University Of Wales

&

Management Development Institute of Singapore (MDIS)

MBWD5 0922A

Subject : Corporate Strategy (Assignment 1)

Lecturer : Dr Keith Ng

Course : Master of Business Administration

ASSIGNMENT COVER SHEET

No. NAME OF MEMBER FIN No. SIGNATURE

1 SHUBHAV GUPTA G0874179X

Submitted on Due Date? YES (Date Submitted: 30.4.2010)

Submitted Soft Copy? YES (Date Submitted: 30.4.2010)

Word Limit Observed? YES (No. of Words: 2090)

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TABLE OF CONTENTS

S.No Contents Page No.

1 Executive Summary 3

2 Introduction 4

3 PEST Analysis 5

4 Porters 5 Forces 7

5 Structural drivers of change 11

6 Industry Life Cycle 12

7 Scenarios 13

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EXECUTIVE SUMMARY

The Corporate Strategy assignment is divided into 2 parts.

The first part of the assignment asks us to select and analyze an industry of our own

choice. I have selected the INDIAN CEMENT INDUSTRY. In this assignment, a brief history

regarding the Indian Cement Industry and how it has changed over the years to become one of

the largest cement markets in the world has been covered. Further on, it has the analysis of the

strategic posture of the key cement players in the Indian market and the direction in which the

cement industry of India is moving.

To identify the structure, changes, and the drivers of change within the industry, Porter’s

Five Forces, PEST Analysis and Life Cycle Model has been used.

The second part of the assignment has 3 scenarios indicating possible long-term futures

for the industry.

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INTRODUCTION

CEMENT

The word Cement has come from the Roman word ‘Opus Caementicium’. In general,

the word cement means binder- a substance, which when gets set and hardens, binds itself

independently with other substances. Joseph Aspdin, a British stonemason, invented cement

way back in 1824.(Portland Cement Association 2010)

INTRODUCTION TO THE INDIAN CEMENT INDUSTRY

In 1914, the first licensed cement-manufacturing unit in India was set-up by the India

Cement Company Ltd. With the boom in the economy-growth rate of India, the cement industry

is seeing a great future. India has now become the second largest cement producer in the world

after China, with a total capacity of 151.2 Million Tones, contributed by around 125 large and

300 mini cement plants. Further growth in the Indian cement industry is expected in the coming

years. It is expected that by FY12, the cement production capacity will rise upto 262.61 Million

Tones.

The cement industry in India is dominated by around 20 companies, some of the major

Cement players in India are

Company Production Installed CapacityACC 17,902 18,640Gujarat Ambuja 15,094 14,860Ultratech 13,707 17,000Grasim 14,649 14,115India Cements 8,434 8,810JK Group 6,174 6,680Jaypee Group 6,316 6,531Century 6,636 6,300Madras Cements 4,550 5,470Birla Corp. 5,150 5,113

(Mapsofindia.com 2010) (Tradechakra 2008)

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PEST ANALYSIS

POLITICAL

The price of cement is primarily controlled by the coal rates, power tariffs, railway

tariffs, freight, royalty and cess on limestone. Interestingly, government controls all of these

prices. Government is also one of the biggest consumers of the cement in the country. Most

state governments, in order to attract investments in their respective states, offer fiscal

incentives in the form of sales tax exemptions/deferrals. States like Haryana offer a freeze on

power tariff for 5 years, while Gujarat offers exemption from electric duty. (India Infoline Ltd

n.d.)

ECONOMIC

Currently, the industry is on the boom, with a lot of government infrastructure and housing

projects under construction. In spite of seeing a fall during 2008-09, the export segment of the

industry is expected to grow again on account of various infrastructure projects that are being

taken up all over the world and numerous outstanding cement plants coming up in near future in

the country (Mapsofindia.com 2010)

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SOCIAL

Usually, the cement industry in India consists of both the organized sector and the unorganized

sector. Organized sector comprises of the well-known cement manufacturing companies while

the main players of the unorganized sector are the regional and local cement-producing units in

various states across the state. Indian consumers prefer buying branded cement like

ULTRATECH, JAYPEE CEMENT, LAFARGE CEMENT etc. It has been seen in the past, as

well, that mini cement plants with low brand value and image are not able to survive against the

cement giants. With a population of more than 100 billion people, it is expected that cement

industry will create another 25 lakhs jobs in the next 4-5 years. (mapsofindia.com 2010)

TECHNOLOGY

From mining to production the entire process depends on technology. The Government of India

plans to study and possibly acquire new technologies from the cement industry of Japan. The

government is discussing technology transfer in the field of energy conservation and

environment protection to help improve efficiency of the Indian cement industry.Cement

industry has made tremendous strides in technological up-gradation and assimilation of latest

technology.  At present 93% of the total capacity in the industry is based on modern and

environment-friendly dry process technology. (Cement Industry n.d.)

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Porter’s “5 FORCES” FRAMEWORK

1. RIVALRY AMONG EXISTING PLAYERS (High)

The Indian cement industry has large number of cement producers thus making it a low

concentration market. The four biggest cement players in the Indian cement industry are:

1. ACC Ltd

2. Grasim Cement

3. Ambuja Cement

4. Ultratech Cement

The market share of the above-mentioned four companies accounts to 39.80% currently. It

is believed that if these four companies do not increase their market share in the coming years,

then their combined share could drop to 34%. The share of mid-large players (like Shree

Cement, Madras Cement, India Cement) will remain about 36%, small players (like My Home

Industries Ltd, Orient, Binani) will hold about 24%, and new players (like Reliance, Murli

Agro, JSW Cement) will account for 6% of the market

With focus on capacity addition, many small/medium players have been able to capture

more market share and consolidate their position in the industry in the last two years. Market

share of top five individual companies taken together show a decline to a level of 44.3% in

FY09 from 46.3% in FY08(Bharat Book Bureau 2004).

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2. THREAT OF NEW ENTRANTS (High)

The existing companies are pushing hard to expand their production capacity to face the

rising competition. With the announcement of the Indian Government in the budget for the FY

2010-2011 to pump in more than Rs.1.73 trillion in infrastructure(Thomson Reuters Corporate

n.d.), the cement industry becomes a very attractive market to enter, thus increasing the threat of

new entrants.

Although the investment to set up a cement plant is huge, still looking at the future

opportunities Indian steel and infrastructure giants like Jindal Steel works and Reliance Group

are also eyeing a share in this huge market (Wordpress n.d;Economic Research India Limited

2010).

Acquisitions by foreign cement giants in Indian Cement Industry Since 1999

S.No New Entrant Country Purchased

1 Holicim Ltd Switzerland 14.8% of Ambuja Cement

2 Lafarge Cement France o Raymond Cement

o TISCO (TATA Cement)

3 Italcementi Italy Zuari Industries

4 Heidelberg Germany o Indo-Rama Cement

o Diamond Cement

Companies that have announced their plans to enter the Indian Cement Industry in future

S.No Future Companies Current Business

1 Reliance ADAG o Infrastructure

o Power etc.

2 Jindal Steels o Steel

3 Murli Agro o Agro Products

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3. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES (Low)

Now-a-days Timber is also being considered as one of the substitutes of cement. In

many countries like Japan, Indonesia, Singapore etc are now using timber in construction since

those areas are high earthquake affected. They now prefer timber which is cheap and long

lasting for years.

But timber cannot be considered, as one of the major substitutes of cement, therefore

cement is one of the main components of any construction. Without cement, construction work

is next to impossible as it provides strength to the building.

4. BARGAINING POWER OF BUYER (Low)

The boom in the infrastructure industry of India has benefitted the cement industry immensely.

In the present day context, cement producers have become more powerful than buyers. In the

current situation, most of the companies are moving into direct marketing, thus removing

middlemen. Despite enough competition, due to high institutional demand of cement, small-

time buyers are usually targeted as a secondary market by the cement companies. Thus, buyers

are not left with much bargaining power.

5. BARGAINING POWER OF SUPPLIERS (Low)

The basic raw materials used in the cement manufacturing process are limestone, sand, shale,

clay, and iron ore. The main material, limestone, is usually mined on site while the other minor

materials may or may not be mined there. Since all the raw materials are natural resources, they

are under the Government’s control. Companies have to buy rights from the government to set-

up the cement plant. So there are no such suppliers in the cement industry.

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Overview of Indian Cement Industry through Porter’s5 Model

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IDENTIFYING THE STRUCTURAL DRIVERS OF CHANGE WITHIN THE

INDUSTRY

The cement industry has witnessed phenomenal changes over the years. Some of the drivers of

change are:

1. Government

2. Real Estate

3. Infrastructure

GOVERNMENT: From the era of direct government control over cement production and

distribution to today’s globalization of Indian cement industry, Government of India has always

been one of its major drivers of change. Tax concession, Tax rebate, etc. to new foreign players

have changed the entire cement business in India. With multinational cement players coming in,

the cement quality and standards have improved a lot.

REAL ESTATE: The boom in the cement industry in India came in 2003, when the real estate

rates started rising. Over the past few years (FY03-07), cement demand has grown at a CAGR

of 8.37% which is higher than the CAGR of supply at 4.84%. Real estate sector is the key driver

and accounted for almost 55% of cement demand in FY 07. (Jelsoft Enterprises 2010)

INFRASTRUCTURE: In this FY10 budget, the Government will be spending Rs. 1.73

trillions on infrastructure. With many international events like Commonwealth games 2010,

Hockey World Cup 2010, Cricket World Cup 2011 etc, the need to develop world class

infrastructure was felt in early 2000’s. As a result, many new multi billion dollars project were

sanctioned to develop roads, metros, airports, railway stations etc all across the country, thus,

boosting the demand for cement.

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INDIAN CEMENT INDUSTRY LIFE CYCLE

Looking at the current scenario, the Indian cement industry is at its growth stage. With

as many as four new foreign players having entered the Indian cement market and two-three

expected to come in the near future, the competition is expected to get tougher. The Indian

cement industry has witnessed a phenomenal capacity addition to the tune of about 52 million

tonnes in the last two financial years which accounted for about 24% of the industry’s capacity

of 218 million tonnes at the end of FY09. In the last two financial years, the cement industry

has registered a double-digit growth in capacity addition compared to moderate growth of 3-7%

registered during period FY 03-07.

Apart from large multi national cement companies entering the Indian industry, the

national players may have to face further competition from imported cement. Till date, import

of cement in India is not allowed, but to check the price rise and control the increasing demand,

Government of India is planning to start cement trading with countries like Pakistan, etc.

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Scenario 1:

The future of Indian Cement Industry is expected to see more of global cement players entering

the market. The growth of Indian cement industry has been very impressive in the last 6 years

FY03-09 and is expected to improve in the future, thus attracting big global cement giants to

enter the business. As a result, I feel in the coming 10 years many Indian small cement

companies will either sell off their cement business or will enter into a joint venture with the

global players like Lafarge, Holcim etc. There is no doubt that in another decade, India will

become the leading cement producing country in the world, with global and new local players

(like Reliance Cementation) fighting for their market share.

Scenario 2:

As per 2008 records, there is only 5-6% use of Ready Mix Concrete in India, which is far lesser

than developed countries like Japan and U.S.A where RMC is being used in almost 70-80% of

construction.

Looking at the current situation, since setting up a RMC plant is not huge capital intensive, a lot

small business entrepreneurs are setting up their own private RMCs. Currently, they are facing a

lot difficulties in running them due to high shortage of cement in India. Inspite of having

contracts with cement manufacturers, they are not getting the regular supply.

Future, in India, seems to be of branded Ready Mix Concrete business, where cement

manufacturers set up their own RMC plants. They will not have raw material shortage since

companies can create reserves for their own RMCs, which will give them more realization than

selling just cement bags. A lot of companies like Ultratech Cement, Lafarge Cement etc. have

already moved into the RMC segment as well.

Scenario 3:

I assume that in the next 10 years, Indian Cement industry will witness a drastic change, which

it has never seen in the past. I feel that, like OPEC dominates the oil market of the world, Indian

cement manufacturers will also form a group to dominate the cement marketing, distribution

and most importantly prices (Cartelization) in order to fight the upcoming foreign competition

in the country. 13

Thus, according to me, SCENARIO 2 seems to be most promising for the future. Infrastructure

companies always want to finish off their projects as soon as possible, they would also prefer

buying RMC instead of following the old method. Therefore, future of the cement industry is

more likely to shift to Ready Mix Concrete. It is very difficult for new foreign players to enter

the market, as the existing cement payers will definitely and very strongly resist their entry; thus

ruling out scenario 1. Scenario 3 is unlikely to occur because Cartelization is illegal, against the

consumers and shall be resisted strongly by the Government.

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References:

1. Portland Cement Association 2010, Cement & Concrete Basics: History & manufacture of

Portland cement/Portland Cement Association, [Online], Available:

http://www.cement.org/basics/concretebasics_history.asp [16 Mar 2010].

2. Mapsofindia.com 2010, Cement industry in India, [Online],

Available: http://business.mapsofindia.com/cement/ [16 Mar 2010]

3. Tradechakra 2008, Cement industry in India- Indian cement companies, Indian cement

companies, [Online],

Available: http://www.tradechakra.com/indian-economy/industries/cement-industry.html

[16 Mar 2010]

4. Bharat Book Bureau 2004, Indian Cement Industry (For Indian customers)- Business

Market Report, [Online],

Available: http://www.bharatbook.com/detail.asp?id=40496 [16 Mar 2010]

5. Thomson Reuters Corporate n.d., India Budget – Infra firms cheer fund allocation, shrs

mixed / quotes/ company news/ reuters, [Online],

Available: http://in.reuters.com/article/companyNews/idINSGE61P0J820100226 [17 Mar

2010]

6. Wordpress n.d., Reliance Cement: ADAG floats cement arm Reliance Cement, [Online],

Available: http://birlaa.com/2007/10/29/reliance-cement-adag-floats-cement-arm-

reliance-cement [17 Mar 2010]

7. Economic Research India Limited 2010, Murli Agro to diversify into cement sector,

[Online], Available: http://www.projectsmonitor.com/detailnews.asp?newsid=12588 [17

Mar 2010]

8. India Infoline Ltd n.d., Cement, [Online], Available:

http://archives.indiainfoline.com/sect/ceme/ch03.html [17 Mar 2010]

9. Mapsofindia.com 2010, Export of Indian Cement, [Online], Available: http://bus iness.maps

ofindia.co m/cement/e xport.html [18 Mar 2010]

10. Mapsofindia.com 2010, Jobs in Cement Industry, [Online], Available: http://bus iness.maps

ofindia.co m/cement/e xport.html [18 Mar 2010]

11. Cement Industry n.d. Available: http://dipp.nic.in/industry/cement.htm [19 Mar 2010]

12. Jelsoft Enterprises 2010, Indian Cement Industry – Forums, [Online], Available:

http://dipp.nic.in/industry/cement.htm [20 Mar 2010]

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13. National Green Specification 2009. NGS Green Spec – Materials – Cement Substitutes,

[Online], Available: http://www.greenspec.co.uk/html/materials/cementsub.html [24 Mar

2010]

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