Business Strategy and Policy

Final Project

Lucky Cement

Product

“White Portland Cement”

Business Strategy and Policy

Submitted To:

Mr. Farooq Omer Sb

Submitted By:

Furqan Saleem 060234-036

MBA – Prof (Evng)

University of Management and Technology, Lahore

PREFACE

Business Strategy and Policy is an exiting and challenging discipline. New technology and

increase in globalization are dramatically transforming and you can only survive in the corporate

world with the strong strategic and competitive advantage. Therefore during the course study

"Business Strategy and Policy", I worked on a project related to my organization and implement

the business strategic plan and it is only possible with the guide lines from my course resource

person Mr. Farooq Omer.

I fully tried my best knowledge that I knew to complete this project. The project was not an easy

task to me, faced many problems but keeping in mind "ALLAH helps those who help themselves",

I did it and really enjoyed the whole work.

ACKNOWLEDGEMENT

All Praises to The Greatest Almighty ALLAH, who helps us in the completion of the project and

really without HIS help; its not possible for us to do it.

Respected; Mr. Farooq Omer, I really thankful to you and enjoy your teaching methodology

during the course and give me opportunity to do such kind of informative project; which is very

beneficial to me in the future. Through your guidance made me able to complete project in a

comprehensive way. I am also very thankful to my parents and friends for their help and

cooperation in this regard.

Executive Summary

In this particular course “Business Strategy and Policy” the project assigned to me by resource

person Mr. Farooq Omer. In this project I have to select a company may be a national or

multinational for your own choice. I used different business strategy tools and matrixes to analyze

the existing position of the company and develop strategies for the upcoming years. In this

particular project I implement the different strategies and give the brief introduction of the cement

industries in Pakistan. I did PEST analysis. It gives the brief snap shot of macro environmental

forces that impacting the Cement Industry. The PEST analysis indicates that political environment

is not too suitable but the business condition in the country is stable due to its performance. The

Porter analysis shows that market is suitable for Cement Industry and for New Entrant it is not so

difficult to enter but the financial cost is too high where as the economies of scale to achieve.

Lucky Cement has strong financial condition and have strong distribution channel as compared to

other companies in the industry.

Lucky is the market leader in Cement Industry and its major competitors are DG Cement, and

Maple Leaf Cement, they both have good repute in the market. Lucky Cement has strong bard

name and famous for its quality cement not in the Pakistan but as well as in the international

market. The target segment of Lucky Cement is middle and upper class. Their products are easily

in the urban area easily, especially in the big cities like Lahore, Karachi, Faisalabad, Islamabad,

Peshawar and Gujranwala and etc.

As the consumer taste, preferences and behavior is not static, so lucky cement always much

focuses on its old Gray Portland Cement product. Lucky Cement in order to get maximum market

share, it has the market for a new product development strategy to fulfill the customer wants for

the White Portland Cement. Cement is the product which is acceptable to all of the segments for

the construction so it is successful for lucky cement to extend the width of its product can increase

customer loyalty and for company growth.

CONTENTS

1. INTRODUCTION OF THE CEMENT INDUSTRY 2. PEST ANALYSIS3. PORTER ANALYSIS OF THE INDUSTRY IN PAKISTAN

Threat of new entrant Bargaining power of suppliers Bargaining power of customers Rivalry Threat of substitute Industries dynamics Most dominant force Companies five years down the road Basis of competition Emergence of new competition

4. COMPETITORS ANALYSIS Concentration index Major players of the cement industry

1. Lucky cement2. DG cement3. Maple Leaf cement

Emerging Company Attock cement

Depth Analysis Strategies

1. Lucky cement2. DG cement3. Maple Leaf cement

5. CEMENT MANUFACTURING PROCESS6. SWOT ANALYSIS7. INTERNAL FACTOR ANALYSIS ----IFE8. EXTERNAL FACTOR ANALYSIS --- EFE 9. TOWS MATRIX10. GE MATRIX11. SEGMENTATION OF LUCKY CEMENT12. MARKETING PLAN --- “White Portland Cement”

Current marketing objectives Marketing Mix

Product Price Promotion Place Packaging

13. Marketing pan for three year14. References

INTRODUCTION OF THE INDUSTRY

The cement industry in Pakistan has come a long way since independence when the country had

less than half a million tones per annum production capacity. By now it has exceeded 10 million

tones per annum as a result of establishment of new manufacturing facilities and expansion by the

existing units. Privatization and effective price decontrol in 1991-92 heralded a new era in which

the industry has reached a level where surplus production after meeting local demand is expected

in 1997.

The cement industry in Pakistan faces two serious threats: closure of units based on wet process,

and poor cash flow rendering the units incapable of debt servicing due to increasing cost of

electricity, furnace oil and imported craft paper used for cement packing. The cost of furnace oil

alone has increased by nearly 100% in the last 15 months alone. With the increase in furnace oil

the increase in electricity tariff has also become inevitable.

CURRENT INDUSTRY STRUCTURE

Cement industry of Pakistan is one of the major and important industries contributing in the

economy of the country. There are almost more than 25 small and large cement companies are

working in the industry, they are producing different varieties of cements like ordinary grey

Portland, white, slag and sulphate.

The competition in the industry is not much perfect, it is almost like oligopoly in its nature because

the product is homogenous in nature and all of the companies are producing the same composition.

There are total number of units are 25, from which 4 units are in the public sector while the

remaining 21 units are owned by the private sector. Two of the four units in the public sector had

to close down their operations due to stiff competition and heavy cost of production. The cement

plants are located in every province of Pakistan. The cement industry distributed among two areas

one is northern and the other is southern, the northern region is covering almost 85% of the total

production and reaming is covered by the southern region.

Currently cement industry of Pakistan has the ability to export to its neighbor countries like India,

U.A.E, Afghanistan, Iraq and Russian states. The cement exports witnessed a healthy growth of

65%, to over 6 million tons during 7 months of the current fiscal year mainly due to rise in

international demand. The exports may reach to 11 million tones and earn approx $ 700 million

during 2008-09. The slow construction activities in the country during the period badly upset

domestic sale of cement, which depicted decline of 15%, to 10.77 million tons as compared to

12.59 million tons of last fiscal year.

HOW INDUSTRY STRUCTURE IS CHANGING:

The cement industry of Pakistan is now entering the international market from the past few years

the Pakistani industry is exporting their product to different countries, the industry is growing as

shown in the graph.

The table is taken from economic survey of Pakistan which shows that the excessive amount of the

production, this excess production is exported to India, Afghanistan, Africa and Middle East.

PEST ANALYSIS:

POLITICAL

It is one of the most important factors in any country’s economy; it plays a vital role in the

development of industries. It should be sustainable so that industries grow and foreign investment

level becomes high and new industries emerge and unemployment reduce and economy flourishes

and the imports level decreases and exports level increases which increases the living standards. If

it not so then the situation would be against.

In the past there are no as such strong political stabilities and there much focus was only the

agriculture sector, so that’s why many problems are facing by the cement industries. In the past

there are many industries but now days there are only few ones. Now f we look the last decade the

cement industry is now progressing and industry showed a tremendous progress. Today’s the

cement industry are fulfilling the local demands and as well as the exporting.

The ongoing war of terror and the challenges that Pakistan faces had an adverse affect on the

construction industry. Further more political uncertainty and problems of high taxes deterred

investors from investing in the cement sector. Government is charging the high tariff.

Government Regulations

Chairman of All Pakistan Cement Manufacturers Association (APCMA), told Business Recorder,

Cement industry is getting Rs.24 per ton as day duty drawback for export of cement which needs

to be revised. In view of today’s calculation for duty drawback, which works out to Rs.130 per ton,

he proposed that duty drawback be increased to Rs.130 per ton, instead of Rs.24 per ton.”

Referring to taxation on cement, he said that cement dispatches are subject to payment of federal

excise duty @ Rs.900 per ton, general sales tax @ 16 percent, special excise duty @ 1 percent,

marking fee @ 0.1 percent of ex-factory price, besides provincial duties and taxes. These taxes

come to around Rs.96 per bag which is the highest in the world. Cement, it appears, is being

treated as a luxury item for the purpose of taxes and duties.

He proposed that the government should reduce excise duty by Rs.450 per ton in the forthcoming

budget while the remaining half should be eliminated altogether along with the special excise duty.

Besides this, sales tax should not be charged on excise duty paid value.

He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for

import from India because cement industry imports Coal and Pet Coke as fuel for production and

customs duty on imported coal is zero while on Pet Coke it is charged @ 5percent. The APCMA

Chairman said that consumption of cement in the local market has gone down (15 percent negative

growth) during last 10 months compared with the corresponding period last year. This is because

neither big private projects are currently under implementation nor the government is fully

utilizing its budgetary allocation for Public Sector Development Program (PSDP).

He proposed that the government should reduce excise duty by Rs.450 per ton in the forthcoming

budget while the remaining half should be eliminated altogether along with the special excise duty.

Besides this, sales tax should not be charged on excise duty paid value.

He also proposed withdrawal of customs duty on Pet Coke and remove it from negative list for

import from India because cement industry imports Coal and Pet Coke as fuel for production and

customs duty on imported coal is zero while on Pet Coke it is charged @ 5 percent.

Labeling Packaging Info Requirements in Pakistan for cement industry:

1. The product name, company name, addresses and weight/quantity has to be given on bag.

2. There is no language requirement. Labeling in English is acceptable. It is acceptable practice to

have this as negotiation point with local distributor.

3. The company should protect its intellectual property rights i.e.; trademarks, designs, copyrights

and patents in Pakistan by making applications therefore well before starting sale of their products

in Pakistan.

ECONOMIC

Pakistan is an under developing country. It has faced many fluctuations in growth. In 1947 when

Pakistan came to existence, there was no sophisticated industrial structure. The industrialist who

came from India started their business in Pakistan. Pakistan made progress in industrial sector in

60’s but war between Pakistan and India proved harmful for that progress.

After that whenever Pakistan economy take momentum, it was destroyed by inhabited occasions,

problems of Pakistan economy are poverty , unemployment , GDP growth, Inflation , Literacy rate

etc. These factors create hurdles in development of economy.

The major problem of Pakistan’s economy is bad practices of governance. There is no durability

and sustainability of polices. Policies changed with the change of government on the basis of

personal disappointments. In past every government focused most and most on agriculture and

textile sector, this ignorance of other sectors affected the economy.

Cement industry has potential to help meet economic challenges: Export oriented industries, which

required support from the government, have the potential to meet the challenges of the economic

downturn the country is currently facing. One of such industries is cement industry which, despite

several handicaps, is expected to export 11.00 million tons of cement during 2008-09 and earn

approximately $700 million.

The industry had exported 7.716 million tons cement during the year 2007-08 and had earned $450

million. Needless to mention, this remarkable performance was achieved without any help from

the government.

Per Capita Income:

Now Pakistan economy has been showing progress since 2002. In year 2006-07 GDP growth is 7

% per capita income increases up to 925 U.S dollar, which was 833 U.S dollar in last year. Poverty

rate shows little decline and literacy rate has improved, foreign investment increases.

Pakistan has recorded a laudable export performance during the last several years with export

growing at 16 % per annum over the last four years. Beside the sound macro-economics policies

pursued by the government the strong and sustainable growth in world economy also contributed

to impressive export growth. Imports are also remained at required rates. Pakistan’s exports are

highly concentrated in few countries including the U.S.A, UK, Germany, Japan, Hong Kong,

Dubai, Afghanistan and Saudi Arabia.

Pakistan’s imports are also concentrated in few countries including USA, Japan, Kuwait, Saudi

Arabia, Germany, UK, and Malaysia.

Pakistan’s location provide competitive advantage that is unique situated strategically at the cross

roads of central Asia, Middle East and the far East and its membership of growing organizations

such as SAARC and ECO . Pakistan has access to all growing markets.

PRODUCTION AND CONSUMPTION OF CEMENT

Construction work on dam portion of Diamer-Basha reservoir is going to kick off next fiscal year

and the government’s likely decision to reduce CED will help the industry cater to the needs of

dam construction.

“The expected decision will also encourage more international investors to invest in Pakistan in

this sector, to export products to countries which are in the stage of reconstruction such as Iraq and

Afghanistan, and will also cater to increasing demand in UAE,” said Tarin.

The cement industry, has sought 50 per cent reduction in central excise duty. Excise duty is

basically a tax to discourage industrial production, but the government, which is facing the issue of

collecting more revenue, is pondering over just a 20 to 25 per cent relief on this account.

The cement industry has performed very well at a time when global recession persists and

Pakistan’s GDP growth has alarmingly tumbled to 2 per cent from last year’s growth of 4.1 per

cent. It is projected to earn foreign exchange of $700 million for Pakistan, which is in dire need of

building up foreign reserves. So far the industry has exported products worth $520 million.

Cement industry comprises of 29 units with an installed production capacity of 44.07 million

metric tons. 19 units located in the north have installed production capacity of 35.18 million metric

tons (80pc), while 10 units/sites located in the south have an installed production capacity of 8.89

million metric tons (20pc). As majority of the cement production capacity is in the North Zone, the

factories are paying high inland freight cost for export of cement by sea.

Cement industry is capital intensive and has invested more than US$1.5 billion during 2003 to

2008. Shareholder’s equity and debt position was Rs102 billion and Rs100 billion respectively up

to June 30, 2008. Cement industry is also serving the nation by providing job opportunities with

more than 150,000 persons presently employed directly or indirectly in it.

Presently, cement production capacity in Pakistan is 44.07 million metric tons, which will further

increase to 48 million tons by end of June 2011. Local demand in the country is expected to be

around 20 million metric tons, leaving a surplus of 24 million metric tons that can be exported to

earn much needed valuable foreign exchange for the country.

Consumption of cement in the local market has gone down (15pc negative growth during the last

ten months compared with corresponding period), as neither are there any big private projects

going on, nor is the government fully utilizing its budgetary allocation for Public Sector

Development Program (PSDP).

The cement industry of Pakistan has exported 7.716 million tons of cement during 2007-2008 and

has earned $450 million. It is very important to provide immediate support to encourage exports.

The government should provide freight subsidy on exports.

CEMENT INDUSTRY GROWTH RATE

NTERPRETATION:

The above table and chart shows production of

cement industry in Pakistan. In 2002-2007 the

production has been increased to 24.22%.

SOCIAL

Cement manufacturing is a source of greenhouse gas emissions, accounting for approximately 7%

to 8% of CO2 globally. The cement industry has made significant progress in reducing CO2

emissions through improvements in process and efficiency, but further improvements are limited

because CO2 production is inherent to the basic process of limestone.

TECHNOLOGY

Technology is the process by which humans modify nature to meet their needs and wants. Most

people think of technology in terms of its artifacts: computers and software, aircraft, pesticides,

water-treatment plants, birth-control pills, and microwave ovens, to name a few. But technology is

more than these tangible products. Technology is a product of engineering and science the study of

the natural world.

Technology is also closely associated with innovation, the transformation of ideas into new and

useful products or processes. Innovation requires not only creative people and organizations, but

also the availability of technology and science and engineering talent. Technology and innovation

are synergistic.

Technology changes so rapidly but as far as cement industry is concerned Pakistani cement

industry is using latest technology and machinery in the manufacturing of cement, due to which

this industry is improving its growth rapidly and are able to export more.

PORTER ANALYSIS

ENTERY BARRIERS

In this industry:

The technology used for the production of the cement is easily available

The raw material is also available easily.

BARRIERS FOR NEW ENTRANTS

High Fixed Costs

Large investment needed

High cost of electricity and power

Achievement of economies of scale is also a barrier.

The strength of threat is medium.

SUPPLIER POWER

The supplier power is also not high for the raw material

The power supplier to the industry is increasing the prices on the command of government

and this is affecting every sector and it is common for all.

The strength threat is low.

BUYER POWER

The price of the cement given by all the companies is almost same in Pakistan. So the buyer has no

other option if he is in need of it. The witching cost of buyer is low.

RIVALRY

Competition in the industry is strong.

There is no differentiation of the product.

The production capacity of all the companies have almost equal.

SUBSTITUTES

Almost there is no substitute available in the market.

INDUSTRY DYNAMICS

Pakistan has one of the highest population growth rates in the world, touching 3%. This has

prompted a sizable demand for housing facilities in the country. According to estimates of

construction industry, there is a huge backlog of about 6.25 million housing units in the country.

Bulk of the current demand of 0.6 million units needed every year is for urban areas. With greater

urbanization the demand for cement is expected to grow at an average of nearly 7% per annum.

The demand for cement for infrastructure units is expected to grow with the commencement of

work on motorways, power plants, and Islamabad New City, Karachi Package and Ghazi Brotha

dam. If all these projects are implemented as per schedule, the demand for cement is expected to

grow at a higher rate.

The construction sector in Pakistan has played an important role in providing jobs and revival of

economy. It provides jobs to about 7 per cent of the total employed labor force or to 2.5 million

persons, during 1999-2000. There is a lot of scope for importing latest technological advancements

/ hi-tech building materials. Construction equipment & plants with the latest practices adopted in

the developed Countries after varied Research & development are badly needed to be adopted by

Pakistan as well. Quality Control & Materials Testing Laboratories & Equipment are need of the

time. There is unlimited scope for investment in this sector.

Globally, construction and engineering services industry is regarded as one of the largest

fragmented industry accounting for 10-12% of GDP in many countries. Benefiting from both

public and private investments, the construction industry is a prime source of employment

generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force.

The total world spending on construction amounted to US$3.2 trillion in 1998.

The main factors behind increase in demand of cement were: 60 percent higher Public Sector

Development Projects (PSDP) allocation, seven percent GDP growth, increasing number of real

estate development projects for commercial and residential use, developing export market and

expected construction of mega dams. The operating capacity of cement in FY05 and FY06 was 18

million and 21million tones, which rose to 37 million tones by the end of FY07.

Moreover, this rising trend is expected to be short-lived due to higher interest rates and inflationary

concerns are likely to make it disadvantageous for investors to enter the construction industry. In

addition to this, to control real estate prices the government is considering imposing a tax on it.

The government is playing a major role in this industry, it is controlling the exports of the industry

and they are penalizing the industry by applying more duties. The Government has reduced central

excise duty (CED) on cement in the budget for 2007-08 in order to boost construction activity.

MOST DOMINATING FORCE

The most dominant force of the industry is the internal rivalry of the industry. The production is

same there is no differentiation in the product companies are competing on cost.

NUMBER OF COMPANIES FIVE YEARS DOWNS THE ROAD

If we se the current situation of the industry and the consumption behavior of the cement in the

country and outside of the country, it may be possible that no producer will leave the industry.

Demand for cement is growing in the country as construction activities rise. Driven by the demand

for housing and government spending on infrastructure the cement consumption has already

witnessed unprecedented levels in recent years. Some of the companies are doing expansion and

they are working on 2-3 year plan like Lucky Cement and Fuji Cement. They are increasing their

production capacities.

BASIS OF COMPETITION

Globalization has made the world’s market highly competitive. And there is no differentiation in

the product and there is almost no substitute of the product, the basic competition is on price, every

one is trying to give competitive price to get the maximum share and o increase the sales.

EMERGENCE OF NEW TYPE OF COMPETITION

In the Pakistan’s perspective we can see that domestic consumption of the cement can be increase

due to cement demand will be triggered as soon as the dam building process commences in the

country. Given the shortage of power target of creating 25000MW electricity within the next 5

years, construction of major dams will be a matter of time. That may cause increase in the per

capita consumption in the country. That may narrow the exports of the country.

WHICH FORCE WILL BECOME THE MOST DOMINANT?

The cost of production and the supply of the cement will become the most important factor. At

present, the companies are competing on similar quality they are exporting their excessive

production and gaining profit margins. In the upcoming era, the basis for competition will be

standard quality. Companies need to expand accordingly but they also need to effectively fulfill the

demand.

COMPETITORS ANALYSIS:

Concentration Index

All figures are taken from the annual reports of respective companies.

The total net sales of the respective companies are Rs.73,444,596/- in ‘000’.

The two leading firm Concentration Ratios Lucky Cement and DG khan Cement:

= 44,368,613 / 73,444,596 = 60.41%

The three leading firm’s concentration ratios Lucky, DG khan and Maple Leaf Cement are:

= 59,619,987 / 73,444,596 = 81.17 %

It signifies that the concentration index of three leading cement companies has held the market

share of 81.17%, which shows that the industry has the highly concentrated market.

The cement industry in Pakistan is oligopoly. The Attock cement is the emerging competitor.

Net Sales (2009-uptil now) Rs. ‘000’

Lucky Cement 26,330,404

DG khan Cement 18,038,209

Maple Leaf Cement 15,251,374

Attock Cement 8,510,071

Fauji Cement 5,314,538

Total Net Sales 73,444,596

MAJOR CEMENT COMPANIES

1. Lucky cement:

Lucky cement is one of the constituents of Yunus Brothers Group which has interested in various

sectors like textile; cement etc. Lucky cement is the largest cement producer and cement exporter

of Pakistan. The has shown its local sales of Rs.15, 083,209 and its exports of Rs.15, 831,826 in the years 2009 as

compare to local sales of Rs. 11,538,960 and exports of Rs. 9,280,789 last year. Record gross sales revenue of

Rs.30.915 billion which is 48% higher than last year. Record net sales revenue of Rs.26.330

billion which is 55% higher than last year. This year the company has successful operation of

1.25 mtpa production capacity of Line “G” at Karachi Plant making total capacity of company to

7.75 mtpa. Successful conversion of Pezu Plant Captive power generation units to gas based power

generation, first of its kind experience in Pakistan for such huge capacity generators. Inauguration

of first ever loose cement export terminal owned by company to enjoy a unique position for export

of loose cement from the country.

2. D.G Cement:

D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the second largest

cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day. It

has a countrywide distribution network and its products are preferred on projects of national repute

both locally and internationally due to the unparallel and consistent quality. The company has

shown this year Sale Revenue of Rs. 18,368,507000 and gross profit of Rs.5, 804,826000.

3. MAPLE LEAF:

Maple Leaf Cement is a part of Kohinoor Maple Leaf Group (KMLG). The Group comprises of

companies, which are ranked amongst the top companies in the cement and textile sector. Maple

Leaf Cement Factory Limited (MLCFL) is one of the pioneers of cement industry in Pakistan.

MLCFL owns and operates three production lines for grey and three production lines for white

cement. The plants are located at Daudkhel District Mianwali. Total annual clinker capacity of the

Company is recorded at 3,690,000 tons. This year the company’s turnover is Rs. 8,458,899,000.

EMERGING COMPANY:

Attock cement:

The attock cement company is the emerging company of the industry. During the year, the

company achieved the best financial results of its history. The Company’s profit of Rs. 1,493

million, up by 243% over last year, was the highest ever in its history. Net sales Revenue (Rs. in

million) 8,510. Profit after Tax (Rs. in million) 1,493. Earnings per share (Rs. per share) 20.69.

This is the ever best performance of the company.

DEPTH ANALYSIS OF COMPETITORS

Lucky Cement DG Cement Maple Leaf cement

Debt Equity ratio 65% 48% 57%

Financial Costs 1236971000 2606358000 3400241000

Financial Cost as a %age of

Sales

4.69% 14.44% 22.29%

Power Plant Yes Yes No

Earnings/share 14.21 1.96 (2.78)

Space for Expansion Yes No No

Net Profit Margin 17.46% 2.91% Loss Declared

EBITD Margin 31.51% 26.59% 102%

Return on Average Assets 11.97% 1.23% Loss

Return on Average Equity 19.77% 2.51% Loss

The above table data shows that Lucky Cement is the leading cement industry of Pakistan. Both

D.G khan and Maple leaf Cement companies are the follower of the Lucky Cement to boost up

their sales and profit margins. The major costs are the finance and power generation cost to run

their production plant smoothly. The D.G. khan cement has the ability to become the challenger

for the Lucky comment through increasing their sales volume and the efficient use of the resources

and energy.

STRATEGIES:

1. Lucky Cement

The Lucky cement strategy is to remain the market leader as they have the largest cement

manufacturer in Pakistan. There strategy to be leader in domestic and as well as in the exports

through the price competitive advantage and quality product with high level of consumers

satisfaction. The technology and the strategy they are utilization is one of the best which makes it

the largest exporters in Pakistan, 2005 Year and still trying to get more share in the exports sides.

They are using the dry process which is almost 70%; they are also using the gas-based power

engines as the reciprocal of the furnace oil to reduce the cost. Now a day the energy crisis is one of

the big challenges for the company to full fill the demand and supply patterns. There strategy is

also to reduce the transportation cost because the last several years they have facing the huge cost

in this category, hence to get the more price competitiveness. They also have the keen interest in

the social responsibilities and development.

2. D.G. khan Cement

D.G. khan cement is also having one of the largest manufacturer’s of cement. There strategy to

increase there exports in the neighboring countries which they are trying to convince the Govt. to

regulate there polices and give passage to export cement through the roads because of the limited

capacity in trains to send the consignments. Which reduce the foreign exchange due to not fulfill

the demand because of the limited capacity to send in the neighboring countries. They want to

produce and sustain the company growth through optimum prices of the product. They have an eye

on the upcoming 2010 year, in which the Govt. announces to complete, introduce and starts the

new development in the country which is almost 54% higher then the previous year’s

development. That generates the big competition among the companies to get the maximum share.

So that the company will grown and generate the high profits indeed. They want to get the

maximum share of the local market as per the Govt. announcement about the new developments

are starts in the 2010 year.

3. Maple Leaf Cement Factory Limited

The Maple leaf cement strategy is to provide the consistent quality product as they are providing to

their consumers with all the quality and industry standards with maximizing the shareholders

wealth and interests. The keen interest of there strategy is to be more competitive through most

efficient operations. They are using leading edge technology with professionally and efficiently by

keeping in mind to invest in the social responsibilities of the community to contribute towards the

prosperity of the Pakistan. They donate Rs. 21.50 million to the Gulab Devi Chest Hospital for the

Cardiac Center current year.

WHAT SHOULD LEADER DO?

Lucky cement is the leader of the Pakistan cement industry; it has the ability to produce the huge

production of cement to fulfill the exports and local consumption. Lucky cement has stabilized in

its growth and in its capacity to produce from the last few years and maintains its position in the

market, which helps it to make itself different from other companies in the cement market. Lucky

cement is expanding its production capacity, company is generating major portion of its revenues

from export sales, it must focus on both local and exports sales to be the leader of the market.

WHICH FORCE WILL BECOME THE MOST DOMINANT?

The cost of production and the supply of the cement will become the most important factor. At

present, the companies are competing on similar quality they are exporting their excessive

production and gaining profit margins. In the upcoming era, the basis for competition will be

standard quality. Companies need to expand accordingly but they also need to effectively fulfill the

demand.

Cement Manufacturing Process:

1. The cement manufacturing process begins when limestone, the basic raw material used to make

cement.

2. The limestone is combined with clay, ground in a crusher and fed into the additive silos. Sand,

iron and bottom ash are then combined with the limestone and clay in a carefully controlled

mixture which is ground into a fine powder in a 2000 hp roller mill.

3. Next, the fine powder is heated as it passes through the Pre-Heater Tower into a large kiln,

which is over half the length of a football field and 4.2 meters in diameter. In the kiln, the powder

is heated to 1500 degrees Celsius. This creates a new product, called clinker, which resembles

pellets about the size of marbles.

4. The clinker is combined with small amounts of gypsum and limestone and finely ground in a

finishing mill. The mill is a large revolving cylinder containing 250 tones of steel balls that is

driven by a 4000 hp motor. The finished cement is ground so fine that it can pass through a sieve

that will hold water.

5. The cement manufacturing process consists of many simultaneous and continuous operations

using some of the largest moving machinery in manufacturing. Over 5000 sensors and 50

computers allow the entire operation to be controlled by a single operator from a central control

room.

SWOT Analysis of Cement Industry

Strengths:

Lucky Cement new 7TH production line at Karachi plant. Considering sizeable export

potential to Gulf and other African Countries, Lucky Cement has increased the capacity of

its Karachi Plant by adding one more production line having the capacity of 4,000 tons per

day. The new production line started from March 2009 bringing the total Karachi Plant

production capacity to 12,000 tons per day. Mostly the industries are located near

mountainous regions in Pakistan that are rich in lime stones and gypsum clay.

Lucky Cement Limited is now in the process of installing a waste heat recovery system

which will utilize the waste heat generated during clinker production into electrical power

with zero emission of carbon and without consuming any fuel. This effort of producing 25

MW electricity, although a costly effort , but looking at the circumstances both nationally

and internationally will help in contributing in production of electricity in a nation where

power generation is a main crisis and in a world which feels the dangers to environment

and global warming.

The industry exported 7.716 million tons cement during the year 2007-08 earning $450

million. Its exports surged to 11.4 million tons in 2008-09 earning approximately $750

million. The cement industry of Pakistan entered the export market a few years back, and

has established its reputation as a good quality product

Lucky Cement, being aware of Global warming and the dangers of GHG, has decided to

play an active role in participating in reduction of global warming and creating an

environmental friendly atmosphere. In this regard Lucky cement has taken a step to

contribute in this Global effort to control carbon emission.

In addition to above we have also attained approval certifications from many countries

including India, South Africa & Srilanka for our cement. We export cement from our state

of theart plants who maintain Uniformity, Strict Quality Control, ISO 14001 & ISO 9001

certified and rely on SGS reports.

Lucky Cement, being aware of Global warming and the dangers of GHG, has decided to

play an active role in participating in reduction of global warming and creating an

environmental friendly atmosphere. In this regard Lucky cement has taken a step to

contribute in this Global effort to control carbon emission.

Cement is one of major industries of Pakistan. Pakistan is rich in cement raw material.

Currently many cement plants are operating in private sector.

Selling Price decreased by 14% in export market and 18% in domestic market. Sales

revenue increased by 6% and sales volume increased by 14%.Cost decreased by 11.53%.

Pakistan cement factories continue to make significant progress in cement exports. Now

Pakistan is ranked 5th in the world’s cement exports after a huge increase of 47 percent in

exports during last fiscal year.

Earning per share has increased by Rs.2.98 to Rs.3.41.Higher GDP growth has positive

impact on cement demand. Cement demand growth rate was double the GDP growth rate in

last three years.

Weakness:

It is not coming up with the new product.

The production cost has been increased due to the inflation.

Opportunities:

Considering sizeable export potential to Gulf and other African Countries, Russian states,

India, U.A.E, Afghanistan

Lucky Cement has increased the capacity of its Karachi Plant by adding one more

production line having the capacity of 4,000 tons per day.

The new production line started from March 2009 bringing the total Karachi Plant

production capacity to 12,000 tons per day. Work on heat recovery system of both Karachi and Pezu are under process which is

completed at the end of this year.

Most of the cement industries in Pakistan are currently operating at less than 50 per cent of

their capacity due to the slow down in commercial and industrial construction activity

within Pakistan.

New avenues for export of cement are opening up for the indigenous industry, as Sri Lanka

has recently shown interest to import 30,000 tons cement from Pakistan every month. If the

industry is able to avail the opportunity offered it may secure a significant share of Sri

Lankan market by supplying 360,000 tons of cement annually. In 2007-2008, 786,672 tons

cement was exported to India while in Afghanistan 2,777,826 tonnes of cement was

exported. In 2007-2008, the exports to UAE, Iraq, South Africa and other countries touched

4,152,122 tons.

Export of cement was made possible by the increase in capacity thanks to heavy investment

in this sector by the businessmen. The cement manufacturers have invested about $1.5

billion in capacity expansion over the last six years. Today this investment has increased

the capacity of the industry by over 300 per cent from the time it was privatized. As a result

the country has not only saved millions of dollars which it was spending on imports, but is

also producing substantial exportable surplus.

Currently Pakistan has a per capita consumption of 131 kg of cement, as compared to

India’s 135 kg. This per capita consumption is substantially below the world average of

270 kg and the regional average of over 400 kg in Asia and over 600 kg in the Middle East.

However, this shows slight improvement compared with 117 kg per capita consumption of

Pakistan in 2005.

Housing sector growth is also a healthy sign for the company. Housing projects consume

roughly 40% of cement demand.

Government development expenditures count for one third of total cement consumption.

Increase in PSDP (Public Sector Development Program) – from Rs.80 bn in 1999 to Rs.520

bn in 2007.

Infrastructure development in a region triggers private development projects having even

positive impact on cement demand.

Announcement of large Dams: Construction of four large dams will generate demand of

3.7mn tons. Bhasha Daimer Dam, Munda Dam, Akhori Dam and Neelum Jhelum.

The last few years have been a golden period for cement manufacturers, when the

government increased spending on infrastructure development. High commercial activity

and rising demand for housing on account ofhigher per capita income has kept cement off

take growth in double digits.

The main factors behind increase in demand of cement were: 60 percent Higher Public

Sector Development Projects (PSDP) allocation, seven Percent GDP growth, increasing

number of real estate development Projects for commercial and residential use, developing

export market and expected construction of mega dams. The operating capacity of Cement

in FY05 and FY06 was 18 million and 21million tones, which rose to 37 million tones by

the end of FY07.

The cement manufacturers added eight million tonnes to the capacity and the total

production was expected to be 45 million tonnes by the end of 2010. It may result in a

supply glut of 11 million, nine million and seven million tonnes in 2008, 2009 and 2010

respectively. Despite an excess supply of 11 million tonnes in 2008, it is estimated

that the price would increase in domestic as well in regional markets that may surely boost

the profitability and give relief to the industry on its new investment.

As cement capacity is increasing to cater the rising domestic and regional demand, it

started facing a tougher time because of price fall after the first quarter of FY06 due to

increase in supply, energy prices started surging and higher expansion led to mounting

finance and depreciation costs. After reaching Rs 430 per bag at the retail level earlier last

year, cement prices fell sharply during 2007. Average cement prices were Rs 220 per bag

as on April 27, 2008, as compared to Rs 315 per bag in 2006.

The targets for exports for 2009 and 2010 are set to be 9.99 million and 10 million tonnes

respectively. Currently, the export demand is expected to be from new inductee India along

with other countries like Gulf Cooperation Council (GCC) countries, due to rising oil

prices-led economic growth. More countries like South Africa to make the football

stadiums for the World Cup and Sri Lanka are also expected to approach. Pakistani

companies for cement imports. However, export depends on factors such as: ability to

produce cement at Rs 85 per bag. Export strategy should be made for at least three years,

2008-10, after which new plant will start production in the region. In the meantime

industry should explore new markets for export or ready to lower prices of cement in local

market.

Threats:

Acquisition of Chakwal Cement by Lafarge cement company Ltd. may be the beginning of

such an entry in Pakistan by multinationals.

Deregulation after accession of Pakistan to WTO is expected to open the window of

competition from cheaper markets

In the last two years the cost of production has surged due to weakness of the rupee against

the US dollar which has resulted in the rise in coal, electricity charges and freight prices.

Energy input comprises 65 to 70 per cent of the cost of cement production. The PSDP

allocation for 2009 has been cut by Rs50 billion which means further decline in cement

demand. Major capacities of countries like Saudi Arabia, India and Iran are expected to

come online by FY10 and onwards, which are likely to convert these countries from

dependent importers to potential exporters with direct impact on Pakistan’s cement export.

However, during the year 2008-2009 domestic demand further declined by 13.88 per cent

compared with the last fiscal year as the construction activities in the country slowed down.

On m-o-m basis, the cement industry was unable to achieve a positive growth during the

fiscal year 2008-2009.

To remain competitive in the export markets, All Pakistan Cement Manufacturers

Association (APCMA) is of the view that the present Rs24 per ton as duty drawback (a

kind of inland freight subsidy) on export of cement should be revised upward.

While the competition is forcing the industry to sell below the production cost in the

country, the regulators feel that by keeping the industry under a tight leash they are helping

the end consumers. But the factor which has not been taken into account by the critics of

the industry is that cement dispatches are subject to payment of federal excise duty at

Rs700 per ton, general sales tax at 16 per cent, special excise duty at 1 per cent, marking

fee at 0.1 per cent of ex-factory price, besides provincial duties and taxes. These taxes

come to around Rs82 per bag which is the highest in the world.

According to APCMA, the government should reduce excise duty to Rs350 per ton, and

special excise duty should be withdrawn. Besides this, sales tax should not be charged on

excise duty paid value. APCMA also proposed withdrawal of customs duty on Pet Coke

and remove it from the negative list for import from India because cement industry imports

Coal and Pet Coke as fuel for production and customs duty on imported coal is zero while

on Pet Coke it is charged at 5 per cent.

Kamal Ahsan, GM Al-Abbas Cement Industries said the ongoing war on terror and the

challenges that Pakistan faces had an adverse affect on the construction industry. Further

more political uncertainty and problems of high taxes deterred investors from investing in

the cement sector.

Though coal prices remained stable in 2009, the cost of production continued to soar this

added to the financial problems of the cement industries.

Last year when crude oil price hit $147 in July, coal prices also hit the highest level of

$180-190 per ton causing many problems for the local industry. While this year coal prices

remained under control, the production of cement went up during 2009 resulting in more

financial problems for the cement industries.

The price war between big companies further worsened the financial positions of

companies as cement companies had to cut their prices, ranging from Rs60 to Rs100 per 50

kg bag, at a time when the cost of production was increasing. He also said that the southern

part of the country remained largely unaffected by the price war which was the reason why

cement prices fell more in the North.

Further more a fine of over Rs6 billion by Competition Commission of Pakistan (CCP) on

the cement companies over alleged cement cartel also caused worries for the cement

companies in year 2009.

Internal Factor Analysis – IFE

FACTOR WEIGHT RATE (1-4) TOTAL

(How important it is for my product)

(Company Rates its ability)

STRENGTHS

Strong Financial position

0.1 4 0.4

Strong brand name. 0.2 3 0.6Good reputation among customer.

0.1 2 0.2

Considerable marketing shares

0.07 2 0.14

Rich in raw material 0.1 4 0.4

Firm using latest technology

0.03 2 0.06

Export Quality cement increased by to $750

0.1 2 0.2

 WEAKNESSCompany did not come up with new products.

0.2 3 0.6

Production Cost has increased

0.1 4 0.4

TOTAL 1 3

External Factor Analysis – EFE

FACTOR WEIGHT RATE (1-4) TOTAL

(How important it is for my product)

(Company Rates its ability)

Opportunities Housing sector growth & Government development expenditures

0.1 4 0.4

Arrival of new technology 0.05 2 0.1

Growing market, consumption and production forecasted 9% to 10%

0.1 3 0.3

Potential to capture additional market share

0.1 2 0.2

Sizeable export potential 0.15 4 0.6

Threats     0Acquisition of different companies

0.05 3 0.15

Threat of competition     0

Price war among competitors

0.05 4 0.2

Sales tax & excise duty has increased

0.05 2 0.1

High inflation rate 0.05 3 0.15

Uncertain political situation 0.2 2 0.4

Switching cost is too low 0.1 3 0.3

TOTAL 1 2.9

G E Matrix

4

3

Market

Attractiveness

(EFE) 2

1

4 3 2 1

Business Strength (IFE)

Market attractiveness is shown on the vertical axis and Business strength is shown on the

horizontal axis, we have examined the company’s SWOT (strengths, weaknesses, opportunities

and threat) and plotting the external and internal factors on the GE matrix. Lucky Cement lies on

the 1st, 2nd and 4th quadrant the companies fall in these quadrants should grow and build. The

suggested strategies for these quadrants are product development, market development and

backward, forward, horizontal integration strategies. For Lucky Cement we suggest two types of

strategies; one is horizontal integration and second is product development.

I II III

IV V VI

VII VIII IX

Segments of Lucky Cement

In this project we will discuss that how many segments Lucky Cement is serving for its products

and what type of strategy they are using for these segments.

Market segmentation

A Cement company may obtain its segmentation strategy as follows:

1. Understanding needs and preferences of consumers:

Having housing, infrastructure, and commercial construction, as demand drivers, the company

analyzes the needs and preferences of consumers in these sectors.

2. Grouping customers based on their needs and preferences:

Customers with similar needs and preferences can be included in one segment.

3. Targeting the segment that the company can best meet the needs and preferences of:

The Company should target the customers, of which it can meet the needs and preferences. i.e.

customer needs higher- strength or low price.

4. Branding the commodity:

Though being a homogeneous product, branding is important for a cement company. The company

needs to position its brand among the households, Architects and Builders.

5. Provide required product to meet targeted customers' needs and preferences:

Delivering up to the expectations of the targeted segment.

Geographic Segmentation

Lucky cement’s major target segment and consumption is associated with the geographic as well

as with the economic conditions of the place and segments are the middle and upper class. So the

main areas are the urban where the potential customer exists.

Psychographics Segmentation

The lifestyle of consumer varies from liberal, modern and moderate. It is a very important factor

which can influence the buying pattern of the consumers. People will be mostly influenced by high

quality and branding of the product.

Lucky cement is introducing the new product “White Portland Cement” to change the image of the

company in the mind of the consumers because consumers using only one product which is the

Gray Portland Cement.

Behavioral Segmentation

The behavioral segment is the very important factor for purchasing the product of any particular

brand. The behavioral impact shows the customers satisfaction with your product. It also shows

that the company is still consistency with the quality.

Target Market

A target market is defined as a group of customers (people or organizations) at whom seller

specifically intends to aim its marketing efforts. For this purpose company must analyze three

components:

Consumer

Buying Power

Social and psychological factors influencing buying patterns

With the increase in literacy rate and high disposable income people are more aware about quality

and expectations about the product. Due to increase in the industrialization from the last decade the

income and the life standards are improving that’s show the good sign for the company.

Marketing Plan --- “White Portland Cement”

The segment which Lucky cement is targeted for their new product “White

Portland Cement” is middle and upper class. Due to manufacturing of

highly quality cement to full fill the local demand and exports demand,

now it has international brand recognition due to quality product, so the

consumer expectation is high. The target segment for this product is same

as the earlier targeted. The main purpose of launching this product is to

increase product line and to capture more potential customers.

Current Marketing Objectives

(a) Review of Marketing Objectives:

The marketing objectives of the Lucky Cement are:

To remain the market leader

To sustain the brand image and awareness

To increase sales volume

To get maximum profit at minimum cost

To get maximum market share

(b) Performance Analysis:

In this analysis we can see the sales volume and share of different companies. The following table

and graph show the performance of our company and competitors also.

Net Sales (2009-uptil now) Rs. ‘000’

Lucky Cement 26,330,404

DG khan Cement 18,038,209

Maple Leaf Cement 15,251,374

Attock Cement 8,510,071

Fauji Cement 5,314,538

Total Net Sales 73,444,596

The following graph shows the sales of different cement companies.

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

LuckyCement

DGkhan

Cement

MapleLeaf

Cement

AttockCement

FaujiCement

Companies

Sa

les

Net Sales

Marketing Mix

The controllable variables that a company puts together to satisfy a target market is known

as Marketing Mix. It has four P’s.

a. Product Strategy

b. Price Strategy

c. Place Strategy

d. Promotion Strategy

e. Packaging Strategy

a. Product Strategy:

Name

Lucky Cement is launching its new product, which named as “White Portland Cement”.

Product line

White Portland Cement

White Portland cement is used in combination with white aggregates to produce white concrete for

prestige construction projects and decorative work. White concrete usually takes the form of pre-

cast cladding panels, since it is uneconomic to use white cement for structural purposes. White

Portland cement is also used in combination with inorganic pigments to produce brightly colored

concretes and mortars. Ordinary cement, when used with pigments, produces colors that may be

attractive, but are somewhat dull. With white cement, bright reds, yellows and greens can be

readily produced. Blue concrete can also be made, at some expense. The pigments may be added at

the concrete mixer. Alternatively, to guarantee repeatable color, some manufacturers supply ready-

blended colored cements, using white cement as a base.

Brand Name: White Portland cement by Lucky Cement of YB (Yunus Brothers) Group. It

is launched in April 2011.

Variety: White Portland cement is made with metal oxides (primarily iron and manganese)

that influence the whiteness and undertone of the material. Types I & III white cements are

produced.

Quality: Lucky Cement do not compromise on quality and this is one of the factors in its

great success. Lucky Cement produces quality products and White Portland cement is one

of them.

Packaging: It is packed in a white paper bag in which Lucky Cement is written on the

bottom of the bag with its trade mark. White Portland cement is written in the centre and it

is available in only one size 40 kg.

b. Price Strategy:

The pricing strategy is to be set by keeping in mind as per prices are offering by its competitor’s

(maple leaf) and the total cost during the manufacturing of product.

Kind of competition in the market:

o Lucky Cement is one of the largest and leading companies in the manufacturing of

cement. The only healthy competitor of Lucky Cement is Maple Leaf in white

cement manufacturing.

Customer Reaction to Possible Price:

o The price we charge for this particular product is Rs: 387 per bag for wholesaler

because the maple leaf is offering the Rs: 400 per bag to wholesalers. So ultimately

the customer response to this product will be positive. As the Lucky Cement are the

largest manufacturer and exporter in the cement industry.

c. Placement Strategy:

The Lucky Cement almost has the wholesalers, retailers and dealers all over the Pakistan. In the

beginning of our new product “White Portland Cement” introduced only in the urban cities of the

Punjab province like Lahore, Faisalabad, Gujranwala, Multan etc for the first one year. After the

successful implementation in the Punjab Province, then we deliver throughout the country.

d. Promotion:

Print Media:

Advertisement in newspaper and business magazine specially in leading news paper like

The Dawn, The News and Jang, The Economist and Arora.

Flex sign on the billboard on different lactations.

Electronic media:

TV Channels

Ptv

GEO

ARY

Radio: There is huge trend of listen music and news on radio by the mason and labour, so that we

can aware the mason and labor that are directly related to the construction. We use FM and AM

radio channels for an effective medium to promote our new product because these two is very

famous among labor because they can influence the market of the households and create value.

Sales Promotion:

o Lucky Cement gives some extra cash rebates, calendars and diaries of the New

Year to the wholesaler and retailers, so that they deliver our products to the small

stock holders to stock our products and delivers it to the end customers with a good

will. Hence the sales increase through it.

Public Relations:

o Due to the largest manufacturers and exporters with the availability in the market

Lucky Cement build good relationships with its customers.

Publicity:

o The word of mouth of our dealers, wholesaler, retailers and the end users increases

the sales through their publicity.

Direct Marketing:

o We do direct marketing through the electronic emails to our dealers, wholesalers,

retailers and small stock holders to update our new product.

Distribution:

o Lucky Cement has a good distribution network and its products are available every

where in urban as well as rural area of Pakistan. So that the Lucky cement easily

place its new White Portland Cement at every where. It has the good interaction

with its down stream, so that its product easily available for the end users.

e. Packaging Strategy:

The packaging material of the lucky cement as per the standard of the industry

is 40 kg in white bag marked with the brand logo at the top left , company

name written in the middle of the bag and in last the product name “White

Portland Cement” will be mention at the bottom of the bag.

Market Plan for Three Years

The new product of Lucky cements “White Cement”; expected to launch in April 2011 because the

majority of construction in Pakistan starts in this particular month. The new product launching

campaign starts before the one month of launching the particular product. I use print media,

electronic media, and radio and business magazines for the advertising campaign.

The main objective for the first year is to create awareness about new product among the potential

and non potential customers to get their attentions regarding it and generate the maximum sales of

the product. Firstly, I launch it in the urban cities of Punjab for the test and successful launch.

In the second year, spread the product all over the Pakistan to capture the huge potential market of

it, sustain and get the competitive advantage, and then gradually increase the product line.

In third year the Lucky Cement is to create maximum awareness about the product in the market to

increase the sales volume and revenue. Find out the new segment and usages for their product to

increase the profitability and credibility of the company.

References:

www.lucky-cement.com

www.brecorder.com

www.dgcement.com

www.kmlg.com

www.attockcement.com

www.fccl.com.pk

www.cement.com.pk

www.finance.gov.pk

http://wiki.answers.com