A STUDY ON STRATEGIC MANAGEMENT IN OMAN CEMENT

COMPANY (OCC)

INTRODUCTION

Construction activity is thriving in Oman. Many residential, commercial, and retail development projects

have been announced in recent months. A growing population, in addition to a large inflow of expatriates

and a low interest rate scenario has worked as factors adding momentum to construction activities in the

country. Oman's current planned construction projects are estimated at USD 17.2 billion. Undoubtedly, this

will spur cement demand through 2008-2010. Omani cement consumption, which grew at a CAGR of

10.5% between 2002 and 2005, (much lower than the average regional growth rate of 20.3%) is expected to

see annual growth picking up to 12-15% through 2008. The Omani cement sector has seen a shortage of

capacity in the last few years. The high operating levels of the local cement companies and heavy imports

have not been able to adequately meet the excessive demand, leading to a demand-supply mismatch in the

local market. Consequently, in 2005, cement prices soared reaching OMR 24.8 per ton. This upward

movement is expected to continue in 2006 too. The two cement companies in Oman – Oman Cement and

Raysut Cement – have been expanding, both to meet buoyant local consumption and to take advantage of a

regional construction boom. RCC's additional capacity came on stream in December 2005, raising capacity

to 2.2 million tonnes from 1.0 million tonnes. Meanwhile, at OCC, an additional 0.5 million tonnes of

clinker capacity is expected to come on stream by the end of 2007.

Oman Small market with strong historical growth rates

The Oman cement industry is a small market made up of two players Raysut Cement Company (RCC) and

OCC with a total clinker capacity of 4.20 MTPA. RCC is the market leader with a clinker capacity of 3

MTPA, while OCC has a clinker capacity of 1.20 MTPA.

The consumption of cement in the regions in 2009 has been estimated to be over 4.75 mn tonnes and the

industry has been a net importer of cement during this period. In terms of capacity additions, RCC has been

consistently adding capacity over a period of time while the capacity of OCC has been stable. Between 2006

to September 2008 the overall capacity addition in the industry has been slightly higher than the growth in

consumption. As a result of this the clinker utilisation has been coming down. However the cement price

during the same period has been on the rise.

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The utilisation data however does not reflect the full scenario as OCC purchases a substantial portion of its

clinker requirement from outside. Cement realisation during this period has grown at a CAGR of around 8%

at the back of strong demand from housing and infrastructure segments and the favourable demand supply

scenario. Reflecting this trend, cement exports by the domestic company has been consistently coming

down during 2005 to 2009, after a steep hike in 2006.

Going forward the industry scenario is likely to become more challenging on the back of capacity additions

by both OCC and RCC in Oman and the slowdown in the real estate segment. OCC is currently undertaking

a capacity expansion plan which would double the existing clinker capacity to 2.40 mn tonnes, while Raysut

is contemplating a capacity increase of 1.50 million tonnes. Apart from this a new player Al Madina Cement

is also expected to commence operations with a capacity of 1 mn tonnes .

SWOT ANALYSIS OF OMAN CEMENT COMPANY

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“STRATEGY IS A PATTERN IN A SERIES OF DECISIONS OR ACTIONS.”

- HENRY MINTZBERG (1994)

SWOT Analysis explores the relationship between the environmental influences and the strategic

capabilities of an organization compared to its competitors. The importance of SWOT is revealed by the

value of the strategies it generates. A SWOT item that generates no strategies is not important.

STRENGTHS.

· It is having a good reputation and brand loyalty among the consumers.

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· Service of the company is good

· Perceived to be of very superior quality cement among the customers when compared to the

competitors

· The product sells easily in the Oman market

· They have same price prevailing for wholesale at dealers/stockiest retailers end.

WEAKNESS.

The competitors are doing much promotional activity rather than Oman Cement Company

that’s why it facing more problems in selling of product in the market.

Lack of awareness program for consumers.

OPPORTUNITY.

Rapid growth is taking place in Salalah and Sohar.

People are opting for more stable structures and intensive use of cement is taking place, even

government is spending heavily on infrastructure projects. Thus, this is the right time to fully tap

these markets.

As Oman core industry is also growing at rate of nearly 10% per annum, it is having

a good future.

Investment in infrastructure sector is going to increase in coming years, which will increase the

demand of cement.

Roads are undergoing through the transformation process through which the traditional method of

road building will be replaced by modern concrete roads.

THREATS:

Large number of players in cement industry makes it more competitive for Oman cement company

to carefully price its product and at the same time satisfy its dealers and customers.

Others players are eating up considerable market share.

Due to Oman’s exponential growth many new international cement companies are expected in

coming years which will bring a tide of change and can start price war.

The emergence of small players in this market may increase the competition and start the

malpractices, and heavy discounts to retailer.

They can also influence many retailers by giving better profit margin, and other Benefits.

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KEYS TOWARDS STRATEGIC PLANNING: - INCLUDEPICTURE

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1. MISSION:

Leadership – Maintain our relationship of the Oman cement industry throughout the continuous

modernization and expansion of our manufacturing facilities and activities , and through the

establishment of a wide and efficient marketing network

Profitability-Achieve a fair and reasonable return on capital by promoting productivity through out

the company

Growth- Ensure a steady growth of business by strengthening our position in the cement industry.

Quality- Maintain high quality of our products and services and ensure their supply their supply at

fair prices.

Equity- Promote and maintain fair industrial relations and an environment for the effective

involvement, welfare, and development of staff at all levels.

Pioneering- Promote research and development efforts in the areas of product development and

energy , and fuel conservation and to innovate and optimize productivity.

Responsibility- Fulfill our obligations to society, specifically in areas of integrated rural

development and in and in safeguarding the environment and natural ecological balance.

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STRATEGIC MANAGEMENT PROCESS

STRATEGIC FORMULATION

1. FRAMING MISSION AND OBJECTIVES

MISSION

Oman Cement Company drives their mission statements from a particular set of tasks. They are called upon

to perform in the light of their individual, national or global priorities. Oman Cement industry into a

globally strong and competitive industry.

OBJECTIVES: Oman Cement Company is Oman’s foremost manufacturer of cement. Established in 1978,

Oman Cement Company has been a pioneer and trend-setter in cement and concrete technology. Oman

Cement Company’s brand name is synonymous with cement and enjoys a high level of equity in the Oman

market. Among the first companies in Oman to include commitment to environment protection as a

corporate objective, OCC has won several prizes and accolades for environment friendly measures taken at

its plants and mines. The company has also been felicitated for its acts of good corporate citizenship.

The OCC Board comprises executive, non-executive, and nominee directors. This group is responsible for

determining the objectives and broad policies of the Company - consistent with the primary objective of

enhancing long-term shareholder value. The Board meets once a month.

Today we define Corporate Social Responsibility as the way a company balances its economic, social and

environmental objectives while addressing stakeholder expectations and enhancing shareholder value.

2. ANALYSING OF INTERNAL ENVIRONMENT

OMAN CEMENT COMPANY HAS FOLLOWING STRENGTH

It is having a good image and brand loyalty among consumers.

Service is good

Perceived to be of very superior quality cement when compared to others

They have same price prevailing for wholesale at dealers/stockiest retailers end.

WEAKNESS

The competitors are doing much promotional activity rather than Oman Cement Company that’s why it

facing more problems in selling of product in the market.

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3. ANALYSING OF EXTERNAL ENVIRONMENT

WE SEE FOLLOWING OPPORTUNITIES FOR OUR BUSINESS

·As Oman’s core industry is also growing at rate of nearly 10% per annum, it is having a good future.

· More investments in infrastructure sector going to increase in coming years, which will increase the

demand of cement.

· Roads are undergoing through the transformation process through which the traditional method of road

building will be replaced by modern concrete roads.

4) Gap Analysis:- As the main aim is to satisfy the customer demand so it should see that the gap between

the customer and organization is properly builded up.

5) Framing Alternative strategy:-After making the gap and SWOT analysis the company should

accomplish the objective of the firm.

6) Choosing the strategy:- It follows focus strategy as its main aim is to go world wide.

II) STRATEGIC EVALUATION:-

1) FORMULATION OF PLANS, PROGRAMMES AND PROJECTS:- If you are a line manager or

functional expert, overseeing a number of businesses, profit centers or operating units, you are likely to be

facing tough challenges. It is hard to add value and easy to make things worse. Group Level Strategy is a

unique opportunity for you to rethink your role in creating value. Based on the ground-breaking research of

Andrew Campbell and Michael Goold, the programme is about your job at its most visible: fundamental

choices that affect business performance.

2) PROJECT IMPLEMENTATION:- OCC has a unique track record of innovative research, product

development and specialized consultancy services. With more than seven decades of rich experience in

prospecting for raw materials, mining, setting up and managing cement plants of different sizes,

technologies and processes. We are proficient in managing captive thermal power plants and now also have

a few power plants based on wind energy.

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Our large team of talented scientists, engineers and technocrats are experienced in meeting the needs of the

cement industry both in Oman and in many other countries.

In particular we have a successful track record in modernizing old technology based cement plants to

improve their operational economy and also in the design & engineering of new technology based cement

plants.

3) PROCEDURAL IMPLEMENTATION:- The cement plants of OCC are located in various regions of

the country in a number of states. The gadgets and equipments are of high standards and comply with the

international standards. Presently, there are around 12 cement plants of OCC which cater to the different

market segments of the country. The cement plants work in coordination with each other and also

independently to increase the share in the market.

All the OCC. Cement Plants use the cutting edge technologies and services which in turn produce high

quality cement brands. Set up in the year 1936, OCC has always worked dedicatedly to produce some of the

best brands of cement and its business strategy is based on providing the best of products to the changing

consumer market in the country and the world. The following table provides a general idea of the OCC .

Cement Plants

4) RESOURCE ALLOCATION:-

The OCC . Cement Plants use the cutting edge technologies and services which in turn produce high quality

cement brands. Set up in the year 1936, OCC has always worked dedicatedly to produce some of the best

brands of cement and its business strategy is based on providing the best of products to the changing

consumer market in the country and the world.

5) STRUCTURAL IMPLEMENTATION:-. The cement plants of OCC are located in various regions of

the country in a number of states. The gadgets and equipments are of high standards and comply with the

international standards. Presently, there are around 2 cement plants of OCC which cater to the different

market segments of the country. The cement plants work in coordination with each other and also

independently to increase the share in the market.

6) FUNCTIONAL IMPLEMENTATION:- The high quality cement that is manufactured and exported by

OCC is produced in the OCC . Cement Plants. OCC is one of the front runners in the cement industry in

Oman and produces some of the best quality cement in the country. It has a significant market share in the

segments of housing, real estate, infrastructure and other development projects. With more and more

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developmental projects coming up, the profit and the market share of the company is expected to rise at a

considerable rate.

7) BEHAVIOURAL IMPLEMENTATION:-The reaction of the employee and customer can be

implemented i.e. either positive or negative. depends upon the projects whether it was customer oriented or

company related.

III) STRATEGIC EVALUATION:-

1. SETTING OF STANDARDS:- As per the standards set by the company the employees has to

function. Along with the standards the company should not forget it ultimate objective or goals.

2. MEASUREMENT OF PERFORMANCES:-The set standards are then measured with the actual

performance.

3. COMPARISON OF ACTUAL STANDARD WITH STANDARDS:-the comparison after

measuring is evaluated on the bases of performance which can positive or negative . it means the

deviating in achieving the targets.

4. Analysing the deviation:- for eg:- the standards was to produce 1000 units but actual production is

900 the it is called negative deviation.so it should kept in mind while evaluating a performance .

5. Taking corrective measures:-after doing all evaluation the proper measures are required to be

taken.

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BCG Matrix OF OMAN CEMENT COMPANY

Accordingly, the BCG matrix divides products/businesses into four categories:

· Stars: These high growth products in a fast growing market, need more resource commitments.

· Cash Cows: These are low growth, high market share products, where minimal investments are envisaged.

Indeed, cash cows provide the cash flows that support other businesses.

· Question Marks: These are low market share business units in high growth markets. Investment is needed

to build them into stars..

· Dogs: These are low growth and low market share businesses, which generate just enough cash to

maintain themselves. They are businesses from which the company is likely to withdraw in the near future.9

In The above matrix , OCC falls in the quadrant of “ CASH COW” with respect to the market leader. The

circle size represents the absolute market share (20.23%) of OCC in the cement industry.

7S MCKINSEY MATRIX

The Seven Elements

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MERGEFORMATINET

Strategy: the plan devised to maintain and build competitive advantage over the competition.

Structure: the way the organization is structured and who reports to whom.

Systems: the daily activities and procedures that staff members engage in to get the job done.

Shared Values: called "super ordinate goals" when the model was first developed, these are the core

values of the company that are evidenced in the corporate culture and the general work ethic.

Style: the style of leadership adopted.

Staff: the employees and their general capabilities.

Skills: the actual skills and competencies of the employees working for the company.

The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for

example to help you:

Improve the performance of a company.

Examine the likely effects of future changes within a company.10

Align departments and processes during a merger or acquisition.

1) Structure:- The OCC Board comprises executive, non-executive, and nominee directors. This group is

responsible for determining the objectives and broad policies of the Company - consistent with the primary

objective of enhancing long-term shareholder value. The Board meets once a month.

Two other small groups of directors - comprising Shareholders'/Investors' Grievance Committee and Audit

Committee of the Board of Directors - also meet once a month on matters pertaining to the finance and

share disciplines.

During the last decade, there has been a streamlining of the senior management structure that is more

responsive to the needs of the Company's prime business. A Managing Committee - comprising, in addition

to the Managing Director and the two executive directors, the presidents representing multifarious

disciplines: finance, production, marketing, research and consultancy, engineering and human resources -

meets once a week.

Besides these bodies, there are senior executives and other regional managers - based at the Company's

corporate office, and at its marketing offices and manufacturing units - who contribute to the development

and operation of the various functions.

While these groups form the core management team that frames and guides corporate policy, OCC is proud

of its manpower strength of about 9,000 people, who comprise experts in various disciplines assisted by a

dedicated workforce of skilled persons. Quite a number of them have logged many years of service with the

organization. They come from all parts of the country and belong to a variety of ethnic, cultural and

religious backgrounds. Because of such a cosmopolitan make-up, OCC can rightly be said to embrace

within its fold a family that forms a 'mini-Oman'

Although the companies function under a Group umbrella, each of these companies is setup as an

independent limited liability company comprising of their own Boards, Managing Directors and

Management Team responsible for all aspects of its operations. Human Resources, Legal, Finance and

Administration departmental functions are centralized at Group level.

2) Staff:- Oman Cement Company is made up of a carefully selected blend of the finest minds with diverse

backgrounds, skills and experience. With operations in nine countries, we continually learn from our

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geographically diverse environments to bring about synergies of experience and creativity, as we generate

value in business.

. This is achieved through continuous training and development to increase knowledge, skills and overall

effectiveness.

3) Shared Values: -

• We succeed through satisfied customers

• we deliver quality and excellence in all we do

• We use technology to develop market leadership

• We value our employees

• We behave responsibly as corporate citizens

4) SKILLS Few of the trainees were illiterate, most of the participants were literate and few of them

have been appeared the secondary level of education. Apart from the gainful employment skill

building (vocational) training, the trainees residing at the OCC center were provided basic literacy

classes and life skills training. Basic literacy classes were conducted for illiterate. The classes were

operated twice daily mostly in the morning and in the evening. Similarly, the life skill training was

provided to all the trainees during their stay at the center. The content of the life skill training . This

life skill training aimed to help the trainees to tackle the adverse situation that is possible to happen

during their future lives.

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5) STRATEGY.

High on quality, customer value and customer care

Branding

Advertising

Other promotional activities

Packages

Retention marketing

In 2009, a unique project, has transformed Cement House into an energy efficient environment-friendly

building. Its attractive refurbished façade now houses an ultramodern office equipped with space-saving

modular workstations, access control and intelligent lighting with motion and light sensors, waste

management systems and water saving devices set amid greenery and a central atrium that further expands

the sense of light and space

7) SYSTEM: - Oman Cement Company follow different system but one thing is common among all is their

concentration as they are thinking from the prospective of customer satisfaction.

Investment strategy of OCC

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In line with this net fixed asset of OCC has increased to RO.91.793 mn as on 31st December 2009. However

the debt position of the company has not changed much, as OCC till now not fully availed the RO.20 mn

loan. Financial position of the company continues to be strong with low debt equity position and high

interest coverage position. Given that the financial position of the company continues to be strong, the new

debt component is not likely to pressurize the balance sheet of OCC.

Industry Risk

• As mentioned earlier there is an oversupply situation in the cement industry as a result of which prices in

the region could witness downward pressure. The performance of the companies in the industry depends on

how quick the markets recover. We have assumed cement prices to fall to RO 28/tonne for FY10 and RO

26/tonne for FY11. Any further fall in prices could have a material impact on the performance of the

company and our estimated fair value price.

Company specific Risk

• The capacity expansion undertaken by the company is expected to commence production from second half

of FY10. Given that there has already been a delay in the execution of the project, further delay could have a

material impact on the performance of the company. Our estimates factor in a 50% capacity utilisation of

the enhanced capacity in FY10. However, if there is further delay in execution of the project or in the

production to achieve optimum operation there could be material impact on our fair value price.

Income Statement Balance Sheet

Y/e 31 December 2008 2009 2010E Assets (in RO mn) Net Fixed Assets 59.430 91.793 97.287 Investments 39.231 38.158 31.134 Other Assets 0.000 0.000 0.000 Net Current Assets 18.056 7.082 35.394 Total Assets 116.717 137.032 163.814 Liabilities Term Loans 0.802 4.021 20.600 Deferred Liabilities 3.972 3.841 3.748 Other LT Liab 1.262 1.529 1.500 Total outside liabilities 6.036 9.391 25.848 Share Capital 33.087 33.087 33.087 Share Premium 6.724 6.724 6.724 Retained

Earnings 43.265 60.218 70.543 Other Reserves 27.573 27.573 27.573 Net �orth 110.649 127.602 137.927 Revaluation Reserve 0.032 0.039 0.039 Total Liabilities 116.717 137.032 163.814

Source: Company Reports, FSC Research

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Sector view

• Nearly 2.5 mn tonnes of cement capacity is expected to be added in the next three years in Oman.

• Cheap import from UAE to put pressure on prices

• Infrastructure spending continues to be strong

• Overall Prices could come under pressure in the medium term

CMP Target Price Absolute (RO) (RO) Dividend/Share Return 0.707 0.813 0.037 20.23%

Figures in RO, Million Source: FSC Research

Share price performance Vs. Market

Source: Company Reports, FSC Research

INTERNAL STRATEGY

FORWARD INTEGRATION: OCC has created and developed an environment that ensures continual

improvement in our business processes. In the same direction, this integration will help us in proactively

meeting the expectations of customers, stakeholders and the requirements of the regulators while on the

other hand will be useful in utilizing our resources more efficiently and effectively.” they are committed to

achieve customer satisfaction by ensuring excellence of performance in all our offerings and services

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HORIZONTAL INTEGRATION: It involves addition of parallel new products to the existing product

line.This may happen internally or externally, internally, a company may decide to enter a parallel product

market in addition to the existing product line.

INTENSVE STRATEGY

A) PRODUCT DEVELOPMENT- Product Development has always been an important activity at OCC,

arising out of a focus on quality and process improvement. It has been a constant partner, driving research,

innovation and evaluation. In 1964, a centralized research facility - the Central Research Station (CRS) was

established in Thane. The research complex now renamed as OCC Thane Complex, spread over an area of

8000 sq m has modern labs with the latest equipment and manned by highly qualified scientists and

technologists who carry out product development work in cement and allied fields.

OCC has effectively pledged its reputation as the market leader in the quality of cement. Maintaining this

lead calls for harnessing the resources and expertise of the company - from applied research and production

to marketing. Accordingly, all OCC factories are equipped with state-of-the-art process control

instrumentation and associated quality control and testing laboratories. Trained engineers, chemists and

technicians man these. The Central Laboratory at OCC Thane Complex is used as a reference laboratory for

diagnosis and resolving specific trouble-shooting cases.

As a result of this focus on quality, OCC cement specifications exceed those set by BIS by a wide margin.

Today, all OCC cement plants have the ISO 9001 Quality Systems certification. This demonstrates our

tradition of providing reliable and consistent quality through the application of modern technology, and

justifies the preferences of a nationwide customer base.

GENERAL STRATEGIES

COST LEADERSHIP:

OCC has Strived to become a cost leader by means of setting up captive power plants, and/or up-gradation

of technology to enhance productivity,.: OCC is one of the most profitable cement companies in the country.

RECOMMENDATIONS

Oman Cement Company is highly focused on its future objectives & expansion plans, but at the same time it

has to maintain a balance between the present plan & the future one. On the basis of strategic analysis

following recommendations will help in achieving its future goals effectively & efficiently:-

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OCC must focus on its Vision & Mission in order to attain its objective.

OCC should focus on expanding its market in order to grab the market shares.

It should also try to maximize the shareholders’ wealth.

OCC should not choose those projects, which may dilute the brand name just for the sake of

gaining market shares.

It should focus on to convert itself from Question Marks to Stars.

OCC has a high growth potentials, so it should try to raise funds timely in order to meet its target.

OCC should not do over promise, as it will deteriorate its goodwill.

OCC must focus on its competitors’ strategy in order to gain a competitive edge.

OCC should try to go for diversification to minimize risk factor & to explore new market as well.

CONCLUSION

Keeping pace with changing times and an ever-growing need for specialized services, OCC has begun

offering its marketing expertise and distributaries facilities to other producers in cement and related areas.

However a precondition of all such agreement is quality control supervision to be carried out by an OCC

expert. These, in addition to handling after-sales servicing, function as advisory bodies that can help

customers, make the right choice of cement for a specific area of application.

OCC can provide expert advice on getting the best value from cement and offer assistance on related issues

in civil construction projects.

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REFERENCE

WEBSITES:

1. http://www.gulfbase.com/site/interface/SpecialReport/FINCORP_OMANCEMENT_020409.pdf

2. http://www.omancement.com/TestCertificates/owcA.pdf

3. http://www.omancement.com

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