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Developing Strategic Plan for Manufacturing Companies Located in Developing

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 Proceedings of the Global Conference on Engineering and Technology Management 2014 Istanbul, Turkey,
June 23 – 26, 2014

Developing Strategic Plan for Manufacturing Companies Located in

Developing Countries
Khaled Bataineh
Department of Mechanical Engineering
Jordan University of Science and Technology
IRBID, 22110, Jordan

Abstract
Strategy plan development is the first step and a vital element that companies should have to withstand fierce market
competition and to improve its business performance. This study provides detailed procedure for a strategic plan
development for the companies located in developing country using both quantitative and qualitative analyses at
various levels. A chemical household cleaning company located in Jordan is taken as a case study in this paper. The
Porter model is used to identify the competitive environment of companies. PEST analysis is used to analyze the
external environment of companies. EFEM is used to visualize and prioritize the external threats and opportunities
of companies. To overcome the shortcomings of previous tools, Quantified SWOT analysis combined with GSM is
used to identify strategies of manufacturing companies located in developing countries. Based on the results, the
external (opportunities and threats) and the internal (strengths and weaknesses) factors that affect the situation of the
company were evaluated. Finally, Quantitative Strategic Planning Matrix (QSPM) is used to evaluate possible
strategies.

Keywords
Engineering management, Internal and External Analyses, Porter’s Competitiveness Model, PEST Analysis, SWOT

1. Introduction

Jordanian companies have tried many different management methods during the last three decades to improve their
business performance. Unfortunately, most of the companies have failed to achieve their objectives. Examples of
these methods are: Kaizen, Quality Circles, ISO 9000, Total Quality Management, JIT, Business Process
Reengineering, Business Excellence Mode. The reasons for high failure rates can be attributed to factors that have
delayed or influenced effective implementation of these approaches. Furthermore, most of the mentioned approaches
have been implemented as separate initiatives and in separation of a complete framework to manage and adapt to
changes (Rawabdeh, 2005). In addition, these approaches are largely descriptive with little or no emphasis on the
logical links between their components.

Strategic management has been widely used by all enterprises to survive aggressive market competition. The
strategic planning process is considered objective, logical, systematic approach for making major decisions in an
organization (Breene et al. 2007, Brews et al., 2007). It allows effective decisions to be made under conditions of
uncertainty. The strategic management process has three stages: strategy formulation, strategy implementation, and
strategy evaluation (David, 1998). It is found that Jordanian companies need a focus on formal strategy, structure
and work activities so as to be able to compete in the current competitive environment (Rawabdeh, 2005). The
concept of strategic planning is not yet fully accepted and implemented in Jordanian companies. Currently, the
Jordanian industrial sector is considered the driving force for growth in Jordan. Many Jordanian companies are
thriving to have a clear picture of their future road map. This can be achieved by careful identification of their
priorities, focusing in developing their internal capabilities, and providing the necessary willingness to compete
externally.

Most manufacturing companies in Jordan are facing aggressive local, regional and international competition.
Strategic management process equips the companies with set of capabilities that allow the companies surviving in
such environment. Because of this, Jordanian companies are forced to adopt strategic planning concepts. This will
help them set their vision, mission, and build strength. In addition, adopting strategic planning will serve in
resolving their weaknesses, exploiting opportunities, and avoiding threats.

The chemical cleaning household industry is experiencing a very competitive era like many others, thus it is curial to
find methods to reduce manufacturing costs, improve quality etc. Dima Company for Chemical Industries is taken
as a case study in this study. The company was founded in 2003. It is located in Irbid industrial city. It specializes in
the production of household cleaning chemicals such as dishwashing detergents, bleaching liquid, liquid laundry
detergent, floor detergents, shampoo, body wash, and hairstyle gel. Currently, they supply their products to the local
market.

The main objective of this project is to develop a strategic plan for The Dima chemical cleaning household
company. An effective strategic planning process is achieved by developing an EFEM and IFEM followed by a
SWOT and then finally a QSPM (Meredith et al., 2009). For achieving the project’s objectives, the following
methodologies were utilized and can be summarized as follows; setting the mission and vision of the company,
perform external assessment, conduct Porter competitiveness Model, conduct Political-Economical-Social-
Technological (PEST) analysis, develop External Factor Evaluation Matrix (EFE), perform Internal assessment, and
develop Threats-Opportunities-Weaknesses-Strengths Matrix (TOWS Matrix) and combine it with GSP. Finally,
construct Quantitative Strategic Planning Matrix (QSPM) to evaluate possible strategies. Riston (2008) pointed out
the benefits of external and internal analyses which can be summarized as follows;
 Increasing managerial awareness of environmental changes,
 improving resources allocation decisions,
 facilitating risk management,
 acting as an early warning system,
 focusing attention on the primary influences on strategic change.
It has been concluded that the result of SWOT analysis is often artificial and rough listing or an incomplete
qualitative examination of internal and external factors (Kurttila et al, 2000). Quantified SWOT in this case study
not only improves the previously mentioned methods, but also advances them on the basis of the Grand Strategy
Matrix (GSM) (Christensen et al, 1976).

2. Company Information

The current status of the company can be summarized as follows; The company has 18 employees, its market share
around 12% with average profit around 15.5%, it ranks 7 out of 25 among local competitors, it does not have
strategic plan vision, mission statement, organization structure, or marketing techniques. It relies on labor –
intensive manual processes, it does not have R&D activities, a moderate productivity is estimated with traditional
inventory control, it has skilled labors with low turnover. The total sales of the company for the four three years are
presented in Table 1.

Table 1: Total sales and profit during the period 2010-2012

2009 (JD) 2010(JD) 2011 (JD) 2012 (JD)

Sales 189184 192785 206725 204896

Profit 36142 37506 38726 37562
Net profit 29049 31941 32268 31759
Net profit as % of sales 15.35% 16.5% 15.6% 15.5%

3. Analysis and Discussion

Several management analysis tools are implemented to analyze the current company position and develop strategic
plan. The following subsections present detailed analyses and discussion of these methods.

3.1 Porter’s Competitiveness Model

The porter model is a tool used to identify the competitive environment of the company. It is a matrix that takes into
consideration 5 competitive forces which are: threat of new entrants; intensity of rivals; threat of substitute products;
bargaining power of buyers; and bargaining power of suppliers (Porter 2008). The data of the competitive forces is
presented in Table 2 followed by the analysis. The analysis of the competitive environment shows that the company
is facing 3 types of competitive forces: a) bargaining power of consumers (4.00/5.0), b) the potential entry of new
competitors (3.2/5.0), and Rivalry among competing firms (3.33/5.0). Bargaining power of consumers has a huge
impact on the company’s competitive force since the number of buyer is large but a large portion of them is cultured
toward low cost products. The power of negotiation is weak due to the existence of different manufacturers in the
market related to chemical cleaning agents even though the size of market segment is large.

It can be seen from the analysis results that the company should pay careful attention to its competitors in order to
maintain its market share. The causes for such fear are mainly due to: large number of competitor companies and
cost of starting similar business is relatively low. Another competitive force that the company needs to pay attention
to is Rivalry among competing firms. This is due to the large number of regional and local competitors who have the
capability of introducing new products, meeting customer demands, managing price sensitivity issues, and work
with easiness of brand switching at low cost factor.

Table 2: Porter's Competitiveness model

Low Presence High Presence
Rivalry Among Competing Firms (Average = 3.33)
High number of competitors 1 2 3 4 5
Competitors are relatively equal in size and capabilities. 1 2 3 4 5
Demand is declining. 1 2 3 4 5
Price cutting is common. 1 2 3 4 5
Brand switching is easy 1 2 3 4 5
Barriers to leave the market are high 1 2 3 4 5
Fixed costs are high 1 2 3 4 5
Products are perishable 1 2 3 4 5
Rival firms are diverse in strategies, origins and culture 1 2 3 4 5
Mergers and acquisitions are common 1 2 3 4 5
Potential Entry of New Competitors (Average = 3.2)
Easiness of gaining economies of scales. 1 2 3 4 5
Easiness of gaining technologies and specialized Know-How 1 2 3 4 5
Easiness of obtaining required experience 1 2 3 4 5
Customer lack of loyalty 1 2 3 4 5
Brand preferences are negligible 1 2 3 4 5
Capital requirements are low 1 2 3 4 5
Presence of adequate distribution channels 1 2 3 4 5
Convenience of government regulatory policies 1 2 3 4 5
Easiness of access to raw materials 1 2 3 4 5
Easiness of patents possession 1 2 3 4 5
Potential saturation of the market 1 2 3 4 5
Potential Development of Substitute Products (Average = 1.50)
Decline of relative price of substitute products 1 2 3 4 5
Consumers’ switching cost are decreasing 1 2 3 4 5
Inroads into the market by these products 1 2 3 4 5
Strong plans of those firms for market penetration 1 2 3 4 5
Bargaining Power of Suppliers (Average = 2.25)
Relatively low number of suppliers 1 2 3 4 5
Rareness of substitute raw materials 1 2 3 4 5
High switching cost of raw materials 1 2 3 4 5
Backward integration is rarely used. 1 2 3 4 5
Bargaining Power of Consumers (Average = 4.00)
 Customers are concentrated or large 1 2 3 4 5
Customers buy in volumes 1 2 3 4 5
Products are standards 1 2 3 4 5

3.2 PEST Analysis

The PEST analysis is a useful tool for understanding market growth or decline, the position, potential, and direction
for a business. PEST includes Political, Economic, Social and Technological factors, which are used to assess the
market for a business or organizational unit. Since PEST factors are essentially external, completing a PEST
analysis is helpful prior to completing a SWOT analysis. The political factor forms one of the external environment
factors of the company and it includes: Political stability, foreign policies, legal system, import-export regulations
and stability of governments. The Dima is influenced by the negative and positive changes in this matter. The
political changes seem to be in favor of a potential growth for the company.

Jordan is witnessing significant growth in industrial sector. This growth is attributed to increase of international
investment, strong GDP growth, reduction in both interest rates and price fluctuation. However, the manufacturing
Jordanian companies are suffering from the raise of the fuel cost and the changes in the value of dollar compared to
the Euro especially if the raw materials are imported from Europe. Jordan has signed the World Trade Organization
(WTO) with Europe, signed a free trade agreement with the USA, and many Arab countries. The impact of such
agreements on the manufacturing companies can have positive and negative impact. The Jordan companies can take
this opportunity by benefiting from the newly opened markets. On the other hand, Jordanian market is open for
foreign products.

The social parameters have a significant impact on the performance of the industrial sector in Jordan ( Rawabdeh,
2005). For example, the average annual growth rate of the Jordanian population is 2.8%. The population is young,
with approximately 41% under the age of 15 and 73% under the age of 30 (Rawabdeh, 2005). The social impact on
the household cleaning agents is large since the individuals are the direct customers beside large companies, stores,
government military and civil trade establishment, large restaurants, bakery shops and factories. Finally, the
technological factor is of moderate impact on such industry. The factors of the spending for R&D, patent protection,
technology transfer activities are of moderate impact on the company.

3.3 External Factor Evaluation Matrix

External Factor Evaluation Matrix (EFEM) is a matrix that analyzes the current business conditions. EFEM is
excellent tool to visualize and prioritize the external threats and opportunities of a company. It summarizes and
evaluates all economic, political, social, technological, and competitive information surrounding a company. The
first step in obtaining the EFEM is identifying a list of key external factors, then assign a weight to each factor,
ranging from 0 (not important) to 1.0 (very important), after that, assign a 1-4 rating to each factor to indicate how
effectively the firm’s current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good),
then , multiply each factor’s weight by its rating to determine a weighted score, finally, sum the weighted scores. For
the present case study, 14 factors are identified. The factors, their weights and rating are presented in the external
factor evaluation matrix as can be seen in Table 3. The analysis of the results shows that customer and employees
culture effects are among the least effective external factors that affect the performance of the Dima Company. Also
the impact of the different economic bilateral agreements with Jordan does not bring a serious impact on this type of
industry yet. On the other side, we can see that the small market is the main external factor that may limit the
development of the company.
 Table 3: External Factor Evaluation Matrix

Weight Weighted
Factor rating
% score
Opportunities
1. Customers culture effect 13 2 0.15
2. Employees culture effect 9 4 0.4
3. Small Market Size 32 2 0.6
4. Household cleaning industry growth trend 12 3 0.3
5. WTO, EC and Arab free trade agreements 0 4 0
6. Import/Export factors 8 3 0.3
7. Unemployment rate in the country is declined 10 2 0.5
8. Government regulator and authority 5 3 0.15
9. Small business growth in area 7 1 0.14
Threats
10. Taxes increase 10 3 0.3
11. Availability of acceptable loans/credit forms 15 3 0.2
12. New technology trends in Plastics industry 5 3 0.15
13. Availability of RM sources 5 4 0.2
14. Distribution effect 13 1 0.15
Total 3.99

3.4 Internal Audit Checklist

In order to identify the strengths and weaknesses of the company management system, internal audit checklist is
executed (not shown). The internal audit executed in the company involves topics such as, management, marketing,
production/Operation, management information system, and information system. As for management audit, it was
found that Dima company has no clear stated goals, objectives, strategies, allocated resources, and mission or vision
statements. It does not have any formal organization structure, job descriptions, job specifications, rewarding
system, or authority delegation systems. The employees' moral is moderate. There is no human resources
department, no training programs, no administrative system. There are no effective financial, sales, and inventory
control systems. Also, there are no effective management, quality, computer-assisted, and production control
systems.

The production audit reveal that the there is not space for business growing. Furthermore, the factory layout is not
efficient. The company adopted both production systems, i.e. Make-to-Order and Make-to-stock. However, the
factory, warehouse, and stores are not arranged correctly. The existing equipment and machines are adequate for the
expected output. The flow system of products and materials is poor. The products demand is not effectively
forecasted, and there is no plan for dealing with non-uniform demands. For inventory, there is no effective inventory
control system. There is no statistical quality control system. The company lacks any efficient information
technology system.

3.5 The SWOT ANALYSIS and the TOWS Matrix

SWOT analysis of external opportunities and threats as well as the internal strengths and weaknesses of the
enterprises is the first step for strategy formulation and development. By matching these threats and opportunities
with the existing strengths and weaknesses of the company, strategies can be suggested. Such a matrix is called the
SWOT matrix. Table 4 lists the identified Strengths, Weaknesses, Opportunities and Threats of Dima Company.
The Threats-Opportunities-Weaknesses-Strengths (TWOS) Matrix (Table 4) is an important matching tool that helps
managers develop four types of strategies: SO (strengths-opportunities), WO (Weaknesses-Opportunities)
Strategies, ST (strength-threats) strategies and WT (weaknesses-threats) strategies. For the company, the following
matrix shows the suggested set of strategies to enhance the strengths of the company, reduce the effect of
weaknesses, grasp the opportunities, and avoid threats. Table 4 lists summery of the identified strengths,
weaknesses, opportunities and threats for the company.
Table 4: The TOWS Matrix
OS Strategies
Opportunities
O1: Growing market in Jordan
O2: Enter new market
O3: Potential in export markets
O4: Introduce new product
O5: Access to economic of scale
O6: Serve additional customer groups
O7: Diversify into related products
O8: Complacency among rival companies
O9: Faster market growth
O10: ability to move to better strategic group
WT strategies
Threats
T1: Entry of low cost foreign competitors
T2: Growing competitive pressure)
T3: Cheaper products from small factories
T4: Costly regulatory environment
T5: Growing bargaining power of customers
T6: Unstable region
T7: Adverse government policy
ST Strategies
Threats
T1: Entry of low cost foreign competitors
T2: Growing competitive pressure)
T3: Cheaper products from small factories
T4: Costly regulatory environment
T5: Growing bargaining power of customers
T6: Unstable region
T7: Adverse government policy
Strengths
S1: good reputation in the Jordanian market.
S2: High quality product
S3: Skilled workforce
S5: Ahead on experience curve
S6: Adequate financially resources
S7: Cost advantages
S8: Location advantages
OS1: Establish new links with new markets in (Market Development
Strategy- Exporting)
OS2: Seeking increased sales by developing new products (Product
development)
OS3: joint Venture
OS4: Hire qualified person as a deputy manager with industrial
background.
OS5: Develop and implement a quality system (ISO9000)
OS6: Develop and implement a production planning and control system
Weaknesses
W1: No clear strategic direction
W2: Weak internal organization, management structure, coordination and
reporting.
W3: Below average marketing skills.
W4: Obsolete facilities
W5: Falling behind in R & D
W6: Too narrow ranges of products
W7: Weak distribution network
W8: Below average marketing skills
W9: Weak track record
WT1: Target a segmented market for Low-cost chemical cleaning agents
Strengths
S1: good reputation in the Jordanian market.
S2: High quality product
S3: Skilled workforce
S5: Ahead on experience curve
S6: Adequate financially resources
S7: Cost advantages
S8: Location advantages
ST1:Target a segmented market A-level stores (segmentation strategy)
ST2: Participate in activities related to the plastics
Weaknesses
W1: No clear strategic direction

OW strategies
Opportunities
O1: Growing market in Jordan
O2: Enter new market
O3: Potential in export markets
O4: Introduce new product
O5: Access to economic of scale
O6: Serve additional customer groups
O7: Diversify into related products
O8: Complacency among rival companies
O9: Faster market growth
O10: Ability to move to better strategic group
W2: Weak internal organization, management structure, coordination and
reporting.
W3: Below average marketing skills.
W4: Obsolete facilities
W5: Falling behind in R & D
W6: Too narrow ranges of products
W7: Weak distribution network
W8: Below average marketing skills
W9: Weak track record
OW1: Apply extensive promotion and advertising plan (Market
penetration Strategy)
OW2: Introduce new products based on R & D for new materials/processes
(Product development)
OW3: Concentric Diversification
OW4: Develop and implement a strategic /business plan(s)
OW5: Hire qualified personnel in marketing
OW6: Develop an organization structure with jobs descriptions.
OW7: Increase the company capacity by buying new machines

3.6 The Grand Strategy Matrix

The Grand Strategy Matrix offer reference for the enterprises to develop strategies based on the competitive position
of a company versus its market share. Figure 1 shows four distinctive quadrants with a set of strategies for each
quadrant. The first quadrant stands for the enterprises’ strengths and market opportunities. Enterprises in this
quadrant can use their strengths to adopt market penetration, market development, and product development
strategies. This will increase the competitive strength of the company. Enterprises in the second quadrant have
market developing opportunities but have weak competition. Enterprises fallen in the third quadrant have
competitive strength and facing threats from other competitors. Defensive strategies should be implemented to avoid
threats. Furthermore, in case of previous strategies fail, divestiture or liquidation should be adopted. Enterprises in
the fourth quadrant have competition strength but are exposing to greater threats than opportunities. To reduce this
large threat, diversification or joint venture strategies can be suggested.

Opportunities

Quadrant II Quadrant I

1. Market development 1. Market development

2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Horizontal integration
5. Divestiture 5. Forward integration
6. Liquidation 6. Backward integration
7. Concentric diversification
Weaknesses Strengths
Quadrant III Quadrant IV
1. Retrenchment 1. Concentric diversification
2. Concentric diversification 2. Horizontal diversification
3. Horizontal diversification 3. Conglomerate diversification
4. Conglomerate diversification 4. Joint ventures
5. Divestiture
6. Liquidation

Threats

Figure 1: Quantified SWOT analysis and the strategic matrix (Christensen et al., 1976)
Having both Quantified SWOT analysis and knowing the coordinates serve enterprises in realizing their position in
the competition and having a reference for developing their strategies. To identify position of the company
establishment in the Grand Strategy Matrix, it is agreed that the competitive position of the company is considerably
moderate in a moderate market growth. Based on that, the location could be between Quadratic I and IV. Quadrant I
is selected with its 7 generic strategies as shown in the Figure 1.

4.0 Developing Strategies

In order to develop a set of general strategies for the company based on the collected information through different
matrices, Quantitative Strategic Planning Matrix (QSPM) is built. QSPM is a high-level strategic management
approach for evaluating possible strategies. Furthermore, QSPM provides an analytical method for comparing
feasible alternative actions. With QSPM, it less likely that key external/internal factors will be ignored or weighted
inappropriately in deciding which alternative strategies to pursue (Meredith et al, 2009).The following steps is
executed to construct QSPM; 1) identify a set off strategies that can be selected; 2) identify the criteria that can be
used to differentiate among these strategies; 3) grade was assigned for each strategy, 4) rank each strategy based on
the total grades of each strategy. The selected applicable business strategies and the selected criteria for evaluation
are listed in table 5.

Table 5: QSPM for Business Strategies

Criteria/Importance
Large size of investment

low number of workers

Factory Adaptability
High Organization
High Profitability

High Market
Capability

Potential
Control
Ease of

Total

Rank
1. Market Development 4 4 4 1 5 5 4 27 2

2. Market Penetration 4 4 4 1 5 4 3 26 3

3. Product Development 2 2 3 1 4 2 3 17 6

4. Market Segmentation 5 5 5 4 5 4 4 32 1

5. Market Segmentation 3 4 3 2 4 3 4 23 4

6. Concentric diversification 4 3 2 1 2 4 3 19 5

7. Joint Venture 2 2 2 1 1 1 2 11 7

5.0 Conclusions

This paper provides guidelines and procedures to show how the enterprise located in developing countries can
develop strategic plan. In this study, several methodologies were utilized to develop strategic plan for
manufacturing companies located in Jordan. External and internal assessments were performed. These analyses
includes; Porter competitiveness Model, Political-Economical-Social-Technological (PEST) analysis, External
 Factor Evaluation Matrix (EFE), Threats-Opportunities-Weaknesses-Strengths Matrix (TOWS Matrix). From
SWOT analysis,the company can realize its position in the competition and this helps the company learn about itself
and its competitors. To overcome the shortcomings of previous methods, Quantified SWOT analysis combined with
GSM is used for is used to suggest adoptable competing strategies for the company (Chang et al., 2006). It was
found that the company has market developing opportunities but have weak competition. Finally, Quantitative
Strategic Planning Matrix (QSPM) is constructed to evaluate possible feasible strategies.

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Biography

Khaled Bataineh serves as associate professor of Mechanical Engineering at Jordan University of Science and
Technology. He is active in Renewable energy resources and energy management in Developing country. He
received a B.S. from Jordan University of Science and Technology in 1999, and an M.S. from Carnegie Mellon. He
received his Ph.D. in Mechanical Engineering from the University of Pittsburgh in 2005. He is the author of about
24 reviewed journal articles and other technical publications. He has been a consultant to several companies where
he made contributions to the solving problems and offering possibility of launching new products. He is a member
of numerous professional societies.

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