Globalization of CEMEX

Abhas Pareek
Company NO BROKER
Roll no EPGP-10-002

Bhavith Chandradev
Company WIPRO LTD
Roll no EPGP-10-020

Manish Mishra
Company ISN
Roll no EPGP-10-042

Mayank Saini
Company DXC
Roll no EPGP-10-046

Sheffin R Sam
Company SOFTWARE ONE
Roll no EPGP-10-067
Q1. Is cement a global industry? What is particular about the
economics of the cement business that led to old predictions
that there would never be multinational companies in cement?
Why did such predictions turn wrong?
The cement industry has grown to be a global industry over the course of time. The main
reason it is an universal product wgere the product did not change with global
environment.Other reasons which turned the prediction wrong

1. Cost: economies of scale are not that important on global scale; small differences in costs
across countries & high transportation costs; no product/ process innovations in 20 years.

2. Market: homogenous product but most customers are local; transferable marketing (e.g.
branding) of limited importance.

3. Government: protectionism is a factor (e.g. US); concerns about foreign ownership (e.g.
Indonesia, Venezuela).

4. Competition: industry becoming more globally concentrated (six global majors’ share of
world market increased from 12% in 1988 to 25% in 2000) but most competition is still local;
major differences in concentration across countries; limited role for standard intangibles
(advertising/ R&D) with cement close to the bottom decile of manufacturing industries on
both R&D and advertising intensity.

Q2. What benefits have CEMEX and other global competitors in cement
derived from expanding across borders?
Mainly cement industry is considered to be localized though the application of the CAGE distance
framework we can see that cross-border expansion can still add value. There might be so many reasons
to expand cross borders (e.g. spread risk, dependence on multiple markets rather than one, cost
advantage, unique local capabilities etc.). However, looking at the CAGE distance framework of
Ghemawat, we find other factors that trigger such activities in industries like the cement. In industries
that are as apparently localized as the cement industry Ghemawat’s CAGE framework emphasizes on
cultural, administrative, geographical, and economic distance (Please see appendix for more info
about the framework and its components). CEMEX and its rivals could benefit companies in very
localized industries (i.e. still wanting to expand) could measure the match between countries and their
firms (or to assess the relative “distance”).
Finally, it is worth mentioning that CEMEX follows a global strategy with centralized and shared
services in R&D, technology, HR, and financial services across countries.

Q3. Characterize CEMEX's internationalization strategy.

Analyse how CEMEX has outperformed its global competitors in
the cement industry, keeping Holderbank as a reference. Can you
also use the data in exhibits (4 to 8 especially) to figure the game
being played out amongst the international majors?
CEMEX had to deal with aggressive strategy, so it acquired Cementos Anahuac to capitalize
on its operations. Later it acquired Cementos Tolteca, so CEMEX could become largest
producer in Mexico. CEMEX gained the size and financial resources with these mergers to
neutralize the threat of the potential entrants to the Mexican market.

CEMEX outperformed its competitors through volume, margins, price and leverage, and risk.

In Exhibit 4, Holderbank has a low Net debt/EBITDA ratio of 0.7, which states Holderbank
can increase its debt to finance the growth of its business. Whereas the Net debt/EBITDA ratio
of CEMEX is 2.7, meaning that CEMEX would still be able to handle its debt. Further, CEMEX
compared to Holderbank has a slightly higher EBITDA – while taking into account the size of
Holderbank. That is partially because of the EBIT that CEMEX has, which is higher than the
EBIT of CEMEX. Besides that, CEMEX has the lowest interest coverage ratio among all its
major competitors, which is just above 3% indicating a that still would be able to handle its
outstanding debt. Whereas Holderbank has a debt coverage of 4.6% with 1% higher than
CEMEX. Overall, CEMEX has a higher operating profit (i.e. EBIT) than Hoderbank and all
other major competitors. And it has a healthier cash flow than Holderbank.

In Exhibit 8 competitive game that is being played here between Holderbank and CEMEX is

one that is explaining their ability to avoid fighting on the same shares of the pie. It seems

that they understand each other very well and also acknowledging the fact that entering into a

head to head to competition could lead to huge losses on both sides.

Question 4: How far can Cemex competitive advantage travel
Cemex has increased competitive advantages by Developing
intangibles that apply across countries and create rationale for its
global strategy e.g., managerial processes and innovation
Cemex entered in similar countries first which lowers
the risks created by differences across countries
In the year 2000, it acquired Southdown (US), 2nd largest cement
manufacturer in US, for $2.9 billion. In 2001, Cemex acquired
Saraburi Cement (Thailand), for $73 million.Likewise in 2002
acquired Puerto Rican Cement Company for $281 million. In year
2004 acquired RMC Group (UK), one of Europe’s largest
cement producers and world’s largest supplier of ready-mix
concrete, for $5.8 billion. In 2006 sold its 25.5% stake in Semen
Gresik (Indonesia). In 2006 acquired Rinker Group (Australia), a
major seller of construction materials with 85% of its business in the
US, for nearly $12 billion (27% premium) in largest deal ever
concluded in the cement industry
Q5. What are the most challenges that Cemex is likely to
confront in the future?
Challenges which Cemex most likely confront in future would range from ending
poverty to tackling climate change.
Climate change, resource scarcity and fast urbanization are among the most severe
of these challenges. Cemex is one of the largest consumer of raw materials further
depleting scarce resources.
Other challenges can come in the form of: Skilled labour shortages & Sustainability
concerns vis a-vis the Economic Conditions & political uncertainty in the countries in
which Cemex operate.

Challenges relating to energy resources, CO2 emissions and the use of alternative
materials can also affect Cemex.
Green taxes are an additional cost that is incurred if emissions are not restricted,
potentially leading to a doubling in the price of cement.