FOREIGN DIRECT INVESTMENT

Anju K S
CONTENTS
 Introduction
 Competitive Advantage of Cemex
 International expansion Strategy
 Acquisitions & Benefits
 FDI
 Critical Success Factors
 CEMEX is a global building materials company that
provides high quality products and reliable service
to customers and communities throughout the
Americas, Europe, Africa, the Middle East, and Asia.

 They produce, distribute, and sell cement, ready-

mix concrete, aggregates, and related building
materials in more than 50 countries, and maintain
trade relationships in approximately 102 nations.
A global industry leader:

 Annual sales of US$15.23 billion

 One of the leading cement manufacturers in the
world
 World's leading supplier of ready-mix concrete, and
one of the world's largest suppliers of aggregates
 One of the world's top traders of cement and clinker
 Close to 43,000 employees worldwide
COMPETITIVE ADVANTAGE OF CEMEX
 Leader in using IT to match production with consumer demands
 Cemex developed a system of seamless information technology,
including truck mounted global positioning system, radio
transmitters, satellites and computer hardware to control
production and distribution of cement like no other company.
 Responding quickly to unanticipated changes in demand and
reducing waste
 Differentiating factors – lower cost, superior customer service
 Lavish attention to distributors – earn points towards rewards for
hitting sales targets- points converted into Cemex stock.
 Marketing drives with focus on end users, the builders
themselves – soccer balls, caps, T-shirts.
INTERNATIONAL EXPANSION STRATEGY
 Reduce reliance on Mexican construction market which was
characterized by vey volatile demand
 Tremendous demand in developing countries
 It understood needs of construction businesses in developing
nations better than established multinational cement companies.
 Cemex believed that it could create significant value by
acquiring inefficient cement companies in other markets and
transferring its skills.
 Targeted developing nations acquiring established cement
makers in Venezuela, Colombia, Indonesia, the Philippines, Egypt
and several other countries
 Purchased two stagnant companies in Spain and turned them
around.
ACQUISITIONS
 2000- Houston based Southland in US for $ 2.5 billion.
 56 cement plants in 30 countries.
 2004- Purchased RMC of Great Britain for 5.8 billion
(sales of $ 8 billion, only 22% of which where in the
UK and operations in more than twenty other nations
including European Nations where Cemex had no
presence).
 The acquisition transformed Cemex into a global
powerhouse in Cement Industry.
BENEFITS
 From 1991 to 2003 the company’s EBITDA measured
in US $ grew by more than 18% annually.
 Cash earnings per share also grew by 20% a year,
while sales grew by 15%
 Realizing significant efficiency in its acquired units
 By 2002 Cemex was No.1 among world’s four largest
Cement manufacturers on most measures of financial
performance and was more profitable than its major
competitors.
Global FDI Inflows

Source: UNCTAD World Investment Report 2010.

FDI
 Foreign direct investment occurs when a firm invests directly
in facilities to produce and/or market a product in a foreign
country.
 Once a firm undertakes FDI, it becomes a multinational
enterprise.
 FDI takes two main forms:
1. Greenfield investments- involves establishment of new
operation in a foreign country.
2. Acquiring or merging- Acquiring or merging with an existing
firm in the foreign country. It can be minority (foreign firm
takes 10% to 49% interest in firm’s voting stock), majority
(foreign interest of 50% to 99%) or full outright stake (foreign
interest of 100%)
The form of FDI: Acquisitions Versus Greenfield
Investments
 UN estimates indicate that some 40 to 80% of all FDI inflows
were in the form of mergers and acquisitions between 1998
and 2003.
 Mergers and acquisitions accounted for some 78% of all FDI
inflows.
The reasons for higher number of mergers and
acquisitions are:

1. Are quicker to execute than greenfield investments.. Many

firms believe that if they do not acquire a desirable target
firm then their global rivals will. Cemex is world’s largest
cement company and Mexico’s largest multinational. Cemex
rise to global status took less than a decade and has been
primarily by acquisitions. If Cemex has relied on greenfield
investments, it could not have become so large so fast.
 2. Foreign firms are acquired because those firms have
valuable strategic assets, such as brand loyalty, customer
relationships, trademarks or patents, distribution systems,
production systems, and the like. Cemex’s acquisition of
Houston-based cement maker Southland for $2.5 billion is a
good example. Cemex wanted quick entry to the growing US
construction market and Southlands production and
distribution assets enabled Cemex to achieve this.
 Firms make acquisitions because they believe that
they can increase the efficiency of the acquired unit
by transferring capital, technology or management
skills. Cemex has developed the best information
systems n the global cement industry, which has
enabled it to better meet customer needs. Cemex can
increase the efficiency of its acquired units, such as
Southland, by transferring its technological know-
how to those units after the acquisition
WHY FDI
 Exporting is difficult because of the weight of the product.
If Cemex wants to expand into new markets, the company
would either need to license a local company or make an
investment in the market directly.

 Cemex’s success is due in part to its top notch customer

service, and relationship with distributors. Because these
advantages could be difficult to transfer, the company will
probably choose to invest directly.
 CRITICAL SUCCESS FACTORS
 Cemex is highly focused on efficient manufacturing and customer
service.
 Distributors are rewarded for their sales, as are users.
 Cemex acquires companies and then transfers technological,
management, and marketing know-how to the new units,
improving their performance.
 The company has brought several acquired companies back to full
production, increasing employment opportunities in the host
country as well.
 By acquiring companies rather than establishing them from the
ground up, Cemex can avoid some of the delays that could occur
in the start-up phase, while at the same time, capitalize on the
benefits of an established market presence.
 In Mexico the reason for the drop in sales was mainly due to
macroeconomic conditions in the country, the infrastructure sector
being the one to see some activity because of government stimulus.
 In 2009, Europe was the main region where Cemex had the largest
number of plants and businesses, followed by North America and
Central and South America. Europe has nearly twice South America
plants while Central and South America posses 145 plants.
 These statistics show the increased presence of Cemex in the world and
the reason for which it is considered the only Trans-Latin that has
become a Transnational company.
 The main source of external revenue comes from Europe contributed
with 49%, followed by North America with 25% and finally Central and
South America providing 13%
CONTENTS
 Introduction
 Competitive Advantage of Cemex
 International expansion Strategy
 Acquisitions & Benefits
 FDI
 Critical Success Factors
Thank You!