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Global Cement Industry: Competitive and Institutional Dimensions

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  • Selim, Tarek
  • Salem, Ahmed

Abstract

The cement industry is a capital intensive, energy consuming, and vital industry for sustaining infrastructure of nations. The international cement market –while constituting a small share of world industry output—has been growing at an increasing rate relative to local production in recent years. Attempts to protect the environment in developed countries –especially Europe—have caused cement production plants to shift to countries with less stringent environmental regulations. Along with continually rising real prices, this has created a concerning pattern on economic efficiency and environmental compliance. This paper attempts to critically analyze the forces affecting pricing and production of cement from two perspectives. Porter’s five forces serve as our tool to analyze the competitive forces that move the industry from a market economy standpoint. On the other hand, the institutional economics framework serves to explain how governments and policymakers influence the structure and production distribution in the global market. Our findings suggest that the cement industry does not follow expected patterns of a market economy model. Additionally, it does not fully behave along the institutional economics paradigm. Hence, neither perspective explains the pricing or nature of the market on its own. Combining market forces within an institutional setting provides a more clear understanding of price dynamics and industry performance. We find that local regulation alone is insufficient to ensure market efficiency due to weak institutional governance in developing countries aligned with private business interests of global cement firms. Moreover, the global impact of local environmental non-compliance generates economic spillover effects that cannot be corrected by market forces alone. Due to asymmetries in governance and structure, this paper recommends the establishment of an independent international regulatory body for the cement industry that serves to provide sustainable industry development guidelines within a global context.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24464.

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Date of creation: Jun 2010
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Handle: RePEc:pra:mprapa:24464

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Keywords: Keywords: cement – global industry– institutional economics – Porter competition – market niche;

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