Global Business Strategy - Lafarge - Essay Example

Table of Contents Table of Contents 2 Introduction 3 Lafarge's Growth 4 Global Entry Strategy 5 Global Cement Industry Map 6 Differentiation and Market Segmentation 6 Energy Costs and Opportunities 9 Pricing Strategy 10 Conclusions 11 References 13 Abstract Aget Cement is a Greek company, which was founded in 1911. In 1992 the company sold 50.5 percent of its shares to the Italian Calcestruzzi SpA that is presently integrated in the Italcementi Group. The 1996 developments Aget purchase Halkis Cement Group. In 2000 the group sold 54,48 percent of its shares to the English Group Blue Circle Industries plc and in 2001 Blue Circle Industries was purchased by the French Group Lafarge, which is one of the leading global building materials producer. The paper focuses on aspects of strategic marketing to which the remarkable success of the company's global strategy can be credited. Among other issues major focuses of the paper are aspects of marketing mix such as pricing and placing and other business concepts, which have added to the successful implementation of the company's globalization thrust. The paper will highlight some of the key elements in the company's global approach such as international markets choices and entry, market segmentation, as well how the company has carved its way up to the challenging markets in the global construction materials industry. Introduction Global Business strategy is a critical component of the holistic approach of organizations attempting to enter global markets successfully. Business organizations have to create approaches, which will cater to all organizational factors such as marketing, human resources management, operations management, risk management and other critical aspects of an organization if they have to put together possible global strategies, which will be sufficient in overcoming challenges of entering global markets. Although there is ongoing debate on multinational corporations strategy over the approaches like standardization versus adaptation there is confluence of ideas and the recognition that multinationals have to put together possible business strategies that will be enough for the unstable and different surroundings in which global businesses operate. There are various factors that apply significant pressure on global businesses to formulate working short term and long term strategies plans to the accomplishment of their objectives and goals. Upon the underlying fact that human needs are basically the same across countries and communities, sticking differences obtain in aspects cultural, economic, geographic, political etc. This means that global business management organs must be at the top of the game in ensuring that policy and strategy are appropriately put together to reach desired results Corporate strategy focuses on wide and far reaching goals and purposes of an organization. The strategy focuses on the accomplishments of set goals in line with expectations of the stakeholders. Other global business organizations influence on Business Unit strategy, which is a concept that boils down to the aspects of products and services or products being rendered. The other critical strategy component is the aspect of operational strategy, which can also be used in global business strategy to reach desired results in as far meeting organization goals in concerned. The success of Lafarge in the global landscape must have tapped in the advantages of some of these strategic concepts. Through the exploration of the growth and strategic thrust of Lafarge some of theses concepts can be identified. The case of Lafarge note that, the global cement industry is gradually transforming into an oligopoly through the creation of mergers and acquisitions, which ends in capacity concentration, and the control of the global landscape by a few transnational players. However, the global structure of the industry is still unstable with no single player with two digit market share. The major players lack the capacity to administer price discipline as they are subjected to increasing operating costs and depressed margins. The case of Lafarge makes for good reading in the global construction materials industry scenario because of its outstanding performance over the past years. The paper will involve a cross sectional exploration of the global construction materials industry featuring key aspects which have differentiated the position of Lafarge from that of its competitors through elements such as pricing and market segmentation among other key global strategy concepts. Lafarge's Growth In the last decade Lafarge achieved rapid growth and expansion by successfully entering new global markets. Lafarge has applied its growth and global strategy by purchasing new businesses and new products. In areas where there are other major global players such as Holcim. Lafarge have dominated the building materials industry and has struggled on market segmentation and product differentiation. According to the Lafarge Group Communications Department (2003), Lafarge product differentiation is well integrated with its market segmentation and categorization strategy serviced through the differentiation of its products into four main categories outlined as follows; 1. Cement 2. Aggregates and Concrete 3. Roofing 4. Gypsum. In the all the four categories Lafarge has speeded up its growth drive through purchasing new businesses as well joint ventures across the globe especially in Asia. Today Lafarge operates in 75 countries and is resourced with 77 000 employees worldwide. Through the four product categories, considering that by 1997 the company was just operating in 35 countries with a labour team of 35 000 people, it makes a success case that Lafarge has a successful strategy achieved through profitable growth, permanent status and post-merger integrations. Global Entry Strategy Ashok Som (2003), Assistant Professor in Strategy and Management Area at ESSEC Business School in Paris, emphasizes that the competition front is not as strong as it would be in an ideal scenario due to the geographical oligopoly of the global cement industry. The Lafarge global strategy has been influenced on controlling where there is presence of other global competitors such as Holcim, Italcement, Cimpor, Taiheiyo, etc. He states that the strategy of Lafarge, particularly in Morocco is the same of the total drive of the company's global markets access approach. Also, he details that in Morocco for instance Lafarge has chosen to focus on the Center North leaving other areas already dominated by other competitors. Holcim dominates the North-East area while in the South there is remarkable presence of Cimpor. In addition, Dutta & Kapur note (2003) note that, "Indian arm of French cement giant Lafarge is on the prowl again. After sitting pretty for almost three years, the cement major is keenly weighing its options in an attempt to grab a part of the 40 million tonnes cement capacity that is now up for sale" The previous shows that Lafarge has serious growth plans for the growing construction markets in Asia. As well, Yip (1989) agrees that market globalization drivers rely on customer behaviour and the structure of distribution channels. In Yip's perspectives these drivers affect the use of all global strategy levers. Lafarge has concentrated on servicing Homogeneous Customer needs. Yip explains that homogeneous customer needs are characterized by the demand of a same product, like cement in different countries. Lafarge has taken advantage of the fact that homogenous market makes participation in global markets easier since fewer different product offerings need to be developed and supported. (Yip, 1989) On the other hand, the other aspect on which Lafarge's marketing has been supported on the principle of serving 'Global Customers". What has impacted on the development of uniform marketing approach by Lafarge is the dimensions expressed by Yip (1989) that the existence global customers allows and require a uniform marketing program. Although Lafarge has influence on the advantages of market segmentation to better serve their customer bases the company main product is cement which is a homogeneous customer need in different countries. Furthermore, as the case study of Lafarge stated In Global Market Structure, Lafarge has market share of 3.50 percent The pie chart below illustrates the Global Market Structure featuring four major players which join, CRH, Holcim, Lafarge, Taiheiyo and the category of other players. CHR had a share of 4.10%, Holcim, 4.00%, Lafarge, 3.50% while Taiheiyo had 1.20% and the remaining share of 87.20% was credited to the collection of other smaller players on the global scene. Global Cement Industry Map Source: Adopted from Lafarge Sustainability Report (Lafarge, 2006) Figure 1. Global Cement Industry Market Structure Differentiation and Market Segmentation It is crucial to consider the market structure of the global cement industry in the terms of market segmentation. Gupta & Govindarajan (2002) assert, "Building on the language of differentiation and integration, we define global mindset as a High D-High I mindset in the context of different cultures and markets. More concretely, we would define a global mindset as one that combines an openness to and awareness of diversity across cultures and markets with a propensity and ability to synthesize across this diversity." Although the above is much more directed to the culture aspects of global strategy that presents a valuable concepts on the aspect of the open-mindedness on the part go global strategist. Differentiation is dominating principle in global strategy which runs across culture and marketing as well location. According to the Lafarge Sustainability Report (2006, pp. 8-12), the major segments in the building construction market is the non-building structure and the residential & non-residential category is second. The non-building construction involves heavy construction that focuses on areas such as highways, power plants, pipelines as well as heavy industrial structures. Lafarge market segmentation is centred on the breaking down of the construction materials market to different construction needs. Lafarge offers products to be used alongside cement such as aggregates, concrete and various others. Lafarge has broken down its market to various functions of aggregates; Lafarge caters to the following markets segments of the aggregates products. Lafarge offers special aggregates for support which are used to strengthen the high performance concrete as well as bituminous concrete. Lafarge also provides filling aggregates which are used to make mixtures more compact and enabling certain applications such as drainage and heat retention. The company also provides embellishment filling for the enhancements of structures and surfaces. Competition is intensifying the global landscape for construction material business players and the differentiation strategy has been critical to the viability and sustainability of Lafarge. Furthermore, the Sustainability Report (Lafarge, 2006) states that Lafarge has chosen the non-residential and the non-building market segments as the target market focus areas. Source: Adopted from [insert source] Figure 2 INSERT CAPTION HERE Lafarge market targeting or segmentation is further broken down to sub categories such as contractors, builders, ready-mix producers, concrete product manufactures and masons. Lafarge observes that different market access or product distribution channels for different market segments describe the 'placing' component of Lafarge's marketing mix stratagem (Lafarge, 2006). The target market of the company is accessed through the following distribution channels; in the cement industry business to business category of market segmentation is more important than business to customer because of the high percentage that is include in it. Also, cement is sold directly to relatively smaller customers and through to retailers such as Lumberyards which accounts for about 20 percent of the total sales. Of that the 55 percent is bulk cement while the other 45 percent is bagged. The average of 80 percent of the mentioned sales constitutes direct sales and the remaining 20 percent is channelled through brokers and dealers. For the ready-mix concrete the product is sold directly to customers who need a ready application product that is customarily dispensed by use of leased special cement trucks. This makes up about 68 percent of aggregate sales. Precast Concrete Products are also sold directly to a range of customers and amounts to a contribution of about 6 percent of all sales activity. About 90 percent of the company's production capacity is channelled from the plant to selling points using sea vessels or trucks (Maxilift, 2006). The rest, (10 percent) is collected by the purchasers using their own transport means. The fact Lafarge transports 90 percent of its production output means the company has considered seriously the dynamics of the global oil prices as this comes with a significant manner on the company's operations cost management and policy. Energy Costs and Opportunities Reports on the company details that innovation in technology is highly likely worsen the uncertainty climate that is permeating in the global business areas. The levels of uncertainty are obstacles to the strategies laid out towards the achievement of set cost efficiencies. The previous has however been looked at as an opportunity by global business player such as Lafarge which has preferred to focus on alternative energy sources and to continue with investment in production technologies as well as processes which must be sufficient for addressing the dynamic of higher energy prices. The critical dimension which Lafarge have kept in focus is that of the diesel prices since about 60-70 percent of its products are transported on road using diesels fuel. The dynamics of diesel prices is critical to the need to manage and improve operational costs for business establishments like Lafarge. The marketing mix plan of Lafarge has focused in the differentiation of its product a strategy that has been filtered down to sub-concepts of market segmentation. On the pricing technique of Lafarge's marketing mix drive the company has had to consider the demand is locationly different. Cement standards are common across the borders and the demand for their product is largely influenced by economic factors such as population growth, interest rates and economic policies which directly or indirectly have a bearing on infrastructure development, is such policies are set. Another consideration is that cement is a homogeneous product with significantly low elasticity due to lack of substitute material. Lafarge global strategy is supported by the close relationship between the company's product range and the type of markets that is entering. In Asia Lafarge considered the growth potential posed by the booming construction industry (Som, 2003). As such the Company has focused much on providing the cement products as its chief product. Lafarge has used the same strategy especially penetrating African markets such as Nigeria and Morocco. In the areas such as Nigeria Lafarge has remained the flagship producer of the vital construction input. Lafarge global strategy is premised in identifying key needs in its target markets and aiming to satisfy the identify needs. Pricing Strategy According to Lafarge's publication Crescendo (Preparing for the Future, 2007), it states that the way of the global cement industry have been and continued to be affected by the launch of a chemically reinforced product known as Fly Ash which may replace cement effectively. In 2002 prices of specialty cement went up by 12 percent also characterized by an increase in demand of about 4 percent. On the other hand, in 2004 the specialty cement price increased by a further 9 percent, which triggered a 17% increase in sales of Fly ash. High production as well transportation costs together with a sizeable initial investment make up strong entry obstacles to local companies in the global cement production industry. Under such conditions cost efficient companies have the capacity to engage in selling on the basis of marginal costs. What is also critical with above is that economies of scale bordered by operational flexibility are at the front of lively competition, a scenario that makes the price of cement the competitive changeable in the global cement industry. Despite a complete set of realities especially around the marketing and pricing ways of the cement product on the global background Lafarge pricing strategy has tapped in the advantages price cuts as a means to increase capacity uses leading to increased market share as well reduction in unit cost. Lafarge pricing strategy is also subject to factors such as that cement pricing is largely affected by market production despite the fact that operational costs in the cement industry are affected by the industry's dependence on production factors where prices are largely administered. What the foregoing means is that if the volume growth is increased what will be the determinant of the cement prices will be the extent to which the industry capacity increases or remains unchanged. competitive maintainability is influenced on the player's ability to control costs, increase operational efficiency, and reduce uncertainty through an effective management of risk establishment which gives a better distribution system. One critical point for Lafarge as a global player is the enhancing of its pricing strategy with the concepts of differentiation. Conclusions Like any global activity Lafarge faces various challenges in the current global business field affected by the global economic crisis. Lafarge has to support its strategy in line with the goals of maintaining and consolidating the growth that it has registered over the past years. Kostova & Roth (2003) states, "It is well recognized in the literature that among the most critical tasks in multinational corporations (MNCs) are the extensive coordination, integration, and exchange of resources between and among geographically dispersed subunits" Lafarge will be able to accomplish this if it manages to break down the long term and medium term goals into five aspects outlined in the following paragraph. The first item on the list of priorities of the company's overall strategy is the continuing of the growth registered in the past years. On this aspect, the growth rate may not be expected to match that of the past years but the bottom line will be that growth must be maintained and sustained. The second aspect deals with structural techniques. The company has to ensure the actualization of the benefits from its restructuring strategy. The third aspect is on the rapidity of integration. Lafarge has to consider the qualities of speeding up the integration of acquired businesses to quickly generate synergy and enhance value in the company's systems and processes components. On the fourth aspects, Lafarge must focus on the internationalization of its labor team and empowering its managers with cultural competence. Gardenswartz & Rowe (2001) assert, "A culturally competent manager will create opportunities for individual to take some risks and explore projects that do not require coordinating with others. Doing so can encourage employees to with strong individualist bent to draw attention to important matters such as policies or procedures that do not work". This will involve expansive training programs customized to empower managers with necessary skills in order function effectively and efficiently in diverse Lafarge markets across the globe. The training programs will also have to represent elements that will equip the managers with necessary skills of handling cultural diversity, which characterizes the global business play field. The last of the five aspects focuses on the management of the important human resource component that has doubled over the past years for Lafarge owing to the company's rapid growth and expansion. Hastings (1999) stresses competing globally requires a lot more time, money and management. The company has to support the fifth aspect on some of its human resources management strategy addressed as managing people the 'Lafarge way'. This will enhance the extensive human resource management approach since it already provides the need to equip employees with flexibility and adaptability attributes required for best performance in culturally different global business backgrounds. Lafarge has a stable and practical market position supported by a strong financial structure. Transformation in the scope and approach of Lafarge sales force requires that there be an important part of a change in the structure of the company's sales organization. This implies that there is need to come up with a sales framework with important drivers aimed at customer profitability presenting a possible opportunity for Lafarge. This signifies that the company is ready for future growth through successful market access as well as development. References Dutta, R., & Kapur, M. (2003, August 12). Lafarge on the Prowl Again in India. Retrieved May 11, 2009, from Rediff.com: http://www.rediff.com/money/2003/aug/12lafarge.htm Gardenswartz, L., & Rowe, A. (2001). Cross Cultural Awareness. UWW Education. Gupta, A. K., & Govindarajan, V. (2002). Cultivating a Global Mindset. Academy of Management Executive , 16 (1). Hastings, D. F. (1999). Lincoln Electric's Harsh Lessons from International Expansion. Harvard Business Review . Kostova, T., & Roth, K. (2003). Social Capital in Multinational Corporation and a Micro-Macro Model of its Formation. Academy of Management Review . Lafarge Group Communications. (2003). Materials for Building our World: Facts and Figures 2002. Paris: HMS Publications. Lafarge. (2006). Sustainability Report. Paris: Lafarge. Lefarge Sees No End to Slag Cement Growth. (2003). Concrete Products . Maxilift. (2006, February 14). Cement Terminal Reduces Wear, Cuts Noise With Maxi-Turf Elevator Buckets. Retrieved May 17, 2009, from Maxilift: http://www.maxilift.com/pdf/2cementt.pdf Preparing for the Future. (2007, April). Crescendo (3), p. 41. Som, A. (2003). Challenges of Globalization at Lafarg. Retrieved May 16, 2009, from Midwest Academy: www.midwestacademy.org/Proceedings/2004/papers/Som%20Larfarge%20Case.doc Yip, G. S. (1989). Global Strategy: In a World of Nations. MIT Sloan Management Review . Read More