The Globalization of CEMEX Case Solution

1. What benefits have CEMEX and other global competitors in cement derived from globalization? More broadly, how can cross border activities add value in an industry as apparently localized as cement?

As one can see from the case, the demand of cement is derived in nature, which arise due to many factors such as increase in GDP, construction etc. Globalization of cements provides an opportunity to capitalize on the increasing demand globally, because, in a local scenario, the increase in demand can’t be a very long term process. Localized demand can be described in from of a curve, where the demand increases at a decreasing rate. Moreover, this is a capital intensive industry with low level of innovation and high transportation charges; however, there is still innovation going on and one can say that globalization will increase the innovation in other countries and will also bring experience. When the industries go global, they usually acquire other firms; this provides an opportunity for the country and the firms that are not performing well to be supervised by an experience management, so management transfer is an important aspect of globalization in cement industry. Globalization also provides organization to get investments rights and make a profit, like CEMEX sold its plant that was producing one million ton and bought another plant in Asia, in the same price, which was producing 4 million tons. Moreover, the company can get many bargains on taxes and duties if the cement need in the host country is more than production. Addition to that, when a company goes global it can add more production lines as per the local demand and explore more opportunities.

2. How specifically has CEMEX managed to outperform its leading global competitors in the cement industry? Please focus on comparing it with Holderbank, which is the other large competitor principally focused on cement. What do this comparison and other data in Exhibits 4-8 suggest about competitive game being played out among the major international competitors?

Holderbank has its operations in five continents and more than fifty countries, making it a giant, and the largest operator and competitor in the cement industry. Holderbank has a systematic way of expanding as it started from Switzerland and first it expanded to its neighboring countries like France, Belgium and Netherland. It followed the principle of making a hub, thus reducing interior supply chain and other delivery costs. It focused primarily on cement and cement accounts for 68% of its sales.

On the other hand, CEMEX started its operations from Mexico. However, the primary focus was on cement, but CEMEX done horizontal expansion to many other things, which later on were removed, and focus was put on cement. When Holderbank observed an opportunity at Mexico, CEMEX was threatened, and it was quite proactive in observing move and CEMEX done some acquisitions to save its ground from giant, Holderbank. As a result of these moves, CEMEX became leader in Mexico with fulfilling 60% of the country's demand.

CEMEX has done great in defending its position at different places; it was a first mover. Being the first mover it has provided an opportunity to cover the market faster and understand its dynamics. Exhibit 5 presents a clear view of CEMEX performance as compare of Holderbank. CEMEX, as described before, defended its position at Mexico, with anticipated mergers and controls 64.6% of the market. Than in Spain, CEMEX is again at top covering 26.5% of the market. Next come Venezuela and Indonesia, where CEMEX controls 40.6% and 43.7% of the total market. Exhibit 4 represents the performance of CEMEX, where it’s present in only 15 countries but holds 77% of those countries. Moreover, the profits of the CEMEX are much higher while costs of Holderbank are much higher. Stocks of CEMEX are performing much better than Holderbank. This represents a great performance of CEMEX and great threat to Holderbank.

3. What accounts for the sequence in which CEMEX entered foreign markets? How do the markets it has entered recently compare with the markets that it entered early on?

There are few reasons for that account for in international expansion. One of those factors is an increase in demand that arises if there is an increase in construction or population, GDP, decrease in local production etc. Other factors include the cost associated with the production and transportation of goods. Transport accounts for a major cost in cement industry, and if the country is land locked it will be less attractive. As for the reason, the most economical way of transporting the cement is transporting through ships. As a result, the countries having sea routes will be preferable. Next options go if the country is forming a ring, where other subsidiaries can provide backup in times of need. The formation of ring reduces the supply chain costs and all subsidiaries can be at standby mode in time of need or increase, in demand. Next thing that was under focus was the situation of the country, the tax structure and other government policies, which can add into the cost of operations. CEMEX followed the structure to form ring, first it made sure that it’s a market leader in the country of origin and then it made sure that there is an increase in demand or population for CEMEX to explore it. Exhibit 12 represents its current acquisition structure where potential targets are with high potential upside and are in strategic fit with CEMEX i.e. business portfolio, operation overlap and risk return. The second thing that is looked at is ownership resources, financial resources, PMI feasibility and feasible laws.

4. What recommendations would you make to CEMEX regarding its globalization strategy going forward? In particular, what kinds of countries should it focus its future expansion on?

CEMEX has done a great job in identifying opportunities and capitalizing on these opportunities. CEMEX has as early mover advantage in one of these countries and as a result of this advantage it not only is aware of the situation on those countries but is also the market leader there. These strategies were as per careful analysis of opportunity, demand and cost structures of those countries. Now if it wants to move to other counties it should also look at, the demand or population, the government laws, taxation and cost structures and if the country has sea routes. CEMEX identified an opportunity to move to China, but the government policies there are in favor of the local entrepreneurs and it’s a highly regulated country.