Essay About 2017Cemex And Global Capacity

Cemex Case
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Cayley MercerSB696 – Professor Lado February 2nd, 2017CEMEX: A Case Analysis         By the end of 1999, CEMEX operated cement plants in 15 countries, owned production or distribution facilities in a total of 30, and traded cement in more than 60 (Ghemawat, 2004). At this time, each of the six major international competitors in the cement industry still had clearly identifiable national origins and controlled a significant share of its home market. With so much unharnessed global capacity, CEMEX recognized an opportunity to expand their leadership efforts beyond Mexican borders and make strides toward furthering their global position. Their strategy for global expansion was largely focused around acquisitions, and the company followed an intensive process in their strive for international success. This process consisted of three steps, 1) opportunity identification (high population growth, a fairly low level of current consumption, and an opportunity to lead the market or at least control 25% of it), 2) extensive due diligence (a process that seemed to be more thorough and systematic than other international cement companies), and 3) post-merger integration (a PMI team helped achieve rapid, effective integration and enhanced the efficiency of the acquired unit and adapted it to CEMEX’s standards) (Ghemawat, 2004). CEMEX focused on obtaining other companies or plants through purchase or buyout, as opposed to utilizing a greenfield investments approach in which they would have to increase their direct foreign investment to build new ventures from the ground up. The global acquisition route proved to be successful for CEMEX as it first allowed the company to protect itself against threats from particular competitors. This was especially prevalent in the situation CEMEX faced in the Spanish market. They acquired 68% of the stock and 94% of the voting rights in two large Spanish cement companies – acquisitions that lowered the company’s dependence on the Mexican market, but also gave them significant capacity in a major market for their competitors Holderbank and Lafarge (Ghemawat, 2004). As well, the global expansion process through acquisitions gave CEMEX the power to fend off any instability that economic downturn in one country could create. For instance, when the U.S. economy, and the construction industry in particular were experiencing a decline, they petitioned against CEMEX. However, the company was still able to credit imports of Chinese cement to the west coast of the United States as a profitable aspect of its American activities (Ghemawat, 2004). In Venezuela, acquisitions again proved to be the advantageous path for CEMEX, as they were able to move quickly to integrate and improve the efficiency of the operations in this host country, something that would have taken more time and resources to do through greenfield investment. Additionally, an acquisition approach also provided the benefit of having pre-developed systems and connections. Because CEMEX refrained from expanding globally through means of greenfield, which would have required the development of ports, trading hubs, distribution centers, and access lines on top of production infrastructure, the company was able to take advantage of established transportation routes, upon other things, in order to ultimately cut costs. Finally, global expansion through acquisition enabled CEMEX to develop knowledge in multiple locations, synthesize it and transfer it to other countries in which they were looking to make acquisitions in as well. By 2002 CEMEX had acquired markets in North America, South America, the Caribbean, Europe and Asia, and it was expected that demand in these regions would continue to grow throughout 2010 (Ghemawat, 2004). CEMEX was thought likely to enter India as well, however top competitors Holderbank and Lafarge already shared a degree of presence there. Therefore, utilizing Ghemawat’s CAGE framework becomes a useful tool in deciphering which market CEMEX would be best suited to attack next, and through thorough application of the model one could attest that the next logical expansion for CEMEX would be in Brazil. First, the cultural distance between Mexico and Brazil is slim, as the languages, ethnicities and social norms are relatively similar in both locations. As well, both countries are closely tied in terms of development on a world stage in both economic and political aspects. Furthermore, CEMEX has had success in testing their innovations and new business concepts in the Mexican market, and because Brazil shares such similar qualities in consumer incomes and spending as Mexico, the application from one country to the other would be of low difficulty. Finally, because of the aspects of geographic distance outlined in the CAGE framework, the expansion to Brazil would also help economically by making investments less risky. It would allow easy access to waterways for conducting trades to and from these acquisitions, and adaptions to remoteness or climate are insignificant.