A STUDY ON STRATEGIC MANAGEMENT IN OMAN CEMENT COMPANY (OCC) INTRODUCTION Construction activity is thriving in Oman. Many residential, commercial, and retail development projects have been announced in recent months. A growing population, in addition to a large inflow of expatriates and a low interest rate scenario has worked as factors adding momentum to construction activities in the country. Oman's current planned construction projects are estimated at USD 17.2 billion. Undoubtedly, this will spur cement demand through 2008-2010. Omani cement consumption, which grew at a CAGR of 10.5% between 2002 and 2005, (much lower than the average regional growth rate of 20.3%) is expected to see annual growth picking up to 12-15% through 2008. The Omani cement sector has seen a shortage of capacity in the last few years. The high operating levels of the local cement companies and heavy imports have not been able to adequately meet the excessive demand, leading to a demand-supply mismatch in the local market. Consequently, in 2005, cement prices soared reaching OMR 24.8 per ton. This upward movement is expected to continue in 2006 too. The two cement companies in Oman – Oman Cement and Raysut Cement – have been expanding, both to meet buoyant local consumption and to take advantage of a regional construction boom. RCC's additional capacity came on stream in December 2005, raising capacity ca pacity to 2.2 million tonnes from 1.0 million tonnes. Meanwhile, at OCC, an additional 0.5 million tonnes of clinker capacity is expected to come on stream by the end of 2007.
Oman Small market with strong historical growth rates The Oman cement industry is a small market made up of two players Raysut Cement Company (RCC) and OCC with a total clinker capacity of 4.20 4 .20 MTPA. RCC is the market leader with a clinker capacity of 3 MTPA, while OCC has a clinker capacity of o f 1.20 MTPA. The consumption of cement in the regions in 2009 has been estimated to be over 4.75 mn tonnes and the industry has been a net importer of cement during this period. In terms of capacity additions, RCC has been consistently adding capacity over a period of time while the capacity of OCC has been stable. Between 2006 to September 2008 the overall capacity addition in the industry has been slightly higher than the growth in consumption. As a result of this the clinker utilisation has been coming down. However the cement c ement price during the same period has been on the rise. 1
The utilisation data however does not reflect the full scenario as OCC purchases a substantial portion of its clinker requirement from outside. Cement realisation during this period has grown at a CAGR of around 8% at the back of strong demand from housing and infrastructure segments and the favourable demand supply scenario. Reflecting this trend, cement exports by the domestic company has been consistently coming down during 2005 to 2009, after a steep hike in 2006. Going forward the industry scenario is likely to become more ch allenging on the back of capacity additions by both OCC and RCC in Oman and the slowdown in the real estate segment. OCC is currently undertaking a capacity expansion plan which would double the existing clinker capacity to 2.40 mn tonnes, while Raysut is contemplating a capacity increase of 1.50 1. 50 million tonnes. Apart from this a new player Al Madina Cement is also expected to commence operations with a capacity of 1 mn tonnes .
SWOT ANALYSIS OF OMAN CEMENT COMPANY INCLUDEPICTURE INCLUDE PICTURE "http://serc "http://serc.carleton.edu/imag .carleton.edu/images/departments/ es/departments/assessment/swot_ assessment/swot_diagram.v2.jpg" diagram.v2.jpg" \*
MERGEFORMATINET
“STRATEGY IS A PATTERN IN A SERIES OF DECISIONS OR ACTIONS.”
- HENRY MINTZBERG (1994)
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SWOT Analysis explores the relationship between the environmental influences and the strategic
capabilities of an organization compared to its competitors. The importance of SWOT is revealed by the value of the strategies it generates. A SWOT item that g enerates no strategies is not important.
STRENGTHS. •
· It is having a good reputation and brand loyalty among the consumers.
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· Service of the company is good
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· Perceived to be of very superior quality cement among the customers when co mpared to the competitors
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· The product sells easily in the Oman market
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· They have same price prevailing for wholesale at dealers/stockiest retailers end.
WEAKNESS. •
The competitors are doing much promotional activity rather than Oman Cement Company
that’s why it facing more problems in selling of product in the market. •
Lack of awareness program for consumers.
OPPORTUNITY. •
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Rapid growth is taking place in Salalah and Sohar. People are opting for more stable structures and intensive use of cement is taking place, even government is spending heavily on infrastructure projects. Thus, this is the right time to fully tap these markets.
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As Oman core industry is also growing at rate of nearly 10% per annum, it is having a good future.
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Investment in infrastructure sector is going to increase in coming years, which will increase the demand of cement.
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Roads are undergoing through the transformation process through which the traditional method of road building will be replaced by modern concrete roads.
THREATS: •
Large number of players in cement industry makes it more competitive for Oman cement company to carefully price its product and at the same time satisfy its dealers and customers.
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Others players are eating up considerable market share.
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Due to Oman’s exponential growth many new international cement companies are expected in coming years which will bring a tide of change and can start price war.
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The emergence of small players in this market may increase the competition and start the malpractices, and heavy discounts to retailer.
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They can also influence many retailers by giving better profit margin, and other Benefits.
KEYS TOWARDS STRATEGIC PLANNING: - INCLUDEPICTURE "http://www.allpm.com/allpmnewsletter/January2007/images/planning_sphere.gif" \* MERGEFORMATINET
1. MISSION: 4
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Leadership – Maintain our relationship of the Oman cement industry throughout the continuous
modernization and expansion of our manufacturing facilities and activities , and through the establishment of a wide and efficient marketing network •
Profitability -Achieve a fair and reasonable return on capital by promoting productivity through out
the company •
Growth- Ensure a steady growth of business by strengthening our position in the cement industry.
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Quality - Maintain high quality of our products and services and ensure their supply their supply at
fair prices. •
Equity- Promote and maintain fair industrial relations and an environment for the effective
involvement, welfare, and development of staff at all levels. •
Pioneering - Promote research and development efforts in the areas of product development and
energy , and fuel conservation and to innovate and optimize productivity. •
Responsibility - Fulfill our obligations to society, specifically in areas of integrated rural
development and in and in safeguarding the environment and natural ecological balance.
STRATEGIC MANAGEMENT PROCESS STRATEGIC FORMULATION 1. FRAMING MISSION AND OBJECTIVES MISSION
Oman Cement Company drives their mission statements from a particular set of tasks. They are called upon to perform in the light of their individual, national or global priorities. Oman Cement industry into a globally strong and competitive industry. OBJECTIVES: Oman Cement Company is Oman’s foremost manufacturer of cement. Established in 1978,
Oman Cement Company has been a pioneer and trend-setter in cement and concrete technology. Oman Cement Company’s brand name is synonymous with cement and enjoys a high level of equity in the Oman market. Among the first companies in Oman to include commitment to environment protection as a corporate objective, OCC has won several prizes and accolades for environment friendly measures taken at its plants and mines. The company has also been felicitated for its acts of good corporate citizenship.
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The OCC Board comprises executive, non-executive, and nominee directors. This group is responsible for
determining the objectives and broad policies of the Company - consistent with the primary objective of enhancing long-term shareholder value. The Board meets once a month. Today we define Corporate Social Responsibility as the way a company balances its economic, social and environmental objectives while addressing stakeholder expectations and enhancing shareholder value. 2. ANALYSING OF INTERNAL ENVIRONMENT
OMAN CEMENT COMPANY HAS FOLLOWING STRENGTH •
It is having a good image and brand loyalty among consumers.
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Service is good
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Perceived to be of very superior quality cement when compared to others
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They have same price prevailing for wholesale at dealers/stockiest retailers end.
WEAKNESS
The competitors are doing much promotional activity rather than Oman Cement Company that’s why it facing more problems in selling of product in the market.
3. ANALYSING OF EXTERNAL ENVIRONMENT
WE SEE FOLLOWING OPPORTUNITIES FOR OUR BUSINESS
·As Oman’s core industry is also growing at rate of nearly 10% per annum, it is having a good future. · More investments in infrastructure sector going to increase in coming years, which will increase the demand of cement. · Roads are undergoing through the transformation process through which the traditional method of road building will be replaced by modern concrete roads.
4) Gap Analysis:- As the main aim is to satisfy the customer demand so it should see that the gap between
the customer and organization is properly builded up.
5) Framing Alternative strategy:-After making the gap and SWOT analysis the company should
accomplish the objective of the firm. 6) Choosing the strategy :- It follows focus strategy as its main aim is to go world wide.
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II) STRATEGIC EVALUATION :1) FORMULATION OF PLANS, PROGRAMMES AND PROJECTS :- If you are a line manager or
functional expert, overseeing a number of businesses, profit centers or operating units, you are likely to be facing tough challenges. It is hard to add value and easy to make things worse. Group Level Strategy is a unique opportunity for you to rethink your role in creating value. Based on the ground-breaking research of Andrew Campbell and Michael Goold, the programme is about your job at its most visible: fundamental choices that affect business performance.
2) PROJECT IMPLEMENTATION:- OCC has a unique track record of innovative research, product
development and specialized consultancy services. With more than seven decades of rich experience in prospecting for raw materials, mining, setting up and managing cement plants of different sizes, technologies and processes. We are proficient in managing captive thermal power plants and now also have a few power plants based on wind energy. Our large team of talented scientists, engineers and technocrats are experienced in meeting the needs of the cement industry both in Oman and in many other countries. In particular we have a successful track record in modernizing old technology based cement plants to improve their operational economy and also in the design & engineering of new technology based cement plants. 3) PROCEDURAL IMPLEMENTATION:- The cement plants of OCC are located in various regions of
the country in a number of states. The gadgets and equipments are of high standards and comply with the international standards. Presently, there are around 12 cement plants of OCC
which cater to the different
market segments of the country. The cement plants work in coordination with each other and also independently
to
increase
the
share
in
the
market.
All the OCC. Cement Plants use the cutting edge technologies and services which in turn produce high quality cement brands. Set up in the year 1936, OCC has always worked dedicatedly to produce some of the best brands of cement and its business strategy is based on providing the best of products to the changing consumer market in the country and the world. The following table provides a general idea of the OCC . Cement Plants
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4) RESOURCE ALLOCATION:-
The OCC . Cement Plants use the cutting edge technologies and services which in turn produce high quality cement brands. Set up in the year 1936, OCC has always worked dedicatedly to produce some of the best brands of cement and its business strategy is based o n providing the best of products to the changing consumer market in the country and the world. 5) STRUCTURAL IMPLEMENTATION :-. The cement plants of OCC are located in various regions of
the country in a number of states. The gadgets and equipments are of high standards and comply with the international standards. Presently, there are around 2 cement plants of OCC which cater to the different market segments of the country. The cement plants work in coordination with each other and also independently to increase the share in the market.
6) FUNCTIONAL IMPLEMENTATION:- The high quality cement that is manufactured and exported by
OCC is produced in the OCC . Cement Plants. OCC is one of the front runners in the cement industry in Oman and produces some of the best quality cement in the country. It has a significant market share in the segments of housing, real estate, infrastructure and other development projects. With more and more developmental projects coming up, the profit and the market share of the company is expected to rise at a considerable rate. 7) BEHAVIOURAL IMPLEMENTATION:- The reaction of the employee and customer can be
implemented i.e. either positive or negative. depends upon the projects whether it was customer oriented or company related.
III) STRATEGIC EVALUATION:-
1. SETTING OF STANDARDS :- As per the standards set by the company the employees has to function. Along with the standards the company should not forget it ultimate objective or goals. 2. MEASUREMENT OF PERFORMANCES :-The set standards are then measured with the actual performance. 3. COMPARISON OF ACTUAL STANDARD WITH STANDARDS :-the comparison after measuring is evaluated on the bases of performance which can positive or negative . it means the deviating in achieving the targets. 4. Analysing the deviation :- for eg:- the standards was to produce 1000 units but actual production is 900 the it is called negative deviation.so it should kept in mind while evaluating a performance . 8
5. Taking corrective measures :-after doing all evaluation the proper measures are required to be taken.
BCG Matrix OF OMAN CEMENT COMPANY
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Accordingly, the BCG matrix divides products/businesses into four categories: · Stars: These high growth products in a fast growing market, need more resource commitments. · Cash Cows: These are low growth, high market share products, where minimal investments are envisaged. Indeed, cash cows provide the cash flows that support other businesses. · Question Marks: These are low market share business units in high growth markets. Investment is needed to build them into stars.. · Dogs: These are low growth and low market share businesses, which generate just enough cash to maintain themselves. They are businesses from which the company is likely to withdraw in the near future. In The above matrix , OCC falls in the quadrant of “ CASH COW” with respect to the market leader. The circle size represents the absolute market share (20.23%) of OCC in the cement industry.
7S MCKINSEY MATRIX
The Seven Elements 10
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MERGEFORMATINET •
Strategy: the plan devised to maintain and build competitive advantage over the competition.
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Structure: the way the organization is structured and who reports to whom.
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Systems: the daily activities and procedures that staff members engage in to get the job done.
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Shared Values: called "super ordinate goals" when the model was first developed, these are the core
values of the company that are evidenced in the corporate culture and the general work ethic. •
Style: the style of leadership adopted.
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Staff: the employees and their general capabilities.
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Skills: the actual skills and competencies of the employees working for the company.
The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help you: •
Improve the performance of a company.
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Examine the likely effects of future changes within a company.
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Align departments and processes during a merger or acquisition. 11
1) Structure:- The OCC Board comprises executive, non-executive, and nominee directors. This group is
responsible for determining the objectives and broad policies of the Company - consistent with the primary objective of enhancing long-term shareholder value. The Board meets once a month. Two other small groups of directors - comprising Shareholders'/Investors' Grievance Committee and Audit Committee of the Board of Directors - also meet on ce a month on matters pertaining to the finance and share disciplines.
During the last decade, there has been a streamlining of the senior management structure that is more responsive to the needs of the Company's prime business. A Managing Committee - comprising, in addition to the Managing Director and the two executive directors, the presidents representing multifarious disciplines: finance, production, marketing, research and consultancy, engineering and human resources meets once a week.
Besides these bodies, there are senior executives and other regional managers - based at the Company's corporate office, and at its marketing offices and manufacturing units - who contribute to the development and operation of the various functions.
While these groups form the core management team that frames and guides corporate policy, OCC is proud of its manpower strength of about 9,000 people, who comprise experts in various disciplines assisted by a dedicated workforce of skilled persons. Quite a number of them have logged many years of service with the organization. They come from all parts of the country and belong to a variety of ethnic, cultural and religious backgrounds. Because of such a cosmopolitan make-up, OCC can rightly be said to embrace within its fold a family that forms a 'mini-Oman' Although the companies function under a Group umbrella, each of these companies is setup as an independent limited liability company comprising of their own Boards, Managing Directors and Management Team responsible for all aspects of its operations. Human Resources, Legal, Finance and Administration departmental functions are centralized at Group level. 2) Staff:- Oman Cement Company is made up of a carefully selected blend of the finest minds with diverse
backgrounds, skills and experience. With operations in nine countries, we continually learn from our geographically diverse environments to bring about synergies of experience and creativity, as we generate value in business. 12
. This is achieved through continuous training and development to increase knowledge, skills and overall effectiveness. 3) Shared Values: -
• We succeed through satisfied customers • we deliver quality and excellence in all we do • We use technology to develop market leadership • We value our employees • We behave responsibly as corporate citizens 4) SKILLS Few of the trainees were illiterate, most of the participants were literate and few of them have
been appeared the secondary level of education. Apart from the gainful employment skill building (vocational) training, the trainees residing at the OCC center were provided basic literacy classes and life skills training. Basic literacy classes were conducted for illiterate. The classes were operated twice daily mostly in the morning and in the evening. Similarly, the life skill training was provided to all the trainees during their stay at the center. The content of the life skill training . This life skill training aimed to help the trainees to tackle the adverse situation that is possible to happen during their future lives. INCLUDEPICTURE "http://www.acclimited.com/newsite/images/pi echart_skills.gif" \* MERGEFORMATINET
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MERGEFORMATINET
5) STRATEGY. •
High on quality, customer value and customer care
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Branding
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Advertising
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Other promotional activities
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Packages
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Retention marketing
In 2009, a unique project, has transformed Cement House into an energy efficient environment-friendly building. Its attractive refurbished façade now houses an ultramodern office equipped with space-saving modular workstations, access control and intelligent lighting with motion and light sensors, waste management systems and water saving devices set amid greenery and a central atrium that further expands the sense of light and space 7) SYSTEM: - Oman Cement Company follow different system but one thing is common among all is their
concentration as they are thinking from the prospective of customer satisfaction. 14
Investment strategy of OCC In line with this net fixed asset of OCC has increased to RO.91.793 mn as on 31st December 2009. However the debt position of the company has not changed much, as OCC till now not fully availed the RO.20 mn loan. Financial position of the company continues to be strong with low debt equity position and high interest coverage position. Given that the financial position of the company continues to be strong, the new debt component is not likely to pressurize the balance sheet of OCC. Industry Risk
• As mentioned earlier there is an oversupply situation in the cement industry as a result of which prices in
the region could witness downward pressure. The performance of the companies in the industry depends on how quick the markets recover. We have assumed cement prices to fall to RO 28/tonne for FY10 and RO 26/tonne for FY11. Any further fall in prices could have a material impact on the performance of the company and our estimated fair value price.
Company specific Risk
• The capacity expansion undertaken by the company is expected to commence production from second half
of FY10. Given that there has already been a delay in the execution of the project, further delay could have a material impact on the performance of the company. Our estimates factor in a 50% capacity utilisation of the enhanced capacity in FY10. However, if there is further delay in execution of the project or in the production to achieve optimum operation there could be material impact on our fair value price. Income Statement Balance Sheet
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Y/e 31 December 2008 2009 2010E Assets (in RO mn) Net Fixed Assets 59.430 91.793 97.287 Investments 39.231 38.158 31.134 Other Assets 0.000 0.000 0.000 Net Current Assets 18.056 7.082 35.394 Total Assets 116.717 137.032 163.814 Liabilities Term Loans 0.802 4.021 20.600 Deferred Liabilities 3.972 3.841 3.748 Other LT Liab 1.262 1.529 1.500 Total outside liabilities 6.036 9.391 25.848 Share Capital 33.087 33.087 33.087 Share Premium 6.724 6.724 6.724 Retained Earnings 43.265 60.218 70.543 Other Reserves 27.573 27.573 27.573 Net �orth 110.649 127.602 137.927 Revaluation Reserve 0.032 0.039 0.039 Total Liabilities 116.717 137.032
163.814
Source: Company Reports, FSC Research Sector view •
Nearly 2.5 mn tonnes of cement capacity is expected to be added in the next three years in Oman.
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Cheap import from UAE to put pressure on prices
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Infrastructure spending continues to be strong
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Overall Prices could come under pressure in the medium term
CMP Target Price Absolute (RO) (RO) Dividend/Share Return 0.707 0.813 0.037 20.23%
Figures in RO, Million Source: FSC Research
Share price performance Vs. Market
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Source: Company Reports, FSC Research
INTERNAL STRATEGY FORWARD INTEGRATION: OCC has created and developed an environment that ensures continual
improvement in our business processes. In the same direction, this integration will help us in proactively meeting the expectations of customers, stakeholders and the requirements of the regulators while on the other hand will be useful in utilizing our resources more efficiently and effectively.” they are committed to achieve customer satisfaction by ensuring excellence of p erformance in all our offerings and services HORIZONTAL INTEGRATION: It involves addition of parallel new products to the existing product
line.This may happen internally or externally, internally, a company may decide to enter a parallel product market in addition to the existing product line.
INTENSVE STRATEGY A) PRODUCT DEVELOPMENT- Product Development has always been an important activity at OCC,
arising out of a focus on quality and process improvement. It has been a constant partner, driving research, innovation and evaluation. In 1964, a centralized research facility - the Central Research Station (CRS) was established in Thane. The research complex now renamed as OCC Thane Complex, spread over an area of 8000 sq m has modern labs with the latest equipment and manned by highly qualified scientists and technologists who carry out product development work in cement and allied fields. OCC has effectively pledged its reputation as the market leader in the quality of cement. Maintaining this lead calls for harnessing the resources and exp ertise of the company - from applied research and production to marketing. Accordingly, all OCC factories are equipped with state-of-the-art process control instrumentation and associated quality control and testing laboratories. Trained engineers, chemists and
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technicians man these. The Central Laboratory at OCC Thane Complex is used as a reference laboratory for diagnosis and resolving specific trouble-shooting cases. As a result of this focus on quality, OCC cement specifications exceed those set by BIS by a w ide margin. Today, all OCC cement plants have the ISO 9001 Quality Systems certification. This demonstrates our tradition of providing reliable and consistent quality through the application of modern technology, and justifies the preferences of a nationwide customer base. GENERAL STRATEGIES COST LEADERSHIP:
OCC has Strived to become a cost leader by means of setting up captive power plants, and/or up-gradation of technology to enhance productivity,.: OCC is one of the most profitable cement companies in the country.
RECOMMENDATIONS Oman Cement Company is highly focused on its future objectives & expansion plans, but a t the same time it has to maintain a balance between the present plan & the future one. On the basis of strategic analysis following recommendations will help in achieving its future goals effectively & efficiently:•
OCC must focus on its Vision & Mission in order to attain its objective.
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OCC should focus on expanding its market in order to grab the market shares.
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It should also try to maximize the shareholders’ wealth.
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OCC should not choose those projects, which may dilute the brand name just for the sake of gaining market shares.
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It should focus on to convert itself from Question Marks to Stars.
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OCC has a high growth potentials, so it should try to raise funds timely in order to meet its target.
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OCC should not do over promise, as it will deteriorate its goodwill.
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OCC must focus on its competitors’ strategy in order to gain a competitive edge.
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OCC should try to go for diversification to minimize risk factor & to explore new market as well.
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CONCLUSION Keeping pace with changing times and an ever-growing need for specialized services, OCC has begun offering its marketing expertise and distributaries facilities to other producers in cement and related areas. However a precondition of all such agreement is quality control supervision to be carried out by an OCC expert. These, in addition to handling after-sales servicing, function as advisory bodies that can help customers, make the right choice of cement for a specific area of application. OCC can provide expert advice on getting the best value from cement and offer assistance on related issues in civil construction projects.
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REFERENCE
WEBSITES:
1. http://www.gulfbase.com/site/interface/SpecialReport/FINCORP_OMANCEMENT_020409.pdf 2. http://www.omancement.com/TestCertificates/owcA.pdf 3. http://www.omancement.com
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