Indus Jute Mills Ltd Essays

Indus Jute Mills Ltd Essays Indus Jute Mills Ltd Essay Indus Jute Mills Ltd Essay Indus Jute Mills Ltd. (IJM) was established in 1968. It is a jute goods manufacturing company, and imports raw jute from Bangladesh and converts it into Jute bags, Hessian cloth, Twine and Yarn for packing and storing wheat, rice, cotton and other agricultural products. IJMs factory is located in the province of Sindh, 40 kms northeast from the city of Karachi, where its head office is located. Pakistans Jute Industry comprises of 11 Mills, of which only 5 have started exporting jute goods directly to Iran in 1999. IJM as been exporting indirectly (grain sacks) to Iran, and has now decided to export Hessian cloth directly. Iran uses this to waterproof the roofs of houses and buildings during construction, as Iran has ample rainfall and snow. IJM has decided to export for a number of reasons. It will be able to operate at full capacity is it does so, and increased sales will help balance out its high raw material and inventory costs. Exporting to Iran is a good decision as not only is Iran next-door to Pakistan geographically, but is also is a huge market for Hessian cloth, importing about 57,000 tonnes a year from Bangladeshi, Indian and Pakistani Mills. Its climate ensures that Iran will always demand material for waterproofing. Iran prefers Hessian to synthetic cloth, as it is environmental friendly. Iran also has a young population, and one that grows at an extremely high rate. It also has a high GDP growth rate, depicting an expanding economy. All this means that Iranians will be demanding housing on a large-scale, thus leading to the indirect demand for Hessian cloth. IJM will have a competitive edge over both Bangladeshi and Indian jute exporters, as well as other Pakistani mills. It plans to enter the market offering superior quality Hessian at a price that is slightly lower than the international market price. It is also located very near Karachi Port (only 40 kms), which means goods can be delivered to Iran faster and cheaper. It also can use land routes to deliver its goods, providing it with a further advantage. IJM plans to begin exporting to Iran by March 2004, and gain a significant share of the market within the next two years. It also plans to begin exporting Hessian to other countries in Asia and the Middle East within the next five years. It plans to achieve a growth in sales of 10% per annum. To achieve the above objectives, IJM is planning to promote its Hessian by taking part in the International Trade Fair in Tehran, Iran in January 2004. A sales executive will be hired especially to oversee exports, and make appropriate contact with a local Agent in Iran. Advertisements will also be placed in the Iranian Weekly and Yearly Industry Bulletins. Indus Jute Mills Limited (IJM) is a public limited company incorporated under the Companies Act in 1968, and is also listed on the Karachi Stock Exchange. It is a jute goods manufacturing company, and imports raw jute from Bangladesh and converts it into Jute bags, Hessian cloth, Twine and Yarn for packing and storing wheat, rice, cotton and other agricultural products. Jute goods are not only environment friendly, but also non-toxic, reusable and a 100% biodegradable. Jute packaging ensures safety in handling, transportation, and long-term storage of grain. IJMs factory is located in the province of Sindh in the Dhabeji District of Thatta, 40 kms northeast from the city of Karachi, where its head office is located. It presently employees 1800 people, including both the factory workers and the management staff. At present, Pakistans jute industry consists of 11 mills that supply jute bags and Hessian cloth to the Pakistani government and also cater to the private sector. These are Crescent Jute Products Ltd., Thal Jute Mills Ltd., Indus Jute Mills Ltd., Sargodha Jute Mills Ltd., Sohail Jute Mills Ltd., Habib Jute Mills Ltd., United Jute Mills Ltd., Pioneer Jute Mills Ltd., Madina Jute Mills Ltd., Amin Fabrics Ltd. and White Pearl Jute Mills Ltd. Of these, Crescent, Thal, Sargodha, Habib and Amin Jute Mills Ltd. started exporting Jute products directly to Iran in 1999, and are currently doing so. IJM has now decided to enter the international market due to a number of reasons. Firstly, it is not currently operating at full capacity, and if it enters the international market, it will be able to do so. An increase in sales will provide the company with increased finances for operational purposes. IJM requires a great deal of liquid finance as it imports raw jute from Bangladesh and needs to import and store four months stock in advance, as ships take a considerable amount of time to reach Karachi Port from Bangladesh. Thus, both the cost of raw material and raw material inventory costs need to be met. Also, IJM produces 70% of Pakistans sacking bags for packing wheat. Wheat is harvested in March and is packed until the end of June every year. In order to cater for this large demand, IJM produces a certain amount of jute sacks every month all year round and stores them until they are needed in March. Thus, the inventory costs for finished goods are also high. At present, IJMs Hessian cloth accounts for 20% of its total product mix. IJM feels that increasing the production of Hessian cloth to 40% can reduce the high inventory cost for sacking. Of this, 20% could be used to meet local demand, and the remaining 20% could be exported. This will generate greater sales revenue as Hessian cloth is priced at Rs. 40,000 per tonne as compared to sacking, which yields only Rs. 28,000 Rs 30,000 per tonne. IJM was also previously producing Hessian sacks and supplying them to local rice producers for packing rice for export. This means for indirect export was reduced when rice producers began to switch to the cheaper polypropylene. IJM thus has surplus Hessian cloth, and the most logical step would be to export this to Iran, as it is a huge market for Hessian cloth, importing about 57,000 tonnes a year (2001) altogether from Bangladesh, India and Pakistan. Hessian cloth is coated with tar on both sides and then spread on the roofs of houses and buildings during construction. This ensures that the construction sites stay waterproof, as Iran is a county with ample rainfall, snowfall and hail. In addition, Iran is in close proximity to Pakistan and shares a common border with it. Thus, it is possible to easily transport goods by both land and sea routes. As a result, distribution costs will be lower and delivery time will be shorter, giving IJM a competitive edge over Bangladesh and India. The Islamic Republic of Iran (IRI or Jomhuriy-e Islamiy-e Iran) is a vast country, comprising a total land area of more than 1.6 million square kilometres. It is bordered by the following: Armenia, Azerbaijan, Caspian Sea and Turkmenistan from the North, Afghanistan and Pakistan from the East, Turkey and Iraq from the West, and the Persian Gulf and the Oman Sea from the South. The climatic variation is great. The maximum temperature is more than 53 C in the Golf region and down to 40 C in the Northwest. Annual precipitation varies from 2400 mm per annum in the Caspian Region to no rain for successive years in central sand dune areas. This climate with ample snow and rainfall ensures that there will be a constant demand for material needed to waterproof buildings during construction. The public census is conducted in Iran every five to ten years and the latest one was carried out in 1996. The Central Bank of Iran predicted Irans population to be 64.9 million by March 21, 2002 of which 41.9 million reside in cities and 29 million in villages. Thus, since most of the population resides in cities, the construction industry is large and will continue to grow. The following diagram shows the rapid growth rate of Irans population. In a span of 6 years, from 1996-2002, Irans population experienced a 7.5% growth rate. This makes Iran an ideal place for IJM to export Hessian to, as a growing population means a greater need for housing, which means an increase in local construction, and an increased demand for Hessian cloth. This pyramid shows the division of the Iranian population by both age and gender. It is interesting to note that the majority of Irans population is young, and lies within the 5-9, 10-14, and 15-19 age brackets. This means that there will be a great demand for housing within the next few years, and indirectly, a need for Hessian Cloth. Iranians enjoy a decent standard of living as compared with Pakistanis. The per capita income is about 8,953,000 Rials / US$ 1119 (March 2002-March 2003), whereas Pakistans is about US$ 450. The average GDP growth rate is 6.5 percent (Mar. 2002-Mar. 2003), depicting an expanding economy. Gross National Savings / GNP is 22.1 percent (1998), showing that savings that can be diverted towards construction. According to the existing statistics, while the countrys population has increased by about 70% from 1979 to present day, the number of university students has risen by more than 1000% over this period! An educated population will lead to a larger and more skilled workforce with higher income levels in the future. This would have a favorable impact on the demand for housing, and indirectly for Hessian. Iran has been plagued by an extremely high inflation rate over the last decade (15.7% in Mar. 2002 Mar. 2003). However, this is gradually decreasing, allowing Iranians to increase their levels of savings and standard of living.