The CEMEX Way

Ashish Chhabra Darpan Shah Navneet Bajaj Shwaytaj Raste Abhishek Nasta Siddharth Garg Pratik Kamble

Part 1 - The McKinsey 7S Model

Hard Elements

Rest all Soft Elements

Strategy
Rapid Acquisitions Identifying potential markets Focus on innovation Technology-based Solutions, strong IT and telecom support (CemexNet ) Distribution and delivery process through sophisticated information systems Continuous attempts to reduce operating cost

Structure
Highly Centralized company, while operating in 60 countries Unique simple Organizational structure Top management does not see much change when a company is acquired Ad-doc PMI teams are formed which includes top performing executives from various departments to deliver while relieving them from their day-to-day activities

Systems
IT platform and standardized processes enable them to identify and share best practices across global operations network Data is continuously fed into systems at various levels, which helps in monitoring the operations better GPS trucks, 24-hour cement dispatch system has given them cutting edge Backed by a 97% success rates CEMEX being able to cut 35% of its fleet, saving it $100 million!!

Shared Values
Visionary
What sets CEMEX apart are its vision and the actions the company takes to achieve it. Hector Kelvin Castillo, Quality Control Advisor, CEMEX, Dominican Republic

Professional
CEMEX offers a very professional and dynamic atmosphere, where values and ethics are extremely important. Working at CEMEX is a never-ending learning process. Kamla Sherif Nassar, Human Resource Projects & Information Manager, CEMEX, Egypt

Great emphasis on Ethics and integrity Aligned goals Motivation from challenges in workplace keeps them going

Style
Progressive Emphasis on Market research & Information systems Focus on Innovation Nine days in a year are kept aside known as idea days where employees give their ideas and also brain storm on them

Staff
Development programs to grow lower level managers to be ready for more responsibility Place left by ad-hoc PMI execs are filled by their sub-ordinates which is a training ground for them With 60,000 employees the company has been an HR process innovator, with operations in over 60 countries

Part 2 - From International to Global

CEMEX believed in getting the basics right first Founded in 1906, their first international acquisition was made in 1992 in Spain Before that it strongly captured Mexicos market, and became 2nd largest there It had invested in technology heavily Since Cement is a Commodity product, it had to focus on manufacturing and delivery

CEMEXs Modus operandi

Stepping Out

Growing Up

Stepping Up

Groundwork for Internationalization

Groundwork for Internationalization

Went International in 1992
strong operational capabilities based on engineering and IT a culture of transparency mastered the art of acquisition and integration within Mexico Spent $1Bn between 1987-89, to get stronger at home CemexNet for Communication

Stepping Out
Acquired a majority stake in two Spanish cement companies, Valenciana and Sanson, for $1.8 billion - majority market share (28%) in one of Europes largest cement markets, motivation was Holcim entering into Mexico, to counter-attack Also Spain was investment grade country, just entered European Monetary Union Linguistic and cultural ties between the two countries made it a sensible strategic move

Contd
A major source of value resulting from the acquisition was the improvement in operating results due to the transfer of best practice from a supposedly less advanced country to a supposedly more advanced one This acquisition, because of its size and the fact that it was in a foreign country, forced CEMEX to formalize and codify its Post Merger Integration (PMI) process Ex began using Petroleum Coke, cheaply available in Spain, for manufacturing

How CEMEX grew Inorganically

1994
CEMEX acquires Venezuelas largest cement company, which is ideally positioned for exports. CEMEX expands its U.S. operations by acquiring a cement plant in Texas and enters Panama with the acquisition of Cemento Bayano

1995

CEMEX acquires Cementos Nacionales in the Dominican Republic

1996

CEMEX becomes the worlds third-largest cement company with the acquisition of Colombias Cementos Diamante and Samper

1997

CEMEX acquires a 30% interest in the Philippines Rizal Cement

CEMEXs Post Merger Integration(PMI)

Efficiently manage the global knowledge base

Foster innovation

Identify and disseminate best practices

Implement key information and Internetbased technologies

Standardize business processes

Part 3 - How would you analyze the global cement market given the industry structures ?

Global Cement Consumption

 World demand for cement is forecast to grow 4.7 percent per year to 3.5 billion metric tons in 2012 Gains will be driven by strong increases in cement consumption in the developing countries, fueled by rising income levels and a focus on infrastructure development Rebound in cement demand in industrialized markets such as the US, Japan and Germany, will further boost advances Apart from India & China. Indonesia, Malaysia, Nigeria, Vietnam and the UAE are all expected to record gains in excess of seven percent per year.

Supply & Demand

As World economies progress demand for Cement, Oil, Coal will increase

Part 4 Entry Strategy for India

Current Scenario
Driven by a booming housing sector, global demand and increased activity in infrastructure development such as railways, state and national highways, the cement industry has outpaced itself
ramping up production capacity attracting the top cement companies in the world, and sparking off a spate of mergers and acquisitions to spur growth

The recent boom in the housing and construction industry in India has worked wonders for cement manufacturing companies with capacity utilization crossing the 100 per cent mark for the first time in January 2009

Opportunity
Despite the growth of the Indian cement industry, India's per capita production of 115 kilograms per year lags the world average of over 250 kilograms and China's production of more than 450 kilograms per year

Top Ten Cement companies in India

Company
ACC Gujarat Ambuja Ultratech Grasim India Cements JK Group Jaypee Group Century Madras Cements Birla Corp. Production( Installed tonnes) Capacity % utilization 17,902 18,640 96.04 13,094 14,860 95.57 13,707 17,000 80.63 13,649 14,115 97.78 8,434 8,810 95.73 6,174 6,680 92.43 6,316 6,531 96.71 6,109 6,300 98.33 4,550 5,470 83.18 5,150 5,500 98.72

 Can start by acquiring companies which are strong in regions

Shree Cement (Bangur) has strong presence in north India Cements in South Aditya Birla in East Eastern India growing @11.4% Y-o-Y Biggest Markets are UP & Maharashtra followed by Gujarat & MP

Specific to India
For developed market, Industrial and institution buying accounts for 80% while rest is for consumers, who buy in small quantities This is reversed in developing countries where most of the sale is accounted by small quantity buyers, since they believe in making their own homes This is very relevant to have a big retailer/distributor base

New Investments
JSW Cement, part of the OP Jindal Group, plans to set up cement units near the groups steel plants at Kurnool, Andhra Pradesh, and Vijayanagar, Karnataka. The units which will have a combined capacity of 5.5 MT per annum will be set up at a cost of US$ 393.1 million. Anil Ambani Group Company Reliance Infrastructure will invest US$ 2.1 billion to set up cement plants with a total capacity of 20 MT per annum over the next five years. Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company plans to set up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$ 463.2 million. Jaiprakash Associates Ltd has inked a MoU with state-owned Assam Mineral Development Corporation Limited (AMDC) for setting up a 2 MT per annum capacity cement plant at an estimated cost of US$ 221.36 million. Iron ore mining firm Rungta Mines (RML), the flagship company of SR Rungta group, plans to set up a one million tonne cement plant in Orissa with an investment of around US$ 123 million

Thank you