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