The company we’ve chosen as part of the term project required by the subject MKT Competitive Analysis and Strategies is Siam Cement Group Company Limited. We are taking a closer look inside the company and its industry to get a better understanding as well as provide recommendation for sustainable future. Siam Cement Group or SCG is the biggest cement company in Thailand in terms of market share (40%) and revenue generated. It was established in 1913 and had since developed and changes as technology improve, while remaining true to its core philosophy. Outstanding customer relationship and continuous corporate social responsibility over the course of its foundation has undoubtedly earned an invaluable place in Thai people’s heart as the original domestic Thai cement company. The cement industry is in maturing stage.
The market growth rate is slow but continues to flow as time changes and the expansion of infrastructure towards the ever-changing future is ensuring to the company’s survivability. Extensive analysis of Micro and Macro environmental forces affecting the cement industry, as we can see from the flood that has been plaguing Thailand year after year, is needed to understand internal and external forces affecting the cement industry. SCG has performed exceptionally well compare to other competitors such as Siam City Cement and TPI Polene, but, SCG still has weaknesses that need to be addressed. SCCC has become the fiercest competitor for SCG, being second in the industry. SCG is actively trying to hold its position as the market leader while expanding to earn more shares. Nevertheless, SCG’s financial strength and carefully managed strategic plans help them move onward to maintain a strong competitive position in the industry.
We commended several strategies that might improve SCG’s performance based on internal and external forces analysis. Lowering cost of production is essential for competitive advantage in cement industry since cement has low differentiation. SCG must build the market and protect itself from others by using position defensive strategy. An ideal protection is to improve the weak distribution channel by enlisting more distributors. Linking opportunities with SCG’s strengths and improving weaknesses by avoiding threats is a good start to improve company’s performance. Section I : Industry Summary
Market Situation At the present time, the market size for cement has extended by flow of demand accumulated since last year after the flooding crisis happened in late 2010. The natural disaster attacked many areas, a lot of houses, roads, farms, and factories are all sunken, stopped all business activities in the country. After the flood relieved in early 2011, the business sectors started to function again. The domestic demand of cement also increased by this time because the damaged buildings and roads are required to be repaired or unfortunately some of them must be destroyed and rebuilt. This situation is an opportunity for cement producers to turn back to their home increasing their market share from the domestic market. Other than that, recent governmental infrastructure projects—BTS, for example, are bringing a large amount of the construction material demand as well as private firms projects such as condominiums.
In 2011, the total production capacity of cement from Thai manufacturers was 30.91 metrics tons or accounted for 82.35 billion Baht in total value of the product. However, the industry growth rate of year 2010-2011 was at 4.21% lower than the previous year—2009-2010, with the rate of 8.29% because of the negative effect of the severe flood that happened throughout the year 2011.
Industry Segments and its size This industry segment can be classified into 2 main products that are clinker and cement. Comparing by capacity, clinker contributed for 3.20% while the rest 96.80% was derived from cement as shown in the figure below.
Segment Growth Rate
Above figure illustrates that Clinker was more affected by the decline of overall industry demand in year 2011. As you may also observe from the figure below that, growth rate of clinker dropped dramatically in 2011, resulting a negative growth rate of 18.85% from a positive growth rate of 16.19% in 2010. Meanwhile, the growth rate of cement is slightly affected by the crisis, from 16.19% in 2010 to 5.20% in 2011.
Cement Market Share by Brands In Thailand, there are three major cement manufacturers who altogether contribute to more than 80% of total cement supplied each year. In 2011, SCG Cement is the market leader with market share of 39.1% followed by Siam City Cement Group and TPI Polene with the market share of 25.0% and 18.1% respectively.
Advantage Matrix In order to know whether the company is competing in which type of industry — Stalemate, Volume, Fragmented, or Specialized, we have to consider and compare two sources of advantage from which the companies exploit – differentiation and size of production. According to the advantage matrix, we conclude that the company competes in a volume industry. The main product here is cement which cannot be differentiated much. Basically, cement is used to serve construction purpose so we cannot perceive the differences in cements easily. Although, group of expert representatives are established to inform customers regarding additional benefits of the products, the product differentiations are still difficult to realize.
However, thanks to the concept of economic of scale (EOS), a large size of cement that the manufacturers producing each day has helped lowering the cost of production per unit since the fixed cost of manufacturing will be shared to the greater unit produced. Thus, the concept of EOS has built a competitive advantages against other smaller producers in which the three major manufacturers— SGC Cement, SiamCityCement, TPI Polene, can lower the price of their product but still get some profit while other companies who don’t have such advantage aren’t able to do so because they have higher cost per unit due to fewer units of productions. Last year, SCG cement got the highest volume of cement production in Thailand at 23.2 metric tons followed by SiamCityCement and TPI Polene at 14.5 and 9.0 metric tons respectively. Environmental Scanning
PESTEL Analysis PESTEL model is use to analyze external macro-environment that can significantly indirectly influence the industry. Assessing the impact of external forces can serve as a guide to make the correct decision on the direction the company is headed and strategy to be implemented on the basis of opportunity, both available and unforeseen, and the threat, both present and coming. Political
* Tax reduction the government implemented for first time home buyers up to 10% of property price but not exceeding five hundred thousand baht will allow people to have their own houses, and consequently push the demand of houses and cement altogether. * Zero interest for five years policy for first time home buyers will dramatically encourage people to buy new house, which in turn encourage investors to invest in asset more, which benefits SCG greatly. Economic
* Bank of Thailand has reaffirmed its decision to keep the interest rate policy unchanged at 3% per annum to support economic recovery after Thailand has been affected by major economic crisis in foreign countries. This will help SCG manage its financial status easier. * Vietnam, one of the countries that SCG invested in, was damaged by high inflation and financial volatility, forcing its government to undertake several steps to protect Vietnamese Dong. Social
* People are the most important aspect to be concerned when a firm wants to develop new market in foreign countries, but the problem lies in only a few of Thai people want to work in foreign countries. Most of Thai people are conservatives. This challenges SCG to change mindset and send people to work in ASEAN countries. * Consumer behavior has been changing with an increasing in preference for eco-friendly products. SCG stresses the importance of R&D of high value-added products and services, and were able to introduce “SCG Eco-Value” to capture this market segment. Technological
* Innovative environmental-friendly cement created by Italcementi Corp, who’s reputed as one of the big five cement company in the world, developed TX Active Technology in the year 1999. When the cement is exposed to light, chemical reaction occurred will reduce air pollution by at least 45%. SCG may buy this technology from the Japanese firm to meet demand of green consumers. * Electrical plants which uses coal as a main source of energy has implemented a system to reduce sulfur by using limestone. Reaction of limestone and sulfur creates Gypsum, which is a key ingredient use to create cement. This knowledge will help SCG operate their business more efficiently. Environmental
* There is a vast wealth of important industrial ores and precious metals waiting to be exploited throughout ASEAN nations. Even though many large mining companies are in the region, exploration and exploitation of natural resources have barely begun. Another opportunity for Thai cement producer to find a new ideal natural resource spot. * During rainy season, construction project always put on hold temporarily. But now that the usual seasonally weak sales period has passed, the demand of construction materials including, cement, starts to recover. Legal/Regulations
* Government establishment of minimum wage rate at 300 Baht starting April 1, 2012 will increase manufacturing cost of an industry segment, including SCG. Meanwhile, more money will be injected into Thai economic cycle and finally, it will increase the overall money spending, which includes spending to purchase cement as well. * Despite the fact that production cost of cement has been increasing by the higher price of raw materials and transportation cost, the cement suppliers can’t adjust the price accordingly because the approval from Ministry of Commerce is needed in order to change the cement price. Micro-Environment Analysis
This section is looking for the internal forces within the company, strengths and weaknesses, derived from marketing intermediaries, suppliers, competitor analysis and consumer analysis. Marketing intermediaries
* In 1998, SCG established a subsidiary logistic company so-called SCG logistic in the present time. That company is responsible for transportations of all SCG goods and its own clients’ goods. This gives an opportunity to SCG to entirely control its own transportation process. * SCG distributes its products to both small and big size customer through its own distribution store, Home Mart. The stores create an opportunity for SCG to reach its customer locally and encourage in-store trial of its product so that later on it can generate more sales. * If you have ever heard of BOI fair then you would probably heard of SCG pavilion. This exhibition gives an opportunity for SCG to show their technological advancement. Quite big opportunity to increase brand reputation.
Suppliers * SCG got a number of legitimate concessions from Thai Government to have a special right to extract some particular types of ore such as limestone and Coal. This gives an opportunity for SCG to have its own sustainable source of materials. * Together with production, marketing department and supplier can identify new a product opportunity and a better product design. * Due to natural disaster both in Japan and Thailand together with Europe crisis create a substantial fluctuation in raw material price especially coal in 2011 which is consider as threat for the company. Competitor analysis
The main competitors of SCG Cement are TPI Polene and SiamCityCement. * In 2015, Thailand will join into AEC and it can be considered as both opportunity and threat for the company. It is an opportunity in a way that it can expand its business more freely and easily to countries under AEC membership. However, it means that foreign competitors can also expand their business to Thailand which will probably seize partial of market share from SCG. * TPI Polene has totally 3 manufacturing plant which are all located in Saraburi nearby the mine sites and that leads to the lowest transportation cost for TPIPL comparing to SCG and SCC. * A subsidiary company, SCG distribution, can help facilitate business of other SCG companies. It offers wide range of logistic services both domestically and internationally. This gives a lot of competitive advantage over their competitors that don’t have their own distribution systems. Customer analysis
* Customer needs and expectations * Even though, the recent flood in Thailand doesn’t directly impact cement industry, but it restrains many governmental construction project and that decreases demand of cement. As a result, it is threat to SCG because it business didn’t grow as expected. * Another opportunity for SCG is that they has built a new type of store called “SCG experience” to give a virtual experience to customers and also provide experts to give advices for free to make sure that they will come back and purchase later when they’re going to build their home. * Thailand market has expanded after the relief of flood crisis last year. People need to repair their houses resulting in higher demand of cement. So many companies see the opportunity and focusing more on domestic market. * Customer behavior
* Teens and adults prefer to live in condominium and you can see that many projects were built or planned to be built in next 2-3 years especially in the area along BTS line. This condominium boom will also give an opportunity for cement industry to grow. * Many construction firms prefer to have long-term contract with construction material manufacturer because they want to get a stable price of materials so it is an opportunity for SCG to develop new trading partners. * Thailand is set to be one of Asia Pacific’s hotel investment hotspot in 2012 because of record sale in the first half of the year. This trend is an opportunity that cement market can generate more sales. * Change in customer trends
* Customers are more likely to choose environmental friendly products. The company is well aware of that issue so it tries to promote the products labeling “SCG eco value” in which to express the idea that it is green for both production process and the product itself. This is an opportunity to gain market share in the new segment. * New style of house has emerged. This style just uses cement to build house without color painting on it. This trend could be an attractive market for cement industry in the near future. * Number of elder people will keep increasing in the future and they will demand more of easy to use and health-care products. To take this opportunity cement manufacturers may produce anti-bacteria cement for example.
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