Evaluating Cement Industry
EVALUATING THE CEMENT INDUSTRY –PORTER’S
MODEL
The model of the Five Competitive Forces was developed by Michael E. Porter in his book “Competitive Strategy: Techniques for Analysing Industries and Competitors” in 1980. Since that time it has become an important tool for analysing an organizations industry structure in strategic processes.
Porter's Five Forces Model is probably the most widely used tool in business strategy. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.
ENTRY BARRIER –
Entry barriers are not too high in cement industry. The key barriers are: -
As cement industry is capital –intensive, Capital is the biggest constraint, which only big player will have access to.
Economies of scale are an important factor of the industry and this will reduce the cost of cement which would favour the bigger players, like
Birla group or Gujarat Ambuja. Knowledge to this fact will discourage the new entrant.
Price plays an important factor, as differentiation in cement industry is low. Thus, Cost advantage is critical. Companies, which can have a sustainable low cost position, will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat
Ambuja has been able to sustain a low cost position.
Cement, being a bulk commodity, is a freight intensive industry and transporting cement over long distances can prove to be uneconomical which acts as an important constrain to enter the cement industry.
High capital costs and long gestation periods is also an important factor for an entry in cement industry.
MODEL
The model of the Five Competitive Forces was developed by Michael E. Porter in his book “Competitive Strategy: Techniques for Analysing Industries and Competitors” in 1980. Since that time it has become an important tool for analysing an organizations industry structure in strategic processes.
Porter's Five Forces Model is probably the most widely used tool in business strategy. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry.
ENTRY BARRIER –
Entry barriers are not too high in cement industry. The key barriers are: -
As cement industry is capital –intensive, Capital is the biggest constraint, which only big player will have access to.
Economies of scale are an important factor of the industry and this will reduce the cost of cement which would favour the bigger players, like
Birla group or Gujarat Ambuja. Knowledge to this fact will discourage the new entrant.
Price plays an important factor, as differentiation in cement industry is low. Thus, Cost advantage is critical. Companies, which can have a sustainable low cost position, will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat
Ambuja has been able to sustain a low cost position.
Cement, being a bulk commodity, is a freight intensive industry and transporting cement over long distances can prove to be uneconomical which acts as an important constrain to enter the cement industry.
High capital costs and long gestation periods is also an important factor for an entry in cement industry.