Arco Limited: Launch and Closure of a Ready Mix Cement Plant

Arco Limited was a Projects and Infrastructure-sector conglomerate. Some of its key officials believed that entering the Ready Mix Cement (RMC) could be beneficial for Arco and planned entry into the manufacturing of RMC through its subsidiary, EG Ltd. (EGL). A feasibility report was ordered in 2004 on the basis of preliminary market leads which included detailed survey reports. Kolkata was identified as one of the locations for the business where high growth potential was sensed. Projections were made for demand and cost components. Government-prescribed formalities associated with starting the business were identified. Two alternate locations for Kolkata were identified and one of these two was recommended. Cement was one critical component for the business but the company did not have its own source of cement. One strategic option recommended was to tie up with one of the cement companies on back end. Alternatively, since the conversion of potential demand into orders depended upon construction projects, a tie up with a construction company on the front end could also be possible. There was a delay of a year in commissioning the plant and thereafter a number of factors caused the projections to be revised. The senior General Manager rejected and returned the revisions in the estimates apparently because of the managerial failure to foresee the market realities. After a few months' operations and losses, EGL closed down the RMC operations and rented it out because "it was actually a stupid decision." This case deals with challenges in decision making in uncertain environments.