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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
WBCSD. in the world. The Cement industry is a large user of energy and is the second largest CO2 emitting industry behind power generation. is well positioned to take advantage of these economic conditions with over ¾ of its cement capacity located in these regions. ageing demographics growth in cement is likely to be subdued.com). Legal Influences For the Holcim the likely legal influences will be group mergers and acquisitions affected by the local laws of foreign ownership. 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. In the mature economies in which Holcim operates. Holcim will need to be aware of any ant-trust or anticompetitive behaviours by regional management that could attract the attention of local regulators.This is positive for Holcim. 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 . it is still in the development phase. 2002) This is a negative influence on Holcim’s operating costs that will continue to increase over time. Economic Influences Holcim is exposed to differential economic growth rates. with little threat of substitution or changing consumer trends. (Holcim Annual report 2010) Sociological Influences In emerging economies where standard of living is on the increase. jobs and revenues from taxes. 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. as it is well positioned in these regions. Environmental Influences Environmental regulation or taxes over time is likely to increase. demand for cement and concrete will increase as cement is a widely accepted. Whilst mature markets such as Europe and North America are suffering economic downturns.novacem. used in housing construction and infrastructure developments. Cement & aggregates are essentially simple business’s. particularly in mature markets. According to Holcim’s 2010 annual report. aggregates and concrete is not subject to rapid technological obsolescence. and a long way off commercialisation (www. Technological Influences Unlike other industries cement. 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. readily available low cost material.
this is a positive force for Holcim. The technology is easily available. the ability to pass on such increases to customers could affect profitability. it is not generally transported long distances. Threat of Substitute product Cement is one of the most basic construction material used worldwide for all construction work. Power of Suppliers Supplier power has very low impact in the cement industry. Rivalry in mature markets is expected to be fierce as players try to maintain volumes to cover fixed costs. As cement is essential product in the construction sector but non-differentiated. 4. with the only constraint being capital. Power of Buyers In markets where there is an overcapacity of cement production the power of consumers can be high. Supplier power is mainly limited to fuel / power inputs. 5.1. 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. With little differentiation of product price will play a big factor. this is likely to be common to all companies. cement manufacture is very capital intensive. 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. Rivalry of the Competition With Cement being a low value and bulky commodity. and requires long term commitment of capital. As there is no direct substitute of cement and its concrete derivative products which would affect the profitability of the industry. therefore rivalry is concentrated at the regional level. the consumers can easily switch to another supplier. Economy of scale will then be critical to compete and this is a positive force for Holcim. 2. However. where rising energy costs would have an impact. . Therefore threat of new entrants is only likely to come from other large players who are not operating in markets that Holcim competes in. Part 2 Identify the core resources and competences of the corporation you have chosen? Justify why they are the core in the corporation. 3.
Whilst at the same time. Resources are the assets that organisations have or can call upon. 1990). through being cost competitive. This is evidenced according to the annual report 2010 the establishment of Holcim support group ltd. leveraging these competencies across the group to ensure world’s best practice. leveraging off the global human resources skills in plant efficiency and environmental management at its disposal. to ensure effective utilisation of these resources. through bond issues. Environmental analysis also revealed that the barrier to entry into markets is capital intensive.According to Johnson et al (2011). PART 3 Evaluate the corporation’s key strategic choices and discuss why the corporation chooses the existing choices? Please justify your answer. Hamel & Prahalad (1990) argue that core competencies are those which are distinctive to the organisation and give the organisation a competitive advantage. Financial competencies within Holcim provide the business with the ability to access capital at cheaper rates. Holcim has developed core competencies in efficient use of these assets. this creates further strength as this vertical integration creates more value to the organisation and negates power of suppliers.resources and competencies. By owning the core raw materials for the production of ready mix concrete. The physical core resources that Holcim have are its raw materials. thereby creating an extensive core human resource with extensive experience in cement industry. (2000). It was identified that regional economic & political forces can have an affect each division. 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 allows the company to generate the necessary economies of scale to generate acceptable returns on capital. Leverage of the financial resources allows Holcim to maintain a competitive advantage in a capital intensive business such as cement production. Competencies are the way those assets are used or deployed effectively. These are essential core competencies for Holcim. aggregate business’s and its efficient cement plants on every continent. the strategic capability of an organisation comprises two components: . So the strategy of maintaining a regional management focus to maximise opportunities – could be argued as a core competency. Even though Holcim is a global corporation it competes on a regional basis. Holcim employees over 80. . This is supported by Snow & Hbrebiniak. so it can be regarded as a core competency (Hamel & Prasad. particularly in the ready-mix market where the business is customer centric. The ability operate a support division to leverage best practices across the group is only permissible by Holcim’s size. Holcim’s financial strength and strong cash flows. Financial and Human. over $3billion Swiss francs pa (Holcim 2010 Annual Report) means it has the core financial resources to enter and develop new markets. (1980) Core resources and competencies can be broken down into three elements Physical. This is supported by Siddiqi S. 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. and creates barriers to entry into the ready mix market. He argues that global corporations not developing regional core competencies could develop “core rigidities” that reduce the effectiveness of the organisation.. ongoing innovation and development.
PART 4 Select a strategy that you believe the corporation should be pursuing for the next five years and justify your selection. and progressively seek further vertical integration of the value chain (Appendix 1) to maximise value for the organisation. In emerging and mature markets Holcim seeks to progressively expand vertical integration. and leverage Holcim’s core knowledge and resources. is sound as these materials are the basic raw materials for all construction work. are to focus on the manufacture and distribution of its core products. The cement industry is a large user of transport and energy. and leverage its core resources and competencies. aggressively price increases. cement and aggregates. cement and aggregates.According to the Holcim’s group’s website and annual report 2010. grow the aggregates business.ready-mix. This strategy will allow maximum creation of value by the Holcim group. The strategic choice to continue to grow the cement and aggregates business. thus having a sound balance sheet will allow the company to position itself to take advantage of growth opportunities. In the mature markets other less favourable environmental forces from energy suppliers and rising environmental forces influence the strategy. In these markets Holcim seeks to reduce energy consumption. Environmental analysis shows there are favourable forces in Sociological. Holcim seeks to continue growth of cement business in emerging markets. Another key choice is the reduction of debt. Political & economical influences in these emerging markets that Holcim seeks to exploit with their core resources and competencies. therefore it necessitates the strategy to reduce energy consumption. . to extract maximum value out of the value chain (appendix 1). and create barriers to entry by controlling the supply chain. 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. This is a sound strategy as the group supplies the two core raw materials for the most commonly used form of concrete . The growth of the emerging markets in cement is capital intensive. Holcim seeks to reduce its debt levels as in mature markets where there is uncertainty around economic growth. which is a major driver in the consumption of its two core products. the key strategic choices of the company.
As evidenced by the development of environmentally friendly cement. should be employed to maximise value out of these businesses. rivalry in the market place is likely to increase and put pressure on prices. 3. and negate buyer power. Capitalise on Holcim’s. Ready mix businesses are customer centric. apartments thus increases along with it the demand for cement based products. 5. Pursue increase prices to offset rising energy costs inputs. To employ tight cost control and review of assets. There is a growing demand for cement based products and services. 4. thus requiring different strategies for these regions. the demand for more roads.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). Pursue growth in cement either through acquisition or building capacity. 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. economic and sociological forces at play. shopping centres. based on the favourable political. as competitors seek to run plants at capacity to cover fixed costs. In the mature markets Holcim’s strategy should be to: 1. This aspect is important due to the sociological influences driving demands in the standard of living. The emerging markets present the primary opportunity to Holcim for growth. potential additional regulatory costs associated with carbon emissions lead. in the economic expansion of these economies. so as to not oversupply the markets and put pressure on prices. it is likely that environmental forces will increase over time. as economic growth forces are unfavourable in these markets. as there is little differentiation between suppliers. Rising fuel & transport costs will reduce profitability if reserves & facilities are too far from markets. Long gestations times to acquire & obtain environmental approval to develop quarries are required. Secure future resources in close proximity to markets. leveraged with International operations best practice. Novacem which stemmed from investment in new technology through increased environmental influences. Once again Environmental Regulatory requirements are becoming an increasing negative force. as rising fuel costs. In emerging markets Holcim’s strategy should be to: 1. Ownership of the value chains should provide power to pass increases. business is built around price & relationships. The environments in which Holcim operates are broadly categorised into emerging markets and mature markets. financial strength to secure business competitiveness for the longer term. Continue growth of the aggregates & ready-mix business. 2. The continued strategy of utilising Holcim’s core competency of regional management skill. . 2. by leveraging Core competencies to extract more value out of the value chain (appendix 1). Invest in technology to reduce carbon emissions as cement is a high emitter of greenhouse gases. as identified previously different forces are present in these markets.
This is a force that could have an increased effect on profitability over time. so economy of scale and cost advantage is critical for maintaining a long term competitive advantage. China and South America. References Holcim Group Annual Report 2010 . Maintaining low gearing. This should see Holcim cement its position as the leading organisation in cement based industries. It is these same strategic capabilities that allow the company to combat the unfavourable economic and environmental forces in the mature markets. As cement production is the second biggest carbon dioxide emitter behind energy generation. will allow funding of growth opportunities in emerging economies. Asia. 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. combined with already strong cash flows. In the mature markets economic and growing environmental forces are not so favourable. Economic and Social forces supporting the growth in Emerging markets. Holcim is likely to experience increased environmental regulatory demands in both the emerging and mature markets. 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. The key strategic choice of sticking to what they know (or core competencies) and diversifying geographically. In the mature markets Holcim should utilise its strategic capabilities at defending against less favourable economic and environmental forces.In addition Holcim’s strategy should be to continue to reduce debt levels. combat against rivalry amongst its competitors. Strong rivalry exists in both markets. In summary Holcim’s strategy should be to leverage core competencies and resources in emerging markets to exploit favourable environmental forces at play. 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. and provide increased barriers to entry for other players wishing to enter the market.
Competitive strategy: Techniques for Analysising Industries and Competitors.G. Source www. and Organizational Performance. Siddiqi S..holcim. www. Exploring Strategy: Text and cases. G. & Hrebiniak.org. published 01-06. Viewed online 1st Sept. Administrative Science Quarterly. 252. Harvard Business Review.com . C. The Core Competence of the Corporation. Vol 10. International Journal of Commerce and Management. Appendix 1 Holcim Value Chain. Strategy. The Cement Sustainability Initiative: Progress report. Snow. Viewed online 1st Sept. Distinctive Competence. L. 1980. Viewed online 1st Sept. World Business Council for Sustainable Development. pp. & Scholes K.com Johnson G. Free Press. & Hamel. www.2002 Viewed online. (2000). (1980). 68(3).holcim. Porter. 2011 Emerald Group Publishing database online.C. Prahalad. 317-335. 2011. 79-91. Ninth Edition. 2011 Emerald Group Publishing Database online.Holcim Group Website. No.wbcsd.1 2000 pp 91-104. (1990).K. E. Prentice Hall. Whittington R. Customizing Core Competencies: The Regional Challenge. C. M. 2011 Emerald Group Publishing Database online.
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