project rev.8
TRANSCRIPT
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I- Metal Industry Overview
1. Metal Casting Technology:
1.1. Definition of Casting:
Casting is a manufacturing process by which a liquid material is usually poured into a mold,
which contains a hollow cavity of the desired shape, and then allowed to solidify. The
solidified part is also known as a casting, which is ejected or broken out of the mold to
complete the process. Casting materials are usually metals or various cold setting materials
that cure after mixing two or more components together; examples
are epoxy, concrete, plaster and clay. Casting is most often used for making complex shapes
that would be otherwise difficult or uneconomical to make by other methods.
1.2. A Historical Brief:
Metal casting is a technology that reaches back almost 6000 years. We will probably never
know when or how the first casting was produced because man made castings before he left
a written record of this achievement, the start of casting technology which forms casting by
pouring melted metal into a mold and solidifying it, the oldest surviving casting is a copper
frog from 3200 B.C. at Mesopotamia. It was approximately 5600 years before from today.
Back then, bronze was melted and poured into a mold
The casting technology, which produces product by pouring melted metal into a mould, was
first developed in China, approximately 7th century B.C. It is generally thought that the
Chinese bronze ware technology achieved an extremely high temperature by utilizing
bellows and from this line of technology, it is assumed that pig iron was developed by melting
iron with high carbon content.
From 7th century B.C. to 18th century at the time of the industrial revolution, cast iron was
made hard and brittle. Thus, no wonder iron with stickiness which could be hardened by
hardening used for forging products was more valued. However, by increasing content, the
property of cast iron has shifted largely. This non-chill cast iron came to become an
important material to support the industry.
1.3. Metals in Ancient Egypt:
Gold
Native gold was used for jewelry as early as Naqada II. From at least the old Kingdom the
Egyptians exploited mines in the eastern deserts. From the middle kingdom (about 2025-
1700 BC) on the gold deposits of lower Nubia were exploited.
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Silver
Silver was already used as early as Naqada II, but there is no evidence that the Egyptians
themselves mined silver. From ancient records, it is thought that silver was imported from
Mesopotamia, Crete and Cyprus.
Copper
Copper was the most common metal for everyday use in ancient Egypt. Copper in Egypt
often contained natural arsenic. Therefore, it was particularly hard. Copper ores were mined
and melted in the eastern desert and in Sinai.
Tin
There are occurrences of tin in Egypt, but there are no signs that these deposits were mined
in dynastic times. Tin was imported from Crete and Cyprus (and later from Spain, Britain
Somalia and India). Tin was mainly used for the production of tin bronze.
Bronze
Bronze is a copper-tin alloy. When the two metals are alloyed, there is a high increase in
hardness and sharpness of the metal. The melting temperature is 1,005° C (copper alone is
1,083° C). Copper remains an important metal alongside bronze.
Iron
Iron was a metal of mythical character. It was called the 'metal of heaven', because Egyptians
knew it mainly from meteoric iron. Iron deposits in Egypt were not worked before the Late
or Greco-Roman periods.
Early iron comes from meteoric iron. Iron production requires temperatures from 1100-
1150° C (the same as for copper smelting). Iron objects appear very sporadically since
Naqada III in Egypt. In Egypt, iron comes into common usage only from about 500 BC. The
normal way to treat iron is to hammer it. Cast iron was not common.
These metals that were discovered by the ancient Egyptians are still the most famous metals
used in our new millennium, and in our project, we will have a closer focus on iron since our
selected company is producing cast iron products. In addition, as it is well known that gold
and silver are noble metals but iron is the master of both.
In 1910 Rudyard Kipling, Nobel Prize winner 1907 in literature wrote this verse:
Gold is for the mistress Silver for the maid Copper for the craftsman, cunning at his trade, “Good!” said the Baron, sitting in his hall, “But Iron- Cold Iron – is Master of them all.”
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1.4. Iron Extraction:
Iron ore is any rock that contains a usable quantity of iron. Common iron ore minerals include
hematite, magnetite, limonite, and siderite. These are frequently found together with
assorted silicates. Although iron does not occur in its pure form in nature, some kinds of iron
ore contain up to 70% iron atoms. Iron ore consists of oxygen and iron atoms bonded
together into molecules. To create pure iron, one must deoxygenate the ore, leaving only
iron atoms behind. That is the essence of the refining process.
To coax the oxygen atoms away from the iron ore requires heat and an alternate atomic
partner for the oxygen to bond to Carbon fills this role nicely, and is readily available in the
form of everyday charcoal, or coke, a form of carbon made from coal. The carbon atoms
bond with the oxygen in the ore to create carbon dioxide and carbon monoxide, gases which
escape out a chimney. Because iron ore typically contains silicates, which do not bond to the
carbon, these remain in the iron after it is refined, creating wrought iron, a malleable and
strong form of iron used by blacksmiths throughout history.
To create an even purer form of iron, known as pig iron, limestone must be added to the mix
and the heat must be increased. This is done contemporarily in the silo-like structure known
as a blast furnace. The calcium in limestone bonds with the silicates in the ore, creating a
material called slag, which floats on top of the pure liquid iron. The iron is periodically
drained into a mold from a port at the bottom of the blast furnace, where it cools. The pig
iron can then be converted into wrought iron by mixing it with silicon, or processed further
to create steel.
Steel is a form of iron mixed together with 0.5% - 1.5% carbon but no oxygen, silicates, or
other impurities. Steel is much more difficult to work than wrought iron, but it is greatly
stronger. Iron can be mixed together with various other elements to create alloys with
desired properties, such as lightness or resistance to rust.
Because iron is so common (composing 5% of the Earth's crust), strong, and relatively easy
to process, it plays a very intimate role in human civilization. Roughly, 98% of all ore shipped
worldwide is used in the production of iron or steel. Surface deposits of iron ore are
abundantly available in most geographic areas. Ancient civilizations which reached the
threshold level of technology required to smelt iron ore enjoyed decisive advantages over
their competitors, whose bronze and copper weapons were no match for ironworks
1.5. Cast Iron:
Cast Iron is one of the most common casting processes nowadays. Cast iron is iron or
a ferrous alloy that has been heated until it liquefies, and is then poured into a mould to
solidify. It is usually made from pig iron.
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1.6. Types of Cast Iron:
Gray Cast Iron
Gray cast iron is characterized by its graphitic microstructure due to high levels of carbon
content, which causes fractures of the material to have a gray appearance. It is the most
commonly used cast iron and the most widely used cast material based on weight. Most cast
irons have a chemical composition of 2.5–4.0% carbon, 1–3% silicon, and the remainder is
iron. Gray cast iron has less tensile strength and shock resistance than steel, but
its compressive strength is comparable to low and medium carbon steel.
White Cast Iron
A type of cast iron with lower levels of carbon and silicon (graphitizing agent) content and
faster cooling rate, the carbon in white cast iron precipitates out of the melt producing an
improved tensile strength casts, It is difficult to cool thick castings fast enough to solidify the
melt as white cast iron all the way through. However, rapid cooling can be used to solidify a
shell of white cast iron, after which the remainder cools more slowly to form a core of gray
cast iron. The resulting casting, called a chilled casting, has the benefits of a hard surface and
a somewhat tougher interior
Malleable Cast Iron
Cast iron tends to be brittle, except for malleable cast irons. Malleable iron starts as a white
iron casting that is then heat-treated at about 900° C. With its relatively low melting point,
good fluidity, castability, excellent machinability, resistance to deformation and wear
resistance, cast irons have become an engineering material with a wide range of applications
and are used in pipes, machines and automotive industry parts, such as cylinder
heads, cylinder block sand gearbox cases.
Ductile Cast Iron
Tiny amounts of magnesium or cerium added to these alloys slow down the growth of
graphite precipitates, the properties are similar to malleable iron, but parts can be cast with
larger sections
2. Castings in Our Modern Days:
Castings are essential building blocks of the modern industry nowadays. More than 90% of all
manufactured, durable goods and 100% of all manufacturing machinery contain castings.
Suppliers of components to durable goods manufacturing industries exist in a complex and
competitive market. A given component may compete not only with castings made using other
methods or other metals, but also metal components made using other fabrication techniques
and components made of non-metallic materials. In this dynamic environment, existing markets
for castings are changing and new ones are expected to emerge. To stay competitive under these
conditions, the industry must continue to develop techniques to improve the products and
processes it offers its customers.
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Partnerships between the metal-casting industry, its suppliers, and its customers will be critical
to successfully meeting the competitive challenges of the industry. Technology advancement
plays an important role in lowering production costs, improving energy efficiency, enhancing
environmental quality, and creating innovative new cast products. Intense competition within
the industry for historically low-value-added, low-profit-margin markets, as well as competition
with other materials and processes, limits resources for R&D investment.
Metal-casting industry leaders have been leveraging limited resources with cooperative
partnerships as a way of maximizing investments in advanced technologies to solve pre-
competitive technical problems and create new applications for castings. This vision entails
enlarging the application of metal-casting technology and expanding its usefulness to society
through improvements in energy efficiency, cost minimization, and other innovations.
3. Outlook:
All cast metals are expected to see sales growth in the short term through 2013 as the industry
continues to rebound. Ductile iron, steel, aluminum, magnesium and copper-base alloys see the
greatest opportunities for long-term growth.
While ductile iron growth is expected across all end markets, it is led by the oil and gas, machine
tool, valve and automotive markets. Steel growth will be led by the oil and gas, valve, pump and
compressor, railroad and mining markets.
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On the nonferrous side, both aluminum and magnesium are expected to attribute long-term
growth to the return of the automotive and transportation markets. For copper-base alloys, the
valve, pump and compressor, and motor and generator markets are keys to growth.
The recovery from the recession that began at the end of 2008 is expected to continue through
2015.
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II-Company Overview
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Amreya Metal Company was established in 1979 as a family business to produce metal casting
products with a specialization in the production of grey and ductile iron castings.
AMC main product in 1980s was grey iron sanitation pipes, and it had its famous brand name in that
period.
Amreya Metal Co. (AMC) is engaged in diversified industrial activities from foundry and engineering
activities to machining workshop, automotive sub-assemblies and structural steel work.
1. Company Profile:
Founded in 1979, Amreya Metal Company is one of the leading privately owned foundries in
Egypt with an annual capacity of about 10,000 tons of molten metal. Its foundry is equipped with
a flexible production process control with a good level of methodology and product control. The
company designs, manufactures, assembles and installs complete warehouses and factories. Its
industrial activities are diversified from foundry and engineering to machining workshop,
automotive sub-assemblies and structural steel work. Amreya has built one of the most
prestigious projects of the 20th century - "Bibliotheca Alexandrina". It is currently building a new
state-of-the-art foundry for the production of 25,000 tons of ductile iron casting for exports. AMC
is also a producer of grinding media for cement industries, pump casting and impellers,
refrigerator compressors and automotive parts, such as brake dishes and drums.
Examples of their products:-
Couplings
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Brake Disks
Motor Bodies and Accessories
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Manhole Covers
Valves
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Scaffolding Accessories
Railway Brake
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Examples for AMC main customers:-
General Castings Customers:
Crystal Asfour, Allweiler-Farid Pumps, Egyptian German Valves, Omega Pumps,
Ramses Pumps, Misr Italia for Machinery, MADICO, Egyptian Railways.
Automotive Sector (OEM) Customers:
Daewoo Motor Egypt, Citroen, Suzuki Egypt, Peugeot Egypt, General Motors
Egypt, Nissan.
International Customers:
Triplex (Land Rover & Ford) U.K., Danfoss Socla France, Hydro Top Germany,
Avecho Tech. Germany, Tyco Breda Italy, TRW Czech Republic, Brembo Italy, Raja
Love Joy Germany, Mafoder Morocco.
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The company plans to triple its production capacity to 14,000 tons annually. The foundry is also
engaged in the casting, machining and assembly of automotive parts serving diversified
customers including pump and valve manufacturers as well as local automotive assemblers.
The plant is equipped with the necessary processes and corresponding equipment: Induction
furnaces, green sand moulding line, furan resin moulding lines, disamatic MK3 2012 machine,
shell moulding, blasting machines, etc.
2. Capabilities:
2.1. Foundry Division:
AMC facilities offer a wide range of casting with different complexities and weights which
have an annual production capacity of over 14,400 tons. Its foundry is equipped with a
flexible production process control with great level of methodology and product control.
2.2. Melting:
(2) ABB twin power (1500 Kg – 1000 kw) medium frequency.
(2) Inductotherm (2000 kg – 1000 kw) medium frequency.
2.3. Moulding:
2013 Disamatic high pressure moulding line, mould size: 600 mm x 480 mm x 120/240
mm (120 moulds/hr). Weight range: from 0.3 to 20 Kg
(2) jolt squeeze green sand moulding line (+ sand preparation), box size: 900 mm x 900
mm (30 moulds/hr). Weight range: up to 100 Kg, roll over moulding line (furan resin)
mould size: 2000 mm x 1500 mm (10 moulds / hr).
(3) manual set furan resin moulding line, weight range: up to 2.5 tons.
2.4. Core Making:
Core shop including 3 machines cold box system, using Hüttenes-Albertus materials.
2.5. Blasting and Fettling:
(1) Raga Shoot Blast Machine Belt Type.
(1) Raga Shoot Blast Machine Hock Type.
(1) Goof Shoot Blast Machine Belt Type.
(1) George Fischer Blast Machine Hock Type, cutting stones and grinders.
2.6. Engineering and Pattern Making Divisions:
AMC makes the design for its patterns using latest CAD/CAM system software. Using
MAGMASOFT as a comprehensive simulation tool for the technological and quality focused
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production of castings worldwide, which provides better understanding of mould filling,
solidification, mechanical properties, thermal stresses and distortions. MAGMASOFT
provides a complete solution for design, production, and quality departments. CNC machine
centre is used to manufacture their tools, and as well as a fully equipped conventional work
shop including different types of conventional cutting equipment.
2.7. Machining Division:
The company's machining shop facility is equipped with seven turning CNC machines and
two machining centres as well as a 3D machine for precision quality assessment.
(1) EMAG VSC 400 multifunctional production center, single spindle.
(2) DMG -Mori Seiki, CTX 510 eco.
(2) CNC lathe machine Takisawa.
(1) CNC Brinkmann double spindle lathe.
(1) Okuma MX 55 VB Vertical machining center.
(1) Machine Center / CNC lathe machine Takisawa.
(1) Auto balancing machine CEMB.
2.8. Assembly Division:
The company's assembly facility is equipped with a complete assembly line for front strut
and rear axle suspension systems. AMC is currently sub-assembling wheel and axle parts for
automotive OEM’s in Egypt.
2.9. Metallurgy Lab. List of Equipment:
Stationary Optical Emission Spectrometer (SPECTROLAB).
Spectrometer – type: Spectro Lab M5 - 36 elements and 15 analytical programs (FE, AI and Cu base).
Microscope stand "Axio Lab.A1" MAT, ZEISS.
Sand Lab - George Fischer.
Brinell hardness tester, model: BH3000 Wilson Hardness.
Universal testing machine.
Ultrasonic device to check nodularity.
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3. AMC Milestones:
1979: AMC was established.
1996: AMC signs a contract with Peugeot Egypt to develop brake discs, drums
manufacturing, and front strut assembly.
1998: AMC signs a contract with DME to assemble front struts and rear axles for passenger
vehicles including AMC brake discs and drums.
1999: AMC signs contract with Citroen Egypt to assemble front struts, rear axles and engine
cradle assembly for passenger vehicle including AMC brake discs, and drums.
2001: Alexandria bibliotheca steel structure works.
2002: AMC signs a contract with Nissan Egypt to assemble the commercial car front strut
including AMC brake discs and ductile iron hub.
2002: Triplex components machining commissioned Mira to carry out a number of tests on
AMC brake discs and drums designed for the Land Rover Defender and Freelander models
as supplied by Amreya Metal Company. The tests were specified by Land Rover Ltd as the
minimum requirements to allow production sign off. All the tests were carried out according
to the specifications provided and all the requirements set by Land Rover were met.
2003: AMC started to supply Suzuki Egypt with the rear drum and steering arm till now.
2004: AMC was awarded with ISO 9001-2000 QMS certificate.
2008: AMC started to supply TRW with different types of casted brake discs and drums.
2010: AMC awarded with ISO 9001-2008 QMS certificate.
2011: AMC won a tender to deliver the brake shoes to the Egyptian Railway.
2012: AMC products were certified and registered with the National Organization for Potable
Water and Sanitation.
2012: New investments to double existing capacity to reach 14,400 ton annually.
2012: AMC started developing new markets in Morocco and Algeria.
2012: AMC awarded with ISO TS 16949: 2009.
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4. Corporate Governance:
Board of Directors:
Title Name
Chairman of the board Representing Citadel Capital Partners Ltd.
Ahmed Heikal
Co-Founder and Managing Director Representing Citadel Capital Partners Ltd.
Hisham El-Khazindar
Managing Director Representing Citadel Capital Partners Ltd.
Karim Sadek
Board Member Representing Citadel Capital Partners Ltd.
Mohamed Shoeib
Board Member Representing Citadel Capital Partners Ltd.
Amr El-Garhy
Board Member Representing Citadel Capital Partners Ltd.
Moataz Farouk
Citadel Capital Partners Representing Citadel Capital Partners Ltd.
Magdy El-Desouky
Board Member Ossama Hassan Hafez
UCF Managing Director Salwa El-Sayed
AAC Managing Director Nizar Shahdy
AMC Managing Director Madani Hozaien
Board of directors composes of 11 members; most of them represent Citadel Capital Partners
(the holding company), in addition to the managing director of the company.
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5. Strategic Profile:
5.1. AMC Vision:
Our goal is to become a world-class organization whose growth is a direct result of our
customers’ satisfaction; recognized as a leading ductile and grey iron foundry for all
industries within the Mediterranean basin. A reliable business partner to our customers and
regarded by our peers as a competent casting specialist and solution provider.
5.2. AMC Mission:
To provide our customers with a reliable, state-of-the-art, and competitive manufacturing
facility for their cast iron needs that exceeds their expectations. To provide our employees
with working philosophy of responsibility, a safe & clean working environment, along with
the necessary tools, organization, training and leadership to efficiently accomplish their
goals. To provide our suppliers with efficient and reliable communications for our material
and equipment needs. To provide our shareholders with an excellent capital and asset
structure that enhances their shareholder value.
5.3. Core Values:
Teamwork:
Providing support to one another, working in harmony, respecting one another’s views, and
making our work environment fun and enjoyable.
Honesty:
Being open and honest in all our dealings and maintaining the highest integrity at all times.
Excellence:
Always doing what we say we will and striving for excellence and quality in everything we
do.
Commitment:
Working with urgency and commitment to be successful from both the individual and
company’s perspective.
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III- Environmental Scanning (External Environment Analysis)
1. PESTEL Analysis:
Key Facts About Egypt:
Officially the Arab Republic of Egypt, is a transcontinental country spanning the northeast corner
of Africa and southwest corner of Asia via a land bridge formed by the Sinai Peninsula. Most of
its territory of 1,010,000 square kilometers (390,000 square miles) lies within North Africa and is
bordered by the Mediterranean Sea to the north, the Gaza Strip and Israel to the northeast, the
Gulf of Aqaba to the east, the Red Sea to the east and south, Sudan to the south and Libya to the
west.
Egypt is one of the most populous countries in Africa and the Middle East, and the 15th most
populated in the world. Egypt has one of the longest histories of any modern state, having been
continuously inhabited since the 10th millennium BC. Egypt's rich cultural legacy, as well as the
attraction of its Red Sea Riviera, have made tourism a vital part of the economy, employing about
12% of the country's workforce.
The economy of Egypt is one of the most diversified in the Middle East, with sectors such as
tourism, agriculture, industry and services at almost equal production levels. Egypt is considered
to be a middle power, with significant cultural, political, and military influence in North Africa,
the Middle East and the Muslim world.
1.1. Political Factors:
1.1.1. Policy instability and government instability:
Both considered the first and
second most problematic factors
for doing business in Egypt
according to WCR (World
Competitiveness Report). Since
the 25th of January revolution,
several governments came into
rule with several directions, in
addition to military and judiciary
intervention in policy led to
political instability and national wide protests.
Political stability over the last 30 years came to an abrupt end in 2011. Following the uprising
in Tunisia that saw its president swept from office, a similar surge of ‘people power’ led to
the sudden ousting on 11th of February 2011 of the 82-year old President Hosni Mubarak,
who rules since the assassination of his predecessor Anwar El-Sadat in 1981.
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1.1.2. Lack of transparency:
- Fast unplanned governmental decision which may cause organizations to take
inefficient economic decisions.
- The media, specially the official one, has bad reputation in falsifying facts and
manipulating the public opinion.
- Lake of communication between public community and government which is still
present even after the revolution.
1.1.3. Relation with neighboring countries:
- Egypt has no disputes with neighboring countries except with Iran, Qatar and
Ethiopia which could be a good opportunity and at the same time a threat for
opening new markets.
- While relations with Iran has no major effect on economy, bad relations with Qatar
may affect energy availability as it is the main exporter of natural gas, while bad
relations with Ethiopia and African countries may affect opening new markets in
Africa.
- Good relations with other countries may open their markets to Egyptian products.
1.1.4. Increasing uncertainty and risk for doing business due to political instability. This
may increase the difficulty for entrance in a given industry.
1.1.5. Increasing unions’ power after the revolution: in industries depending on skilled
labor, increasing unions’ power will lead to increase in wages.
1.2. Economic Factors:
Economy Overview:
Population: almost 90 million, doing business rank 2012: 110 (-), GDP: 2, GDP per capita:
1.2.
Economic growth remains weak, with a high fiscal deficit and gross public debt (domestic
and external) rising to nearly 100 percent of GDP at end of June 2013. Low growth rates pose
a danger to mounting social frustrations, as they will not suffice to deliver the needed jobs
and opportunities. Unemployment rate reached over 13 percent in June 2013. Most
critically, however, more than three-quarters of the unemployed are between 15 and 29
years of age.
Economic Analysis:
1.2.1. Access to financing is considered one of the most problematic factors for doing
business in Egypt. This is due to immature banking sector characterized by
fragmentation, lack of competition and old technology. Banking system requires
more investment in on-line business.
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1.2.2. Tax rate and expected tax elevation:
Egyptian corporations are subject to corporate profits tax on their profits derived
from Egypt, as well as on profits derived from abroad, unless the foreign activities are
performed through a permanent establishment located abroad. Foreign companies
resident in Egypt are subject to tax only on their profits derived from Egypt:
- Corporate income tax (up to net profit 10,000,000): 20%
- Corporate income tax (net profit over 10,000,000): 25%
- Capital gains tax: 20%
- Branch tax: 20%
- Interest: 20%
- Royalties from patents, know-how, etc.: 20%
The elevation in taxes is expected to continue (8% yearly) due to several reasons:
- The increase in the fiscal deficit.
- The increase in government expenses on wages and increase labor demands for
lower wages limit.
- IMF arrangements had failed which would have provided US$ 4.8 billion, in
addition to opening the door for more finance.
- Low foreign currency reserves.
1.2.3. Slowing Industry growth:
- The slowing growth of industry and manufacturing will affect supplementary
industries such as metal casting (for example decrease in cars sales will decrease
the demand on casted parts).
- 2007 GDP for manufacturing sector was 17 while in 2012 was 16.2
1.2.4. Foreign currency regulation and local currency deprecation: The Egyptian pound
continues to depreciate against US Dollar and Euro in spite of the ongoing
intervention of the Egyptian Central bank (ECB) which may be a chance for export to
Europe.
1.2.5. Increasing energy prices and reform of energy subsides:
- The government has planes to reform subsides for the purpose of decreasing
budget deficit mainly through the removal of energy subsides for industrial uses.
- Bad relation with Qatar, which is a major supplier of gas.
- Low foreign currency reserves.
1.2.6. Transferring public sector to private sector.
1.2.7. Openness to foreign investment: In January 2012, Egypt seated its first parliament
elected in free and fair elections, and many of the members have identified
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increasing foreign investment as a top priority for the government. Egypt continues
to honor its pre-revolution laws, international treaties, and trade agreements. It is
party to 111 bilateral investment treaties and is a member of the World Trade
Organization (WTO), the Common Market for Eastern and Southern Africa (COMESA),
and the Greater Arab Free Trade Area (GAFTA). In most sectors, there is no legal
difference between foreign and domestic investors. There are, however, special
requirements for foreign investment in particular sectors, such as upstream oil and
gas development, where joint ventures are required. There have also been recent
legal challenges to privatizations of formerly state-owned enterprises, including sales
of state assets from as far back as 1996. This could present a real threat to well-
established local businesses.
1.3. Social Factors:
1.3.1. Ease of hiring and firing practices: the Egyptian labor market is regulated by new
unified labor law No. 12 for 2013, which gives the right to the employer to fire the
employee and the employee to carry peaceful strikes.
1.3.2. Large internal market: with a population of almost 90 million, Egypt is the largest
market in MENA.
1.3.3. Lower limit for salaries: mature industries tend to decrease costs. Increasing salaries
will affect the finished product’s price.
1.3.4. High unemployment rate results in low wages in global terms, but may increase
instability and resist privatizations plans.
1.3.5. High poverty rates with high illiteracy: With 25.2% of the population living on less
than US$ 1.5 per day and the illiteracy rate is high at 27%.
1.3.6. Inadequately educated workforce: is one of the most problematic factors for doing
business according to (WCR).
1.3.7. Poor work ethics is a major problematic factor in doing business in Egypt; the poor
work culture may need intervention with culture management especially if a
company intends to expand globally.
1.4. Natural Physical Environment Factors:
Environmental issues in Egypt includes air and water pollution; land degradation and
desertification; soil contamination; scarce natural resources; industrial wastes. The threats
that are facing AMC are as follows:
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1.4.1. Scarce natural resources: The main raw material for AMC is iron scrap which is
sourced locally. Unfortunately, Egypt’s natural resources have suffered serious
degradation. However, since AMC mainly depends on iron scrap as the basic raw
material, this threat could have a very benign effect on the company.
1.4.2. Industrial waste: metal casting produces a number of gaseous, liquid and solid waste
streams, many of which could have an adverse effect on the environment. Waste
products from casting operations include waste gases from molding and core making,
melting, molding, and shakeout; contaminated and unusable spent sand from sand
casting shakeout; slag from melting; and particulate from melting, shakeout, and
cleaning. Air-borne pollutants and contaminants also present a major environmental
issue for all metal casters. These include dust, particulate, off-gases, fumes, and gases
(such as carbon monoxide) from furnaces, and other byproduct gases and fugitive
emissions.
The waste streams produced by metal casting are subject to compliance with a
number of environmental regulations governing air, water, and solid waste effluents.
Major environmental statutes and regulations affecting the metal casting industry
include the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act (RCRA), and the Superfund Amendments and Reauthorization Act. Of
these, the Clean Air Act Amendments of 1990 pose the most difficult and costly near-
term challenge.
On August 2013, the Egyptian government has announced the launch of a $2-million
project aimed at managing industrial waste. It is worth mentioning that industrial
waste in Egypt comprises about 6.2 million tons every year, contributing around 13
percent of total waste. The project has gained funding from the Middle East and
North Africa Transition Fund.
1.5. Technological Factors:
1.5.1. Total government spending for R&D: The Research and development expenditure
(% of GDP) in Egypt was 0.21 in 2009, down from 0.27 in 2008. Spending for R&D in
Egypt is still very low compared to other developing nations like Brazil (1.17 in 2009)
and Turkey (0.85 in 2009). Large-scale R&D activities in Egypt are relatively modest.
The majority of government-funded R&D programs are in agriculture, health, and, to
a lesser extent in the manufacturing sector.
1.5.2. Industry spending for R&D: The metals industry is considered more-or-less
technology mature as it spends less than 1% of its revenues on R&D. In the period
2003-2008, that sector saw a very significant increase in profitability. Yet, during the
same period, metals companies continued to trim R&D spending, a trend that started
in the early 1980s. In the near future the metals industry will face significant
challenges including an increased demand from the developing world
counterbalanced by an overall trend to lower ore grades and with high pressure to
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reduce energy consumption and carbon dioxide emissions. To overcome these
challenges, the metals industry will likely face the need to considerably increase its
R&D efforts. As the world enters a period of economic uncertainty, the sector will
need to revise its approach towards R&D, reconsider its position against collaborative
research with academia and other institutions, and be more creative when it comes
to R&D funding.
1.5.3. Use of Information Technologies and CRM: information technologies benefit the
business world by allowing organizations to work more efficiently, maximizing
productivity and improving customer relation. Faster communication, electronic
storage, automated process, remote work and the protection of records are
advantages that IT can have on any enterprise. Customer relationship management
(CRM) is broadly defined as a model for managing a company’s interactions with
current and future customers. It involves using information technology to organize,
automate, and synchronize sales, marketing, customer service, and technical
support.
1.5.4. Poor market statistics and information infrastructure: Egypt's information
infrastructure is relatively underdeveloped. Internet availability is still limited in rural
areas and the speed suffers from the poor telecommunication infrastructure. It is
hard for investors to obtain reliable market Data. Public information vary widely from
one ministry to the other. Therefore, this type of information is insufficient for
decision-making.
1.6. Legal Factors:
1.6.1. Unrestrictive labor laws: other than a few mandatory terms (which are implied in
the employment contract) appurtenant to working hours, leave days and social
insurance (all employees must be socially insured), the legislator has given the
employer the upper-hand in organizing and overseeing the work relationship. It is
noteworthy to mention that mandatory provisions, as stipulated in the labor law, set
out minimal standards, terms and conditions that govern the employment
relationship. In other words, employers cannot disregard provisions deemed as
public policy but they can certainly offer more advantageous terms (than those
provided by law) to the employees.
1.6.2. Low intellectual property protection: Egypt has been a member of the World Trade
Organization (WTO) since June 1995, under the umbrella of which comes trade-
Related aspects of Intellectual Property Rights or TRIPs. TRIPs set down minimum
standards for many forms of intellectual property regulations, stating legal
requirements each member state must meet. In June 2002, Egypt’s government
passed a law on the protection of intellectual property. In spite of the ongoing efforts
to enforce this law, right holders remain hampered by piracy and other barriers. The
24
IIPA (international Intellectual Property Alliance) stated in a 2013 report about Egypt
that “photocopy and print piracy, enterprise end-user piracy of software, and piracy
of music, software, games, and movies, continued to cause losses to copyright
owners in 2012.Unfortunately, the situation worsened in 2012 due to the current
political instability and poor economic climate and outlook.”
1.6.3. Crime and theft: Egypt has experienced profound political changes over the past
year. On February 11, 2011, President Hosni Mubarak’s 30-year rule came to an end
under intense popular pressure as hundreds of thousands of Egyptians converged on
Tahrir Square. Transition to democratic rule has been marked by advances and
challenges. One of most prominent challenges has been the escalating rate of crime
and theft. According the Global Competitiveness Report of 2013-1014, respondents
were asked to select the most problematic factors for doing business in their country.
Crime and theft came in the third place. Enforcing the power of law and decreasing
the level of crime are still major issues for the interim government.
2. Task (Industry) Analysis:
2.1. Threat of New Entrants:
2.1.1. Capital requirement and economies of scale:
Metal cast manufacturing is a capital-intensive industry where highly expensive
equipment, conveyors and furnaces are needed to initiate the production. Also, the
maintenance costs for this equipment are very high, and such sophisticated
machineries are essential to boost the productivity of the labor. For that, a significant
economy of scale effect is observed due to the existence of high fixed costs. A rough
estimation of the breakeven point of a given plant (where costs equal revenue) is 4.5
million tons per year. Competitiveness is positively related to large scale of
production and it is considered as the main barrier for entrance of new competitors.
2.1.2. Product differentiation:
The main factor that differentiates the cast metal products is the design and the
degree of finishing. These two factors are highly dependent on the engineering
experience and labors skills that cannot be gained easily, which create another
barrier for the new entrants to start in this business except through head hunting
which puts an extra cost burden on them.
2.1.3. Government policy:
The Egyptian government announced it would give priority to new competitors,
following its open call for bids on licenses for the production of two million tons for
iron and one million ton for billets. The announced licenses, which will be granted
25
through bidding - up to 500,000 tons per company gathered nine bids from new and
existing market producers.
In India -where a ministry of steel exists- an industrial policy announcement was
made in July 1991 that iron and steel industry, among others, was removed from the
list of industries reserved for the public sector. The government also exempted the
industry from the provisions of compulsory licensing under the industries.
The policies that have been announced in these developing countries open the
markets for new potential entrants to compete against existing firms as a move from
governments to minimize monopoly and eventually decrease prices. However, the
Egyptian government, for example, did not meet the target needed due to
corruption, in addition to other difficulties like lack of high capital and knowhow.
2.2. Rivalry Among Existing Firms:
2.2.1. Number of competitors:
Number of competitors in this industry is relatively high. Competitive pressure rises
automatically by high concentration of competitors. Around the world, there are
thousands of metal cast fabricators and it is described as a low concentration ratio
industry where none of which has a significant market share. However, government
policies can sometimes play a role in such situations in order to protect the national
manufacturers. For example, car manufacturers in Egypt are required to procure 40%
of car components from Egyptian manufacturers like car seats and tires. Our concern
are the several metal casting products like brake discs, which makes the impact of
the number of competitors somehow limited.
2.2.2. High exit barriers:
With high investments in assets like land, buildings, cranes, furnaces that will not be
much of use except for iron makers and foundries, this industry comes with a high
exit barriers. These high fixed costs makes it costly to abandon production and the
decision to quit the market would be extremely difficult for any manufacturer.
2.2.3. Slow industry growth:
Slow industry growth leads manufacturers to a cutthroat competition where minor
changes in prices could have a noticeable impact on all competitors.
2.3. Threat of Substitute Products:
Many material developers are doing researches to find new materials that have the
properties of metals (or maybe better) and with other physical characteristics that most
metals lack, like ductility to be formed in forms that are more complex or lighter and maybe
tougher than metals. Many new materials were found to be substitutes for metals. One of
the most important materials that has a huge impact on market share of metal products is
PVC. This material has totally replaced cast products in many product lines like pipes, elbows,
T-joints … etc. Also, PVC is widely used in automotive body parts like the front and rear
26
bumpers and door handles. Automotive manufacturers do not only use PVC products, but
they are also turning it to ceramics as an alternative to metals, for its mechanical strength,
thermal and electrical properties. These substitute products are rarely discovered. However,
even a single good discovery can be considered as a major threat for the whole industry.
2.4. Bargaining Power of Buyers: The main buyers of metal casting products are automotive, petrochemicals and heavy
equipment manufacturers. Those buyers lead some of the most relatively stable industries
in the world, which generate huge profits, especially the well-known brands. Traditionally,
buyers have the upper hand over metal casting manufacturers. For example, if a given
manufacturer performs below any buyer’s standards, this manufacturer could easily be
replaced since many other competitors already exist in the market.
2.5. Bargaining Power of Suppliers: The main raw materials used in this industry are iron ore and iron scrap. Iron ore prices have
been decided in closed-door negotiations between the small number of iron miners
and steelmakers that dominate the markets. Traditionally, the first deal sets a benchmark to
be followed by the rest of the industry. So, there is an equal power between iron miners and
steel makers. However, recently, free exchange markets have come to existence like London
Metal Exchange (LME) and Singapore Mercantile Exchange (SMX) where iron ore prices
fluctuate based on demand and supply mechanism. Such mechanism limits the bargaining
power of the iron suppliers. As for the iron scrap, it is a very important input because it makes
the charge more iron rich. It is supplied mostly by local suppliers and their bargaining power
depends on whether they are located in a developed or developing country. Scrap suppliers
in countries like the USA are more organized with considerable power over steel makers.
While in countries like Egypt, they are less organized with lower barging power.
27
3. Issues Priority Matrix:
To identify the most important external factors from both PESTEL analysis and task analysis set
above, a prioritization of opportunities and threats is done by using Issues Priority Matrix as
follows:
*factors in italics are those used in EFAS.
4. External Factors Analysis Summery (EFAS):
After scanning and prioritizing the societal and task environments, the most important strategic
factors that would affect Amreya Metal could be selected from issue priority matrix set above
and summarized in the following EFAS table. The total weighted score for AMC as shown in the
table is 2.97, which is an almost average score.
Probable Impact on Industry
High Medium Low
Pro
bab
ility
of
Occ
urr
ence
Hig
h
- Increasing unions’ power (T) - Local currency depreciation (O) - Increasing energy prices (T) - Slowing industry growth (T) - High entry barriers (O) - Large internal market (O)
- Bargaining power of buyers (T) - Inadequately educated workforce (T) - Information Technology and CRM (O)
- Increasing uncertainty and risk (T) - Political instability (T) - Lack of transparency (T) - Problematic access to finance (T) - Rivalry among existing firms (T)
- High poverty and illiteracy rates (T) - Ease of hiring and firing (O) - Unrestrictive labor laws (O) - Tax rates and tax elevation (T)
Me
diu
m
- Neighboring countries relations (O) - Poor work ethics (T)
- Industrial waste (T) - Industry spending on R&D (T) - Openness to foreign investment (T)
- Poor market statistics (T) - Scarce natural resources (T) - Transferring public sector to private (T)
- Lower limit of salaries (T) - Crime and theft (T) - High unemployment rates (O+T)
Low
- Threat of substitutes (T) - Bargaining power of suppliers (O) - Government spending on R&D (T) - Low intellectual property protection (T)
28
External Factors Weight Comments Rating Comments Weighted
Score
Opportunities
Information technology and CRM
0.05 Allow organizations to work more effectively and efficiently
2.5 Applying new information technology system will take time and training
0.125
Currency depreciation 0.05
Prices of main raw material (scrap) has not changed due to deprecation because it is sourced locally
2 Exports prices decreased by approximately 20% in 2013
0.1
Large internal market 0.1 Egypt is the third largest car manufacturer in Egypt (after South Africa and Morocco)
3
Accepted quality by major industrial companies with wide variety of products and good access to the internal market
0.3
Neighboring countries 0.1 Trade agreements (e.g. COMESA) gave the chance to replace Chinese companies
3.5 Gained market share in Morocco and Algeria
0.35
High entry barrier 0.2 Requires high capital & difficult government policies that limits the entry
4 Established since 1979 and the capital investment is covered
0.8
Threats Union power after 25th of January revolution
0.05 Company is exposed to shutdown strikes
3.5 Top management is flexible to respond to the strike demands
0.175
Energy prices 0.15 Reducing subsidies on energy supplied to the industrial sector
1.5 30% increase of energy prices in 2012
0.225
Inadequate workforce 0.1 Poor vocational education in Egypt
3 Providing training to new employees
0.3
Slow industry growth 0.1 Weak demand and decrease in cars sales
3 Tend to open external market 0.3
Bargaining power of buyers 0.1 Large portion of the products are purchased by major auto makers
3 Limited bargaining due to a good base of loyal customers
0.3
Total Scores 1 2.975
5. Mapping Strategic Groups:
The following dimensions are selected to differentiate metal casting manufacturers in the
Egyptian market:
- Product variety - Product quality and price.
The main metal casting manufacturers in Egypt and their products are as follows:
29
Name Product Variety
Amreya Metal Company “AMC” - Steel, iron and stainless casting. - Automotive discs. - Machining and assembly.
Alexandria Automotive Casting “AAC” - Iron casting. - Automotive discs machining.
United Company for Foundries - Steel and high chrome casting
ABD Modern Foundries Co. - Steel and iron casting
Alexandria Shipyard - Steel and iron casting
El-Nasr Steel Pipes & Fitting Co. - Steel, copper & iron casting
Greater Cairo Foundry - Steel and iron casting
Helwan Iron Foundry (Factory 9) - Steel and iron casting
INFIT SAE - Steel and iron casting
Modern Technical Foundry - Steel, iron and stainless casting
Amoun Foundry - Steel and iron casting
Egyptian Axles - Automotive discs - Machining and assembly.
Upon plotting the metal casting manufacturers (as shown the table above) on a two-dimensional
graph, using the two strategic variables chosen above (product variety and product quality &
price) as the vertical and horizontal axes, we found that Amreya metal company (AMC) share the
same strategic group as Alexandria Automotive Casting (AAC)
30
6. Industry Matrix:
Industry Matrix is a tool used to compare the competitive performance of two organizations
based on the key success factors of the industry. Key success factors are variables that can
significantly affect the overall competitive positions of companies within any particular industry.
They typically vary from industry to industry and are crucial to determining a company’s ability
to succeed within that industry.
Mapping Strategic Groups in the Egyptian Metal Casting Industry
1- Abd Foundries 2- Modern Foundry
3- Greater Cairo Foundry 4- Infit SAE
5- Amoun Foundry
Low High
Product Variety
High
Low Pro
du
ct Q
ual
ity
and
Pri
ce
United Company for Foundries
Egyptian Axles
1- El-Nasr Steel 2- Helwan Iron Foundry 3- Alexandria Shipyard
1- Amreya Metal Co. 2- Alexandria Automotive
Casting
Low variety and high quality for special
casted products only
Medium variety and high quality for
machined products only
High variety and high quality for both
casted and machined products
Medium variety and good quality for
casted products only
High variety and good quality for casted
products only
31
Key Success Factors Weight Amreya Metal Co.
Alexandria Automotive Casting
Rating Weighted
Score Rating
Weighted Score
Production Technology 0.25 2.5 0.625 4 1
Skilled Labor 0.25 3 0.75 2.5 0.625
Quality Control 0.2 3.5 0.7 4 0.8
Product Design 0.15 3 0.45 4 0.6
Marketing & CRM 0.15 2.5 0.375 3.5 0.525
Total 1.00 2.9 3.55
From mapping strategic groups, we found that both Alexandria Automotive Casting (AAC) and Amreya Metal Co. (AMC) share the same strategic group. Therefore, for the industry matrix, we have chosen Alexandria Automotive Casting (AAC) as the main competitor for Amreya Metal Co. (AMC), since the two competitors belong to the same strategic group.
The total weight score of AMC is lower than that of AAC. However, AMC has a higher rating for the skilled labor factor due to experience based on earlier presence in the market since 1979, while AAC was established only in 2001. The reason why AAC has a higher total weighted score is because the company has invested heavily in advanced technology and production facilities.
7. Competitive Analysis - Four-Corner Exercise:
There are many analytical techniques used in competitive analysis. We begin with Porter’s four-
corner exercise.
7.1. Future Goals:
AAC was established as a free zone company to serve the needs of European automotive
markets. However, the company is looking forward to expand its selling in the local market.
AAC has intentions to penetrate the local market in order to gain a large share and at the
same time increase exports by 100% within 5 years. It is worth mentioning that their
investment plan is for 6 million Euros. Since the main market for AAC is the European market,
the company strives to be world-class company as well.
7.2. Current Strategies:
The directional strategy of AAC is concentration horizontal growth through market
penetration. The competitive strategy is cost leadership. By mid-July 2012, the company
completed the first phase of a two-phase capacity expansion to reach 45,000 tons per
annum.
32
7.3. Assumptions:
To invest in the necessary capital improvements and technologies essential for continuous growth,
service and competitiveness. Continuous employees training and commitment to innovation. The highest trustworthy long-term customer relationship. To contribute to the community and address social issues responsibly
7.4. Capabilities:
Strengths:
One of the biggest plants in Egypt in terms of capacity (45,000 tons per annum)
State-of-the-art foundry and CRM system.
High quality automotive brake component products.
Weaknesses:
No share in the Egyptian market
7.5. Competitor’s Response Profile:
AAC is not satisfied with its current position. This is apparent in the company’s aggressive
growth plans and the assumption of continuous effort to increase the capacity.
The company will probably not make any strategic shifts. Cost leadership competitive
strategy is quite consistent with the cast steel market requirements. However, the
company may cut back the aggressive growth plans in the near future once it achieves the
geographical expansion or capacity needed.
The company obviously has no share in the Egyptian market since it was established
mainly in a special free zone to serve the European automotive market. Certainly, AAC
will make aggressive moves to win a good share of the Egyptian market.
Trying to take away the company’s main European automotive customers (Volvo, Seat,
Skoda, Mercedes-Benz, etc.) will perhaps provoke the greatest and most effective
retaliation by AAC. European automotive market is the stronghold of the company and it
will exert all its powers to retain that market.
8. Competitive Analysis - Value Discipline Triad:
We use the value discipline triad competitive analysis technique to evaluate the company’s
position compared to that of the main competitor (Alexandria Automotive Casting) in terms of
three dimensions: product leadership, operational excellence and customer intimacy. We found
out the following:
- In terms of product leadership: AAC is ahead of AMC because AAC obviously invests more
in high technology and product development.
33
- In terms of operational excellence: AMC is better than AAC due to longer experience in the
industry and availability of skilled labour.
- In terms of customer intimacy: AAC is ahead of AMC because they already have an
established CRM system.
Customer Intimacy Operational Excellence
Product Leadership
Amreya Metal Company
Alexandria Automotive
34
IV- Environmental Scanning (Internal Environment Analysis)
We will scan the internal environment including the company structure, culture and resources in
order to identify the most important strengths and weaknesses.
1. Organizational Structure:
AMC structure is a functional structure where employees are organized around different
functions in the company such as financial, technical, business development, export, and quality
control departments. The decision-making authority is centralized in the hands of board of
directors. The current structure is more mechanistic than organic due to the nature and size of
the organization and industry.
2. Culture:
The company's culture is based upon establishing good relations with all employees. It is worth
mentioning that all employees belong to almost the same generation. On the other hand, the
relationship between employees and shareholders is quite formal.
Rewarding and incentives are quite arbitrary; based upon results achieved by employees and
the evaluation of those results by shareholders. There is no written policy for rewarding and
incentives except for sales people who are rewarded with 1% out of their sales volume when
they manage to exceed the planned sales target determined at the beginning of each quarter.
Also, the company has a very good system for overtime compensations. The absence of formal
reward system resulted in high turnover rate among new engineers.
All information is exchanged through internal memos and formal channels.
Promotion system in the company is based upon qualifications and achievements. However,
in highly specialized technical departments, promotion is still based upon experience and
seniority.
BOD
CEO
General Manager
Governmental Relation Director
Health and Safety
Manager
Finance Director
Purchasing Manager
Logistics Manager
Accounting Manager
Financing Auditing Manager
QC Director – TQM
Quality Assurance Manager
Quality Manager
Technical Director
Maintenance Manager
Engineering Manager
IT ManagerProduction Manager
AdminstrationDirector
HR Manager
Security Manager
Local Sales Manager
Exporting Manager
Planning & Customer Service
Manager
35
Punishment is based upon formal request from the department’s manager who would like to
discipline certain employee(s) for poor performance or other issues. However, warning must
be given to the employee in question before imposing any punishment. Disciplinary meetings
should attempt to provide the employee with ways to solve the problems and give him/her
clear directives on future expectations and the consequences if those expectations are not
met.
3. Functional Resources:
3.1. Marketing:
Although the company does not have a marketing department, AMC has a marketing plan
with the main objective of establishing very good position in the market using the following
procedures:
3.1.1. Promotion:
AMC participates in all industry exhibitions in order to establish close encounters with
clients and consultants who are interested in metal casting, machining and assembly
for the suspension systems used in the automotive industry. During the exhibitions,
AMC experts meet with clients and consultants in order to answer questions
regarding the company’s products. During each year, the company makes at least
two seminars in one of the biggest hotels in Egypt; inviting all consultants and key
customers. Usually, during the seminars, sales manager and/or technical manager
explains the new technologies and products. One of the company’s goals is to
establish good relations with the consultants who are working in the field, because
casting business constitutes a big part of many industrial fields. Moreover, sales staff
periodically visit those consultants to gain some market information about new
projects availability, and to make sure that AMC’s brands is on the vendor list of the
consultants. The consultants are also invited to visit the factory in order to see
products during the manufacturing stage. After the sales staff get the information
needed about new projects, they visit the project’s owners or the main contractors
in order to present the company’s bids. Big share of the business comes from good
relation with big customers who are expanding their businesses, like Crystal Asfour
and MADICO (Ahmed Daoud) as well as major automotive factories in Egypt.
Examples of AMC presence in international exhibitions:
36
Examples of AMC presence in domestic exhibitions:
37
3.1.2. Price:
The company always tries to give clients good solutions with best prices. Because the
competition in casting business is fierce, clients can find many alternative solutions,
all of which are technically acceptable, but the quality and price are different. In
addition, AMC can provide clients with design, casting and machining of the products.
38
Accordingly, the prices offered by AMC is always better than others who cannot
provide all these services. The company is also able to offer credit facilities to key
accounts in order to win their loyalty, and make them feel more like business partners
rather than regular clients.
3.2. Operations and Logistics:
Operations and logistics are divided over the following departments:
3.2.1. Purchasing and logistics department:
Purchasing and logistics department is responsible for purchasing and importing all
required materials either from local or foreign suppliers. While the Logistics department
does all the logistics processes to consolidate the material and ship them to the
company’s warehouses in Egypt. Moreover, the department is responsible for custom
clearance procedures and warehouses supervision.
3.2.2. Sales department:
Sales department is responsible to provide best offers, especially for big orders. The
department is also responsible for preparing bids, attending tenders and making sure
that the requirements of clients are met in timely manner.
3.2.3. Manufacturing:
The factory is located at Km. 21, Merghem, Alex-Cairo desert road. The company mainly
manufactures cast steel products according to clients’ specifications. Pattern are created
using high technology tools. AMC has about 150 employees in casting factory for the
main three lines; Disamatic manufacturing line, jolt squeeze manufacturing line and
horizontal manufacturing line. It also has about 75 employees for machining and
assembly factory using high technology for machining casted products, like brake discs,
hubs and other machined products. Since its establishment, the factory has been
providing automotive parts for clients like Daewoo and Nissan, covering all their
requirements of brake disks and other parts. Also, the factory provides spare parts
distributors with brake discs for different car models and is now branded as “Amreya
Discs”. This factory is considered the pioneer in the Middle East for manufacturing brake
discs. In 2003, main competitor “Alexandria Automotive Casting” started its production
line for manufacturing similar products with higher technology and more capacity. AMC
also has quality management for each process in order to make sure that high quality is
embedded in each product line. The company started to export the products to some
North African Countries.
39
3.3. Human Resources Management:
Human resources department provides the company with new candidates through
advertisements in newspaper and Internet websites. HR employees make initial interviews
for the potential candidates. Also, the department arranges several training courses for new
techniques used in each department to boost their skills and work performance. Some
employees are sent to training programs arranged by foreign suppliers outside the country.
Moreover, HR department supports all other departments regarding the evaluation of their
team members using attendance sheets and KPI’s (key performance indicators). They also
calculate the bonuses of sales staff according to volume of sales achieved compared to each
staff member’s target allocated.
3.4. Information Technology Department:
IT department is responsible for maintaining computers hardware and the web site. They
take care of installing software; making sure that internal and external e-mail system is
working; security is not breached and that vital programs are always updated according to
the requirement of the business. On the time being, they are looking forward to installing
SAP-ERP system, as they believe that an automated system will increase efficiency, and
minimize many errors caused by manual flow of information and documents. Also, this
automated system will allow each company level to have access to certain level of
information.
4. Financial Analysis:
AMC’s financial strategies are as follows:-
Down payments from clients (20% to 50%).
Invoices collection is usually per installation progress in site, or upon material supply.
The company enjoys open credit facilities with suppliers. Although after 25th January
revolution, most of the suppliers reduced the credit facilities.
Bank facilities to finance projects by a percentage of 75%. Also, the company is sometimes
financed by foreign banks but the interest rates are very high (exceed 15 %.)
4.1. Financial Ratios:
The following tables provide the ratio analysis of AMC for the fiscal years 2011 and 2012:
40
Liquidity Ratios
Ratio Name Formula 2011 2012 Meaning Analysis
Current ratio Current assets ÷ Current liabilities
1.39 3.45
A short-term indicator of the company’s
ability to pay its short-term liabilities from current asset
Better ability to pay liabilities than previous year
Quick (Acid test) ratio
(current assets - inventory) ÷
current liabilities 1.18 2.59
Same as above – excluding inventories
Better ability to pay liabilities than previous year
Cash ratio cash + cash
equivalents ÷ current liabilities
0.41 0.08 Measures how much of the
current obligations can be paid from cash or near-cash assets
An observed decrease in cash
Profitability Ratios
Ratio Name Formula 2011 2012 Meaning Analysis
Gross profit margin
gross profit ÷ net Sales
25% 28%
Indicates the total margin available to cover other
expenses beyond cost of goods sold and still yield a profit
Increase in the profitability of sales
Net profit margin
net profit after tax ÷ net Sales
16% 18%
Shows how much after-tax profits are
generated by each dollar of sales.
Increase in the profitability of sales
Return on equity (ROE)
Net profit after tax ÷ equity
12% 9%
Measures the rate of return on the book value of shareholders’
total investment in the company.
Decrease due to decrease in total sales
Return on investment (ROI)
Net profit after tax ÷ total
investments 12% 4%
Shows the return on all investments under company’s control regardless of source of
financing.
ROI decrease indicates bad usage of investment
Return on total assets
Rate of return on total assets = Net
profit ÷ total assets
6% 4% showing the return on
company’s assets Bad assets utilization
Activity Ratios
Ratio Name Formula 2011 2012 Meaning Analysis Total asset turnover
sales ÷ total assets
1.76 0.20 utilization of all the company’s
assets Bad assets utilization
Fixed asset turnover
Sales ÷ fixed assets
0.11 0.11 Measures the utilization of the
company’s fixed assets
No change indicating that the current asset have some sort of
a problem
Inventory turnover
Cost of sales ÷ average inventory
2.07 1.90
The number of times that average inventory of finished goods was turned over or sold
during a year
Bad inventory management and overstocking
41
Activity Ratios (continued) Ratio Name Formula 2011 2012 Meaning Analysis
Days of inventory
inventory ÷ (COGS ÷ 365)
112 days
119 days
number of days a company has inventory on hand at any given
time
Bad inventory management and overstocking
Accounts receivable Turnover
Credit sales ÷ accounts
receivable 0.97 1.19
Indicates the number of times that accounts receivable are
cycled during a year
Average collection period
Gross accounts receivable ÷ average daily
sales (net annual sales ÷ 365)
21.97 days
25.13 days
Average time in days to collect sales
Increase in the average time with low cash indicate bad
collection system or increasing bargaining power of buyers
Average repayment period
Total accounts payable ÷ average
daily purchases (net annual
purchases ÷ 365)
34.36 days
26.00 days
average time in days to pay for supplies
increase in the bargaining power of suppliers or unhealthy
economic environment
Days of cash Cash ÷
(sales/365) 11
days 12.69 days
Indicates the number of days of cash on hand, at present sales
levels. Bad cash flow
Leverage Ratios
Ratio Name Formula 2011 2012 Meaning Analysis
Total liabilities to assets ratio
Total liabilities ÷ Total Assets
47% 59%
Measures the extent to which borrowed funds have been used
to finance the company’s assets.
Increase in long term liabilities
Debt to equity ratio
Total liabilities ÷ total equity
90% 146.03% Measures the funds provided by
creditors versus the funds provided by owners.
More orientation towards debt over equity
Interest Coverage Ratio
Net profit before interest and taxes
÷ interest expense
36.51 5.24 Indicates the ability of the
company to meet its annual interest costs.
as the liabilities increase the ability of the company to meet
the interest costs decreases
42
5. Internal Factors Analysis Summary (IFAS):
From the above factors, we have selected the most important strategic strengths and
weaknesses to construct the following IFAS table. The total weighted score for AMC as shown in
the table is 2.77, which is below average score.
Internal Factors Weight Comments Rating Comments Weighted
Score
Strengths
High customer Loyalty 0.05 Maintaining limited number of
key customers 3
Large credit facilities granted to key customer
0.15
Good access to domestic and foreign markets
0.05 Highly impacts company’s
responsiveness 3
Good planet location, near Alexandria seaport and Egyptian
industrial cites 0.15
Variety of products 0.15 Offering a variety of customer
needs of metal products 4
Miscellaneous metal engineering solutions are
provided such as design, casting and machining of products
0.6
Skilled labour 0.1 Industry mainly depends on
expertise 3
Company is able to retain old experienced employees
0.3
Production efficiency 0.15 Customers are price sensitive due to fierce competition in
mature industry 4
Reasonable price with good quality
0.6
Weaknesses
No ERP system 0.05 Enhances flow of information between functional areas and
increases efficiency 1
Plans to implement the system but no serious steps were taken
so far 0.05
Weak financial management 0.15 Financial resources are very
important because the industry is capital intensive.
2 High debt rate, low liquidity 0.3
No investment in R&D 0.05
Mature industry needs process reengineering to increase
efficiency and new products to open new market
1 Lack of R&D department 0.05
High turnover among young engineers
0.1 Intellectual propriety will decay
due widening gap between senior and junior staff
2
No reward system and weak talent management cause high
turnover rate among young engineers
0.2
Absence of marketing department
0.15 Marketing is essential for gaining new customers.
2.5 Moderate sales efforts to
improve market share. 0.375
Total Scores 1 2.775
43
V. Strategy Formulation
Strategy formulation often referred to as strategic planning or long-range planning, is concerned
with developing a corporation mission, objectives, strategies, and policies.
1. Strategic Factors Analysis Summary (SFAS):
The following SFAS matrix summarizes AMC’s most important ten strategic factors by combining
the external factors from the EFAS table with the internal factors from the IFAS table. Weight of
each factor was readjusted so that the weight column total 1.00
Strategic Factors Weight Rating Weighted
Score Comments
O/T’s
O4 Neighboring countries 0.05 3.5 0.175 Gained market share in Morocco and
Algeria
O5 High entry barrier 0.15 4 0.6 Established since 1979 and the capital
investment is covered
T2 Energy prices 0.15 1.5 0.225 30% increase of energy prices in 2012 T4 Slow industry growth 0.1 3 0.3 Tend to open external market
T5 Bargaining power of buyers 0.05 3 0.15 Limited bargaining due to a good base of
loyal customers
S/W’s
S3 Variety of products 0.1 4 0.4 Miscellaneous metal engineering solutions
are provided such as design, casting and machining of products
S4 Skilled labour 0.05 3 0.15 Company is able to retain old experienced
employees.
S5 Production efficiency 0.15 4 0.6 Reasonable price with good quality
W2 Weak financial management 0.1 2 0.2 High debt rate, low liquidity
W5 Absence of marketing department 0.1 2.5 0.25 Moderate sales efforts to improve market
share.
Total Scores 1 3.05
2. Review of Mission:
The current mission does not need revision because broad mission statement may be best in our
task (industry) environment that lacks growth opportunities. The current mission also clearly
states the company’s primary business (casting). It also includes all the key stakeholders to whom
the company wishes to communicate its image.
44
3. Review of Objectives:
A review of the company’s current objectives must be made before alternative strategies can be
generated and evaluated. Objectives must be clearly compatible with the interest of key
stakeholders in the company’s environment. Therefore, strategy makers should choose
objectives that minimize external pressures and maximize the probability of gaining stakeholders
support. Ignoring or taking some stakeholders for granted can lead to serious problems later.
Therefore, key stakeholders must be identified first as follows:
3.1. Identifying Key Stakeholders:
SH 1. Owners. SH 2. Employees and unions. SH 3. Customers. SH 4. Suppliers: raw materials. SH 5. Suppliers: machinery and consumables. SH 6. Investment banks. SH 7. Government and environmental authorities. SH 8. Local communities. SH 9. Central Metallurgical Research Institute (CMRDI).
3.2. Stakeholder Priority Matrix:
Stakeholder priority matrix prioritizes stakeholders in terms of their (1) interest in the
company’s activities and (2) relative power to influence the company’s activities, as shown
below:
Relative Power of Stakeholder
High Medium Low
Sta
keh
old
er In
tere
st in
C
om
pan
y A
ctiv
itie
s Hig
h
SH1: Owners
SH6: Investments Banks
SH9: Central Metallurgical Research Institute (CMRDI)
Me
diu
m SH2: Employees and unions
SH3: Customers
SH4: Suppliers (raw material)
SH5: Suppliers (machinery
and consumables)
SH8: Local communities
Low
SH7: Government and environmental authorities
45
Considering key stakeholders with highest priorities, the following objectives are
devised:
- Higher return on investments and increase profitability. - Enhancing liquidity position. - Increase job security, job satisfaction and secure good level of payment to compensate
employees for their efforts. - Keeping a high product brand, value for money and proper after sales services.
4. Generating Strategic Intent Using the TOWS Matrix:
The TOWS matrix illustrates the process of finding a strategic fit between external opportunities
and internal strengths while working around external threats and internal weaknesses. This
matching process produces four sets of possible strategic alternatives
Internal Factors IFAS Table External Factors EFAS Table
Strengths (s) S1 High Customer Loyalty S2 Good access to domestic and foreign markets S3 Variety of products S4 Skilled labor S5 Production efficiency
Weaknesses (W) W1 No ERP system W2 Weak financial management W3 No investment in R&D W4 High turnover among young engineers W5 absence of marketing department
Opportunities (O) O1 Information technology and CRM
O2 Currency depreciation O3 Large internal market O4 Neighboring countries O5 High entry barriers
SO Strategies - Increase share in domestic and
foreign markets using good access to these markets.
- Retain skilled labor and increase production efficiency to elevate entry barriers.
- Increase market share in foreign countries by taking advantage of Egyptian currency depreciation.
WO Strategies - Finding new financial resources to
develop markets in foreign countries.
- Create a marketing department to develop internal markets.
Threats (T) T1 Union power after revolution T2 Energy prices T3 inadequate workforce T4 Slow industry growth T5 Bargaining power of buyers
ST Strategies - Use production efficiency and
product variety to overcome slow market growth
- Maintain high customer loyalty to mitigate the bargaining power of buyers.
- Use skilled labor to train new inadequate workforce
- Boost production efficiency to ease the impact of increasing energy prices.
WT Strategies - Selling obsolete equipment as scarp
to generate cash. - Stress on cost reduction in all
departments to improve the financial position of the company.
46
5. Strategic Alternatives and Recommended Strategy:
5.1. The Strategic Position and Action Evaluation (SPACE) Matrix:
SPACE Matrix is a four-quadrant framework which indicates whether aggressive,
conservative, defensive, or competitive strategies are most appropriate for a given
enterprise or company. The axes of the SPACE Matrix represent the two internal dimensions
of a competitive firm which are its financial strength (FS) and its competitive advantage (CA)
and two external dimensions which are environmental stability (ES) and industry strength
(IS). These four factors are the most important determinants of an enterprise's overall
strategic position in the marketplace.
The following table includes the average score of AMC in each of the above dimensions by
assigning a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that
make up the FS and IS dimensions and assigning a numerical value ranging from -1 (best) to
-6 (worst) to each of the variables that make up the ES and CA dimensions.
Competitive Advantage (CA) Industry Strength (IS)
Variable Score (-6=worst, -1=best)
Variable Score (+1=worst, +6=best)
- Market share -5 - Product quality -2 - Customer loyalty -2 - Product life cycle -3 - Competition’s capacity utilization -4 - Technological know-how -3 - Control over suppliers and distributors -2
- Growth potential 3 - Profit potential 3 - Financial stability 4 - Technological know-how 3 - Resource utilization 5 - Ease of entry into market 2 - Productivity, capacity utilization 3
Average -3 Average 3.29
Environmental Stability (ES) Financial Strength (FS)
Variable Score (-6=worst, -1=best)
Variable Score (+1=worst, +6=best)
- Technological changes -5 - Rate of inflation -5 - Demand variability -4 - Price range of competing products -2 - Barriers to entry into market -2 - Competitive pressure -2 - Risk involved in business -2 - Ease of exit from market -2
- Return on investment 2 - Leverage 2 - Liquidity 1 - Working capital 1 - Cash flow 2
Average -3 Average 1.6
47
Using the above average scores, we drew a directional vector from the origin of the SPACE
Matrix through the intersection point as shown below. This vector reveals the type of
strategies recommended for Amreya Metal Company.
The directional vector in the above diagram reveals that the company is in the competitive
quadrant. The information that can be deduced are that:
- The company is fairly competitive.
- With a weak financial position.
- In a mature industry.
The suggested strategies according to the competitive quadrant of the SPACE Matrix are:
- Backward integration
- Forward integration
- Horizontal integration
- Market penetration
- Market development
- Product development
- Joint venture
48
5.2. Grand Strategy Selection Matrix:
Grand Strategy Matrix is for creating alternative strategies. Grand matrix has four quadrants;
each quadrant contains different sets of strategies and the entire firms along with their
respective divisions must fall in one of the quadrant. This matrix has two dimensions
(competitive position and market growth). Suitable set of strategies for each quadrant are
given below:
Rapid Market Growth
Quadrant II Quadrant I
- Product development - Market development - Market penetration - Horizontal/vertical integration - Liquidation / divestiture
- Product and market development - Market penetration - Backward integration - Forward integration - Concentric diversification.
Weak Competitive Position Strong Competitive Position
Quadrant III Quadrant IV
- Retrenchment - Related/ Unrelated diversification - Conglomerate diversification - Liquidation / divestiture
- Related/ Unrelated diversification - Horizontal/vertical diversification - Conglomerate diversification - Joint ventures
Slow Market Growth
Amreya Metal Company operates in a mature industry with slow market growth (as
indicated in the EFAS table). The company enjoys a fairly competitive position in the market
through production efficiency, customer loyalty, product variety and skilled labor (as
indicated in the IFAS table). According to the Grand Strategy Matrix above, AMC belongs to
quadrant IV.
5.3. Recommended Corporate (Directional) Strategy:
As shown in the table below, it turns out that the only common strategy between
competitive quadrant of SPACE matrix and quadrant IV of Grand matrix is growth
concentration joint venture strategy.
49
Strategies in competitive quadrant in SPACE Matrix
Strategies in quadrant IV in Grand Matrix
Common Strategy (Recommended Strategy)
Backward integration Related/ Unrelated diversification
Joint venture
Forward integration Horizontal/vertical diversification
Horizontal integration Conglomerate diversification
Market penetration Joint venture
Market development
Product development
Joint venture
5.3.1. Our chosen joint venturer:
We propose Egyptian Axles “EA” to be our joint venturer for the following reasons:
EA enjoys better financial position which AMC needs to tackle its debt and liquidity
problems.
The joint venture will benefit from sharing knowledge and skills. This is a
leveraging of core competencies of both firms. AMC will be able to tap newer
methods and technologies, since EA already has state-of-the-art CNC machines
and more assembly lines. On the other hand, AMC has high experience in metal
casting foundries, which is exactly what EA needs to grow.
AMC have skilled labour with longer experience in the industry than those working
for EA. These knowledge and experience could be very valuable for EA.
The joint venture between AMC and EA can provide a significant advantage by
reducing the competition between the two firms and developing a coordinated
response to common competitors.
There is also the possibility of saving a lot of money by sharing tangible resources,
such as common manufacturing facility or R&D lab.
Exchanging knowledge and skills will facilitate new products development by
extracting discrete activities from the two firms and combining them in the joint
venture.
Integrating product portfolio of the two companies will boost the competition
power of the joint venture in the market.
5.4. Recommended Business Strategies:
5.4.1. Cost leadership competitive strategy:
Cost control and operation optimization.
Efficient scale facilities.
5.4.2. Cooperative strategy:
Through joint venture with Egyptian Axles
50
VI. Strategy Implementation
In order to implement the above chosen strategies (joint venture as directional strategy and cost
leadership as competitive strategy), company’s culture and structure will be constructed as follows:
1. Culture:
The company’s culture is demonstrating a bureaucracy culture that adheres to formal rules,
regulations and several traditional layers of management which is suitable for such a mature
stable industry.
The high turnover among young engineers should be managed through:
o Disseminating a culture of heroes building and success stories.
o Rewarding and incentives system should be changed to a formal standardized procedure.
The company must make use of the new joint venture by learning the best cultural and
managerial practices of the joint venture. However, this is must be done carefully in such a
way to preserve AMC’s own culture.
2. Structure:
A sufficient number of our directors must represent AMC in the joint venture’s board. In the
case of AMC’s own board, it will mainly remain as it is.
A marketing department in AMC will be established with a marketing director. Underneath
the marketing department, a CRM department will be established with a CRM manager
reporting directly to the marketing director.
Planning manager will transfer customer relations activities to the new CRM manager.
Both sales manager and exporting manager will be reporting directly to the marketing
director.
A supply chain department will be established with a new supply chain director.
Planning manager will report directly to the supply chain director instead of reporting to the
general manager.
Both logistics manager and purchasing manager will report directly to supply chain director
instead of reporting to finance director.
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BOD
CEO
General Manager
Governmental Relation Director
Health and Safety
Manager
Finance Director
Accounting Manager
Financing Auditing Manager
Marketing Director
CRM Manager
Exporting Manager
Sales Manager
QC Director –
TQM
Quality Assurance Manager
Quality Manager
Technical Director
Maintenance Manager
Engineering Manager
IT Manager
Production Manager
AdminstrationDirector
HRManager
SecurityManager
Supply ChainDirector
LogisticsManager
PurchasingManager
PlanningManager
Proposed Structure
52
VII. Evaluation and Control (Balanced Scorecard)
The balanced scorecard is a strategic management tool to evaluate the performance of a
corporation. It does not focus only on the past results, but also gives attention to the future
objectives. Moreover, it includes non-financial as well as financial measures. The non-financial
measures are customer, internal process, and learning & growth.
Financial
Objectives Measures Initiatives
Maximize returns. Return on Investment. Joint venture with EA.
Manage operating costs. Gross profit margin. Reduce operating costs.
Eliminating debt. Debt to equity ratio. Consulting a financial firm for
rescheduling debt.
Increase cash flow. Acid test ratio. Redesign collection policy.
Customer
Objectives Measures Initiatives
Value for money Pricing index Emphasize value-based
business in culture
Hassle-free relation Lead time between RFQ and
product execution Implementing CRM system
Financial
Objectives Measures Initiatives
Maximize returns. Return on Investment. Joint venture with EA.
Manage operating costs. Gross profit margin. Reduce operating costs.
Eliminating debt. Debt to equity ratio. Consulting a financial firm for
rescheduling debt.
Increase cash flow. Acid test ratio. Redesign collection policy.
Internal Processes
Objectives Measures Initiatives
Optimize asset utilization Current assets turnover
Planning manager is dedicated to resource allocation after removing customer services activities from his tasks
Maximize return on inventory Inventory turnover
Installing warehouse management system
Tender effectiveness Tender success rate Improve cost estimation and
quantity surveying
Shape customer requirements
Hours spent with customers on new work.
Dedicate a marketing engineer to every new customer
Financial
Objectives Measures Initiatives
Maximize returns. Return on Investment. Joint venture with EA.
Manage operating costs. Gross profit margin. Reduce operating costs.
Eliminating debt. Debt to equity ratio. Consulting a financial firm for
rescheduling debt.
Increase cash flow. Acid test ratio. Redesign collection policy.
Learning and
Growth
Objectives Measures Initiatives
Improve R&D Percent revenue of new
services/products Create R&D department
Employee training Hours spent in strategic skills
training Develop aboard training
programs
Continuous improvement Continuous improvement
index Eliminating no-value-adding
work.