What drives Holcim’s strategy?

What drives Holcim’s strategy?
Published: 06 February 2006

"I think everybody is very positive about India. There’s substantial further growth expected in the coming years," said Mr Markus Akermann, chief executive officer of Holcim, in a conference call on January 30, after the announcement of the deal to buy a controlling stake in Gujarat Ambuja Cement. Last year, he had detailed Holcim’s strategy to enter the Indian market when it announced its strategic alliance with Gujarat Ambuja Cements and a decision to buy a 50 per cent stake in ACC. Here are some edited extracts from the views expressed by Mr Akermann as reported in The Hindu:

I would like to describe the overall strategic thinking that drives our investment rationale. Our investment focus is essentially driven by market maturity considerations. Let’s start with the emerging markets. These are typically cement-focused, with some 80-90 per cent of sales in bags and with only around 10 or 20 per cent of cement being sold loose.

Cement is sold directly to the final customer, such as the local house-builder, commonly through dealer networks. But there is no professional ready-mix industry and no sophisticated downstream activities. Essentially, cement is branded and sold by the bag.

India fits into this category. As markets gradually develop, more sophisticated demand patterns emerge and we see the emergence of value-added products, such as ready-mix and pre-cast concrete. The markets of Eastern Europe or Latin America or other Asia Pacific markets, for instance, fall into this category.

Now you ask, why India? It is not only the world’s second largest market with nearly 120Mt of annual demand but it is growing fast from a relatively low base still. The industry structure is improving with the top five players now controlling over 50 per cent of capacity and with little or no new capacity coming on stream in the next two years.

If two drivers of cement demand are population growth and per capita GDP, India benefits from both. India will give our emerging market portfolio in Asia Pacific a significant boost. We will gain a strong foothold in a market that is larger than Europe, with a population of over one billion people and growing. We will achieve instant coverage across the whole sub-continent.

With regard to the capacity expansion, there will probably be de-bottlenecking projects. There will be capacity addition brown-fields. I do not see a huge investment boom coming, but look at a market that is growing by eight per cent and it’s clear that you have to add capacity. We are used to that. We did that in Mexico. Every three years we had to build a new kiln, that’s normal in emerging markets. Gradually, the prices are moving into a reinvestment level. We believe also that with the very high capacity utilisation in the Indian market and with the ongoing consolidation process, these prices will remain at least on a reinvestment level. We believe we too can add value with our expertise in alternative fuels and raw materials, procurement, energy supply and sourcing, for example, and we see opportunities to improve efficiencies and returns.