. Competition is very stiff in terms of selling prices and there is constant price competition.

 

Textiles

Main competitors of Clariant Pakistan Limited in textile dyes are:

Dye Star with 18% market share, Sinosol with 10%, Simoto with 9% and BASF with 3-4%. In textile chemicals, major competitors are BASF with more than 20% market share, Delta with 7-8%,  Nikei with 7-8%, ICI with 2-3% and Ceiba with 5-6%. There are instances when there have been one time imports by local agents from India and other Far Eastern countries. These consignments are at low prices but these are only one-time situations. Also there is no surety that the same prices will be offered again or that the same colors will be available again.

 

Masterbatches

Clariant is the only multi national company manufacturing masterbatch. It leads the market with more than 50% market share. The major competition it faces in its usage is from the substitute product of pigment dyes.

 

Cellulose, Pigments And Polymeserites

The major competitors are ICI, Kaylith Company, Siraj Industries and a number of backyard manufacturers.

 

CLARIANT: THE ORGNISATION

 

Human Resources

Clariant has always emphasized on hiring and maintaining technically trained staff. It operates in an industry where technology is the key to success, and people are evaluated on the basis of their technical competence and knowledge. Technical knowledge is the most important criteria that are looked for in a Clariant employee, even if the person is deficient in marketing or other abilities . For example salesmen are trained in the technical aspects of the product they are selling. They are experts in the area of technical knowledge but are not very competent or well trained in the art of selling. The entire marketing effort in an industrial marketer like Clariant is geared towards personal selling, and the emphasis is more towards selling and less towards marketing.

Clariant employees are motivated and hardworking. Morale is high and this is reflected in the low turnover rate. Clariant does not look for high flyers who would leave them and go off to other organizations. They hire average people. Give them salaries and retain them.

Sara is a management trainee at Clariant. She graduated from the NED University in 1999 and has been at Clariant for four months now. She is being trained in the technology used in the TLP Division. She is learning about the different processes that are used, the chemical compositions and the machines involved.

Low turnover rates mean low costs as training, recruitment and selection becomes less frequent. Clariant has hired only about 15 management level employees in the last 3 years, a number that is surprisingly low for such a large organization that has a total of about 700 employees on its payroll. The average employee is confirmed after about 2 to 3 years of being a trainee.

Overall HR practices are sound and effective. The staff is competent, especially in the technology area, well trained and motivated. Labor relations have been stable and the 2 unions both in Karachi and Jamshoro unions have not been disruptive.

 

Marketing

Personal Selling is the primary tool used in marketing of Clariant products, where sales presentations are made to the prospective clients. Clariant has its own testing facilities and experiments the usage of the dyes and chemicals on the leather and textile(main source of revenue) before selling to its customers. They hire technically trained people as their sales force for e.g qualified leather technician, these “sales people” are then trained how to make a sales pitch. However, being so specialized in their field, they do not have much marketing orientation. The foremost focus is on the product and its functional benefits, not enough effort is directed towards actually marketing the product.

Masterbatches leads the market with more than 50% market share . Its competitive edge is that it gives a more finishing color and look to the material, it is easy to use as compared to pigments and also has the advantage of being a standardized product. The other local pigments used for coloring tend to fade away with the passage of time.

Many industries are still using pigments as dyes, in spite of these pigments being low in quality and excess amount of wastage. Masterbatch has a unique selling proposition, which is dyes of premium quality that results in minimum wastage and in turn helps customers manufacture products of greater durability. In the marketing department only 4 employees are responsible for identifying market potential. That is identifying pigment users in the market and convincing them to switch to higher quality.

In the CEP division 60% of sales revenue is through direct customer selling and 40% through 7 distributors all over Pakistan. Sales people are responsible for making presentations to potential customers. Science graduates are inducted who are then given in-house training in the area of marketing. Similarly, the mode of selling is through sales presentations and seminars.

The manufacturing of products in this industry does not require high technology and can easily be manufactured by local manufacturers. Therefore, a number of backyard manufacturers are a major source of competition. CEP for the first time is going to launch a consumer product, a liquid starch for fabrics. There are many plans for aggressive marketing like advertising on newspapers, billboards, distributing pamphlets. Clariant enjoys a good market reputation, and it has earned this reputation after consistently delivering high quality products. The company also has a wide product range, which is one of its main strengths.

 

Clariant Scientific Center

 

The Clariant Scientific Center was built in 1997 at a cost of Rs.120 million. An additional Rs.100 million have been spent on it since then. It is a unique facility, the only one of its kind in the region. It is located at Clariant’s Korangi site. It has three main functions; product testing and customer support, product development and training. When the Scientific Center was set up in Pakistan, it was the largest facility outside Switzerland in the Clariant world. No other Clariant subsidiary could boast of such investment being made by the parent company. Pakistan was selected as the site for this facility because Clariant Switzerland saw immense potential in the Pakistani market .

 

The primary function of the Scientific Center is providing customer support. Customers buying Clariant products know that they have the specialized knowledge and physical facilities provided by the Scientific Center. For example, a leather goods exporter wants a certain shade of color for his next consignment. He comes to Clariant and the Scientific Center is able to provide him with the color combination that will give the desired results. Customers are helped with a wide range of problems concerning production, usage of Clariant products, weather treatment etc. at no extra cost. The Scientific Center is a major marketing tool for Clariant. Many foreign clients of Clariant’s customers require them to use Clariant chemicals and this also helps in boosting sales and the image of the company.

Product testing and development is also carried out at the Center. Chemicals and dyes are tested on different leather and textile samples to determine their quality and effect. While product development is not the primary focus of the CSC, certain development and modifications in key formulations are carried out, usually on the demand of the customer who might be looking for a certain quality of chemicals.

 

Technical training is given at the CSC to graduate students of local science colleges. These students come to learn and benefit from the facilities available at the Center. This gives Clariant market exposure and also serves as a source for future employees because Clariant employs some of these students.

 

The Scientific Center is divided into the textile labs, leather labs and training facilities. The textile and leather labs are further sub-divided into Individual Labs and Application Labs. The Individual Labs include the Pre-testing Lab, Eco. Lab, the Printing and Bleaching Lab, the

Pre-treatment Lab and the Finishing Lab. The Application Lab consists of the Weighing Room, Application Room and Physical Testing Lab. The training floor consists of the classrooms and the Practical Workshop where all kinds of textile and leather equipment are made in a small scale to aid understanding.

 

Customer Support

 

Clariant recognizes that customer activity is one of the most important value activities. It is because of Clariant’s efficient customer service that customers feel that the premium charged on the products is justified. For this they have testing labs in their scientific center. Slight variation in the color of a particular dye can be adjusted for a particular customer if the order exceeds a specific quantity. Customers can directly approach the scientific center for details on how to use a new chemical or dye and assistance and guidance is provided in this regard. Clariant’s products are offered as solutions to the customer’s problems. Hence, the scientific center also acts as a marketing tool but the focus remains on the testing of their products i.e. testing their product on leather hides, skins and cloth before selling it to the consumer. This customer support system is one of the main distinguishing factors for Clariant as no company provides this kind of service.

 

Distribution

The Distribution Department is responsible for all issues pertaining to outbound logistics. This department handles all the billing, raising of invoices, handling of customer queries regarding billing and delivery status. The policy of the company to dispatch delivery within 24 hours of raising of order if all other requirements are in order ensures that the products are available immediately . In addition to this it is guaranteed that transit time on the road will not exceed 2 days. Even if a truck breaks down and cannot deliver the product in 2 days a new truck will be dispatched that will transport the consignment. These trucks are dispatched to the warehouses every day so that the finished goods are moved out of the plant warehouse quickly. As the warehouses are located close to the customers there is quick response to customer orders as the transfer of the goods is only inter-city.

Leather unit capitalizes on Clariant effective distribution system and 70% of its sales are as a result of selling directly to its customers. The company has no distributor in Karachi and Sialkot, however, in Lahore and Kasur there is one distributor. The textile unit has 3 distributors. They rely on distributors sales force to contact customers and inform them about new products and product development. The masterbatch division has 1 distributor, which is in Karachi . However, in the CEP division there are 6 distributors. This is because their focus is primarily on retail business.

 

 

Production and Operations – A commitment to Quality

Logistics

Since 1991 this department has been using BPCS (Business Planning Control System) software and also MRP in order to maintain inventory, which is based on the FIFO accounting system. The online MRP and BPCS systems increase productivity through prompt supply of materials as this system ensures that adequate stock of raw material is available at all times. At Clariant quality is a deep rooted concern, an example of this is when materials are received and entered in the system, the quality control department checks the quality, of the raw materials received, by taking samples. Without the approval of the quality department the warehouse can not issue any raw material. For material handling at the warehouses forklifts and cranes are engaged, as all warehouses are located within the same areas as the plants.

As the lead-time for imported raw materials is at least 90 days a safety stock has to be maintained at all times. All warehouse activities are efficiently managed and this is mainly attributed to prompt delivery and zero spoilage. A contractor has been hired who promptly delivers all the Clairant’s products to its respective customers, with minimal loss.

There is an ongoing effort to achieve JIT for raw materials but due to the long lead-time of the imported items that constitute the bulk of raw materials, this is not possible in the near future. Also a safety stock has to be maintained, which translates into 4 months of inventory. Although the chem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Labs are equipped with pilot machines that Clariant itself and its customers have at their plant for example the machines are Injection molding is used for the production of Chips, jelly mate, fiber plant etc. For quality assurance samples are taken of the finished product as routine quality checks.  Further, labs also advise the customer how and in what proportions should they use the product.

 

Engineering Department

This department at Jamshoro is in-charge of all capital investments, repair and maintenance of the production plant. Every September- October the engineering department prepares a budget that specifies the investment, repair and maintenance needs of the plant. Future production needs of the company are specified in the Facility Development Plan. In this plan the marketing department forecasts the sales for the next five years. Then according to this forecast the need for further (expansion in the plant) is determined.

 

Production

The company’s production is based on the market demand, which is forecasted by the marketing department. The capacity utilization is indeterminable because of the multiproduct plants involving varying processes of manufacturing. Clariant internationally is an innovator of several products, for which adequate protection has been provided through patents. The company has over 15000 patents that help sustain its competitive advantage and recover R&D costs. The plants suffers from the daily issues of hiring etc. of the daily wage earners and contractual workers.

As compared to its competitors the TLP plant is far ahead in terms of technology, productivity, and efficiency. A new machine ultra filtration has been installed, which reflects the company’s attitude towards providing its customers higher quality and being cost effective. The existing facilities in terms of technology are far ahead of any of its local competitors. Clariant has the resources available to put up a modern facility plant comparable to that existing in Switzerland but this would not be feasible. Firstly in Pakistan, skilled manpower is scarce, which can successfully operate the plant. Moreover, the capacity of the plant will be much greater than the demand for the products in the market, therefore making the plant uneconomical. The company has higher production costs as compared to its competitors. The main reason being that these competitors have low overheads as they manage to evade taxes and do not engage in practices that contribute towards the betterment of the environment, like the recycling of water that Clariant does at it’s plant.  The raw materials are imported and added to the mixing vessels. For chemicals the production process is quite simple and the mixing vessels are situated at three levels for easy flow of materials. The manufacturing is very flexible as many chemicals and dyes can be produced simultaneously and the time taken to change over to the production of different chemicals and dyes is very short.

The CEP plant had been installed 20 years back, but is still competitive in terms of technology as regular up gradations have been made over the years, the capacity of the plant is approximately 6000 tons, and 60-70% of the raw materials are imported from international suppliers. The main factors in the buying process are price and quality. During the production process several samples are taken and checked for quality, and if required, adjustments are made. The strength of the CEP operations lies in its management of materials and its workflow.

According to Mr. Atif Sultan, the masterbatch plant is more technologically advanced, in comparison with its competitors, as the machines installed are considerably new and a new imported machine that has been further added to the production line. Spare parts for these machines are not available locally therefore require a lead-time of 2 months. The plant is quite cost effective since there is no wastage of raw materials the raw material left behind is reused for production. To maintain the quality of its products, during the production process quality checks are initiated, for example in production of masterbatches, the product is sifted so that larger granules can be easily separated, which ensures a superior quality end products. These granules are filled in drums and then shifted to a larger vessel, which is then attached to the packaging machine.

 

Financial Results

Mr. Vaqar Arif the financial controller of the company is very optimistic about the company’s future. The company managed to lift pretax profit by 173 % to Rs.98.1 million for 1999, from a year ago profit before tax at Rs.35.9 million. After tax profit multiplied ten times to Rs.48.1 million. Higher sales, reduced cost and decrease in financial charges contributed to the brighter bottom-line. Financial results are shown in exhibit A and B Listed in1997, the company had issued bonus shares at 35 %that year; cash was also omitted for 1998 and bonus shares issued at 15 percent. The Clariant share is currently trading at Rs.29.5 ex-dividend. This places the stock on price-to-earning multiple of 10x on 1999 earning per share (EPS) of Rs.3.08. while 15 %equity is vested in thirteen financial institutions, three quarters of the shares in Clariant Pakistan Limited are held by the Clariant International AG. Muttenz, Switzerland and its nominees.

It was in 1996 that the Swiss pharmaceutical giant, Sandoz decided to spin off the company’s chemical arm world – wide and to entrust the activity to a new company, “Clariant”. Effective July 1, 1997, Clariant also acquired the net assets of the specialty chemicals division of Hoechst Marion Roussel (Pakistan) Limited (formerly Hoechst Pakistan Limited) at fair value against cash consideration of Rs.370.5 million. At end December 1999, therefore, the hugely enlarged Clariant Pakistan Limited posted a balance sheet footing of Rs.2.5 billion. After deducting discount-commission of Rs.216.2 (1998: Rs.173.9) million and excise duty-sales tax of Rs.370.3 (1998: Rs.290.2) million, net sales at Clariant improved 6.7 %to Rs.2, 256 million in the year to end-December 1999, from Rs.2, 115 million the previous year.

 

 

VISION

 

The vision of the company is to be the market leader in the chemicals industry all over the world.  Clariant Pakistan Limited has incorporated this to a large extent, and its leadership in Pakistan, can be attributed to the following reasons. The international reputation of the company has helped in strengthening its position in the local market. Another factor that contributes to the success of the company, is the fact that most textile and leather products are exported, the importers require their manufacturers to use Clariant’s products. Lastly in the local market there is not much competition as no company provides all the products that Clariant manufactures. “Clariant – Exactly your Chemistry.”

 

MISSION

 

“Clariant is a chemical company which stands for creative, tailor made solutions to problems through specialty chemicals. It is our mission to show our customers how they can improve their businesses with our products.”  This mission shows the company stress on innovations and high level of customer orientation, as the mission revolves around customer’s satisfaction, which is reflected in services the company provides to its customers.

 

ACHIEVEMENTS

 

A growth of 10% in turnover is recorded during the year of 1999 despite difficult business environment resulting from the aftermath of economic sanctions imposed on Pakistan after the nuclear test in May 1998.

 

The company managed to lift pretax profit by 173 %to Rs.98.1 million for 1999, from a year ago profit before tax at Rs.35.9 million. After tax profit multiplied ten times to Rs.48.1 million. Higher sales, reduced cost and decrease in financial charges contributed to the brighter bottom-line.

 

 

CURRENT SITUATION OF THE COMPANY

The company has performed over the past years and this is very evident form the fact that Clariant was able to increase its market shares. A growth of 10% in turnover is recorded during the year of 1999 despite difficult business environment resulting from the aftermath of economic sanctions imposed on Pakistan after the nuclear test in May 1998.

 

Continued low activity in textile processing units and extremely depressed production in the leather industry forced the consumption industries in general to maintain lower end of their production activity. The Clariant Pakistan Limited has, however, been able to increase its market share by product improvisation and providing quality service from its Scientific Center in Karachi and other satellite laboratories in the country.

 

The pressure on selling prices nevertheless remained throughout the year on account of aggressive pricing policy adopted by suppliers from China, India and other Far Eastern countries. Sales of Masterbatches and Cellulose, Ethers and Polymerisates have once again recorded good growth fully demonstrating the ability to provide satisfactory products and services to the customers.

 

The control on working capital has shown positive results. Net current assets, after deducting trade creditors and other current liabilities, have increased by only 3% which is a fraction of the inflation and growth in volume.

 

Under difficult conditions, the increase in operating profit by 13% over 1998 reflects well on the resilience of Clariant Pakistan Limited. Financial charges were 5% lower than the previous year mainly due to the Company’s ability to repay the repatriable USD 10 Million offshore loan taken in 1997 for financing the purchase of assets of Hoechst Specialty Chemicals Business.

 

This became possible because the State Bank of Pakistan eased restrictions on the remittance of foreign exchange. During 1998 the roll over of this loan was forced at exorbitant cost resulting form a major change in the exchange rate mechanism and high forward cover cost.

 

Despite the fact that company’s performance is very good. Its net profit increase by 13 percent. Still the Financial Statements of Clariant Pakistan Limited show some strange results. One very obvious thing is that company has got a very high amount of debt. Summarized financial ratios are given in table A-1 on the next page:

 

TABLE A-1

 

Ratio	1999	1998
LIQUIDITY RATIOS
Current Ratio	1.18	1.08
Quick Ratio	0.75	0.64
ASSET MANAGEMENT RATIOS
Days Sales Outstanding	123	132
Inventory Turnover	2.51	1.99
Total Asset Turnover	0.91	0.83
DEBT MANAGEMENT RATIOS
Total Debt to Total Asset	0.87	0.88
Times Interest Earned	1.36	0.81
PROFITABILITY RATIOS
Net Profit Margin	2%	0.2%
ROA	2%	0.2%
ROE	15%	1.5%

 

From table A-1 it becomes very obvious that the company’s future is very uncertain. Clariant Pakistan Limited has a Current Ratio of 1.18 which is much below the desired level, that is 2. This ratio is even below the industry average of 1.3. Quick ratio is also quite low at 0.75.

 

But other then this is the Total Debt to Total Asset Ratio. This ratio was at 0.88 in 1998 and is at 0.87 in 1999. Although there is a slight improvement but still the ratio is alarmingly low. If we look at the balance sheet, total long-term debt is 23.28% of total liabilities and stockholders equity. And total liabilities are 64% of total stockholder’s equity and liabilities. Because of this the interest charges are also very high. We see from table A-1 that Times Interest Earned is 1.36, which is very low. This was even less than this in 1998 at 0.81.

 

Currently Clariant Pakistan Limited is doing quite good in the market in terms of sales and market share. But this financial analysis clearly indicates that financially the company is not in a good position. The reason for such a high proportion of debt is the fact that in 1997a huge amount of debt, USD 10 Million was taken for financing the purchase of assets of Hoechst Specialty Chemicals Business. This was very much in line with the vision of the company, which is to be the market leader in chemicals industry all over the world.

 

Clariant was however able to repay that loan due to which it’s financial charges have decreased by 5.8 percent. This is why the times interest earned has increased from 0.81 to 1.36 – an increase of 67 percent. The most alarming feature of the financial statements is the amount of taxes paid in the last two years. It is to be noted that the sales have increased by 6.6 percent, and the profits before taxes have increased by 127%, and profits after taxes have increased by a huge amount of 870%. This immense increase in after tax profits is because of the fact that in 1998 company paid taxes of 86% and in 1999 the tax rate was reduced to 51%.

 

But overall the company is quite successful, as it has managed to retain its market share. Clariant Pakistan Limited has still got a distinct competitive edge in production of masterbatches and the technology that it has. The combined effect of higher sales, control on working capital and containing costs, the profit after tax at Rs. 48.12 Mio, against Rs 4.87 Million in 1998, recorded a highly satisfying increase. Together with the unappropriated profit of Rs. 0.23 Mio brought forward from the previous year, a total of Rs. 48.35 Million is available for appropriation. The Directors are pleased to propose a cash dividend of 25%.

 

 

PROBLEMS

 

One of the problems faced by Clariant Pakistan Limited is its strategic decision making process. Most of the management level staff at Clariant Pakistan Limited is from technical side. For example Mr. Farhat Abbas Mirza has done Bachelor of Arts from Punjab University, Lahore and after that he has done some management courses. Both Finance and Human Resource Department are under Mr. S. K. Mehdi, he has done CIMA. Similarly rest of the management staff is also from technical side. All the decisions and strategies made at Clariant are the ones they receive from principals office. Only when strategies come from that office the marketing department, in a meeting decides how to implement those strategies. Because of this the lead-time for making strategies is high and when a problem arises it becomes very difficult for the technical staff to respond.

 

 

Strengths

• Currently in Pakistan, although many companies are operating but Clariant Pakistan Limited is the only multi national company which has the capability of producing dyestuffs and leather chemicals. In the Leather segment Clariant has the highest market share which is 20%.

 

• Technology is the core competence of Clariant, and the level of technology is a critical success factor in the chemical industry. Since 1991 procurement and distribution department have been using BPCS (Business Planning Control System) software and also MRP in order to maintain inventory, which is based on the FIFO accounting system. The online MRP and BPCS systems increase productivity through prompt supply of materials as this system ensures that adequate stock of raw material is available at all times.

 

• As compared to its competitors the TLP plant is also far ahead in terms of technology, productivity, and efficiency. A new machine ultra filtration has been installed, which reflects the company’s attitude towards providing its customers higher quality and being cost effective.

 

• Clariant has a broad product range, which is one of their main strengths. The company has the largest variety in chemicals and dyes.

 

 

• Clariant is the only multi national company manufacturing masterbatch. It leads the market with more than 50% market share. It is the only multi national company manufacturing masterbatches in Pakistan, which contributes 9% of the company’s sales.

 

• Clariant employees are motivated and hardworking. Morale is high and this is reflected in the low turnover rate. Clariant does not look for high flyers that would leave them and go off to other organizations. They hire average people. Give them salaries and retain them. Low turnover rates mean low costs as training, recruitment and selection becomes less frequent

 

• The Clariant Scientific Center was built in 1997 at a cost of Rs.120 million. An additional Rs.100 million have been spent on it since then. It is a unique facility, the only one of its kind in the region. It is located at Clariant’s Korangi site. It has three main functions; product testing and customer support, product development and training. When the Scientific Center was set up in Pakistan, it was the largest facility outside Switzerland in the Clariant world. No other Clariant subsidiary could boast of such investment being made by the parent company. Pakistan was selected as the site for this facility because Clariant Switzerland saw immense potential in the Pakistani market.

The primary function of the Scientific Center is providing customer support. Customers buying Clariant products know that they have the specialized knowledge and physical facilities provided by the Scientific Center.

 

• Customers can directly approach the scientific center for details on how to use a new chemical or dye and assistance and guidance is provided in this regard. Clariant’s products are offered as solutions to the customer’s problems. Hence, the scientific center also acts as a marketing tool but the focus remains on the testing of their products i.e. testing their product on leather hides, skins and cloth before selling it to the consumer. This customer support system is one of the main distinguishing factors for Clariant as no company provides this kind of service.

 

 

• Warehouses are located close to the customers there is quick response to customer orders as the transfer of the goods is only inter-city.

 

• Clariant is also located in the hub of manufacturing activity in Karachi. It enjoys an advantage due to its location. Lastly the demand for textile and leather is seasonal and the dyes and chemicals required vary seasonally.

 

• Clariant has a major cost advantage, which is reflected in its prices distinctly lower than competition. Clariant produces most of its specialty chemicals in Pakistan whereas all of its competition imports their products. These imported products have higher prices due to the addition of import duties. Clariant has lower costs due to local production, which it passes on in the form of lower prices. Lower prices make the products more attractive to the customers.

 

• For purposes of distribution Clariant uses exclusive distributors, dealers and direct suppliers who distribute their products only. These distributors are divided on the basis of geographical areas north and south making them able to cater to the local market needs very effectively. The distributors are Chandiwala, Hilal and Al-Amin to mention a few. This makes the distributor very focused on the product, they understand the market better and can channel their attention completely to the company. This also inculcates loyalty and dedication towards the company on behalf of the distributor, as this company is his sole source of income.

 

• Clariant international has innovated in several products and has provided these products with adequate protection through patents. The company has over 15000 patents protecting its products. This makes the company sustain an advantage and recover its R&D costs.

 

Weakness

 

• Clariant has always emphasized on hiring and maintaining technically trained staff. It operates in an industry where technology is the key to success, and people are evaluated on the basis of their technical competence and knowledge. Technical knowledge is the most important criteria that are looked for in a Clariant employee, even if the person is deficient in marketing or other abilities. For example salesmen are trained in the technical aspects of the product they are selling. They are experts in the area of technical knowledge but are not very competent or well trained in the art of selling.

They hire technically trained people as their sales force for example qualified leather technician. These “sales people” are then trained how to make a sales pitch. However, being so specialized in their field, they do not have much marketing orientation. Their foremost focus is on the product and its functional benefits and not enough effort is directed towards actually marketing the product.

 

• Clariant’s market forecasts are not very accurate and this results in high inventory cost as the raw material that has been ordered and no longer required piles up in the warehouses. This in turn reduces the space available in the warehouse. Forecasting at Clariant is done by the sales officer who forecast his demand four months in advance. He does this by seeing the trend in the previous years.

 

• New induction is rare, and the workforce is stagnant, as new blood is not being brought into the organization. In the past 3 years only 15 people (contractual and permanent) have been hired and that too on the technical side with no hiring in the management staff.

 

• Lax credit policies are leading to negative cash flows and working capital. There is the urgent need to redress this issue but the management is again taking a complacent view on this and continues with the policy of extending credit leniently.

 

• Clariant has a ver high debt to equity ratio at 85:15 which means that 85 percent of it activities are financed through loans and a meager 15 percent from the floating of shares. This increases the expenses faced by the company, as its financial charges are very high due to the sum of the loan taken by the company. This high level of financial charges led the company to have a negative cash flow in the previous year.

 

 

 

Opportunity

• Of the total leather produced in Pakistan, 95 percent is exported abroad, that’s why the tanneries operating in Pakistan prefer to buy from multi national companies. The reason for this is that all of these multi national companies adhere to worldwide standards of quality

 

• Growth in textiles is anticipated, as there is the prediction of a bumper cotton crop. The government’s export policy is also aimed at creating growth in textiles

 

 

• The biggest factor concerning the social and cultural factors is Attitude towards foreign products. The Pakistani mindset is that it holds foreign products in high regard. Therefore, Clariant as it is a recognized multi-national commands a strong reputation for its products.

 

• There are some regional trends that also provide opportunity as regards to fashion and needs. Some of these are the demand for wrinkle-free and iron free cloth.

 

• There has also been a change in the orientation of textile manufacturers. The new generation of these manufacturers is textile graduates from universities abroad and locally. They are more quality conscious and are changing their suppliers to ones that assure quality and service.

 

• The ongoing documentation drive will force backyard producers to go out of business once they are brought into the tax net and even the customer organizations are forced to buy from producers who provide documentation of their sales.

 

• A strong cotton crop and decline in the cotton prices has provided a boost to the textile sector. Strong growth in the production of yarn and cotton cloth has been evident in the export data.

 

• State Bank of Pakistan eased restrictions on the remittance of foreign exchange. Because of this the Clariant Pakistan Limited was able to repay the repatriable USD 10 Million offshore loan taken in 1997 for financing the purchase of assets of Hoechst Specialty Chemicals Business.

 

• Government’s efforts to bring the economy back on rail and restore normalcy in all areas, especially banking and finance, should bring the desired improvement to allow Clariant Pakistan Limited to play its role in meeting its customers’ demand for quality products at economical prices and supportive technical back up.

 

Threat

 

• High inflation compounded by regulatory duty on imported raw materials also exerts upward pressure on costs and downward pressure on profits. There is a high pressure on the profit margins of different companies operating in the leather sector. Major reason for this is the devaluation of the Pak Rupee as 90 % of the raw material is imported. With inflation rates at about 5% there is a constant increase in price of utilities and other overhead that can further increase cost of production.

 

 

• Pakistan does not produce any basic raw material for chemicals because of its general lack of knowledge in this area and the low volume of demand.

 

• Price consciousness in the market promotes Far Eastern products from Taiwan, China, Malaysia, Indonesia, Korea and smuggled products from India. Customers in the industry frequently compromise quality over price in order to compete in the local markets. The pressure on selling prices nevertheless remained throughout the year on account of aggressive pricing policy adopted by suppliers from China, India and other Far Eastern countries.

 

• Environmental issues regarding tanneries and more strict control in the future on pollution elements will reduce the cost competitiveness of the Pakistani leather industry.

 

• The cellulose and polymesirites business is dependent on the construction industry, which is correlated with GDP growth. In the absence of adequate GDP growth rates it is also seen that depressed conditions will continue.

 

• Constant devaluation of the Rupee forces the price of raw material up. This results in high raw material costs. This also effects the imports and exports of the country. Since major exports are of textile and leather, this directly effects the sales of Clariant Pakistan Limited.

Foreign Exchange movements have a direct impact on the cost of production of Clariant Pakistan Limited. Since 90% of the raw materials are imported, the risk of devaluation of the Pakistani Rupee makes the imported raw material expensive.

 

• Right from its beginning Pakistan has remained a politically very unstable country. None of its governments could complete all of its tenure. Because of this and its tense relations with India Pakistan often has to face sanctions. The current regime has also not been well received by the international community. There have been sanctions by USA/Europe and suspension of IMF credits. This adversely effects the Pakistani economy.

 

• The decreasing rates of population growth and negative GDP growth have brought about a slower economic growth in the European Union. This has reduced their demand for luxury-imported items such as leather.

 

• There has been increase in the international market prices of rawhides and the availability of these hides is low.

 

• Although Clariant Pakistan Limited enjoys market leadership in its strategic group, competition is tough from other sources. There is tough competition from India and Far East. The biggest manufacturers of dyes, textile and leather chemicals and pigments are located in China and India.

 

 

• Also low barriers to entry in the industry with most competitors having no production facility locally pose a threat. There are always new competitors trying to take away a percentage of Clariant Pakistan Limited’s share and most new products are positioned against Clariant Pakistan Limited.

 

 

• The consumption industries in general have to maintain lower end of their production activity because of the continued low activity in textile processing units and extremely depressed production in the leather industry.

 

TOWS MATRIX

 

 

	Strengths 1.       Highest market share 2.       Broad product range 3.       Leader in masterbatch manufacturing 4.       Motivated employees 5.       Clariant scientefic center 6.       Strategic location 7.       Major cost advantage 8.       Distribution network 9.      High Image and Credibility	Weaknesses 1.       Inaccurate forecasting 2.       Few new induction 3.       High debt to equity ratio 4.       Lax credit policy 5.       Lack of marketing orientation
Opportunities 1.   Tanneries prefer to buy from MNCs 2.       Growth in textile industry 3.       Change in orientation of textile manufacturer 4.       Strong cotton crop expected 5.       Easing of restriction on remittances	SO Strategies Product Development (S2,S7 ,O2, O3) Market Penetration (S7, O4)	WO Strategies Repay the repatriable loan taken possible because of eased restrictions.(W3,O5)
Threats 1.       High inflation 2.       No domestic raw material available 3.       Competition from far east countries 4.       Inadequate GDP growth rate 5.       Unstable political condition 6.       Low barriers to entry	ST Strategies Increase awareness using Clariant scientific center(S5, T3) Backward Integration (S9, T2)	WT Strategies

 

Recommended Strategies

 

Product Development

Clariant has a broad product range, which is one of their main strengths. The company has the largest variety in chemicals and dyes. Clariant has a major cost advantage, which is reflected in its prices distinctly lower than competition. Clariant produces most of its specialty chemicals in Pakistan whereas all of its competition imports their products. These imported products have higher prices due to the addition of import duties. Clariant has lower costs due to local production, which it passes on in the form of lower prices. Lower prices make the products more attractive to the customers.

Growth in textiles is anticipated, as there is the prediction of a bumper cotton crop. The government’s export policy is also aimed at creating growth in textiles. Using its low cost structure and Research and development facilities Clariant Pakistan can introduce new products.

 

Market Penetration

 

Because of bumper cotton crop expected, there is anticipation of boom in cotton industry. For this Clariant Pakistan can use its cost advantageous structure and introduce new innovative products in the market. This can help put some barriers for the local industry.

 

Increase Awareness

Clariant Pakistan should make effecitve use of  is Scientific Centre to Increase awareness of its products in the customers. It can be use to give better support services to the customer. Using this center competition from foreign investers can easily be avoided and tackled to some extent.

 

Backward Integration

People trust Clariant. It has an image of providing trustworthy products of high quality and at low prices. This provides Clariant with an advantage as it induces sales due to reliability. The company can ustilize its image and can have funds. Clariant Pakistan can use these funds for backwad itigration and produce its own raw materials.

 

Repay Loans

Because of State Bank of Pakistan’s eased restrictions on the remittance of foreign exchange, the company was able to pay its loans of $10 million loan. Clariant should make use of this opportunity and repay as many loans as can be.

 

Implementation

 

Changes in the Budget Allocation

More funds should be allocated to research and development. In current situation when competition is stiff and customer is very price conscious, Clariant will have to introduce new and better products. For this reason more funds should be allocated to research and development. This is also essential in order to implement the strategy of product development.

 

The company will also have to rethink its policy of dividends. From financial analysis its very evident that interest charges are too much. In order to reduce these charges the company will have to borrow less.

 

Product development has to be one of the preferred areas of action. For this purpose training of staff is the need of the day. Most of the staff works in any one divisions of the company for his life long tenure. This specialized classification robs the employees from brining out creative ideas. If job rotation were introduced in the structure than in the case of mergers many of the employees would be ready to take up any department. This would greatly reduce the problem of running the newly acquired business. It would be so because any one who will be the incharge of the new business would be full conversant with the norms and functioning of the company.

 

Formal teams should be formulated to tap and get the corporate clients. Marketing Teams should be given a target quota of corporate clients that they need to bring to Clariant for business. Feed back should be provided to the teams regarding their annual performance. Rewards should be given to the persons who bring promising business.