INTERNATIONAL STRATEGY

CASE: La Cimenterie Nationale

Group 3:Le Vinh Huy (mr)Nguyen Gia Bao (mr)Nguyen Cong Thien (mr)Bui Thi Bich Ngan (miss)Hoang Hong Binh (miss)

Tutor:Prof. Dr. Jean-Paul Lemaire

Agenda• Company Introduction• External Analysis: P.R.E.S.T model• Internal Analysis• Strategy Formulation• Recommendation

Company IntroductionLebanonmap

Company IntroductionLebanon history• 26/11/1941: independent from France-administered

League of Nations mandate.• 1948: joined the Arab League during Arab-Israeli war • 1975 – 1990: Lebanese Civil War between Christian &

Muslim inhabitants.At the end of the war, there were extensive efforts to revive the economy and rebuild national infrastructure.

• 12/07 – 14/08/2006: 33-day war (July war) with Israel.

“La Cimenterie Nationale” history• Cimenterie Nationale (hereinafter CN) is a joint stock

company with a capital of approx. 100 million USD.Founded in 1953 with the Doumet and Asseily families as shareholders.

• Top 3 of cement producers in Lebanon: ▫ CN (2006 domestic sales = 1.15 million tons of cement

with market share exeeding 34%; 2007 annual production capacity = 2.1 million tons of clinker)

▫ Holcim (Swiss base, 2nd largest global cement producer)▫ Sibline

Company Introduction

Company IntroductionProduct Structure

Product PA-S 42.5 P 42.5 P 42.5 BTNa, RMS P 52.5 BTNa, RMS PA-L 42.5

Blast furnace slag modified cement

Ordinary Portland Cement

Moderate sulfate resistant cement, normal strength

Moderate sulfate resistant cement, high strength

Blast furnace limestone modified cement

Area of reference

Algeria

Syria

LebanonJordan

Iraq

Libya

Egypt

Saudi Arabia

Yemen

Southern Europe

Greece and Turkey

External AnalysisUnstable environment but temporarily favorable at the moment

• Political - Regulatory pressure:* Lebanon is often impacted by extreme internal and external disturbance* North & East embraced by Syria, a much larger country which has once

controlled the northern part of Lebanon with 15,000-strong army troops in several months in early 2005. Lebanon was part of the Greater Syria (modern-day Syria, Lebanon, Jordan, Iraq, Kuwait, Israel, the Palestinian territory, Cyprus, part of modern-day Turkey) in the past.

* South adjacent to Israel, which has long been enemy to the Arab community in Middle-East. During the Civil War (1975 –1990), Lebanon had been several times invaded by Israel army troops as Lebanon supported PLO (Palestine Liberation Organization)

* Has Hezbollah (a paramilitary force) in their cabinet. Hezbollah, being considered terrorists by Western countries, is enemy of Israel

External Analysis (con’t)• Social - Economical pressure* Has several ethnics (Christians, Shi’a Islam, Sunni Islam) that

never live peacefully with each other for decades* Lebanon often has up and down economic cycles. During the

wars, only producers of vital items like food, drink and clothing can survive. Commodities, particularly cement, is a luxury item, hence there is very little demand for it. After the wars, rehabilitation works, including infrastructure reconstruction, are a strong stimulus for cement producers

* Apart from destroying the country as a whole, wars also bring deadly devastation to Lebanese people and assets.

* Hence, local cement producers always have to cope with cycles of fat cows and lean cows

External Analysis (con’t)• Technological pressure* MNC cement producers like Lafarge, Holcim, Heidelberg

Cement, and Italcementi have long been present in the industry. With pool of expertise built up through hundred of years, they always lead the cement industry by applying state-of-the-art technology to their production, thus providing their clients with top quality products.

• Supply and demand▫ Ciment de Sibline S.a.L., Cimenterie Nationale S.L., Holcim

(Liban) S.L., and Seament S.L. produced cement at a rate of 5 million metric tons per year (Mt/yr) in 2006; the combined capacity of their plants was about 6 Mt/yr. Holcim (Liban) produced about 2 Mt/yr of cement, and Cimenterie Nationale, about 1.7 Mt/yr.

▫ Cement demand declined in the fourth quarter of 2006 because of fighting in Lebanon between Israel and the Hezbollah organization; demand for the entire year, however, still increased. Post-combat reconstruction was expected to consume 700,000 metric tons to Mt during the next 2 to 3 years.

Characteristics of Lebanon’s cement sector

• Factors which have most impact on the cement sector:▫ To have new lines of modern technology, higher energy

efficiency and meet environmental concerns ▫ Increase in domestic consumption rates in the Arab countries▫ Increase in favorability of the investment climate and financial

incentives▫ Financial surpluses ▫ Lack of cement production in some countries▫ Significant increase in the size of the construction industry▫ Housing starts

Characteristics of Lebanon’s cement sector

• Future evolution of cement sector in Lebanon: The success of the Lebanese cement industry depends upon the long-term restoration of peace and stability to the country. The short-term outlook is for slow economic growth; the domestic consumption of cement and steel is not likely to change substantially. Rising cement demand in Syria may provide opportunities for exports.

Characteristics of Lebanon’s cement sector

14

COMPETITION OF CEMENT INDUSTRYPorter’s 5 Forces

SUPPLIERS

BUYERS

RIVALRYAMONG

EXISTING FIRMSMEDIUM TO HIGH

THREATHOF

SUBSTITUTESLOW

THREATH OF NEW

ENTRANTSHIGH

Bargaining power of supplierMEDIUM

Bargaining power of buyersLOW

Cement supplier: MediumCement production depends on the following suppliers:

-Energy suppliers will have a significant negative impact on the production cost due to the increasing in petroleum price.

-Supply of limestone, the main ingredient of cement, is effectively inexhaustible. Industrial waste can be used as recycled material.-

THREAT OF SUBSTITUTES: Low

- There are no adequate substitutes for cement for the making of concrete. - There are several substitutes for concrete: Steel, Wood, asphalt, brick, metals, glass, and plastic.

BUYERS: LOW the current demand is huge

19002000210022002300240025002600

2004 2005 2006

2185

2342

2557

(mt)

• Global cement demand has enjoyed robust growth in recent years.• China is leading this growth with the population of of 1.3bn and rising as well as increasing wealth and vast infrastructure requirements.• Middle East region presented the large growth of building and construction industry due to the economic booms, re-construction after war and revenue from oil industry– which is the enormous motivation for cement industry.

RIVALRY AMONG EXISTING FIRMS: medium to high

• Existing firms are trying to expand their capacity.

• Compliance of Standard barrier from governments enforce the improvement of quality and the application for higher technology

THREAT OF NEW ENTRANTS: Medium to High

• Rise of emerging market producers, especially China

• Egypt with very low production cost

Segmentation of competitive groups• Competitive groups can be divided byDemand: public (such as roads) and private

(such as building and housing construction)Location: domestic (Lebanon), Middle East

(Syria, Israel, Iraq with the same frontiers), Southern Europe, Greece & Turkey, Western Africa

La CN will compete local cement makers and international competitors (Holcim, Lafarge,…)

La CN is an local Lebanese producers and has exportation activities to Iraq & Syrie

Local makers Global competitors

Joint venture (local + international)

Serve for demand

Private Public & Private Public & Private

Location Local Local and regional

Size Modest Big Medium and rising

Financialresources

Limited familial capital

Strong financial supply

Strong financial supply

Prior managerial “levers” to stick to the dynamics of the sector

• Moving towards a qualitative and quantitative leap in terms of design capacities

• Effort to contribute to the reconstruction process, to build new high -capacity production lines to reduced the price, stop or dispense with old lines of low productivity and high cost.

• Lafarge planned to reduce production costs by substituting petroleum coke for diesel. Egypt access to natural gas.

• In addition to other building materials, manufacture various types of gray and white cement.

• The entrance of partners from international companies, which currently own more than 22 % the Arab cement industry

• Demonstrate remarkable presence in inter Arab trade & in international markets, particularly Egypt, Jordan, Lebanon & Saudi Arabia.

KSFs of cement sector in Middle East• Power: electricity & a variety of fuels.• Natural resources: Cement production is one of the few

natural resource-based industries where Lebanon has a given advantage. The country has an abundant supply of high-quality limestone, convenient deep-water ports and a wealth of know-how

• Capital Intensity: Profits were very high during the last two years. Large facilitates granted to investors by Arab and international financial institutions. The availability of huge financial surplus at the existing cement companies and investors.

• Production Technology and Plant Modernisation The aspiration of new projects or planned factories to replace old production lines with high-capacity production lines (1Mta at least), which increases and doubles current capacities

Competitive Advantages of “La Cimenterie Nationale”• Strong, talented team of top management led by Pierre Doumet

(CEO, owner) who possesses high level of technical knowledge & management skills.

• Excellent logistic facilities.• Certified Quality (ISO 9001) and Environmental Management

Systems (ISO 14001).• Certified products according to Local & International Standards

(EN & ASTM).• Low production cost products with leading brand name and top

quality in Lebanon.• Cement consumption rates increased in most Arab countries,

particularly in the GCC countries.

Internal Analysis

Internal Analysis (con’t)• Strengths

- Talented top management executives led by Pierre Doumet (CEO, owner), Danny (CFO & chief administrative), Adib (bulk export sales manager), Ghassam (product quality & environmental respect & personnel security manager)- Despite its family business status, CN embraces an open structure: personnel are given strong dose of responsibility, thus, they treat the company like their own strong cohesion team, able to resolve any problems arisen- State-of-the-art technology with rotary kilns fired by pet coke, which helps reducing 30-40% cost of energy compared to other competitors using traditional fuel oil- Products of top quality with more 90% clinker as the main constituent, conforming to Lebanese as well as European and American industrial norms (EN & ASTM)

Internal analysis (cont.)• Strengths

- Large range of products (normal portland cement, moderate sulfate resistant cement, blast-furnace slag modified cement, blast-furnace limestone modified cement)- Have its own electrical generators, thus helps it avoiding the frequent power outage prevailing in Lebanon, due to current distribution monopoly from “Electricite du Liban”.- High productivity leads to lower production cost per ton ratio.- Proximity to major transportation axes (shipments to Turkey, Italy, and Southern France via ships, to Syria and Iraq via trucks)- Servicing maritime docking & loading station

Internal Analysis (cont.)• Weaknesses

- Modest size in comparison with top 5 global MNC cement maker

* Lafarge group, French base: 155 Mtons of cement in 2007. By December 2007, Lafarge took over the Cement division of ORASCOM group, Egyptian base, at the cost of 10 billion Euros

* Holcim group, Swiss base: 145 Mtons of cement in 2007* Cemex group, Mexican base (non-existence in the Middle-

East & North Africa & Mediterranean): 95 Mtons of cement in 2007

* Heidelberg group, German base: 85 Mtons of cement in 2007

* Italcementi group, Italian base: 50 Mtons of cement in 2007. Largest cement producer in the Mediterranean

Internal analysis (cont.)

• Weaknesses- Its largely familial capital prevents LN from benefiting much more substantial financial resources. This also limits LN to expand into a global network of commercialization

Strategy Formulation• Major activity in local market and Gulf region• Cement export to Arab countries especially to Syria and

Iraq.

Strategy Formulation• Competitors progressively enlarging geographic frame

when setting up new factories in Saudi Arabia, UAE, as well as in Jordan, Syria and Egypt.

• Takes into consideration the accession of new markets as Cyprus, Spain, Southern France, Italy and Africa due to its efficient logistics.

• Maintain exportation towards Syria and Iraq by road with high speed routes.

• Upgrade capacity to meet a rapid growth in regional demand and projected market trends due to competitive advantages.

Recommendation• Financial solution: Strengthen capital- Joint-stock model.- Joint-venture with local companies at regional

level.- M&ABetter cost management- Set up plant in Egypt to benefit lower labor cost.- Energy cost control: using alternative fuels to

reduce cost and environment impact

Strategic solution

Product diversification• Upgrade production and storage capacities• Product diversification at geographical level:

concrete, aggregates