CASE STUDY ANALYSIS

The Globalization of CEMEX

GLOBAL BUSINESS ENVIRONMENT

Submitted By

Kshitiz Singhal
S163F0014

MBA(2016-2018)

SCHOOL OF BUSINESS, PUBLIC POLICY AND SOCIAL

ENTREPRENEURSHIP

AMBEDKAR UNIVERSITY DELHI

Q1.) Please refer to the above figure which has been extracted from the paper-
Global Strategy – An organizing framework by Sumantra Ghoshal.

In the above figure based on the integration – responsiveness framework,

Cement is considered low on account of both integration and responsiveness.
How then has CEMEX managed to leverage the gains from globalization?
[10 marks]

Ans1.) The cement industry being a relatively mature industry with no major
innovations in the past two decades coupled with reasons such as easily
availability of raw materials in various parts of the world, homogeneity of the
product, make cement low on account of both integration and responsiveness.

Cemex in such a case followed an international strategy with centralized

operations and control. However, Cemex was able to reap benefits of
globalization due to the following reasons:

 CEMEX’s use of IT transformed the way the company managed its global
operations. The company was connected via Internet to all its suppliers
and distributors. CEMEX created a satellite system to link the Mexican
plants it had acquired. This would have helped the company management
to virtually keep an eye on the operations of the company.

 Sales and production figures were reported daily, broken out by product
and geography. This would have helped the company keep a track of all
its activities and take immediate action when required.

 CEMEX invested in human resource. CEMEX provided its employees with

a number of IT training programs and even acquired a private satellite
channel for this purpose. It developed a virtual MBA program for its
employees engaged in executive MBA.
  CEMEX’s Post Merger Integration(PMI) Process aimed at improving the
efficiency of the newly acquired plant and adapt it to CEMEX’s standards
and culture was instrumental in making sure that the newly acquired
plants work efficiently and carry forward CEMEX’s operational legacy.
The PMI process helped build cultural awareness and among the new
employees. It connected top level management employees like the
regional director, country president of the new operations and the
company CEO with each other which helped sustain a strong centralized
network.

 Innovative strategies such as linking the dispatchers, truckers and

customers through global positioning satellites and ensuring 20 minutes
delivery to end customer helped create brand awareness among
consumers.

 Taking advantage of their diverse portfolio like the way they did in the
case of peso crisis by investing in its Spanish acquisitions showed their
smart working techniques and proved to be fruitful.

 CEMEX’s organizational structure differed from its competitors and

allowed CEMEX to maintain a smooth centralized control. CEMEX reduced
the number of layers between different managers hence making flow of
information easy and less complicated.

 CEMEX’s strategy of approaching the emerging markets with high

population growth expected and their way of looking at countries from a
regional context rather than a independent markets helped proved
fruitful for them. This would have made the centralized control easy to
administer efficiently.

Q2.) Using the theories of internationalization, please account for the sequence
in which CEMEX entered foreign markets? Please comment on the choice of
entry mode for at least two markets that it entered based on the choice of the
market and the timing of entry.
[10+ 10 marks]

Ans2.) According to the Uppsala model of internationalization a firm when

starting foreign operations generally tend to start through traditional processes
of exports and then gradually as it understands the needs of the market it tries to
establish other forms of subsidiaries etc.

CEMEX followed a similar strategy whereby after having secured leadership in

Mexico, CEMEX started international operations through exports, principally to
the United States. It later set up its distribution facilities in the southern United
States to further cement its market positioning.

Similarly in Spain CEMEX, initially set up its distribution facilities and took this
as an opportunity to understand the European market. Later it acquired two
large Spanish companies, which resulted in a market leading share of 28 percent
in Europe’s leading cement market.

A striking feature here is that CEMEX well understood its position in the market.
It started gradually through traditional processes of exports and setting up
distribution facilities and when it cemented its place in the market its decided to
reap the advantages of ownership through acquisitions of the major players in
the market. The ownership advantage in turn allowed CEMEX to explore other
advantages of location. These advantages of ownership and location happen to
be in line with the Eclectic Paradigm theory of internationalization.

CEMEX’s acquisition in Venezuela and Filipino were both based on location

advantages as the plants were close to the ports and hence facilitated exports.
CEMEX’s acquisition in Indonesia was in line with the theory of reaping benefits
through acquisitions since it was a growing market.

Market entry mode and timings for two markets are as follows:

SPAIN:
Spain was Europe’s largest Cement Market. Hence, a market share in Spain could
have been very beneficial for CEMEX. CEMEX followed the right strategy when
entering Spain. It first set up distribution facilities in Spain and then after
understanding the market needs acquired two large Spanish cement companies
and became a market leader with 28 percent share.
The timing of the entry was spot on since the peso crisis happened at the same
time and it was the Spanish operations, which helped CEMEX weather the peso
crisis.

VENEZUELA:
The mode of entry was correct as CEMEX through their acquisitions directly got
hold of 40 percent market share. The timing of entry in my opinion was correct
since the Venezuelan economy wasn’t doing well which allowed CEMEX to take
the advantage of it’s plant being located near the port and focus on exports to
other Latin American countries. This allowed CEMEX to increase its
diversification to other countries of a particular region and hence increase
regional market share which was also the focus of their evaluation.