Also using revenue from some of the top players in the industry and computing the HI Index, the result was an Index of 586 which falls in the range that is considered unconsecrated market, therefore we can say that the cement industry is fragmented at the global level although we have top players like Holmic with 22. 1 Billion in revenue. The cement manufacturing industry has been highly completive in recent years according to (4), especially the major market of CHEM. operation . Competition is also known to intensify particularly in recent years due to hanging economic conditions.
This could impact the company’s revenue in the long run. But with the gradually growing market and demand, it is possible that the competition may ease or have less impact on CHEM.. Competition at large, is based on price, product and service quality, brand reputation and product features. Although CHEM. has greater experience, research and development capabilities, greater manufacturing, marketing, financial, and managerial resources than most of the competitors. (4) We can conclude based on these factors that rivalry is high.
Threat to new entrants In the cement industry, new entrants are more affected by economies of scale, capital requirement and channel of distribution which are highlighted below. Capital Requirements and switching Costs are less impact and regulations are only recently starting to speak up. Differentiation is not a big factor either because it is difficult to create distinction and it is common for similar products to be sold by several cement companies; diversity mainly occurs with various types of end-uses. Economies of scale is significant in the moment industry as cement needs to be produced in large volumes to be cost effective.
Additionally marine transportation is needed after about 300 km, meaning transportation overall can be expensive. Moreover, ready-mixed which is preferable for new entrants to produce has a short working time; and in order for new entrants to produce ready-mixed concrete, they will need to build enough facilities in the country for fast access to customers; within two hours or so(l). For these reasons, capital requirement can be pretty high for new entrants. On the other hand, regulation has not been very cough for cement industry due to its large demand and necessity.
Although this could be changing soon as cement industry has been criticized a lot for its large contribution to greenhouses. The large amounts of energy required often lead to carbon dioxide emissions and the IIS Environmental Protection Agency (EPA) plans changes to mercury-emissions regulations for cement plants. This could have an important effect on existing and new entrants by increasing the cost of manufacturing cement. We can conclude that threat to new entrant in the cement industry is moderate. Bargaining Power of Suppliers The cement industry is greatly reliant on fossil fuels, petroleum, natural gas, and coal.
These are required to fire at high temperatures (around 2,700 F / 1 ,500 C) large quantities of raw materials like calcium carbonate, silica, alumina and iron ore. Cement being a fuel extensive industry can be strongly impacted by unstable fuel prices. Although c some companies in uses pre- heaters to heat raw materials prior to entering the kiln to reduce dependency. Also there are several substitute inputs such as waste materials like old tires that can be used as an energy source, reducing dependence on AOL, gas, or oil and supplier power.
For these reasons we can say that supplier power is moderate. Bargaining Power of Buyers Population growth is an important factor that stimulates both public and private sector investment in construction projects. Therefore, the central buyers in this market are construction companies engaged in residential, non-residential construction, and civil engineering. There are many potential customers for cement as the global construction and engineering industry is fragmented (1 ); the top ten global companies account for around 20% of the racket. This takes away lot of power from buyers.
There is very little brand loyalty with less differentiation; Major cement manufacturers often offer both dry cement and ready-mix concrete. This increases buyers power and quality of service become an important factor in completion. We can conclude here that buyer power is moderate. Threat to substitute It is very challenging to find a low cost substitute to cement. Construction firms can use less cement in exchange for using other material with some cement quality but construction companies buying cement or concrete will be sees likely to do so.