Does CEMEX have a global advantage?

  If so, what is its source or sources?  Explain how CEMEX, a

competitor in the commodity cement and concrete sector, has created a global advantage across multiple
countries.  Explain the primary sources of advantage.  Begin by analyzing Exhibit 4.  (Hint: standardize the
financial at a per ton level.)  What global competitive advantages has CEMEX been able to build and exploit?
How much of a financial advantage have these global competitive advantages created?

What and where should CEMEX focus on over the next 5-10 years? Use your analysis of CEMEX’ advantages
to help shape your recommendations.

Use the heptagon model (see notes on Global Competitive Advantage) to identify the sources of CEMEX’s
global advantage (See Blackboard for 7-side diagram in the notes on Creating Global Advantage)

EXPLAIN HOW CEMEX HAS CREATED A GLOBAL ADVANTAGE ACROSS MULTIPLE COUNTRIES. AND EXPLAIN
THE PRIMARY SOURCES OF ADVANTAGE. Does CEMEX have a global advantage?  If so, what is its source
or sources?  Explain how CEMEX, a competitor in the commodity cement and concrete sector, has created
a global advantage across multiple countries.

CEMEX is a global building materials company which was founded in Mexico in the early 1900’s.
The firm has many characteristics that make for an interesting in-depth analysis, such as serving a
low-income population, focusing on flexibility, creativity, sustainability, innovation, and efficiency.
By the end of 1999, this company operated cement plants in 15 countries, owned production or
distribution facilities in a total of 30 and trade cement in more than 60.

Over the years, after having secured its leadership in Mexico, CEMEX began to look for
opportunities beyond Mexico borders. Internationalization began with exports, principally to USA
and by 2000 CEMEX become the largest international cement trader in the world, with projected
trading volumes of 13 million tons of cement. For that reason, its international trade offered
opportunities to arbitrage price differentials across national boundaries.

First of all, CEMEX has created a global advantage across multiple countries. An obvious
advantage that CEMEX has achieved is diversification. CEMEX knew that they had a great deal of
competition in the market, and needed to gain competitive advantage, so diversification has
brought and brings opportunity to reduce the risk of relying on one single source of income. At the
beginning they began to diversify horizontally into areas such as petrochemicals, mining and
tourism in order to reduce the risks related to its dependence on a highly cyclical core business.
But then geographic diversification was preferable to horizontal diversification. CEMEX gained
significant expertise, access to natural resources in global expansion by trading in USA (1970’s) to
FDI, acquisition in Texas, Spain (1991), Venezuela (1994) with strong country specific and firm
specific advantages. CEMEX achieved sustained competitive advantage by acquiring existing
capacity in various countries, with the global standardization strategy to make a global product but
tailored to customer needs by adopting following steps: i) Focus on countries with large
population growth, low current consumption, enter similar markets using CAGE framework for
better risk management; ii) Gain access to cheap labor, natural resources, leveraging on advanced
technology and logistics; iii) CEMEX strategically consolidated its position in Mexican market first
(60% share by 2000), expanded in various geographies developing better tools to identify
opportunities, codified its post-merger integration (PMI) process, increasing operational efficiency
and product differentiation, utilizing its core capability to speed up these processes(AÑADIR AQUI
LO DEL PROCESO ESE); iv) Acquired new core competencies for speedy and no-surprise situation
by due diligence of market, invested heavily in IT and satellite system to enable faster
communication, tracking sales figures geographically, ensure delivery of cement bags within 20
minutes on the line of Pizza delivery, getting popularity as ‘Master in Digital Design’, established e-
procurement market place (45% of global orders), four stage process called Materiality Matrix to
reduce operation risks[ CITATION 20118 \l 2057 ].

They targeted geographical areas what were not ‘distant’ to mexico in terms of ghemawats cage
framework. Expansion started in America before moving to spain, south America countries such as
Venezuela anc Columbia and then onto south east asia such as the Philippines. As we can seen bno
one of these countries are distant in terms of cultural, administrative and geographic elements.

COMPETITIVE ADVANTAGES QUE HA SIDO CAPAZ DE BUILD AND EXPLOIT

The following attributes were also important in proceeding with an analysis of Cemex’s
international strategy development: aggregation, arbitrage, adaptation/responsiveness, and the
spread of learning across divisions and borders.

Aggregation The attribute of aggregation takes advantage of standardizing products across

national operations. This attribute has been critical to the success of Cemex’s internationalization
process. In addition to taking advantage of a standardized product sold and produced worldwide,
Cemex developed an integration process known internally as the “Cemex way”. A constant thread
over the course of this analysis is that acquisition has been the key means of expansion in this
industry, due to a need to be located close to the end consumer. Bearing that in mind, Cemex has
made many acquisitions over the course of its history, and has been praised for the Cemex way,
which is the post merger process that introduces best practices and brings new plants in line with
the standardization of the rest of Cemex’s assets (Lessard & Reavis, 2009). Cemex has 25
successfully utilized the attribute of aggregation in their standardization of products and operating
procedures worldwide.

Arbitrage Arbitrage advantages, or location advantages from sourcing in countries with cost
advantages, has not been a viable method of expansion for Cemex. The low weight to value ratio
of Cemex’s products has not enabled the company to take advantage of the arbitrage effects
usually possible in international corporations.

Adaptation/Responsiveness For the most part, cement, concrete, and aggregates are a
‘standardized’ product, and in that sense the pressures for globalization are fairly high. However,
there are still local preferences and tastes that Cemex needs to incorporate into their product
offering if they are to be successful. For example, “consumers in Egypt preferred darker cement
believing it was of higher quality whereas Mexicans preferred light colored cement” (Lessard &
Reavis, 2009). Cement companies, including Cemex, have had to be prepared to meet local
preferences, even though they compete in a fairly globalized and standardized category.

Spreading Learning Cemex has been effective in transferring best practices and maintaining
standardization of procedures and operations as can be seen in the aggregation section of this
report. In addition to spreading learning through the Cemex Way, the 2013 Annual report states,
“each of our business units continually works to perfect and present new, innovative building
materials for their specific markets (Cemex 2013 Annual Report). The successful results of these
trials are then incorporated throughout the organization and enable customers to achieve better
quality 26 results and to generate savings (Cemex 2013 Annual Report). In an organization the size
of Cemex, spreading learning from headquarters to subsidiaries and vice versa could become very
complex or non-existent. Cemex has developed a manner to allow regions to not only receive best
practices, but also take a part in developing them.

.  Begin by analyzing Exhibit 4.  (Hint: standardize the financial at a per ton level.)  What global competitive
advantages has CEMEX been able to build and exploit? How much of a financial advantage have these global
competitive advantages created?

What and where should CEMEX focus on over the next 5-10 years? Use your analysis of cemex
advantages to help shape your recommendations.

Over the next five-ten years, CEMEX should focus in establishing a globalized culture. Actually,
they are facing issues with communication across regions, as language and cultural barriers exist.
They should continue their strategy of expansion through global mergers and acquisitions. This is
due to the fact that the cement industry is gaining momentum in terms of industry consolidation.

Also, CEMEX has presence only in 15 countries, so they should focus on entering new markets
which will help the company expanding its global presence and increase market share. This will
also led to a better global brand image. Other recommendations, would be investing in R & D and
quality initiatives for product differentiation, improving processes, and reducing costs. 7) Before
entering a country, CEMEX should consider the following parameters: a. EBITDA b. Cultural
barriers c. Geographical factors such as length of coastline d. Climatic conditions such as amount
of rainfall received e. Stability: in terms of political f. Macroeconomic environment g. Existing
Competitors.

Countries and Regions to focus on

1) Target China as 75% of Chinese production is done in small, technologically obsolete

kilns 2) They should focus on emerging markets particularly BRICS nations and countries with
higher GDP because cement demand is correlated with high GDPs. 3) Focus on countries with high
growth Korea(5%), India (7.5%) Thailand (8%) Phillipines (7.8%), Malaysia (7.5%), Poland (5%),
Turkey (6.5%), Brazil (5%)

Company Expansion Cemex is very international and fairly geographically diversified, however,
during the crisis their core markets of Mexico, the United States, and Northern Europe were hit
hard, and as such the company took a financial blow that it is still struggling to recover from. This
option suggests that the company should expand into some of the regions in which it is currently
underrepresented. Some regions that Cemex should consider are the Middle East and North
Africa, Sub-Saharan Africa, South Asia, and India, which all have yearly projected growth rates of
between 2-7.1% (See Appendix F). Currently less than 30% of the company’s yearly sales come
from the aforementioned regions. Additionally, all of these emerging economies are very dynamic
and present an opportunity for industry players prepared to act. One major consideration before
choosing this strategic option is the portfolio and operations of key competitors Lafarge and
Holcim who have operations in the regions of note. However, if their 27 merger is approved they
may be looking to divest assets in these regions. More research would need to be conducted by
insiders in Cemex before this option is chosen.

HEPTAGON FRAMEWORK ANALYSIS

Location Drivers

- National differences: Cemex is present at Indonesia, Philippines, Egypt, Spain, US, Mexico
and Venezuela. Proliferation in markets with different needs make possible that new customer
segments would emerge. This is a clear opportunity to obtain lower transportation cost for each
plant which would be able to export to its belonging region. NAFTA, EU free trade zone and ASEAN
are key for Cemex to approach the regions where it has presence. Possibility to divert away the
low priced imports from home market.

- Global learning: Knowledge transferred from Mexico to other locations. Efficient

management structure. Less decision levels than competitors. IT integrated to management. -
Non-market strategies: Dominant position in cement industry allows firms to set prices at a
desired level, which means that they could be able to kick out competitors from the market if a
war of prices happen.

- Global leverage & flexibility: Any economic/political risk would be hedged since
geographic diversification is conducted. A dominant position is held by Cemex in most of the
markets where it is present, which allow them to dominate a market managed by price
competition.

Cost and Volume Drivers

 - Economies of scale: One of the main objective in the industry. Cemex has great
production capacities that has increased its margins way above from the competence.

- Economies of scope: Geographic expansion allows Cemex to take advantage of shared

knowledge and external relations, making by this way that the efforts accomplished in one country
could be implemented in other regions.

- Economies of replication: Cemex has found the way of success in its activities since the
very first stage. Its due diligence and PMI methodology allows them to take advantage from
competitors before the game starts. Moreover, IT applied to managers as well as production
standards are transferred from one place to another, decreasing learning costs.

-----------------------------------------------------------------------------------------------------------

5) Continue to use IT to leverage sales and operations capabilities, to reduce cost and make
efficient supply chain management.

BRICS countries have a higher market potential for CEMEX, as it has almost zero presence in these
countries; but the EBITDA pattern is not very good in these countries for cement industry. This
may be due to the reason that the quality of cement production in China is not up to the mark. As
no data is given for other developing countries we can assume the same scenario in other
developing countries. So CEMEX can invest in technological advancements for developing higher
quality cements that may increase the EBITDA ratio.

7) Before entering a country, CEMEX should consider the following parameters: a. EBITDA b.
Cultural barriers c. Geographical factors such as length of coastline d. Climatic conditions such as
amount of rainfall received e. Stability: in terms of political f. Macroeconomic environment g.
Existing Competitors

E.g. there have been concerns CEMEX entering into Egypt and Indonesia. They should decide upon
an official language of communication, mostly English so that that would be easier for global
cultural expansion.
Global presence of CEMEX is very low in comparison to its competitors. They should continue their
strategy of expansion through global mergers and acquisitions. This is due to the fact that the
cement industry is gaining momentum in terms of industry consolidation. Lafarge had tried to
acquire Blue Circle which has presence in 14 countries.

3) CEMEX has presence only in 15 countries. So to avoid the possibility of hostile takeover, its
focus should be on entering new markets that will help the company expanding its global presence
and increase market share. This will also help in building a global brand image.

4) Invest in R & D and quality initiatives for product differentiation, improving processes, and
reducing costs.

5) Continue to use IT to leverage sales and operations capabilities, to reduce cost and make
efficient supply chain management.

BRICS countries have a higher market potential for CEMEX, as it has almost zero presence in these
countries; but the EBITDA pattern is not very good in these countries for cement industry. This
may be due to the reason that the quality of cement production in China is not up to the mark. As
no data is given for other developing countries we can assume the same scenario in other
developing countries. So CEMEX can invest in technological advancements for developing higher
quality cements that may increase the EBITDA ratio.

7) Before entering a country, CEMEX should consider the following parameters: a. EBITDA b.
Cultural barriers c. Geographical factors such as length of coastline d. Climatic conditions such as
amount of rainfall received e. Stability: in terms of political f. Macroeconomic environment g.
Existing Competitors

Countries and Regions to focus on

1) Target China as 75% of Chinese production is done in small, technologically obsolete

kilns 2) They should focus on emerging markets particularly BRICS nations and countries with
higher GDP because cement demand is correlated with high GDPs. 3) Focus on countries with high
growth Korea(5%), India (7.5%) Thailand (8%) Phillipines (7.8%), Malaysia (7.5%), Poland (5%),
Turkey (6.5%), Brazil (5%)

Company Expansion Cemex is very international and fairly geographically diversified, however,
during the crisis their core markets of Mexico, the United States, and Northern Europe were hit
hard, and as such the company took a financial blow that it is still struggling to recover from. This
option suggests that the company should expand into some of the regions in which it is currently
underrepresented. Some regions that Cemex should consider are the Middle East and North
Africa, Sub-Saharan Africa, South Asia, and India, which all have yearly projected growth rates of
between 2-7.1% (See Appendix F). Currently less than 30% of the company’s yearly sales come
from the aforementioned regions. Additionally, all of these emerging economies are very dynamic
and present an opportunity for industry players prepared to act. One major consideration before
choosing this strategic option is the portfolio and operations of key competitors Lafarge and
Holcim who have operations in the regions of note. However, if their 27 merger is approved they
may be looking to divest assets in these regions. More research would need to be conducted by
insiders in Cemex before this option is chosen.
HEPTAGON FRAMEWORK ANALYSIS

Location Drivers

- National differences: Cemex is present at Indonesia, Philippines, Egypt, Spain, US, Mexico
and Venezuela. Proliferation in markets with different needs make possible that new customer
segments would emerge. This is a clear opportunity to obtain lower transportation cost for each
plant which would be able to export to its belonging region. NAFTA, EU free trade zone and ASEAN
are key for Cemex to approach the regions where it has presence. Possibility to divert away the
low priced imports from home market.

- Global learning: Knowledge transferred from Mexico to other locations. Efficient

management structure. Less decision levels than competitors. IT integrated to management. -
Non-market strategies: Dominant position in cement industry allows firms to set prices at a
desired level, which means that they could be able to kick out competitors from the market if a
war of prices happen.

- Global leverage & flexibility: Any economic/political risk would be hedged since
geographic diversification is conducted. A dominant position is held by Cemex in most of the
markets where it is present, which allow them to dominate a market managed by price
competition.

Cost and Volume Drivers

- Economies of scale: One of the main objective in the industry. Cemex has great
production capacities that has increased its margins way above from the competence.

- Economies of scope: Geographic expansion allows Cemex to take advantage of shared

knowledge and external relations, making by this way that the efforts accomplished in one country
could be implemented in other regions.

- Economies of replication: Cemex has found the way of success in its activities since the
very first stage. Its due diligence and PMI methodology allows them to take advantage from
competitors before the game starts. Moreover, IT applied to managers as well as production
standards are transferred from one place to another, decreasing learning costs.

For the long term, we are trying to ensure that no one market accounts for more than one third of
our business. They don’t see volatility as an occasional, random element added to the cost of
doing business in an interconnected global marketplace. They plan for volativity

In 1990, faced trade sanctions in its major export market, the united states. By the end of 1999 the
operated cement plants in 15 countries, owned production or distribution facilities in a total of 30
and trade cement in more than 60.
Revenues increased form 1 billion in 1989 to 5 billion in 1999. And it had become the third largest
cement company in the world in terms of capacity, as well as the largest international trader

THE CEMENT INDUSTRY

DEMAND: Cross-country comparisons indicated that the long run demand for cement was directly
related to GDP, with per capita consumption increasing up. Rainfall had a negative effect since it
made cement-based construction more difficult and increased the likelihood of using substitutes
such as wood or steel instead. Population desnisty had a positive effect, it led to taller buildings
and more complex infrastructure

COMPETITION

Cyclicality on the demand side combined with capital intensity, durability and specialization on the
supply side to mean that overcapacity in the cement industry could be ruinous in its effects.

Basing point pricing systems: the leading firm set a base price, and the other firms calculated their
prices by taking the base price and increasing it by the cost of transportation from leading firms
plant to the delivery point. This offered a transparent price structure

CEMEX

By the year 2000, CEMEX had become the third largest cement company in the world. Its first
years they began to diversify horizontally into areas such as petrochemicals, mining and tourism in
order to reduce the risks related to ist dependence on a highly cyvlival core business. But then
geographic diversification was preferable to horizontal diversification

INTERNATIONAL EXPANSION

After having secured its leadership in mexico, CEMEX began to look for opportunities beyond
mexico borders. Internationalization began with exports, principally to USA. By 2000 cemex as the
largest international cement trader in the world, with projected trading volumes of 13 millions
tons of cement. International trade offered opportunities to arbitrage price differentials acreoss
national boundaries.

THE EXPANSION PROCESS

- Opportunity identification: several factors in deciding wheteher to invest in other

countries. A country had to have a large population and high population growth as well as
a relatively low level of current consumption. Quantitative factors were assigned a 65%
weight in country analysis, and qualitative factors, such as political risk a weight of 35%. If
detailed market analyisis was the top down component of the process for identifying
opportunities, the process of identifying target companies constitud its bottom up
component. When identuyging a possible acquisition target, cemex also examined the
potential for restructuring both the target company and the market as a whole.
Restructuring the target company meant increasing its efficiency and optimizing capacity
 utilization. Restructuring the market might involve reductions in the number of players or
volume of imports, moves toward rational pricing, fragmentation of channels, product
differentiation and other attepmts to get closer to the consumer. Speed in both respects
was very important to improving target valuations.
- Due diligence: after a target was identified, a process of due diligence was performed
whereby it was assessed in depth by a team of people.
- Post merger integration process: once the decision to proceed with an acquisition was
made, cemex formed a pmi team. To improve the efficiency of the newly obtained
operation and adapt it to cemex standards and culture
- An obvious advantage that CEMEX and quite frankly any vast
corporation that reaches a global scale is diversification.
Diversification has brought and brings opportunity reduce the
risk of relying on one single source of income. CEMEX knew
they had a great deal of competition in the market, and
needed to gain competitive advantage. 
-
- Once CEMEX had everything in order and running proficiently
in all these countries, they had gained competitive advantage
in 2000 and had revenue streams all over the globe. CEMEX
reduced the risk of trusting on one source of income by going
global and reduced costs at the same time. CEMEX had
placed manufactures all over the globe, exporting cost
lowered because CEMEX began producing cement locally,
- With any type of relationship being personal or professional
communication is crucial. How CEMEX was able to differ from
Holderbank and similar competitors in the market was how
communication was executed. CEMEX tried to cut as much
as middle man as possible. Mentioned in the article “One key
difference was that country-level managers at CEMEX
reported directly to regional directors…” (Ghemawat,12).
Competitors on the other hand had managers in between
regional directors and country level managers. Moreover,
CEMEX executives, CEO, all regional directors and country
presidents met every month.