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Impact of business enviornment (PEST) factors on cement industries


Economic Environment
Income growth
==========================================
Rise in income of people has resulted in more demand for residential housing units and commercial complexes. This is a demand driver for the cement industry.

Entry of Multinational companies

Booming demand for cement has attracted global majors like Holcim, Lafarge, Italcementi, Heidelberg cements. As a result, we can see a trend of consolidation in the cement industry to capture the market. Some of the key benefits accruing to the acquiring companies from these acquisition deals include:

Economies of scale resulting from the larger size of operations.

Savings in the time and cost required to set up a new unit.

Access to new markets.

Access to special facilities / features of the acquired company.


The relatively smaller and weaker units are finding it difficult to withstand the resulting competitive pressure.

Another important demand driver for the cement industry is the following ongoing infrastructure development activities.

Construction of SEZs.


Construction of new Airports and Ports

Railway Expansion( Railway Tracks, Platforms, Metro rail project, freight corridor project)

Five year plans and Other projects

Construction of bridges/sub way/flyovers

Power( construction of thermal/hydro/nuclear plants etc)

Educational Institution( schools, colleges, institute of higher
learning)


Hospital

Housing for destitute( IAY etc)


Tourism

IT Parks and service providing places


Natural Environment

 Locational Variables
==========================
Cement is a product of high weight intensive and transporting it over larger distances can be uneconomical.
While deciding on the location of plant there is tradeoff between proximity to raw materials sources and proximity to the market.

* Environmental pollution
============================

Air pollution (CO2, SO2) is a major problem in cement industry and also
Increases 3% global warming due to heat and carbon related emission.

For control of dust and air polluting emission, the Central Pollution Control Board developed the emission standards to cement industry in 1986. Adherence to these standards requires that cement industry has to incorporate low emission technologies which increases total cost of production.


The Role of Power
==================================

The cement industry is power intensive. It requires 110-120 units of power per ton of cement produced. Power accounts for 15-20% of the variable cost of production.


Insufficient supply of power is big a problem. As a result companies are setting up captive power plant with the cement production unit which meets 60-100% power requirement. This increases investment but reduces the production cost.


1 million tons capacity plant with its own captive cost Rs. 350-400 crores which makes the cement industry high capital intensive.


Recycling of waste
==================================

Captive plants usually require coal as fuel. Due to invention of new technology municipal waste are used as fuel to reduce the use of coal.

The waste material of power plants, fly ash, is used as the source of silica for cement industry. Both the approaches decrease the pollution and production cost.
Demographical Environment:

World wide population growth
===========================================

Population is growing around the world. More Housing units are required for
dwelling purpose. Increase of job opportunity and fulfill the daily requirement
new commercial complexes are required. These increase the consumption of
cement for new constructions.

Change of Household patterns
==============================

Migration for job and job pattern evokes nuclear family system which creates
more demand of Housing units.

Urbanization
==============
People are migrating from rural areas to urban areas for better opportunities.
This also resulted in more demand for residential housing units and commercial complexes.

Socio - Cultural Environment
==========================================

 Community wellbeing.

The cement production process creates disturbances, e.g. , noise, dust and also pollution which can directly affect local people. Production sites may damage agricultural, recreational and other forms of land use.

To demonstrate that they are concerned about local people and that their operations are safe and environment friendly, company can engage in community wellbeing programs. e.g. supporting education, health care, sanitation, etc.

Political and legal environment
===============================

 The limestone and coal makes up to 55-60% inputs for the cement industry. The cement industry is dependent upon the government for the supply of lime stone as raw material and coal for their captive power plant.

Accordingly, government plays major role in distribution of raw material procurement. Change of Government may create problems in acquiring new source of raw materials.

 Differential excise duty structure for large and mini cement plants.
e.g. An excise duty of Rs. 600 per tones if the retail price of cement per 50 kg bag exceeds Rs. 190 and an excise duty of Rs. 350 per tone if the retail price is less than or equal to Rs. 190.

The differential excise duty structure announced for a mini cement plant (an excise duty of Rs 370 per tone if the retail price of cement per 50 kg bag exceeds Rs 190 and an excise duty of Rs. 220 per tone if the retail price is less than or equal to Rs. 190) also have a impact on the sector, as producers will be able to pass on this increase in excise duty to end-users.

Current demand-supply conditions enable the cement industry to counter higher excise duty by passing it to the end-consumer.

 Government clearance on infrastructure and development projects. (SEZ, Commercial, housing complexes, etc.)

All the decisions are taken by the government for clearance of SEZ projects and even for commercial buildings, housing complexes permission is to be taken from Government.

Conclusion
=====================

 Encourage sustainable development related innovations in product development, process technology.

 Continuously improve and make more widespread use of emission control techniques.

 Contribute to enhancing quality of life through local stakeholder dialogue and community assistance programs.




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This work is licensed under a Creative Commons Attribution 3.0 Unported License,Author,2009.


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