Our discussion in the text stresses that multinationals succeed by using their firm-specific advantages throughout their global operations. We have also noted that most foreign direct investments are made by firms based in the industrialized countries.

This is the story of CEMEX, a firm that rapidly has become multinational since 1990. The reasons for its multinational success fit very well with the advantages stressed in the eclectic approach.

What makes the firm unusual is that it is based in Mexico. CEMEX is an example of a growing group of multinationals based in developing countries.

CEMEX began business in 1906. For most of its life this cement company focused on selling in the Mexican market. Cement is a product that is expensive to ship, especially overland, so cement plants ship mostly to customers within 300 miles of a plant. Shipment by water is moderately (but not prohibitively) expensive. Most cement producers in the 1980s were local producers with traditional business practices. New managers at CEMEX broke with tradition by introducing extensive use of automation, information technology, and a satellite-based communication network into CEMEX operations. They used the technology to improve quality control and to provide detailed information on production, sales, and distribution to top managers in real time. Delivery of ready-mix concrete is particularly challenging in cities. Traditionally, cement firms could ensure delivery only within a time period of about three hours. CEMEX pioneered the use of computers and a global positioning system to guarantee delivery to construction sites within a 20-minute window. These innovations became the company’s firm-specific advantages.

Also in the 1980s CEMEX began to export more aggressively to the United States using sea transport, and it was increasingly successful. However, competing U.S. cement producers complained to the U.S. government, and in 1990 CEMEX exports to the United States were hit by a 58 percent antidumping duty. With exporting to the United States limited by the antidumping order, CEMEX looked for other foreign opportunities.

In 1991, it began exporting to Spain, and in 1992 it made its first foreign direct investment by acquiring two Spanish cement producers.

CEMEX minimized its inherent disadvantages by investing first in a foreign country with the same language as the firm’s home country and a similar culture. In addition, CEMEX used its expansion into Europe as a competitive response to the previous move by the Swiss-based firm Holcim into the Mexican cement industry.

The management team sent by CEMEX to reorganize the acquired companies was amazed to find companies that kept handwritten records and used almost no personal computers.

They upgraded the Spanish affiliates to CEMEX technology and management practices. The improvement in affiliate operations from this internal transfer of CEMEX’s intangible assets was remarkable—profit margins improved from 7 percent to 24 percent in two years.

Since then, CEMEX has made a series of foreign direct investments by acquiring cement producers in Latin America (including Venezuela, Panama, the Dominican Republic, Colombia, and Costa Rica), the United States, Britain, the Philippines, Indonesia, and Egypt. CEMEX used the same type of process that it used in Spain to bring its technology and management practices into its new foreign affiliates, and generally achieved similarly impressive improvements in performance.

By 2000, CEMEX was the third largest cement producer in the world, behind Lafarge of France and Holcim. More than 60 percent of its physical assets were in its foreign affiliates. It was also the largest exporter of cement in the world (a fact consistent with the proposition discussed in the text that FDI and trade are often complementary).

CEMEX is considered one of the best networked companies globally by computer industry experts, well ahead of its rivals. Its investments in developing and enhancing its firm-specific advantages have been paying off globally.

DISCUSSION QUESTION In countries like Spain, Colombia, and the Philippines, why did CEMEX not just license independent local producers to use its operations technologies?