CASE STUDY:

PELS APPLIANCES LEADS TO SUCCESS OVER THE TIME

Pak Elektron Limited (PEL) is the pioneer manufacturer of electrical goods in Pakistan. It was established in 1956 in technical collaboration with M/s AEG of Germany. In October 1978, the company was taken over by Saigol Group of Companies.. Since its inception, the company has been working for the advancement and development of engineering know -how in Pakistan. The company has produced hundreds of engineers and skilled workers and technicians through its apprenticeship schemes & training programs. PEL has been continuously adding new products to its range. As a result, PEL has registered a significant increase in its sales volume, during the last ten years In 1978, the Saigol Group of Companies purchased major shares of Pak Electron Limited. At that juncture, the compa ny was only manufacturing transformers and switchgears. With the Saigols in management, PEL started expanding its product range by entering into Air Conditioner manufacturing. In 1981, PEL window type air conditioners were introduced in technical collabora tion with General Corporation of Japan. In 1986-87, the company started manufacturing of refrigerators in technical collaboration with M/s IAR-SILTAL of Italy. In 1987, PEL deep freezers were also introduced in technical collaboration with M/s Ariston of Italy.

In 2006, the Company has started manufacturing of split type air conditioners of various capacities as the customer choice has shifted from window type to split type. The product has been well received in the market. This encourages the company to multiply its production in the coming year. Today, PEL has become a household name. Its products are not only in great demand in the local market but the Company has started exporting its appliances

The company comprises of two divisions:

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Appliances Division Power Division

Pak Elektron Limited (PEL) is the pioneer manufacturer of electrical goods in Pakistan. It was established in 1956 in technical collaboration with M/s AEG of Germany. In October 1978, the company was taken over by Saigol Group of Companies. Since its inception, the company has always been contributing towards the advancement and development of the engineering sector in Pakistan by introducing a range of quality electrical equipments and home appliances and by producing hundreds of engineers, skilled workers and technicians through its apprenticeship schemes and training programmes. The company comprises of two divisions: Appliances Division Power Division

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APPLIANCES DIVISION This Division of PEL consists of appliances manu facturing.

PEL Air Conditioners

PEL window-type air conditioners were introduced in 1981 in technical collaboration

with General Corporation of Japan. Ever since their launch, PEL air conditioners have a leading position in the market. PEL air conditioners cooling performance has been tested and approved by Copeland and ITS USA. With the shift of users preference from window type to split type air conditioners, PEL has started manufacturing split type air conditioners.
PEL Refrigerators

The manufacturing of refrigerators started in 1986 -87 in technical collaboration with M/s IAR-SILTAL of Italy. Like the air conditioner, PEL's refrigerators are also in great demand. Today, PEL Crystal has 30% market share. Its cooling performance is tested and approved by Danfoss, Germany and its manufacturing facility is ISO 9002 certified by SGS Switzerland.
PEL Deep Freezers

PEL deep freezers were introduced in 1987 in technical collaboration with M/s Ariston of Italy. Because of durability and high quality, PEL deep freezers are the preferred choice of companies like Unilever.
POWER DIVISION

PEL Power Division manufactures energy meters, transformers, switchgears, Kiosks, compact stations, shunt capacitor banks etc. All these electrical goods are manufactured under strict quality control and in accordance with international standards.

PEL is one of the major electrical equipment suppli ers to Water and Power Development Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC), which are the largest power utilities in Pakistan.

Over the years, PEL electrical equipment has been used in numerous power projects

of national importa nce within Pakistan. PEL has the privilege of getting its equipment approved and certified by well -reputed international consultants such as: Preece, Cardew and Rider, England Harza Engineering Company, USA Snam Progeti, Italy Societe Dumezm, France Miner & Miner International Inc. USA Ensa, France

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In spite of stiff competition from emerging local and multinational brands, PEL Group's appliances and electrical equipments have remained in the spotlight due to constant innovation. Strategic partnership with m ultinationals of repute have enabled the PEL Group to incorporate new technologies into existing product ranges, thus giving the Pakistani market access to innovative, affordable and quality products.
PEL was 16th Company in Pakistan which got ISO 9002 Certification in 1997, since

then PEL Management is applying this International Standard Practices for Effectively Managing Quality of Products and Services that Company Offers. The International Standard Practices i n PEL have been Upgraded as per the Revised ISO 9001 Standards and its Scope of Application is expanding ever since and Top Management is Committed to make PEL a Total Quality Management (TQM) Company. In this Company Quality is the Subject of Manageme nt at all Levels. We focus on continuous improvement in our Systems thus establishing Good Management
Practices that ensure Product and Services Standards, we are committed to and

making continuous efforts in developing and strengthening our internal and e xternal customers and suppliers, employees training and development and their participation are the KEY forces which are Increasing the Organization's Capabilities thus making it more competitive and fast growing Company.

And thus going for State-of-the-art production facility reflects management Vision and commitment for Quality . Having around Fifty years of Manufacturing experience with a cooperative and dedicated employees and now coupled with efficiency monitoring processes and Data Analysis enable management to take Preventive Actions before things really go wrong. Elimination of wasteful activities, practices, processes, norms and behavior are the top management's priorities that need to be managed so that the philosophy of ZERO DEFECT can be taken on board. Benchmarking with National and International repute Organizations will be in our road to manufacturing excellence to prove PEL as a World Class Manufacturer .

Future Outlook:

The economy is expected to perform well in the next year however it is exposed to certain challenges like current account deficit, lower exports, increased competition in the international market and lack of technological advanceme nt as compared to
competing nations. It is still hoped that national economy will continue to gr ow and rising prosperity will bring expanding opportunities for the Engineering Industry and for your Company. The company will continue to focus on cost effectiveness, quality standards and best after sales services to our valued customers. We expect to go farther, faster and higher than we have ever been in serving the interests of our customers, shareholders and employees.

MODEL APPLICATION

Threat of Substitute

Bargaining Power Of Buyers

Bargaining Power Of

Dawalance

Suppliers

NEW ENTRANTS

The final out come of the research was that PEL has lost its competitive edge when it comes to other brands. I shall now discuss why is this so in the light of the Porters Five Forces Model. These five forces are follow ing.      The risk of new entry by potential competitors Rivalry among established firms The bargaining power of the buyer The bargaining power of the supplier The threat of substitute products

DIRECT COMPETITORS
The direct competitors of PEL are Dawlance , Waves, LG, and Haier etc. The Dawlance is market leader in the refrigerator and PEL is still on second number. But in window room air conditioner (WRAC) the PEL is market leader

REFRIGERATORS.

Total market sale of refrigerator in 2003 was 367000 units. Last year sale was 256900 units. These figures show 30% market growth. But the average growth was 13% to 17%. And the PEL sale growth is 70%, which is a great achievement.  Dawlance is a market leader in refrigerator with 46% share.  PEL has 32% market share.  Waves has 11% market share.  11% shares are others.

WINDOW AC.

PEL is a market leader with a market share of about 60% in local manufacturing industry. And overall has 35% market shares for this product.  LG has about 32% market share and stands on number two.  And rest of the manufacturers have 23% marker share.

Indirect Competitors: The indirect competitors for PEL in this industry are Samsung, Orient, Mitsubishi, Sabro, Nobel and others Chinese brands available in the market. The PEL has no big threat from all these companies. But the Sabro pioneer for introducing the split air conditioner in Pakistan. Now days the sabro has lost its market share to other companies for the business of Split AC.

RISK OF NEW ENTRY BY POTENTIAL COMPETITORS

High Investments.

Threat for new entrants is high in this industry, partly due to the fact that this industry is a lucrative industry and is very attractive for foreign companies. But in order to really make a mark in this industry, you need to have strong inve stment and funding. For this matter, PEL is at risk of the influx of foreign investments in this sector.

Foreign Brands.

Foreign brands like LG, Sony, Samsung, Mitsubishi and Haier etc. are a big threat for local brands. The quality and brand image of f oreign brands is high as compared to local brands. Foreign brands have captured the market of split AC and television. LG and Sony are the market leader in television sector. Local brands cant compete with these companies in this sector.

THE BARGAINING POWER OF THE BUYERS

Companys buyers are the people who ultimately purchase and consume its products. If there are so many brands and products available in the market at different prices, the bargaining power of the buyers will be high because they have many alternatives, they can demand to lower the prices. On the other hand if there are few brands or companies in the market, then the buyers will be in a weak position to bargain. As a result, the company can raise its prices and earn greater profits. If we see the Pakistani industry the bargaining power of the buyers is very high because a variety of products are available in the market at different prices. So the buyers can choose the product according to his requirements.

THE BARGAINING POWER OF THE SUPPLIERS:

Suppliers can be viewed as a threat when they are in few numbers in the market. In that case, the suppliers are able to force up the price of inputs. The after effects of that can result in the reduction in the quality of inputs. If the suppliers of PE L Company are weak then company will force the suppliers to reduce the prices of input and demand for higher quality. If the suppliers are selling the products that have very few substitutes and are differentiated from others, then the suppliers are always in good bargaining position.

SUBSTITUTE PRODUCTS
There is no real substitute for the products of this industry. Refrigerators and deep freezer have there own attributes. Cold stores can be substitutes for these products, but these substitutes are more costly and cant be easily approached.

The strengths, weaknesses, opportunities and threats of PEL are discussed below:

Strengths:
PEL has the following strengths.           Brand Name Strong Dealer Network Quality Products Best Sales Services Market leader in WRAC Number 2 in Refrigerators in Pakistan Strong Management Team Distribution of Authority Research and Development Department Free Customer Service

Brand Name:

PEL has created a strong brand image in the mind of the customers through higher quality and low prices. The customers of PEL always prefer its home appliances like Window AC, split AC and refrigerators, during the time of purchase. PEL is a popular company in Pakistan and every one knows about the PEL products and its brand name. Thats why PEL is a market leader when it comes to Window AC.

Strong Dealer Network:

It is also the plus point for PEL that it has developed a strong dealer network in the market. The dealers always try to sell the PEL products to the customers because, the company for its products, gives them a high margin. The management of PEL also provides more incentives to their dealers than their competitors. Dea lers are very conscious about the PEL products and always guide the customer in buying the PEL products .

Quality Products:

PEL is also in a strong position because it provides superior quality products to customers. So it gives an edge to company over its competitors. Due to best quality, guarantee of products of PEL is more than its competitors.

Best Sales Services:

PEL provides the after sale service to customers which increases the customers satisfaction. The biggest strength of services department i s that it handles a complaint within 24 hours in any part of the country, that helps in increasing the satisfaction level of customers.

Market leader in WRAC (Window Room Air Conditioner):

It is also strength of PEL that it is a market leader in WRAC. Co stumer always gives preference to PEL in window AC market because of low price, high quality and durability.

Number Two in Refrigerators in Pakistan:

After the Dawlance refrigerators, PEL has the second position in the refrigerators market. PEL is gradually coming up in refrigerator market and increasing its market share. Due to improved quality, innovative features and good sales

services PEL is becoming the first choice for customers.

Strong Management Team:

It is another plus point that PEL has a str ong management. Its employees are competent, efficient, skilled and knowledge. They always cooperate with the top management in achieving of goals that are assigned to them. Employees are well aware about the company objectives and are committed to the dev elopment of company.
Distribution of Authority:

Top management of PEL delegates the power to the subordinates for achieving the marketing objectives in a specified time period. So every manager has an authority to take decisions to achieve the goals of com pany. In this way they save the time and react quickly.

Research and Development Department:

PEL has a strong research and development department that is continuously trying to develop new features for the products. R&D department spends huge amount of money for the development of new products .

Free Customer Service:

PEL provides free customer service for one year to its customers. The customers who buy the PEL products become brand loyal due to this facility.

Weaknesses of PEL:

Like other companies PEL has some weaknesses. If PEL overcomes these weaknesses then it can become a market leader in home appliances. PEL looses some competitive edge in the following areas:     
Financial Problems Lack of advertisement System variations Lack of Product range Less Utilization of capacity

Financial problems:

Sometimes PEL faces the financial problems because its stocks are so

much piled up in the stores that creates problem of cash flow because when the stocks are not sold and the production is in process for 24 hours a day then the company faces such problems.

Lack of advertisement: It is a second major weakness of PEL that it is not a vigorous advertiser. Only recently has PEL invested a considerable amount in advertisement, but when we look at its competitors, PEL still has to do a lot in this sector.

System variations:

It is also the main weakness of PEL that there is a rapid change in polices of selling the products. That creates problems for the selling team to sell the products to the dealers because the top management requires urgent amount of money. Thus the products are sometimes sold on hard cash that reduces the prices of products that creates problems for the management.

Lack of Product Range:

PEL has introduced more products of consumer items but there are more needs to develop new consumer items like PEL washing Machines, Vacuum cleaner and other items.

Less utilization of capacity:

Due to lack of finance a company cannot utilize all its resources on its full capacity. It increases the cost of products per unit that decreases the profit margin of each consumer item. Sometimes, the company cannot allocate the resources according to the requirements of the production department, which later on becomes a problem for the complete u tilization of resources.

Opportunities for PEL:

For PEL, there are more opportunities for expansion in business. Following are the opportunities for the PEL.  Exploration of market in Pakistan  Increase in product range  Export opportunity  Increase in production capacit Exploration of market in Pakistan: PEL has the opportunity to explore the market in all over the Pakistan. Even though PEL has introduced its products in many cities of Pakistan but there are so many places that are yet to be exploited.

Increase in Product Range:

PEL can increase its product range that will be more profitable for the company. There are more needs to develop new consumer items like PEL washing Machines, Vacuum cleaner and other items.

Export opportunity:

PEL has also the opportunity to export their products in other international countries like UAE, SAUDI ARABIA, and other Arabic and African countries.

Increase in production Line:

Company can also increase its production line at the maximum level that will increase the efficiency of the employees and will also reduce the total cost.

Threats for PEL:

Following are the main threats for the PEL:       
Strong competition China s product introduction in the market Price war Slow growth rate in Pakistan Instability of government Tax department World Trade Organization

Strong competition:

There is very strong competition in the home appliance division. Every company adopts different strategies for selling of the products. It reduces the profit margin of each company and increases the bargaining power of the buyers who will demand higher quality of products at lower cost.

China s product:

Chinas products are another threat for the Pakistani companies because these products are cheaper than the Pakistani products. China products stress the indigenous companies to lower the quality and price s that will not be profitable in the long run.

Price war:

As there is stiff competition in the home appliance market that will cause the price war.
Slow growth rate in Pakistan:

There is also slow growth rate of home appliance in Pakistan that will increa se the stocks of the company. Although, this industry is in the growth phase, but the speed of the growth is very slow.
Instability of Government:

The rapid changes in governments will become a threat for the companies because every government adopts new policies for the industries. So it increasesthe uncertainty for the investors who want to invest heavy amounts in their new projects.

Tax department:

Tax department is another major threat for the company that will restrain the business expansion. There is a most complicated tax procedure operating in the country that creates hurdle in the production and smooth functioning of different companies in Pakistan.

World trade organization:

World trade organization will give the permission in 2005 to each company of home appliance to export their products after paying less duties or duty free products. That will increase the pressures for the indigenous companies to reduce the prices and increase the quality. It will increase the competition among the foreign companies and indigenous companies.

BCG stands for Boston consulting group. It is a portfolio planning method that evaluates the companys strategic business unit .Using this model an organization classifies each of its separate business units (SBU) according to two factors:
Market share relative to competition and growth rate of the industry in which SBU operates

When these factors are divided into high and low categories, a 2 x 2 grid is created as displayed in following figure:

STAR:

Star is a business unit that has large market share in fast growing industry. Such unit requires more investment to generate more cash. If due to more investment it will

become successful and become cash cow and it will reach at maturity stage. For star product the strategy is called harvest  Refrigerator of PEL is the product having high market share and high annual growth rate.

Cash Cow:
It is the business unit sometimes known as problem child. It has a large market share and low annual growth. Each cash cow requires little investment and it generates more cash that can be used for investment purpose in other business units. For cash cow the strategy is called HOLD, you must preserve market
Split air conditioners is the product of PEL having high market s hare and low

annual growth rate.

Question Mark:
It is the business unit that has a low market share and high annual growth. These business unit requires resources to grow market share but if they succeeded that will become STAR. For question mark the strategy is called BUILD, you try to make up the market share.  Washing machine and microwave oven are the products of PEL having low market share but high annual growth

Dog:
Dog is the business unit that has small market share as well as low annual market growth rate. A company normally would be unwise to invest substantial funds in SBUs in this category. Marketing strategies for dogs are intended to maximize any potential profits by minimizing expenditures or to promote a differential advantage to build market shareAnd the company can diverts or liquidate the dog product

Deep f eezer i t e product of PE share.

low

rket

re plus low

ual rowt

St r

Question Mark

Cash Cow

Dog

Deep freezer of PEL has low market share i low market growth rate. So it regarded as a dog. So company should drop this

STRATEG ES OF PEL AS MARKET CHALLANGER

I competiti e environment challengers strategies are very significant to survive in the market. irms in this category can adopt one of the following strategies: he leader is attacked ut it is very risky and high payoff. ompany can attack unprogressive a nd

under financed firms, it is less risky and less payoffIt can also attack on small local and regional firms, it is neither risky nor high payoff

Choosing A General attack strategies:

Frontal attack:

The attacker matches its opponent price, product, advertisement and distribution. The principle of force says that side with greater manpower (resources) will win

Flank Attack: The attacker can attack along two dimensions:

y Segmental. y Geographical y Technological leap fogging:

Challenger patiently researches and develops the next technology then launches its attack

Guerrilla Warfare: It consists of small but continuous attacks to harass and demoralize the opponents.

Encirclement attack:

It involves launching grand offenses on several fronts attack on eve ry feature of opponents products As far as PEL is concerned, it uses technological leap fogging strategy to attack. PEL is launching products having several innovative features to differentiate its product from competitors

j Water dispenser refrigerator i s the product having innovative feature of getting cool water without opening refrigerator

j 6- Series refrigerator is the product having differential feature of light bulb in freezer PEL Genset Aircon Power Electric generator is the product having following differential features:

Performance capable of running following items continuously for 10 hours.        One 1.5 ton split One television Six tube lights One computer One fridge Five fans One deep freezer

PRODUCT LIFE CYCLE

Sales and

Sales

Profits Time Product DevelopLosses/ Introduction Growth Maturity Decline

A product life cycle consists of aggregate demand over an expected period of time for all brand comprising a generic product category. A life cyc le can be foraged by plotting aggregate sales volume for a product category over time usually years

Stages of product life cycle:

Management must be able to recognize what part of life cycle its product is in at any given time. The completive environment and marketing strategies that should be used ordinarily depends on the particular life cycle stage There are four stages of product life cycle and explanation of each is given below

Introduction:

This stage some times known as pioneering stage in which a product is launched into the market in a full scale marketing program it has gone through product development, including idea generation, idea screening, prototype and

market tests. For new products normally there is very little direct competi tion.  GENERATORS are on introduction stage.

Growth:

Growth stage also called market acceptance stage. In this stage sales volume and profits rises and competitors enter the market. At the end of growth stage , profit starts to decline. 
Maturity:

Water Dispensers are on growth stage.

During Maturity stage, sales continuous to increase but at decreasing rate. When sales level off, profits of both producer and middlemen decline. The primary reason is intense price competition

Refrigerators of PEL on the maturity stage .

Decline:

This stage is inevitable. In this stage profit and sales volume of the product both decrease rapidly and finally its life comes to an end.
Longest life cycle:

As far as PEL is concerned, the longest product life cycle is of crystal classics refrigerators having three years duration.
Shortest life cycle:

Life cycle of crystal classic 2009 refrigerator is the shortest among the portfolios of PEL appliances.

Conclusion
PEL has great strengths and opportunities Should takes risk and go to other markets Management philosophy is the hurdle in the progress of the company Take the advantage of todays media power to capture market Future of PEL is very bright as it is grabbing opportunities and has the potential to compete with challenges