How to analyse an industry? Industry Analysis! Cement Industry (Porter 5 forces model)

 

Porter 5 Forces Analysis

Cement Industry (India)

 

India is the second largest producer of cement after china. Total production of cement is approx 350 mn tonnes since the past couple of years. Cement industry is a kind of 'cyclical industry ' which is dependent on expansion and contraction of the economy. Let's take a look how it depends.

For example if the economy is growing only then there will be construction activities like Housing construction, Commercial Constructions or Industrial Constructions. Government initiatives are also helpful for the boost in this sector. If we pay attention, the government has taken initiatives by allowing expenditure outlay of approx  25,000 cr out of which 13,000 cr is allocated for the project of 98 smart cities.

 Which is somehow creating opportunity in the sector. This sector is majorly controlled and supervised by the government which interferes with its price. It is a kind of concentrated sector as we can see only large 20 players contribute about 70% of total production.

But for future prospects we have a great opportunity in this sector as a major population of India lives in rural areas, also their houses are not strongly constructed with cement but made up of weak materials and with passage of time we may look at development there.

To understand how to analyze the cement industry by practically applying the porter 5 forces model please watch the video.

Practical Application

1	Heavy Capital Requirement ?
2	Economy Of Scale (Can Business produce High volume with Lower Cost) ?
3	Business Differentiation ( Which make product unique) ?
4	Low Switching Cost (Switch in new technology like. Windows to android) ?
5	Brand Focused Industry?
6	Ease Of Distribution channels ?
Threats of New Entrants (15%)
1	Large no.of wholesaler and retailers buyers (forces business to make prices low)?
2	Substitutes products are available ?
3	Buyers are sensitivity to price ?
Bargaining Power of Buyers (20%)
1	Limited suppliers ?
2	Scarce resources (Raw material etc. easily available) ?
3	Switching supplier cost high (Ordering Cost, Transportation cost etc.) ?
Bargaining Power of Suppliers (20%)`
1	Is there substitute product is available which can easily substitute our product ( Eg. Tea-Cofffee, Film cameras replaced by Digital Film cameras) ?
Threats of Substitute (20%)
1	High No. of competitors ?
2	Slow Industry Growth Rate ? (Causes rivals to fight harder to maintain Mkt. Share)
3	No Product Differentiation ?(Which helps them insulate by Price Wars)
4	No Patents, Copyrights, Trademark ?
Rivalry Among Existing Customers (25%)

Investor Choices