Nov 26, 2020 in Management

OCI

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Question 1

OCI manager, Mr. Sawiris, faced a dilemma related to the company's performance in the current year compared to that of the preceding years. The company has been experiencing a downfall since 2006, and he was not sure what the cause of such poor performance was. It was not evident whether the problem was related to the industry or certain global issues (Orascom Construction Industries S.A.E.). Mr. Sawiris was not sure about the future of the company due to the changes in the cement industry. The company had a variety of alternatives that it could undertake. They could choose to stay and continue competing in the cement industry; to be competitive, they would have to increase their investments. However, this move would give the company a higher ground compared to its competitors. The company could also consider divesting its operations to other promising industries, like the fertilizer industry, which could grant it a promising future with few competitors. By taking this alternative, they would have to abandon cement production and sale operations in Egypt and other countries (OCI).

Question 2

OCI is a multinational Egyptian corporation run by one of the wealthy families in Egypt. OCI has a variety of pooled and technical capabilities that make the company competitive in the marketplace. Over the years, the company has grown to be a global cement producer. It has a competitive advantage over its competitors due to the following competencies:

Commissioning enormous and complex infrastructure projects;

Establishing deep, long-term affiliations with clients;

Creating strong and enduring partnerships with key technology providers like Uhde, Alstom, KBR, etc.;

Inaugurating strategic partnerships, such as the Morgan Stanley Infrastructure Fund, to benefit from new and repeat business prospects (OCI N.V.);

Being committed to quality and safety.

These competencies, when combined, may help the company continue growing. The company has strengths that the management can build on to gain a competitive advantage over other cement producers. The company possesses the following strengths:

1. Orascom was the top contractor in the MENA region, with three discrete and complementary brands and a clean operating track record. It had the aptitude to accomplish and deliver large industrial projects on time and within its budget (Orascom Construction Industries S.A.E.).

2. The company has a distinct business strategy that focuses on upholding and further strengthening its leadership position in key regional markets by establishing strong and essential business relations with the key technology providers and the acquired partners.

3. Business broadening and diversification through investments in fertilizer production facilities.

4. Comprehensive operating profitability, replicating the company's low-cost production base and operating efficiency. Cost leadership through vertical amalgamation, economies of scale, tax advantages, and low-cost feedstock agreements.

5. Equitable leverage and strong liquidity position, implicating the managements moderate financial risk appetite.

6. Low-cost margins have given OCI the capability to offer their services at promising prices, thus giving the company an edge in the bidding process.

7. The experienced and professional management team with a proven business execution track record.

8. Government Partnerships. OCI has formed ties and partnerships with many governments across the MENA region.

9. The synonymous brand name that allows the company to contend in diverse markets and competitive bids for new contracts.

10. The organization has vertical integration. OCI benefits from having the essential competencies of keeping its margins in check despite a volatile price environment.

Question 3

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The diminishing backlog in the cement industry attributes to the slowdown in the construction activity on both the regional and international levels. It started in 2008 when the countries in the GCC and the entire MENA region felt the effect of the worldwide economic slowdown (OCI, N.V. FY 2013 Results Report). However, with the advances made in the sector, which ensure successive construction booms in the region, the market is now flooded with strong competitors on both the local and international levels. I will have to contend with other industries in bidding on new contracts. The cement industry advancements will hamper the development of OCI as compared to other Orascom Industries.

Question 4

The company has two strategic alternative steps that it can take to grow competitively (OCI N.V. FY 2013 Results Report). If OCI enters the fertilizer industry, their net profit will rise compared to the previous investments in cement production. The profits will rise by 50-70 % due to the low cost of production. The shareholders will benefit from this alternative. The employees, in their turn, will be disadvantaged if the company follows this fertilizer strategy. They will be sacked since the business course will change and their abilities will not fit the new industry. However, based on the commodity nature of the fertilizer business, the profits and gross earnings are largely affected by price fluctuations (Orascom Construction Industries S.A.E.). The management, in this case, will be disadvantaged as well. They will have trouble maintaining the company with inconsistent profits.

The second strategy is remaining in the cement industry. By choosing this strategy, the company can continue expanding and investing in many other countries to supplement its operations. To the shareholders, this move will be less satisfying as the profit margins will decrease due to the increased mergers and acquisitions in the industry. The employees will benefit from this alternative because they will continue working for the company. For the management, in this case, it will be difficult to satisfy both the customers and the stakeholders.

The final solution for the company is to choose the fertilizer segment, which has grown exponentially since its inception, and which offers more potential. Part of OCIs strategy is to catapult this segment since the company is already among the top 10 world producers of nitrogen fertilizers. As a result, OCI will realize exponential profits, and the management, shareholders, and employees will benefit from this strategy.

Question 5

In 2007, OCI decided to venture into the fertilizer industry (OCI). It assimilated with Middle East Petrochemical Company (MEPCO). The company stopped its cement operations in 2007 when it sold Orascom Building Materials Holding Co, a global cement producer, to Lafarge SA. The company was able to focus on the fertilizer segment and enhance its operations with the acquisition of EFC, DSM Agro, and DSM Melamine. OCI also benefits from synergies through ventures and procurements that extend to the fertilizer segment. Consequently, the strategy was worth taking. Shifting from the low-performing cement industry to fertilizer production was the best move the company could make. Presently, OCI is one of the most prominent fertilizer producers in the world. The company's corporate growth has escalated through its digression in investments. The company does not need to reconsider its strategy now. However, they could invest in the cement industry to gain a full competitive advantage (OCI N.V.).

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