1

Lahore School of Economics

PACKAGES & MITSUBISHI CASE STUDY

Submitted to:
Prof. F.A.Fareedy
Submitted by :
Amna Fayyaz
Sara Khan
Neha Javed
MBA-II (B)

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Table of Contents
COMPANY INTRODUCTION.......................................................................................................3
VISION........................................................................................................................................3
MISSION STATEMENT.............................................................................................................4
CORE VALUES..........................................................................................................................4
MARKET SHARE......................................................................................................................4
MAJOR COMPETITORS...........................................................................................................4
COMPETITIVE EDGE...............................................................................................................5
BOARD OF DIRECTORS AND MANAGEMENT COMMITTEES........................................5
QUANTITATIVE STATEMENTS..................................................................................................6
QUALITATIVE STATEMENTS.....................................................................................................7
CULTURAL SIMILARITIES & DIFFERENCES BETWEEN PAKISTAN AND JAPAN...........8
SWOT ANALYSIS:.........................................................................................................................9
Strengths......................................................................................................................................9
Weaknesses..................................................................................................................................9
Opportunities.............................................................................................................................10
Threats.......................................................................................................................................10
PROBLEMS..................................................................................................................................11
IMMEDIATE CONCERNS...........................................................................................................13
CORE PROBLEM:........................................................................................................................14
STRATEGIC ALTERNATIVES AVAILABLE:............................................................................14
EXHIBITS ANALYSIS.................................................................................................................14
Income Statement......................................................................................................................14
SOLUTIONS.................................................................................................................................15
References......................................................................................................................................16

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COMPANY INTRODUCTION

This case covers the negotiations between Packages Limited, Pakistan (Packages) and Mitsubishi
Corporation, Japan (Mitsubishi) for the formation of a joint venture to produce Biaxially
Oriented Polypropylene (BOPP) film in Pakistan. Packages was established in Pakistan in 1957
as a joint venture between the Wazir Ali Group and AB Auckerland and Rausing of Sweden.
Packages manufactured paper and board and converted them to packaging products. Mitsubishi
was one of the biggest conglomerates in Japan, operating internationally. In 1992, Syed Babar
Ali, founder and advisor to Packages proposed establishing a joint venture with Mitsubishi,
during his visit to Japan. Upon returning to Pakistan, he asked Packages' senior management to
negotiate a joint venture agreement with Mitsubishi. Both Packages and Mitsubishi agreed in
principle to establish a joint venture to manufacture BOPP film in Pakistan. In this case, the
negotiation process was divided into three phases. The case describes the issue discussed and
tactics employed by the two sides during the three phases. The major issues discussed included
the price and capacity of the plant, the reimbursement of Mitsubishi's investment if the company
suffered repeated losses, raw material supply from Mitsubishi, equity participation, and the
control of the management and the board of the new company. In April, 1993, Mr. Javed Aslam,
the Deputy General Manager of Packages, received a quotation of US $6.4 million for a 6000ton plant from Mitsubishi Heavy Industries (MHI). He had to decide if it was feasible for
Packages to go ahead with the joint venture with Mitsubishi and what counter offer to make to
Mitsubishi Heavy Industries.

VISION
Position ourselves to be a regional player of quality packaging and consumer products. Improve
on contemporary measures including cost, quality, service, speed of delivery and mobilization.
Keep investing in technology, systems and human resource to effectively meet the challenges
every new dawn brings. Develop relationships with all our stakeholders based on sustainable
cooperation, upholding ethical values, which the shareholders, management and employees
represent and continuously strive for.(Source : Company website)

MISSION STATEMENT
To be a leader in the markets we serve by providing quality products and superior service to our
customers, while learning from their feedback to set even higher standards for our products.
To be a Company that continuously enhances its superior technological competence to provide
innovative
solutions
to
customer
needs.
To be a Company that attracts and retains outstanding people by creating a culture that fosters
openness, innovation, promotes individual growth, rewards initiative and performance.
To be a Company which combines its people, technology, management systems and market
opportunities to achieve profitable growth while providing fair returns to its investors.
To be a Company that endeavors to set the highest standards in corporate ethics in serving the
society. (Source : Company website)

CORE VALUES

MARKET SHARE
Packages Limited 22%
Others 78%.(Abv,2010)

MAJOR COMPETITORS

Pak Paper Products

Pap Board Printers Rawalpindi
Almas (Pvt.) Limited Karachi
Metatax Press Karachi
Security Paper
Industrial Packaging Karachi
National Packages Karachi
Friends Packages Karachi
Uni Flex Printing Services Karachi
Rainbow Packages Limited Lahore

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Orient Board (Pvt.) Limited
Toufigue Printers Lahore. (Abv,2010)

COMPETITIVE EDGE
The Packages Limited has an edge over competitors in different factors:

Packages has own Paper & Board Mill

Modern machines & equipment
Printing quality of products
Timely delivery of products
Provides help in designing . (Abv,2010)

BOARD OF DIRECTORS AND MANAGEMENT COMMITTEES

QUANTITATIVE
STATEMENTS

The market for BOPP film

in Pakistan is 5035 tonnes
in 1992. 50% of BOPP is
imported from Europe and
Far East and rest is manufactured locally.

Products wrapped in polypropylene film had a 300% longer shelf life as compared to

polythene covering.
Mitsubishi offered packages an alternative to purchase a 6,000 ton capacity plant at

720million. That offer was acceptable and was providing economies of scale.
The demand for Bopp film was also increasing at the rate of 12% to 15% each year.
The cost of the venture is assed as at Rs. 427 million (US. $ 16.89 million).
MHI is the leading manufacturer of heavy machinery, manufacturing over 700 different

products ranging from industrial power plants to pollution control systems.

80% of the imported BOPP was from Far East
The government has imposed 50% import duty on granule and 80% on imported BOPP film.
European Rs. 98 /Kg
Far East Rs.91/Kg
Local Rs. 86-90/Kg
Mitsubishi preliminary price of US $7.9 million is considered excessive & unacceptable to

Packages.
Mitsubishi is the manufacturer of heavy machinery based in Japan. In1992 the demand for
BOPP film was 5,035 tons in Pakistan 80%

QUALITATIVE STATEMENTS

Buying deal of plant by packages from Mitsubishi started in year 1992.There was a high
demand in country of Biaxial Polypropylene film by different industries e.g. biscuit industry,

food products industry, pharmaceuticals industry and etc.

Packages was established in 1957 in Lahore and are specialized in manufacturing of paper,

board and packaging.

BOPP film had been imported from Far East. Mostly the companies were using imported

Bopp film so there was a need to produce Bopp film locally.

packages and Mitsubishi entered into a deal of installing production plant of Bopp film. Until
1993 that deal was not finalized as there were many ambiguities during negotiation between

packages and Mitsubishi.

Japanese companies deal with foreigners through an intermediary name SHOKAISHA,

generally familiar with two parties.

Mitsubishi is the largest corporation in Japan in terms of assets and has flawless reputation in
the business circle in Pakistan. It is ranked fifth in terms of sales. Already involved in number

of joint ventures worldwide.

European films are finest quality, high priced and have wider range where as Far East
products are inferior and priced at 10% discount.

High quality films imported from Far East & European market are used by quality conscious

manufactures.
The locally manufactured film was not of good quality & was produced by two manufactures

Ploy craft LTD and Metaphase Ltd.

Packages have already established relationships with European companies
By May 1992, preliminary talks between packages and Mitsubishi began. During the
negotiations the management of packages had found the project unfeasible because of limited

market demand and chose not to pursue the proposal.

In the first week of September 1992, the Mitsubishi team arrived to open again formal

dialogue between the two companies.

As a part of joint venture agreement, Mitsubishi wanted to add a clause which would hold
packages responsible for reimbursing Mitsubishis investment if the company suffered

repeated loses in operations.

At that time the packages became little unsure about the technology offered by Mitsubishi
and they also became interested in another technology introduced by Bruckner, European

company as they were offering the same technology at a 20% lower price.
In April 1993, negotiations began and Mitsubishi became little flexible on their stance but

still the Bruckners offer was more feasible.

There were different considerations on both sides which were almost settled. In these kinds
of negotiations parties always look for best possible options to gain maximum benefit

CULTURAL SIMILARITIES & DIFFERENCES BETWEEN PAKISTAN AND JAPAN

Personal Relationships
Pakistanis and the Japanese Both stress the importance of friendly and close relationship
between business partners. Personal relationships are considered to be as important as the
economic outcome of the project. Close personal relationships between business partners lead to
higher trust and better communication. (Abv,2010)
Maintaining Harmony

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Japanese are well known for maintaining harmony in social relationships. A highly regarded
Japanese social value called warefers to the quality of human relationships. Pakistani also
value collectivistic norms including harmony and sharing of warmth. (Abv,2010)
Role of the third parties
In Japan, business relationships are initially established through proper connections and
associated introductions. The third party is called shokaisha in Japan. Pakistani companies
usually depend on their own resources for introductions. (Abv,2010)

Long term time perspective

A major difference between Pakistani and Japanese negotiators is based on the time perspective
in business negotiations.(Abv,2010)

SWOT ANALYSIS:

Strengths

Packages enjoys an educated and skilled work force to perform its operations e.g. In
Industrial Marketing Department all new hired sales executives are mbas.

ISO-9001 certificate has been awarded to Flexible line and Carton line of Packaging
division.

It enjoys the economies of large-scale as well e.g. Its fixed cost is reduced as it is spread over
more number of units.

Occupies a respectable and trustable image and market reputation, serving as a valuable asset
for the Packages.

Latest paper producing and packaging technology and most of machinery is imported from
different countries like Germany, USA, Switzerland, etc.

The commonality of believing in maintaining harmony. Trust, cooperation and sharing

warmth.

Weaknesses

Information flow between regional offices (of Karachi, Islamabad) and production lines
(Lahore) is not very quick, improper and manual i.e. by post normally.

Packages production facility is inflexible, in a sense that it is unable to operate for small
orders due to increased fixed cost. In this way, a lot of small orders are rejected.

Packages deserve to charge high prices for its quality products but in this way, the companies
who are not financially sound or in development stage cant have access to the Packages.

Due to a lot of work load, the lead times are mostly longer so creating frustration in
customers and causing dissatisfaction.

Opportunities
The collaboration between Japanese and Pakistanis is one of a kind. This can result in
making a good and long term business relationship between the two for more endeavors in
future.

There is a gradual increase in the awareness about Packaging importance among the
industrialists and they are really considering the packaging as the final sales person for the
products. So this awareness will brings more customers to the door of Packages.

Business activity and investment flow in also increasing day by day, so causing new business
opportunities for whole packaging industry.

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Consumers and companies are becoming more conscious about the quality of the products
and Packages is quality leader in Pakistans packaging industry and having continuous
development plans for quality. So in near future it can bring huge revenues in the Packages.

Trend of sachets is also increasing day by day. Or in other words demand for flexible
packaging is increasing day by day.

The coming together of two big companies can result in better market penetration of BOPP
films in Pakistan. Thus a bigger market.

Threats
There is always a threat of competition from other BOPP producers who will be producing
the same standard product.

Due to latest printing technology, the demand for offset printing is decreasing day by day
which is a traditional printing mode used in Packages.

Packages is facing a strong competition from the Cottage Industry in Karachi producing
corrugated cartons.

The price war will be there both from local manufacturers as well as from imported BOPP

films used by various industries.

Quality will always be threat as good and high quality is preferred by companies.

PROBLEMS

Price and production capacity

o There was a major issue of price and production capacity. According to the case 50%
of BOPP film was imported from Europe and the Far East while the rest was
manufactured locally. The European product was reputed to be of the finest quality

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and included a wide range of films. It was also the highest priced BOPP film in the
Pakistani market.
o The Far East supplied comparatively inferior product at about a 10% discount. 80%
of the imported BOPP film was from the Far East. The two local manufacturers in
Karachi had old and outdated equipment which adversely affected the quality of the
product. The price of their products was the lowest in the market. It was also not
suited for high quality requirements.
o The prices of European and Far East BOPP film were approximately Rs 98/kg and Rs
91/kg, respectively, and the locally produced product ranged between Rs 86-90/kg.
So, local manufacturers of consumer products supplying to a quality conscious
market used high speed packaging machines for wrapping their products.
o The final wrap was critical to their products. Also Polycraft had a production capacity
of 1800 tons while it only produced 1200 tons per year. And Metaplast had a
production capacity of 3000 tons but again also produced only 1200 tons every year.
Packages wanted a price bid from Japanese with a production capacity of 4000 tons
per year.
o They also decided to manufacture by using Mitsubishi technology as it was more
suitable. But Mitsubishis price of Y100 million was considered to be excessive and
unacceptable to packages. And so this remained an unsolved issue till the end.
o In Phase III MH representatives offered Packages an alternative to purchase a 6000
ton capacity plant at Y720 million. With increased economies of scale the cost per
unit from the 6000 ton plant equaled the cost per unit from Bruckners plant.

Difficult negotiations
Packages team found it difficult to negotiate with the Japanese team. Talks had broken down
frequently and the two sides had given up hope of an amicable settlement. The whole process
turned out to be slow and frustrating with endless hours spent negotiating seemingly simple

issues.
Cultural differences
There was a cross cultural negotiation happening and so this was also one of the major
reasons to not reach a timely agreement. There were language barriers. The negotiation styles
for both Japanese and Pakistanis are deeply rooted in their cultural values which are very
different from each other. This cultural difference makes it difficult for both the parties to
negotiate leading to misunderstandings and conflicts.

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Time perspective
There was a major difference based on the time perspective in business negotiations.
Japanese believes in long term relationships and thus are very cautious when entering into a
relationship. Whereas, Pakistanis have a much shorter time frame in mind. They feel that
quick decision making is critical for successful projects. This was the reason that Mr. Javed
Aslam thought that if packages had adopted a different bargaining approach than the

agreement could have been reached in a short time span.

Reduced the duty on BOPP
The government of Pakistan reduced the duty on BOPP film from 80% to 45% and 50% to
15% on BOPP granules. According to the Management International private limited the
Pakistani companies were using high quality European and Far East films rather than the
locally produced inferior products as the cost of product was very high relative to the
packaging.

Clause by Mitsubishi
Mitsubishi wanted to add a clause which would hold packages responsible for reimbursing
Mitsubishis investment if the company suffered repeated losses in operations. Packages
thought this condition quite outrageous and entirely to the advantage of the other party. In
phase III this issue was furthered that if the joint venture made accumulated losses greater
than its paid up capital only than packages would be allowed to buy out Mitsubishi shares at
their book value.

Price of the equipment

o This was one of the key issues that continued for a long time. Packages became
unsure about the technology offered by Mitsubishi and voiced their concerns. It was
decided that Packages would consider other suppliers and only then the talks would
resume. Bruckner, a company manufacturing industrial equipment offered equipment
based on same technology but at a 20% lower price.
o Mitsubishi declined to match the price claiming that their product was superior. So
the talks progressed very slowly. Even at Phase III this issue remained unsolved as
Bruckners price offer was more acceptable as compared to Mitsubishis price.

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o The difference was about 50 million rupees and even the equity investment by
Mitsubishi of 51 million rupees was approximately same as the savings that would
result by opting for Bruckners equipment.

Meanwhile a British company who

supplied part of the BOPP equipment to Bruckner approached Packages directly

offering to sell them the same material. MHI was buying the same material at a far
greater price from a Japanese company.
o Packages told them to replace some of their equipment with the British make and to
then reduce their price accordingly as it would save additional 30 million rupees but
Mitsubishi refused to lower its price.
IMMEDIATE CONCERNS
1. What price should be agreed upon?
2. how to convince the Japanese to bring down their price of equipment for the same
technology
3. weather to incorporate parts of the British equipment to do additional savings and make it a
mutually beneficial deal.
4. what benefits they would get out of it ?
CORE PROBLEM:

Choosing between the two plant capacities and the counter offer to make to MHI
STRATEGIC ALTERNATIVES AVAILABLE:

Choose the MHIs offer of $7.9 million.

Take the Bruckners offer of almost $5.3 million.
Go for local boiler and sign with MHI for $6.7 million.
Make an offer to MHI for 4000 capacity plant.
Make an offer to MHI for 6000 capacity plant.
Convince MHI to go for British equipment and seal the deal at $5.6 million.

EXHIBITS ANALYSIS

Income Statement
1995

Sales

1996

1997

Mitsubishi

Bruckner

Mitsubishi

Bruckner

Mitsubishi

Bruckner

186,190,00

186,190,00

249,250,000

249,250,000

355,200,000

355,200,000

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COGS

0
116,381,51
1

Gross
69,808,489
Profit
Selling
10,208,904
Expenses
Other
3,981,472.7
Charges
0
Operating 55,618,112.
Income
2
Depreciatio
40,000,000
n
15,618,112.
EBIT
2

0
112,297,94
9

155,798,333.
15

150,331,724.
97

222,024,344.
77

214,234,016.
89

73,892,051

93,451,667

98,918,275

133,175,655

140,965,983

10,208,904

13,666,520.4
5

13,666,520.4
5

19,475,819.7
2

19,475,819.7
2

2,981,000

5,329,942.98

3,990,623.97

7,595,569.69

5,686,939.36

60,702,146
.7

74,455,203.4
2

81,261,130.6
1

106,104,265.
82

115,803,224.
04

30,000,000

40,000,000

30,000,000

40,000,000

30,000,000

30,702,146
.7

34,455,203.4

51,261,130.6

66,104,265.8

85,803,224.0

Interest

51,240,000

51,240,000

51,240,000

51,240,000

51,240,000

51,240,000

Net
Income

35,621,887.
8

20,537,853
.3

-16,784,796.6

21,130.6

14,864,265.8

34,563,224.0

Dividends

5,705.26

4,013,351.77

9,332,070.49

15,425.3

10,850,914.0

25,231,153.5

R.E

The table below shows the financial ratios for both the plants.

GP Margin
Selling Expenses to sale
other charges to sales
Operating income to
sales
NP Ratio

1995
1996
1997
Mitsubishi Bruckner Mitsubishi Bruckner Mitsubishi Bruckner
37.49%
39.69%
37.49%
39.69%
37.49%
39.69%
5.48%
5.48%
5.48%
5.48%
5.48%
5.48%
2.14%
1.60%
2.14%
1.60%
2.14%
1.60%
29.87%

32.60%

29.87%

32.60%

29.87%

32.60%

-19.13%

-11.03%

-6.73%

0.01%

4.18%

9.73%

SOLUTIONS
Looking at all the data from the exhibits this income statement is constructed for the two plants
with the 6000 tones of capacity, in order to look at the financial feasibility of each plant. Since

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the complete data for the income is given for 3 years only, the analysis will be made on the basis
of the data from 1995-1997.
The income statement above shows that the Bruckner plant is less costly to operate as the cost of
goods sold for these plants are lower than Mitsubishi. Moreover, this plant has lower other
charges and depreciation expense. This will generate more operating profit for the plant as
revenues, selling expenses are the same for both plan. Hence, due to more operating profit the
net profit for Bruckner plant will be more than Mitsubishi plant, and the dividend paid to
shareholders will also be more for this plant. This will be in the interest of both owners and the
managers.
Moreover, the Bruckner plant is able to generate profits in the second year while Mitsubishi is
still in loss in the second year. Since we know that the cost of capital is 27% we have calculated
the net present values of each plant in order to which plant will be better for Packages.

References
https://www.scribd.com/doc/36071065/pakages
http://www.packages.com.pk/index.htm