Porter’s 

Five Forces Analysis o
f
 Cement  Industry

MONIKA JAMBHALE PGDFT2009

JHANVI RAYANI PGDGFM2030
DHAWAL RAVARIYA PGDGFM2037
VISHAL VAYA PGDGFM2039
JAY PARIKH PGDGFM2041
 Porter’s Five
                                                              
Forces
                            
INDUSTRY OV E RV I E W
• India is the world’s second largest producer of cement and provides
employment to  more than a million people in the country. Nearly after
three decades of its  deregulation, the sector has grown tremendously
owing to large investments by both  domestic and foreign investors. 

• As of 2019 India has a production capacity of nearly 334.48 million tons

(MT) for  cement which is further expected to rise to 410 million tons by
2023. There  have been large FDI inflows into the sector amounting to
$369 billions in 2019 alone.

• The sector’s major demand is generated by the rural housing sector

followed by the  urban housing sector. Schemes such as Pradhan Mantri
Awas Yojna, Housing for all by  2022 and initiatives by the government to
develop country’s infrastructure have  further poised this sector to grow
exponentially in coming years. It is because cement  is one of the primary
tools for execution of such projects. 

• Eastern India states are expected to raise the market for cement
industries in coming  years.. Number of foreign players  are also
expected to rise owing to rising demand from housing, commercial and 
industrial construction sector.
 THREAT OF NEW ENTRANTS
H I G H BA RRI ERS TO ENTRY EXISTS - 
• High transportation costs 

• Location 

• High competition
  
• High capital requirement 

• Moreover, there exist tougher governmental clearances, already 

oversupplied market, high amounts of idle capacity with existing players, 
broad distribution network and leading firm’s full exploitation of  economies
of scale through large scale production contributing to the  deterrence in
new entry.
 BARGAINING POWER
 OF SUPPLIERS
MODERATE TO HIGH BARGAINING POWER OF SUPPLIERS

• In cement industry, supplier of raw materials usually exert a 
high amount of bargaining power because of the strategic 
nature  and non-  substitutability of inputs. 

• Most of the raw materials used by the industry for its 
production such as coal and limestone are natural resources 
and thus come under  the control of union government.
Firms have to buy rights from the government to set
up a cement  plant and use the natural resources for 
production. 

• However, many companies have captive limestone reserves 
and thus no supplier power exists  in such cases. But it must be 
noted that such captives are held only by large units with 
 tremendous financial strength. Therefore, a single 
concentrated supplier of raw material, huge  importance of 
such raw materials in production, no substitutes for these 
inputs, and no  possibility of switching between 
suppliers contribute to overall moderate to high  bargaining 
 power on the part of suppliers.
 BARGAINING POWER OF BUYERS
LOW BARGAINING POWER OF BUYERS
• Cement industry with lesser number of firms operating is more or less is an oligopolistic market 
with large number of buyers in it.

• Bargaining power of buyers which is the referred to amount of influence that buyers have in the 
decision making of firms is considered low in this market. 

• Taking a view of the market demand shows us that there has been a considerable fall in demand fo
r cement products from
government  sector and instead retail housing has become the major demanding player now.

• The major concern with this industry is that even though the switching cost for buyers is low, the 
product is perfectly homogenous, there are  only a few competitors in the market facing a scattered
 buyers having no impact on the company. 

• In face of such low bargaining power of buyers, firms are bound make higher profits and the 
customer suffers.
 THREAT OF SUBSTITUTES
LOW   THREAT O F SUBSTITUTES

• Threat of substitutes exist for a product when the buyer can easily access another product which more or less satisfies his wants and is from 
another industry. Such threat in the cement industry is negligible since no close substitute of cement exist in the market. 

• Talking about some far substitutes of cement are bitumen, engineering plastic, and timber. Bitumen and engineering plastic although offer some 
competition to cement but they cannot replace cement in many areas of work. 

• There are no direct substitutes of cement in making of roads, building indicating the industry faces no threat of substitution and  exercises a
strong position in the market. 

• The further consequences of this lower threat could be lower innovation on the side of sellers, less  expenditure on R&D, high price due to no
competition. In such cases, where only a few firms exists in the market it is also possible for the firms to  enter into a collusion and exploit
markets thereby making their own profits.
 COMPETITIVE RIVALRY 
HIGH COMPETITIVE RIVALRY

• The industry consists of few firms and high entry 
and exit barriers due to  large scale of 
production prompting firms for a price 
competition among them.

• Due to marginal product differentiation, there is no
 brand loyalty in the minds of buyers. This 
further creates the possibility of higher rivalry 
among the firms to attract buyers.

• The direct consequence of this high rivalry is
price benefits to the buyers, giving them an upper 
hand in the market.
Thank you for your attention.