Final Report - Live Case Report on INDUS MOTORS COMPANY LIMITED (IMC)

FINAL REPORT-
LIVE CASE REPORT ON
Indus Motor Company Limited (IMC)

CORPORATE STRATEGY

Submitted By:
1. Syed Saud Aidrus (11836)
2. Ramsha Arif (03222)
3. Bilal Shoaib (12189)
4. Shahbaz Khan (11790)
5. Muneef ur Rehman (12210)
6. Imran Babar (04977)
7. Muhammad Arham Iqbal (10604)
8. Muhammad Arslan Amin (10605)
Submitted To: Dr. Mahnaz Fatima
Dated: 10th May 2019

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 Final Report - Live Case Report on INDUS MOTORS COMPANY LIMITED (IMC)

Table of Contents
Introduction: .................................................................................................................................... 1
Vision .......................................................................................................................................... 2
Mission........................................................................................................................................ 2
Core Values ................................................................................................................................. 2
Financial Analysis:.......................................................................................................................... 3
External Environmental Analysis: .................................................................................................. 4
1. Political Forces: ................................................................................................................... 4
2. Economic Forces:................................................................................................................. 4
3. Social and Demographic Forces: ......................................................................................... 5
4. Technological Forces: .......................................................................................................... 5
5. Legal Forces: ........................................................................................................................ 6
Competitive Analysis: ..................................................................................................................... 6
Internal Environmental Analysis: ................................................................................................... 7
1. HR Division: ........................................................................................................................ 7
2. Technical Division: .............................................................................................................. 8
3. Sales and Marketing Division: ............................................................................................. 9
4. Corporate Division: ............................................................................................................ 10
5. CSR Activities ................................................................................................................... 10
Integrated Environmental Analysis: ............................................................................................. 10
CS Level SWOT Analysis ............................................................................................................ 11
Strategic Group Map: .................................................................................................................... 18
Major Problem: ............................................................................................................................. 18
Minor Problems: ........................................................................................................................... 19
1. Lack of Peripheral Vision .................................................................................................. 19
2. Lack of Customer Orientation ........................................................................................... 19
3. Reactive Company ............................................................................................................. 20
4. Lack of Strategic Drift ....................................................................................................... 21
5. Lack of Passionate Pursuit ................................................................................................. 21
6. Selfish interest of dealerships: ........................................................................................... 21
7. Lack of Strategic Alliance with Suppliers: ........................................................................ 21
Strategic Alternatives: ................................................................................................................... 22
1. Adopting the Teachings of Quran and the Prophet (PBUH): Strategic Management ....... 22
2. Development of Sole Source (Strategic Partnerships Management): ................................ 22

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3. Strategic Human Resource Management (SHRM): ........................................................... 23

4. Aligning Quality of local parts with International standards: ............................................ 23
5. Customer Oriented Mindset: .............................................................................................. 23
Strategic Choice: ........................................................................................................................... 24
Sources: ......................................................................................................................................... 25
APPENDICES .............................................................................................................................. 27
Appendix 1: Indus Motors Company............................................................................................ 27
Appendix 2- House of Habib ........................................................................................................ 27
Appendix 3: Organizational Structure .......................................................................................... 33
Appendix 4: Balance Scorecard .................................................................................................... 35
Appendix 5: Analysis of Vision, Mission Statements and Core Values: ..................................... 36
Appendix 6: Industry Overview.................................................................................................... 37
Appendix 7: Financial Statements ................................................................................................ 40
Appendix 8: External Factor Evaluation (EFE) Matrix ................................................................ 58
Appendix 9: Market share of Automobile Industry ...................................................................... 59
Appendix 10: Competitive Profile Matrix (CPM) ........................................................................ 60
Appendix 11: Porter’s Five Forces Model .................................................................................... 61
Appendix 12: Internal Factor Evaluation (IFE) Matrix ................................................................ 64
Appendix 13: Cross Functional Analysis ..................................................................................... 65
Appendix 14: CS Level SWOT .................................................................................................... 66
Appendix 15: Strategic Groups Map ............................................................................................ 68
Appendix 16: Root Cause Analysis (RCA) .................................................................................. 69
Appendix 17: Pricing Trend Analysis........................................................................................... 70
Appendix 18: Interview Findings ................................................................................................. 70
Appendix 19: McKinsey 7S Framework ...................................................................................... 83
Appendix 20: Statement of Contribution ...................................................................................... 87

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Introduction:

The Indus Motor Company Limited (IMC), which is a joint venture between the House of Habib

and Toyota Motor Corporation, Japan (TMC) is Manufacturer, assembler, distributor and

importer of Toyota and Daihatsu vehicles, spare parts and accessories in Pakistan. (Appendix 1:

Indus Motors Company).

House of Habib (HoH) is a conglomerate based in Pakistan comprising of the following group

companies: (Appendix 2: House of Habib)

• Agriauto Industries Limited and Agriauto Stamping Company (Private) Limited

• AuVitronics Limited

• Habib Insurance Company

• Indus Motor Company

• Shabbir Tiles & Ceramics Limited

• Thal Limited and its subsidiaries

• Habib Metropolitan Bank and its group

The company was incorporated in Pakistan as a public limited company in December 1989 and

started commercial production in May 1993. The shares of company are quoted on the stock

exchanges of Pakistan. (Toyota, 2019) The shares of the company are traded in Pakistan stock

exchange and about 25% shares are with Toyota Motor Corporation, Japan (TMC); whereas the

majority of share is with House of Habib (A., 2017) (Appendix 3: Organizational Structure)

The group has presence in various industries and sectors including automobiles and auto-parts

manufacturing, packaging and distribution / wholesale, education, construction, and finance etc.

(Appendix 4: Balance Scorecard)

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Vision

“To be the most respected and successful enterprise, delight customers with a wide range of

products and solutions in the automobile industry with the best people and the best technology.”

Mission

Action, Commitment and Teamwork to become No.1 in Pakistan

• Respect and Corporate Image

• Customer Satisfaction

• Production and Sales

• Quality and Safety

• Best Employer

• Profitability

Core Values

• World class production quality

• Achieving the ultimate goal of complete customer satisfaction

• Being seen as the best employer

• Fostering the spirit of teamwork

• Inculcating ethical and honest practices

(Appendix 5: Analysis of Vision, Mission and Core Values).

The main product offerings include several variants of the flagship ‘Corolla’ in the passenger cars

category, ‘Hilux’ in the light commercial vehicles segment and the ‘Fortuner’ Sports Utility

Vehicle. (Appendix 6: Industry Overview)

Through this live report, we aim to identify and analyze:

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1. Major challenges and problems faced by Indus Motor Company

2. Minor problems which IMC is currently facing and are the consequences of major

problems

3. Strategic Alternatives and Strategic Choice that can be executed by IMC to cater to the

challenges

Financial Analysis:

Sales volume and production of vehicles increased to 64,000 units from 60,586 units sold last

year. The company’s net sales revenue for the year 2018 was Rs. 140.21 billion which is around

25% growth on last year. Profit after tax is 15.77 billion which grew around 21% on last year.

An increase in the net sales and profits are associated with launch of new models, change in sales

mix and higher other income due to fund size increase. Company has given 70% of the earning

per share as a divided; whereby the average of past 6 years is approximately 66%. Return on

equity for the current year is 43%, however it’s been consistently increasing from past 6 years.

Sales volume and production of vehicles increased to 64,000 units from 60,586 units sold last

year. The company’s net sales revenue for the year 2018 was Rs. 140.21 billion which is around

25% growth on last year. Profit after tax is 15.77 billion which grew around 21% on last year.

An increase in the net sales and profits are associated with launch of new models, change in sales

mix and higher other income due to fund size increase. Company has given 70% of the earning

per share as a divided; whereby the average of past 6 years is approximately 66%. Return on

equity for the current year is 43%, however it’s been consistently increasing from past 6 years.

(Appendix 7: Financial Analysis)

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External Environmental Analysis:

1. Political Forces:

The role of Government to provide the environment of growth to the industry and focusing on

the Pakistan Auto Policy 2016-21 is very crucial to bring Pakistan Auto Industry back on growth

track, allowing Greenfield and Brownfield investment in Pakistani auto industry. Transition of

Government’s policy for non-tax filers in previous budget, sharp depreciation of PKR and

political instability in Pakistan has dented the growth of Auto industry in 2018, resulting a steep

decline in demand of cars and drop in sales for Indus Motor Company.

Benefiting from Auto policy 2016-21, many new entrants have made technological agreements

with local business groups to setup new production facilities and bringing new technology to

Pakistan, this toughens the competition for Indus Motors company in a declining market

threatening market share of IMC. This technological transfer is through the assembly units, yet

Original Equipment Manufacturers (OEM’s) have not been considered in the Policy. (Auto

industry seeks incentives in new policy, 2019)

2. Economic Forces:

Economic instability which was witnessed in second half of Fiscal Year 2017-18, caused

imbalance in Pakistan Economy, resulting in expectation of GDP growth to slow down to 2.9%

in Fiscal year 2018-19. Inflation has also grown to 9.4% in month of March in current fiscal

year. (World Bank, 2018) Facing this economic downturn is a challenge for IMC, where

inflation is affecting input costs forcing frequent price increases of their cars.

The macroeconomic indicators are indicating a very slow return towards stability in economy,

where depreciation of PKR has slowed down in last eight months. New government has taken

steps to realign Economy by tightening the money supply and increasing interest rates by 4.75%

in last eight months. (Trading Economics, 2019) This shift in monetary policy is aimed to

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shorten the current account deficit, increase exports and decrease imports. Under this

contractionary monetary policy IMC faces is experiencing a sharp fall in demand and has

recorded a decrease of 12% in 9 months earning of Fiscal year 2019 against YoY earning of

Fiscal Year 2018.

3. Social and Demographic Forces:

Pakistan has a relatively young population, with a population growth rate of 2% recorded in past

2 years. The statistical median of Age in Pakistan is 23 years where 50% population under 30

years. (Kundi, 2018) Increasing young population, betterment of living standards and life style,

reliance of people on personal cars for transport than public means indicate towards increase in

demand of Cars in Pakistan. The Automobile industry serves as a lucrative and a developing

market with GDP-PPP (per capita) of USD 5035 in 2017 increasing 4% YoY basis. (Focus

Economics, 2019) A big opportunity for Pakistan, CPEC also holds great potential for

Infrastructural development which also augments the future rise in demand of transportation

vehicles. This is a big opportunity for IMC to look forward in prospects of exponential growth in

target market and to take steps for increasing market share.

4. Technological Forces:

In Pakistan, Auto industry face tough challenges on technical front. Production techniques of

vendors (OEMs) and their ability to develop parts via research and development is very low due

to less developed Human Capital in the industry. To achieve true potential in a developing

country Automotive industry, Government support is required for developing technological and

human resources. IMC must focus on introducing international technology and reaching a critical

mass of production through sophisticated automations, standardization, high quality of products

and improved production techniques to produce safe and environment friendly vehicles. IMC

must also focus on its vendors in “House of Habib” Group to elevate them technologically and

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by taking them onboard as stakeholders for growth. Current example is the HoH groups’

establishment of Thal Boshoku Pakistan plant to produce seating systems through high tech

machineries augmenting the high-quality requirements from IMC.

5. Legal Forces:

Auto industry is facing immense pressure of increased input costs, due to regulatory duty on

steel. Regulatory duty was imposed on imported products/raw materials that were available

indigenously. Pakistan is not producing auto grade/tensile steel, still regulatory duty is imposed

on it. Employment laws, consumer protection laws, and health and safety regulations are also

key focus of government for improvement. (Appendix 8: External Factors Evaluation EFE

Matrix). One more challenge that IMC faces on Regulatory front is from the Auto Policy 2016

where new entrants are given exemplary benefits of taxes and duties, this will affect IMC’s

competitive position and certainly put more cost and profitability pressure on the company.

Competitive Analysis:

The major players of Automobile industry (local manufacturers) includes Honda, Suzuki and

Toyota. Each and every Brand of this industry caters to a unique market segment of Pakistan.

Suzuki dominated the lower end segment of the market where as Honda and Toyota cater to the

higher end of the market. (Appendix 10: Competitive Profile- CPM Matrix). Toyota has built an

image made of reliable and durable products whereas Honda built an image of highly

technological and sophisticated high-end product. Suzuki caters to the basic need of

Transportation. Both Toyota and Suzuki offer variants for the commercial market where as for

Honda, this commercial market is still untapped. (Appendix 9: Market share) (Market lines ,

2018) (Appendix 11: Porter’s 5 forces)

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Some of the imported Japanese Toyota vehicles are also the competitors of local Automobile

companies but the current Automobile policy and increase in Foreign exchange rates (Trading

Economics, 2019) supports the local Automobile manufacturers of Pakistan.

Internal Environmental Analysis:

IMC strongly holds by its Vision and Mission to deliver best quality vehicles to its customer and

these values are strongly ingrained within the employees of the organization cascading through

all departments to create a sense of ownership and autonomy within each employee leading

towards an accumulated organizational success. (Appendix 12: IFE Matrix)

1. HR Division:

This division is responsible for looking at the organization on a larger front – creating an

environment that is aligned with the company objectives and goals; a customer centric approach

that essentially empowers employees and managers to continuously improve. Furthermore, the

HR department also acts as the custodian of employees: that they are treated as per the policies

and with justice.

HR plays a strong role in effectively facilitating managers for employees and their performance

evaluations but also work effectively towards a system of compensation against value added by

employees. This accounts for physical or non-physical compensations. For example, IMC

focuses on people development through trainings - this is accomplished by profits being

reinvested in the organization because IMC values their resources.

However, silos do get created due to some level of bureaucracy that develops within the

production and quality departments given separate buildings and HR being centrally located in

the management block. Although actions are definitely taken if any case reaches to the HR from

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both departments however the power of the line manager still prevails because compensation

suggestions are forwarded by the managers themselves.

2. Technical Division:

This division of IMC acts as a backbone to deliver the company’s objectives. It mainly

comprises of following departments:

1. Production: Mainly responsible to carry out the production of vehicles, ensuring

productivity: Take time = 3.9 min per vehicle, with optimum costs of production,

developing skilled alongside with personnel conducting on-job trainings. Kaizen is

constantly practiced and encouraged.

2. Maintenance/Utilities and Plant Engineering: To carry out

preventive/proactive/reactive maintenance of tools, equipment’s and machinery,

necessary to ensure productivity targets and avoid unplanned downtimes. They look

after Co-Gen power plant, Waste Water treatment plant, Gas Supply, Raw and

Industrial water supplies.

3. Quality Control and Quality Assurance: To ensure Toyota quality standards are

well maintained and quality products are passed to next workstation and ultimately to

dealer/customer. For example, a customer reported that his car’s engine had just

stopped, and it was recalled – IMC brought in a specialist from Japan to understand

the problem, rectify it, train on the issue and the car was then sent back with the

problem resolved along with a complete transcript of the problem.

4. Production Control and Logistics: Look after the downstream side of complete

Supply Chain, i.e. maintaining optimum and safe levels of inventory, liaison with

suppliers and vendors, ensuring timely delivery of parts with desired quality.

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5. Production Engineering: Looks after the feasibility study, planning, budgeting,

approvals, monitoring and controlling of projects in close coordination with Toyota

Japan and Toyota Thailand, with the involvement of local consultants, suppliers and

contractors.

6. Product Development and Commercial: Mainly responsible to carry out

localization of parts, from vendor selection to part quality assurance in optimum costs

and as per processes, tooling, material and tolerance-levels as devised by Toyota.

Commercial section looks after procurement of general orders and supplies.

3. Sales and Marketing Division:

1. Sales: Mainly responsible for sales of vehicles to customers via dealers – the top line

of Income statement. Now, IMC understands the importance of their dealer network

which is why, they ensure dealership satisfaction – continuous trainings for better

customer results, create a transparent relationship through two annual meetings,

reward programs and much more incentives. It is popular with IMC dealers – once

you invest/acquire a dealership, you are all set for life.

2. Aftersales: Looks after customer complaints, warranty issues, dealer development,

etc.

3. Marketing Planning: Carries out studies and conduct feasibilities to devise the

specifications required in a variant, new model introduction, market potential, pricing

strategy, etc.

4. Parts: Looks after sales, inventory and distribution of Toyota genuine parts to

certified dealers.

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4. Corporate Division:

1. Administration and General Affairs: Responsible for security, transportation,

canteen, overseas travelling and overall general affairs.

2. Information Technology: Technology hub, ensuring smooth IT services, ERP

system of SAP. This also includes continuous process improvements through

technology and effective implementation and trainings.

3. Finance: Looks after overall financial matters of the company.

4. Regulatory Affairs: Compliance with EDB regulations, approvals for localization,

compliance with govt. policies.

5. Internal Audit: To ensure the SOPs and systems are followed and further refined, to

achieve functional and organizational objectives while maintaining transparency,

openness and compliance across all business functions. (Appendix 13: Cross

Functional Analysis)

5. CSR Activities

IMC also believes in considering its secondary stake holders – the society. IMC holds several

CSR activities in the society and in different organizations for building a better society for

example in 2018 they developed a plantation drive in Karachi which encouraged organizations to

plant more trees and nurture them. They have also helped create medical camps in peripheries

and rural areas of Sindh. But overall, they make sure these activities create a better future for

local communities but are also practiced within the organization so the ideals reflect within the

employee and organization too rather than just create a façade.

Integrated Environmental Analysis:

IMC holds great leverage in Pakistan industry due to its strong corporate infrastructure, strategic

alliance with Toyota and enjoy a very supportive dealership muscle in the country. Yet looking

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closely into the operations of the organization, it lags in response to the changing external

environment where it should act robustly on the growth opportunities to increase market share by

catering the unserved demand of vehicles in Pakistan market. IMC is also showing no sign of

reaction to the changing government policies and to curb the emerging competition of new

entrants benefiting from the Pakistan Auto Policy 2016. On the technology front, IMC can

capitalize on its current human capital and vendor base in HOH group, and has an opportunity to

strengthen its HOH group companies to become state of the art Hi-tech and High-quality vendors

for the new entrants, gaining a strong foothold as premium OEMs for automotive industry.

CS Level SWOT Analysis

Based on the information generated through primary and secondary data, TOWs analysis was

conducted to understand the strategic choices which Indus Motor Company has to utilize based

on its Internal Strengths and weaknesses to cater to the ever-changing external opportunities and

threats. (Appendix 14: CS Level SWOT)

1. SO Strategy (Maxi-Maxi):

• IMC needs to utilize Toyota Production system efficiently to ensure lean and just

in time production, innovating work practices to ensure maximum production to

reduce backlog. Although IMC constantly communicates about its mission of

Quality and Safety amongst its employees however its hardly seen that employees

are reinforced and communicated about Toyota Production System. This

knowledge stays with a few and is not communicated constantly to the ground

level. The reason for this lack of communication exists because employees are

scared from inside that revealing their knowledge to others might allow them to

grow or succeed, this lack of trust and political environment within the

organization creates a negative attitude amongst employees. Similarly, when we

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talk about Innovative work Practices, IMC strongly believe in Kaizen -

Continuous Improvement. As we saw and talked to various employees, we found

out that everyone has been involved directly or indirectly in improving work

practices to make IMC a better working place. Kaizen Awards and Competition

are held every month, inculcating the importance of improvement at work. This

has allowed IMC to be one of the best Manufacturing Facilities in Pakistan

• Using Toyotas Brand Value and presence to diversify the hybrid range of cars in

the market seems like a great idea, however the recent Import restrictions has

made import difficult. Increase in taxes to reduce the flow of imported items has

caused IMC to lose money on indirect taxes and has also caused them to increase

their prices. With lack of technical skills and mode of R&D in Pakistan, IMC

cannot produce and assemble hybrid vehicles locally. Pakistan lacks universities

which provide technical skills in the automotive sector, this has caused IMC to

have a mediocre staff which does what they are told to. Because of this, IMC has

not been able to target the high industry growth rates as they are unable to tap the

hybrid market and consumers indirectly purchase Toyota imported vehicles.

• High industry growth rate and skilled workforce makes it possible to increase the

production and meeting the evergreen demand of the market. But as we see that

the market has a few players now, IMC has to invest and ensure that they are able

to maintain their market position on the arrival of new entrants. With a mindset

focused on the short term, IMC hasn’t started working on how they will attack

their competitors in the market. After talking to one of the employees we found

out that Indus motors is confident that their market share will not decrease even if

new entrants are allowed in the market. Although its true that new entrants will

have a tough time working in this dead market but not thinking about the long

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term and their dependency on Tacit knowledge will cost IMC more than they

have ever imagined.

• A strong distribution network can help cater to the increasing population, as the

income levels are rising IMC can cash on their efficient customer services to grow

their clientele. IMC has revamped its dealerships with new standards and KPIs,

allowing their customers to be handled in a manner that they are willing to return.

Previously, dealers were adamant to hear their customers, were focused on

commission, selling cars, hoarding money. But in the last few years IMC has

changed its working. They have increased their dealerships, maintained standards

across the board and even closed dealerships where customer complaints were the

highest. A good distribution and dealers’ network has allowed IMC to impact

lives of their customers, making them a repeat purchaser and also voice of the

company for other customers as well.

2. WO Strategy (Mini-Maxi):

• Dependency on Imports can be reduced as the government has levied taxes on

import, the company can look into the market for production & technical

expertise for engine manufacturing however with lack of technical universities

catering for such expertise and redundant R&D methodologies has kept IMC

aloof of the advantages of local manufacturing. As engine is the most critical part

of the vehicle, IMC is scared to transfer the localization to itself. Aspects of

Safety, Quality & Precision are important when it comes to engine manufacturing,

which they certainly believe will require ample time and monetary investment.

• Weak supply chain has caused immense backlog to be build, the time to deliver a

car has moved up to 6months. Innovative work practices can be used to make sure

that JIT supply chain is in place. IMC has worked wonders to improve its

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backlog, implementing SAP has allowed them to effectively manage their

inventory and production. They have also analyzed data to reduce cycle time of

their activities causing them to reduce their overall manufacturing times. They

have also worked on managing their dealerships by Vendor Management and

continuous work towards improving the relationships with their customers.

• Increasing population can be scrutinized to find capable technical resources who

can add value to the business, this can also help in reducing the staff turnover.

With an environment where new entrants are coming and headhunting capable

employees from IMC, Honda & Suzuki, we noticed that the salary structure at

IMC is not competitive overall. Employees tend to move to organization where

they see a career growth and pay scale which satisfies their living standards, this

is not the case in IMC. They have no incentives for the employees, KPIS set by

HR are disruptive in nature and cannot ensure the basis of growth and promotion

between competitive workers. Having a huge hierarchy with 8-9 layers to the

CEO level is also a big hurdle for a company like IMC. Even though the culture

promotes togetherness, but the information flow always results in a portrayal of a

covered agenda then the actual ground reality.

3. ST Strategy (Maxi-Mini):

• Utilizing their financial leverage to meeting the increasing labor cost can ensure

motivated workforce. IMC can utilize their strong financial position towards their

employees, which they did in 2014 when they revised their renumeration.

Increasing labor cost can also be reduced by standardizing their own requirements

and setting hourly wages for labor force. When talking to the workforce it was

seen that largely the employees were satisfied from IMC, based on the knowledge

and skills they had and the work they did, but many mentioned that their life

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needs to change and staying at IMC doesn’t seem the right way for a better future.

This is because IMC is focused more towards giving to its shareholders then the

employees working for them.

• Brand Value and presence can be utilized in a manner to influence the consumers

towards purchasing Toyota rather than other vehicles. IMC has been successful

for the last two decades utilizing their strengths, however as consumers

preferences are changing IMC requires to bring big guns in but for that they need

policy support. Government has restricted imports which does not allow IMC to

import Toyota vehicles directly, in fact vehicles that enter Pakistan, branded from

Toyota, has caused stir at IMC as they are losing money because of these imports.

These imported vehicles come at a cheap cost compared to the ones manufactured

here. They have high quality, extraordinary features and people are moving

towards these vehicles especially due to their fuel economy which allows them a

sustainable and cheap driving solution. In a country where petrol prices are on

rise, IMC has missed out on fuel efficiency as the key feature that could pull more

customers.

• Strong distribution with efficient customer service can be utilized to pitch Toyota

as a premium ride sharing vehicle for businessmen but Toyota hasn’t invested in

this option. Toyota has a brand value, they don’t want their vehicle to be used a

Cab. Although as we see, globally corolla is a cab car. In Pakistan its seen as a

luxury vehicle and that image needs to be maintained. With increasing costs of

vehicles, people have started preferring the use of Uber and Careem. This has

caused loss of customers who would purchase a Toyota, in fact people prefer

buying cars that are cheaper in range, such offering is missing from Toyota in

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Pakistan just because they are unable to utilize their maximum potential, focusing

on the short-term gains rather than the longer ones.

• Utilize their financial leverage to cater for the competition pressure by reducing

cost, improving process & increasing quality. IMC has immensely worked on

their processes and quality; however, the main need now is cost reduction to cater

for the fluctuating economic conditions. The dollar has increased immensely,

import dependency has caused delays in productions and shipments, the

management has clearly misread the conditions of their environment, showing

their lack of foresight. Such attitude will allow new entrants an opportunity to

learn from mistakes what IMC is making and come stronger.

4. WT Strategy (Mini-Mini):

• By promoting local manufacturing and increasing their vendor base of local parts

and products, product development team can add value by bringing down cost of

parts. This will further ensure that the fluctuating FX does not impact on the

imports of product. All this sounds good in a perfect environment but in a country

like Pakistan where there is uncertainty, lack of technical expertise, lack of

training centers, all this has led to the stunted growth of the industry which has

also affected IMC. The government has caused all these troubles as they always

have focused on their pockets more than of the country, selfish interests of a few

politicians has put the industry in turmoil.

• By increasing their own technical expertise, tough competition can be given to

new entrants. As the auto industry is saturated, new entrants are approaching

employees of Honda and IMC. HR should make policies to retain their staff

giving a shut-up call to the competitors, but this is not possible, even after putting

contractual clauses which do not allow you to join a direct competitor till 1 year

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of your resignation the company has failed to stop them. IMC fears competition,

as much as they show their fierce display of power but from the inside they are

scared and unwilling to accept how their environment has hit them. Working on

short term goals rather than the long terms has caused IMC to follow a reactive

path towards a journey which might crumble.

• Incentivizing the staff by bonuses and renumeration; employing best HR practices

can not only reduce staff turnover but ensure their longevity and loyalty to the

company. At a time where the market is saturated from the unavailability of

technical skilled workforce, a loss of employee gives not only edge to the

competitor but also wastes time, resource and money of IMC. IMC does have

training sessions with employees, but these are only in their first week of their

job, remaining is on the job. This is a good practice when you want to cut costs

and have an assembly line system, but this hindrance growth and lack of mental

development. This leads to employees being focused on one thing, not allowing

their mind to think out of the box and do something extra ordinary. HR has not

focused on maintaining a strong bond between the employees and the

management.

• By introducing new variants and models in the market, IMC can create pressure

for the new entrants and leverage its existing loyal customer base to hamper the

entry of competitors, but this has been an impossible task for IMC. A country

where you are working as the sole manufacturer and distributor of Toyota

vehicles, IMC has failed to persuade the region for a smaller car. They have had 2

failed attempts in pursuing this option, meanwhile the market competitiveness has

caused the revenues to decline. IMC HR have failed to develop long term

employee development, career plans and aspirations. The motivation level of

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employees is to the sake of their work place. No one wakes up to go to work and

look for a new challenge, redundancy in work of employees has caused high

turnover and an area where IMC should work on

Strategic Group Map:

Strategic Map which is built using 2 important factors used for evaluating Automobile industry

i.e. Customer Perception and Price (Appendix 15: Strategic Group Map).

This map depicts that Suzuki caters to the lower end segment of the market i.e. Price conscious

market and both Honda and Toyota, caters to the higher income groups.

Each brand offers various variants for each market segment in which most are of Complete Built

Unit (CBU), which is not a strong focus of the company and it is just to who the presence of the

Brand in that segment. The key strategic groups include Honda and Toyota consumer vehicles

based on the high-volume sales and local production of the vehicle.

Major Problem:

Indus Motor Company (IMC) lacks strategic management because it does not scan external

environmental changes on time. IMC, being the market leader at global level and part of Toyota

Motor Company (TMC), assumes that its leadership position would continue, which is proved

wrong with the entrance of new players taking up the market share, human resource, etc. It

believes in Managing by Hope and is confined in a vicious cycle of paternalistic approach i.e.

We know all and is thus, a Type 3 organization, which is reactive to upcoming events as and

when required and is more focused towards short term gains than long run sustainability. Its

confidence over its high-quality vehicles, existing supplier network, its reputation and Global

Brand name has led to lack of peripheral vision. The myopic view of Toyota’s management

assumes its customers to be loyal to its Brands but in actual customers wants is drifting towards

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the alternatives available as we can see today many customer is switching towards imported

vehicles. (Appendix 16: Root Cause Analysis)

Minor Problems:

1. Lack of Peripheral Vision

The vision i.e. To be the most respected and successful enterprise, delight customers with a wide

range of products and solutions in the automobile industry with the best people and the best

technology, has very limited scope. Being the most respected and successful enterprise should

not be the end goal; it should be a fallout of managing for all stakeholders. However, this myopic

vision only focuses over satisfying shareholders, customers and employees rather than catering

to the needs of the society, government, suppliers and the other stakeholders. Moreover, the

term best people and best technology is ambiguous and shows IMC’s inclination towards short

term gains. It also lacks strategic management as people, technology are resources which can be

utilized to achieve long run sustainability.

2. Lack of Customer Orientation

Currently Toyota have wide dealers’ network across Pakistan. Ensuring the compliance of IMC

polices across all IMC dealerships is a real challenge for Toyota and is thus adversely impacting

customer satisfaction. Mostly dealers are using non-genuine, counterfeit parts and charge price

from customers which is equivalent to the price of genuine parts. IMC compensate the customer

and penalize the dealership once the case came to them which is a minor portion of overall total

complains because mostly customers are unaware and considered the counterfeit parts

performance as the genuine one. IMC also lacks skilled labor force at their dealerships. The

overall technician qualified ratio is not up to the Toyota global standards. Thus, its focus to

delight customers with wide range of products rather than quality products and services is

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adversely impacting customer satisfaction. Lack of Government’s focus towards opening of

Vocational Training institutes also adds up to the adversity.

With the lack of Research and Development, Technological advancement and low-quality raw

materials used at supplier’s end, quality of Toyota’s vehicle is quite low as compared to Toyota

Global standards. If we compare a Japan domestic model (JDM) with locally assembled model,

we can clearly identify the difference in quality of paint, fittings and performance.

3. Reactive Company

The company has a reactive approach to deal with the changes in external environment. The

sales of Automobiles are heavily dependent on favorable changes in exchange rate, political

stability, etc. but the management does not capitalize on these opportunities or avoid any threats

it faces. Its IMC’s dependency over its tacit knowledge and paternalistic approach of ‘We know

all’ that IMC is unable to anticipate the changing external environment and is thus unable to

respond strategically. With the currency devaluation, high manual labor force, high logistics cost

(due to expensive fuel), import of parts in which high duties to Government, they are increasing

the vehicle prices and just passing on the burden to the customers (Appendix 17: Pricing Trends

of 2018 and 2019). The quality standards, despite the increasing prices remain unchanged

however. Thus, Toyota lacks congruency and is faced with conflict of interest between selfish

(organizational) interest and value for society.

Since there is a gap between demand and supply, as demand is high and booking period vary

from 1 month to 6 months, and since New Automobile entrants may bring vehicles that might be

available on Ready booking. The gap in demand and supply is due to a poor sales forecasting and

unpredictable behavior of Automobile market which is due to some external factors such as

Investors interest in Automobile, fuel prices

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4. Lack of Strategic Drift

IMC’s lack of anticipation of changing external environment and entrance of new players

indicates a lack of Strategic drift at IMC. With the increasing competition, IMC is facing huge

challenge of employee attrition as the employees of IMC are given lucrative offers by new

Automobile players. Once the dealer network of new entrants will be established, dealer may

also face the same challenge of employee retention. Thus, due to IMC’s lack of strategic

management and dependency on its existing reputation, brand name, IMC is unable to retain its

best people despite having the vision of working with the best people of Automobile industry.

5. Lack of Passionate Pursuit

All strategic decisions of IMC are controlled by the parent company, House of Habib and Toyota

Motor Corporation, Japan, and made in coordination with the local top management only. At

IMC, only selected employees are sent for training to Japan which demotivates other employees;

consequently, employees are not committed to their work. Moreover, employees like the

management are more focused towards production and sales rather than customers satisfaction.

Therefore, there is no passionate pursuit of organizational goals and satisfaction of customers’

needs.

6. Selfish interest of dealerships:

Dealers are profit oriented in the light of high demand of automobiles of Pakistan. They have a

Trading mindset and usually sell cars on high premium, which was provided to them to cater the

demand of valuable or corporate customers. So, they may switch to another brand if that brand

offers higher incentives and pay backs.

7. Lack of Strategic Alliance with Suppliers:

Due to the current increase in foreign exchange rates, Toyota does not allow their local suppliers

to increase their cost of goods, so they may use low quality products. With intensified

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competition, suppliers were pressurized to reduce their costs. Since they could not, the company

changed its suppliers and started purchasing from China instead of Japan in order to keep costs

low, thereby ignoring the long-term relationships with existing suppliers and compromising on

quality. (Appendix 18: Interview findings)

Strategic Alternatives:

1. Adopting the Teachings of Quran and the Prophet (PBUH): Strategic Management

Most of the values and business principles taught in Quran and by Prophet (PBUH) are missing

in Indus Motor Company’s practices. IMC currently maximizes shareholder wealth at the

expense of stakeholder value maximization. It needs to align all of the 7S of McKinsey

Framework (Appendix 19: McKinsey 7S Framework) and should strengthen its shared values. It

should start managing for all stakeholders including employees, suppliers and customers. It

should be focused towards customer satisfaction and profit will thus be a fallout of doing good

business. It should engage in Corporate Social Responsibility and involve all employees in the

strategy development process so that there is congruency between their goals. It also needs to

have goal congruency with its parent companies i.e. House of Habib (HoH) and Toyota Motor

Corporation (TMC), Japan. Additionally, it should proactively respond to changes in external

environment.

2. Development of Sole Source (Strategic Partnerships Management):

IMC should develop strategic alliance with suppliers like the past practices, House of Habib

(HoH) acquire Thal Engineering, Auvitronics and Agri Autos. They may acquire some more

vendors to increase their control over vendors and align their strategic vision with them.

IMC should also have strong control over its dealership network and should strengthen their

relationships with dealership in order to maintain healthy relationship with dealers, motivate

them so that they strong commitment towards parent company i.e. IMC Pakistan

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Company should discourage the investor factor and allow direct invoice on original customers by

verifying it personally by IMC representatives. No open invoice should be given to dealer so that

real demand came to them and on that basis, they can make their forecasting better.

3. Strategic Human Resource Management (SHRM):

IMC needs to focus over market competitive Compensation structure, which is necessary for the

retention of employees as well as acquiring new talents. With new entrants such as KIA, Renault,

Hyundai opening up their production facilities in Pakistan, retention of employees for

Automobile industry is challenging. IMC should also provide strong Sense of recognition,

empowerment and inspiration to their employees. IMC should also send also ensure all of their

employees abroad for Training to equip them with International standards.

4. Aligning Quality of local parts with International standards:

IMC should increase the percentage of local parts by assuring quality, as per International

standards with minimal price. For that IMC needs to train, counsel its vendors. Also, there may

be a need to send vendors to TMC international vendors to get some trainings.

IMC should invest in High Tech and advanced machineries in processes. Also, company can

send their employees to Toyota Motors Corporation for vocational and on job trainings.

5. Customer Oriented Mindset:

IMC should increase dealers’ parts margins by slightly increasing the part price and slightly

cutting its own margin and should have different margins on different parts. For example, a part

whose counterfeit is easily available in market, IMC can sell its part at a very competitive price

to dealers and may earn premium on a parts that are not available in the local market.

IMC should penalize and suspend dealership if dealership is using non-genuine parts as it may

adversely impact the brand image of Toyota. IMC should train and monitor the dealer qualified

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ratio and training should be provided to them on priority basis. In this way, customer satisfaction

over After Sales Services will improve.

Strategic Choice:

Majorly, IMC needs to bring in Strategic Management so that it can respond proactively to

changing external environments and focus towards long run sustainability. It needs to focus on

customer satisfaction, empowerment of employees, strengthening its relationship with its

partners and dealership networks to ensure Goal congruency among all stakeholders of Toyota. It

further needs to improvise its service and product quality to an international standard, while

ensuring cost efficiency making the organization be more sustainable and thus, be able to out

beat their competitors.

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Sources:

1. (2016, March 21). Retrieved from Automotive Development Policy (2016- 2021):

http://boi.gov.pk/BOI/userfiles1/file/AutoPolicy/APCompressed.pdf

2. (2018). Retrieved from Market lines :

https://www.marklines.com/en/statistics/flash_sales/salesfig_pakistan_2018

3. (2019). Retrieved from Trading Economics:

https://tradingeconomics.com/pakistan/currency

4. A., M. (2017). Financial Statement Analysis 2012-2016: Toyota Indus Motor Company.

Retrieved from Toyota Pakistan: http://www.toyota-indus.com

5. Ahmed, S. (2017, April 20). Pakistani market has huge automobile potential. Retrieved

from Pak Observer: https://pakobserver.net/pakistani-market-huge-automobile-potential/

6. (2018). Annual Report. IMC.

7. Auto industry seeks incentives in new policy. (2019, January 16). Retrieved from Express

Tribune: https://tribune.com.pk/story/1889388/2-auto-industry-seeks-incentives-new-

policy/

8. Focus Economics. (2019, February). Retrieved from https://www.focus-

economics.com/countries/pakistan

9. Haris, M. (2019, January 1). Express Tribune. Retrieved from

https://tribune.com.pk/story/1878587/2-2018-mixed-year-auto-sector/

10. Kundi, A. (2018, May 3). Pakistan currently has largest percentage of young people in

its history: report. Retrieved from Dawn: https://www.dawn.com/news/1405197

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 Final Report - Live Case Report on INDUS MOTORS COMPANY LIMITED (IMC)

11. Pakistan Automotive Manufacturers Association (PAMA). (2018). Retrieved from

http://www.pama.org.pk/statistical-information/sales-production/monthly-sales-

production

12. Toyota. (2019). Retrieved from http://www.toyota-indus.com/corporate/

13. Trading Economics. (2019). Retrieved from

https://tradingeconomics.com/pakistan/indicators

14. World Bank. (2018, October 5). Retrieved from

https://www.worldbank.org/en/country/pakistan/overview

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APPENDICES

Appendix 1: Indus Motors Company

Appendix 2- House of Habib

A brief overview of the group and its companies is given below:

• Agriauto Industries Limited

Agriauto Industries Limited is a listed company incorporated on June 25, 1981 in Pakistan. It is

engaged in the manufacture and sale of components for automotive vehicles, motor cycles and

agricultural tractors.

The company has a 100% owned subsidiary company - Agriauto Stamping Company (Private)

Limited which was incorporated in 2012 and is engaged in stamping of sheet metal parts, dies,

fixtures primarily for the automotive industry.

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The company faces signification challenges mainly on the macroeconomic front due to current

account deficit, recent devaluation of PKR and hike in interest rates. However, following recent

developments such as removal of regulatory duty for auto part manufacturers, relaxation on

registration and purchasing of cars by non-filers have created positive future prospects. The

business is also expected to enhance due to entry of new companies in the automobile industry.

• AuVitronics Limited

Incorporated in 1983, AuVitronics was initially engaged in the business of cassette manufacturing.

The business of the company was later diversified and Auvitronics Limited is now engaged in

production and sales of:

Automotive parts which include:

o Lamps, mirrors, steering wheel, decorative parts, interior garnishes, exterior parts,

engine compartment, HVAC, vacuum metalizing and EPP

o Health care packaging such as eye & ear drops containers and syrup bottles

o Alternate building material for doors, windows, walls and manholes

The company also offers Customized molding solutions to the open market. The company has

Technical Assistance Agreements with leading technology players of Japan, Korea, Germany and

Malaysia.

• Habib Insurance Company

Habib Insurance is the one of the oldest insurance company in Pakistan. It was established in

Bombay 1942 and moved its' Head Office to Karachi in 1947.

The company offers insurance products for motor, fire, engineering, marine, terrorism, health, and

travel. It also offers public liability insurance, product liability insurance, umbrella liability

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insurance, cash in safe/cash in transit insurance, bankers blanket bond insurance, comprehensive

vehicle insurance, property insurance, third party liability insurance, burglary insurance and

fidelity guarantee insurance. The company markets and distributes its products in Pakistan through

its branches located in Karachi, Lahore, Multan, Faisalabad, Dera Ghazi Khan, and Rawalpindi.

The company has a wide Business Portfolio and broad customer base. It has also recently started

Window Takaful Operations and expects positive business growth on account of the same.

However, it faces challenges due to country's law and order situation and volatile share market.

• Indus Motor Company

The Company manufactures and markets Toyota brand vehicles in Pakistan. It has extensive

distribution model based on independently owned dealerships spread across the country. However,

it faces competition due to availability of high end imported vehicles and entry of new players in

the automobile market.

• Shabbir Tiles & Ceramics Limited

The company was founded by the House of Habib in 1978 with strategic and technical

collaboration of Agrob Anlagenbau GmbH of West Germany.

Company’s brand STILE enjoys leading position in the Ceramic and Porcelain Tiles industry in

Pakistan and offer wide range of sizes, colors, and designs in Porcelain and Ceramic tiles and other

allied products through a network of dealers and distributors. The Company is also engaged in

trading of allied building material products.

The company places emphasis on building brand equity and has opened company operated retail

outlets all over Pakistan under the name of The Stile Emporium. Enhancement of regulatory duty

and imposition of anti-dumping duty on cheap tiles has also provided an opportunity to sustain

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market share. However, heavy smuggling of tiles front bordering countries, in addition to evasion

of taxes due to depreciation of regional currencies is detrimental for the business.

• Thal Limited

Thal Limited was incorporated on 1966 and is listed on the Pakistan Stock Exchange Limited. It is

engaged in the manufacturing of jute goods, engineering goods, paper sack and laminate sheets.

The Company’s Engineering segment comprises of the Thermal & Engine Components Business

and Electric Systems Business. These businesses are primarily focused on parts manufacturing for

the auto industry such as car air-conditioners, radiators, wiring systems and engine components

while the Building Material and Allied product segment overlooks the Jute, Paper sack and

Laminate operations.

Apart from these key operational areas, Thal Limited’s subsidiaries include entities like Makro-

Habib Pakistan Limited, Pakistan Industrial Aids (Private) Ltd, Noble Computer Services (Pvt)

Limited and Thal Boshoku Pakistan (Pvt.) Ltd. It has also entered into various joint ventures.

o Noble Computer Services (Private) Limited : It was incorporated in 1983 and Internal

Audit Services, I.T.related services, Advisory Services, HR Services and Management

Services to group companies.

o Pakistan Industrial Aids (Private) Limited: It was incorporated in 2006 and is engaged

in trading of various products such as cotton gloves, blower motor, battery jumper lead,

industrial fans, welding equipment & machineries, paint spraying units & accessories,

auto air conditioning parts, gas cylinders., plastic bins etc.

o Metro Habib Cash & Carry Pakistan (Private) Limited: It was incorporated in 2005.

The Company is a joint venture between House of Habib and the ultimate parent of the

Company is Metro AG, Germany. The principal business of the Company is to operate

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a chain of wholesale cum retail cash and carry stores to fulfill the needs of large-scale

businesses and companies. Metro owns 9 stores in Karachi, Lahore, Islamabad and

Faisalabad. As a result of competitive market, changing economic conditions and

inflationary pressures, the growth of sales and margin over the years have not been

according to expectations. However, the Company is focused on improving its cash

generation and profitability through better managements of its working capital

requirements through financing arrangements guaranteed by parent of the Company i.e.

Metro AG, Germany.

o Makro Habib Pakistan Limited: It was incorporated in 2005 to operate a chain of whole

/ retail cash and carry stores. The company had a store in Saddar which was being

operated by Metro Habib Cash & Carry Pakistan (Private) Limited, however, the

arrangement has been discontinued due to decision of the Supreme Court of Pakistan

regarding the lease of the land on which the store was situated.

o AOne Enterprises (Private) Limited: It is a fully owned subsidiary of Thal Limited. It is

involved in the business of Real Estate.

o Thal Boshoku Pakistan (Private) Limited: It is a Joint Venture Company between Thal

Limited, Toyota Boshoku Japan and Toyota Tsusho Corporation Japan. Established in

2014, it is engaged in manufacturing of Seat Parts for Toyota Indus Motor Pakistan.

o Sindh Engro Coal Mining Company Limited: The Company was formed under a Joint

Venture Agreement (JVA), dated September 8, 2009, between the Government of

Sindh (GoS), Engro Energy Limited and Engro Corporation Limited with Thal Limited

for the development, construction and operations of an open cast lignite mine in Block-

II of Thar Coal Field, Sindh which shall be supplied to companies under various

agreements.

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o Thal Power (Private) Limited: It has entered into a Joint Venture Agreement with

Novatex Limited, for collaboration to develop a 330 MW mine mouth coal-fired power

generation plant located at Thar, Sindh. This power plant will be based on lignite coal

extracted from the mine operated by Sind Engro Coal Mining Company which is also a

JV of Thal Limited. Thal Limited through this wholly owned subsidiary, Thal Power

(Private) Limited has also incorporated a JV project company, i.e., ThalNova Power

Thar Private Limited, to develop the project.

• Habib Metropolitan Bank and its subsidiaries / associates

Habib Metropolitan Bank was incorporated in 1992. The ultimate parent of the company is

Habib Bank AG Zurich.

Habib Metro Bank currently operates with over 320 branches and offers retail, commercial,

consumer and corporate banking solutions to its clientele.

The subsidiaries / associates of the Bank include Habib Metropolitan Financial Services

Limited which offers equity brokerage services, First Habib Modaraba providing various

financing services such as leasing, Musharaka, Murabaha and investment products to its

customers, Habib Metropolitan Modaraba Management Company (Private) Limited whose

principal activity is to manage and float Modarabas and to invest in other Islamic mode of

financing and Habib Metro Modaraba, the primary business activities of which are residual

value car financing and financing for solar power solutions.

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Appendix 3: Organizational Structure

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Analysis:

1. The company possesses an open culture that usually prevails in Japanese environment.

2. The organizational structure is functional, and hierarchy is top-down, yet the reporting is

flexible enough that the communications are quite fast both vertically and cross-functionally.

3. There exists a sense of empowerment from top to bottom tier of the organization. E.g. even

the lowest tier staff (e.g. machine/line operators) are empowered to stop the production line if

any of the company’s KPIs are about to be affected (e.g. safety, quality, etc.).

4. Japanese concepts of management ‘The Toyota Way’ (14 principles) are very much in

practice across the organization.

5. The lean manufacturing and effective supply chain approaches (e.g. JIT – Just In Time,

Kaizen – Continuous Improvement, Muda – Waste elimination, etc.) keeps vibes of

ownership and commitment oscillating across the company.

6. Respect for People are heavily emphasized and given the supreme place in the value system

of the organization.

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Appendix 4: Balance Scorecard

BALANCED SCORECARD
PERFORMANCE MEASUREMENT GOALS / TARGETS PRIMARY INITIATIVES
DIMENSION CRITERIA RESPONSIBILITY

FINANCIAL How do we look 1. maintain market leadership in sales value. -Finance 1. pricing strategy to be kept in-line
to stake holders? 2. achieve a higher pie in sales volumes on YoY - Marketing with forecasted PKR value.
basis - Sales 2. advance payments to foreign
3. strengthen NP, ROE & dividends per share suppliers, etc. to weaken PKR
depreciation impact.
3. more penetration in target
segments, tapping new customers.

CUSTOMER How do 1. improve customer satisfaction levels, to - Quality 1. more emphasis on PDCA
customers see us? ensure customer retention in the presence of - Product approach, to ensure defects creation
more market offers in future. Development & further overflow to customers.
2. provide value-for-money vehicle in the - Production 2. more strict controls & performance
depreciating PKR environment. - After Sales management at dealerships, for high
3. a more reliable brand, offering unique - Customer Relations quality customer service.
products with better standards, specifications 3. technology transfer initiatives, as
& safety features. volumes are now higher, supporting
feasibility.
INTERNAL What must we 1. reduce production overtimes & ultimately - Production 1. due to enhanced capacity &
PROCESSES excel at? eliminating them. Planning & Control automation, more detailed
2. ensure DPU targets with decrease in takt- - Product identification of bottlenecks &
time of 3.8 veh/min from 4.2 veh/min. Development developing concrete counter-measure
3. timely delivery of parts from vendors, - Procurement plans, to fully implement JIT culture at
without significant increase inventory-levels & - Logistics production line.
rejections. - Human Resource 2. Yokoten (learning from mistakes)
- Plant Engg. & approach to minimize Andon for
Utilities similar nature of problems.
3. strict compliance over measures
(even revision of KPIs), to synchronize
delivery of localized parts from
vendors, as per acceptable quality
levels & time frame.
LEARNING & How can we 1. foster culture of Kaizen at all levels with - SHE 1. QCC Convention with 2x
GROWTH continue to improve various aspects - HR participation
& create value to (a) safety - Production, 2. Safety month, plus reinforcement of
business? (b) quality Maintenance & applied counter-measures against
(c) efficiency/productivity Logistics similar hazards from other Toyota
(d) cost - Production Engg. & affiliates.
(e) human resource development Projects 3. developing mindset of lower ties,
2. further reinforcement of Toyota - Finance for Muda identification & going-to-
philosophies & management principles, such as the-roots, for problem analysis &
(a) lean manufacturing solution impact.
(b) improved visualization 4. better working environment in
(c) Genchi Genbutsu fierce weather/temperature
(d) The Toyota Way conditions.

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Appendix 5: Analysis of Vision, Mission Statements and Core Values:

5a. Analysis of Vision:

The vision statement of IMC caters to its shareholders, customers and employees directly.

However, it indirectly refers to other stakeholders by mentioning its desire to be respected. A

respected organization strives to fulfil its obligations to the society, government, suppliers and

the other stakeholders in an ethical way to maintain its reputation. The vision statement is

concise as desired but having said so the need to elaborate upon the definition of success

remains.

5b. Analysis- Mission Statement

IMC’s mission statement incorporates six out of nine desired components including Customers,

Product, Concern for survival, growth and profitability, Philosophy, Concern for public image

and concerns for employees except markets, technology and self-concept. The Mission part aims

to clarify the message of IMC to all its stakeholders the principles upon which the firm operates.

The Mission statement of IMC cannot clearly justify over the market it competes, as it is

expected to answer the question, “What is our Business?”. However, in this regards, the mission

statement lacks any mention of its role in the automobile industry. Moreover, it’s Mission

statement also lacks focus towards Technological innovation and Self-concept, which would hint

towards the competitive advance of IMC over other players of the industry.

5c. Analysis- Core Values:

The core values of IMC focus over producing vehicles of International standards. It is focused

over 3 main stakeholders i.e. customers and employees. It however shows no concern for society

at large, and no concern for environmental

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Appendix 6: Industry Overview

The Auto Industry of Pakistan has historically been a booming sector of the economy. The last

five years have witnessed tremendous YoY growth for the overall industry. This can be

attributed to steady GDP growth rate, easy financing options and increase in the income levels of

the population.

The current economic situation of the country with large fiscal and current account deficits along

with the rising external debt threaten to hamper the growth of the sector at large. The weakening

of the rupee and rising inflation has made imports more expensive thereby increasing the cost of

production which naturally had to be passed on to the end consumer. These factors led to

increasing interest rates thereby affecting the leasing market. As a result, consumer spending is

expected to be moderate.

The government has taken steps to ensure that local production is incentivized via the Auto

Policy 2016-2021. (Automotive Development Policy (2016- 2021), 2016). The policy calls for

gradual increase of vehicle production to over 3 million units by 2021. In this regards, the current

government has taken effective steps at the reduction of imported vehicles by imposing large

import duties and encouraging new players to enter this concentrated market. However, steps

regarding curbing entry of imported vehicles can only be implemented for a limited time span. In

the longer run, the local automobile manufacturers and assemblers would have to match the

value for money aspect to discourage consumers from importing cars.

The entry of new players like Hyundai, KIA and Renault promises to bring variety to the local

industry. Their entry, backed by some of the leading business houses of Pakistan, is also

expected to cause disruption in the market and induce already established players to improve

their quality, price and value offerings to the consumers. Having said that, it must be accepted

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that in a market dominated by established Japanese names, these new entrants will take time to

develop traction and footing in the market. (Ahmed, 2017)

Despite all these factors the Pakistani automobile industry is expected to grow, and the market

has a lot of potential. One of the most important metrics for the Automobile industry is the

‘vehicle per thousand’ value which in the case of Pakistan is only 16 when compared to

Malaysia, Thailand and Indonesia which have figures of 361, 206 and 69 vehicles respectively.

With such a huge population as compared to the above-mentioned countries, the vehicle per

thousand figure clearly indicates that the room for growth is clearly present. In the long run, it is

the individual customer who will benefit from better quality vehicles at lesser cost.

TOTAL AUTOMOBILE SALES

2,270,952
3,000,000

1,907,475
2,500,000
1,616,875
1,364,320

2,000,000
1,061,780
1,054,612

1,008,578
955,211

945,758

1,500,000
671,407

1,000,000

500,000

Source: Pakistan Automotive Manufacturers Association

(PAMA)

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TOTAL CAR SALES

250,000

200,000

216,786
185,781
181,145
150,000

164,650
Sales

157,325

151,134
127,944
123,957
100,000

118,102
50,000 82,844

Year

Source: Pakistan Automotive Manufacturers Association (PAMA) (Pakistan

Automotive Manufacturers Association (PAMA), 2018)

Source: Indus Motor Company Annual Report 2018 (Annual Report, 2018)

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Appendix 7: Financial Statements

(1) INDUS MOTOR COMPANY

7a. Balance Sheet

Rs. in Million 2018 2017 2016 2015 2014 2013

Property, plant and equipment 7,225 6,258 4,919 5,184 6,032 2,742
Intangibles 87 88 19 10 1 -
Long-term loans and advances 49 9 4 11 29 131
Long-term investments - - 5,006 4,955 - -
Long-term deposits 9 9 10 10 10 10
Deferred taxation 14 74 199 5 - 34
Stores and spares 301 204 154 179 142 154
Stock-in-trade 11,151 9,318 7,785 6,150 4,469 7,883
Trade debts 1,453 759 1,132 448 1,737 1,383
Loans and advances 3,715 1,653 1,125 1,221 1,006 1,558
Short-term prepayments 15 21 46 19 15 11
Accrued return 120 376 513 419 87 12
Other receivables 556 402 191 168 176 163
Short-term Investments 55,031 41,488 33,697 26,257 9,121 6,698
Taxation - payment less provision - - - - 1,216 131
Cash and bank balances 2,201 3,221 2,738 5,365 2,068 4,195
Total Assets 81,927 63,880 57,537 50,399 26,111 25,106
Issued, subscribed and paid up capital 786 786 786 786 786 786
Reserves 35,958 30,411 26,844 23,250 19,130 16,907
Shareholders' Equity 36,744 31,197 27,630 24,036 19,916 17,693
Deferred taxation - - - - 219 -
Deferred Revenue 27 4 - - - -
Trade, dividend and other payables 15,974 9,683 10,035 9,181 4,430 6,014
Advances from customers and dealers 27,491 22,189 19,127 16,193 1,546 1,399
Taxation - provision less payment 1,691 807 745 990 - -
Total Equity and Liabilities 81,927 63,880 57,537 50,399 26,111 25,106

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7b. Profit and Loss Account

Rs. in Million 2018 2017 2016 2015 2014 2013

Net Sales 140,208 112,272 108,759 96,516 57,064 63,829
Cost of sales 115,831 92,450 91,027 82,272 51,270 57,972
Gross profit 24,377 19,822 17,731 14,244 5,794 5,857
Distribution costs 1,284 1,228 1,061 996 794 814
Administrative expenses 1,524 1,053 931 799 635 644
Other operating expenses 194 177 144 119 52 66
WPPF and WWF 1,705 1,418 1,285 1,052 372 370
Operating income 3,901 3,593 3,164 2,907 1,113 1,038
Finance costs 572 398 77 52 38 31
Profit before taxation 22,999 19,141 17,397 14,133 5,016 4,970
Taxation 7,227 6,140 5,943 5,022 1,143 1,612
Profit after taxation 15,772 13,001 11,455 9,110 3,873 3,358

7c. Cash Flow Statement

2018 2017 2016 2015 2014 2013

Cash Flows from
Operating 22,128,829 12,609,174 11,412,770 28,750,249 5,590,451 148,658
Activities
Cash Flows from
3,457,049 -356,013 1,496,573 -5,995,315 -1,268,131 -4,078,785
Investing Activities
Cash Flows from
-10,142,419 -9,391,010 -7,894,662 -4,889,130 -1,660,538 -2,645,871
Financing Activity
Net increase in cash
and cash
15,443,459 2,862,151 5,014,681 17,865,804 2,661,782 -6,575,998
equivalents during
the year
Cash and cash
equivalents at
32,599,720 29,737,569 24,722,888 6,857,084 4,195,302 10,771,300
beginning of the
year
Cash and cash
equivalents at end 48,043,179 32,599,720 29,737,569 24,722,888 6,857,084 4,195,302
of the year

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7d. Vertical Analysis – Balance Sheet

Numbers in %age 2018 2017 2016 2015 2014 2013

Property, plant and equipment 8.82 9.80 8.55 10.29 23.10 10.92
Intangibles 0.11 0.14 0.03 0.02 0.00 -
Long-term loans and advances 0.06 0.01 0.01 0.02 0.11 0.52
Long-term investments - - 8.70 9.83 - -
Long-term deposits 0.01 0.01 0.02 0.02 0.04 0.04
Deferred taxation 0.02 0.12 0.35 0.01 - 0.14
Stores and spares 0.37 0.32 0.27 0.35 0.54 0.61
Stock-in-trade 13.61 14.59 13.53 12.20 17.12 31.40
Trade debts 1.77 1.19 1.97 0.89 6.65 5.51
Loans and advances 4.53 2.59 1.96 2.42 3.85 6.21
Short-term prepayments 0.02 0.03 0.08 0.04 0.06 0.04
Accrued return 0.15 0.59 0.89 0.83 0.33 0.05
Other receivables 0.68 0.63 0.33 0.33 0.67 0.65
Short-term Investments 67.17 64.95 58.57 52.10 34.93 26.68
Taxation - payment less provision - - - - 4.66 0.52
Cash and bank balances 2.69 5.04 4.76 10.65 7.92 16.71
Total Assets 100.00 100.00 100.00 100.00 100.00 100.00
Issued, subscribed and paid up capital 0.96 1.23 1.37 1.56 3.01 3.13
Reserves 43.89 47.61 46.65 46.13 73.26 67.34
Shareholders' Equity 44.85 48.84 48.02 47.69 76.27 70.47
Deferred taxation - - - - 0.84 -
Deferred Revenue 0.03 0.01 - - - -
Trade, dividend and other payables 19.50 15.16 17.44 18.22 16.97 23.95
Advances from customers and dealers 33.56 34.74 33.24 32.13 5.92 5.57
Taxation - provision less payment 2.06 1.26 1.29 1.96 - -
Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00 100.00

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7e. Vertical Analysis – Profit and Loss

Numbers in %age 2018 2017 2016 2015 2014 2013

Net Sales 100.00 100.00 100.00 100.00 100.00 100.00
Cost of sales 82.61 82.34 83.70 85.24 89.85 90.82
Gross profit 17.39 17.66 16.30 14.76 10.15 9.18
Distribution costs 0.92 1.09 0.98 1.03 1.39 1.28
Administrative expenses 1.09 0.94 0.86 0.83 1.11 1.01
Other operating expenses 0.14 0.16 0.13 0.12 0.09 0.10
WPPF and WWF 1.22 1.26 1.18 1.09 0.65 0.58
Operating income 2.78 3.20 2.91 3.01 1.95 1.63
Finance costs 0.41 0.35 0.07 0.05 0.07 0.05
Profit before taxation 16.40 17.05 16.00 14.64 8.79 7.79
Taxation 5.15 5.47 5.46 5.20 2.00 2.53
Profit after taxation 11.25 11.58 10.53 9.44 6.79 5.26

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7f. Horizontal Analysis – Balance Sheet

2018 vs 2017 vs 2016 vs 2015 vs 2014 vs

Numbers in %age
2017 2016 2015 2014 2013
Property, plant and equipment 15.45 27.22 -5.11 -14.07 119.99
Intangibles -1.14 356.17 98.32 872.70 -
Long-term loans and advances 444.44 137.22 -65.81 -62.25 -77.62
Long-term investments - -100.00 1.03 - -
Long-term deposits - -9.53 2.91 - -
Deferred taxation -81.08 -62.74 3,651.10 102.42 -737.48
Stores and spares 47.55 32.85 -14.02 26.08 -7.82
Stock-in-trade 19.67 19.69 26.58 37.61 -43.30
Trade debts 91.44 -32.93 152.75 -74.23 25.64
Loans and advances 124.74 46.87 -7.79 21.33 -35.43
Short-term prepayments -28.57 -53.87 140.60 26.62 38.36
Accrued return -68.09 -26.76 22.57 379.46 618.67
Other receivables 38.31 110.14 14.04 -4.51 7.71
Short-term Investments 32.64 23.12 28.34 187.86 36.18
Taxation - payment less provision - - - -181.41 825.96
Cash and bank balances -31.67 17.66 -48.98 159.44 -50.70
Total Assets 28.25 11.02 14.16 93.02 4.00
Issued, subscribed and paid up capital - - - - -
Reserves 18.24 13.29 15.46 21.54 13.14
Shareholders' Equity 17.78 12.91 14.95 20.69 12.56
Deferred taxation - - - 102.42 737.48
Deferred Revenue 575.00 - - - -
Trade, dividend and other payables 64.97 -3.51 9.31 107.22 -26.33
Advances from customers and dealers 23.89 16.01 18.12 947.60 10.51
Taxation - provision less payment 109.54 8.34 -24.78 181.41 -
Total Equity and Liabilities 28.25 11.02 14.16 93.02 4.00

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7g. Horizontal Analysis – Profit and Loss

2018 vs 2017 vs 2016 vs 2015 vs 2014 vs

Numbers in %age
2017 2016 2015 2014 2013
Net Sales 24.88 3.23 12.68 69.14 -10.60
Cost of sales 25.29 1.56 10.64 60.47 -11.56
Gross profit 22.98 11.79 24.48 145.86 -1.08
Distribution costs 4.56 15.75 6.51 25.52 -2.54
Administrative expenses 44.73 13.13 16.54 25.85 -1.45
Other operating expenses 9.60 23.05 20.42 129.67 -21.43
WPPF and WWF 20.24 10.31 22.15 182.91 0.54
Operating income 8.57 13.54 8.86 161.09 7.27
Finance costs 43.72 415.07 48.93 35.63 24.59
Profit before taxation 20.16 10.02 23.10 181.72 0.94
Taxation 17.70 3.32 18.32 339.38 -29.10
Profit after taxation 21.31 13.50 25.74 135.20 15.37

7h. Ratio Analysis

2018 2017 2016 2015 2014 2013

Gross Margin 17% 18% 16% 15% 10% 9%
Net Margin 16% 17% 16% 15% 9% 8%
Sales-to-Assets 1.71 1.76 1.89 1.92 2.19 2.54
Return on Assets 28% 30% 30% 28% 19% 20%
Return on Investment 28% 30% 30% 28% 19% 20%

Ratios Units 2018 2017 2016 2015 2014 2013

Gross profit ratio % age 17 18 16 15 10 9
Net profit ratio % age 11 12 11 9 7 5
Earnings per share Rs. 201 165 146 116 49 43
Inventory turnover Times 11 11 13 15 8 8
Debt collection
Days 3 3 3 4 10 8
period
Average fixed assets
Times 23 20 21 17 13 18
turnover
Breakup value per
Rs 467 397 352 306 253 225
share
Market price per Rs 1,421 1,794 940 1,249 538 311

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share - as on June 30
- High value during
Rs 1,980 2,110 1,313 1,320 549 365
the period
- Low value during
Rs 1,300 935 885 520 300 237
the period
Price earnings ratio Times 7 11 6 11 11 7
Dividend per share Rs 140 115 100 80 30 25
Dividend yield % age 10 6 11 6 5 8
Dividend payout % age 70 70 69 69 60 59
Dividend cover Times 1 1 1 1 2 2
Return on equity % age 43 42 41 38 19 19
Debt to equity Ratio 0:1 0:1 0:1 0:1 0:1 0:1
Current ratio Ratio 1.63 : 1 1.76 : 1 1.58 : 1 1.53 : 1 3.35 : 1 2.99 : 1

Graph 1: Units sold vs Units Produced (IMC)

70,000

60,000

50,000
Number

40,000

30,000

20,000

10,000

-
2018 2017 2016 2015 2014 2013
Units sold 64,000 60,586 64,584 57,387 34,470 38,517
Units Produced 62,886 59,945 64,096 56,888 33,012 37,405

Units sold Units Produced

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Graph 2: Net Sales (IMC)

160,000

140,000

120,000
Rs. in Million

100,000

80,000

60,000

40,000

20,000

-
2018 2017 2016 2015 2014 2013
Net Sales 140,208 112,272 108,759 96,516 57,064 63,829

Net Sales

Graph 3: Gross Profit Ratio vs Net Profit Ratio (IMC)

20
18
16
14
12
%age

10
8
6
4
2
-
2018 2017 2016 2015 2014 2013
Gross profit ratio 17 18 16 15 10 9
Net profit ratio 11 12 11 9 7 5

Gross profit ratio Net profit ratio

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Graph 4: Earning per share (EPS) vs Dividend per share (DPS) (IMC)

250

200

150
Rs.

100

50

-
2018 2017 2016 2015 2014 2013
Earning per share 201 165 146 116 49 43
Dividend per share 140 115 100 80 30 25

Earning per share Dividend per share

Graph 5: Return on Equity (IMC)

50
45
40
35
30
%age

25
20
15
10
5
-
2018 2017 2016 2015 2014 2013
Return on equity 43 42 41 38 19 19

Return on equity

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(2) Honda Atlas Cars (Pakistan) Limited

7i. Balance Sheet

Rs. in Million 2018 2017 2016 2015 2014 2013

Issued, subscribed and
1,428 1,428 1,428 1,428 1,428 1,428
paid up capital
Reserves 9,706 5,506 2,956 526 76 76
Unappropriated profit /
5,939 6,131 3,557 3,166 887 -139
(loss)
Deferred liability -
93 62 83 53 44 38
Gratuity
Deferred taxation 434 367 134 - - -
Deferred revenue 13 11 9 12 12 5
Current portion of
3 4 6 5 - -
deferred revenue
Accrued mark-up 1 14 1 2 14 92
Income tax payable - 305 - - - -
Trade, dividend and
41,192 37,669 8,031 8,736 9,856 13,647
other payables
Total Equity and
58,809 51,497 16,205 13,926 12,317 15,146
Liabilities
Property, plant and
4,992 4,402 2,512 2,823 2,873 3,356
equipment
Intangible assets 305 373 71 71 86 140
Capital work-in-
76 199 1,198 39 81 8
progress
Long term loans and
189 107 82 62 53 37
advances
Long term deposits 4 4 4 4 4 4
Deferred taxation - - - 378 393 1,043
Stores and spares 139 135 123 133 116 116
Stock-in-trade 8,208 6,659 4,010 5,524 3,853 4,312
Trade debts 92 50 86 44 - -
Advances, prepayments
13,135 9,089 1,006 1,489 2,504 2,105
and other receivables
Short term investments 20,675 20,943 1,150 - - 492
Cash and bank balances 10,993 9,536 5,963 3,358 2,354 3,535
Total Assets 58,809 51,497 16,205 13,926 12,317 15,146

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7j. Profit and Loss Account

Rs. in Million 2018 2017 2016 2015 2014 2013

Sales 91,523 62,803 40,086 37,764 39,153 30,275
Cost of sales -81,074 -53,681 -34,039 -32,991 -36,296 -28,828
Gross profit 10,449 9,122 6,047 4,773 2,857 1,447
Distribution and
-917 -542 -333 -434 -341 -219
Marketing costs
Administrative expenses -678 -497 -352 -320 -287 -202
Other operating income 1,883 1,115 310 219 271 213
Other operating expenses -1,245 -538 -486 -452 -365 -524
Profit from operations 9,493 8,660 5,186 3,786 2,135 716
Finance cost -14 -23 -7 -19 -38 -191
Profit before taxation 9,479 8,636 5,179 3,767 2,097 525
Taxation -2,984 -2,501 -1,623 -605 -1,024 -281
Profit after taxation 6,494 6,135 3,556 3,162 1,074 244

7k. Cash Flow Statement

2018 2017 2016 2015 2014 2013

Cash Flows from
3,989,036 25,192,051 5,553,375 1,858,220 -1,536,440 4,349,680
Operating Activities
Cash Flows from
-2,783,704 -5,492,152 -1,492,579 -428,154 -93,333 -238,834
Investing Activities
Cash Flows from
-2,445,286 -995,796 -710,685 -425,833 -42,724 -166,676
Financing Activity
Net increase in cash
and cash equivalents -1,239,954 18,704,103 3,350,111 1,004,233 -1,672,497 3,944,170
during the year
Cash and cash
equivalents at 25,412,597 6,708,494 3,358,383 2,354,150 4,026,647 82,477
beginning of the year
Cash and cash
equivalents at end of 24,172,643 25,412,597 6,708,494 3,358,383 2,354,150 4,026,647
the year

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7l. Vertical Analysis – Balance Sheet

Numbers in %age 2018 2017 2016 2015 2014

Issued, subscribed and paid up capital 2.43 2.77 8.81 10.25 11.59
Reserves 16.50 10.69 18.24 3.78 0.62
Unappropriated profit / (loss) 10.10 11.91 21.95 22.74 7.20
Deferred liability - Gratuity 0.16 0.12 0.51 0.38 0.36
Deferred taxation 0.74 0.71 0.83 - -
Deferred revenue 0.02 0.02 0.06 0.08 0.10
Current portion of deferred revenue 0.01 0.01 0.04 0.03 -
Accrued mark- up - 0.03 - 0.01 0.11
Income tax payable - 0.59 - - -
Trade, dividend and other payables 70.04 73.15 49.56 62.73 80.02
Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00
Property, plant and equipment 8.49 8.55 15.50 20.27 23.33
Intangible assets 0.52 0.72 0.44 0.51 0.70
Capital work-in-progress 0.13 0.39 7.39 0.28 0.66
Long term loans and advances 0.32 0.21 0.50 0.45 0.43
Long term deposits 0.01 0.01 0.02 0.03 0.03
Deferred taxation - - - 2.72 3.19
Stores and spares 0.24 0.26 0.76 0.95 0.94
Stock-in-trade 13.96 12.93 24.75 39.66 31.28
Trade debts 0.16 0.09 0.53 0.32 -
Advances, prepayments and other
22.33 17.65 6.21 10.69 20.33
receivables
Short term investments 35.15 40.67 7.10 - -
Cash and bank balances 18.69 18.52 36.80 24.12 19.11
Total Assets 100.00 100.00 100.00 100.00 100.00

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7m. Vertical Analysis – Profit and Loss

Numbers in %age 2018 2017 2016 2015 2014

Sales 100.00 100.00 100.00 100.00 100.00
Cost of sales -88.58 -85.48 -84.92 -87.36 -92.70
Gross profit 11.42 14.52 15.08 12.64 7.30
Distribution and marketing costs -1.00 -0.86 -0.83 -1.15 -0.87
Administrative expenses -0.74 -0.79 -0.88 -0.85 -0.73
Other operating income 2.06 1.78 0.77 0.58 0.69
Other operating expenses -1.36 -0.86 -1.21 -1.20 -0.93
Profit from operations 10.37 13.79 12.94 10.02 5.45
Finance cost -0.02 -0.04 -0.02 -0.05 -0.10
Profit before taxation 10.36 13.75 12.92 9.98 5.36
Taxation -3.26 -3.98 -4.05 -1.60 -2.61
Profit after taxation 7.10 9.77 8.87 8.37 2.74

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7n. Horizontal Analysis – Balance Sheet

2018 vs 2017 vs 2016 vs 2015 vs 2014 vs

Numbers in %age
2017 2016 2015 2014 2013
Issued, subscribed and paid up
- - - - -
capital
Reserves 76.28 86.27 461.98 592.11 -
Unappropriated profit / (loss) -3.12 72.36 12.36 256.82 -736.79
Deferred liability - Gratuity 51.49 -25.57 57.60 18.29 17.42
Deferred taxation 18.10 173.77 100.00 - -
Deferred revenue 18.41 22.72 -23.99 -0.73 143.94
Current portion of deferred revenue -32.46 -27.67 33.18 100.00 -
Accrued mark-up -94.50 2,025.26 -62.03 -87.22 -85.01
Income tax payable -100.00 100.00 - - -
Trade, dividend and other payables 9.35 369.02 -8.06 -11.37 -27.78
Total Equity and Liabilities 14.20 217.79 16.36 13.06 -18.68
Property, plant and equipment 13.40 75.25 -11.02 -1.75 -14.38
Intangible assets -18.22 425.22 -0.47 -17.42 -38.07
Capital work-in-progress -61.67 -83.38 2,990.13 -52.30 934.66
Long term loans and advances 76.24 31.52 30.60 18.32 41.90
Long term deposits - - - - -
Deferred taxation - - -100.00 -3.80 -62.29
Stores and spares 3.13 9.45 -7.36 14.22 0.48
Stock-in-trade 23.27 66.06 -27.41 43.38 -10.65
Trade debts 86.61 -42.56 95.01 100.00 -
Advances, prepayments and other
44.52 803.26 -32.43 -40.52 18.93
receivables
Short term investments -1.28 1,721.51 100.00 - -100.00
Cash and bank balances 15.27 59.92 77.56 42.66 -33.40
Total Assets 14.20 217.79 16.36 13.06 -18.68

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7o. Horizontal Analysis – Profit and Loss

2018 vs 2017 vs 2016 vs 2015 vs 2014 vs

Numbers in %age
2017 2016 2015 2014 2013
Sales 45.73 56.67 6.15 -3.55 29.33
Cost of sales 51.03 57.71 3.17 -9.10 25.91
Gross profit 14.55 50.85 26.69 67.04 97.45
Distribution and marketing costs 69.07 62.84 -23.31 27.51 55.71
Administrative expenses 36.26 41.32 9.98 11.47 42.16
Other operating income 68.85 260.00 41.46 -19.06 26.76
Other operating expenses 131.54 10.65 7.50 23.84 -30.38
Profit from operations 9.62 66.99 36.99 77.29 198.32
Finance cost -38.25 235.33 -62.55 -50.98 -80.06
Profit before taxation 9.75 66.76 37.48 79.62 299.61
Taxation 19.30 54.11 168.43 -40.93 264.87
Profit after taxation 5.86 72.54 12.44 194.54 339.51

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7p. Ratio Analysis

SIGNIFICANT RATIOS 2018 2017 2016 2015 2014 2013

Profitability
Gross profit / (loss) margin % 11 15 15 13 7 5
Operating profit / (loss) margin % 10 14 13 10 6 2
Profit / (loss) before tax % 10 14 13 10 5 2
Profit / (loss) after tax % 7 10 9 8 3 1
Liquidity
Current ratio Times 1 1 2 1 1 1
Quick ratio Times 1 1 1 1 1 0
Long term debt to equity Times - - - - - -
Total liabilities to equity Times 3 4 2 3 5 11
Activity
Total assets turnover Times 2 1 3 3 3 2
Fixed assets turnover Times 17 13 11 13 13 9
Stock turnover ratio Times 11 10 7 7 9 8
Interest cover (BT) Times 656 369 742 203 56 4
Interest cover (AT) Times 450 263 510 170 29 2
Number of days stock Days 33 36 51 52 41 45
Earning
Return on capital employed % 43 58 55 84 57 19
Return on equity (BT) % 63 82 79 100 112 42
Return on equity (AT) % 43 58 55 84 57 20
Earnings / (loss) per share
Rs. 66 61 36 26 15 4
(BT)
Earnings / (loss) per share
Rs. 46 43 25 22 8 2
(AT)
Price earnings ratio (AT) Times 11 18 10 8 7 17
Dividend per ordinary share Rs. 27 13 7 5 3 0
Dividend payout ratio % 59 30.3 28.1 22.6 40 18

Analysis Summary

Sales volume and production of vehicles increased to 50,100 units from 35,381 units sold last

year. The company’s net sales revenue for the year 2018 was Rs. 91.52 billion which is around

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46% growth on last year. Profit after tax is 6.49 billion which grew around 6% on last year. An

increase in the net sales and profits are associated with launch of new models, change in sales

mix and higher other income due to fund size increase. Company has given 59% of the earning

per share as a divided; whereby the average of past 6 years is approximately 33%. Return on

equity for the current year is 43%, however it’s decreased by 26% from last year.

Graph 6: Units sold vs Units Produced (Honda)

60,000

50,000

40,000
Number

30,000

20,000

10,000

-
2018 2017 2016 2015 2014 2013
Units sold 50,100 35,381 25,800 23,311 23,310 18,915
Units produced 50,177 34,560 25,939 23,320 23,223 19,387

Units sold Units produced

Graph 7: Net Sales (Honda)

100,000
90,000
80,000
70,000
Rs. in Million

60,000
50,000
40,000
30,000
20,000
10,000
-
2018 2017 2016 2015 2014 2013
Sales 91,523 62,803 40,086 37,764 39,153 30,275

Sales

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Graph 8: Gross Profit Ratio vs Net Profit Ratio (Honda)

16.00
14.00
12.00
10.00
%age

8.00
6.00
4.00
2.00
-
2018 2017 2016 2015 2014 2013
Gross profit ratio 11.40 14.50 15.10 12.60 7.30 4.80
Net profit ratio 7.10 9.80 8.90 8.40 2.70 0.80

Gross profit ratio Net profit ratio

Graph 9: Earning per share (EPS) vs Dividend per share (DPS) (Honda)

50.00
45.00
40.00
35.00
30.00
Rs.

25.00
20.00
15.00
10.00
5.00
-
2018 2017 2016 2015 2014 2013
Earning per share 45.50 43.00 24.90 22.10 7.50 1.70
Dividend per share 26.90 13.00 7.00 5.00 3.00 0.30

Earning per share Dividend per share

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Graph 10: Return on Equity (Honda)

90
80
70
60
50
%age

40
30
20
10
-
2018 2017 2016 2015 2014 2013
Return on equity 43 58 55 84 57 20

Return on equity

Appendix 8: External Factor Evaluation (EFE) Matrix

Weighted
Opportunities Weight Rating score
1 New Product and Segment 0.08 3 0.24
2 High Industry Growth Rates 0.05 2 0.1
3 Demand for Hybrid Vehicles 0.03 1 0.03
4 Increase in demand 0.1 3 0.3
5 Vendor Development in Habib Group 0.12 4 0.48
6 Production Capacity Enhancement 0.15 4 0.6

Weighted
Threats Weight Rating score
1 PKR devaluation (rising exchange rates) 0.1 2 0.2
2 Increasing competition (New Entrants) 0.15 2 0.3
3 Regulatory duties on Raw materials 0.08 1 0.08
Consumers preference towards Imported
4 Vehicle 0.08 1 0.08
5 Increase in Labor Costs 0.06 3 0.18

Totals 1 2.59
Rating/Score: 1= Low, 4= High

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EFE Analysis:

The external factor analysis is done by primary and secondary research. Total weighted score for

Indus Motor Company is 2.59 which is slightly above average. Analysis indicates that Indus

Motor should focus on Product quality as current offerings do not have basic features present in

imported cars. New Entrants in market are expected to introduce Products with higher quality

standards, elevating expectations from IMC and posing a direct threat to market share. Also,

when planning to cater the demand, IMC has to consider the localization of critical components

which are imported and are subjected to heavy regulatory duties, to remain cost effective.

Appendix 9: Market share of Automobile Industry

Source: Automotive Industry Portal (www.marketlines.com)

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Appendix 10: Competitive Profile Matrix (CPM)

Toyota Suzuki Honda

Critical Success
Weight Rating Score Rating Score Rating Score
Factor
Product Lines 0.1 3 0.3 2 0.2 2 0.2
Price 0.1 3 0.3 4 0.4 1 0.1
Product Quality 0.1 3 0.3 1 0.1 4 0.4
Marketing/Advertising 0.1 2 0.2 2 0.2 1 0.1
Customer Loyalty 0.15 3 0.45 1 0.15 3 0.45
Market Share 0.15 3 0.45 4 0.6 2 0.3
Distribution Network 0.1 3 0.3 4 0.4 2 0.2
Supply
0.1 4 0.4 3 0.3 2 0.2
Network/Sourcing
Technological
0.1 3 0.3 1 0.1 4 0.4
Advantage
1 3 2.45 2.35
Rating: 1= Major Weakness, 2= Minor Weakness, 3= Minor Strength, 4= Major Strength

CPM Analysis:

From CPM Matrix, we can see that Honda is totally conscious towards product quality, which is

considered as major weakness of Suzuki. Toyota lies between the two and is strongly focused

towards Customer Loyalty and Market share. Thus, Toyota’s major focus is on improvising

customer experience and its supply chain network. But overall Toyota has the highest score

based on Critical Success factors (CSF’s). Toyota is also considered as the industry leader in the

Pakistan Automobile market.

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Appendix 11: Porter’s Five Forces Model

Indus Motor Corporation operates in the automotive sector where the external factors

significantly affect the entire business. According to Porter five force analysis, the competitive

analysis can help companies to identify the favorable and unfavorable situation which can affect

the business operations in the industry (Harding, 2017). Below are the Porter five-force analysis

applied to explore the competitive analysis of Indus Motor Corporation:

1. Rivalry Amongst Competing Firms:

IMC has a very few direct competitors in the market which include Suzuki, Honda,

United and FAW. Indirect competitors include alternate modes of transport and imported

vehicles. The strong force, which increases competitive rivalries, includes:

• The low number of large firms which can create a potential threat to Indus motors

• High aggressiveness of firms which already exist in the market

• Availability of differentiation and variety

As the industry is mature in nature, it’s difficult to enter and leave the industry. Those

who are established are safe and secure, those who plan or tend to enter have a mountain

to climb. Indus motors compete with their competitors based on marketing and

innovation. Indus motors are joint ventured organization and the company differentiates

itself based on quality, cost and brand image. However, to compete effectively in the

market, the company needs to adopt strategies of expansion and differentiation so that

they can address the intensive competition in the market. Competitions fight for different

segments within the market and they like to stay within those segments.

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2. Potential Entry of new Competitors:

High consumer demand, industrial growth and government policies for increasing local

manufacturing capability within Pakistan has given an opportunity to new Entrants within

this highly saturated and lobbied segment of Industry.

Large amount of capital is needed for new entrants to start a production facility. With

production these new entrants must be innovative in design and engineering to tap the

already divided market segment. With declining sales and increase in new competitors its

likely that the pie of slice divided amongst Suzuki, Honda and IMC will further reduce.

A lot of retaliation is expected from the existing manufacturers as they are losing their

workforces, losing their suppliers. However, it’s difficult for new entrants to achieve

economies of scales which will hinder their growth, allowing existing players to sustain.

3. Potential Development of Substitute Products:

Alternate modes of transport which include bus, trains, planes, cycles rickshaws etc. are

substitute products. Many people who can afford a car are preferring use of Careem,

Uber, Bykea etc. because of convenience. Besides this, in the future, the development of

transportation route projects such as green line may also help the consumer to travel

through the easiest route in less time. Petrol price is an important factor that influences

the people’s willingness to substitute. Distance is also another factor for people that

affects their willingness to substitute. Similarly, consumer preference towards

environmentally friendly vehicles may change consumer purchasing preference. These

factors can affect the future sale of Indus motors directly

4. Bargaining Power of Supplier

There is low bargaining power of supplier because of the availability of a wide range of

suppliers in the market. Similarly, the raw material required for the manufacturing is also

readily available, keeping suppliers at the back foot. IMC focuses on quality, which can

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only be produced based on certain requirements which need to be met. Only a few

suppliers can meet these requirements which gives them an edge over others and allows

them to bargain with IMC. Mostly these suppliers fall under the umbrella of HOH hence

do not possess the capability to integrate forward or backward. These suppliers may not

impact the sales of IMC directly, but if competitors give them huge orders at a better

price then they might have delays in delvering products to IMC, which may impact their

JIT production system, impacting their production leading to decline in customer morale

and sales.

5. Bargaining Power of Buyers

As there are large number of buyers in market so the bargaining power of individual

buyer is low. But on the other hand, collectively its consumers who set the trend for

example the trend of imported hybrid cars is set by consumers and manufacturers try to

adopt according to those requirements. Bargaining can only be done in bulk orders which

include corporate and military vehicles.

The buyer has the power to switch to another vehicle if his needs are not satisfied with

what he wants. As car is a high involvement product, the customer already knows what

he needs to buy. They don’t care about a test drive in the Pakistani market, all they need

is a timely delivered vehicle in the color they need.

Similarly, buyers are price sensitive, they may tend to switch to other vehicles if they

don’t see the value in the vehicle they are paying for. Hence this may also add to the

decline of sales, hence that’s why IMC focuses on quality and customer services, so they

can retain their customer base in adverse times.

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Appendix 12: Internal Factor Evaluation (IFE) Matrix

Weighted
S. No. Strengths Weight Rating
Score

1 Strong Brand name 0.05 4 0.2

2 Sales - Volume & Value 0.07 3 0.21
3 Customer Loyalty 0.03 3 0.09
4 Advanced Manufacturing Facility 0.03 3 0.09
5 JV with Toyota 0.05 4 0.2
Robust Dealer & Distribution
6 0.04 3 0.12
Network
7 Brilliant Aftersales service 0.03 3 0.09

8 Good Resale value of vehicles 0.05 3 0.15

9 Degree of localization 0.07 4 0.28
10 ERP System in place 0.03 4 0.12
11 Efficient Production System 0.04 3 0.12
12 Kaizen & Collaborative environment 0.04 3 0.12
13 Vendor Network 0.05 3 0.15
14 Adoption of New Technology 0.03 2 0.06
15 Financial Leverage 0.07 4 0.28
Management Practices &
16 0.03 3 0.09
Philosophies
17 Competent & Trained workforce 0.04 3 0.12
TOTAL 2.49
Weighted
S.No Weaknesses Weight Rating
Score
New entrants approaching
1 0.06 4 0.24
employees
Less Proactiveness regarding future
2 0.05 4 0.2
challenges
Non-fulfillment of KPIs by Business
3 0.04 3 0.12
partners
Vendor network Establishment for
4 0.02 4 0.08
new businesses
Research & New Product
5 0.03 4 0.12
Development
6 Capacity Constraints 0.04 4 0.16

TOTAL 0.92

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Appendix 13: Cross Functional Analysis

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Appendix 14: CS Level SWOT

14a. CS Level SWOT Matrix

S Internal Strengths W Internal Weakness

1 Skilled labor 1 Dependency upon Imported Engine
Weak Supply Chain increasing Back
2 Customer Loyalty 2
Logs
The company have high staff
3 Financial Leverage 3
turnover
Toyota Production System (Strong Untimely resolution of customer
4 4
Management Philosophy) complaints
5 Brand Value and Presence 5 Weak technical Expertise
Joint Venture between TTC and
6
HOH
7 Efficient Customer Service
8 Pakistan’s Largest Vehicle Producer
9 Strong Distribution network

SO Strategies (Maxi- Maxi

O External Opportunities
Strategy) WO Strategies (Mini-Maxi Strategy)
Dependency on Imports can be
Utilize Toyota Production system
reduced as the government has
efficiently to ensure lean and just
levied taxes on import the company
a New Products 4g in time production, innovating 1e
can look into the market for
work practices to ensure maximum
production and technical expertise
production to reduce backlog
for engine manufacturing
Weak supply chain has caused
immense backlog to be build, the
Using Toyotas Brand Value and
2/4 time to deliver a car has moved up
b Increasing income levels 5c,d Presence to diversify the hybrid
g to 6months. Innovative work
range of cars in the market.
practices can be used to make sure
that JIT supply chain is in place
High industry growth rate and Increasing population can be
skilled workforce makes it possible scrutinized to find capable technical
Demand for Hybrid 3,5
c 1d to increase the production and resources who can add value to the
Vehicles /f
meeting the evergreen demand of business, this can also help in
the marker reducing the staff turnover
Being the largest vehicle
manufacturer, IMC can leverage on
High Industry Growth the government taxes on imports
d 8 e,f,d
Rates and incorporate new vehicles in
their manufacturing line to cater
for the growing market need
A strong distribution network can
help cater to the increasing
e Import Taxes 9/8,b,f
population, as the income levels
are rising IMC can cash on their

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efficient customer services to grow

their clientele

f Increasing Population
Innovative Work
g practices
T Threat ST Strategies (Maxi-Mini Strategy) WT Strategies (Mini-Mini Strategy)
By increasing local manufacturing
a Increase in Labor Cost
Utilizing their financial leverage to and expanding pool of vendors the
b Rising exchange rate 3,a 1,b
meeting the increasing labor cost effect of Foreign exchange
c Increasing competition
can ensure motivated workforce fluctuation can be catered
Brand Value and Presence can be
Consumers preference
utilized in a manner to influence By increasing their own technical
d towards Imported 5,d 5,c
the consumers towards purchasing expertise, tough competition can be
Vehicle
Toyota rather than other vehicles given to new entrants
Strong distribution with efficient Incentivizing the staff by bonuses
Availability of Substitute
customer service can be utilized to and renumeration; employing best
e products like Greenline, 7,9 f 3,a
pitch Toyota as a premium ride HR practices can not only reduce
Auto, Rickshaw Taxi etc.
sharing vehicle for businessmen staff turnover
By introducing new variants and
models in the market, IMC can
Ride sharing application
Utilize their financial leverage to create pressure for the new entrants
f has changed consumer 5g 5,g
cater for the competition pressure and leverage its existing loyal
purchase behavior
by reducing cost, improving customer base to hamper the entry
process and increasing quality of competitors.

Market Saturation and

g
Competitive Pressures

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Appendix 15: Strategic Groups Map

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Appendix 16: Root Cause Analysis (RCA)

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Appendix 17: Pricing Trend Analysis

Appendix 18: Interview Findings

Interview-1: Supply Chain & Logistics Department

Name: Farrukh Shams

Designation : Deputy Manager

Place of meeting : Plant Premises

Actual Date of Interview : 25th Feb ‘19

Duration of Interview : 25 mins

The major objective is to ensure timely & quality delivery of parts to production line, for smooth

production operations. It deals with 70+ vendors & suppliers spread all across the country,

maintains strong liaisons with them to ensure timely production of parts at vendors’ premises,

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monitors stock levels at plant premises; have to ensure minimum waste (Muda) to avoid latent

costs associated with production/inventory/logistics. Stock levels are kept based on vendors’

profile, which includes vendors’ reliability, defects ratio, distance from IMC, lot-size & quantum

per consignment, sensitivity of parts with respect to repair and/or sending back to vendor, etc.

Concepts like Jiritsuka (self-reliance), Lean (efficient supply chain) etc. are very much in

practice & promoted across the vendors as well.

Interview-2: Production Department:

Name: Shariq Raza

Designation : Manager

Place of meeting : Plant Premises

Actual Date of Interview : 26th Feb ‘19

Duration of Interview : 35 mins

The major objective is to carry out smooth production operations, fulfilling demands of

marketing based on pre-defined production plan as devised by production planning. The

challenge includes production of vehicle in desired Takt time of less than 4 mins/vehicle in a

labor-intensive production line, older technology, moderate skilled manpower & now attrition of

experienced/competent personnel due to entrance of competitors in the market. The production

concept is Heijunka (level production) & lean manufacturing concepts are well in place (e.g.

elimination of Muda, Muri & Mura). Environment of Kaizen (continuous improvement) via

small initiatives are well maintained & encouraged. Human safety is given importance over

productivity.

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Interview-3: Finance Department:

Name: Ibrar Khan

Designation : Senior Manager

Place of meeting : Finance Department

Date of Interview : 28th Feb ‘19

Duration of Interview : 20 mins

Likewise, any corporate entity, Finance department of IMC is mainly responsible for smooth &

transparent financial transactions across all business partners & stakeholders that include

suppliers/vendors/contractors, dealers/customers, govt. entities, foreign companies, Toyota

Japan/Thailand & Toyota Tsusho. Current challenge is strict regulations by SBP for foreign

remittances in USD due to critical condition of FOREX reserves of the country, devaluation of

PKR causing serious hit to production costs due to imported parts, & ultimately the bottom line

of income statement.

Interview-4: Human Resources Department:

Name: Muhammad Yousuf

Designation : Specialist

Place of meeting : HR Department

Date of Interview : 28th Feb ‘19

Duration of Interview : 25 mins

Toyota possesses a strong employer brand name in the corporate sector. People here are very

much committed to their job roles & satisfied with their rumination & facilities. HR strives to

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ensure company’s value system is well followed, that is primarily based on ‘Respect for People’

& ‘Teamwork’. Company prefers permanent employment opportunities to its non-management

staff, unlike Suzuki & Honda, that has built a strong bond of Loyalty of the employees with the

company. However, with the emergence of fresh opportunities, the real challenge faced by HR

department is to retain high performers in the organization that are the actual human capital of

the company.

Interview-5: After Sales Department (Customer First department)

Name: Mr. Alam Ayub

Designation: Assistant Manager

Phone Number: +92-324-3800167

Actual Date of Meeting: 24th February 2019

Place of Meeting: Phone Call

Time of Meeting: 06:00 PM

Duration of Meeting: 30 mins

Process of Toyota’s CR department is that customer can contact them either through dealership

and in case of complaint of dealer, customer directly contacted IMC, IMC responded customer

very efficiently within a day and tries to resolve the issue. In case customer asked for something

that is not a technical ground, IMC even responded it by their Good Will budget based on

customer’s profile. IMC gauge their customer satisfaction through third party survey like Nielson

survey.

During the interview it came to know that one of the complaints came to IMC is the usage of

Non-Genuine Parts at dealership, that shows the lack of control of IMC on their dealerships and

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IMC responded and resolve the issue once customer contacted them but there are many

customers who even don’t know that Non-Genuine parts are applied in their vehicle.

Another issue came to us is that company is concerned about the loss of useful human resource

by new competitors as company invested a lot in the training of the staff and it will take much

for a new employee to be as perfect as previous one.

Company’s value is customer first and they see every customer equally but in actual it is not,

they treat customer as per their profile and even allowed corporate customer to just buy parts

from them and maintain vehicle at their own premises (a contradiction as per their warranty

manual), but they allow them and resolve their issue even if not lies under warranty.

Interview-6: Sales Department

Name: Mr. Burhan Shariff

Designation: Assistant Manager

Phone Number: +92-324-3800219

Actual Date of Meeting: 22nd February 2019

Place of Meeting: Indus Motor Company. Plot No. N W.Z/1 P-1 North Western Industrial Zone

Port Qasim Karachi

Time of Meeting: 11:00 AM

Duration of Meeting: 1 hours

Toyota is selling vehicle is Pakistan from 1992 through dealers in Pakistan, currently they have

45 dealerships all across Pakistan. Dealership works on company’s guidelines and liable to sell

only Toyota. Process of Sales is customer first place order at dealership and then dealership take

payment (either partial initially and full payment near delivery) and submit the order along with

all document at IMC. Once Payment is realized by IMC finance department, Sales Department

make vehicle production plan.

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Since demand is high, therefore producing only confirmed orders and delivery time is from one

week to 6 months depending on the variants.

Company allocated certain Quota (based on Performance and Size) of Cars to dealership to cater

priority customers on which dealership against the company policy earn premium from

customers.

This case of Premium is in the knowledge of company, but company use it for their own benefits

as incentivize the dealership and sometime penalize dealership too if it is too open.

Targets are identified through dealership forecasting and same targets have been distributed

among dealers and sales staff.

Since demand is too high so sales teams only need to facilitate the dealership and make

dealership push the non-running models.

Current Challenges in Sales is demand started decreasing due to decrease in customer buying

power and price increment, all is due to increase in Forex rates, as company can’t pass all the

effect to customer and have to reduce its margins.

Company’s Strength is its reliable name in the market the better sales operations as compared to

competitors.

Interview-7: Parts Sales and Ware Housing

Name: Mr. Alam Ayub

Designation: Assistant Manager

Phone Number: +92-324-3800167

Actual Date of Meeting: 13th March 2019

Place of Meeting: Phone Call

Time of Meeting: 05:30 PM

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Duration of Meeting: 20 mins

IMC procure parts from 3 major sources, Japan Source Parts (critical parts like engine parts),

Multiple Source Parts (many countries manufacture it for economies of scale) and local source

parts for which IMC developed vendors in Pakistan. Source of procurement is same for

production and after sales.

As per Global business model, IMC can sell parts only to dealers and dealers are allowed to sell

it to customer who visited dealership and even in market, specially Engine Oil.

They Order Parts on the basis of dealership forecast and on the same dealership forecast they set

dealership and sales staff target.

The Big issue is that their parts are quite expensive as compared to parts available in market as

they have to pay royalty to Toyota Global, High Import Duties and high quality parts whereas

the parts available in market are either smuggled, counterfeit and of low quality. The difference

is like a filter of PKR 80 is available in market and Toyota sells to original one in PKR 800 so in

some parts they can’t compete either way so they loss much of their low budget customers.

There are incentives to dealership on yearly sales target and even discount on bulk purchase.

Interview-8: Service Department

Name: Mr. Alam Ayub

Designation: Assistant Manager

Phone Number: +92-324-3800167

Actual Date of Meeting: 20th March 2019

Place of Meeting: Phone Call

Time of Meeting: 06:00 PM

Duration of Meeting: 15 mins

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IMC Offers 2 years or 50000 KMs warranty to its customer and all expenses, warranty related

bear by IMC, initially dealership compensate that customer and then IMC reimbursed them and

IMC get it reimbursed from Vendor either locally or globally.

Time required for case resolution is not specified, may vary case to case like in Paint related

case, procedure time is too much.

Trainings of all dealership staff provided by IMC as per Toyota’s Global Standard, IMC also

provided certificates to trained dealership staff.

Company runs various campaigns with dealership to increase the service intake in which offers

free checkup, priority service and discounts to customers.

One major challenges company faced is that around only 30% of Toyota’s Vehicle visited

dealership for maintenance rest are maintained at Local Workshops, it is the concern for

customer and reasons behind are high prices, lack of trust in dealership, lack of trust at IMC.

Interview-9: Marketing Department

Name: Mr. Burhan Shariff

Designation: Assistant Manager

Phone Number: +92-324-3800219

Actual Date of Meeting: 22nd February 2019

Place of Meeting: Indus Motor Company. Plot No. N W.Z/1 P-1 North Western Industrial Zone

Port Qasim Karachi

Time of Meeting: 02:00 AM

Duration of Meeting: 1 hours

Company current product line is divided in two CBU (Complete built unit, that is imported from

Japan also from some other countries that produced due to economies of scale) and CKD

(Complete Knock Down that is manufactured locally in Pakistan).

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Company CKD line up include Corolla, Fortuner, Hilux and CBU line up included Land Cruiser,

Prado, Rush and Camry. They classified these vehicles under Sedan, SUV, 1-ton Cabin as per

international nomenclatures.

Company basis interest is in CKD Business as Margins are high, high volume sells because of

low cost and import duties imposed high cost on CBU. Years of Planning and investment

required to introduce a CKD product.

From the Marketing Planning perspective, a new product planning process is started from the

dealership insight about the certain product need and demand in the market, since 45 dealerships

is the direct sales force they provide customer views and insights to company. Company also

have some third-party survey and on that basis, company decided to enter in a certain segment.

Planning team choose a certain product from Toyota International Product line up and decision

of either is to be CKD or CBU is up to management.

Once Product is decided company did various survey mostly third parts regarding price, features

of the product also ask from dealership and they are the main stake holders and they will have to

sells the vehicle.

From the promotion’s perspective, different agencies are on the company’s panel and they make

Advertisement, BTL and ATL activities and all launch and promotion will be done by them

based on the guidelines provided by Marketing team.

Budget is decided on the basis of expected sales volume in the market and it is more for CKD

and less for CBU vehicles.

Majors Challenges are UP/Down in market due to Forex and entry on new competitors, market

share is in danger as Pie of customer is same.

Since demand is too high and IMC not fulfil the timely demand, there is a chance that customer

may divert, also new entrants haven’t disclosed the product line, and IMC is unaware of on

which segment they are entering and provide competition to IMC.

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Interview-10: Largest Dealership (Toyota Central)

Name: Mr. M. Shua-un-Nabi

Designation: Manager Sales

Phone Number: +92-346-8222318

Actual Date of Meeting: 26th February 2019

Place of Meeting: Toyota Central Motors. 3. Main Shahrah-e-Faisal, Karachi

Time of Meeting: 03:00 PM

Duration of Meeting: 1 hours

Honda Central is the model dealership of IMC which is owned by the renowned name of

automobile industry Mr. Rasheed Godial. Sales is around 300 vehicles/month in which 30 % is

the corporate customers. According to dealership, all vehicle on a name of any company is

corporate. Nowadays corporate sale is decreasing as companies now provide loan amount to

individuals and they are allowed to buy vehicle of their own choices.

Basically, two types of Sales exist, one is walk in sales, customer who came to dealership for

purchase of vehicle and another is corporate sales for which dealership visit to the company.

Walk in sales is simple one, as sales staff usually don’t need to put efforts on it as customer

him/herself aware of which product best suited for him and already made up his mind, what

dealership is doing is only handling documentation and for some cases upselling the product.

For cooperate sales, dealership visit 2 to 3 industries daily in which they work on new sales lead

and maintain their relationship with existing corporate customers. Previously IMC Sales Rep

accompanied with dealership but now dealership alone perform this activity.

Trainings of dealership managers is done by IMC representative and dealership sales staff is

trained by managers. All trainings under the umbrella of TWSM (Toyota Ways of Sales and

Marketing).

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Dealership is happy with the IMC Management and systems and according to them sometimes

issues with the late deliveries occur in which dealership have to face lots of nuisance of

customers, IMC also usually not provides the reasons of delay in deliveries. Delivery delay are

usually of colors delay as IMC provide month of delivery for the vehicle not specific to variant

and color.

Every IMC dealership is liable to do 3 corporates events/ year and it is a part of dealership

evaluation system. Every year a dealer conference is held in which dealerships are regarded as

the best one and good ones.

IMC Provides Sales Quota to every dealership based on their performance to cater priority

customer which is a blessing for dealership to earn premium in vehicle demanding days and a

pressure to sales those vehicles in low demanding time, IMC sent mystery buyer to evaluate

dealer performance for premium and discounts.

Every dealership is offering some of the customer retention activities at their own like

Maintenance Package, Appointment System, Club Card.

Auto Mall is another entity of dealership owner which is in direct competition with IMC CBU

business is as they import Landcruiser’s, Prado and all other used and new Japanese vehicles.

Current Economic conditions are not favorable with the automobile sales as govt. restrict sales to

Non-Filers, according to new budget as relaxation has been given but no SRO release so far.

While asking about the retention of staff at IMC and at dealership, they responded that IMC is

like an institute where employee learn and switch to another organization for better opportunity.

And currently new competitor’s dealerships not yet established so good retention of employees

so far.

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Interview-11: Plant Administration Department

Name: Wali Muhammad Khan

Designation: General Manager

Place of meeting: Plant Premises

Date of Interview: 16th Apr ‘19

Duration of Interview: 15 mins

The major domain is looking after all the happenings inside plant premises. This includes, but

not limited to Production, Logistics, and Maintenance of tools, plant & equipment, execution of

various projects & Kaizens, HSE, so on & so forth. We have to ensure deliverables in line with

company’s objectives. All Toyota practices & philosophies are in place, & well emphasized to

strengthen competitive advantage. One of the major challenge include timely & quality delivery

of parts from vendors, since we are working on enhanced capacity to meet market demands, but

local mindset of our suppliers gives slow response. Moreover, safety culture of external

contractors is not up to the mark, which causes difficulties & delays in project activities. The

whole production-planning is synced with respective entities via centralized ERP system,

enabling efficiencies & fast track communication. The changing weather of city w.r.t

temperature & humidity in extreme summers & sometimes winters, causes troubles for us to

operate, since both our manpower get exhausted & installed equipment’s efficiency goes low in

some cases. We are also working for internal environment improvement programs/projects, to

maintain consistency in outcomes mainly related to safety & quality.

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Interview-12: Corporate Strategy & Regulatory Affairs

Name: Wajid Bux Siddiqui

Designation: Senior Manager

Place of meeting: Office

Date of Interview: 24th Apr ‘19

Duration of Interview: 30 mins

It serves as contact points for various govt. & regulatory bodies, & devise pathways for long-

term & short-term objectives & strategy planning. The uncertain political & economic

environment discourages consistency for long-term strategy & implementation. The

responsiveness of public sector entities also disturbs timelines for various projects, mainly due to

delays in approvals. With the dissolution of EDB (Engineering Development Board), we faced

many problems initially since roles & responsibilities were not clear amongst the other govt.

bodies. In contrary to encouraging New Auto Policy (2016-21), some initiatives by govt. are

discoursing for the sector, impacting the attractiveness of FDI in highly capita-sensitive industry.

This shows poor understanding of this huge manufacturing sector & considerable GDP

contributor, by many of the decision makers at govt. levels. If given proper consideration &

incentives, this sector has the potential to do wonders by tapping export market.

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Appendix 19: McKinsey 7S Framework

1. Strategy:

IMC has always strived to achieve the concept of economies of scale in its operations. In order to

attain it, IMC aims at optimizing its processes to achieve efficiency and providing value to its

customers. In order to achieve this IMC relies on the implementation of the Toyota Production

System wherein everybody from the CEO to worker has a role to play.

Customer is one of the focal points of the Toyota system and the organization actively engages

with its customers to get feedback regarding its products. IMC’s products have been known in

the local market to have strong resale value, lesser maintenance costs and good reliability. IMC’s

aim is to bank upon these strengths to maintain its customer bases. While its competitors may

offer more in terms of offerings in their vehicles but until and unless they achieve numbers,

sustaining these offering will become highly unfeasible for them in the long run. IMC has strong

dealer networks spread throughout the country and it has achieved high levels of deletion to

achieve required cost advantages. The aim of the company should therefore be to avoid the

Icarus paradox and strive to be a Type I company whereby it continues with its practices of

optimizing its processes and enhancing value.

Currently, demand exceeds supply since the industry is highly concentrated with respect to

manufacturers. Moreover, this industry is a highly capital-intensive industry and new investment

in a country where political uncertainty is high is not easy. Therefore, in this regard, Toyota

looks forward to continuing to lobby against the “own” market by advocating regulation.

Another issue for the company in the recent times has been the falling value of the rupee. In such

situations the perception of ‘value for money’ is increasingly falling and to offset it the role of

‘Kaizen” or continuous improvement will play a more prominent role in reducing cost and

improving quality.

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2. Systems:

The Toyota Production System is based on the v4L Framework which is composed of the

following:

• Variety of Products offered

• Velocity of Product Flow

• Variability of Outcomes against forecast

• Process Visibility

IMC has implemented the latest systems to achieve the objectives set out in the v4L framework

in the most efficient manner. These include installing SAP technologies throughout the

organization to keep track of inventories, financial data, maintenance activities and human

resources as well. All of this is in line with the Toyota Production System (TPS) which

advocates visibility in the system to weed out any “Muda” or waste. IMC became the winner of

the SAP Innovator awards in 2019.

Moreover, at the production floor IMC has implemented the latest technologies to achieve

production that results in better quality and improved “Takt” time. These include installing

robots in the paint shop to improve the quality of paint and to reduce the defect count in the

process.

3. Skills:

IMC has been known throughout the industry for developing the skills of its employees and

taking serious steps to keep its staff abreast with the latest skills required in the workplace. This

training is aligned with the Toyota corporation in Japan. It is quite common in IMC to see both

management and workers being sent to Toyota City on secondments to acquire new skills.

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Moreover, to increase the skills of its associates, the staff are exposed to various roles so that

their skills could be enhanced with the passage of time. As a result, the skill level of its staff is

not only high but also up to date with the latest technology

4. Style:

The Toyota system’s basic strength lies in teamwork and the management strives to achieve its

in order to meet its objectives. The management takes a holistic view of the whole supply chain

of the company to devise and implement strategies. This calls for a coordinated effort by all

departments to achieve the company objectives. For Example, the decision to install robots was

not taken with the objective of achieving increase in production only but it also entailed factors

related to finance and maintenance.

5. Structure:

To achieve the its objectives in the most efficient way, IMC has structured itself accordingly.

Hierarchy is clearly defined and is divided upon levels of decision making required. The senior

management is required to deal with the strategic level of decision making. This decision is taken

after consultation with the middle management. The middle management deals with the tactical

facets of the business. This level is composed of Department heads. Deputy managers and below

are expected to be a part of the operational level of the businesses.

The existence of hierarchies is not expected to deter the working and communication of the

organization and red-tapism is highly discouraged in the organization. The Structure is such that

it encourages succession planning for the growth and longevity of the organization

6. Staff:

IMC treats its staff as its biggest asset. In this regard, it follows the Japanese model. In Japan, the

concept of having a single job throughout one’s career is the norm and the same is the case with

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IMC. IMC like other Japanese concerns provides job securities to its staff. The 2008 recession is

a prime example of it when despite dwindling numbers IMC did not lay off its staff. This is

partly achieved due to the fact that automobile industries pay comparatively less than other

industries. The arrival of new non-Japanese entrants has resulted in increased salaries for its staff

in order to prevent poaching by the new entrants.

7. Shared Values:

In the Toyota Production System not only the results matter but the way they are achieved is

equally important. Therefore, the Toyota way being implanted in IMC calls for the adoption of a

long-term vision by all its associates instead of short-term goals.

At IMC, empowerment is seen as a key asset and every employee from top to bottom is

empowered to implement improvements in the system. Respect for the individual and treating

each employee equally and in a fair manner are embedded in the culture of the organization. This

can be seen with its suppliers and distributors as well who are also accorded the same respect as

its employees.

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Appendix 20: Statement of Contribution

S.No. Tasks Group members

1. Major Problem
2. Minor Problems
3. Strategic Alternatives
4. Strategic Choice
1 Ramsha Arif
5. Revised Table of Content
6. Report compilation and Formatting
7. Tasks delegation and Team Management
8. Brainstorming over Root Cause Analysis (RCA)

1. Conducted following Interviews and Summarizing for:

- Sales
- After Sales Service
- Promotions/ Marketing Planning
- Toyota dealers
- Market dealers
2 2. Strategic Group Map Shahbaz Khan
3. Competitive Profile Matrix
4. Competitive Analysis
5. Strategic Alternatives
6. Pricing Trend Analysis
7. Brainstorming over Root Cause Analysis (RCA)
8. Proofreading

1. Organization structure (Horizontal and Vertical)

2. Updated CS Level SWOT Matrix
3 3. Updated CS Level SWOT Analysis Saud Aidrus
4. Porter's Five Forces Model and Analysis
5. Brainstorming over Root Cause Analysis (RCA)

1. Conducted Interviews for:

- Sales
- After Sales Service
- Promotions/ Marketing Planning
- Toyota dealer
- Market dealers
4 2. Financial Analysis of IMC and Honda Bilal Shoaib
3. Trend Analysis of IMC and Honda
4. Vertical and Horizontal Analysis of Balance sheet of IMC and Honda
5. Vertical and Horizontal Analysis of Profit and Loss statement of IMC and Honda
6. Ratio Analysis of IMC and Honda
7. Brainstorming over Root Cause Analysis (RCA)
8. Designing of Root Cause Analysis Chart

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S.No. Tasks Group members

1. Conducted Interviews for: Utilities department

2. In-depth External factors Analysis including PESTLE
5 3. EFE Matrix and Analysis Arham Iqbal
4. Integrated Environmental Analysis
5. Brainstorming over Root Cause Analysis (RCA)

1. Conducted Interviews and Summarized:

• Production
• Finance
• Supply Chain
• HR
• Plant administration department
• Corporate strategy & regulatory affairs
6 Muneef
2. Organizational Structure
3. Interview Findings
4. In-depth Internal forces Analysis
5. IFE Analysis
6. Cross Functional Analysis
7. Proofreading
8. Brainstorming over Root Cause Analysis (RCA)

1. Introduction of Indus Motor Company (IMC)

2. Introduction of House of Habib
3. Internal Environmental Analysis
7 Imran Babar
4. Integrated Environmental Analysis
5. Porter's 5 forces (Secondary data)
6. Brainstorming over Root Cause Analysis (RCA)

1. Analysis of Mission, Vision and Core Values

2. Industry Overview
8 3. Balance Scorecard Arslan Amin
4. McKinsey 7S
5. Brainstorming over Root Cause Analysis (RCA)

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