Globalisation and Strategic Behaviour of Cement Companies Essay

Introduction

This essay investigates the impact of globalization on the strategic behavior of cement manufacturing companies based on the concepts of globalization and the supply chain management concepts and focuses on how HeidelbergCement and JK Cements operate in the industry in India. The paper studies the strategic responses of local companies including JK Cements to the forces of globalization and the influence on their strategic behavior (Carrillo, 1994). Govindarajan and Gupta (2001) define globalization as “the process of integrating different societies into an immediate relationship” (p. 34). Smith (1990) defines strategic behavior as “the specific response of a certain organism to a specific stimulus or group of stimuli “(p.25). Smith (1990) defines supply chain management as “the sequence of processes involved in the production and distribution of a commodity” (p.2). Smith (1990) agrees with Carrillo (1994) who defines globalization as the “creation and growth of globalized activities, that is, phenomena that transcend national borders, extending across, leveraging, and moving between many locations around the globe simultaneously” (p. 25).

Globalization is a force that works within a network of firms. The response to the forces that exist in the network influences the strategic behavior of companies including JK Cements in India and HeidelbergCement. The stimuli are based on the supply chain management systems, challenges, and competition existing in the cement manufacturing industry and distribution networks. Carrillo (1994) defines a supply chain as a “system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer” (p.3). According to Carrillo (1994), supply chain “activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer” (p.6). According to Smith (1990), the system theory of thinking regards globalization as the composition of entities interlinked in a network, which interacts to achieve a certain goal. The entities in the network include local and international companies operating in the cement manufacturing and supply industry.

Globalization is a concept that enables speedy interconnection by transforming the spatial relationship between entities of a system to relate with higher intensity and velocity. It is a social process, which removes geographic and social-cultural constraints and allows for interactions between different entities to transform them based on a shared behavior (Govindarajan, Gupta, 2001). Globalization integrates powerful transformative forces, which has led to a massive shake-up of the internal and external organization, structures, and economics of the local and international firms (Winch, 200). Such supply chain systems are complex and span the entire globe, which consists of different companies interacting to achieve a common goal (Xueming& Bhattacharya, 2006). It is the complexity of the global supply chain network and the strategic techniques of managing the network that depends on the supply chain variables, such as the demand for cement, forecasting, price fluctuations, order batching, and increased competitiveness (Buckley & Ghauri 2004).

Aim

This study aims to investigate the impact of globalization on the supply chain network and how the concepts influence the strategic behavior of cement-producing companies and the way they manage their projects.

Globalisation and Supply Chain

Price and Newson (2003) and Hunger and Wheelen (2003) have discussed extensively globalization as an emerging force that has shaped the thinking and behavior of companies manufacturing and supplying cement in the construction industry. Buckley and Ghauri (2004) have argued that the economics of globalization caused significant challenges in thinking of companies in deciding on who are to become global players in the production of cement. In this case, regional differences in trade tariffs and investment laws, as well as the cost of capital investments in the cement industry have influenced the thinking and behavior of the firms to disequilibrium. Dikmen and Birgonul, (2003) and Ofori (2000) have discussed the impact of globalization on the engineering sector to be directly related to ethical, cultural, environmental, political, and economic issues.

Globalization has forced companies to opt for mergers, acquisitions, and strategic shareholdings to complement their weaknesses and ensure that those companies remain competitive, by factoring their synergies into the supply chain network (Raftery et al., 1998). In this case, the strategic thinking of the company is to successfully integrate new firms into the supply chain network by removing the risks and uncertainties associated with integrating the new firms. Companies find it challenging to use the latest technologies and acquire raw materials for the production of cement at low costs. HeidelbergCement shows that trained personnel are critical in making strategic investment decisions, which has made companies opt to make formal contracts in the management of the relationship between the firms in the network. The decisions enable the companies to avoid spending millions in new capital investments by serving the target markets using existing supply chain channels. That reduces additional costs of transporting building material, such as sand and cement, because the supply chain network is merged with the level of demand for cement (Buckley & Ghauri 2004).

HeidelbergCement Company

Some companies consider globalization as a threat while others view the same as an opportunity to expand and exploit new and emerging markets (HeidelbergCement 2009). According to HeidelbergCement (2009, p.15), the company has taken advantage of globalization and established more than 71 cement manufacturing plants in 40 countries with an output capacity of 118 metric tons of cement a year. The company has the objective of becoming the leading manufacturer and supplier of high-quality cement in the world. It sets an objective to manage quality, which is a critical element in the supply of cement (Buckley & Ghauri 2004). Buckley and Ghauri (2004) have established that cement-producing companies think of strategies to become competitive by exploiting the opportunities available in the global market.

The limitations caused by political, geographic, and economic forces have turned into opportunities that have compelled companies to globalize their operations. Sometimes the company incurs legal costs when they violate the terms and conditions of the contract signed between the companies, which have joined the supply chain network (HeidelbergCement 2009). Typically, other costs arise because of the unforeseen restructuring costs when companies fail to identify the right company to form a partnership with for joint venture participation in terms of regional competition (HeidelbergCement 2009). The strategic objective, in this case, is to effectively carry out financial acquisitions to achieve the intended growth targets, cost savings, strategic goals, and economies of scale in a competitive environment. Such legal issues result in very expensive penalties for new players in the industry and compel them to make out-of-court settlements (HeidelbergCement 2009).

The behavior of Industries

According to HeidelbergCement (2009), regional differences in trade tariffs and the cost of capital investments in the cement industry, which have regional differences in investment laws, influence the thinking and behavior of the firms to disequilibrium (HeidelbergCement 2009). One example is JK Cements in India. JK Cements is a local industry player in India that has developed a strategy to respond to the challenges brought about by HeidelbergCement, which is a new player in the local market. In theory and practice, the JK Cements has embraced the theory of the competitive advantage of a firm and the resource-based approach to responding to the forces of globalization and the challenges HeidelbergCement brings into the local market. According to Buckley and Ghauri (2004), local firms take the challenges by aligning their strategic behavior, such as is evident with JK Cements by developing dynamic capabilities in the value chain within the local market, cost and product differentiation, customizing the products to suit the local market, and ensuring all opportunities available are optimized to the competitive advantage of the firm. The firms formulate responses, which are situation and environment specific to compete with firms such as HeidelbergCement in their value chain networks.

Global multinational companies such as HeidelbergCement strive to enter the local markets where they are viewed from the perspective of threats of new entrants by identifying existing opportunities and acting as change agents where local companies have not specialized in. Such strategies include purchasing rights to emit gases through third parties or making certain changes in the company policies that govern the emission of greenhouse gases. However, such actions result in additional costs which, when passed on to the consumer, lead to an increase in the cost of cement (Buckley & Ghauri 2004). Local companies have naturalized their operations with the laws of the home country while it becomes a challenge for HeidelbergCement to comply with different carbon emission laws of India. Examples include the 2009 North American carbon emission laws legislated under the US Environmental Protection Agency and the provincial laws, which govern the emission of greenhouse gases (HeidelbergCement 2009). The company has made initiatives involving the Canadian provinces law to reduce the emission of greenhouse gases into the environment for cement manufacturers. In this case, Canadian regulations impose taxes on emissions per metric ton of carbon dioxide, and the tax is likely to increase. Here, cement manufacturing industries in the world are some of the greatest consumers of energy and emitters of greenhouse gases (HeidelbergCement 2009). Changes that are brought about by globalization are inevitable, and HeidelbergCement has realized the need for diversification in the manufacture and distribution of cement.

While HeidelbergCement strives to address the technical and ethical challenges, JK Cements finds cultural issues an added advantage because the company operates in the local environment. HeidelbergCement is compelled to focus on value-based sourcing for raw materials and reorganize the supply chain management to optimize efficiency, innovation, and learning (Winch 2000). The competition between HeidelbergCement and JK Cements is for resources and financial capital, which is available in India and regional markets. HeidelbergCement takes the strategic response further by making acquisitions and moving the capital to invest in India to compete with the indigenous companies in an expensive process aimed at driving out small companies. The strategy has made JK Cements’s operating environment extremely difficult. The challenges happen within the context of the local supply chain management network, which covers the acquisition of raw materials, the manufacturing process of cement, product segmentation, industry dynamics, and the cement distribution networks (Carrillo 1994). The strategy is defined by cost drivers and the need to overcome the challenges associated with the distribution of cement in the market (Hooper & Nicol 2000). In this case, evidence of the impact of globalization on the supply chain network on the strategic behavior of HeidelbergCement and its management of the production and distribution of cement is demonstrated in the problems experienced by the company and its subsidiaries (Slaughter & Shimizu 2000).

Cost effectiveness becomes part of the process during the preparation, transportation, and storage of raw materials after materials have been crushed and processed in the preparation of cement (Carrillo 1994). In the supply chain management cycle, cost effectiveness becomes a critical component when a company creates a significant number of distribution chains all over the world (Carrillo 1994).

JK Cements uses traditional sources of raw materials in the production of cement to address the increasing need to need for cheaper sources if raw materials. Some of the examples in India include the use of limestone and coal. The challenge here is that coal is of low quality, and there is a high cost driver linked to the price of coal and its effects on the environment (Collins 2002). HeidelbergCement uses alternative sources of raw materials to produce clinker, the most important component in the production of cement. The company’s core climate strategy is to increase the use of alternative materials, which are by-products from other industries. On the other hand, JK Cements uses the most recent technologies to reduce greenhouse gas emissions into the environment.

Analysis of the company strategy

The challenges and issues related to globalisation have compelled HeidelbergCement to strategise on how to safeguard its market position in the long term. The company has adjusted the co-operate strategy by broadening the scope of operations from the core business of cement manufacturing to dealing in aggregates for the preparation of concrete. In addition to that, the company has established and integrated a strong raw material base into a broad distribution channel with ready to mix concrete and other by-products necessary to produce cement and concrete. The strategy is to diversify the operations both horizontally and vertically to become a global player in the acquisition and provision of raw materials for the production of cement. In addition to that, it has been established that the company’s strategy focuses on a dual growth strategy because of the need to make value creating efforts when processing natural resources based on the behaviour and characteristics of different markets.

The company’s strategy, when entering new markets, is to concentrate on the production of cement before developing the market for cement aggregates. The focus on the production of cement allows the company to use the most recent technologies to enable it to achieve competitive growth by focusing on external and internal growth. Another strategy is to focus on global expansion and diversification by focusing on the mature and emerging markets to address regional and local fluctuations in the demand for cement. It is possible for the company to realise economies of scale by ensuring efficient allocation and utilisation of resources. According to HeidelbergCement’s strategy, the process of continuous benchmarking enables the company to guarantee the provision of high quality product portfolios to enable future improvements of its operations. The critical element is to establish a well-balanced geographically distributed customer base.

Globalisation and company behaviour

The problems experienced because of globalisation for cement producing companies influence the behaviour of the companies in their operations in the production of cement and the strategic management strategies (Collins 2002). The strategic problem includes making the right decisions on the cost of production for firms which concentrate their manufacturing activities in one location. Globalisation compels the companies to create cost effective distribution channels for distant markets, which makes it expensive for foreign firms competing with local firms (Collins 2002). The challenges associated with localised production of cement include supply chain logistics, inventory management costs, and large scale supply chain problems. HeidelbergCement provides a good example of a company that has delocalised its manufacturing activities in over 180 cement producing centres, and demonstrated the concept of physical disintegration of the production of cement. The company demonstrates the growth and integration of the supply chain in its manufacturing activities. Globalisation is the underlying cause for HeidelbergCement’s use of a cement manufacturing approach near the target market to optimise profits and reduce the supply chain costs. HeidelbergCement is one of the leading companies, which have integrated the factors of low cost and technology production into its thinking to increase its competitive advantage in the market (Smith 1990). A critical analysis of the forces of competition in the engineering field shows that firm no longer depends on the traditional factors of production to gain competitive advantage over its rivals operating in the same market, but focuses on continuous innovation for its products, efficient communication, good transport infrastructure, high levels of skills, as well as a supportive working and enabling environment (Ghemawat 2001).

When the distribution points of the supply chain are dispersed, it increases the complexity of coordinating the supply chain. Research shows that most of the manufacturing companies in Europe do not manufacture cement at home, but have decentralised or outsourced manufacturing into other destinations or companies in the world. Some of the top destinations for engineering outside North America include China, Eastern Europe, India, Western Europe, and South Eastern Asia (Manavazhi & Adhikari 2002).

Another challenge that has shaped the thinking of companies because of globalisation in the supply chain is the pursuit of entering into new markets (Wang, Tiong, Ting & Ashley, 1999). It has been established that markets are diversified and companies operating in the global market struggle to create new markets for their products while giant engineering companies have already established strong supply chains with many of them having assets in foreign countries (Manavazhi & Adhikari 2002). HeidelbergCement has its assets spread in over 40 countries in the world and is still predicting a strong market expansion to new destinations. The economic component of the global market has made the company to emphasise on the need to diversify its products through innovation (Price, Ganiev & Newson 2003; Manavazhi & Adhikari 2002).

Cultural challenges

HeidelbergCement finds it difficult to manage the complex global network in markets with different cultural orientations in the supply of cement. The view of the company has to be shaped by the cultural issues that arise in each of the countries the company has operations to ensure business sustainability (Smith 1990). Cultural issues can impede the movement of cement and its products in each region where the company operates (Wilmot 2001). It is important for the company to develop a strategy to counteract the effects of the cultural differences to establish strong working relationships to avoid loss of business, money, or any misunderstanding that might arise so that to ensure business continuity (Smith 1990).

Legal Challenges

HeidelbergCement (2009) shows that HeidelbergCement operates in over 40 countries, and each country has its own legal framework, cultural values, tax laws, and business rules that the company has to observe (Govindarajan & Gupta 2001). A typical example includes the anti-trust fines levied upon the company and its subsidiaries by the German Federal Cartel Office (“FCO”) in 2003 for violating the alleged quota sales agreements and the infringement of the European Union competition laws for several years in Southern Germany and other countries including Belgium, Poland, Hungary, Indonesia, and India (HeidelbergCement 2009). A number of legal proceedings in the courts of other countries are still to be determined; thus the company cannot predict the outcomes. Another cartel that has influenced the behaviour and thinking of the company is the Deutschland GmbH, which was fined circa 12.4 million for the introduction of the silo lease fee for all the dry mortar products in 2006 (HeidelbergCement 2009; Xueming & Bhattacharya, 2006).

Environmental issues

Global warming has been associated with the use of energy and the release of by-products which include greenhouse gases that are emitted as a result of the production and transportation of cement. HeidelbergCement takes into consideration environmental issues in the global supply chain of cement in its distributed network (HeidelbergCement 2009). The upstream and downstream supply activities of cement are compliant to the environmental laws in the countries the company operates (Wang et al. 1999). It is critical to note that cement manufacturing faces a number of problems associated with the environment because of lack of a universal strand for regulating the production of cement. The problems include governmental regulations with some of the emerging economies, such as China, taking the lead in the production and consumption of cement. Players which shape the behaviour of companies include India, which produces 5% of the global cement (HeidelbergCement 2009).

Ethics and social responsibility

The production of cement raises issues of cooperate social responsibility by raising the moral question on what is right and what is wrong. That creates a dilemma for the local and international markets on how to react to those issues. Typically, cement is one of the critical components used in the construction industry, and its production brings about new challenges, such as the issue of cooperate social responsibility and ethical issues in a multicultural environment. The removal of barriers to the flow of goods and the rapid changes in innovation and technology has combined to make globalisation a reality (Cacioppe, Forster & Fox 2008).

Globalisation theory /technical analysis

HeidelbergCement has gone to the drawing board to think of new methods to manufacture cement and uses globalisation as a tool to gain competitive advantage. The core technical issues for HeidelbergCement are to diversify cement manufacturing capabilities, which in theory is referred to as product differentiation. HeidelbergCement has over 71 cement manufacturing industries in over 40 countries (Hunger & Wheelen 2003). HeidelbergCement has moved the cement manufacturing facilities nearer to the consumer and where labour is cheaper and already available. Globalisation has influenced HeidelbergCement’s thinking and behaviour in the direction of cost effectiveness. In theory and practise, moving the production location near the market reduces the cost of production and distribution of cement (Cacioppe, Forster & Fox 2008). Local and international firms define their target markets based on the ability and efficiency of the supply chains systems.

From a theoretical point of view, the challenge HeidelbergCement is experiencing has transformed the system identity of the firm, which is the supply chain network to work in different dimensions, influencing HeidelbergCement’s strategic behaviour to adopt a supply chain structure to address the needs of the company so as to remain competitive. Globalisation has shaped the strategic behaviour of HeidelbergCement and JK in response to geographic, economic, political, and sociological, communication, and psychological forces. Globalisation is a powerful force that has forced JK Cements to take a new look at ways of doing business. For example, HeidelbergCement and JK Cements cement manufacturers consume large amounts of energy and emit significant amount of greenhouse gases into the environment. HeidelbergCement is compelled to use alternative sources of energy to meet the criteria set for the emission of greenhouse gases and JK Cements uses locally available materials and is strives to use new and cleaner technologies to supply the required energy (Carrillo 1994). The theories of interdependence and political realism play significant roles in the internationalisation of business processes and markets for HeidelbergCement and JK Cements (Hunger & Wheelen 2003; Dansoh 2005).

Discussion

Globalisation is a force that has shaped the thinking and behaviour of companies operating in the cement manufacturing industry, and their supply chain management systems. When entities combine efforts and work together on a single network, interconnection between the entities exists between to forms a chain, typically referred to as supply chain system. The study has established a significant number of factors, which shape the strategic behaviour of companies operating in the cement industry. The factors, as already mentioned, make positive contributions to the strategic performance of the companies, by improving their competitiveness in the market. It is evident that the strategic thinking of the companies are shaped by a combination of the supply chain and globalisation concepts, enabling the companies to optimise product delivery over a large network of suppliers and manufacturers of cement, and to ensure that cement is made available at the right time to the right place. In addition inventory management practices are shaped to suit the needs of the companies to create a responsive supply chain system, which can fulfil customer requirements at the right time and in the right conditions. Three forces which come into play. Those forces include globalisation, supply chain networks, and behaviour of cement manufacturing industries. Globalisation makes industries think of strategies to overcome competition and gain a strong position in the market.

Conclusion

In conclusion, different concepts explain globalisation, and in the context of this study, globalisation is a force that is based on system theory of thinking where different activities are done by different entities of a system, which work toward achieving a common goal in an interconnected environment. The result leads to the concept of supply chain, which combines efforts to influence the strategic behaviour of the companies operating in the global environment. The concepts when combined with the source of the strategic behaviour that shapes the thinking of HeidelbergCementcement manufacturing and distributing company. The resulting strategic behaviour, which shapes the thinking of companies, includes the formation of strategic supply chains lines for optimal use in the distribution of cement. The behaviour of companies shows that globalisation indeed functions as a horizon of expectations and spaces of experience that are influenced geographic, economic, political, sociological, communication, and psychological elements. The theoretical elements underlying globalisation function in the context of the transference of the change processes which starts at the unit level and work on pre-existing units to achieve a targeted common goal.

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