Case Study:About the companyBlack Diamond Ltd. (BDL) is a public limited company in Country-B engaged in mining and production of coal and coal products. The mission of the company is "to be a partner in the economy by p

CS Executive · Financial and Strategic Management · PYQS · June 2019
Case Study:About the companyBlack Diamond Ltd. (BDL) is a public limited company in Country-B engaged in mining and production of coal and coal products. The mission of the company is "to be a partner in the economy by producing and fulfilling the energy demand of the country by providing quality coal in economical and sustainable manner". The company is listed on a stock exchange of the Country B. Shares of the company are held by the Govt. of Country-B, Mutual funds & FII and general public in proportion of 75%, 12% and 13% respectively. During the financial year 2018-19, the company has produced and dispatched 500 million tonnes of coal. Of this 76% to power plants, 2% to steel plant and rest to other sectors.Coal is the prime source of energy and fulfills approx. 70% of energy demand of the country B. The thermal power plants, steel manufacturing plants, cement and fertilizer plants are the major consumers of coal.The country-B has a large reserve of coal but the quality and cost are major concern. In the last few years there has been increase in import of coal by steel and power plants. The steel plants import coal due to quality and cost advantage over domestic coal. As per a study report conducted by the BDL, good quality of coal can be produced only through deep and underground mining. Underground mining requires highly automated technology.Challenges before BDLFor adopting deep underground mining the BDL is required to acquire land for new mines and latest automated machines for mining. Land acquisition in country-B has been a hard task due to land acquisition related laws and protests by the local community and NGOs as BDL has acres of idle land in the form of used abandoned mines which cannot be used for agricultural activities or human rehabilitation due to the risk of landslides. BDL is a labour intensive company with low productivity. Employee cost is the major cost of BDL which accounts for 55% of total cost. BDL is second largest employer in country B.Till recent past, the BDL was the only company which was allowed for mining and marketing of the coal in the country but with the changing economic scenario and to meet the growing energy demand the Govt. of Country-B is mulling to allot coal blocks to steel plant and thermal power plant for captive consumption.The Govt. of the Country B is committed to boost manufacturing and industrial infrastructure of the country in next 10 years. Power and steel sector would be witnessing a multifold increase in demand not only from Govt. schemes but also from private and domestic consumers.To meet the energy demand, the Govt. has reduced the duty on imported coal. The Govt. being a signatory of Paris agreement on climate change, is committed for sustainable development by reducing carbon emission caused by usage of fossil fuels. It has entered into various technological MoUs to install clean energy sources like nuclear, solar and wind in near future.Required: (i) Identify and describe the five forces of Porter with respect to BDL.

Answer & Explanation:

The five forces model, created by Michael Porter, is an analytical tool that uses industry forces to determine the intensity of competition in an industry and its profitability level. The five forces in the present case of BDL are described as under: Industry Rivalry/Competition (Low): Industry rivalry for BDL is low as it is the only company allowed for mining and marketing of coal in the country, and most of the energy requirement is fulfilled by coal. However, increased imports and reduced import duty may pose a potential threat. Threat of New Entrants (Medium/High): With the changing economic scenario and growing energy demand, the Govt. of Country B is mulling to allot coal blocks to steel plants and thermal power plants for captive consumption, which may be a cause of worry for BDL in the near future. Threat of Substitutes (Low): At present, coal is the prime source of energy, fulfilling approximately 70% of Country B's energy demand. Various substitutes like natural gas, solar, wind, and nuclear energy exist. Since the Government is a signatory to the Paris Agreement on climate change and has entered technological MoUs for clean energy sources, the threat of substitutes may increase in the future. Bargaining power of buyers (Low/Medium): Thermal power plants, steel manufacturing plants, cement, and fertilizer plants are BDL's major customers. Currently, there is no other alternative available to these customers as BDL is the only coal producing and marketing company. However, in the near future, the bargaining power of buyers may increase as the Govt. of Country B is considering allotting coal blocks to steel and thermal power plants. Bargaining power of suppliers (Medium/High): Being a labour-intensive company, suppliers of consumables, work contractors, and employees can be classified as suppliers for BDL. When technology changes, the power of suppliers providing specific parts for heavy machinery, explosives, and power etc., may increase.

Topics: Strategic Management

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