!Answer all questions.

CEMEX

a. Did CEMEX use a multidomestic strategy? Justify your answer.

b. Did CEMEX use a global strategy? Justify your answer.

c. Did CEMEX use a transnational strategy? Justify your answer.

On June 7, 2007 Mexico-based CEMEX won a majority stake in Australia's Rinker Group. The $15.3 billion takeover, which came on top of the major acquisition in 2005 of the RMC Corporation - then the world's largest ready-mix concrete company and the single largest purchaser of cement - made CEMEX one of the world's largest supplier of building materials. This growth also rewarded CEMEX's shareholders handsomely through 2007, though its share price had fallen precipitously in 2008 in response to the global downturn and credit crisis coupled with the substantial financial leverage that had accompanied the Rinker acquisition. CEMEX's success over the 15 years from its first international acquisition in 1992 to the Rinker acquisition in 2007 was not only noteworthy for a company based in an emerging economy, but also in an industry where the emergence of a multinational from an emerging economy (EMNE) as a global leader could not be explained by cost arbitrage; given cement's low value to weight ratio little product moves across national boundaries. Much of CEMEX's success could be attributed to how it looked at acquisitions, and the post-merger integration (PMI) process that ensued, as an opportunity to drive change, and as a result, continuously evolve as a corporation. Since it began globalizing its operations in the early 1990s, the company had been praised for its ability to successfully integrate its acquisitions by, at one and the same time, introducing best practices that had been standardized throughout the corporation and making a concerted effort to learn best practices from the acquired company and implement them where appropriate. Known internally as the CEMEX Way, CEMEX standardized business processes, technology, and organizational structure across all countries while simultaneously granting countries certain operational flexibility, enabling them to react more nimbly to local operating environments. In addition, CEMEX was known as an innovator, particularly in operations and marketing, and the CEMEX Way encouraged innovation, particularly if it could be applied throughout the firm. For CEMEX, the resulting innovation and integration process was an ongoing effort as it recognized the value of "continuous improvement." The development of CEMEX's growing international footprint and the associated learning process could be divided into four stages: Laying the Groundwork for Internationalization, Stepping Out, Growing Up, and Stepping Up. (See Table 1.) This case details how CEMEX has exploited its core competencies, initially generated at home, and enhanced these with learnings from new countries, to begin the cycle again. Laying the Groundwork for Internationalization In the 25 years leading up to the Rinker deal, CEMEX had evolved from a small, privately-owned, cement-focused Mexican company of 6,500 employees and $275 million in revenue to a publiclytraded, global leader of 65,000 employees with a presence in 50 countries and $21.7 billion in annual revenue in 2007. See Exhibit 1 for financials and Exhibit 2 for market share information. Well before its first significant step toward international expansion in 1992, CEMEX had developed a set of core competencies that would shape its later trajectory including strong operational capabilities based on engineering and IT, and a culture of transparency. It also had mastered the art of acquisition and integration within Mexico, having grown though acquisitions over the years.2 Between 1987 and 1989 alone, the company spent $1 billion in order to solidify its position at home. When the current CEO, Lorenzo Zambrano, assumed this post in 1985, Mexico had already begun the process of opening up its economy, culminating with its entry into NAFTA. The 1982 crash undercut the state-led nationally-focused model that had been predominant in Mexico over the years, and Mexico began the process of entering GATT, the precursor of the WTO. Recognizing that these events would significantly change the Mexican cement industry from a national to a global game, Zambrano began preparing the firm for a global fight. The first step would involve divestitures from non-related businesses and the disposal of non-core assets. CEMEX also began "exploring" opportunities in foreign markets through exports, which required a fairly aggressive program of building or buying terminal facilities in other markets. Finally, the company began laying the groundwork for global expansion by investing in a satellite communication system, CEMEXNET, in order to avoid Mexico's erratic, insufficient and expensive phone service, and allow all of CEMEX's 11 cement factories in Mexico to communicate in a more coordinated and fluid way.3 Along with the communication system, an Executive Information System was implemented in 1990. All managers were required to input manufacturing data?including production, sales and administration, inventory and delivery? that could be viewed by other managers. The system enabled CEO Zambrano to conduct "virtual inspections" of CEMEX's operations including the operating performance of individual factories from his laptop computer. Stepping Out In 1989, CEMEX completed a major step in consolidating its position in the Mexican cement market by acquiring Mexican cement producer Tolteca, making CEMEX the second largest Mexican cement producer and putting it on the Top 10 list of world cement producers. At the time of the acquisition, CEMEX was facing mounting competition in Mexico. Just three months before the deal with Tolteca was finalized, Swiss-based Holderbank (Holcim), which held 49% of Mexico's third largest cement producer Apasco (19% market share), announced its intention to increase its cement capacity by 2 million tons.4 This, along with easing foreign investment regulations that would allow Holderbank to acquire a majority stake in Apasco, threatened CEMEX's position in Mexico.5 At the time, CEMEX accounted for only 33% of the Mexican market while 91% of its sales were domestic. In addition to these mounting threats in its home market, CEMEX was confronted with trade sanctions in the United States, its largest market outside of Mexico. Exports to the U.S. market began in the early 1970s, but by the late 1980s, as the U.S. economy and construction industry were experiencing a downturn, the U.S. International Trade Commission slapped CEMEX with a 58% countervailing duty on exports from Mexico to the United States, later reduced to 31%.6 In 1992, CEMEX acquired a majority stake in two Spanish cement companies, Valenciana and Sanson, for $1.8 billion, giving it a majority market share (28%) in one of Europe's largest cement markets.7 The primary motivation for entering Spain was a strategic response to Holcim's growing market share in Mexico. As Hector Medina, CEMEX Executive VP of Planning and Finance, explained, "Major European competitors had a very strong position in Spain and the market had become important for them."8 A further important reason for the acquisition was that Spain during this time was an investmentgrade country, having just entered the European Monetary Union, while domestic interest rates in Mexico were hovering at 40%, and Mexican issuers faced a country risk premium of at least 6% for offshore dollar financing.9 Operating in Spain enabled CEMEX to tap this lower cost of capital not only to finance the acquisition of Valenciana and Sanson, but also to fund its growth elsewhere at affordable rates. (See Exhibit 3 for CEMEX organizational structure.) While this benefit could have been obtained in any EU country, Spain offered considerable opportunities for growth and was relatively affordable. In addition, the linguistic and cultural ties between the two countries made it a sensible strategic move. In order to pay off the debt taken on to fund the acquisition, CEMEX set ambitious targets for cost recovery. However, it soon discovered that by introducing its current Mexican-based best practice to the Spanish operation, it was able to reduce costs and increase plant efficiency to a much greater extent, with annual savings/benefits of $120 million10 and an increase in operating margins from 7% to 24%.11 Thus, while the primary motive for the Spanish acquisition was to respond to a competitive European entry in its home market, 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. Further, although it had acquired and integrated many firms within Mexico, 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. CEMEX also enhanced its capabilities through direct learning from Spain. The company discovered, for example, that the two Spanish companies were unusually efficient due to the use of petroleum coke as a main fuel source. Within two years, the vast majority of CEMEX plants began using petroleum coke as a part of the company's energy-efficiency program. 12 Accelerating Internationalization and Consolidating the CEMEX Way CEMEX's move into Spain was followed soon after with acquisitions in Venezuela, Colombia, and the Caribbean in the mid-1990s, and the Philippines, and Indonesia in the late 1990s. These acquisitions, by and large, could be seen as exploiting CEMEX's core capabilities, which now combined learnings from the company's operations in Mexico and Spain. The PMI process also underwent a significant change during this period. Attempts to impose the same management processes and systems used in Mexico on the newly acquired Colombian firm resulted in an exodus of local talent. As a result of the difficult integration process that ensued, CEMEX learned that alongside transferring best practices that had been standardized throughout the company, it needed to make a concerted effort to learn best practices from acquired companies, implementing them when appropriate. This process became known as the CEMEX Way. The CEMEX Way, also known as internal benchmarking, was the core set of best business practices with which CEMEX conducted business throughout all of its locations. More a corporate philosophy than a tangible process, the CEMEX Way was driven by five guidelines: ? Efficiently manage the global knowledge base; ? Identify and disseminate best practices; ? Standardize business processes; ? Implement key information and Internet-based technologies; ? Foster innovation. As part of the integration phase of the PMI, the CEMEX Way process involved the dispatch of a number of multinational standardization teams made up of experts in specific functional areas (Planning Finance, IT, HR), in addition to a group leader, and IT and HR support. Each team was overseen by a CEMEX executive at the VP level.13 The CEMEX Way was arguably what made CEMEX's PMI process so unique. While typically 20% of an acquired company's practices were retained, instead of eliminating the 80% in one swift motion CEMEX Way teams cataloged and stored those practices in a centralized database. Those processes were then benchmarked against internal and external practices. Processes that were deemed "superior" (typically two to three per standardization group or 15-30 new practices per acquisition) became enterprise standards and, therefore, a part of the CEMEX Way. As one industry observer noted, CEMEX's strategy sent an important message of, "We are overriding your business processes to get you quickly on board, but within the year we are likely to take some part of your process, adapt it to the CEMEX system and roll it out across operations in [multiple] countries."14 By some estimates, 70% of CEMEX's practices had been adopted from previous acquisitions.15 Furthermore, in just 8 years, CEMEX was able to bring down the duration of the PMI process from 25 months for the Spanish acquisitions to less than five months for Texas-based Southdown. PMI teams were formed ad-hoc for each acquisition. Functional experts in each area (finance, production, logistics, etc) were selected from CEMEX operations around the world. These managers were then relieved from their day-to-day responsibilities and sent, for periods varying from a few weeks to several months, to the country/ies where the newly acquired company operated. Because these managers were the ones who did at home what they were teaching newly acquired firm's managers, they were the best teachers as well as the most likely CEMEX employees to identify which of the standard practices of the acquired firm might make a positive contribution if adapted and integrated into the CEMEX Way. On the other hand, because they were seen as the best and the brightest within CEMEX, these managers had the legitimacy to propose and advocate for changes in the firm's operation standards in a way that no other manager could. Hence, PMI team members were low enough in the organization that they were in a unique position to identify and evaluate different ways of doing things. At the same time, however, these managers were high enough in the organization that they could effectively 'sell' the value of changing a particular practice to corporate level managers. Drawing key people from multiple countries to form these teams represented a significant challenge for what CEMEX referred to as 'legacy operations.

1. Consumer Price Index The table below shows the prices of the only three commodities traded in Shire. Year 1995 2000 2005 2010 Potatoes $1/1b $2/1b $3/1b $4/1b Pork $20/1b $25/1b $30/lb $40/lb Beer $7.5/keg $12/keg $25/keg CPI 100 140 Suppose the typical Hobbit in a year buys 200 pounds of potatoes, 50 pounds of pork and 50 kegs of beer (that is, consider this the "market basket"). Use this information and the data in the table to answer the following questions. a) Complete the table. b) Compute the inflation rate from 1995 to 2010. c) Calculate price changes for each commodity from 1995 to 2010 measured as percentages. d) Compare the individual price changes with the overall inflation rate. What are your observations when you compare these two things? 2. Consumer Theory - Income and Substitution Effects Qx 2 3 4 5 6 7 8 9 MUx (measured in utils) 72 36 24 18 14.4 12 10.28 9 8 QY 2 3 5 8 9 MUy (measured in utils) 72 36 24 18 14.4 12 10.28 9 8 1 Garfield only consumes two goods fish (X) and candy (Y). Through careful negotiation with Jon, Jon agrees to spend $72 dollars per week to buy Garfield these two goods and Garfield can choose whatever bundle he prefers. One can of fish costs $9 and one pack of candy costs $6. The table above shows some of his marginal utilities relating to his consumption of these two goods. a) Find the equation for Garfield's budget constraint and graph it. b) What is Garfield's utility maximizing bundle at this budget constraint? What's his total utility from consuming this bundle? c) Suppose the price of fish decreases to $4 per can. Find the equation of Garfield's new budget line and graph it in the same diagram as in a). d) What is Garfield's utility maximizing bundle given his new budget line? What is the change in his consumption of good X? e) Observe the table carefully. What other consumption bundle from this table gives Garfield the same utility level as he got at point A (the amount you calculated in (b))? Once you have found this point label it point C on your graph and draw an indifference curve that contains both point A as well as point C. Label this indifference curve IC, in your graph. f) How much money would Garfield need from Jon to afford this bundle C? Why will Garfield need less money to afford this bundle than he needed to afford bundle A? g) Verify that the consumption bundle you found in (e) is the utility maximizing bundle for the level of income you determined in (f). This new level of income is based upon the new price of fish. h) What is Garfield's imaginary budget line? Graph it in the same diagram and label it BL3. i) Identify graphically and numerically how much of the change in Garfield's consumption of fish is due to the income effect and how much of the change is due to the substitution effect?Q1 [50 MARKS]. Three researchers are estimating the relationship between expenditure on cinema tickets (Ca) and total monthly expenditure (Y i) using a cross-sectional Survey of 1500 households in England during May 2014. All three have also been asked to look at the effect of children on cinema attendance and they have been given data on the number of children K in each household from which a dummy variable Di has been constructed taking the value 1 if Ka>0 and 0 otherwise. The variable E is the years of education of the head of household, and residuals for each of the three researchers' models are denoted 51'} 52"; 5;} respectively, i is the household identier. Researcher 1 estimates the following relationship: (Her 2 5.48 + 2.48 Ya- 0.25 Y? - 1.328 n+2\"; (1.24) (2.41) (2.16) (4.21) Number of observations = 1500 Researcher 2 estimates: (2) ln Cl: 1.22 + 0.72 Y1 - 0.38 Ya*Da - 0.42 n+6} (0.26) (5.13) (3.28) (2.72) Number of observations 2 1320 Researcher 3 estimates: (3) In Ci = 1.32 + 1.38 In Y, - 0.1 1 K; + 0.28 E. + 31 (0.54) (6.56) (1.09) (1.10) Number of observations =1280 In all the above regressions, the numbers in brackets are absolute values of t-ratios. a) For each regression, discuss the effect of total monthly expenditure on cinema tickets expenditure. b) Researcher 3 claims to be able to reject the hypothesis that the income elasticity of spending on cinema tickets is equal to 1. Do you agree? Explain your reasoning. c) Which one of these three specifications provides evidence that the income elasticity depends on children? Find the income elasticity for those with and without children in this specification and in each case state whether cinema tickets are a necessity or a luxury. d) Why do all three researchers' specifications have different numbers of observations? Does this worry you or suggest that any of the specifications are better than any of the others? Explain your reasoning. Q2 150 MARKS]. Recent years have seen a fall in labour market participation of older workers. The following data are descriptive statistics from two random samples of individuals aged 50 to 64 in Amherst in year 2000 and year 2010. 50-59 60-64 All 50-64 Year: 2000 Working 6200 2022 8222 Not working 4500 2576 7076 All 10700 4598 5298 Year: 2010 Working 5850 1624 7474 Not working 3960 2608 6568 All 9810 4232 14042 a) For each year, compute simple estimates of the effect of reaching age 60-64 on whether an individual is employed. b) State the conditions under which you could interpret your answers to part (a) as causal effects. Do you think these conditions are likely to hold in this case? Would you consider the estimates in part (a) to be evidence that this 'effect' has changed over time? Explain your reasoning. 2c) In year 2012 the government introduced a new policy targeted at increasing employment amongst 60-64 year olds, by a combination of retraining programmes and wage subsidies. Suppose you have a sample of individuals aged 50 to 64 for the years 2011 and 2013. Propose a regression to implement the difference-in-differences estimator to evaluate the reform. Carefully explain what variables are needed in your regression and how you can use it to estimate the causal effect of the reform and the assumptions under which such an inference is valid. d) Suppose the same model in part (c) were estimated on workers of all ages, instead of just those aged 50-64. Are any of the assumptions you listed in part (c) more or less likely to hold? Explain your reasoning. /*#*END OF PAPER**#/