Fujairah Cement Industry at the Indian Market - Case Study Example

TABLE OF CONTENTS 1.0 Executive Summary 3 2.0 Introduction 4 3.0 Company Profile 5 4.0 Product Analysis 5 5.0 Comparative Environmental Assessment 6 5.1 Macro Environmental Analysis 6 5.1.A Socio-Cultural Forces 6 5.1.A.1 Hofstede’s Four Dimensions 7 5.1.B Economic and Socio Economic Forces 7 5.1.C Legal Forces 8 5.1.D Political Forces 8 5.1.E Labor Forces 8 5.2 Micro Environmental Analysis 9 5.2.A Industry Analysis 9 5.2.A.1 Competitive Analysis 9 5.2.A.2 Porter’s Five Force Model 9 5.2.B Company Internal Analysis 10 5.2.B.1. SWOT Analysis 10 6.0 Conclusion 11 7.0 References 12 1.0 EXECUTIVE SUMMARY The report has been prepared for Fujairah Cement Industry with its intention to go international to capture the Indian market. The report highlights the comparative environmental assessment which includes a study of both macro and micro environmental analysis. The macro environmental analysis includes a thorough study of various factors like socio-economic forces, legal forces, political forces, labor forces and economic and socio-economic forces along with a product analysis highlighting company’s value preposition. These forces highlight that India currently has a booming phase in cement industry and this is probably the right time for Fujairah Cement Industry to capture the Indian market. The country has political stability with labor availability and further socio-economic forces are stable which has been studied through Hofstede’s four dimensions which highlights that the company has to make crucial strategies to eliminate Power distance and Uncertainty Avoidance factors. The micro analysis has been studied through a competitive analysis and Porter’s five force of model which highlights the general characteristics of Indian cement industry like low bargaining power of suppliers, buyers and low entrance threat with stiff competition. Further a SWOT analysis has been prepared for the company which shows good strengths of the company to capitalize on its available resources and make an impact in the Indian market. 2.0 INTRODUCTION Firms choose to expand their business from the existing geographic scope of domestic markets to foreign markets as a part of their growth strategies. International expansion acts a crucial decision for small and medium size firms particularly when a firm or organization is characterized by limited geographic scope, small financial base and a focus domestic market segment (Barringer & Greening, 1998). Internalization plays an important role in determining the future prospect of a firm. With international trade booming and business being globalized, firms not just face competition and business risks from competitors within the country but all across the globe. UAE has been in the last few decades has been successful in alluring many companies to discover opportunities in the country and subsequently the same has led to limiting market share for domestic companies operating in UAE. As a result of the same many domestic operating companies, are thinking to go global and grab opportunities in the field of internalization. One such company is Fujairah Cement Industry based in UAE. In 1995 the company took its first initiative to expand and include modernization in its production process by increasing its capacity to produce 825000 tons of cement per year. The Fujairah Cement Industry recently decided upon to go internalization to expand its market base and generate higher revenue. This report provides a complete understanding of the external and internal threats and opportunities to Fujairah Cement Industry to export their products which includes cement and its allied products to an Asian country named India. 3.0 COMPANY PROFILE Fujairah Cement Industry is UAE based company with its market share limited to the domestic market. The company has recently shown tremendous growth with its profit rate increasing at a sharp rate of 12.36% per annum and has emerged as a renowned name in the field of Cement Industry. The company is characterized of producing all varieties of cement which includes PPC, OPC and Slag cement which can be rated as of superior quality and strength. The company initially began its production process in 1993 by obtaining the certificate of commencement of business and mainly produced Ordinary Portland Cement (OPC) and later switched to produced different categories of cement. The company today operates in a new green field unit of production producing 7500 MT of clinker per day to meet its local demand. Our Business The company was set up with primary objective of producing and selling Ordinary Portland Cement with the use of latest state of dry art process for manufacturing the same. Vision To emerge as a role model in the cement industry and expand its business at global level benefiting it all stake holders and fulfilling its Corporate Social Responsibilities while enjoying customer loyalty and higher goodwill. Mission To maintain its superior quality of cements and maximize profits by cost reduction techniques and enhancing market share and emerging as a global leader in the field of cement industry. Goals To emerge as a leader in global cement industry. To maximize production and profitability by maintaining quality of its products offered. To ensure fair and true dealings involving all stakeholders. To capture the Asian market by 2020. To deliver higher customer satisfaction and maintaining CSR with equal importance to environmental issues. 4.0 PRODUCT ANALYSIS Fujairah Cement Industry is known to the domestic market leader in producing Ordinary Portland Cement in UAE. The company shall in its endeavor to capture the Indian market focus not just on OPC but also export PPC and Slag cement to India. The company shall look to export its finest quality cement along with white cement and clinker if required by the domestic companies operating in India. Ordinary Portland Cement being manufactured by Fujairah Cement Industry shall definitely have an added advantage of higher strength due to lack of moisture content in the UAE geographic conditions. Fujairah Cement Industry is known for creating customer value preposition which helps the company to deliver high customer satisfaction and attract more loyal customers. To develop customer value preposition the company shall look upon the following three dimensions (Diehl & Pea, 2010). To maintain standard in its products physical attributes relating to price, quality, speed of delivery and completeness of products. To build on an enjoyable customer relationship interacting with the company and To develop an emotional appeal to its customers for its products and services offered. Further apart from the above mentioned dimensions, Fujairah Cement Industry looks to provide efficient and effective building solutions to all its customers whether big or small. Products are tailor made to suit specific demands of its customer’s requirements. The company looks to ensure more reliable, high quality service and consistent product quality to achieve a higher customer satisfaction (Lauring, 2008). 5.0 COMPARATIVE ENVIRONMENTAL ASSESSMENT Environmental assessment plays an important role for any organization to develop its future goals, objectives and strategies. A comparative environmental assessment of Fujairah Cement Industry looking to expand its business in India is discussed as under. 5.1 MACRO ENVIRONMENTAL ANALYSIS Macro environmental factors are those factors which are usually beyond the control of any organization. A detailed analysis of macro factors is discussed as under. 5.1. A. Socio- Cultural Forces Socio-cultural forces focuses on consumer lifestyles, attitudes, beliefs, value, religion etc. Consumers in UAE consider luxury items more important in comparison to Indian consumers who are more inclined towards basic necessities. It is to be noted that cement is used for building houses which shows ample scope for Fujairah Cement Industry to operate in India. Furthermore online shopping which is more prominent in UAE, the same is not the case in Indian environment. Architecture variance is huge in UAE which shall provide Fujairah Cement an added advantage due to its strength and quality products offered. UAE has about 1.8 million Indians and hence the company is much aware about customer taste and preferences of the people of Indian native. India being a country with diverse customs, traditions and religion hence the company needs to take special care to ensure in no means the beliefs, values, customs, religion and sentiments of people in India are affected in any manner. 5.1. A.1 Hofstede’s Four Dimensions The four dimensions of cultural analysis of India in comparison to UAE using Hofstede four dimensions are discussed as under. Power Distance Power distance is relatively higher in UAE in comparison to India. Power distance implies the extent to which less powerful members of organizations accept and expect power to be distributed equally. The Indian country is extremely rule-oriented with stringent rules, laws and regulations (Diehl & Pea, 2010). Uncertainty Avoidance Index It depends upon a society’s tolerance for uncertainty and ambiguity. Uncertainty Avoidance Index is much higher in UAE than in comparison to India. People in Indian does not follow a stringent caste system unlike UAE which creates a barrier in the upward mobility of its citizens. Masculinity Index It deals with the emotional differences between two genders. The masculinity index of India is 57 which is slightly higher than the average 50.2 for all countries while the same is 52 in UAE. This points out that while women are more limited in their rights in a country like UAE, the same is not the case in India. Individualism It is the level to which individuals are integrated into groups. Individualism index ranking in India is 42 while the same in UAE is 38 which is much lower than the world average ranking of 64, thus indicating people in both countries follow a long term commitment to their family and follows a collectivist culture where loyalty is on a higher note (Warden, Liu, Huang & Lee, 2003). Thus we see, that through Hofstede cultural analysis, Fujairah Cement Industry needs to develop strategies accordingly especially in relation to power distance and Uncertainty Avoidance factors. 5.1. B. Economic and Socio Economic Forces India is the world’s second largest country by population with 41.6% of people living beyond the international poverty line. However, infrastructure is on a booming phase and this shall help Fujairah Cement Industry to penetrate deeper into the markets. Further wealth distribution in India is unevenly distributed with 10% of the income groups earning an estimate of 33% of the income in country. Hence Fujairah Cement Industry needs to constantly seek and make a complete analysis of its suppliers to ensure security of its products and capital investment (Barker & Haertel, 2004). Corruption in India is widespread with the country ranking 95 out of the 179 countries. Hence this poses a serious threat for any firm operating in India. However, India is one the most developing countries in the world and cement production has grown at a rate of 9.1% per annum and making India the second largest producer of cement in the world. Demand is still on the higher note thus ensuring future growth and development of Fujairah Cement Industry operating in India (Barker & Haertel, 2004). 5.1. C. Legal Forces CMA is an apex body that represents large cement manufacturers in India. Fujairah Cement Industry needs to be a member of the same to operate with ease in the Indian region. The company should look to ensure copyrights, patents and trademarks registered with the Indian working system to ensure fair and transparent dealing. The company shall face some problems in dealing with the same (Diehl & Pea, 2010). However, agents and brokers are easily available to ensure completeness of the same. Ignorance of law is no excuse in the eyes of law and hence the company should look to hire professional assistance to ensure compliance of stringent Indian laws, rules and regulations. 5.1. D.Political Forces India is a democratic country with a large number of political parties and with a parliamentary system of government. Fujairah Cement Industry in order to gain access to the Indian region should look to gain in confidence of the political party in force which shall definitely act a shield in protecting the company from various stringent laws. The Indian Government is quite stable although corruption runs in deep within the country with diversity of politics. However, the government today faces no current or future threats. Thus Fujairah Cement Industry can to extend rely upon the political stability of the country and continue its endeavor to expand its business in India. Trade restrictions are higher on account of easy entrance for domestic cement industry to promote domestic companies growth in comparison to entrants from countries outside the country. Fujairah Cement Industry to ensure removal of trade restrictions should look to seek into professional advice for better results (Santos & Boote, 2003). 5.1. E. Labor Forces The Indian labor market consists of over 550 million workers growing at a rate of 2% annually with stable worker population comprising of around 42% of the total labor workforce. The country is characterized with low level of women labor force and high level of disguised unemployment. The labor market can be categorized into three different segments which include rural workers accounting to 60% of the workforce, organized workforce comprising of 8% of the workforce and urban organized labor comprising 32% of the total labor workforce. Thus, we see India as a more labor intensive country than capital intensive and Fujairah Cement Industry shall seek no or very less problem in finding local labor. However, labor laws in India are very stringent and proper care has to be taken to eliminate any labor related problems while operating in the country (Czinkota & Ronkainen, 2002). 5.2 MICRO ENVIRONMENT ANALYSIS Micro environment analysis includes factors which are within the control of an organization. A detailed discussion of the same is presented as under. 5.2. A. Industry Analysis 5.2. A.1 Competitive Analysis Fujairah Cement Industry in its initiative to expand its business and target Indian market shall face tough competition from Indian cement giants like Ultratech Cements, Lafarge, ACC etc along with domestic companies like Union Cement Co., Gulf Cement Co, Sarjah Cement Factory etc which already has made their presence in the Indian market exporting a huge quantity of cement to India. Further the company shall also face competition from other cement manufacturers from across the globe which has already made their presence in the Indian market. 5.2. A.2 Porter’s Five Force Model Porter’s five force model helps in determining the competitiveness within an industry by the help of five major forces which has been applied to the Indian Cement industry as under. Threat of New Entrants The existing large cement manufacturers in India enjoy the advantage of economies to scale. Further the industry requires huge capital investment and large distribution network which lowers the risks of new entrants to considerable extent (Czinkota & Ronkainen, 2002). Bargaining Power of Buyers Bargaining power of buyers is also on the lower side owing to the fact that prices are determined mostly on basis of demand and supply and through a cartel system. Further there is lack of unity among the buyers and need for urgent demand satisfaction as even temporary shortages of cement incurs huge losses for construction programs (Adkin & Ozanne, 2005). Bargaining Power of Suppliers India is rich in deposits of limestone, clay and gypsum which constitute the basic material for cement manufacturing. There exist a large number of suppliers and easy availability of resources which leads to low bargaining power of suppliers. Further coal, gas and oil depend and fluctuate in relation to international market (Adkin & Ozanne, 2005). Threat from Substitutes Cement is a basic commodity for all construction and hence there lies no real substitute to the same. However timber and steel can be used for construction of low-rise and high-rise buildings respectively there lies no real threat from any such substitutes (Lovelock & Wirtz, 2007). Rivalry among Competitors There lies stiff competition in the cement industry owing to the fact of capacity additions by large number of companies. Further cement being imported and exported has led to competition at global level. 5.2. B Company Internal Analysis Internal analysis helps to determine the strengths and weaknesses of an organization. A SWOT analysis of Fujairah Cement Industry is illustrated as under to provide a better understanding. 5.2. B.1. SWOT Analysis Strengths Fujairah Cement Industry has emerged as one the leading cement manufactures in UAE. Large support from the UAE government in terms of financial stability. Huge capacity to produce high quality cement to meet the export demands of the country. Produces high quality cement with premium prices (Lauring, 2008). The company has recently replaced 60% of its coal with gas used for heating kiln thus ensuring cost savings in future. Weaknesses The company is mainly concentrated to meet local demands and needs. Focus on export market is very low. Opportunities Huge potential for exporting its premium cement especially in market of India and Srilanka. Expansion or acquisition of companies in the Indian region. Construction sector boom in most on the Asian countries with huge demand of cement to cater the need or requirements. Threats Huge competition in the Indian markets from existing companies in India as well as other global companies exporting cement in India. Rising international prices of coal and gas. Capacity additions by existing firms can erode company’s profitability. Thus we see that Fujairah Cement Industry has large internal strengths and capacity to grab opportunities in the Indian market and expand its business on an international scale. 6.0 CONCLUSION The report provides a complete understanding of the external and internal analysis of Indian cement industry and Fujairah Cement Industry which shows ample scope and opportunity for the company to go for international expansion and ensure higher returns and larger market share for the company in future. 7.0REFERENCES Adkin, N. R., & Ozanne, J. L. (2005). The Low Literate Consumer. Journal of Consumer Research, 32, 93-105 Barringer, B.R. and Greening, D.W., (1998). Small Business Growth through Internationalization: Comparative Case Study,” Journal of Business Venturing, 13, 467-92. Barker, S., & Haertel, C. E. J. (2004). Intercultural service encounters: an exploratory study of customer experiences. Cross Cultural Management, 11(1), 3-14. Czinkota, R. C., & Ronkainen, L. (2002). International Marketing. Fort Worth, TX: Harcout College Publishers. Diehl, K. & Pea, C. (2010). Great Expectations?! Assortment Size, Expectations, and Satisfaction. Journal of Marketing Research 47(2), 312-322. Lauring, J. (2008). Rethinking social identity theory in international encounters: language use as a negotiated object for identity making. International Journal of Cross Cultural Management, 8, 343. Lovelock, C. & Wirtz, J. (2007). Service Marketing: People, Technology & Strategy. 6th edition, Prentice Hall Santos, J., & Boote, J. (2003). A theoretical exploration and model of consumer expectations, post purchase affective states and affective behaviour. Journal of Consumer Behaviour, 3(2), 142-156 Warden, C. A., Liu, T. C., Huang, C. T., & Lee, C. H. (2003). Service failures away from home: benefits in intercultural service encounters. International Journal of Service Industry management, 14(4), 436-457. Read More