1. What benefits have CEMEX and the other global competitors in cement derived from globalization? More broadly, how can cross-border activities add value in an industry as apparently localized as cement? (Question for Analysis)
The oligopolistic nature of the cement business dictates the limited notion of business strategy, however CEMEX, one of very few cement producers found that through globalization, a variety of benefits can be obtained and utilized to their own. Expanding to the global market was a vision in which Zombrano (CEMEX former CEO) capitalized and was able to add value into the industry in a variety of different practices.
CEMEX aggressively took the risk to expand their global exploits from the means of economic speculation during the 1980s-2000 period. Through globalization they were able to build an impressive portfolio and further benefit from each acquisition. More importantly as a homogenous product in cement, the building market during the 1980s and 90s was relevant and needed in developing countries with considerable growth opportunities.
This is highlighted in their endeavors with the takeover of Valanciana and Sanson in Spain (1992). Spain, a part of the MEU (Monetary European Union) highlighted investment potential as currency rates along with risk premium were considerably low.
The lower cost of capital in the merges posed further potential for funding elsewhere at affordable rates. Investments in any Country apart of the MEU could have been beneficial, however, CEMEX strategically pursued developing countries with potential for economic growth. A core benefit of their globalization practices indulged with reducing costs and increase plant efficiency to a much greater extent.
Inducing their very own Mexican based best practice into the Spanish operation CEMEX recorded annual savings/benefits of $120million and increase in operating margins from 7% to 24%. Interestingly enough, their benefits didn’t reside only in increased revenue or market domination, but further constantly developed their repertoire by absorbing the comparative advantages in the different economies and markets. By tapping into the building industry in Spain, they discovered incredible efficiency in the energy program through the use of petroleum coke as the main fuel source. By 1994, a vast majority of CEMEX plants changed to petroleum coke in the own energy program. CEMEX was able to recognize globalization benefits in 1989 as Lorenzo decided hit the big market in US by exporting their products.
Driven by profitability potentials, CEMEX originally dumped their cement products in the US market to win out their competitors however their products were issued a trade barrier formalized in countervailing duties of up to 51%. (Harvard excerpt). The next strategic move was to directly invest in the US market through FDI. CEMEX focused on avoiding traffic barriers and hefty transport costs thus acquired plants and facilities in Texas through FDI. This was the start to their cross border activities. The NAFTA (NORTH AMERICAN FREE TRADE AGREEMENT) reduced tariff costs and furthermore by placing plants ideally close to the demand of the market, they are also able save delivery time. By cutting export time customer satisfaction is increased, as a result, wherever CEMEX decides to operate, their robust company name and reputation becomes a valuable asset in building plants in ideal locations (next to limestone fields). As a result, through FDIs, subsidies, Mergers and Acquisitions, CEMEX were able to benefit from reduced tariffs when it came to exporting their products, and furthermore eliminated hefty transport costs. The elimination of trade barriers and transport costs would be carried out into all firms that CEMEX acquires.
CEMEX’s globalization campaign highlights robust financial benefits and hubris within their management system. Through constant foreign investment, they needed to build a modest management system which could be self-developed and applied in all of CEMEX’s facilitations. CEMEX designed a core management system to implement in their new acquisition of firms. They implied the PMI (Project Management International) “CEMEX Way” which considered being a form of internal benchmarking, setting a core business practices which would be conducted throughout the locations CEMEX did business. By centralizing their management system, firm stations were able to discover talent across the borders and hired some of the most highly skilled and efficient professionals.
CEMEX had a separate PMI team congested of highly trained managers specifically to train newly acquired firm managers. Managers, employees were granted a voice of opinion. Hierarchy issues diminished and all ideas were considered valuable. Employee efficiency, coherence, accessibility, collaboration, were the key behaviors of the PMI process. This created cohesion, decisions were sound, quicker and easier. CEMEX was also always open to develop their PMI process as they would develop new technologies or advantages throughout merges with other firms. Cement as a homogenous product posed limits in enhancing performance however CEMEX clearly constitutes the principle of learning and continuous benefits through the punctuated PMI process in CEMEX Way.