Introduction

This essay conducts an Environmental analysis of the Holcim Group, in the cement industry.
The core competencies of Holcim are reviewed, along with an evaluation of the Holcim
Groups 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 Porters 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
businesss 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

Political Influences
 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, jobs and revenues from taxes.
The only concern for Holcim would be the political conditions of the developing
countries which could affect Holcims ability to further penetrate the emerging markets.

Economic Influences
Holcim is exposed to differential economic growth rates. Whilst mature markets such
as Europe and North America are suffering economic downturns, the emerging markets
continue to grow and will continue to provide growth to Holcim. According to Holcims
2010 annual report, China and India are the largest consumers of cement in the world. is well
positioned to take advantage of these economic conditions with over 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, demand for cement and
concrete will increase as cement is a widely accepted, readily available low cost material,
used in housing construction and infrastructure developments.This is positive for Holcim, as
it is well positioned in these regions. In the mature economies in which Holcim operates,
ageing demographics growth in cement is likely to be subdued.

Technological Influences
Unlike other industries cement, aggregates and concrete is not subject to rapid technological
obsolescence. Cement & aggregates are essentially simple businesss, 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; it is still in the development phase, and a long way off
commercialisation (www.novacem.com).

Environmental Influences
Environmental regulation or taxes over time is likely to increase, particularly in mature
markets. The Cement industry is a large user of energy and is the second largest CO2
emitting industry behind power generation, in the world, accounting for about 5% of global
man-made CO2 emissions (The cement sustainability Initiative report, WBCSD, 2002) This
is a negative influence on Holcims operating costs that will continue to increase over time.

Legal Influences
For the Holcim the likely legal influences will be group mergers and acquisitions affected by
the local laws of foreign ownership. Holcim will need to be aware of any ant-trust or anti-
competitive behaviours by regional management that could attract the attention of local
regulators.

PORTERS Five forces Analysis

1. Threat of New Entrants
The barriers of entry in the cement and aggregates industry are not considerably high. The
technology is easily available, with the only constraint being capital, cement
manufacture is very capital intensive, 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. Cost advantage is critical to
sustain a competitive advantage due to very little or no product differentiation.

2. Rivalry of the Competition

With Cement being a low value and bulky commodity, it is not generally transported long
distances; therefore rivalry is concentrated at the regional level. With little differentiation of
product price will play a big factor. Economy of scale will then be critical to compete and
this is a positive force for Holcim. Rivalry in mature markets is expected to be fierce as
players try to maintain volumes to cover fixed costs.

3. Threat of Substitute product

Cement is one of the most basic construction material used worldwide for all construction
work. As there is no direct substitute of cement and its concrete derivative products which
would affect the profitability of the industry, this is a positive force for Holcim.

4. Power of Suppliers

Supplier power has very low impact in the cement industry. Supplier power is mainly
limited to fuel / power inputs, where rising energy costs would have an impact. However,
this is likely to be common to all companies; the ability to pass on such increases to
customers could affect profitability.

5. Power of Buyers

In markets where there is an overcapacity of cement production the power of consumers can
be high. As cement is essential product in the construction sector but non-differentiated, the
consumers can easily switch to another supplier. Holcim's strength lies in its ability to
produce cement at a significant discount to the industry so it as a competitive advantage of
low cost.

Part 2 Identify the core resources and competences of the corporation you have
chosen? Justify why they are the core in the corporation.
According to Johnson et al (2011), the strategic capability of an organisation comprises two
components: - resources and competencies. Resources are the assets that organisations have
or can call upon. Competencies are the way those assets are used or deployed effectively.
Hamel & Prahalad (1990) argue that core competencies are those which are distinctive to the
organisation and give the organisation a competitive advantage. This is supported by Snow
& Hbrebiniak, (1980) Core resources and competencies can be broken down into three
elements Physical, Financial and Human.

The physical core resources that Holcim have are its raw materials, aggregate businesss and
its efficient cement plants on every continent. 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. By owning the core raw materials for the
production of ready mix concrete, this creates further strength as this vertical integration
creates more value to the organisation and negates power of suppliers, and creates barriers to
entry into the ready mix market, through being cost competitive.

Holcim has developed core competencies in efficient use of these assets, leveraging these
competencies across the group to ensure worlds best practice, ongoing innovation and
development. This is evidenced according to the annual report 2010 the establishment of
Holcim support group ltd, to ensure effective utilisation of these resources. The ability
operate a support division to leverage best practices across the group is only permissible by
Holcims size, so it can be regarded as a core competency (Hamel & Prasad, 1990). These
are essential core competencies for Holcim, 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.

Environmental analysis also revealed that the barrier to entry into markets is capital
intensive. Holcims financial strength and strong cash flows, over $3billion Swiss francs pa
(Holcim 2010 Annual Report) means it has the core financial resources to enter and develop
new markets. This allows the company to generate the necessary economies of scale to
generate acceptable returns on capital. Financial competencies within Holcim provide the
business with the ability to access capital at cheaper rates, through bond issues. Leverage of
the financial resources allows Holcim to maintain a competitive advantage in a capital
intensive business such as cement production.

Holcim employees over 80,000 people worldwide, thereby creating an extensive core human
resource with extensive experience in cement industry. 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, particularly in the ready-mix market where
the business is customer centric. So the strategy of maintaining a regional management focus
to maximise opportunities could be argued as a core competency. Whilst at the same time,
leveraging off the global human resources skills in plant efficiency and environmental
management at its disposal. This is supported by Siddiqi S., (2000). He argues that global
corporations not developing regional core competencies could develop core rigidities that
reduce the effectiveness of the organisation.

PART 3
Evaluate the corporations key strategic choices and discuss why the
corporation chooses the existing choices? Please justify your answer.
According to the Holcims groups website and annual report 2010, the key strategic choices
of the company, are to focus on the manufacture and distribution of its core products, cement
and aggregates. Holcim seeks to continue growth of cement business in emerging markets,
and progressively seek further vertical integration of the value chain (Appendix 1) to
maximise value for the organisation. Environmental analysis shows there are favourable
forces in Sociological, Political & economical influences in these emerging markets that
Holcim seeks to exploit with their core resources and competencies.

The strategic choice to continue to grow the cement and aggregates business, is sound as
these materials are the basic raw materials for all construction work. In emerging and mature
markets Holcim seeks to progressively expand vertical integration. This is a sound strategy
as the group supplies the two core raw materials for the most commonly used form of
concrete - ready-mix, a mix of aggregates and cement. This strategy will allow maximum
creation of value by the Holcim group, and leverage its core resources and competencies, and
create barriers to entry by controlling the supply chain.

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, aggressively price increases, grow the aggregates business, and
leverage Holcims core knowledge and resources, to extract maximum value out of the value
chain (appendix 1). The cement industry is a large user of transport and energy; therefore it
necessitates the strategy to reduce energy consumption. In these markets with reduced
demand and more intense competition it may be harder to pass any price increases onto the
buyers.

Another key choice is the reduction of debt. 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, cement and aggregates. The growth of the
emerging markets in cement is capital intensive, thus having a sound balance sheet will
allow the company to position itself to take advantage of growth opportunities.

PART 4 Select a strategy that you believe the corporation should be pursuing for the
next five years and justify your selection.
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 environments in which Holcim
operates are broadly categorised into emerging markets and mature markets, as identified
previously different forces are present in these markets, thus requiring different strategies for
these regions.

In emerging markets Holcims strategy should be to: -

1. Pursue growth in cement either through acquisition or building capacity. The emerging
markets present the primary opportunity to Holcim for growth, based on the favourable
political, economic and sociological forces at play. There is a growing demand for cement
based products and services, in the economic expansion of these economies. This aspect is
important due to the sociological influences driving demands in the standard of living; the
demand for more roads, shopping centres, apartments thus increases along with it the
demand for cement based products. Capacity should be developed in line with growth, so as
to not oversupply the markets and put pressure on prices.

2. Continue to acquire or develop other businesses along the value chain such as aggregates
and ready-mix concrete. Ready mix businesses are customer centric, as there is little
differentiation between suppliers, business is built around price & relationships. The
continued strategy of utilising Holcims core competency of regional management skill,
leveraged with International operations best practice, should be employed to maximise value
out of these businesses.

In the mature markets Holcims strategy should be to: -

1. Continue growth of the aggregates & ready-mix business, by leveraging Core

competencies to extract more value out of the value chain (appendix 1), as economic growth
forces are unfavourable in these markets.

2. Pursue increase prices to offset rising energy costs inputs. Ownership of the value chains
should provide power to pass increases, and negate buyer power.

3. 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. As evidenced by the
development of environmentally friendly cement, Novacem which stemmed from investment
in new technology through increased environmental influences.

4. To employ tight cost control and review of assets, rivalry in the market place is likely to
increase and put pressure on prices, as competitors seek to run plants at capacity to cover
fixed costs.

5. Secure future resources in close proximity to markets, as rising fuel costs, potential
additional regulatory costs associated with carbon emissions lead. Once again Environmental
Regulatory requirements are becoming an increasing negative force. Long gestations times to
acquire & obtain environmental approval to develop quarries are required. Capitalise on
Holcims, financial strength to secure business competitiveness for the longer term. Rising
fuel & transport costs will reduce profitability if reserves & facilities are too far from
markets.
In addition Holcims strategy should be to continue to reduce debt levels. Maintaining low
gearing, combined with already strong cash flows, will allow funding of growth
opportunities in emerging economies.

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, Economic and
Social forces supporting the growth in Emerging markets. In the mature markets economic
and growing environmental forces are not so favourable. Strong rivalry exists in both
markets, so economy of scale and cost advantage is critical for maintaining a long term
competitive advantage.

The key strategic choice of sticking to what they know (or core competencies) and
diversifying geographically, 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, Asia, China and South America. It
is these same strategic capabilities that allow the company to combat the unfavourable
economic and environmental forces in the mature 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,
combat against rivalry amongst its competitors, and provide increased barriers to entry for
other players wishing to enter the market. 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. This is a force
that could have an increased effect on profitability over time.

In summary Holcims 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. This should see Holcim cement its position as the leading
organisation in cement based industries.

References

Holcim Group Annual Report 2010

Holcim Group Website. www.holcim.com

Johnson G., Whittington R. & Scholes K. Exploring Strategy: Text and cases, Ninth Edition,
Prentice Hall, 2011.

Porter, M. E. Competitive strategy: Techniques for Analysising Industries and Competitors,

Free Press, 1980.

Prahalad. C.K. & Hamel, G. (1990). The Core Competence of the Corporation. Harvard
Business Review, 68(3), pp. 79-91. Viewed online 1st Sept. 2011 Emerald Group Publishing
database online.

Siddiqi S. (2000). Customizing Core Competencies: The Regional Challenge. International

Journal of Commerce and Management, Vol 10, No.1 2000 pp 91-104. Viewed online 1st
Sept. 2011 Emerald Group Publishing Database online.

Snow, C.C. & Hrebiniak, L.G. (1980). Strategy, Distinctive Competence, and Organizational
Performance. Administrative Science Quarterly, 252, 317-335. Viewed online 1st Sept. 2011
Emerald Group Publishing Database online.

The Cement Sustainability Initiative: Progress report, World Business Council for
Sustainable Development, published 01-06- 2002 Viewed online, www.wbcsd.org.

Appendix 1

Holcim Value Chain. Source www.holcim.com