{"id":7331,"date":"2015-12-09T23:41:09","date_gmt":"2015-12-10T04:41:09","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/dangote-cement-a-story-of-market-dominance\/"},"modified":"2015-12-10T06:58:34","modified_gmt":"2015-12-10T11:58:34","slug":"dangote-cement-a-story-of-market-dominance","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dangote-cement-a-story-of-market-dominance\/","title":{"rendered":"Dangote Cement: A Story of Market Dominance"},"content":{"rendered":"

\"logo\"<\/a> <\/u><\/strong><\/p>\n

Company and Industry Background<\/u><\/strong><\/p>\n

Dangote Cement (DC) is ~$25bn market cap. company and is\u00a0the largest cement producer in Africa with revenues of ~$ 2.0billion in 2014 and 43.3 mn tpa of cement production capacity. Founded in by Aliko Dangote, (67th<\/sup> on the Forbes Rich List), DC has grown from being a single country business to one with operations across 13 countries on the Continent.<\/p>\n

(see page 10 of http:\/\/dangcem.com\/documentdownloads\/Dangote%20Cement%20Q3%202015%20results%20presentation.pdf for breakdown of operations).<\/p>\n

Since 2012, DC has\u00a0spent +$5bn on its expansion drive in Africa\u00a0and has\u00a0recently announced an aggressive growth plan to achieve a production capacity of 72.7 mn tpa by 2018.\u00a0Nevertheless, it\u2019s growth engine and competitive advantage still lies in its Nigerian operations (29.5 mn tpa) \u2013 that will be the focus of this post.<\/p>\n

Initially beginning operations as an importer of bagged cement, DC took advantaged of the Nigerian Government\u2019s 2002 Industrial policy of backward integration and transitioned from solely being an importer of bagged cement to the dominant cement player in Nigeria. With 3 plants in the Country, DC holds a 78% market share (based on capacity) and has seen its Nigerian revenues grow from ~$1.2bn in 2011 to ~$1.9bn to in 2014. Remarkably, its EBITDA margin has average 60% during that period. In comparison, its closest peer, Lafarge WAPCO enjoys\u00a0a 35% EBITDA margin and a 12% market share.<\/p>\n

Business and Operating Model<\/u><\/strong><\/p>\n

With a population of 170m people, a housing deficit for 17m and a per capita cement production of 122kg (versus the global average of 513kg), long term prospects for Nigerian cement market are attractive. With this backdrop, DC strategically sought to position itself as lowest cost provider of high quality cement. (See below chart for cash cost comparison with its key competitor)<\/p>\n

In the past, Nigeria had imported relatively low quality cement at high prices as such, DC sought to create value for its customers by emphasizing its high quality, value-for-money proposition that was premised on strong integration between its business and operational models. Some of the key features of this model included:<\/p>\n

    \n
  1. Location:\u00a0DC\u00a0strategically located its plants close to its owned significant limestone deposits (also a significant operational benefit as it reduced raw material and end-product transportation costs) and to areas of urban population and cement demand<\/li>\n
  2. Relatively inexpensive, modern machinery and construction costs by leveraging on close relationships with Chinese suppliers. Recently agreed upon a $4.3bn deal with Sinoma of China to construct new plants across Africa. Nevertheless, each world-scale plant costs ~$500m and has a development lead time of at least\u00a05 years – significant barriers to entry for would be competitors<\/li>\n
  3. Extensive distribution network:\u00a0Given the scale of the Country, DC has built a fleet of over 4658 trucks to deliver to its key clients. It has also developed strategic relationships with distributors and depot owners across the Country<\/li>\n
  4. Lower Energy Costs: Fuel and power represent over 1\/3 of total cash costs. Historically, its plants had relied upon imported and expensive Low pour fuel oil (LPFO) as its main fuel source but DC has secured cheaper gas as it fuel for a number of its plants (4x cheaper\u00a0than LPFO).<\/li>\n
  5. Leveraged indigenous status:\n
      \n
    • As the only indigenous producer of note, DC has taken advantage of this position by building strong, strategic relationships with larger Nigerian offtakers \u2013 such as Julius Berger (Nigeria\u2019s largest construction company)<\/li>\n
    • It has been at the forefront of emphasizing the benefits of a higher quality grade of cement – 42.5 grade and was a significant winner when the cement regulators imposed a new policy on cement, which restricted the use of the 32.5 and urged manufacturers to begin production of the high-grade 42.5. Its plants had the operational flexibility to produce this grade, whereas Lafarge would have to retool some of its facilities to meet the grade.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n

      The deliberate and aggressive execution of the simple business model through the strategic locating of large, low cost plants\u00a0and\u00a0by leveraging its\u00a0strong local relationships has resulted in the dominant position that DC\u00a0sees itself in. It is hard to see it relinquishing its position anytime soon in Nigeria. The question now is – can it successfully\u00a0replicate its model across the Continent?<\/p>\n

      \"Untitled.png<\/p>\n

       <\/p>\n

      References<\/strong><\/span><\/p>\n

      http:\/\/dangcem.com\/<\/p>\n

      http:\/\/www.bbc.com\/news\/business-34067963<\/p>\n

      Renaissance Capital Research Reports<\/p>\n

      http:\/\/www.cemweek.com\/<\/p>\n","protected":false},"excerpt":{"rendered":"

      How did Dangote Cement, in just over a decade, cement its position as the dominant player on the Nigeria and the Continent? <\/p>\n","protected":false},"author":745,"featured_media":7394,"comment_status":"open","ping_status":"closed","template":"","categories":[1039],"class_list":["post-7331","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-dangote"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nDangote Cement: A Story of Market Dominance - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dangote-cement-a-story-of-market-dominance\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Dangote Cement: A Story of Market Dominance - 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