Oman Cement Company - Case Study Example

OMAN CEMENT COMPANY Name Institution Date Company History and Growth Oman Cement Company was established in 1978. In the same year, the Oman government had the intention to encourage and support the project in the infrastructure sector. Oman Cement first plant was the Rusayl cement plant was commissioned in 1983 with a capacity to produce approximately 620,000 tons per annum. In 1999, the demand for cement increased and the plant was expanded to a total of 1.2 million tons, which enable the company to produce 1.26 million tons per year. In 2005, Oman Cement Company was listed on the Muscat Securities Market with about 33 million shares. Two years later the company was also listed on Bahrain Stock Exchange, which enabled to enter the GCC securities market. In 2006, Oman Cement Company installed a grinding mill with a capacity of about 3000 tons per day. In 2008, the total clinker available had a production capacity of 1.4 million tons to meet the growing demand (OCC 2010). In the same year, the company achieved a sale of 1.5 million tons of cement earning a profit of RO 12.1 million (OCC n.d.). Further installation of another production line increased clinker production capacity to approximately 2.4 million tons per annum which was commissioned in 2011. Moreover, the company appointed a consultant who has helped in the supervision services concerning upgrading, modernizations, and replacement of existing packing plant. In 2012, the company recorded a 36.7% increase in profit and 17% increase in revenue. Today, Oman Cement Company is the second largest cement manufacturer in the Sultanate of Oman as it produces approximately 2.4 tons of cement annually. SWOT Analysis Strengths It has maintained a good reputation among its customers. Oman Cement Company is a trusted name in the construction industry. The company employs advanced technology to produce high-quality products. The company has always dedicated to producing high quality and hence has gained a good reputation and loyalty from many customers. The company has also received massive support from the government. Oman Cement Company is part of the key beneficiary of the government investment drive for the construction industry. It is positive backed by the demand for infrastructure project such as roads, airports and so on which will help in maintaining a positive financial position. Oman Cement Company is also perceived to produce very superior quality cement among the customer when compared with competitors. To maintain this, the company hires expertise to ensure all problems are resolved in time. The company products sell easily in the Oman market. Oman is the core market for locally produced cement; however, the country is a net importer of cement. This means that all cement produced by Oman Cement Company has a ready market locally. The geographical location of the company also offers some benefits. The company is located in Muscat, where there is 80% of construction activities, and this reduces transportation costs. Weaknesses Oman Cement main competitor, Raysut Cement has invested more on promotional activities, and this has helped Raysut to sell its product easily. Raysut Cement has the advantage of exporting cement to Yemen where prices are much higher, unlike Oman that focuses on the local market where prices are set by the government to meet its development strategy. The company still uses an old machine which often shut down for maintenance, and thus the company fails to meet the required production capacity for the market demand. Opportunities Oman Cement products are considered the best in Gulf countries including ordinary Portland cement and sulfate resistant cement allowing it to meet the market requirement. The demand for both types of cement is very high because of its high quality, and this attracts more customers to the Oman cement. Also, the recent rise in demand for cement as a result of increase construction project across GCC market creates good opportunities for Oman cement to penetrate that market (Al Maha Research 2014). Oman's core industries are growing at approximately 10% annually, this also given the company an opportunity to supply cement. The government is also encouraging investment, especially in the infrastructure sector will be the major drivers for increased demand for cement in future. Due to growth in tourism, the government will continue to invest in transport systems which are expected to increase cement demand. Roads are also undergoing the transformation process that requires them to be replaced with modern concrete. Threats The world financial recession may negatively affect the construction industry. As a result, demand for cement will also reduce as construction projects minimize. This will affect the company profitability. Also, Oman cement inability to meet the local demand for cement has attracted other firm to enter the market resulting in stiff competition. Effects of SWOT factors Positive Effects The company has a reputation for to produce top quality products, and this allows the company to find the market for its cement easily. The company is located in Muscat, where 80% of Oman's construction activities take place. As a result, the transportation cost reduces and easily get the market for its products. The demand for company products are increasing among customers seeking for quality products, and this will increase its market share. The growth of construction activities in the GCC will also increase demand for cement. This creates an opportunity for the company to enter a new market. Negative Effects The company still uses old machines which are frequently shut down for maintenance and thus fail to meet production demand. The company has also not invested in promotional activities like its competitors that would help it to sell its products easily. Global inflation will reduce construction activities, and thus demand cement. New entrants into the Oman market will reduce its market share in the local market. Analysis How Strengths are Maximized Oman Cement is known for producing top quality including sulfate resistant and ordinary cement. The company uses high technology and its cement meet local and international standards. Increasing its production, the company will be able to meet the needs of customers that are looking for high-quality cement, hence increase sales. Oman Cement Company can also take advantage of its geographical location, where there is an active movement of construction that provides the company with an opportunity to be at the front in supplying construction materials. The local construction project will provide a ready market for its cement. Therefore, it should focus on increasing its production capacity to meet the demand of the rising construction activities. With an increase in sales, the company will achieve its overall goal to increase its revenue by 5% in the next five years. How Weaknesses are minimized The company should invest in modern equipment and replace the old machines which are often shut down for maintenance. Continuous production will help the company meet the required production capacity and hence increase the annual sales volume. The company should also invest in promotional activities like their competitors so that they can increase their market base. Also, it will help sell its product easily as well as achieve its goal of increasing its sales revenue by 10 percent. Opportunities to Expand the Markets The demand for both ordinary Portland and Sulphate cement is increasing due to its high quality. Oman Cement should adopt new technology to ensure that it maintain production of the top quality product and increase market segment that is attracted to high-quality Oman cement. Gulf Cooperation Council (GCC) expanding construction sector is expected to result in an increase in demand for cement (Al Maha Research 2014). In fact, GCC region's governments have announced several mega infrastructure projects as a result of positive economic growth. Therefore the high level of project spending is expected to drive the growth momentum in the construction activity, for instance, UAE and Qatar are investing in their infrastructure in readiness for the World Expo 2020 and the FIFA World Cup 2022 respectively. This creates good opportunities for Oman Cement to penetrate in these markets and achieve its ten percent sales revenue growth in the next five years. What Threats limit Growth? Despite the current growth in construction activities, this can be hampered by the high inflation. The increasing government spending is causing a vacuum in resource availability in the construction companies. With a reduction in construction activities, the demand for cement is also likely to reduce, and this will affect the company's effort to reach its 10 % sales revenue growth goal. Also, since Oman cement and its local competitors are unable to meet the country's demand for cement, some UAE companies may enter the local market. As a result, this may reduce the company market share and hence its sales revenue. Recommendations Currently, there is a high demand for Oman cement as it is perceived to be of high quality. This indicates the future opportunity for cement market for the company. Considering the market situation both local and GCC, Oman Cement Company should consider reviewing its production and strategy to achieving its goal of increasing its sales revenue by 10% annually. Oman Cement can consider various options such as investing in new machines and high technology to sustain their productivity to reach the necessary volume capabilities. Oman Cement Company has the potential to grow by investing in increasing its production of cement to meet the growing cement demand, which will lead to more profitability. The company's goal to increase sales revenue by 10% by taking advantage of its high-quality products, geographical location, increasing cement demand locally and in GCC region. References List Al Maha Research. (March, 2014). Oman’s Cement Sector: To ride high on upbeat construction market, viewed Oman Cement Company OCC (n.d.). History. Viewed Oman Cement Company Report. (2010). 2010 Annual Report. Viewed Read More