Bombay Plywood Industry in 2008

Abstract
Haji Muhammad Shafi was the founder and Chief Executive Officer of the BPI(Bombay Plywood Industry) under his leadership till 1980`s the company enjoyed monopoly and was growing with considerable high growth rate. The Plywood industry had changed considerably after the year 2008 due to external environment factors. Because of war on terror this industry was disastrously effected because it`s raw material mostly came from Swat and nearby areas. The shortage of electricity in Pakistan also forced many plywood companies to shut down their business or to diversify. Reflecting on these dramatic changes, the new CEO wondered whether BPI should expand its product line beyond the manufacture of plywood. For over 43 years BPI had stuck to its core business, plywood making, but analysts saw problematic manufacturing of plywood in 2008. Observers forecast the chipboard as the feasible segment for semi-solid wood. As CEO mulled over his option, he asked: Was it finally time for a change?

The Plywood Industry
The plywood industry was the dominant industry of semi-solid wood in Pakistan in 2008. The plywood, lamination board, Formica press board meet endless variety of consumers as they were used in construction (shuttering) and doors. The chipboard industry was second on the list for semi-solid wood because of its short life span of 5 years as plywood`s 10 to 15 years. There are major two types of semi-solid wood, i.e. plywood and chipboard. Plywood is made by boiling logs at high temperature and then peeling them. After peeling it is cut into appropriate size and then dried. Then it is glued and pressed to make a wood sheet and finally the sanding is done by sanding paper to finalize the product. The plywood is made in many sizes ranging from (8ft x 4ft to 6ft x 2.25). Its thickness range from 3mm to 50mm.
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Bombay Plywood Industry in 2008
The chipboard is made by converting firewood into chips, drying and then gluing the chips pressing it and then cutting into appropriate sizes and finally sanding the sheet. Throughout decades plywood was dominating in semi-solid wood because of its durability, flexibility and aesthetic. After year 2007 the plywood production fell significantly because of unavailability of raw material and shortage of electricity in Pakistan. The production of chipboard increased because it was the substitute of this product and was less expensive to manufacture. It could meet more needs of the customers such as in furniture, cupboards and room portioning etc.

Industry Structure
Five firms had been dominating the plywood industry in Pakistan. The country`s largest manufacturer KDC plywood (Jehlum) with 20% market share. The four firms trailing were Capital Plywood( Islamabad) with 17% market share, BPI 12%, Sunlight plywood (Karachi) 10% market share and Wood World (Rawalpindi) with 6% market share. Approximately more than 100 firms served the balance of the market. Pricing and Cost Pricing in the plywood industry was very competitive. Most companies offered volume discounts to encourage large orders. Despite persistent plywood demand industry profits were declining because of intense competition in 2008. The drop in sales was due to increase use of chipboard as it`s price was less. In 2008, the price of the plywood was Rs 1000 per sheet. Which cost BPI approx. Rs 975 per sheet. Because of customize orders mass production was not possible in plywood manufacturing and as a result (more customize orders less production per day). Plywood was a semi-finish item on which customer has to do more expense such as polish or paint etc which could raise price to more than Rs 1200 per sheet. The labor cost of plywood to
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Bombay Plywood Industry in 2008
BPI was (skilled labor 40%, unskilled 55% and staff 5%). The wages were 8000 – 12000, 6000 – 6500, 10000- 20000 accodingly. In plywood manufacturing atleats 100 labor is required. The labor cost schedule is shown in Exhibit. The production capacity of the BPI was 300 cubic foot whose electricity expense was more than 2 lac till the year 2008. Chipboard has a standard size of 18mm x (8 x 4). It was easy for manufacturers to produce chipboard as mass production was possible which means economies of scale. The price of chipboard in market in 2008 was Rs 700 which could cost BPI @ Rs per sheet and making the profit of Rs 50 per sheet. According to the survey report of BPI managers the production capacity of plywood could be 600 cubic ft per month which has electricity expense of Rs 3 lac pm. Only 50 labors are enough to produce 600 cubic ft/pm from which 10% is skilled labor, unskilled 85% and staff 5% whose salary would be (8000 – 12000), (6000 – 6500), and (10000 – 20000) accordingly. Suppliers In plywood industry there were two types of supplier’s local suppliers and supplies that were imported from different countries. Plywood can be manufactured from different type of wood which give different color, durability and finishing. Among local suppliers the largest supplies were from Swat and northern areas which were adversely affected by terrorism by which price of supplies was increased and material availability became less in year 2008. Changa Manga(Lahore) and Mona Depot (Sargodha) were the main suppliers of shesham and poplar wood. Mangla depot was the seller of Deodar wood and the Multan division was the main supplier of Mango wood. The logs were also imported from Malaysia, Thailand, Burma, India, Singapore which include Teak wood and Pine wood.

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Bombay Plywood Industry in 2008
As opposed to Plywood, Chipboard could be made of any type of wood as it is made up of fire wood; the farmers from all over the country were the suppliers of fire wood. Along with wood, glue was was also the main supply in plywood and chipboard manufacturing. The largest producer of Glue in country was WAH NOBEL CHEMCIAL (Wah) whose quality was good and rate was Rs 30/kg, it`s production capacity can meet the demand of all the plywood factories in the country. The second largest producers were DINO CHEMICALS (Karachi) which price Rs 29.5/kg, SUPER CHEMICAL (Karachi) Rs 29 and Izhar CHEMICAL (Lahore) Rs 28/kg. Customers Among the industry`s largest users were the Pakistan Army, Pakistan Railways and housing societies. Distribution Due to bulky nature of plywood, manufacturers located their plants in main cities to minimize transportation cost. The producers preferred chipboard to plywood because it was feasible to manufacture. BPI had forward integrated as well. It had the advantage that it was self-reliant in distribution of their product. It`s showrooms were highest in number throughout the country than any other competitor. It had its own 15 sales and distribution centers in Rawalpindi, Islamabad, Peshawar, Gujrat, Gujranwala, Lahore, Multan, Sialkot, Faisalabad, Karachi and Hyderabad. While all other companies had difficulty in distributing their product as a result their distribution cost was also added in their products cost. Due to high distribution cost China was unable to enter the Chipboard market (as chipboard is heavier then plywood) of Pakistan. But it was continuous threat for plywood companies.

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Bombay Plywood Industry in 2008
Industry Trends
The major trends characterizing the plywood industry during year 2008 onwards included 1) terrorism 2) china`s entrance and electricity shortage etc. Terrorism War on terror has dreadfully affected the industrial sector of Pakistan. Plywood industry was also among them. As the major source of raw material were Swat and Northern areas. Many plywood manufacturers diversified across the spectrum of rigid plywood to produce furniture or related industry because of unavailability of raw material. China`s Entrance China enter into Pakistan`s plywood industry in year 2006 when government lowered duties. This action of government almost shrank the plywood industry in Pakistan. China`s plywood was selling in market at a price of Rs 950 in market which was good in quality as compare to Pakistani plywood. The reason for its lower price was lower costs. China has cheap labor and more forests then Pakistan. China did not enter into chipboard industry of Pakistan because of heavy weight of chipboard. It`s high carriage expense results high priced China`s chipboard in Pakistan. The price of the Pakistani Chipboard in the market in 2008 was approx. Rs 1000per sheet. Chinese firms were unable to compete with this price o it was hard for them to enter this market. Additionally the government of Pakistan also applied heavy taxes on Chinese chipboard as oppose to its plywood in Pakistan Electricity The shortfall of electricity in 2008 was approx. 2000 MW and that shortfall was expected to increase in the future. The rate of electricity also increased 25% to 30% in 4 years. Plywood
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Bombay Plywood Industry in 2008
manufacturing requires more machinery means more electricity as opposed to chipboard manufacturing. On average the plywood factory with the production capacity of 300 cubic foot it`s electricity expense was 2lac per month in 2005, which was also expected to increase dramatically in the future. Dollar Appreciation In the start of the year 2007 the exchange rate of dollar was approx. Rs 60. Due to economic slump Pakistani rupee depreciated and the exchange rate with dollar was around Rs 83 at the beginning of year 2008. Political instability and war on terror were the major reasons for rupee depreciation. Because of depreciated rupee the price of imported logs increased radically, so as a result it became impossible for Pakistani manufacturers to continue their plywood production with imported wood.

Company`s History
BPI was established in year 1965 by the founder Muhammad Shafi. It was established of an idea to replace solid wood with less expensive plywood. This firm was among the first movers in this industry by which it enjoyed monopoly till 1985 after which other firms like KDC jumped into the market. Under the paternalistic leadership of Muhammad Shafi BPI prospered in 1980`s by selling to more than half of Pakistan and ranked first place from all over Asia by winning 3 rd International Asian Award. In 1980`s when it was growing rapidly it forward integrated in distribution in contrast to competitors. It has 15 sales and display showrooms across the country. In very quick time plywood gained customer confidence because it was far better than the solid wood. It`s main advantage were that it was cheap, light weight, waterproof, flexible and was available in many sizes.

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Bombay Plywood Industry in 2008
Major Competitors For over 30 years, five top companies in plywood manufacturing dominated semi-solid wood industry. 1) KDC PLYWOOD KDC plywood had long been a financially stable plywood company. It was established in year 1974 by Mr Ahsan. It is located in Jehlum. It was the market leader in the industry as its sales were higher than any other. KDC diversified in chipboard business in year 2007. 2) CAPITAL PLYWOOD Capital plywood was the subsidiary of Capital group of industries. In addition to plywood they also make household furniture and were experts in wood floor manufacturing. It had the second largest market share in the industry. It had 12 showrooms throughout the country by which it displays and sale its products. It`s manufacturing plant was located in Islamabad sector I/9. 3) SUNLIGHT PLYWOOD Its manufacturing plant was located in Karachi and Lahore. It had 4 th largest manufacturing capacity of plywood in industry. It was established in year 1992. In addition to plywood it also manufactures Flush doors on orders.

4) WOOD WORLD PLYWOOD It is located in Rawalpindi next to BPI`s manufacturing plant. It was also established in 1965. It was manufacturing both plywood and chipboard. Wood World started its chipboard plant in 1990, and was the well-known manufacturer of chipboard in Pakistan.

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Bombay Plywood Industry in 2008
Challenge in 2008 Managers thought long and hard about the options available to them in 2008. They considered the opportunities in chipboard and the most demanding plywood. With the decline production of plywood, chipboard was the only semi-solid segment that held much promise. However the possibility of diversifying beyond the manufacture of plywood altogether had some appeal, although there was some difficulty in making decision as chipboard also had some shortcomings. While BPI`s competitors had aggressively expanded in variety of directions, Managers wondered if now was the time for a change at BPI.

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Bombay Plywood Industry in 2008
Major Firms in Plywood Industry
Name Years of Production Production Capacity Market Share

KDC Capital Plywood Sunlight Wood World

34 20 16 43

500 cubic ft. 450 cubic ft. 280 cubic ft. 250 cubic ft.

20% 17% 10% 6%

Major Suppliers Of Glue
Name Location Price

Wah Nobel Chemical Izhar Chemical Super Chemical Dino Chemical

Wah Lahore Karachi Karachi

30/kg 28/kg 29/kg 29.5/kg

Countries From Where Logs are Imported
Name of Wood Teak Wood Pine Wood Country Malaysia Thailand Burma Singapore

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Bombay Plywood Industry in 2008

Major Local Suppliers of Logs
Name Changa Manga Mona Depu Mangla Depu Location Lahore Sargodha Mangla Swat Multan Type of Wood Shesham Poplar Shesham Poplar Deodar Deodar Mangoo Wood

Labor Cost In Semi-solid Wood
Type of Industry Number of labors Required Labor Category Percentage Requirement Salaries (Rs)

Plywood

100

Skilled Unskilled Staff

40% 55% 5% 10% 85% 5%

8000 – 12000 6000 – 6500 10,000 – 20,000 8000 – 12000 6000 – 6500 10,000 – 20,000

Chipboard

50

Skilled Unskilled Staff

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Bombay Plywood Industry in 2008
Size Availability of Semi Solid Wood
Semi-Solid Wood Plywood Size 8ft x 4ft To 6ft x 2.25ft Thickness 3mm To 50mm

Chipboard

8ft x 4ft

18mm

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