Reference no: EM131271366 , Length:

CASE STUDY:

ACC - A pioneer in the Indian cement industry

Associated Cement Companies Ltd. (ACC) came into existence in 1936, after the merger of 10 companies belonging to four important business groups: Tatas, Khataus, Killick Nixon, and F E Dinshaw. The Tata group was associated with ACC since its inception. It sold 14.45% of its share to Gujrat Ambuja cements Ltd between 1999 and 2000. After this strategic alliance, Gujrat Ambuja Cements Ltd became the largest single stakeholder in ACC. In 2005, ACC entered into a strategic relationship with the Holcim group of Switzerland, a world leader in cement as well as a large supplier of concrete, aggregates, and certain construction related services. These global strategic alliances have strengthened the company.

ACC is India's foremost manufacturer of cement and concrete. The company has a wide range of operations with 14 modern cement factories, more than 30 ready mix concrete plants, 20 sales offices, and seven zonal offices. ACC's research and development facility has a unique track record of innovative research, product development, and specialized consultancy services. ACC's brand name is synonymous with cement and it enjoys a high level of equity in the Indian market.

The Impact of Cartelization

Cartelization is one of the major problems in the cement industry. Cartelization takes place when dominant players of the industry join together to control prices and limit competition. In the Indian market, manufacturers have been known to enter into agreements to artificially limit the supply of cement so that the price remains high. When markets are not sufficiently regulated, large companies may be tempted to collude instead of competing with each other. For example, in May 2006, the competition Council of Romania imposed a combined fine of 27 million Euros on France's Lafarge, Switzerland's Holcim, and Germany's Carpatcement for being involved in the cement cartel in the Romanian market. These three companies share 98% of Romanian cement capacity. The government shouls appropriate actions to check acts of cartelization.

Escalating input and fuel costs have forced manufacturers to tap new sources of supply and increase the quest for alternative fuels and raw materials. The cement industry is faced with the challenge of optimizing the utilization of scare basic raw materials and fossil fuels while simultaneously protecting the environment and maintaining emission levels within acceptable limits. It is vital for the cement industry to achieve high levels of energy utilization efficiencies and to sustain them continuously. Table below exhibits sales turnover and advertisement expenses of ACC from 1995 to 2007.

Year	Sales (in million rupees)	Advertisement (in million rupees)
1995	20,427	58
1996	23,294	72
1997	24,510	122
1998	23,731	61
1999	25,858	144
2000	26,792	132
2001	29,361	172
2002	32,260	184
2003	33,718	259
2004	39,003	334
2005	45,498	321
2006	37,235	336
2007	64,680	442

Develop an appropriate regression model to predict sales from advertisement.

Calculate the coefficient of correlation and state its interpretation.

Predict the sales when advertisement is Rs. 500 million.