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Birmingham Business School

Module: International Business Strategy

Assignment Title: Individual International Business Strategy Report on CRH plc. 2014-2015

Date and Time of Submission: 17/05/2015 at 12:00

Student ID Number: 1457237

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 Individual International
Business Strategy Report on
CRH plc.

MSc International Business

Student ID Number: 1457237

International Business Strategy

Dr M Oktemgil

2
Executive Summary.......................................................................................................... 5

External Analysis: Market Based View (MBV)...................................................................5

PESTEL Analysis.......................................................................................................... 6
Porter’s 5 Forces........................................................................................................... 9
Evolutionary (EV) Forces and Porter’s 5 Forces Interaction........................................12
World Automobile Industry – Future 5 Forces.............................................................15

Internal Analysis: Resource Based View (RBV)..............................................................18

Resource Analysis....................................................................................................... 18
VRIO Framework......................................................................................................... 21

Organisational Based View (OBV) ................................................................................. 23

Stakeholder Analysis................................................................................................... 23
Strategic Implications and Issues.................................................................................... 29
Categorisation and Prioritisation of Strategic Issues...................................................29

Key Strategic Issues........................................................................................................ 31

CRH's Strategic Choices................................................................................................. 32

1. Establish Strong Relationship with the Local Government & Societal Groups.....32
2. Intensify Mergers and Acquisition.........................................................................34
3. Boost S.A. with well established companies from emerging markets...................36
4. Intensify Operations of Complementary products.................................................36

SAF Evaluation............................................................................................................ 41

Strategic Recommendations........................................................................................... 42
1. Establish Strong Relationship with the Local Government & Societal Groups
- Action Plan................................................................................................................ 42
2. Boost S.A. with well-established companies from emerging market – Action Plan42
3. Intensify Operations of Complementary products– Action Plan……………….......44

Conclusion……………………………………………………………………………………45

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4
EXECUTIVE SUMMARY

This international business strategy report will analyse the case study of CRH plc in regards to
building materials industry. Through conducting various analysis of MBV, RBV and OBV using
several frameworks strategic issues are projected. Some issues are long term while some are
short term issues. Using the frameworks the issues which are critical for the success and
survival of CRH plc are identified and recommendations are developed to nullify the effect.
After conducting a series of analyses 4 key issues were identified which I believe should be
addressed quickly to preserve and strengthen the competitive position of the group.
1. Heavy Government influence in the building materials industry.
2. Increasing Bargaining power of Buyers due to increasing competition in emerging
markets and standardized nature of the product.
3. Pressure Groups can drastically deteriorate the reputation of the company.
4. Increasing demand from emerging markets.
I have designed three methods in order to overcome the above identified issues which CRH
plc is facing and if the group is able to implement these methods then it can achieve its
diversification objectives and at same time enhance its global position.

 Short Term: Boost Strategic Alliances with well-established companies from emerging
markets.
 Short Term: Intensifying Operations of Commentary Products.
 Mid Term: Establish Strong Relationship with the Local Government and Societal
Groups

Market Based View of CRH plc

Market based view refers to the external conditions which influences a firms activities and the
firm has to analyse and act accordingly so as to have a competitive advantage over its rivals.
Building materials industry has a “dual mature/dynamic character” which the firms need to
consider to capture the opportunities available in the emerging economies and to have a
sustainable advantage in the developed economies. The building materials industry is in the
mature stage of life cycle in the developed economies as the majority of construction activities
has already taken place whereas, the industry is in growth stage in emerging economies as
there is an increasing demand for construction linked with economic growth and increase in
purchasing power of the population. Using various MBV frameworks firms such as CRH plc.
should identify the strategic issues, develop and implement strategies in order to have a
sustainable advantage and maximise the profit levels.

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PESTEL ANALYSIS
Pestel Analysis helps to analyse those factors which affects a firm externally when it decides
to diversify internationally.

PESTEL Analysis Strategic Issues and Implications

Political  The political environment of the  Government policies and strict

emerging economies was not
stable as there is corruption,
inequality in distribution of
income and wealth and inflation
have discouraged foreign
investors to invest in economies
like India and China.
 Emerging economies have strict
regulations in terms of
ownership.
 However after liberalisation in
China in 1980 and India in 1990
the scenario has changed.
Incentives are offered to
international firms for generation
of revenue and creation of
employment opportunities.
regulations in E.U. has increased the
research and development cost of the
building materials firm.
 Therefore building materials firm are
looking towards emerging economies
where ample opportunities are
available.
 CRH plc have carefully analysed this
situation and is expanding fully into
emerging markets via acquisitions and
strategic alliances where incentives are
offered and there is still increasing
demand for traditional building
materials.

 Due to government policies in

E.U. regarding the use of
environment friendly products in
the building material industry
has affected the industry
adversely.
 There are no strict regulations in
emerging economies with
regards to environment friendly
practices thereby, encouraging
firms to focus primarily in
emerging economies.

Economic  In the near future Growth rate
in emerging economies such
as India and China is set to
increase between 6-7%
(Trading Economics) as
compared to E.U. and
Americas growth of meagre
0.5% and 3%
respectively(world bank).
 The demand from emerging
economies is on an increasing scale
due to urbanisation, population growth
and improvement in purchasing
power.
 Emerging markets should be the
priority as immense potential lies in
these economies which need to be
exploited. CRH plc has given priority

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 to emerging markets especially India
and China and Is trying to stronghold
its presence in these markets.
Social  In the developed economies
the consumers prefer green
building materials and the
government norms forces
building material industry to
manufacture commodities
accordingly.

 In the emerging economies the

consumers have started to
become aware about the
environmental consequences
and have started preferring
green products.

 The society in emerging

economies want foreign
investors to create job
opportunities and improve
standards of living. Also, the
public fears that domestic
companies will not be able to
compete with foreign firms.

.
Technological  Technology is unsophisticated,
similar across geographies and
is stable for a long period of
time in building materials
industry.
 Differentiation is done on the
basis of innovation and price
through provision of value
added services and
improvements in installation
procedures.
 Investment and Development in green
building materials can give the firms a
competitive edge over rivals as in the
future demand for environment
friendly building products will increase
due to increased consumer
awareness.
 The development of Green building
materials, Exploration of alternative
resources, reuse of waste and
technological development should be
the core component. CRH plc has to
intensify its technological activities as
it is lagging behind in comparison with
HOLCIM.

Environmental  The E.U. has been concerned
about tackling the issues
associated with climate change
and has laid strict norms with
regards to carbon emission.
 On the other hand China, India
and USA don’t have very strict
 Environmental concerns is the key
issue in building material industry
and affects all other segments of
this analysis. Building Material
industry has to operate in
accordance with the environmental
regulations set up by different
governments so as to survive and

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 norms regarding carbon
emission. However growing
environmental issues and
population awareness has put
governments under immense
pressure and they have to
change their policies.
Legal  Legal rules and regulations of
carbon emission, health and
safety of workforce, recycle of
resources pertaining to building
materials industry are stringent
in the E.U. as compared to
India, China and other growing
economies in South America.
have a clean image.
 CRH plc has invested in some green
projects such as Oldcastle Precast’s
Storm Capture™ Module System in
Florida USA(CRH Sustainability report
2013). Where this model harvest
water and uses it for irrigation working
in an environment friendly and
sustainable manner. However the
group should use the same strategy in
emerging economies to have a strong
long term position in these economies.
As in the future the majority of the
profit will be generated from these
markets.
 CRH has to abide to the legal
requirements especially in the
developed markets as negligence on
the part of group can result in paying
hefty fines and hampering of
reputation on a global scale.
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 Porter’s Five Forces
In 1980 Michael porter developed a model which describes the 5 forces which shape every
industry. The impact of 5 forces on the building materials industry has been described below:-

Current
Strategic Analysis
Impact
Threat of  High capital investment cost in plant and machinery ie
$200 per tonne of capacity and procurement of raw
Entry materials is associated in building materials industry
thereby ensuring that threat of new entrants is high.
(ABN AMRO)

 Competition is on the basis of price and quality and the

established firms such as CRH plc have achieved Low
economies of scale as they have ample amount of
reserves. CRH has over 80 years of reserves.
(Moroney, M)

 Well established firms are capturing more market

share through mergers and acquisition activity.

Threat of  Primary materials and heavyside materials building

products have no substitutes. However due to
Substitutes government intervention the firms in the industry have
to find efficient and environment friendly methods of
production.

 Depletion of natural resources such as water, fuel,

quarries and pits have forced the firms to look for
renewable sources of energy for production.
Low
 Researchers have discovered fly ash as a substitute of
traditional cement which emits less carbon dioxide.
However, at present it still needs to develop and needs
to gain popularity.

Bargaining  As a commodity cement is very cheap even compared

to chips ie 5–10¢/kg (potatoes cost 60¢).
Power of  Buyer power is high as there the manufacturers
Buyers compete on the basis of price, quality and reliability.
 Markets are local in nature due to rules and regulation, High
construction practices and standards.
 As there is a lot of competition amongst existing firms
the buyers can switch to other suppliers if one firm is
not able to offer products at an affordable price.

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Bargaining  The nature of the building materials industry requires
firms to have access to resources such as water,
Power of quarries and sand.
Suppliers  Low Bargaining power of suppliers as in developed
markets CRH plc entered mergers and acquisitions to
enhance vertical integration and having access to Low
quarries and pits.
 In the emerging economies the group entered using
the same strategy of M&A or via Strategic Alliances
with strong local established business who have
access to resources.

Competitive  In the Building materials industry in the primary

materials competitive rivalry is high as they
Rivalry compete on the basis of price & quality.

 The manufactures offer standardized product and

innovation is the key to improve production process
and to compete on the basis of price.

 In the emerging economies rivalry is comparatively

less in the building materials as the firms such as CRH
plc and HOLCIM use the same strategy to acquire Moderate
stake in regional market leader companies such as
ACC limited, My Home Industries Ltd in India(Holcim
company profile).Thereby reducing the level of
competition from domestic firms.

 In the Lightside building product rivalry is low as

innovation gives competitive advantage to the firms.

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Implication from Five Forces model
From the analysis of the Porter Five Forces model it can be ascertained that Building Materials
Industry requires heavy investment in plant and machinery to achieve efficiency and
economies of scale. Threat of substitute at the moment is relatively low. However strict
government rules and regulation and greater consumer awareness about the harmful
environmental effects associated with manufacturing of cement and RMC have enabled
researchers to look for other alternatives such as fly ash, Liquid granite and “Novacem’s” (The
Guardian)cement which emit significantly low amount of CO2 can led to the development of
substitutes. The buyer can easily switch to other firms in the industry if there is fluctuation in
price offered by one manufacturer vesting them immense bargaining power.
In contrast bargaining power of supplier is low as the well established firms use acquisition to
diversify enhancing vertical integration and having access to relevant resources. Consolidation
has been an ongoing trend in this industry. Competitive rivalry is moderate as there are few
firms who control the major share of the market and compete with each other on the basis of
price & quality.

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Impact of EV forces on Porter’s Five Forces
EV forces consists of all those forces which cause an industry to change. The analysis of EV forces is done to ascertain their
impact on Porter’s Five Forces. A set of evolutionary forces have been chosen which are considered relevant. The table illustrates
the impact of Evolutionary forces on Porter 5 Forces.
Evolutionary (EV)
World Building Materials Industry – 2012 and Beyond
Force
 The global recession in construction industry in 2007
2008 had a significant impact on the world Building
Changes in the materials industry.
Growth Rate of the  Leading to a ‘L-shaped’ recovery growth trend. The
World Building demand from emerging economies for building materials
has been increasing due to intense urbanisation and
Materials Industry
growth rate between 5-8%.
 Globalisation has led to the increased investment
by Building materials industry in India, China and
other South American market.
 The demand for Building materials from these
economies has been on a rise to meet the growing
demands of industrialization and urbanisation and
as major proportion of revenue is generated from
Globalisation developed countries there is going to be a stable
demand for (RMI)
Regulatory  Drastic Environmental changes such as global warming
5 Forces Impact and Strategic Issues
 The growing demand for building materials in the emerging
economy will increase the level of competition. However only
those firms who are willing to invest huge amounts and have
access to resources will enter this industry. The level of
competition will intensify but will still remain moderate as the
big firms are trying to consolidate the industry. CRH plc
should ensure that it follows the same strategy of M&A to
enter into the emerging markets and capitalize on it or else
other existing rivals will leave CRH plc behind.
 Even after globalisation the level of competition will remain
moderate as the well-establishedEuropean firms have
dominated the building materials industry with market
capitalisation of €81.2bn (ABN Amro).
 The competition is set to intensify between the well
established firms such as Holcim, CRH, Lafarge and Saint
Gobain etc. as their business model is same to acquire
regional leaders like Huaxin Ltd, Yatai Building materials in
China and My home Industries Ltd.
 Regulatory influences and governmental policies have led
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 have forced governments to implement rules and
regulations to cut down CO2 emission rates.
 Especially the E.U. Government has been very strict
and penalize firms who offend the rules and regulations.
 Governments also offer incentives to manufactures who
adapt more environment friendly ways of
Influences and manufacturing.
Government Policy
Changes  Increased awareness amongst public about the adverse
environmental causes in emerging markets have also
influenced the government to frame rules and
regulations regarding emission levels.
 Global warming due to increased level of carbon footprint
has forced building materials firms to look for environment
friendly products and product methods which burn less fuel
thereby reducing carbon levels.
Technological  The firms in the industry have to invest a lot of money into
Change and Product R&D so as to develop innovative products or else they will
Innovation perish from the market due to the increasing concern about
climate change.
Entry and Exit of  Rapid industrialization in the emerging economies has
Major Building led to increasing demand for building materials to
Material Firms. develop the infrastructure.
 This has led to emergence of domestic firms such as
Ambuja cement in India, Yatai Group Ltd.etc
 Demand for cement will increase by 50% by the end of
researchers to develop substitutes which are environment
friendly and require less energy.
 The building materials firms have to develop new green
methods of manufacturing as the threat of substitute will
increase in the future with the growing concern of
environment degradation and depletion of natural resources.
 Product Innovation can and technological change can
increase the threat of substitutes and can also increase the
level of rivalry if the competitors invest huge sums of money
is invested in innovation and exploration of new renewable
resources.
 CRH has acted positively towards this change and its plants
have started using Solid Recovered Fuels (SRF) such as
Ground Limestone, Fly-ash (PFA) and slag which compromise
for 15.4% of total activity. (CRH sustainability report)
 The industry leaders European firms have been able to
understand the trend and have reacted to it by increasing
their M&A activities in the emerging economies eventually
leading to reduction in competition from regional leaders,
However the Level of competition amongst the market
leaders will intensify.
13
 2020(The Guardian, 2008).
 As the purchasing power of people is increasing in
emerging economies and they prefer to invest in
properties as the value is appreciated over time due
to increased demand. Investment in property is
seen as a “status symbol”.
 As people are concerned about environmental
issues in western countries they prefer ‘green
construction activity’.
Changes in Social
Concerns, Attitudes
and Lifestyles
 Market leaders will be able to acquire market share if they
are able to strategically innovate & develop their
commodities into eco-friendly commodities and also
enhancing the quality and reducing the cost.
 This has caused development of green methods and creation
of substitutes such as fly ash which have the same
properties but are emit low CO2.
 Environmental concerns and the opportunity to walk or cycle
to public transport terminalsis increasing the threat of
substitutestaking over the dominance of personal vehicles.
 Whereas in developed economies due to strict policies
regarding environment pollution the traditional firms
have shifted their focus to emerging markets where they
see more opportunities where people
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 World Building Materials Industry Future 5 Forces

Impact of EV Forces on Degree of Future

Competitive Rivalry Impact
Threat of  Threat of Entry in the future will be moderate in the
future.
Entry  Due to economic progress in emerging economies,
increased demand for infrastructure and government Moderate
support, domestic firms have started entering into this
business inspite of high initial investment cost.

Threat of  The threat of substitutes will increase in future

years.
Substitutes  Government rules and regulations, environmental Moderate
concerns about carbon footprint and global warming
and changes in social attitude will force firms to modify
their products or they will perish.
Bargaining  Bargaining power of the buyers will remain moderate in Moderate
the future.
Power of
Buyers  Opportunities in the emerging markets are attracting
existing firms and also creating new local firms.

 As the primary materials are standardized and the

firms compete on the basis of price buyers can switch
their manufacturers if they charge unrealistic prices
and are not able to offer the same level of quality

 However, in the merchanting, DIY&security fencing

firms can still differentiate through innovation and
brand image which can lead to super normal profits
and decrease in bargaining power of buyers.

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Bargaining  The bargaining power of suppliers will decrease in
the future.
Power of
Suppliers  As consolidation is an ongoing trend in the building
materials industry. The firms use Merger and
Acquisition as a strategy for expansion to supplement
vertical integration the number of suppliers will reduce. Low

 The nature of the industry makes the firms to have

operations near the reserves and the markets thereby
encouraging firms to have control over all activities via
integration.

Competitive  The level of competition is going to intensify as the

existing firms will try to capture and capitalize
Rivalry share of market in emerging economies.

 At present firms compete on the basis of price and

quality but in the future firms will also compete on the Very High
basis of innovation in accordance to the governmental,
societal and environmental requirement.

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Strategic Issues

From the analysis above of Future 5 forces, 3 strategic issues were identified which are described in the table below:

Strategic Issue Issue explanation

As, demand is increasing in emerging markets. Domestic competitors

are rising so as to become regional leaders and maximise their
Rise of domestic
competitors from operations. Also, the society also prefers domestic firms as they
emerging market nations generate jobs and revenue for the economy rather than profit
repatriation by international firm.

Due to environmental concerns new products are being developed

Increase in the threat of
substitutes – Fly ash and which emit low CO2 and are cheap to produce as compared to
Rubberized Asphalt Portland cement.

The level of competition is going to intensify as the existing firms will

try to capture and capitalize share of market in emerging economies.
Intense competitive Also, new domestic firms will emerge as stated earlier and the tools to
rivalry compete will also change innovation will be the main tool to
differentiate.

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 Internal Analysis:-Resource Based View
Every firm in any industry poses resources be it internal or external which give it’s a competitive edge over its rivals. Resource
based view comprises of those resources which are internal to a firm such as Plant & machinery, Employees, Experience, Goodwill
& First Mover Advantage etc. The resources of the firm should be unique for a fixed period of time so that it can exploit those
resources to achieve supernormal profits. Various frameworks have been developed such as VRIN, Historical Analysis and Value
Chain analysis framework to analyse the resources and capabilities of a firm which gives it competitive advantage. CRH plc should
use the above frameworks and develop strategies in order to create a sustained competitive advantage.

Resource Analysis

Resource Characteristics and Indicators Strategic Implications and Issues

 In 2011 the EBIT was €871m which improved by 25% as compared to 2010  CRH financial growth is better as
(€EBIT 698m). PBT was €711m in comparison PBT €534m in 2010 thereby compared to its competitors.
generating ample amount of funds to support its M&A activities.(Annual Report However CRH plc is not exploiting it
2010-2011). fully as it should speed up its M&A
 In the industry CRH plc highest credit rating of BBB+ improving investors’ activities or there is going to be risk
confidence in the firm. (Moroney, M) .The Company also has the best balance of hostile takeover.
Financial sheet in the sector encouraging investors to invest in the company.  Holcim has operations in 70
 Also, net debt to equity is below 40% which shows the company is healthy countries and there main emphasis
Tangible indicating that the majority of the assets are financed through equity. Cash
Resources to expand is on the Asian market,
earnings two third higher than EPS which shows that the company has strong Whereas CRH has operations in 35
liquidity.
countries generating a meagre 15%
of EBITDA. (Moroney, M)

 CRH has 15 billion tonnes of reserves which can last upto 80 years of  Due to the nature of the industry
Physical production. The group has a 1040 quarries/pits in USA and Europe. high investment in physical assets
becomes a prerequisite. Therefore
 At the end of 2012, CRH’s net fixed assets value was € 538 million all major players have significant
18
 havingstrong presence in Western market but a weak presence in India and amount of fixed assets to meet the
China.(CRH annual report 2012) rising demand and to capture
 CRH has acquired the regional leaders of cement and aggregates in Poland, market share with economies of
Netherlands, France and USA such as Oldcastle Inc USA,Finnsementti Oy scale.
(Cision 1999), Jilin Yatai China and 50% ownership in my home industries in
India.

 The company presently has production sites in Europe, Asia and North America.
The majority are situated in Poland, Netherlands and North America.

Intangible  35% of the company’s total energy requirement for creation of cement is met  CRH plc is working in accordance
Resources by alternative fuels such as Biomass & solid recovered fuels, tyres and with the government and
solvents resulting in reduced CO2 emissions. (Sustainability 2013 report). environmental requirements and is
 To retain its green company image in the western market the company has trying to enhance their materials for
started using materials such as Fly-ash, PFA, Slag and ground limestone in production of cement and
Technology cement products. aggregates.
 CRH plc has invested in some green projects such as Oldcastle Precast’s
Storm Capture™ Module System in Florida USA. This project is developed  The group is lagging behind in R&D
for harvesting water and maintain the ground water table. in comparison with its key
competitors and has only few green
projects.

Reputation  The company has a strong position in Ireland and was the lead producer of  CRH has a good reputation over
cement, aggregates, concrete products and asphalt in Ireland. The company different geographical areas. The
has an operational experience of more than 40 years in its home market. recent achievement to be included
in FTSE 4 good companies will in
 Its holds strong position in key segments of its commodities. Such as No. 1 future can help stronghold its
position in building materials in Poland. No. 1 position in Cement in China & current position.
No. 2 position in South India.(CRH annual Report 2013)  The company has to make sure that
it maintains its strong reputation to
 The company has won several rewards from 2008 onwards such as “best become a trend setter in the future.
investor relation award” in its sector and as an Irish company.

 However the companyon some occasions had to face criticism as it the

company was under scrutiny for ‘bribing $1m to polish government officials’
(Dennis Stuanton 2005).

19
  The company has a total of 76,000 people. In more than 40 years only there  CRH has a strong managerial talent
had only been six chief executives indicating that the executives have been base due to its policy of retention
associated and are familiar with the company’s activities (Moorney, M 2013). and internal recruitment. The
 The company possess highly qualified and talented professionals. Also, it company has to follow the same
Human Resources retains employees and managers from acquired companies thereby trend of employee engagement in
increasing the level of trust and having easy access to local customers. order to become the market leader
 There is low labour turnover rates because as the company rewards its and to build strong relations with the
employees on the basis of performance thereby motivating employees to society and host country
work hard. government.

VRIO Framework

20
TheKey capabilities and tangible and intangible resources of CRH plc. are identified with the help of resource analysis. VRIO
framework helps to identify whether or not the company is utilising these resources to the fullest in comparison to its competitors.

Costly to Exploited by Competitive

Resource Valuable? Rare?
Imitate? CRH? Implications

Advantage not
Tangible
Financial     Fully Exploited
Resources Advantage not
Physical     Fully Exploited

Intangible
Technology     Disadvantage

Resources Sustained
Reputation     Advantage

Sustained
Human Resources     Advantage

21
Key Resources

From the above analysis it is evident that CRH plc key resources are its Reputation, Finance
and Human resources but have not been utilized at the same rate as their main competitors.
The group has to accelerate its expansion plan in emerging economies and should use its
surplus financial resources in order to surpass its main competitors.

o CRH plc has a healthy balance sheet the best amongst the sector which has continuously
increased over the years since the economic downturn. The group has to reinvest its
financial resources in opportunities arising India, China and South American markets or
else their competitors will have a strong presence in these markets.

o The group ranks no.1 and no.2 positions in variety of products across different
geographies in the industry and has won many awards which has improved its
reputation. Also, the employees are loyal to the company due to the employee
engagement tools which the company uses strategically. The group has to ensure that it
continues to use its intangible resources.

Strategic Issue

 The group has ample amount of financial resources to invest in R&D to develop
alternative products and enhance its current facilities to improve efficiency. Although,
the group has invested a lot of money in improving its existing facilities. The group is
still lagging in diversifying into emerging markets in comparison to Holcim who has
more operations in India and China and entered these markets in 2005.

 CRH plc has only developed a few green projects such as “ Oldcastle Precast’s Storm
Capture™ Module System” in Florida USA thereby depicting that it can invest more in R&D.
Whereas Holcim has a number of green projects such as “Green Building Centers” in India,
“Indoor Climate Solutions (ICS)” in Indonesia and “G100” concrete in Singapore thereby
investing more in R&D.(Holcim Sustainability report 2014).

22
 Organisational Based View (OBV)
According to (OBV) Organisation Based View the factor for a company’s success is its ability
to meet the demands of its stakeholder as well as managing the “stakeholder driven
organisational factors” (Oktemgil, 2015). So, if an organization is unable to keep up with the
needs of its key stakeholders then in the long run it will face problems and will not be able to
achieve its objectives.

High
Customers
Suppliers
Pressure Groups
Financers
Shareholders P
Competitors o
w
e
Keep Satisfied r
Key Players

Low Interest Interest High

P Employees
o Media
w
e
r Keep Informed
Minimal Effort

Low
23
 Strategic
Stakeholder Strategic Implications
Issue?

Governments  In the building material industry government has a lot of

influence as the broad guidelines are set up by the
government regarding the procurement and usage of
raw materials vital for the success of the industry.
Especially in regards to environment norms. Other
norms are safety norms & resource procurement rules.

 The laws in E.U. are stringent and the CRH need to Yes
ensure that it operate in accordance with the laws for
the future. If the company will not be able to comply
with these norms then it can face serious problems in
the future such as plant closures & hefty fines and
penalties and even deterioration of good market image.

Competitors  CRH holds a strong position in USA and Europe

generating 85% EBITDA from these territories.
However, the company has weak EBITDA generation
from emerging markets ie 15% which should be the
priority due to increased demand.
 CRH’s competitor such as Holcim operating EBITDA in
Asia and Africa i.e. 2,154m is more than the operating
EBITDA from Europe and USA i.e. Chf 1,107m (Holcim
annual report 2014)`. No
 CRH is investing in sustainable and environment
friendly projects but they should intensify the
investment rates or else the competitors will capture
more market share.
 However, the industry is consolidating and CRH is
using the same approach through M&A. So, in the
future there will be few competitors in the Building
materials industry.

Shareholders  Since its inception as a public company the company

has followed an increasing dividend policy and has
continually paid dividends to its shareholders.
 As the company is going to expand in emerging No
markets it has to make sure that it pays regular
dividends to its shareholders. If it cuts dividend it should
explain it so as to keep the share price entact.
Suppliers  The company follows the strategy of Mergers and No
Acquisitions to enhance vertical integration to achieve
economies of scale
 Generally in this industry the firm itself is the supplier of
the raw material and a close proximity has to be
maintained near the reserves.
 As the transportation cost is relatively high the firms
prefer to operate near the local market thereby
controlling all the operations for distribution.

24
 Financers  CRH must ensure that its present impressive financial
performance is maintained in the future so as to have
access to loans from financial institutions and banks to
maintain debt to equity levels
 As CRH has been paying increasing levels of dividend
to its shareholders (CRH Dividend History)and has to No
maintain this level the group has to strive to maintain
good relations with the financial institutions and banks
as they company will require funds for diversification in
emerging markets.

Employees  As CRH develops its employees internally which is the

competitive advantage the group has to make sure that
it fulfils the needs of its existing employees in the same Yes
way as it has done before.

Customers  The firms in the building materials compete on the basis

price, quality and innovation thereby giving customers a
wide variety of options to choose from. The products in Yes
the primary materials segment are standardized giving
the customers the power to negotiate on the basis of
price.
Pressure Groups  Awareness amongst people about increased
environmental problems have led the industry to
change their operations significantly to reduce carbon Yes
footprints levels. CRH has to allocate significant amount
of money to upgrade their technologies so as to satisfy
the standards set by pressure groups.
Media  The media can hamper the image of a Building
materials company seriously if it harms the environment
and if it uses corrupt practices to influence government.

 Till date the group had good relations with the media
which has resulted in a good market reputation.
However on some occasions in Poland the company
was criticized for bribing the government officials to
privatize the industry. Yes

 The company has to ensure that its good reputation

remains intact as in emerging markets the level of
corruption is high and the media is more aware and
look for an opportunity to expose a company.

Strategic Issues

25
With the help of stakeholder analysis 5 keys strategic issues can be identified, which are
explained below:-
Strategic Issue Issue Explanation

Governments sets the broad guidelines for the firms with regards
to safety, emission levels, acquisitions of key resources and also
Heavy governmental influences the design of the future products which should be in
influence accordance with the emission levels. The group has to maintain
strong ties with governments or else competitors will take
advantage and have access to key resources and incentives.

The group has won several awards which has amplified the
reputation of the firm. The firm has to make sure that its good
image remains positive when it enhances its operations in
Increased Media Coverage
emerging nations as the media attitudes towards a foreign firm is
usually negative and look for a chance to damage the reputation
of the firm.

The society is more aware than ever before and play a vital role
in shaping the strategy of the firm in the building material
industry. The peer groups are concerned about the society and
whether the international firm is creating ample job opportunities
for the people and also not driving away small domestic firms
from the market. The big firms like CRH who are financially
Pressure Groups strong can exploit the small firms and can influence the
government especially in emerging markets. CRH has to make
sure that it remains involved in activities which help the society to
improve overall and maintain the position of positive image of the
company.

As the nature of the heavy side materials is standardized which

increases buyer power as they can purchase from different
Increasing Buyer Power
manufacturers the firms cannot fluctuate price and can only
compete on the basis of quality and innovation in the future.

Threat to current
employees from emerging
 As the company’s main focus and operations have shifted to
market workforce emerging markets the existing employees will feel

26
 demotivated from cheap human resources available in
emerging markets. The group must safeguard the position of
its existing employees by involving them in their offshore
operations.

Looking at CRH from an international point of view helps in understanding the overall aims and
strategy of the group. As evident from the case study the company has a very strong position in its
home market but has weak presence in emerging markets. The group follows a “Hybrid
Transnational Strategy” as it has a federal structure and gives autonomy to its regional leaders and
managers who are familiar and experienced with local practices prevailing in their respective
regions. However, CRH plc has to give more autonomy to regional managers.

27
 High
Pure Global
Strategy
CRH’ Current International Strategy

Adapted from Oktemgil, 2015

Hybrid-Transnational
Pressure for Global Strategy
Integration

28
 CRH’s Recommended International Strategy

Pure Multi-Domestic
Strategy

Low

Low Pressure for Global Responsiveness High

29
 Strategic Implications and Issues

Over the course of time CRH plc has developed as a global building materials company
catering the demands of consumer across the world and following a Hybrid-Transnational
Strategy. However awareness of the society regarding environment pollution, safety &
security of local workforce have enforced the government to change their policies regarding
emission levels and employee engagement. CRH plc has to give more autonomy to regional
managers. The group should offer full control to regional managers thereby following a pure
multi-domestic strategy. Generally, the attitude of the society is negative in emerging
economies so if the group follows a multi –domestic strategy giving priority to the needs of
the society then their overall image will improve which will enable them to maximize profits,
market share, resource procurement & government subsidies.

Categorisation and Prioritization of Strategic issues

With the help of issue prioritization matrix key strategic issues can be placed in accordance
with the urgency levels and their nature. Before finding solutions and recommendations for
the issues identified above, they need to be positioned on the issue priority matrix so as to
filter the most critical issues acting as an obstacle in the success of the business.

30
 High Urgency
Key Strategic Issue Key Strategic Issues
SH  Heavy governmental influence  Increasing Buyer Power
LH
 Environmental concerns is the key issue in building material  As the building materials are generally standardized consumers have can
industry. Building Material industry has to operate in accordance choose from different manufactures thereby increasing the bargaining
with the environmental regulations set up by different governments power of the buyers.
so as to survive and have a clean image.
 Pressure Groups
 Increase in the threat of substitutes
 The society is more aware than ever before and play a vital role in
 Due to global warming and rising carbon emission levels the firms
shaping the strategy of the firm in the building material industry.
are looking for substitutes which are eco-friendly. However, cement
The peer groups are concerned about the society and whether the
can be supplemented and not completely substituted.
international firm is creating ample job opportunities for the people
and also not driving away small domestic firms from the market.
 Increasing demands from emerging markets
 As the economy is improving in emerging markets the demand for
infrastructure is on an upward scale which has also increased the
level of competition in the industry. Long Term
Short
Term
 Increased Media Coverage  Threat to current employees from emerging market workforce
 The media has a negative attitude towards foreign direct investment  As the company’s main focus and operations have shifted to
especially in emerging economies. The businesses which emit emerging markets the existing employees will feel demotivated
carbon and other harmful gases are always targeted by the media. from cheap human resources available in emerging markets. The
CRH has a good reputation and has done multiple activities to group must safeguard the position of its existing employees by
improve the quality of life for its people. Also, the company has involving them in their offshore operations.
tried to counterattack the threats posed by environment pollution
by investing in green projects.  The group is lagging behind in R&D in comparison with its key
competitors and has only few green projects.

 CRH has few competitors. However all of its competitors have

sufficient amount of resources, capital and have invested significant
amount in R&D which has enabled them to achieve economies of
SL scale. CRH needs to invest heavily in R&D so as to manufacture
products which are eco-friendly and at the same time have superior LL
quality.
Short Long Term
Term

31
Low Urgency
Key Strategic Issues

 From the various analysis conducted above, several issues can be identified in CRH plc. However, it is very difficult to
resolve all the issues. CRH should instead try to resolve only those issues which can pose as a threat to the existence of the
firm. The issues stated above and indicated in red should be tackled by developing strategies. Furthermore, if the strategies
implemented become successful the group will be able to enhance its position in the industry and become a market leader.

 1.Heavy governmental influence (Short)

 Government policies, with regards to emission levels, resource procurement, energy consumption levels and employee safety have
forced CRH and even its rivals to change their business models relying more on energy efficient and environment friendly products. If
CRH plc is unable to switch to alternatives there is a possibility that the firm will lose their competitive advantage. However, there is a lot
of cost associated in R&D of alternatives. Even then the firm should invest or else it will be penalised and can also be driven out of the
industry.

 2.Increasing BargainingPower of Buyer (Long)

 The Bargaining power of the buyer is increasing as the industry is consolidating and the firms compete on the bases of price.
If CRH plc is unable to deliver both high quality and competitive price the buyers will simply opt for other companies. In the
future the competition will intensify and only those firms who have access to sufficient amount of both human capital and
natural reserves will be able to compete on the basis of the price. To meet the growing demand of heavy-side materials from
emerging economies a lot of investment should be made in improvements of Plant and Machinery to achieve effectiveness
and efficiency.

 3.Pressure Groups can drastically deteriorate the reputation of the company (Short)

32
  For any international firm reputation is the key to success and survival. When international firms enter into emerging
economies especially in the India they face a lot of criticism by the society pressure groups who consider foreign companies
as ‘evil’ whose aim is just to repatriate maximum profits and remove domestic competition.
 4.Increasing demands from emerging markets(Short)
 The demand for building materials has increased drastically in the recent years especially from the emerging countries. This
is a big opportunity for the firm to make a lot of profit. However, currently the EBITDA of the firm from ASIA is 15% which
signifies that the firm has a low presence in the emerging market.

CRH Plc Strategic Choices

In order to counterattack the key strategic issues pertaining to CRH PLC many strategies can be developed and can be assessed
using the Suitability, Acceptability and Feasibility criteria popularly known as (SAF) criteria.

Related Strategic
1. Establish strong relationship with the local government and societal group s Issues: 1 and 3

Details /
Strategic  The level of governmental influence has increased and will be on a rise in the future as due to
Choice
Explanation
environment pollution, natural calamities and health problems has made customers and peer
groups concerned which can damage the reputation of the firm adversely. In order to overcome
this issue the group has to make sure that from the entry point in the emerging markets the
group is involved in activities such as creation of job opportunities, charities, education
33
 facilities and provision of basic amenities etc. which will amplify the image of the group thereby
resulting in increased market share.

Suitability  As there are strict laws regarding emission level, safety and health of the employees in the European Union
this strategy is absolutely necessary for the survival of the company in the European and American market.

 The laws are not so stringent in the emerging marketsbut in the recent years due to increasing number of
natural calamities the government is influenced to change its policies and have placed stringent laws thereby
making this strategy suitable for the emerging markets. 
 In the emerging markets none of the main building materials have strong influence over the government or the
society. CRH can take advantage of this and establish strong tie ups with the society and change their attitude
by fulfilling their needs.

Acceptability Returns

 The returns will be positive in the future. There is an initial cost associated in implementing the strategy. However,
the returns will be significantly higher and as the firm have surplus amount of funds they can contribute to the
societal objectives which will also supress minor issues related to media.
Risk

 As such there is no risk associated with this strategy as a.) Not a lot of investment cost is involved which maintains
the liquidity levelb.) Nullify the effect of negative media attitude. c.) will become a prerequisite in future to enter into
the industry.

Stakeholders

 All governments will welcome this positive attitude from the firm as this will help in reducing carbon footprint levels
and also fulfilling societal objectives.
 The society will support this idea as this strategy will boost economic development with achievement of societal
objective as the main aim of this strategy is to strengthen relations with the society and pressure groups.

34
Feasibility  The PBT in 2011 was €711m which means that the firm has ample amount of funds to support this activity. Government
will also provide incentives to speed up the ‘Green projects’.

 In the UK and other European countries the government has schemes such as ‘CRC Energy Efficiency Scheme’ to
induce firms to use energy efficient sources and develop more eco-friendly sources.(Environment Agency)

 As CRH already has some green projects in The USA it is easy for the group to apply the strategy in the emerging
economies making the strategy attractive and feasible. The group should give priority to this strategy as this will
create a win-win situation for the group making it more competitive and raising the overall industry standards.

2. Intensify M&A strategy Related Strategic

Issues: 2 & 4

Details /
Strategic As mentioned earlier, CRH plc has not fully expanded its operations and activities into the growing economies
Choice and has only few project in India and China as compared to its competitors who entered these markets in
Explanation
2005. Through Mergers and Acquisition strategythe company can expand its operations into these markets by
acquiring regional leaders and small businesses thereby increasing the total market share of the company
and making the industry monopolistic in nature.

Suitability  The group already has strong experience in this strategy in developed markets and in Poland.

 As consolidation is an ongoing trend in the industry the group can acquire companies in emerging markets as
demand is on a rise for construction activities.

 The domestic competitors (SME’s) will regard CRH as ‘evil’ as it going against competitive spirit and using its
/
strong market position to exploit them. This will get pressure groups and society activated against the group
thereby deteriorating the image of the group.

35
Acceptability Returns

 As the demand in the emerging markets is uncertain the ROIC may not be more or the same level. Also, a lot of
funds are involved in M&A and the employees of the acquired firm might be under the pressure to perform feeling
discouraged eventually underperforming.
Risk

 There is a lot of risk involved with Mergers and Acquisition activity such as Financial, Cultural & Employee-
Management relationship risk etc.

Stakeholders 
 Governments in Emerging markets generally oppose this strategy and may force the firm to form alliances either
with state or private company.
 Society and Peer groups have a negative attitude towards foreign investment especially in emerging markets. The
society perceives that the Global firms take advantage of their power and as they have funds they exploit the small
firms and the government eventually driving out the small domestic companies and changing the market to
monopolistic in nature.
 Shareholders may not accept this strategy as a lot of funds will be involved and to supplement M&A retained
earnings might be required if the investment criteria is not met by external funds.
Feasibility  This strategy involves a lot of cost as the group will have to open new operations which will involve cost. Also,
there will be a lot of cost involved in advertisement which is regarded as sunk cost thereby increasing total cost


incurred. There will be a cost involved with Training and Development of acquired company employees.
The firm already has experienced staff in the area of Mergers and acquisition from developed countries. Moreover,
/
the group can take advantage of this and expand into emerging markets.

36
 Related Strategic
 Boost Strategic Alliances with well-established companies from emerging markets Issues: 3 & 4

Details /
Strategic As mentioned earlier, CRH plc has not fully expanded its operations and activities into the growing economies
Choice
Explanation and has only few project in India and China as compared to its competitors who entered these markets in
2005. Through continuing the same strategy of boosting strategic alliances with top companies in India and
China the firm can make a lot of profit and also strengthen its position in these markets aiming for sustainable
development.

Suitability  Entering into the emerging markets through strategic alliances is suitable as the already has some
operation in this area in India and China.
 The stakeholders will react positively to this decision as the domestic firm will remain in the business
and will also get support both financial and human expertise from CRH.
 The rapid industrialization have increased the demand for building materials significantly in the

emerging markets with strategic alliance both CRH and domestic firm can make a lot of profits.

Acceptability Returns 
 The level of return will be higher than the investment cost as the demand is more than supply in the
emerging markets as depicted in the figure 3.1.

Risk

37
  In the case of Strategic alliance the risk is shared between the partners in the alliance. The group’s
core policy is to target those firms who are their regional leaders. This also reduces the risk as the
host company are familiar with the local market demand related conditions.

Stakeholders
 The shareholders will have a positive attitude towards this strategy as the firm will not have to use all
its funds for expansion. It also depends on the level of equity which the group wants to have in the
strategic alliance. The firm major aim is to increase the profit levels and as demand is increasing the
shareholders will be in favour of this strategy if the group is able to maintain the level of dividend.
 CRH employees will be in favour of this decision as this strategy will be able to neutralize the threat
arising from negative attitude of current employees as they will be required to manage the top level
operations in the emerging markets with cheap labour for construction and procurement activities.
 Pressure groups would be neutral with regards to this strategy. Thenit gives little or no consideration
to environmental concerns and negative publicity would impact US home market operations and
sales.
Feasibility  The group has the strongest balance sheet in the sector so it can easily form strategic alliances with
regional leaders.
 Formation of strategic alliances with regional leaders will give CRH access to experienced staff
thereby enhancing the employee base of the company. 
 Also, CRH already possess trained and talented staff which can integrate with new staff train and
motivate them to achieve company’s objectives.

38
 Related Strategic
Issues: 2 & 4
3. Intensifying operations of Complementary Products.

Details /
Strategic CRH plc apart from dealing in primary materials i.e. cement and aggregates also has some operations in
Choice glass, furnishing, fabrication etc. The group should intensify these operations as these are complementary
Explanation
products and with increasing demand of building materials from emerging markets there will also be an
increasing demand for secondary materials which can help the group to capture different market area and
increase overall profits.

Suitability  This strategy is suitable of emerging markets. In India there is an increased demand of Italian furniture & tiles
etc. These are considered as status symbol.
 With the help of product differentiation the company will be able to enter into new market segment. 
 The potential consumers will have a variety to choose from thereby making the products offered by the group
more attractive.

Acceptability Returns

 The return will be higher as the group will be able to offer products to a new segment and with their core

product area of primary materials.
Risk

 There is little risk associated with this strategy. Only risk is with the advertisement and development of
product which is small risk in comparison to M&A.

39
 Stakeholders
 The shareholders will support this strategy as the dividend policy will not be affected adversely. Also if the products
are successful in the new markets the profit level will increases which will fulfil the objective of ‘Maximising
shareholders wealth’

Feasibility  Group has ample amount of funds to support this strategy and is comparatively inexpensive strategy with regards
to M&A.
 CRH has little experience in this field. However CRH can employee experienced people to solve this problem and
can also train its existing managers and employees.


40
SAF Evaluation

The table below illustrates the result of the SAF evaluation made for each strategic decision. 3 out of
4 have passed all the criteria. The group has to divide the strategic options on the basis of
the time frame and then implement these selected strategies.

Strategic
Strategic Option Suitability Acceptability Feasibility
Recommendation?

1. Establish strong
relationship with the
local government and    
societal groups

2. Intensify M&A strategy

/  / /
3. Boost Strategic Alliances
with well-established
companies from    
emerging markets

4. Intensifying operations
of Complementary    
Products

41
Action Plan

Establish strong relationship with the local government and

societal groups.

Key Strategic  1 –Heavy governmental influence

Issues
Addressed  2 – Pressure Groups Intervention

Time Frame  Medium Term: 2- 4 Years

0-2 years: - In the first two years the group should look for areas where even basic
facilities are not made available by the government. These include access to clean
water, Electricity, basic infrastructure and education etc.

Then the firm should enter into relationship with local government and media
groups so as to have access to subsidies and media coverage which will enable
the firm to identify the required amount of funds in order to facilitate the pace of
development and to motivate the employees.

Justification
of 2-3 years: - After communicating and connecting with the government the group
Establishing
has to distribute the funds to motivated people either of the government or from the
relationship
with local community who are close to the people and understand their requirements.
government

3-4 years: -The group has to ensure that the activities are according to the
guidelines set up and also, the media is covering all the activities which will
eventually lead to positive and clean image.

42
 Boost Strategic Alliances with well-established companies
from emerging markets

Key Strategic  1 –Increasing demands from emerging markets

Issues
Addressed  2 – Pressure Groups Intervention

Time Frame  Short Term: 1-3 Years

0-6 months: - In the first six months the group should look for regional leaders
who have a wide customer base and close relations with the local government.

6 month-12months: - For the next 6 months the group has to identify and
negotiate for the ownership, control and financial requirements. Also, CRH plc has
to send a team of managers and employees to strengthen relationship with the
Justification
of Strategic potential partner firm.
Alliances
with well-
established
companies
from
emerging 1-3 years: - CRH plc for the next two years has to initiate activities and provide
markets both financial and human resources to facilitate trade, increase market share and
earn profit. Also, the group has to monitor the alliance performance with rival
companies using bench marking and best practice to improve themselves in the
future.

43
 Intensifying operations of Complementary Products

Key Strategic  1 –Increasing Bargaining Power of Buyer

Issues
Addressed  2 – Increasing demands from emerging markets

Time Frame  Short Term: 1-3 Years

0-6 months: - Initially the firm has to observe the market and has to understand
the taste and preference of the people and then make a list of the required raw
materials to proceed with production.

6 month-12months: - For the next 6 months the group has to find and contact
Justification of supplier’s preferably local suppliers as the cost of exporting raw materials is very
Intensifying
high.
operations of
Complementar
y Products
1-3 years: -The group has to market its complementary products with its
primary products by offering special discounts and promotion. Also, after
achieving good amount of sales the firm has to compare its performance against
industry leaders through ‘best practice’ and ‘benchmarking’.

44
 Conclusion

To conclude this report, it is evident using different tools and frameworks that CRH plc has
some key issues which the group needs to consider and overcome to maintain and
strengthen its competitive position. If the company implements the above recommended
strategies then it might be able to overcome these issues and will be able to enter into the
emerging economies successfully which will eventually maximize the wealth of its
shareholders as demand is growing in these economies.

There is also an interrelation between the recommended strategies stated earlier. If the
group is able to form strategic alliance with the regional leaders in emerging markets it will
automatically strengthen the relations with the government as generally regional leaders
maintain good relations in order to get subsides and procure raw materials essential for the
operation.

45
Dividend history

Restate 200 201 201

2001 2002 2003 2004 d 2004 2005 2006 2007 2008 9 0 1

Reporte 23.0 25.4 28.1 33.0 33.00 39.0 52.0 68.0 69.0 62.5 62.5 62.5
d 0 0 0 0 0 0 0 0
Dividen
d per
share
(cent)

Rights 20.7 22.9 25.3 29.7 29.76 35.1 46.8 61.3 62.2 62.5 62.5 62.5
Issue 4 0 4 6 7 9 1 2
Adjuste
d
Dividen
d per
share
(cent)

Dividen 5.0 4.7 4.3 4.4 5.0 4.8 4.3 3.9 3.4 1.4 1.0 1.3
d cover
(times)
(b)

(b) Represents earnings per Ordinary Share divided by dividends per Ordinary Share.

Source|http://www.crh.com/investors/equity-investors/dividends/2012

46
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