You are on page 1of 7

MANEGIRAL ECONOMICS

ASSIGNMENT I
Market Structure of Tokyo Cement Company
Date: 4/04/2007
Title: Market Structures

Objective:
1. Company background and what are the products of the company.
2. Identify for which market structure the company is belongs to.
3. Reasons why we categorizing the company for the above market structure.
4. Giving recommendation of the market structure about the company.

Introduction:
Tokyo Cement Company in Sri Lanka is selected for this assignment. The
Tokyo Cement Company is one of the leading cement manufacturers in Sri
Lanka. The assignment is giving the company background, compare the
Tokyo Cement Company with other cement companies and the products that
available also finding out for which market structure the Tokyo Cement
Company is belongs to. The following points are going to study.

 History of the company.


 Achievements and Present Situation of the company.
 Various Products that are manufacturing.
 The other companies that giving competition.
 For which market structure the company belongs to.
 Giving recommendation of the market structure about the company
History of the Company
The Tokyo Cement company was established in 1982 in Sri Lanka. Mr. A.Y.S
Gnanam and Mitsui Minning Company Ltd of Japan jointly started the Tokyo cement
company in Sri Lanka. Before this company started the local supply of cement was
40% and after the Tokyo Cement Company established the local supply was increased
up to 60%.That is there was 20% of local supply increment in Sri Lanka.

In past the government was the main player of the cement industry in Sri
Lanka. The first ever private cement company placed here was the Tokyo cement
company. At present most of the cement companies belongs to the private sectors.

With Mitsui Cement enjoying premium product status, a clear need was felt
for a cost-effective option. In 1998 the market witnessed the emergence of
Atlas Cement as the undisputed choice of the cost-conscious builder. More ambitious
and exciting plans were now in the pipeline. Buoyed by resounding corporate growth,
Tokyo Cement embarked on its biggest project yet, with a new subsidiary, Fuji
Cement Company (Lanka) Limited.

Achievements and Present Situation of the company


Achievements
They have always believed in the fact that there's never a substitute for being the best.
This has inspired the Company to its present exalted position. The eighteen year long
journey has had many milestones, often won with hard work and perseverance.

 The first private sector cements manufacturing Company.


 The first to obtain SLS stamp of approval.
 The first to be awarded ISO 9002 certification.
 The first company in Sri Lanka to have been awarded the ISO 14001
certification.
 The first automated cement factory.
 The first facility to produce special cements of high Blaine fineness.
 The first to hold skill-development seminars for masons.
 The first to have a captive power plant.
Present Situation
The Company now boasts of its own cement terminal in the Colombo Port, Operated
by a new subsidiary under the name of Samudra Cement Co. Lanka (Pvt) Ltd. This
new facility will enable the Company to meet the ever increasing demand for cement,
especially in the western province. Today Tokyo Cement is one of the leading and
best quality cement supply Companies in Sri Lanka.

Various Products of the Tokyo Cement Company


There are many products which produced by Tokyo Cement Company.
 Mitsui Cement
This product has been the popular choice of the discerning builder.
 Tokyo super Portland cement
Ideal for general and all concrete constructions and is available 100%
factory fresh for better bonding.
 Tokyo super Pozzolana
Recommended for use in all applications and especially for marine,
hydraulic and large mass concrete structures.
 Tokyo super Masonry
Especially for use in motars use for brick masonry and block masonry,
rendering and plastering purpose..
 Samudra Cement

The other companies that giving competition


In the Cement Industry there are many other companies giving a competition
for the Tokyo Cement Company. Some of the companies are listed below.
(1) Holcim Lanka Ltd
(2) Lafarge Mahaweli Cement Pvt
(3) Ceylinco Ultra Tec Ltd
(4) International Cement Trades Pvt
(5) Mascons Limited,
(6) Lanka Cement Limited,
(7) Lanka Cement Corporation
What is oligopoly?
An oligopoly is a market form in which a market or industry is dominated by a small
number of sellers (oligopolists). Because there are few participants in this type of
market, each oligopolist is aware of the actions of the others. As a quantitative
description of oligopoly, the four-firm concentration ratio is often utilized. This
measure expresses the market share of the four largest firms in an industry as a
percentage. Using this measure, an oligopoly is defined as a market in which the four-
firm concentration ratio is above 40%. Also high level of adverting behavior can be
observed in the Oligopolistic market.

Figure 02: Oligopolistic market with two firms

X1, X2 = Demand curves


of firm 1 and firm 2

MR 2 , MR 2 = Marginal
Revenue curves of firm 1
and firm 2

Why consider cement market as an Oligopolistic market?


The structure of a market can be described by considering the number of firms,
product differentiation, entry conditions, and the degree to which vertical integrated.
The most frequently used measure is market concentration. It shows the extent to
which production of a particular good or service is confined to a few large firms.

If we consider the Tokyo cement Company, it belongs to the Oligopolistic market


structure. Normally in the Oligopolistic Market there are 2 – 10 companies included.
Although the cement industry in Sri Lanka having about 12 companies but we still
can consider it belongs to Oligopolistic Market.
It can be identify that entry barriers are exit in the Sri Lankan cement market. High
level of initial capital cost and associated cost structure is ensuring very limited
number of firms in the market. Market structure and firm conduct are co-determined
by the underlying features of the environmental resources. The cement market is
become oligopoly due to the condensed resource space. A condensed resource space
is characterized by a high concentration of similar resources or homogeneous
resources where buyers have undifferentiated preferences. In the cement market
buyers have undifferentiated preferences.

Concentration Curve is a very popular measure to identify the market structure. Firms
are ranked in size order from the largest to the smallest and then plotted against their
cumulative output. For Cement market (figure 01) the concentration curve shows that
the Tokyo Cement company supplies around 26 per cent of the market and largest
four firms around 86 per cent of the market. So that it can identify that cement market
is Oligopolistic market.

Figure 01: Sri Lankan Cement Market Concentration Curve

100

90

80

70
Culmulative Market Share

60

50

40

30

20

10

0
1 2 3 4 5 6 7 8 9 10

Num ber of firm s ranked from largest to s m allest


Apart from that concentration ratio also reflect the market structure. This measures
the cumulative market share of the largest firms. A value close to zero would indicate
that the largest firms supply only a small share of the market.

x
CRx = ∑ Si CRx = the X firm concentration ratio
i=1

Si = percentage of market share of the ith firm

Sri Lankan market concentration ratio can be calculated using the data which obtained
from Tokyo Cement Company. According to monthly survey data the cement market
concentration ratio is 86 (for four largest firms), which reflect cement market as an
Oligopolistic market.

Table 01: Sri Lankan Cement Market during 2007 March

Product Market Share Monthly Production (Mn Tons) Company Name


Holcim 32% 120000 Holcim Lanka Ltd
Samudra 11% 41250 Tokyo Cement Group
Mitsui 15% 56250 Tokyo Cement Group
Mahawely 15% 56250 Lafarge Mahaweli Cement Pvt
Ultratech 13% 48750 Ceylinco Ultra tec Ltd
ICT 6% 22500 International Cement Trades Pvt
Others 8% 30000 others
Total 100% 375000

Conclusion

The selected Tokyo Cement Company for this assignment, according to the reasons
mentioned above it clearly belongs to the Oligopolistic Market Structure. The main
point for that is there are only 10 – 12 cement companies in Sri Lanka. We can also
tell that it belongs to the Imperfect Oligopoly Market Structure because there are
differentiated and branded products of cement all over the country. Clearly cement
companies avoided price wars and concentrated on non-price strategies to win market
share. They use strategies such as better product design and finish, improvement of
quality, better packing, effective distributions, advertising etc. Finally we can come a
conclusion that cement industry in Sri Lanka is clearly belongs to Oligopoly Market
Structure.

You might also like