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The core competencies of Holcim are reviewed, along with an evaluation of the Holcim Group’s key strategic choices and strategies that the corporation should consider pursuing over the next 5 years. The Holcim Group, based in Switzerland is one of the world's leading manufacturers and suppliers of cement and aggregates. These are the primary materials used in all construction activities. Further business activities include ready-mix concrete, concrete products, asphalt and a range of valued added services. The Group holds majority and minority interests in businesses in around 70 countries on all continents. Holcim employs over 80,000 people, with a turnover in excess of 21 billion Swiss Francs. The geographical spread of business exposes the organisation to widely varying political and economic business environments. For the purpose of this essay these environments will be simply categorised as emerging (China, Asia, and India & South America) and mature markets (Europe and North America). The environment analysis of the Holcim group will be conducted using Porter’s Five Forces Model and the PESTEL analysis model. PESTEL, which stands for the Political, Economic, Social, Technological, Environmental and Legal factors, categorises the broad macro -environmental influences affecting the group (Johnson et al, 2011) Porters five Forces Model, (Porter 1980) is commonly used to assess the attractiveness of the industries in which business’s operate. Based on the information derived from the environmental analysis, a business strategy can be prepared that can capitalise on the core competencies and resources of an organisation to exploit opportunities in the industry in which they operate.
Part 1 – External Environment Analysis - PESTEL
The Cement industry is a large user of energy and is the second largest CO2 emitting industry behind power generation. Cement & aggregates are essentially simple business’s. it is still in the development phase. demand for cement and concrete will increase as cement is a widely accepted. Legal Influences For the Holcim the likely legal influences will be group mergers and acquisitions affected by the local laws of foreign ownership. as it is well positioned in these regions. This is positive for Holcim whilst rising energy costs and environmental influences have stimulated investment in a more environmental friendly cement alternative. PORTERS – Five forces Analysis . Holcim will need to be aware of any ant-trust or anticompetitive behaviours by regional management that could attract the attention of local regulators. used in housing construction and infrastructure developments. According to Holcim’s 2010 annual report. China and India are the largest consumers of cement in the world.Political influences are largely positive for the Holcim group as in both emerging and mature economies there are fiscal benefits to government to promote construction and create economic growth. with little threat of substitution or changing consumer trends. the emerging markets continue to grow and will continue to provide growth to Holcim. accounting for about 5% of global man-made CO2 emissions (The cement sustainability Initiative report. Technological Influences Unlike other industries cement. Environmental Influences Environmental regulation or taxes over time is likely to increase. particularly in mature markets. jobs and revenues from taxes. is well positioned to take advantage of these economic conditions with over ¾ of its cement capacity located in these regions. (Holcim Annual report 2010) Sociological Influences In emerging economies where standard of living is on the increase. Whilst mature markets such as Europe and North America are suffering economic downturns.This is positive for Holcim.com). Economic Influences Holcim is exposed to differential economic growth rates. ageing demographics growth in cement is likely to be subdued. and a long way off commercialisation (www. readily available low cost material. In the mature economies in which Holcim operates. 2002) This is a negative influence on Holcim’s operating costs that will continue to increase over time. The only concern for Holcim would be the political conditions of the developing countries which could affect Holcim’s ability to further penetrate the emerging markets.novacem. aggregates and concrete is not subject to rapid technological obsolescence. in the world. WBCSD.
Threat of Substitute product Cement is one of the most basic construction material used worldwide for all construction work. Supplier power is mainly limited to fuel / power inputs. Power of Suppliers Supplier power has very low impact in the cement industry. Cost advantage is critical to sustain a competitive advantage due to very little or no product differentiation. Threat of New Entrants The barriers of entry in the cement and aggregates industry are not considerably high. cement manufacture is very capital intensive. 5. it is not generally transported long distances. where rising energy costs would have an impact. the ability to pass on such increases to customers could affect profitability. 2. . this is a positive force for Holcim. Economy of scale will then be critical to compete and this is a positive force for Holcim. The technology is easily available. Holcim's strength lie’s in its ability to produce cement at a significant discount to the industry so it as a competitive advantage of low cost. 3. and requires long term commitment of capital. Therefore threat of new entrants is only likely to come from other large players who are not operating in markets that Holcim competes in. However. therefore rivalry is concentrated at the regional level. this is likely to be common to all companies. Rivalry in mature markets is expected to be fierce as players try to maintain volumes to cover fixed costs.1. As cement is essential product in the construction sector but non-differentiated. As there is no direct substitute of cement and its concrete derivative products which would affect the profitability of the industry. Power of Buyers In markets where there is an overcapacity of cement production the power of consumers can be high. Rivalry of the Competition With Cement being a low value and bulky commodity. 4. the consumers can easily switch to another supplier. with the only constraint being capital. With little differentiation of product price will play a big factor. Part 2 Identify the core resources and competences of the corporation you have chosen? Justify why they are the core in the corporation.
over $3billion Swiss francs pa (Holcim 2010 Annual Report) means it has the core financial resources to enter and develop new markets.resources and competencies. Environmental analysis also revealed that the barrier to entry into markets is capital intensive. Further ownership and interests in the downstream value chain business provide Holcim with a substantial amount of resources at its disposal to supply its chosen markets. He argues that global corporations not developing regional core competencies could develop “core rigidities” that reduce the effectiveness of the organisation. By owning the core raw materials for the production of ready mix concrete. PART 3 Evaluate the corporation’s key strategic choices and discuss why the corporation chooses the existing choices? Please justify your answer. Holcim’s financial strength and strong cash flows. This is evidenced according to the annual report 2010 the establishment of Holcim support group ltd. and creates barriers to entry into the ready mix market. to ensure effective utilisation of these resources. as analysis of the environment shows that a maintaining a sustainable cost advantage is critical for the business to maintain its long term competitive advantage.000 people worldwide. this creates further strength as this vertical integration creates more value to the organisation and negates power of suppliers. It was identified that regional economic & political forces can have an affect each division. This allows the company to generate the necessary economies of scale to generate acceptable returns on capital.. The physical core resources that Holcim have are its raw materials. through being cost competitive. leveraging off the global human resources skills in plant efficiency and environmental management at its disposal. Holcim has developed core competencies in efficient use of these assets. Resources are the assets that organisations have or can call upon. The ability operate a support division to leverage best practices across the group is only permissible by Holcim’s size. This is supported by Snow & Hbrebiniak. leveraging these competencies across the group to ensure world’s best practice. particularly in the ready-mix market where the business is customer centric. Financial and Human. 1990). . These are essential core competencies for Holcim. Competencies are the way those assets are used or deployed effectively. Whilst at the same time. ongoing innovation and development. so it can be regarded as a core competency (Hamel & Prasad. the strategic capability of an organisation comprises two components: . aggregate business’s and its efficient cement plants on every continent. Hamel & Prahalad (1990) argue that core competencies are those which are distinctive to the organisation and give the organisation a competitive advantage. (2000). Holcim employees over 80. Leverage of the financial resources allows Holcim to maintain a competitive advantage in a capital intensive business such as cement production. So the strategy of maintaining a regional management focus to maximise opportunities – could be argued as a core competency. thereby creating an extensive core human resource with extensive experience in cement industry. Financial competencies within Holcim provide the business with the ability to access capital at cheaper rates.According to Johnson et al (2011). (1980) Core resources and competencies can be broken down into three elements Physical. This is supported by Siddiqi S. through bond issues. Even though Holcim is a global corporation it competes on a regional basis.
is sound as these materials are the basic raw materials for all construction work. Holcim seeks to reduce its debt levels as in mature markets where there is uncertainty around economic growth. The strategic choice to continue to grow the cement and aggregates business. In the mature markets other less favourable environmental forces from energy suppliers and rising environmental forces influence the strategy. thus having a sound balance sheet will allow the company to position itself to take advantage of growth opportunities. a mix of aggregates and cement. The cement industry is a large user of transport and energy. This strategy will allow maximum creation of value by the Holcim group. to extract maximum value out of the value chain (appendix 1). cement and aggregates. the key strategic choices of the company.According to the Holcim’s group’s website and annual report 2010. and leverage its core resources and competencies. grow the aggregates business. cement and aggregates. This is a sound strategy as the group supplies the two core raw materials for the most commonly used form of concrete . Environmental analysis shows there are favourable forces in Sociological. Holcim seeks to continue growth of cement business in emerging markets. Political & economical influences in these emerging markets that Holcim seeks to exploit with their core resources and competencies. and progressively seek further vertical integration of the value chain (Appendix 1) to maximise value for the organisation. Another key choice is the reduction of debt. PART 4 Select a strategy that you believe the corporation should be pursuing for the next five years and justify your selection. therefore it necessitates the strategy to reduce energy consumption. and leverage Holcim’s core knowledge and resources. . are to focus on the manufacture and distribution of its core products. In these markets Holcim seeks to reduce energy consumption. which is a major driver in the consumption of its two core products. In emerging and mature markets Holcim seeks to progressively expand vertical integration. aggressively price increases. In these markets with reduced demand and more intense competition it may be harder to pass any price increases onto the buyers. and create barriers to entry by controlling the supply chain.ready-mix. The growth of the emerging markets in cement is capital intensive.
in the economic expansion of these economies. To employ tight cost control and review of assets. should be employed to maximise value out of these businesses. Continue to acquire or develop other businesses along the value chain such as aggregates and ready-mix concrete. Ownership of the value chains should provide power to pass increases. Pursue growth in cement either through acquisition or building capacity. financial strength to secure business competitiveness for the longer term. Long gestations times to acquire & obtain environmental approval to develop quarries are required. Invest in technology to reduce carbon emissions as cement is a high emitter of greenhouse gases. Continue growth of the aggregates & ready-mix business. shopping centres. Rising fuel & transport costs will reduce profitability if reserves & facilities are too far from markets. The environments in which Holcim operates are broadly categorised into emerging markets and mature markets. leveraged with International operations best practice. and negate buyer power. 3. 2. Novacem which stemmed from investment in new technology through increased environmental influences. apartments thus increases along with it the demand for cement based products. 5. as competitors seek to run plants at capacity to cover fixed costs. There is a growing demand for cement based products and services. Ready mix businesses are customer centric. Capacity should be developed in line with growth. potential additional regulatory costs associated with carbon emissions lead. based on the favourable political. thus requiring different strategies for these regions. the demand for more roads. Capitalise on Holcim’s. so as to not oversupply the markets and put pressure on prices. business is built around price & relationships. In emerging markets Holcim’s strategy should be to: 1. The emerging markets present the primary opportunity to Holcim for growth. Secure future resources in close proximity to markets. 2. economic and sociological forces at play. 4. as identified previously different forces are present in these markets. by leveraging Core competencies to extract more value out of the value chain (appendix 1). as rising fuel costs. . as economic growth forces are unfavourable in these markets. rivalry in the market place is likely to increase and put pressure on prices. Pursue increase prices to offset rising energy costs inputs.In order to develop an effective strategy companies must understand the environments in which they operate so they can leverage their strategic capabilities effectively to create a sustainable competitive advantage (Johnson et al 2011). As evidenced by the development of environmentally friendly cement. This aspect is important due to the sociological influences driving demands in the standard of living. The continued strategy of utilising Holcim’s core competency of regional management skill. as there is little differentiation between suppliers. Once again Environmental Regulatory requirements are becoming an increasing negative force. In the mature markets Holcim’s strategy should be to: 1. it is likely that environmental forces will increase over time.
Conclusion An analysis of the external environmental in which the Holcim group operates using Porters Five forces model and PESTEL reveals that the there are favourable Political. In the mature markets economic and growing environmental forces are not so favourable. This should see Holcim cement its position as the leading organisation in cement based industries. As cement production is the second biggest carbon dioxide emitter behind energy generation. In summary Holcim’s strategy should be to leverage core competencies and resources in emerging markets to exploit favourable environmental forces at play. References Holcim Group Annual Report 2010 . so economy of scale and cost advantage is critical for maintaining a long term competitive advantage. combat against rivalry amongst its competitors. Holcim is likely to experience increased environmental regulatory demands in both the emerging and mature markets. The key strategic choice of sticking to what they know (or core competencies) and diversifying geographically.In addition Holcim’s strategy should be to continue to reduce debt levels. and provide increased barriers to entry for other players wishing to enter the market. will allow funding of growth opportunities in emerging economies. In the mature markets Holcim should utilise its strategic capabilities at defending against less favourable economic and environmental forces. by leveraging capital & human resource strengths (core resources and competencies) place Holcim in a strong position to exploit favourable environmental forces in the emerging economies of India. It is these same strategic capabilities that allow the company to combat the unfavourable economic and environmental forces in the mature markets. combined with already strong cash flows. China and South America. This is a force that could have an increased effect on profitability over time. The vertical integration and development of the value chain by Holcim is a key part of the organisations strategy as markets mature to continue to provide growth to the organisation. Economic and Social forces supporting the growth in Emerging markets. Strong rivalry exists in both markets. Asia. Maintaining low gearing.
G. Viewed online 1st Sept. The Cement Sustainability Initiative: Progress report.1 2000 pp 91-104.. Competitive strategy: Techniques for Analysising Industries and Competitors.K. Harvard Business Review. Administrative Science Quarterly. www. The Core Competence of the Corporation. Customizing Core Competencies: The Regional Challenge. (2000). 252. 79-91. World Business Council for Sustainable Development. No. Prahalad. and Organizational Performance. & Scholes K. Snow.Holcim Group Website. & Hamel. Ninth Edition. Exploring Strategy: Text and cases. Source www. Porter. Strategy.2002 Viewed online. 68(3). 1980. M. 2011 Emerald Group Publishing Database online.org.holcim. published 01-06. Siddiqi S. 317-335. L. & Hrebiniak. Viewed online 1st Sept. Prentice Hall. Appendix 1 Holcim Value Chain.com Johnson G. Vol 10.wbcsd. (1980). 2011.holcim. 2011 Emerald Group Publishing database online. E. pp. Free Press. G. C. C. Whittington R. (1990). Viewed online 1st Sept.com . International Journal of Commerce and Management.C. 2011 Emerald Group Publishing Database online. Distinctive Competence. www.
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