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Strategic Decision of Setting Sail in Cement Industry through VRM Technology by

Bashundhara Group

Bashundhara Group established in 1987 which is mainly renowned for its real estate venture

 business along with multiple other industries has recently expanded their operations towards

cement industry. According to the Financial Express article, countries biggest conglomerate

had set its sail at Mongla by starting biggest Vertical Rolling Mill (VRM) in November,

2012. “Chief advisor to Bashundhara Group Chairman Mahaboob Morshed Hassan said that

for the first time BG decided to produce VRM technology cement in the country which is a

milestone and revolution in the cement industry of the country (Financial Express, 2012).” 

Bashundhara Group has 20 Years of experiences in cement industry (BG own Meghna

Cement Mills Limited). So they are targeting to be the market leader in the industry by

introducing innovation like VRM technology along with their experience. At present other

companies in Bangladesh producing cement in “Ball Mill”. The specific power consumption

of a “Ball Mill” higher than that of a Vertical Roller Mill (VRM) carrying out the same

operation. At the same time it provides 20-25% more grinding capacity than “Ball Mill” 

(Fahrland & Dr. Ing, 2016). So strategic decision of introducing innovation in production was

mainly targeted to be the market leader through providing quality cement at a competitive

 price while ensuring smooth products delivery and technical service towards consumers

which is also the mission of the company.

In analysing this strategic decision of Bashundhara Group in the perspective of competitive

forces model major factor would be risk of entry. Although Bashundhara Group has 20 years

of experience in cement industry but the whole system in this section is new. Company has to

 bear a certain risk in introducing VRM technology because it includes higher setting cost,

higher maintenance cost and also a complex system to handle. So a better trained workforce

needed to operate this complex system. Any kind of problems to handle this complex VRM

system can results into failure. All this thing together indicating towards higher fixed costs.

Other than those risk Bashundhara Group is a renowned company which gives the cement a

 brand value.

Competition is intense between rivalries in the cement industry. More than 70 company

 produces cement in Bangladesh. Currently, the demand for cement stands at 17.5 million

metric tons against production capacity of 28 million metric tons as of 2013. Demand has

increased almost by 4 million metric tons from 2010 to 2014 but at the same time capacity

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has increased by 8 million metric tons (Shadat, 2014). Moreover Shah, Heidelberg, Meghna,

Holcim and Lafarge together holds 48.12% market share as of 2013 (According to IDLC

research report). So in a nutshell, demand is lower than capacity at the same time industry is

dominated by few big companies which is a concerning and competitive factor for

Bashundhara Cement. Also there is no exit barrier for Bashundhara Cement because their

tools and resources can be used by Bashundhara Groups another company Meghna Cement

Mills Ltd which is also situated in Mongla.

Bargaining power of buyer in cement industry in Bangladesh is another competitive factor.

As there are excess capacity than demands, buyers can easily negotiate to have lower cost

from various manufacturers. Manufacturers are largely depends on consumers for large

 percentage of total orders.

Bargaining power of suppliers is a minor threatening factor for Bashundhara Cement. Most of

the raw material for cement companies comes from foreign country and it’s not monopoly.

Some multinational companies can easily arrange to bring raw materials from abroad at a

lower price from their others units. For example Lafarge Surma Cement Ltd has a 17 km long

conveyer between Chattak and Meghalaya of India which allows them to bring raw materials

at a lower cost. All the local and multinational companies brings clinker from abroad except

Lafarge Surma Cement Limited (Bhuiyan, 2016). Bashundhara Group’s suppliers of raw

materials are mainly from China, India, Indonesia, Malaysia and Korea. Political uncertainty

and unfavourable government policy for importing raw materials can hinder supply chain and

operations. Bashundhara Cement does not need to worry about of product substitution.

At present, the production capacity of Bashundhara Cement is 3.72 million MT per year

(Bashundhara Industrial Complex Limited, n.d.). It has derived competitive advantage

through lower price and differentiation. For this, it has introduced innovation of VRM

technology along with superior efficiency. VRM technology provides Bashundhara cement

ability to produce cement at a lower price than existing companies who use “Ball Mill”. Also

 positioning places an important strategy for Bashundhara Cement. The company has to bear

lots of transportation cost for the distance, which it has to, at the end add in the price of the

cement bag. Bashundhara Cement is produced in two most modern factories of the country at

Mongla and Madanganj (Narayanganj) (Bashundhara Industrial Complex Limited, n.d.). The

factory is situated beside the river of Pashur at Mongla, Bagerhat and river of Shitalakshya at

 Narayanganj. So they can easily transport both their raw materials and finished goods through

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the river ways at a cheap cost. According to market information Bashundhara Cement and

other local brands are now selling per bag cement lower than 400 taka which are over 410

taka for multinational companies (Bhuiyan, 2016). Multinational companies share is

gradually falling as local makers, such as Shah, Bashundhara, Seven Circle, Fresh, Premier,

and Crown have significantly expanded their capacities efficiently. So it is so far successful

in terms of efficiency and low cost strategy.

The strategic decision of introducing Bashundhara Cement back in 2012 is a good decision if

we see the company’s position in present situations. It is cost efficient and production has

variations. Bashundhara Cement produces Ordinary Portland Composite Cement (OPC) for

general constructions. It also produces higher compressive and flexural strength based

Portland Composite Cement (PCC) which is designed for high rise constructions, bridges andflyovers (Bashundhara Industrial Complex Limited, n.d.). This variations will help

Bashundhara Cement to survive in coming time because it is expected that the Padma bridge,

elevated expressway, metro rail, several flyovers, a tunnel in Chittagong and seaports will

 boost demand for cement. The market is likely to grow 20-25 percent over the next five years

which will help Bashundhara Cement to boost and gain a bigger market share using their low

cost innovative VRM technology (Rahman, 2015).

References

Bashundhara Industrial Complex Limited, n.d. Bashundhara Cement. [Online]

Available at: http://www.bashundharacement.com/about-us/

[Accessed 17 January 2016]. 

Bhuiyan, A. K. H. (Depoo Incharge, Lafarge Surma Cement Limited, 2016. Cement Industry Oveview

[Interview] (17 January 2016).

Fahrland, T. & Dr. Ing, K. Z., 2016. Cements Ground in The Verical Roller Mill Fulfil The Quality

Requirements of The Market , Duesseldorf: LOESCHE .

Financial Express, 2012. Bashundhara Cement sets sail. Financial Express, 14 November.

Rahman, S., 2015. Cement makers eye a turnaround. The Daily Star , 11 October.

Shadat, N., 2014. Market Insight: Cement Sector. Light Castle Blog, 28 October.