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