In fact, after reading my previous book Competition and Cooperation: How to Rebuild the British Foundry Industry, it is very clear that:
1. Eliminated companies are not necessarily the worst in the industry (whether from net profit or capital return, or operational efficiency, not necessarily);
2. Extrapolation law: The industries that are eliminated are not necessarily the worst industries in the whole society;
3. Extrapolation of the law of the stock market: a listed company that falls sharply or is delisted is not necessarily the worst of all listed companies;
4. Extrapolate the reverse law of the stock market: the company with the highest increase is not necessarily the company with the best performance.
Japan's cement industry began to increase rapidly in demand and capacity from the mid-1960s until the economic bubble burst and the growth came to a screeching halt.
The peak period of Japanese cement was in 1991, however, by 2010, the consumption of Japanese cement was only 50% of that in 1991, falling back to the level of Japan 40 years ago (1970s).
Of course, the investment in the cement industry in the same period is also basketball down the stairs.
Cement Consumption and Cement Industry Investment in Japan from 1965 to 2010
(Unit: million tons [consumption] or trillion yen [investment])
As demand continues to shrink, cement manufacturers must grind their teeth to close factories to production capacity, all in order to survive!
The following chart shows the reduction of capacity and demand in the whole industry.
From the chart, we can probably see that from 1990 to 2010, about 30% of the production capacity has been cleared out in the past 20 years.
How to clean up production capacity? It is mainly achieved by reducing the number of cement plants and the number of cement kilns, which is a very important equipment in the production of cement industry.
Among them, the number of cement plants decreased from 41 in 1990 to 32 in 2010, a decrease of about 20%;
The number of cement kilns decreased from 81 in 1990 to 56 in 2010, a decrease of about 30%.
The following chart shows Japan's cement industry: total capacity, output, number of companies, number of plants, and number of cement kilns from 1990 to 2010.
From the above chart, we can see that from 1993/4 to 1998, the Japanese cement industry also launched a wave of mergers and acquisitions, and three large companies with more than six factories were born, accounting for 80% of the national production capacity and 74.3% of the number of cement factories (39 in the country, 29 in the three giants).
Manufacturer's share and number of cement plants owned in 1998
As a result of this competitive structure, the competition pattern in this industry is quite different from that in 1985. Even the giants who own many factories, the efficiency and operation mode of each cement plant are very different from those in the past. This will help reduce the capacity or output of the industry.
Most of the cement factories in Japan are built near the natural limestone mine (Japan is one of the few big cement production and consumption countries that can rely on natural ore for self-sufficiency), but the consumption area of cement is a little far away from the production place, so there will be two distribution of cement products: from the cement factory to the agent (called primary distribution). From agent to customer or construction site (becomes sub-distribution).
Here, the most important is from the primary distribution, this cost is extremely important, in Japan, it is a key factor in the competition between cement plants.
[Page]To expand, such as shipping fees, due to the low unit price of shipping fees, the sales radius of cement products can be expanded to the construction sites far away from its origin; in terms of distance, cement factories in Hokkaido, Japan, can sell cement to Kyushu by sea. (Note: you may not have the same idea as me, I specially Google Maps, and simply look at the distance.)
This means that as long as you have an agent anywhere in Japan, you can sell your cement products all over Japan!!!
The figure below shows the share of two cement plants, which are very far apart, in each other's area.
(In parentheses is the distance in miles, not kilometers..) , distance is the distance from port to port)
Chugoku, a cement plant, has only 14% of the local market, but 24% of its products are sold 500 miles away in Kanto, and even more exaggeratedly, 9% of its products are sold 700 miles away. (Note: You can imagine how fierce the competition is. It has something to do with the geographical location and shape of Japan. If it is the same as Mongolia or other landlocked countries, I'm afraid it will be a different competition pattern. So when analyzing, we still need to adapt to local conditions.) Therefore, because of the low cost of shipping, the competition in Japan's cement industry is nationwide, and there is no regional competition at all.
Later, researchers said that increasing industry concentration is crucial for an industry with declining demand. Therefore, industry mergers and acquisitions and restructuring are imperative. By the way, it is foreseeable that more and more of our industries are surplus and need to be merged and reorganized. What should we do? My view is quite different from many people, whether it is the State Council or the Securities Regulatory Commission, or even related such as the SASAC or the Ministry of Commerce, the Ministry of Finance and the General Administration of Taxation, will open a convenient door for mergers and acquisitions in traditional industries, and even develop new M & a tools for this purpose, such as M & a convertible bonds, such as directional bridge loans. If it is a listed company, then the SFC will simplify the procedures for refinancing. In the words of the Securities Regulatory Commission, the NDRC can not move forward alone in traditional industries. On the other hand, it is good to have bad news and good news, because the resources of the SFC are limited. If it opens the door for convenience for one side, even if it opens it, it will need more resources. Then there must be other industries whose refinancing will be compressed. It is not that it will not give you a review, but that it will not let you report and retreat in the face of difficulties. I am afraid that the new industries and cultural industries that confuse the real with the fake will be forced to stop. Buying and selling, buying and selling, there are buying and selling, comrades, interested to dig, which traditional listed companies must sell or replace their assets, there are two obvious ones: one is Sichuan Shuangma (cement asset sale + shareholder transfer); and the other is Lion Head Group. You can explore your own opportunities. Especially the central enterprises and state-owned enterprises, such companies do not lose money, of course, the increase is small. If you are bold, you will find a private enterprise. Don't come to scold your mother.
There is also a point of view that cement companies with many factories always close down one of their factories prematurely, which should not be too bad in the industry, so as to benefit the whole industry. It's really a sacrifice for me to make thousands of families happy. Disclaimer: I do not currently hold any position in the cement industry. The future? Who knows.
Price determines value, not value determines price! Remember that. A book by Song Zhiping is recommended here.
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