Introduction This essay conducts an Environmental analysis of the Holcim Group, in the cement industry.

The core competencies of Holcim are reviewed, along with an evaluation of the Holcim Groups key strategic choices and strategies that the corporation should consider pursuing over the next 5 years. The Holcim Group, based in Switzerland is one of the world's leading manufacturers and suppliers of cement and aggregates. These are the primary materials used in all construction activities. Further business activities include ready-mix concrete, concrete products, asphalt and a range of valued added services. The Group holds majority and minority interests in businesses in around 70 countries on all continents. Holcim employs over 80,000 people, with a turnover in excess of 21 billion Swiss Francs. The geographical spread of business exposes the organisation to widely varying political and economic business environments. For the purpose of this essay these environments will be simply categorised as emerging (China, Asia, and India & South America) and mature markets (Europe and North America). The environment analysis of the Holcim group will be conducted using Porters Five Forces Model and the PESTEL analysis model. PESTEL, which stands for the Political, Economic, Social, Technological, Environmental and Legal factors, categorises the broad macro -environmental influences affecting the group (Johnson et al, 2011) Porters five Forces Model, (Porter 1980) is commonly used to assess the attractiveness of the industries in which businesss operate. Based on the information derived from the environmental analysis, a business strategy can be prepared that can capitalise on the core competencies and resources of an organisation to exploit opportunities in the industry in which they operate.

Part 1 External Environment Analysis - PESTEL

Political Influences

Political influences are largely positive for the Holcim group as in both emerging and mature economies there are fiscal benefits to government to promote construction and create economic growth, jobs and revenues from taxes. The only concern for Holcim would be the political conditions of the developing countries which could affect Holcims ability to further penetrate the emerging markets. Economic Influences Holcim is exposed to differential economic growth rates. Whilst mature markets such as Europe and North America are suffering economic downturns, the emerging markets continue to grow and will continue to provide growth to Holcim. According to Holcims 2010 annual report, China and India are the largest consumers of cement in the world. is well positioned to take advantage of these economic conditions with over of its cement capacity located in these regions. (Holcim Annual report 2010) Sociological Influences In emerging economies where standard of living is on the increase, demand for cement and concrete will increase as cement is a widely accepted, readily available low cost material, used in housing construction and infrastructure developments.This is positive for Holcim, as it is well positioned in these regions. In the mature economies in which Holcim operates, ageing demographics growth in cement is likely to be subdued. Technological Influences Unlike other industries cement, aggregates and concrete is not subject to rapid technological obsolescence. Cement & aggregates are essentially simple businesss, with little threat of substitution or changing consumer trends. This is positive for Holcim whilst rising energy costs and environmental influences have stimulated investment in a more environmental friendly cement alternative; it is still in the development phase, and a long way off commercialisation (www.novacem.com). Environmental Influences Environmental regulation or taxes over time is likely to increase, particularly in mature markets. The Cement industry is a large user of energy and is the second largest CO2 emitting industry behind power generation, in the world, accounting for about 5% of global man-made CO2 emissions (The cement sustainability Initiative report, WBCSD, 2002) This is a negative influence on Holcims operating costs that will continue to increase over time. Legal Influences For the Holcim the likely legal influences will be group mergers and acquisitions affected by the local laws of foreign ownership. Holcim will need to be aware of any ant-trust or anticompetitive behaviours by regional management that could attract the attention of local regulators.

PORTERS Five forces Analysis

1. Threat of New Entrants The barriers of entry in the cement and aggregates industry are not considerably high. The technology is easily available, with the only constraint being capital, cement manufacture is very capital intensive, and requires long term commitment of capital. Therefore threat of new entrants is only likely to come from other large players who are not operating in markets that Holcim competes in. Cost advantage is critical to sustain a competitive advantage due to very little or no product differentiation. 2. Rivalry of the Competition With Cement being a low value and bulky commodity, it is not generally transported long distances; therefore rivalry is concentrated at the regional level. With little differentiation of product price will play a big factor. Economy of scale will then be critical to compete and this is a positive force for Holcim. Rivalry in mature markets is expected to be fierce as players try to maintain volumes to cover fixed costs. 3. Threat of Substitute product Cement is one of the most basic construction material used worldwide for all construction work. As there is no direct substitute of cement and its concrete derivative products which would affect the profitability of the industry, this is a positive force for Holcim. 4. Power of Suppliers Supplier power has very low impact in the cement industry. Supplier power is mainly limited to fuel / power inputs, where rising energy costs would have an impact. However, this is likely to be common to all companies; the ability to pass on such increases to customers could affect profitability. 5. Power of Buyers In markets where there is an overcapacity of cement production the power of consumers can be high. As cement is essential product in the construction sector but non-differentiated, the consumers can easily switch to another supplier. Holcim's strength lies in its ability to produce cement at a significant discount to the industry so it as a competitive advantage of low cost.

Part 2 Identify the core resources and competences of the corporation you have chosen? Justify why they are the core in the corporation.

According to Johnson et al (2011), the strategic capability of an organisation comprises two components: - resources and competencies. Resources are the assets that organisations have or can call upon. Competencies are the way those assets are used or deployed effectively. Hamel & Prahalad (1990) argue that core competencies are those which are distinctive to the organisation and give the organisation a competitive advantage. This is supported by Snow & Hbrebiniak, (1980) Core resources and competencies can be broken down into three elements Physical, Financial and Human. The physical core resources that Holcim have are its raw materials, aggregate businesss and its efficient cement plants on every continent. Further ownership and interests in the downstream value chain business provide Holcim with a substantial amount of resources at its disposal to supply its chosen markets. By owning the core raw materials for the production of ready mix concrete, this creates further strength as this vertical integration creates more value to the organisation and negates power of suppliers, and creates barriers to entry into the ready mix market, through being cost competitive. Holcim has developed core competencies in efficient use of these assets, leveraging these competencies across the group to ensure worlds best practice, ongoing innovation and development. This is evidenced according to the annual report 2010 the establishment of Holcim support group ltd, to ensure effective utilisation of these resources. The ability operate a support division to leverage best practices across the group is only permissible by Holcims size, so it can be regarded as a core competency (Hamel & Prasad, 1990). These are essential core competencies for Holcim, as analysis of the environment shows that a maintaining a sustainable cost advantage is critical for the business to maintain its long term competitive advantage. Environmental analysis also revealed that the barrier to entry into markets is capital intensive. Holcims financial strength and strong cash flows, over $3billion Swiss francs pa (Holcim 2010 Annual Report) means it has the core financial resources to enter and develop new markets. This allows the company to generate the necessary economies of scale to generate acceptable returns on capital. Financial competencies within Holcim provide the business with the ability to access capital at cheaper rates, through bond issues. Leverage of the financial resources allows Holcim to maintain a competitive advantage in a capital intensive business such as cement production. Holcim employees over 80,000 people worldwide, thereby creating an extensive core human resource with extensive experience in cement industry. Even though Holcim is a global corporation it competes on a regional basis. It was identified that regional economic & political forces can have an affect each division, particularly in the ready-mix market where the business is customer centric. So the strategy of maintaining a regional management focus to maximise opportunities could be argued as a core competency. Whilst at the same time, leveraging off the global human resources skills in plant efficiency and environmental management at its disposal. This is supported by Siddiqi S., (2000). He argues that global corporations not developing regional core competencies could develop core rigidities that reduce the effectiveness of the organisation.

PART 3 Evaluate the corporations key strategic choices and discuss why the corporation chooses the existing choices? Please justify your answer.

According to the Holcims groups website and annual report 2010, the key strategic choices of the company, are to focus on the manufacture and distribution of its core products, cement and aggregates. Holcim seeks to continue growth of cement business in emerging markets, and progressively seek further vertical integration of the value chain (Appendix 1) to maximise value for the organisation. Environmental analysis shows there are favourable forces in Sociological, Political & economical influences in these emerging markets that Holcim seeks to exploit with their core resources and competencies. The strategic choice to continue to grow the cement and aggregates business, is sound as these materials are the basic raw materials for all construction work. In emerging and mature markets Holcim seeks to progressively expand vertical integration. This is a sound strategy as the group supplies the two core raw materials for the most commonly used form of concrete - ready-mix, a mix of aggregates and cement. This strategy will allow maximum creation of value by the Holcim group, and leverage its core resources and competencies, and create barriers to entry by controlling the supply chain. In the mature markets other less favourable environmental forces from energy suppliers and rising environmental forces influence the strategy. In these markets Holcim seeks to reduce energy consumption, aggressively price increases, grow the aggregates business, and leverage Holcims core knowledge and resources, to extract maximum value out of the value chain (appendix 1). The cement industry is a large user of transport and energy; therefore it necessitates the strategy to reduce energy consumption. In these markets with reduced demand and more intense competition it may be harder to pass any price increases onto the buyers. Another key choice is the reduction of debt. Holcim seeks to reduce its debt levels as in mature markets where there is uncertainty around economic growth, which is a major driver in the consumption of its two core products, cement and aggregates. The growth of the emerging markets in cement is capital intensive, thus having a sound balance sheet will allow the company to position itself to take advantage of growth opportunities.

PART 4 Select a strategy that you believe the corporation should be pursuing for the next five years and justify your selection.

In order to develop an effective strategy companies must understand the environments in which they operate so they can leverage their strategic capabilities effectively to create a sustainable competitive advantage (Johnson et al 2011). The environments in which Holcim operates are broadly categorised into emerging markets and mature markets, as identified previously different forces are present in these markets, thus requiring different strategies for these regions. In emerging markets Holcims strategy should be to: 1. Pursue growth in cement either through acquisition or building capacity. The emerging markets present the primary opportunity to Holcim for growth, based on the favourable political, economic and sociological forces at play. There is a growing demand for cement based products and services, in the economic expansion of these economies. This aspect is important due to the sociological influences driving demands in the standard of living; the demand for more roads, shopping centres, apartments thus increases along with it the demand for cement based products. Capacity should be developed in line with growth, so as to not oversupply the markets and put pressure on prices. 2. Continue to acquire or develop other businesses along the value chain such as aggregates and ready-mix concrete. Ready mix businesses are customer centric, as there is little differentiation between suppliers, business is built around price & relationships. The continued strategy of utilising Holcims core competency of regional management skill, leveraged with International operations best practice, should be employed to maximise value out of these businesses. In the mature markets Holcims strategy should be to: 1. Continue growth of the aggregates & ready-mix business, by leveraging Core competencies to extract more value out of the value chain (appendix 1), as economic growth forces are unfavourable in these markets. 2. Pursue increase prices to offset rising energy costs inputs. Ownership of the value chains should provide power to pass increases, and negate buyer power. 3. Invest in technology to reduce carbon emissions as cement is a high emitter of greenhouse gases; it is likely that environmental forces will increase over time. As evidenced by the development of environmentally friendly cement, Novacem which stemmed from investment in new technology through increased environmental influences. 4. To employ tight cost control and review of assets, rivalry in the market place is likely to increase and put pressure on prices, as competitors seek to run plants at capacity to cover fixed costs. 5. Secure future resources in close proximity to markets, as rising fuel costs, potential additional regulatory costs associated with carbon emissions lead. Once again Environmental Regulatory requirements are becoming an increasing negative force. Long gestations times to acquire & obtain environmental approval to develop quarries are required. Capitalise on Holcims, financial strength to secure business competitiveness for the longer term. Rising fuel & transport costs will reduce profitability if reserves & facilities are too far from markets.

In addition Holcims strategy should be to continue to reduce debt levels. Maintaining low gearing, combined with already strong cash flows, will allow funding of growth opportunities in emerging economies.

Conclusion An analysis of the external environmental in which the Holcim group operates using Porters Five forces model and PESTEL reveals that the there are favourable Political, Economic and Social forces supporting the growth in Emerging markets. In the mature markets economic and growing environmental forces are not so favourable. Strong rivalry exists in both markets, so economy of scale and cost advantage is critical for maintaining a long term competitive advantage. The key strategic choice of sticking to what they know (or core competencies) and diversifying geographically, by leveraging capital & human resource strengths (core resources and competencies) place Holcim in a strong position to exploit favourable environmental forces in the emerging economies of India, Asia, China and South America. It is these same strategic capabilities that allow the company to combat the unfavourable economic and environmental forces in the mature markets. The vertical integration and development of the value chain by Holcim is a key part of the organisations strategy as markets mature to continue to provide growth to the organisation, combat against rivalry amongst its competitors, and provide increased barriers to entry for other players wishing to enter the market. As cement production is the second biggest carbon dioxide emitter behind energy generation, Holcim is likely to experience increased environmental regulatory demands in both the emerging and mature markets. This is a force that could have an increased effect on profitability over time. In summary Holcims strategy should be to leverage core competencies and resources in emerging markets to exploit favourable environmental forces at play. In the mature markets Holcim should utilise its strategic capabilities at defending against less favourable economic and environmental forces. This should see Holcim cement its position as the leading organisation in cement based industries.

References Holcim Group Annual Report 2010

Holcim Group Website. www.holcim.com Johnson G., Whittington R. & Scholes K. Exploring Strategy: Text and cases, Ninth Edition, Prentice Hall, 2011. Porter, M. E. Competitive strategy: Techniques for Analysising Industries and Competitors, Free Press, 1980. Prahalad. C.K. & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review, 68(3), pp. 79-91. Viewed online 1st Sept. 2011 Emerald Group Publishing database online. Siddiqi S. (2000). Customizing Core Competencies: The Regional Challenge. International Journal of Commerce and Management, Vol 10, No.1 2000 pp 91-104. Viewed online 1st Sept. 2011 Emerald Group Publishing Database online. Snow, C.C. & Hrebiniak, L.G. (1980). Strategy, Distinctive Competence, and Organizational Performance. Administrative Science Quarterly, 252, 317-335. Viewed online 1st Sept. 2011 Emerald Group Publishing Database online. The Cement Sustainability Initiative: Progress report, World Business Council for Sustainable Development, published 01-06- 2002 Viewed online, www.wbcsd.org.

Appendix 1 Holcim Value Chain. Source www.holcim.com