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)

1
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

2
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.

INTRODUCTION
3
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 Capacity

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

(Mapsofindia.com 2010) (Tradechakra 2008)

4
5
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)

6
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.)

7
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).

8
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

9
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.

10
Overview of Indian Cement Industry through Porter’s5 Model

11
 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.

12
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.

13
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.
14
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.

15
 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]

16
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]

17