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ILK Cement Company Analysis Essay


In the contemporary business world, many industries continue to experience very high level of competition. This has posed a great danger especially to the new organizations venturing in the market. The cement industry in the US is one of the main industries with a record of increased level of competition where each organization is determined to win the largest share in the market.

The cement industry in the United States forms one of the strongest economic bases for the country. United States ranks among the top cement manufacturers all over the world (Economy Watch par 4). Other leading manufacturers include India and China. There are 39 cement companies, which are currently operating in the United States (Economy Watch par 2). These companies have 115 plants distributed in the 36 states in the country.

The largest company in the US cement industry contributes a significant fraction of the country’s cement production. Large-scale investment defines the US cement industry due to huge capital requirements. This is because the industry is more effective in large-scale operations. It requires a significant amount to install the fixed capital requirements. Large capital requirements continue to lock potential investors from entering the industry.

Despite of the high risks associated with investment in the cement industry in the United States, there are many opportunities available. A new factory in the industry can significantly improve on its performance in case it utilizes the available opportunities effectively. However, the management will determine this. One of the main opportunities available for the company is the unexploited market. There are a number of market opportunities available for the company.

In the cement industry, the issue of environment is very critical. ILK Cement will ensure that all the necessary measures are taken into consideration in order to maintain an environment friendly production process. The adoption of the modern technology that minimizes the level of environment pollution will aid in achieving this objective.

For instance, the factory will guarantee minimum carbon dioxide emissions in all its plants. Therefore, ILK Cement has an opportunity of extending its market networks in such areas. One way through which the organization will exploit such market is by venturing into the foreign market. There are large unexploited foreign markets. These will significantly contribute to the company’s success.

Another advantage of the company is that it has an opportunity to apply the current technology in its plants. Most of the aged companies habitually apply the old technology in their plants. Therefore, ILK Cement is advantaged because it will apply the modern technology in all its plants. The level of technology applied in an organization can significantly affect its performance (Economy Watch par 4). Technological improvement has led to increased efficiency and effectiveness in many organizations (Clark 48).

Therefore, ILK Cement has an advantage over its rivals on the ground that the cement industry in the US correlates with the construction industry. The rate of growth of the cement industry depends on the trends in the construction industry. Poor performance of the construction industry will affect the performance of the cement industry.

However, cement is a compulsory material in almost every form of construction. Therefore, the demand for cement increases with increase in demand for construction. It has been observed that maximum cement consumption in the US usually takes place in October and May (PR Newswire par 4).

The cement industry in the US has recorded a significant growth over the past. The industry recorded a tremendous upward growth since the year 2006 (Economy Watch par 5). The incremental growth of the cement industry continues to surge with prospects of high profitability by the cement companies. ILK Cement intends to grow along with the industry.

In order to achieve this growth, ILK Cement intends to extend its market in the global market. This will include joint ventures as well as foreign acquisitions. Through market acquisition, the company will be in a position to enjoy the benefits of the already developed brands. This will significantly contribute to the growth of the organization. Through acquisition, ILK Cement will also be in a position to expand its market faster than while venturing into a new market independently.

The cement Industry requires a significant amount of initial investment. ILK Cement intends to use a total of about $450 million as its initial investment in the industry. This will cover all the expenses required in installation of the necessary equipments. This amount of initial investment is high because the company will apply the recent technology will be relatively expensive.

As already noted, there are several players in the US cement industry. Some of the main competitors in the industry include Aggregate Industries US, Texas Industries, CEMEX Inc., Lafarge North America and Ash Grove Cement Company. These companies contribute to a significant fraction of the total US cement production. They are involved in tough competition with each other where each aims at acquiring the largest market share.

The costs of transport in the cement industry are usually very high. The transportation costs for cement are actually larger than its actual value (Clark 52). As a result, most of the companies in the industry tend to cluster in lone region. This is to enable them to minimize their shipping costs in an effort to maximize profits. The target customers will be the construction companies as well as private entities. Therefore, the company will open several stores all over the market to facilitate distribution to customers (Clark 24).

Industry, Target customers & Competitor analysis

Industry Analysis

The cement industry serves an important economic role in the United States of America forms an important part of its economy. The USA is among the top three leading cement manufacturers in the world along with China and India. According to the business analysis, surveys indicate that US has about 40 cement companies with approximately 115 manufacturing plants functioning in 36 states.

The 2005 industry survey reveals that the leading cement manufacturer in the US accounts for 13% of the cement production while the top five companies contribute 56 % of the total production. During the 1980s, many international and local cement companies were established lending to the increased demand for construction and industrialization. This accounted for the rapid growth of the cement industry with profound increase in the prices (Clark 24).

US Cement Industry Production and Growth

The development of the US cement industry depends on the construction industry, which remains an indispensable element that determines the movement of the cement industry. The analysis of cement sales in the US shows seasonality, with most sales recorded during the months of May and October.

The concentration of cement companies within a particular location in the US has been attributed to the high costs of transportation and shipping of cement. Analytical survey shows that about 96% of the total production is transported using tracks.

The cement industry in the US has recorded a rapid growth in the past few years. The tremendous increase in growth and prices of cement is noted to have spun during 2006. This trend continues to spur the industry to date. The forecasts indicate that this trend will continue to be experienced. The government and private sectors have contributed to the increasing rate of growth due to investments in multimillion projects. Currently, fifteen manufacturing plants are under construction.

Some of the companies that have heavily invested in the additional plants include Cemex lnc, Texas Industries Inc, Keystone Cement Co, American Cement Co, Continental Cement Co, and Buzzi Unicern USA. These recently completed and ongoing constructions are thought of increasing the overall production by 112.7 million tones.

The cement industry in the US accounts for a sizable number of labor force. The analysis shows that the industry has contributed heavily to the domestic incomes. However, available statistics show that the employment rate declined by 23% in the last 4 years. The body that that deals with the representation of the US cement industry is called the US Portland Cement Association.

The body was established in 1916 to improve the quality of construction via quality cement products and services. The cement industry of the US undergoes through self-promotion through the facilitation of the Concrete Pavement association. Some of the leading cement companies include the following:

  • Lafarge North America
  • Ash Grove Cement Company
  • Texas Industries
  • CEMEX Inc.
  • Aggregate Industries US

Target customers & Competitor analysis

The company shall target the commercial and small-scale construction companies and corporations as its main customers. This is because investments in the US construction industry are mainly by the government and major commercial and private construction companies. To ensure high sales, the company strives to form excellent relationships and partnerships with all stakeholders in the construction industry in order to boost its sales forecasts by the end of three years.

However, the company feasibility study indicates that the growth of sales will depend on how it will approach the lower-tier customers with previously unmet needs. Although the large construction companies account for 56% of the total cement sales in the cement industry, surveys reveal that small and medium scale construction companies can contribute substantially to the cement sales of ILK Company.

Therefore, the company shall formulate strategies aimed at approaching these set of customers in order to attain high market share by the end of the three years (Market Research par 4).

Company description

ILK shall be formed as a fully incorporated firm registered under the provisions of the US company’s Act. The company shall deal in the manufacture, marketing, and distribution of cement products in the US and international market. However, to begin with, the company projects to target the domestic market before venturing into the external market.

Product/service plan

ILK Cement Company establishes itself as a company dealing in production, distribution, and marketing of cement and cement products. The company is committed to producing high quality cement and cement products. The products produced shall explain the image of the ILK in the market. The company projects to produce approximately 40,000, 50, 000, and 600,000 tons of cement in 2012, 2013 and 2014 respectively.

This projection is established to meet the growing demand for cement in the next three years. The market analysis shows that the sales will increase considerably by an average of 545% per year owing to the strategic marketing developed by ILK cement Company. Apart from the production and sale of cement and its related products, ILK shall design and render consultancy services to the construction industry firms and individuals.

Marketing Plan

Target Markets and Description of the market

The US housing industry has grown at a higher rate for several years. The surveys show that this incremental pace set in 1998, in which the industry recorded total sales of 900,000 sites and single-family homes. The growth was an increase of 10% from the previous year where the industry saw sales of 804,000 units. The analysis show that domestic or single-family sales accounted for over $50million in sales for the US housing and construction industry (Market Research par 3).

The housing survey of 2010 shows that construction activities in the US will remain at a seasonally adjusted annual rate of about 2 million units. It is worth noting that the scenario in the cement industry will go hand-in-hand with the ongoing trend in the construction industry owing to their interdependence.

Market Segmentation- the general contractors engaged in the construction, including new constructions, alterations, and repairs. The table below summarizes the segmentation of single-family housing in the construction industry.

Estimated number of establishments 230,000
Number of employees in the industry 945,000
Total annual sales in the industry $130 million
Average employees per given establishment 6

The company shall target the single-family construction businesses, which have not been exhausted by other participants in the industry. The analysis shows that although companies have made tremendous sales of cement, the single-family construction entities have received minimal attention (Market Research par 2). ILK projects that most of its sales will emanate from small and medium size construction companies and individuals in the US market.

Marketing strategy

The general marketing strategy relies on the following basic elements:

  • Market segmentation plan aimed at reaching all the consumers of cement and its products.
  • Establishing strategic partnerships with established distribution channels to reach all he segments. The media and other promotional aspects will serve to achieve this objective.
  • The company shall set up mechanisms to capture a considerable share of the market for the next three years.

Market Responsibilities- ILK Cement Company is committed to an expansive and in-depth promotional campaign. This strategy will be accomplished on a large scale by implementing an effective, efficient and robust campaign plan. The plan aims at achieving two principle objectives:

Attract a high-quality workforce, which has the desire to achieve individual and company goals.

Attract a loyal set of customers who will always look to ILK for their cement and cement products.

Additionally, ILK will advertise its products and services via the media, yellow pages, radio, and billboards throughout its target market.

Promotion- Apart from the standardized advertisement practices and tools, ILK will gain substantial market recognition through other promotional mediums such as general wear, strategic signs and word of mouth from satisfied clientele.

Incentives- ILK Cement Company will add its customers an extra incentive in order to strengthen its image within the market. This will be achieved through distribution of coffee mugs, T-shirts, pens, and other advertising facets on an ongoing process.

Sales Strategy

The table below summarizes the projected sales of ILK for the next three years.

Market segment 2012 2013 2014
Single-family Housing $135,000 $85,000 $100,000
Other residual construction 65000 90,000 50,000
Commercial construction 100,000 150,000 250,000
$200,000 $325,000 $400,000

Operations and development plan

The company’s main activity is the production of cement and as such, the production department shall be primarily concerned with the production functions of the company. The production manager shall head the production department. The unit will primarily deal with production targets while coordinating with other departments to ensure continuous operations. The production manager will steer the production of high-quality products that match the needs of the market.

Management Plan

The company’s philosophy of management is based on the mutual respect, professionalism and responsibility. ILK shall maintain a highly productive environment through mutual relationship between the management and the rest of its employees and customers. The company’s management is dedicated to ensuring the following :

  • Providing a secure working environment that promotes the health of its employees, customers, and the public
  • Ensuring that genuine, quality and safe supplies get to the market.
  • Encouraging its employees to actively take part in the accident prevention plans, strategies and take individual responsibility their health and other co-workers.
  • Constantly improve the safety programs of the company to minimize risks due to accidents and occupational health problems in a dynamic working environment.
  • Monitoring workplaces, maintaining safe work practice through communicating the firm’s safety rules and regulations.

Management Team

A team of highly experienced and qualified people shall manage the company. The team shall comprise of professionals with work experience in the cement industry for over three years. The general manager, production manager, transport manager, site manager, consultant and the chief engineer shall serve in the top position of the management.

All of the managers will be people with high integrity, demonstrated work experience with results. They will be responsible for the strategic decision-making and implementation in order to achieve the fundamental objectives of the company.

Personnel Plan

The following table summarizes the personnel of the company for the first three years of its operation beginning 2012 to 2015. The summary illustrates the projected salaries and number of employees that will facilitated the growth of the company for the next three years after its creation. The salaries and the number of employees have been reached at based on the assumptions that the government through subsidies will at least control inflation rates in order to leverage the company’s overall expenses.

Table: Personnel plan

Number Title 2012 2013 2014
1 General manager $30,000 32,000 33,000
1 Production manager $15,000 16,500 17,000
1 Transport manger 14,500 15,000 16,500
1 Site engineer $15,000 $16,000 $16,700
1 Human resources Manager 14,500 15,000 16,500
1 Senior project consultant $15,000 $16,000 $16,700
200 General employees $6,000 $7,200 $8,000

Critical risks

The cement industry in the US does not operate without potential risks just like other industries. There are various market, production and distribution risks associated with the cement production.

Additionally, the cement production consumes huge energy while pollution remains one of the most challenges facing it. Although risks are inevitable, ILK Co shall establish a risk mitigating strategy aimed at maintaining a healthy work and public environment. To achieve this task, the company will take an active role in sustainable environment through initiatives and programs aimed at regulating pollution.

The industry continues to experience tight competition from the ever-increasing number of companies entering the cement business. ILK as a participant will face this competition especially from the already established firms such as Lafarge North America, Ash Grove Cement Company, Texas Industries, and CEMEX Inc.

It is worth noting that the industry experiences seasonality in sales, which poses risks of non-continuous profits due to irregular sales.

Analysis shows that the industry sales are favorable during the months of May and October. Since the sales upsurge occurs in only two months, it implies that ILK enters a business with a risk of low yearly sales.

Occupation health is a great challenge to the cement industry due to its nature of products. ILK as a cement company will face the risk of employee illness because of occupational risks arising from the operations of the business. The company projects the production department as the most vulnerable of all the departments in relation to turnover, less productivity and leave management risks (Market Research par 1).

Financial Plan

Projected summary for three-year operation

The financial projects ride on some particular assumptions such as the sales revenue levels described under the revenue section of the plan. This plan represents the company’s expected asset base, liabilities, working capital, sales revenues, and total expenses.

The projections are in line with the management’s knowledge and value judgment in respect of the expected circumstances, course of action based on the hypothesized assumptions. The financial projects have relied upon some of the assumptions summarized by the following notes:

Financial notes and general assumptions

  • The company’s revenues will be obtained from the sales of the cement and its associated products and the services rendered to our affiliate parties in the industry. Such other fees will be derived from consultation services based on the assumptions that the company shall form a formidable consultancy department.
  • The company projects an annual growth of about 65% based on the concept that the company shall step up its production, sales, and establishing new strategic partnerships and alliances to steer growth through expansion (Market Research par 1). Additionally the sales shall increase courtesy of the strengthened target marketing initiatives developed to spearhead the growth of the market share by 42% per annum. These steps shall be designed to take care of the growing competition and changing economic conditions such as inflation and financial crises.
  • The company anticipates that the cost of its products and services will possess a relatively high mark-up in order to arrive at market-led prices.
  • The operating costs of the company shall consist of sales, marketing, production, overhead, general expenses, and administrative expenses.

Projected Profit and Loss

2012 2013 2014
Cash received
cash from operations
Cash sales $ 200,000.00 $ 325,000.00 $ 400,000.00
cash from receivables $ 195,000.00 $ 235,000.00 $ 357,000.00
Subtotal cash from operations $ 395,000.00 $ 600,000.00 $ 757,000.00
New borrowing $ 50,000.00 $ 25,000.00 $ –
other liabilities $ – $ – $ –
New long-term liabilities $ – $ – $ –
sales of long-term assets
cash from investments $ – $ 125,000.00 $ 265,000.00
Total Cash Received $ 445,000.00 $ 750,000.00 $ 1,022,000.00
Expenses
Cash spending $ 125,000.00 $ 150,000.00 $ 200,000.00
Bill payments $ 40,000.00 $ 55,000.00 $ 85,000.00
Sub-total spent on operations $ 285,000.00
Principle repayment of loans $ – $ 45,000.00 $ 15,000.00
Repayment for other liabilities $ – $ –
Purchase of current assets $ – $ 50,000.00 $ 100,000.00
Total cash expenses $ 165,000.00 $ 300,000.00 $ 400,000.00
Net Cash flow $ 280,000.00 $ 450,000.00 $ 622,000.00

Projected balance sheet

2012 2013 2014
ASSETS
Current Assets
Cash $ 250,000.00 $ 350,000.00 $ 450,000.00
Accounts Receivable $ 300,000.00 $ 500,000.00 $ 650,000.00
Other Assets $ 150,000.00 $ 200,000.00 $ 250,000.00
Total Current Assets $ 700,000.00 $ 1,050,000.00 $ 1,350,000.00
Long Term Assets $ 150,000.00 $ 175,000.00 $ 210,000.00
Accumulated Depreciation $ 15,000.00 $ 35,000.00 $ 45,000.00
Total Long-term Assets $ 835,000.00 $ 1,190,000.00 $ 1,515,000.00
Total Assets
Liabilities and Capital
Accounts Payable $ 225,000.00 $ 355,000.00 $ 475,000.00
Current borrowing $ 100,000.00 $ – $ –
other current liabilities $ 50,000.00 $ – $ 95,000.00
Total current liabilities $ 375,000.00 $ 355,000.00 $ 570,000.00
Long-term liabilities $ 250,000.00 $ 300,000.00 $ 400,000.00
Total Liabilities and Capital $ 210,000.00 $ 53,500.00 $ 545,000.00

Works Cited

Clark, John. “Concept of Too Strong Competition: The U.S. Cement Industry as a Possible Case Gerald Aranoff.” Eastern Economic Journal. 17 (1991): 45-60.

Economy Watch. “.” Economy watch. Web.

Market Research.com. The US Cement Industry. Web.

PR Newswire. “.” Pr news wire, 2011. Web.

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