SESSION 2 The Globalization of Cemex.

MATERIALS
Case: HBS 9701017 The Globalization of CEMEX
Additional material: Exhibits 48
1. What benefits have CEMEX and the other global competitors in cement
derived from globalization?
1.
2.
3.
4.
5.

Economies of Scale
Manufacture closer to point of use to reduce the logistic cost
Avoid Import tax by producing the local country
Reduce the risk of political and economic crisis
Reduce risk of dependency on single market

2. How specifically has CEMEX managed to outperform its leading global

competitors in the cement industry? (See exhibits 48).
1. EBIT 29%, Competitors are between 10-15%
2. Maintain healthy cash flow Ratio 20%
3. Stock Profitability -

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?
1. Trade sanctions in US, major exports market for CEMEX
2. Went for portfolio diversification but this didnt work well. Based on
boston consulting advise they went for regional expansion.
Earlier Markets
US
LATAM
Europe
Recent Markets
SE ASIA
Egypt

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?

The cement industry and its players made first steps in the direction to Global integration only in the
1970s. It could be seen as somewhat paradoxical, because if we apply the matrix of Global Integration and
Local Responsiveness pressures to the cement industry, we can clearly identify that the industry scores
high on most of the factors that should have pushed it to globalization much earlier.
These factors include large investment intensity, technology intensity in production, pressures for cost
reduction, universal needs, presence of multinational competitors, and access to localized resources. But
that matrix does not take into account the inherent characteristic of the industrys principal product,
namely low-value-to-weight ratio of cement.
Therefore, the move from the fragmented localized markets to formation of the MNCs spanning the globe
was caused not by the intrinsic universal need for cement itself or by the opportunities for labor cost
arbitrage, as was common for many other industries. Since cement itself was, and mostly remains, not an
export-driven business, because it was expensive to transport, there had to be other drivers for
globalization of the industry.
Indeed, the emergence of MNCs in the cement industry was caused by significant progress in the
development of the supportive functions underlying the industry as a whole, such as telecommunications,
information technology, capital markets, knowledge management. Unlike the cement, these functions
were much more suitable for export and their value-to-weight was very high.
Analysis of the factors of Local Responsiveness shows us that the cement industry generally does not have
high pressures for localizing their product. These pressures are medium at the most. Even though there
can be some noticeable differences in consumer demands from developed and emerging markets, e.g.
bulk vs. bagged cement, these differences are not affecting significantly, if at all, the products
characteristics and the manufacturing process.
Besides, since cement is consumed locally, there is no additional cost of changing production processes
within one plant in order to produce different specifications. Every plant may have their production
processes optimized for local preferences, if necessary. However, as was demonstrated by the CEMEX
experience, the production processes in general are highly standardized and could be efficiently
transferred among multiple plants within the company.
The Ghemawats approach to modern day globalization focuses on managing the tensions between the
three types of global strategy instead of just adopting one, two or sometimes all three of those strategies
and trying to excel in each of them. Of the three strategies, Adaptation, Aggregation, and Arbitration,
CEMEX has clearly achieved its success by focusing on Aggregation and effectively managing Adaptation.
However, the aggregation in CEMEX had a significant twist, when the economies of scale were achieved
not by simple centralization of production and development, but rather by efficient management of its
global knowledge base.

The cornerstone of the CEMEX Way corporate philosophy was transfer and standardization of best
practices throughout the company. The remarkable distinction of the companys approach was that this
knowledge transfer was not a one-way traffic when the best practices from the home base were exported
and bluntly enforced on the new acquisitions. The companys executives were able to identify early on and
maintain the attitude of continuous learning and expanding their knowledge base through acquisitions.
The PMI process was aimed not just at introducing the tested processes and practices in the newly
acquired plants, but also at cataloging, analyzing and benchmarking the practices of these new
acquisitions. This approach resulted in 70% of CEMEXs practices being adapted from its acquisitions.
One of the most notable examples of this learning attitude was the application of the PMI process to
Mexican operations in 1996 after a spree of foreign acquisitions in Europe and Latin America.

Cemex distributor Puerto Aventuras, Mexico

The success of the company coming from the developing market and becoming one of the three global
giants in the industry is a powerful testimony to the appropriateness of their corporate philosophy, known
as CEMEX way. The continuous learning, allowing the information to flow freely in both directions
between the corporate headquarters and new acquisitions is a primary reason for the companys success.
CEMEX should stay the course and continue refining their strategy through reiterative process of
learning. This will allow the company to stay relevant and keep its competitive edge in the ever-changing
global economy.