Project Management

SHAHID FAN Industry

In the Name of ALLAH, WHO is the most Beneficent and the most Merciful.

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PREFACE
Department of Commerce, The Islamia University of Bahawalpur has always been admirable in its efforts to equip the future executives with arms of creativity, flexibility and adaptability to meet the challenges offered by fast changing business environment. To achieve the above goals the department is providing both text and practical knowledge to its students with its available resources. Text knowledge is very well transferred to the students within the premises of the department; Practical knowledge requires the kind co-operation of various business organization of the country. Faculty members are always trying their best to ask the students to explore the market by assigning different field activities and to prepare a report. This report has been written on the RAJ Fan Company, Gujrat. We have done our best efforts to complete this report efficiently and effectively with all abilities. We hope this report fulfills the criteria and expectations of Department of Commerce. We have tried our best to make it analytical as well as informative.
May Allah help us in this world

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Acknowledgement
We bow our head, before ALLAH Almighty, who blessed us with Potential and stamina to complete our report. First of all we would like to pay our special regards and thanks to Respected Mr. Javaid Iqbal who provides us guidance at each and every step, in completion of this report. Special thanks to Mr. Mian Amanullah (CEO Pak Fan) & Mr. Fiaz Ali (Fore man Production) department. We would like to pay our special regards to Mr. Amjad Hussain (Secretary PEFMA). These all grand personalities help us to complete our project in time and help us on every turn of confusion.

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DEDICATION

I dedicate my projects efforts to my PARENTS and respected TEACHERS who taught and hold my hands on every step of my life.

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TABLE OF CONTENTS
Serial #
1 2 3 4 5 6 7 8 9 10 11 12 13 14

Topic Description
Executive Summary Introduction of Company Market Analysis Technical Analysis Personnel Analysis Financial Analysis Assumption Underlying Statements Estimated Income Statements Estimated Balance Sheet Estimated Cash Flows Financial Ratios & Commentary SWOT Analysis Recommendations Conclusions

Page #
6 10 25 27 34 28 40 42 43 44 45 47 52 53

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Executive Summary
Prior to the detail description we are starting the summary of our report. To review the executive summary the basic purpose is to give the clear idea about what report actually contains and efforts made behind the completion of report. As it as assigned us to work at FAN Industry we started work and gather data. In this report first of all general overview of fan industry is given then major and minor things related to fan Industry are introduced with area and other information are discussed. After working at this report we come to know that what is the real picture of this huge sector of fan Industry in Pakistan. Title: Project appraisal on the fan industry.

This project appraisal is in the respond to the assignment assigned by Mr. Javaid Iqbal, to check our feasibility study of the fan manufacturing project. Process of review: To complete the assignment we visit the related association and personally visit a fan industry. Collect the data from related parties and possible sources. The summary of the project appraisal is as follow:

Summary
Name of industry : Shahid Fan Industry Location of project : Gorali Industrial Zone Gorali road Gujrat. Address : Plot #156, main link road Gorali industrial Zone, Gujrat. The project appraisal under consideration has a product range consisting the production of Ceiling Fan, Pedestal Fan, & Exhaust Fan. The installed capacity of the project is 992,000 Fans in a year. The estimated capacity of the project in the first year (2011) 60%, 70% in 2012 & 80% in the 2013. The estimated cost of the project in Rs. Is as follow: Fixed cost +Initial Capital Total cost 73714810 23422 73738232

The means of finance for the above said cost of project is 60% debt & 40% equity. The name of lender is national investment bank (NIBP), that the required loan @ 16% per annum against the securities pledged & the personal assets of the partners. The name of sponsors is:

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Mr. M. Farhan Aslam Mr. Hafiz Shahid Mr. Aasim Memoon Tahir The civil work & construction of the project is done by Abbass Associates & constructors Gujrat. The machinery required for the project is conventional machinery that is supplied by Top Fan Machinery Supplier Gujrat. The implementation schedule of the project is as under:

SHAHID FAN INDUSTRY IMPLEMENTATION SCHEDULE

S.NO. 1 2 4 5 6 7 8 9 10 ACTIVITIES Acquiring of Land & leveling Engineering studies and designing of civil work Order for local machinery Construction of building and civil work Arrival of local machinery at site Erection and installation of machinery Order for raw materials Trial run Start of commercial production Start Complete Start Complete MONTH 1st Jan 30th Jan 2nd Feb 10th Mar 15th Sep 1st Apr 30th Sep 15th Oct 20th Oct 30th Nov 20th Nov 10th Dec 25th Dec 1st Jan YEAR 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2011

Start Complete Start Complete Start Complete

The financial analysis shows the following results.

Current Ratio Cash Ratio Liquid Ratio Debt/Total Equity Gross Profit Ratio Operating Profit Net Profit 1 2.82 2.29 2.45 61.03% 37.97% 34.98% 34.06% 2 4.63 3.99 4.25 29.83% 48.00% 45.61% 33.52% 3 6.82 6.06 6.43 18.01% 52.12% 49.92% 35.52% 4 6.87 6.23 6.58 17.07% 54.26% 52.18% 36.33%

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Sponsors stake are 40%. IRR is 27% of the project with a pay back period of 2 Years 7 Months. The above result shows the possibility of the project & proves its as a profitable project, which can generate for the stakeholders and owners. The future chances of expansion in demand are strong that will make the industry more profitable in future. All presetting of the project confirms that we can implement the project this year and can start commercial production on 1st Jan, 2011. The details of the project appraisal are discussed in details in next pages. In line with our project appraisal team, we have provided all informations and will present further details related to the project on the final presentation. Thanks Yours Sincerely, Mr. M Farhan Aslam Mr. Hafiz Shahid Mr. Aasim Memoon Tahir

IMPORTANCE OF FAN
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Fan is a daily use item. Its utility increases, especially in the summer season. The industry is producing about 5 to 6 million fans per annum and meeting successfully the local as well as the export demand. Pakistan is a manufacturer of good quality fans. All the fan manufacturing units have been set up in the private sector. The fan industry is mainly clustered in the two major cities namely, Gujarat, Gujranwala, whereas some units are also operating in Lahore and Karachi. This cluster meets the entire need of the country producing fans with extended product types, models, designs, and colors. The fan industry is mainly clustered in the four major cities namely, Gujarat, Gujranwala, Lahore and Karachi. Fan industry is producing about seven (7) million fans per annum. Out of the total production, approximately 30 per cent fans consist of pedestals, 7 per cent brackets and the remaining 63 per cent are ceiling fans. The industry belongs to the light engineering industry category, and is one of the industries that existed at the time of independence. Besides small and medium units, a few units are quite large and have integrated system i.e. from motor winding to high-pressure dies casting. These units are the main players in the export field. Sales are also fairly concentrated with five large firms in Gujarat and two in Gujranwala, accounting for 40% of total industry sales. The industry is producing a variety of products in different sizes and designs. The major products are: ceiling, pedestal, table, table-cum-pedestal fans, circumatic fans, wall bracket, exhaust fans and propellers. Most of the raw materials used by the fan industry are directly or indirectly imported from different countries. Some of the raw materials used in the manufacturing of a fan are: electric steel sheets, aluminum, enameled copper wire, ball bearing, steel rod and PVC

INTRODUCTION OF COMPANY
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NAME OF INDUSTRY: STATUS OF BUSINESS:

SHAHID FAN INDUSTRY Partnership Business 1st, January, 2011

DATE OF COMMERCIAL PRODUCTION: BRAND NAME: RAJ Fan

PURPOSE OF BUSINESS:

Our Mission
To develop and deliver the most innovative fan products, manage customer experience, deliver quality service that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the company.

PROJECT BACKGROUND
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Project Brief:
The project involves purchase of minor parts, manufacturing the main parts (motor winding) and then packing and marketing the product under a brand. The branded product will be positioned in competition with other branded and unbranded products. It is suggested that the company should initially introduce its products in the rural or small town markets where brand awareness is easy to make and heavy advertisement budget is not required

Opportunity Rationale:
This trend has always created a strong demand for fan in Pakistan and made it the world's main exporter of fan. During the review period, Fans are a part of daily life, and hot areas generate the most sales. Hot areas drove sales growth because the most part of country is very hot season of summer. Consequently, companies have to focus on hot areas to maintain their market shares. Throughout the review period, sales of Ceiling fan & Pedestal fan were very dynamic as their prices are low and easy to use. Introducing affordable brand in such areas would attract sales. Such a market could also be explored with low cost and high product quality.

Economic Rationale:
Economically the project is also rationale. The availability of raw material and labor is very cheap and easily available in the market. The supplier network is strong and providing services on time and on economically rational rate.

Market Entry Timing:

This business can be started in any month of the year as it is used throughout the year. The demand of the fan will be raised in the country as the population of the country raises, its demand will automatically raising due to increasing heat in the atmosphere.

Business Legal Status:

It is recommended that this project should be started as partnership as it does not involve heavy investment. Moreover, less complications and costs are involved in forming, administering and running the partnership business.

Project Capacity and Rationale:

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The total capacity of the project will be 992000 per year production of the fan. In the beginning the company will utilize its 60% of the capacity for the manufacturing of the fan that is 335000 fans for first year. The company will enhance its capacity utilization by 10% annually. . The project consists of a motor winding machine having production capacity of 600 motor winding per hour and two sheet cutting machine with production capacity of 200 sheets per hours. At 60% capacity utilization, the production breakdown of the three different categories of products is shown in the table below:

Production breakdown at 60% Capacity Utilization:

Pedestal fan
Production %age No of fan 35% 117250

Ceiling fan
45% 150750

Exhaust fan
20% 67000

The table shows the capacity utilization of the 60% for the very first year of the operations of the company. This capacity will be utilized by producing 595200 fans. The production will be sold as, 20% of the production will be sold as pedestal fan. 30% of the production will be sold as ceiling fan, 10% of the production is sold as exhaust fan. In the coming years the company will add plastic fans as well with better quality and technology.

Core Values
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Leadership
We value leaders of high integrity, energy and enthusiasm who have the necessary managerial, professional and people skills to inspire a group or an organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels within our organization and that managerial and professional competence is a necessary foundation.

Teamwork and Partnership

We believe that high performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using the diversity of style, approach and skills afforded by teams is strength we must continue building into our organization.

Quality and Continuous Improvements

We believe that quality and strong commitment to continuous improvements are essential to our ongoing success. To this end, we define quality as understanding the customers expectations, agreeing on performance and value, and providing products and services that meet expectations 100 percent of the time. Our motto is, Quality in all we do.

Ethics and Integrity

We do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest integrity is our intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for scrupulous dealing is itself a priceless asset.

Open Communication
We value communications that are courteous and open and that enables each of us to do our jobs more effectively by providing information that contributes to the quality of our judgment and decision making. Effective communication should provide the means for gaining understanding of the companys overall objectives and plans and of the thinking behind them.

Innovation

Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers. We encourage challenges to the status quo and seek organizational environment s in which ideas are generated, nurtured and developed.

Individual Growth and Development

We strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an organizational environment in which individuals are Department of commerce IUB 13 ROLL # 03, 31, 54

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encouraged and empowered to contribute, grow and develop them and help to develop each other.

Enjoyment and Fun

We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and high performing work environment. Having fun in our work should be a normal experience for everyone

OBJECTIVES AND KEY SUCCESS FACTORS

The main objectives of the development of project are: Department of commerce IUB 14 ROLL # 03, 31, 54

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Capitalize on excellent opportunity to extract maximum revenue. To launch the fan manufacturing unit with a highly targeted publicity campaign and in a grand opening event in the start January of 2011. To maintain tight control of costs, operations, and cash flow through diligent management and automated computer control. To maintain a high standard of product and service provided. Capitalize on excellent location opportunity. To be the premier company that achieves the goals of profit maximization and value maximization for all the stakeholders of the company.

The keys to success in achieving our goals are: Be the first in the market to provide a wide variety of innovative styles of fans that has broad appeal. Provide an exceptional service and product that leaves an impression. Consistent utilizing of ingredients that creates product quality. Managing our internal finances and cash flow to enable upward capital growth. Strict control of all costs at all times, without exception. The Company will be strategically located to maximize the revenue derived from the sales of the quality product. Provide exceptional product that leaves an impression with our core customers. Consistent entertainment atmosphere and product quality. High demand of such stylish fan in the locality. Extensive distribution channel for the sale of fan in the urban and rural areas. The product would be focusing the price conscious segment of the market by providing similar and better quality product at lesser price. Emphasizing on excellent service to the other wholesalers. Adapting to the rapid social and economic changes. Improving the packaging will increase the overall distribution and selling techniques. Regular flow of local as well as Export orders is the key success factor for efficiently running of the project. Selection and procurement of consistent quality raw material would be another contributing factor for carrying out successful operations of proposed project. Competitive price of products. Abundant supply of raw material. Cost efficiency through better management. Media campaign for the awareness of the retail customers. Availability of low cost skilled labor.

PRODUCTS OF THE COMPANY

The project involves purchase of minor parts, manufacturing the main parts (motor winding) and then packing and marketing the product under a brand. The branded product will be Department of commerce IUB 15 ROLL # 03, 31, 54

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positioned in competition with other branded and unbranded products. It is suggested that the company should initially introduce its products in the rural or small town markets where brand awareness is easy to make and heavy advertisement budget is not required. The proposed product mix of the company is as under;

Pedestal fan Ceiling fan Exhaust fan

The brand name for the product will be RAJ FAN. All the brands of the company will be marketed under this name. The demand for the Ceiling Fan & Pedestal Fan is largest in the country and the company will use most of its capacity to produce these fans. With the passage of time the company will enhance the depth of its brand by adding unique styles and new technology.

PROPOSED PRODUCTS OF THE COMPANY

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RATES OF PRODUCTS
The estimated EX-factory price and the retail price of products are as follow:
PEDESTAL FAN COST PROFIT Sale Price GST @ 35% EX-Factory Price Middle Man Margin Retail Price 893.338 750 1643.338 575.1683 2218.5063 431.4937 2650 EXHAUST FAN 513.838 250 763.838 267.3433 1031.1813 218.8187 1250 CEILING FAN 695.338 300 995.338 348.3683 1343.7063 156.2937 1500

DISTRIBUTION CHANNEL: FACTORY WHOLESALERS

CONSUMER RR

RETAILERS

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COMPETITORS & INDUSTRY SCANARIO

BRAND NAME
PAK FAN G.F.C. FAN YOUNUS FAN ROYAL FAN

COMPANY
M/S Wahid Industries Limited, G.T. Road, Gujarat M /s General Fan Company(Pvt) Ltd, G.T. Road, Gujarat M/s Younas Metal Works , G.T.Road, Gujarat M/s Rafiq Engineering Industries (Pvt) Ltd, , G.T. Road, Gujarat

MATRO FAN PARWAZ FAN GLOBAL FAN STARCO FAN

M/s Hi Tech Industries (Pvt) Ltd, , G.T. Road, Gujarat Parwaz Engineering Co.(Pvt) Ltd. Global Electronics,G.T. Road Gujarat U.I. Industries G.T.Road Gujrat

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World Scenario
Leading fan producers of the world COUNTRY- WISE EXPORT SHARES OF OTHER FAN (INDUSTRIAL FAN)

COUNTRY
PAKISTAN FRANCE NETHERLAND SWEEDEN KOREA CANADA UK ITALY USA JAPAN GERMANY TAIWAN

SHARES
0.02% 2% 3% 3% 1% 5% 4% 9% 14% 19% 33% 7%

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COUNTRY- WISE EXPORT SHARES OF FAN UNDER 125 WATT (DOMESTIC FAN)

FAN UNDER 125 WATT (Domestic Fan) COUNTRY

PAKISTAN SINGAPORE UK TAIWAN CHINA THAILAND GERMANY USA ITALY SPAIN JAPAN OTHER Large fan importers of the world: African countries United Arab Emirates Syrian Arab Republic Yemen Iraq Turkey Egypt Bangladesh Srilanka Saudi Arabia Other Arabic countries 22 ROLL # 03, 31, 54

SHARES
0.1% 1% 1% 20% 44% 6% 5% 3% 2% 2% 2% 13%

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COMPETITIVE ANALYSIS
PORTERS FIVE-FORCES MODEL
Potential New Entrants

Bargaining Power of Suppliers

Intra-Industry Rivalry FAN Products

Bargaining Power of Buyers

Substitute Products

The Bargaining Power of Buyers:

The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony - a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers.

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The bargaining power of the buyers is low in the country. Because what so ever is producing by the companies it is accepted by the consumers. There is no involvement of the consumer in deciding the design & Price of fan.

The Bargaining Power of Suppliers:

A Fan producing industry requires raw materials - labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. Many of the sellers of the raw material are in Gujarat and Gujranwanla fan cluster. If any of the suppliers raises its prices, we can shift to another supplier.

Barriers to Entry / Threat of Entry:

It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to new entry. There are no barriers to entry in the fan manufacturing industry, because the machinery, labor and raw material is readily and easily available in the country. The retaliation level of the companies in the industry is very low. Because the companies have generations of the loyal customers

Rivalry:
The market structure of the fan industry is oligopolistic. All the companies in the industry are charging the same prices against their products. If any of the company enhanced the prices of the fan, all the companies followed the same path. All the firms are competing on the basis of the huge marketing campaigns in the media.

Threat of Substitutes:
In Porter's model, substitute products refer to products in other industries. A threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise

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prices. The direct competitors are the existing industries that are manufacturing same fans and charging almost same prices.

MARKET ANALYSIS
There are no exact figures available as to what is the total number of units, how many are operational, what is the total installed capacity is, and what the operational capacity is. According to the industry sources (including manufacturers and vendors) there is a substantial demand for quality fans on a large scale. Also, there is room for new entrants who want to manufacture the quality products, using the latest technology. Fan industry contributes Rs 1.5 billion to the GDP of the country. The total capital investment in this sector is Rs 3-3.5 billion. The industry has an installed capacity of 5-6 million fans per year. The current capacity utilization is around 50%. At present, total fan production stood at 2.5-3 million fans per year. The volume of exports has reached around $4 million US in recent years. The industry generates annual employment for around 25,000 workers. Pakistan is also one of the major exporters of fans to international market. Global fan trade is classified on the basis of energy consumption. The fans that consume less than 125 watts of energy (SITC 74341) are generally referred to as domestic fans and the fans that that consume over 125 watts (SITC 74343) are classified as industrial fans. Pakistan has earned $ 3.896 mn from exports of domestic fans whereas it has earned $ 0.104 Mn. from exports of industrial fans. In the local market as well as in the international trade of Pakistan domestic fans are larger component so it is reasonable to assume that whatever happens to this particular category after MFN or Free Trade with India is applicable to whole of the fan industry. Pakistan exports fans to Bangladesh, Saudi Arabia, United Arab Emirates (UAE) and some EU countries. About 80% of Pakistan domestic fans exports are concentrated in these countries. While some companies are also exploring the possibilities of exports to US but main restriction of quality standard of UL is creating problems but some firms are preparing to enter into that market. Compared with the trade of the rest of the world, Pakistan neither exports fans to India nor import this product from India. One reason for this no- trade situation is that both Pakistan and India are self sufficient in fan and compete in the international market rather than exploring for prospects of trade creation within each other. On the other hand, India exports fans to other countries with the bulk of the share now going to European Markets. Free Trade Agreements (FTAs) constitute an important dimension of this fast changing globalizing world. Both the developed and the developing countries are entering or are in the process of entering into regional and bilateral free trade agreements in order to promote trade and economic growth. The experience of the European Union (EU), North American Free Trade Association (NAFTA), clearly indicates that there is a strong correlation between regional trade and economic growth. Encouraged by the success of this global trend, Pakistan and India have also started exploring the possibility of promoting free trade in the Department of commerce IUB 25 ROLL # 03, 31, 54

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region and are working closely toward establishing a South Asia Preferential Trade Area (SAPTA) aimed at reviving regional trade and growth in the region. If that happened the low cost fan will provide the Pakistan more revenues and ultimate bright chances for the industry. The current situation of industry is as under:

CURRENT SITUATION:
Currently there are 350 fan manufacturing companies situated in Gujarat and Gujranwala fan cluster. From this cluster there are 2 major companies G.F.C. and Pak Fan. The first company was export award winner during last 8 years, and the second one is current export award winner of 2009 with a 690 million profit. The demand of fan is increasing 20% annually in export and 15% in domestic sales. According to the final report of TDA the export of fan increase by $ 782000 in 2007-2008 from $191000 to $ 973000. The government of Pakistan is providing facilities to this industry. The following steps are recently taken by Govt.: Government establishes FDI (Fan Development Institute) to promote the new technology to this sector. Government is financing FDI to produce skilled labor. TDAP & Ministry of Science is also taking steps to promote the fan industry.

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TECHNICAL ANALYSIS
Location of the Project:
Our fan company will be located in Gorali industrial zone of Gujarat. The site enjoys the following advantages: Access to the main road, Sources of Power, water, fuel etc. Availability of transport & communication like telephone, telex, Internet etc. Availability of skilled and Un-Skilled manpower Free from other environmental hazards like water logging, floods, salinity etc. At center of the other two industrial zone of the city. Easily accessible for suppliers.

Plant and Facilities:

The building will be constructed for the manufacturing of the Fan. The regional office of the company will be located in the same city. The head office of the company will be located in GUJRAT and subsidiary office will be at Lahore. Where the offices of the CEO and all the functional heads will be established. The details of plant and machinery are as follow:
COST OF MACHINERY Machine Dicasting Machine Grinding Machine Motor Winding Mach Varnishing Machine Packing & Stamping Steel sheet cutting & molding Total purchase price Installation Cost Dicasting Machine 6 50000 300000 # of machine 6 6 2 1 4 2 Rate 800000 300000 1200000 1000000 500000 500000 Total 4800000 1800000 2400000 1000000 2000000 1000000 13000000

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Dicasting Machine Motor Winding Mach Varnishing Machine Steel sheet cutting & molding Total Installation Cost Total Cost Of Machinery 6 2 1 2 15000 100000 100000 30000

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90000 200000 100000 60000 750000 13750000

Proposed Machinery:

Dying Machine

Motor Winding Machine

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Drilling Machine

Sheet Cutting & Molding

Dicasting Machine
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Stamping & Packing machine

Raw Material Requirement:

The raw material required for the production process is electric sheet for flower making, silver strips for outside body making, copper wire, PVC pipe, Aluminium , Enamelled copper wire, Ball bearing , Wires, packing materials & some other minor parts for assembly department.

Labor:
The labor for manufacturing of fan is easily available in cluster. Different government institutes are producing skilled labor for the fan cluster. The labor requirement can easily be fullfiled as the following coureses offered by FDI ( Fan Development Institute) are providing skilled labor that is capable to contribute effectively in fan industry.to achieve this objective the following courses are offered at FDI. 1. Auto CAD 2. CNC Vertical machining center (Basic commands and operations) Department of commerce IUB 30 ROLL # 03, 31, 54

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3. 4. 5. 6. 7. 8.

CNC Wire Cut (Basic commands and operations) CAD/CAM Programmes Engineering Workshop precision tools Conventional Machining (Basic commands and operations) Electric Fan Testing Electric Fan Testing

SHAHID FAN Industry

Gujrat Fan Cluster In collaboration with Ministry of Science & Technology and Pakistan Electric Fan Manufacturers Association is offering the following coureses and providing the skilled labor. The following courses are offered: Course Title Certificate Course (Mgt/Marketing in Fan Ind.) Certificate Course (Fan Technology) Certificate Course (Fan Technology) Diploma Course in Elect. & Mech sees of fan Duration 6 Months 6 months 4 months 2 years

The labor requirement for the project is as follow:

Category Labor: For Dicasting machine For Grinding machine For Motor winding machine For Varnishing machine Packing & stamping Steel sheet cutting & molding machine Supervisor

No

Salary per Month(Rs.) 8,000 8,000 8,000 8,000 6,000 8,000 10,000

06 06 30 02 15 30 15

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FAN PROCESSING DETAILS

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SILVER STRIPS

DICASTING DEPT.

GRINDING & FINISHING DEPT.

ELECTRIC SHEET CUTTING

MOTOR WINDING DEPT.

FLOWER MAKING

VARNISHING DEPT.

DYING SECTION

WIRING SECTION

ASSEMBLING SECTION

M PA IN R OR TS

TESTING &

INSPECTION

PACKING SECTION

Factory Overhead:

The project requires the heavy connection of electricity of 400 KVA. The estimated fixed cost and variable cost is as follow: Department of commerce IUB 33 ROLL # 03, 31, 54

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3- MANUFACTURING OVER-HEADS a) FIXED COSTS 0.1 -Power KW 40 315 -Insurance @ 0.50% -Repairs &Maintenance: Machinery @ Miscellaneous Total Fixed cost b) VARIABLE COST Power: KW Total 1.00%

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per K.W on Fixed Assets installed cost

(Rs.000) 151 65,000

142,500 100 207,751

1976

9.17

310

44,937 44,937

Technology involved:
The project the technology of England & Chekselwakia. The project uses the reconditioned machinery of these countries that is easily available in the fan cluster. The machinery requirement is as follow:
COST OF MACHINERY Machine Dicasting Machine Grinding Machine Motor Winding Mach Varnishing Machine Packing & Stamping Steel sheet cutting & molding # of machine 6 6 2 1 4 2 Rate 800000 300000 1200000 1000000 500000 500000 Total 4800000 1800000 2400000 1000000 2000000 1000000

Total purchase price

13000000

PERSONNEL ANALYSIS
The total employees of the business are 370 that include the following: Department of commerce IUB 34 ROLL # 03, 31, 54

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Admin staff Skilled labor Unskilled labor Total

78 104 188 370

The skilled labor work on machines & unskilled labor also directly work on the product. Our skilled labor also provides services to other industry that generate the extra income for the industry. These services are repair and maintenance services & other technical assistance. The split of admin staff is as follow: Salary (Rs.) per Month 40,000 25,000 20,000 10,000 10,000 10,000 6,000 10,000 6,000 6,000 78

Administrative Salaries Chairman Directors Admin Staff Sale Dept. Employees Accounts Dept. Employees Purchase Dept. Employees Clerks and Typists Driver and Peons Sweepers Security Guards TOTAL The split of the skilled labor is as follow:
Category skilled labor Labor: For Dicasting machine For Grinding machine For Motor winding machine For Varnishing machine Packing & stamping Steel sheet cutting & molding machine Supervisor TOTAL

No. 1 2 5 20 20 15 2 5 2 6

No. 6 6 30 2 15 30 15 104

Salary per month 8,000 8,000 8,000 8,000 6,000 8,000 10,000

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The flow of authorities and the structure of management is as follow:

SHAHID FAN Industry

Chairma n
Director General Admin Director Production

Manager Sale Dept.

Fore man productions

Manager a/cs Dept.

Supervisors

Manager Purchase Dept.

Skilled labor

Unskilled labor

Management Commitment:
Top management demonstrates its commitment to the development and implementation of the quality management system and continually improving its effectiveness by: Communicating the importance of meeting customer requirements as well as statutory and regulatory requirements. Establishing the quality policy. Review and approve quality objectives. Conducting management reviews.

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Customer Focus:
Top management, through its internal systems, ensures that customer requirements and needs are determined and are met with the aim of enhancing customer satisfaction. Customers of the Company Include: 1. Clients 2. Employees of the company. 3. Creditor/fund-providers 4. Society in terms of the community and the public affected by the organization or its service.

Quality Policy:
Top management has established a quality policy and ensures that it: Is appropriate to the purpose and scope of the company. Includes a commitment to comply with requirement and continually improvement the effectiveness of the quality management system. Provides a framework for establishing and reviewing quality objectives. Is communicated and understood within the company. Is reviewed for continuing suitability.

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PLANNING
Quality Objectives:

Top management establishes quality objectives at each relevant function and level, including those needed to meet service requirements. The quality objectives are measurable and consistent with the quality policy and annually reviewed by top management through the Management Review Meeting. Top Management ensured that quality objectives are specific, measurable, and realistic and measured with time.

Quality Management System Planning:

Top management has identified and defined activities and resources needed to achieve quality objectives and meet customer requirements. Planning is consistent with other requirements of the quality system, and it is carried out in order to meet the quality objectives, the results are documented. The integrity of the quality management system is maintained when changes to the quality management system are planned and implemented.

Responsibility, Authority and Communication:

Responsibilities and authorities are defined within the organization charts and job descriptions. The Administration Director is responsible for preparing the organization chart which revised and approved by Chairman before communicated through the company.

Human Resource Requirements:

For the management of the proposed project we think that, a total of 60 people are required excluding the owners.

Reward System:
The reward system that is suitable for the project is variable plus fixed salary structure the variable salary will be dependent of the performance of the workers and fixed will be given to provide social security of the workers.

Training and Development:

Two weeks Training should be given to every employee in the respective fields in the start of the business. Then time to time the performance of the employees will be monitored and if there is found any gap between the actual performance and the required performance then the training will be conducted.

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FINANCIAL ANALYSIS
The purpose of the financial plan is to estimate start-up and ongoing costs; identify revenue streams; and forecast net cash flow and profits. The venture will be funded partners through paid-in capital provided by the owners and debt will be taken from the bank.

The cost of project is as follow:

COST OF THE PROJECT - Project Land & Its Development - Building & Civil Works Local Machinery Engineering /Technical Fees Erection & Installation Furniture & Fixture Vehicles

LOCAL 12782284 35279000 13000000 500000 750000 500000 4300000 3,568,526 2235000 800000 73,714 ,810 23,422 73,738 ,232 ======

Foreign

TOTAL 1278228 4 3527900 0 1300000 0 500000 750000 500000 4300000 3,568,52 6 2235000 800000 73,71 4,810 23,422 73,73 8,232 ==== == 4 4,242,93 9 44,24 2,939 2 9,495,29 3 29,49 5,293

- Mark-up during Construction - Pre-production Expenses -Contingencies TOTAL FIXED COST: - Initial Net Working Capital TOTAL COST OF THE PROJECT: MEANS OF FINANCE Debt NIBP loan TOTAL DEBT: Equity - Paid-up Capital (Sponsors) TOTAL EQUITY Department of commerce IUB 39

44, 242,939 44,242 ,939 29, 495,293 29,495 ,293

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TOTAL DEBT & EQUITY

73,738 ,232 ======

73,73 8,232 ==== ==

The means of finance and their ratio is as follow:

Source
Bank (@16%) Equity Total

Ratio
60% 40% 100%

Amount (Rs. 000)

44,242,939 29,495,293 73,738,232

All amounts are in the Local Currency (In Rupees). The sponsors stake is 40%.
The calculation of initial net working capital is as follow:
SHAHID FAN Company Private Limited ESTIMATED INITIAL NET WORKING CAPITAL CURRENT ASSETS (Rs. in 000 ) Cash 3,000 Accounts Receivable @2.5% of sales 19,407 Raw materials 1,000 Finished Goods Inventory 10% of production 53,455 Stores & Spares 1,500 Advances & deposits 457 Total 78,819 CURRENT LIABILITIES Accounts Payable 0 Accrued Expenses 0 Bank Borrowings 75% of inventories 55,396 55,396

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SHAHID FAN Industry 23,422

IMPORTANT ASSUMPTIONS
The financial plan depends on important assumptions. The key underlying assumptions are: We assume that price will be a key competitive element in the first three years of operations where competitors in the business will seek to cut into our business through price cutting. The marketing expenses will be considered to be the 1 % of total sales. We assume continued popularity of products of the company and the growing demand for high quality FAN. We assume that the capacity of the production will be enhanced by 10% annually. Initially the company will utilize only 60% of the total installed capacity in the very first year. The sales price of the product will be directly related to the competitors.

Some of the important assumption regarding the production, cash flow, expenses, depreciation and financing assumption are listed in the following tables.

Production Assumptions
Maximum Attainable Capacity In Percentage Capacity Utilization (1st Year) In Percentage Production Capacity In Units (60% in first year) Production Capacity Utilization Growth Rate 100% 60% 535000 10% per year

Cash Flow Assumptions

Accounts Receivables Cycle (In Days) Accounts Payable Cycle (In Days) Department of commerce IUB 41 2.5% of sales 25% of purchase ROLL # 03, 31, 54

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Decrease in account payable

5% annually

Expense Assumptions
Machine Maintenance Pre-Operational Expense Wages Growth Rate 1% of the cost Rs.2235000 10%

Deprecation Expense Assumptions

Plant & Machinery Depreciation Rate Furniture & Fixtures Depreciation Rate Vehicle Depreciation Rate Building 10% 5% 20% 5%

Financing Assumptions
Debt Equity Tax Rate 60% 40% 35%

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ESTIMATED INCOME STATEMENTS

The estimated income statements of the company are as follow: SHAHID FAN Company Private Limited
ESTIMATED INCOME STATEMENTS I 60% 776,271 477,475 4,024 PROFIT EXPENSES 15,502 1% 7,763 23,265 271,508 148,266 17,052 12,248 29,300 558,574 87,729 18,757 15,643 34,401 780,865 90,302 294,772 II 70% 1,224,784 632,886 4,024 587,874 For the year ending Dec. 31 Efficiency Assumed : SALES COST OF GOODS SOLD : -Depreciation GROSS OPERATING

ANNEXURE - II
( Rs. in 000 ) III 80% 1,564,331 745,041 4,024 815,266

- Admin & General Expenses - Selling Expenses Total Operating Expenses OPERATING PROFIT OTHER INCOME NON OPERATING EXPENSES - Financial Expenses

7,079 Bank borrowing@ 10%. Amortization of preliminary exp. at 5 years Sub-Total PRE-TAX PROFIT 35 % 5,434 447 12,960 406,813 142,385 264,429 0 264,429

5,679 8,622 447 14,747 631,556 221,044 410,511 0 410,511

4,247 11,745 447 16,439 854,728 299,155 555,573 0 555,573

Provision for Taxes NET Dividend RETAINED EARNINGS PROFIT

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ESTIMATED BALANCE SHEET

SHAHID FAN Company Private Limited
ESTIMATED BALANCE As on Dec. 31 ASSETS Cash Accounts Receivables Inventory: Finished Goods Inventory Raw Material Inventory Stores & Spares Advances & Deposits Total Current Assets Other assets Fixed Assets at cost Less: Accumulated Depreciation Net Fixed Assets: Preliminary Expenses: Total Assets: == LIABILITIES & EQUITY Current Liabilities - Accounts Payable - Accrued Expenses - Dividends Payable - Taxes Payable - Bank Borrowings - Cur. Mat. of L T Debt Total Current Liabilities: Other liabilities Long-term Liabilities NIBP loan Total Long-term Liabilities EQUITY - Paid-up Capital (Sponsors) - Un-appropriated Profit Total Equity: Total Liabilities & Equity: SHEETS Constructn. 33,056 19,407 0 1,000 1,500 457 55,420 0 71,480 0 71,480 2,235 129,135 ==== I 329,994 19,407 53,053 1,000 1,500 457 405,410 0 71,480 4,024 67,456 447 473,313 ===== II 732,801 44,636 70,321 1,000 1,500 457 850,715 0 71,480 8,048 63,432 447 914,593 ===== (Rs. in 000) III 1,267,493 73,818 82,782 1,000 1,500 457 1,427,050 0 71,480 12,072 59,408 447 1,486,905 ======

0 0 0 0 55,396 0 55,396

71,396 2,326 0 0 54,345 15,927 143,995 0 35,394 35,394 29,495 264,429 293,924 473,313 =====

79,939 2,930 0 0 86,217 14,527 183,613 0 26,546 26,546 29,495 674,940 704,435 914,593 =====

75,213 3,440 0 0 117,450 13,096 209,199 0 17,697 17,697 29,495 1,230,513 1,260,008 1,486,905 ======

44,243 44,243 29,495 0 29,495 129,135 =

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ESTIMATED CASH FLOWS

SHAHID FAN Company Private Limited
ESTIMATED CASH FLOWS For the year ending Sept. 30, Const. Yr. I SOURCES Operating Profit 0 271,508 Add Back: Depreciation 0 4,024 Amortization 1,788 Funds from Operations 0 277,320 - Paid-up Capital (Sponsors) 29,495 0 NIBP loan 44,243 0 Increase in Current Liabilities 0 88,598 Increase in Bank Borrowings 55,396 54,345 TOTAL SOURCES ANNEXURE - IV (Rs. in 000) II 558,574 4,024 0 562,598 0 0 39,618 86,217 III 780,865 4,024 0 784,889 0 0 25,586 117,450

129,135 420,262 688,433 927,926 === ===== ==== ==== === = == == 71,480 2,235 0 0 0 0 22,364 0 0 7,079 8,849 54,345 0 53,053 0 0 5,679 8,849 86,217 142,385 42,497 0 0 4,247 8,849 117,450 221,044 41,644

APPLICATION OF FUNDS Investment in Fixed Assets: -Preliminary Exp Financial Expenses Repayment of : NIBP loan - Bank Borrowings Taxes Increase in current Assets:

TOTAL

Surplus/(Deficit) Cash Balance Opening Cash Balance Ending

96,079 123,325 285,626 393,234 === ===== ==== ==== === = == == 33,056 296,938 402,808 534,692 0 33,056 33,056 329,994 329,994 732,801 732,801 1,267,49 3

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FINANCIAL RATIOS & COMMENTERY

The financial ratios of the estimated statements are as follows:

SHAHID FAN Company Private Limited

RATIOS
Current Ratio Cash Ratio Liquid Ratio Debt/Total Equity Gross Profit Ratio Operating Profit Net Profit 82 29 45 1 2. 2. 2. 61.03% 37.97% 34.98% 34.06% 63 99 25 2 4. 3. 4. 29.83% 48.00% 45.61% 33.52% 82 06 43 3 6. 6. 6. 18.01% 52.12% 49.92% 35.52%

The commentary on the above the ratios are as under: CURRENT RATIO:
2.82 4.63 6.82

The current ratio trend is increasing in the future years by 2 in each year. We should have to check it out with comparing with the industry average. The most of our cash is now going to be blocked in our inventories & account receivables. We should check it out and retain it close to 2:1 or 3:1. it also means that our current assets are increasing, other words our inventories of raw material & finished goods and account receivables are also increasing. We should check their balance and manage them in an effective manner. CASH RATIO:
2.29 3.99 6.06

The cash ratio also shows increasing trend and good liquidity position of the business in near future. The increasing cash also requires attention, why we are retaining so much cash instead of its further investment. It is also good for business as it increases the credibility of the business. The excess cash help us to expand our business and to explore new investment opportunities. LIQUIDITY RATIO:

2.45

4.25

6.43

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The liquid ratio is also going to be increase. The increasing trend shows good solvency position of a business. It will attract the stakeholders to the industry; enhance the relationship with the Supplier and creditors.

SHAHID FAN Industry

GROSS PROFIT RATIO:

37.97%

48.00%

52.12%

The gross profit ratio also shows increasing trend. The increasing margin trend is beneficial for the business. The comparison with the industry averages and with competitors gives us insight in our weakness and strengths. If we check it, it shoes the increasing performance of the business. OPERATING PROFIT RATIO: 34.98% 45.61% 49.92%

The increasing trend in operating profit ratio is not same as Gross profit ratio. Although there is increasing trend in this ratio but we have to check our Admin, Selling & General expenses. We should have to control over them & check them as per their requirement & their benefit cost ratio; if the benefits of these expenses are less than their cost then we have to decrease them. NET PROFIT RATIO: 34.06% 33.52% 35.52%

The increasing trend in net profit is not so much satisfactory. The debt burden & interest payments affect it, but as the debt burden decrease down it shows increase from 3rd year. DEBT/ TOTAL EQUITY RATIO: 61.03% 29.83% 18.01%

The debt to total equity ratio shows decreasing trend that is beneficial for the owners that the business investment proportion is now shifting towards them. As the new profit is re-invested in the business, the total equity shows more increasing trend. The gradual payment of the debt also decreases the numerator. And ratio shows decrease in the next years. Means the owners share is increasing & outsiders claim is going to be decrease. The overall increase in the GP Ratio, Net Profit Ratio, Liquid Ratio and Cash Ratio increases the credibility of the industry. The deal with fund providers in the future gives good results & we can start the expansion easily.

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SWOT ANALYSIS
The SWOT analysis of the industry is as under:

1-Strength:

Extensive labor is available Produces at lower cost Capacity of Production Self Sufficient Machinery is available Special industrial zone is established

2-Weaknesess:
Ball bearing is an important part that ensures smooth running and noiseless working of an electric fan. Like ball bearings, electric steel sheet (ESS) is also a major item in fan manufacturing. It determines the quality, performance, durability and electricity consumption of a fan .Due to ESS shortage and high prices, fan manufacturers are using Mild Steel Sheet (MSS) the motors manufactured from this material are not of good quality and use more electricity. Lack of political framework: (no recognition at policy level). Lack of ownership & commitment of agencies involved; took almost 2 years to inculcate vision of this change mgmt exercise Resource mobilization was the major issue to get short-term wins. Lack of articulation culture and empire building attitude at all levels. Too much high prices of import raw materials. o Weak research and development o Weak technology 48 ROLL # 03, 31, 54

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o o o o o

No innovation in designs Cost of imported raw material is high Lack of policy framework Low capital-output ratios Unskilled labor

3-Opportunities:
Environmental changes WTO will allow to export more Potential markets like US & EU could be explored Increase in demand with increase in population Industrial Fans could be focused

4-Threats:
No focus on industry Technological shifts Quality of Fans Shortage of energy Increase in prices of raw material Security threats Inflation Change in government policies Pressure of new entrance in market

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PROJECT AUDIT
The company will have its internal audit committee, which will conduct the audit of the various functions of the company as well as the environmental audit. The audit committee of the company comprises the Chairman of the company and all the functional heads of the various departments of the company. The audit committee will be responsible for the edifice of the performance appraisal of the various functions of the company. The audit committee will check the performance of the accounts department, finance department, marketing department and also check the performance of the human resources of the company. On the basis of the performance determine by the audit committee various rewards will be announced for the employees. The company will utilize its promotion and reward system as the motivation tool for its employees. On the basis of the performance various monetary, stocks and training and educational rewards will be announced for the employees of the company. The company will strictly follow the ISO 9000 standards that will give the guidelines to the company for the safe practices, so that no environmental hazards will be done. The company will get its registration with the ISO 9000 and will use this as its promotional tool in the marketing campaign in the media. The company will regularly administer its standards and will keep its system up to date, so that there will be no cause of the environmental pollution and hazards by the operations of the company.

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STRATEGIC RECOMMENDATIONS
Initially, the product should be launched in the local market with branding concept in mind. Ceiling fan & pedestal fan have shown tremendous growth in the last few years. The company should focus to capture the market of this product first by aggressive marketing campaign. The preferred mode of distribution is going directly to the wholesalers. There is an option of having no involvement of any distributor between the manufacturer and the wholesaler in the city where manufacturing is being done. By giving healthier profit margins to the wholesalers, the wholesalers will hence promote the product. This strategy is important to introduce such a new product and to create an extensive distribution and sales channel. The company will later expand into other cities through a distributor network.

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Exit Strategy and Risk Assessment

The owners are aware of the highly risky nature of launching a fan manufacturing unit in the highly competitive market. If the venture fails, the owner's paid-in capital and expenses may not be recovered. The venture's actual revenue will be tracked against projections on a month-tomonth basis. If net profitability is not in-line with forecasts, management and operational adjustments will be made to address the issues. If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-on-investment for personally providing more paid-in capital. In the event that net profitability cannot be attained, the owner will take the following sequential steps to exit the venture: 1. The owner will attempt to sell the venture outright to a suitable buyer. 2. If a buyer cannot be found, the owner will liquidate all viable assets. 3. Capital raised through asset liquidation will be used to reduce possible debt. All debt will be negotiated prior to settlement. 4. If debts cannot be eliminated, the owner will discuss corporate bankruptcy options with legal counsel.

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RECOMMENDATIONS
After the final study of whole fan industry situation the following points are recommended: If the government really wants to increase exports of fan, custom duties on raw materials should be lowered to a reasonable level. Pakistan Standard Institute's procedure (PSI) should be simplified and the latest technical laboratory should be set-up to test the fans. An institute for labor training should immediately be established with the help of PEFMA. Fan industry has been a neglected one by the government while it should be fully recognized like any other export-oriented industry of Pakistan. An urgent need in big companies to establish research departments within their factory premises for innovation and to improve designs of fans according to the requirements of international buyers. Government should rationalize custom duties on fan raw material i.e., it should be lowered to a reasonable level. Government should sponsor exclusive delegations of the industry for visit to African countries, Indian occasion including Australia, Indonesia and Philippine, South America and Caribbean island countries. HR development training awareness on ISO 9000 quality manufacturing standards needs to be patronized to overcome the lack of facilities. Ministry of science and technology with cluster council project and FDI to provide technical extensive facilities for the local industries community. Director training, export promotion bureau should established his camp office in Gujrat. WTO will have a positive impact in Pakistan because it will remove trade barriers which this industry faces a lot. Department of commerce IUB 53 ROLL # 03, 31, 54

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Japan the major competitor , after the implementation of WTO it is likely that Japan will move towards heavy industry and Pakistan will get a chance to explore more and it will enhance exporting of fans as well. WTO will have negative impact if it does not improve its quality of labour and does not implementation new technology. As the splits and ACs are being purchased by peoples who can afford it.

CONCLUSION
It has great potential but needs consideration by government. The recommendations should be implemented. The problem should be solved. PSI should be provided incentives and encouraged.

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