The case study of Cemex

Over the last two decades, Mexicos largest cement manufacturer, Cemex, has transformed itself from

a primarily Mexican operation into the second-largest cement company in the world behind Lafarge

Group of France. Cemex has long been a powerhouse in Mexico and currently controls more than 60

percent of the market for cement in that country. Cemexs domestic success has been based in large part

on an obsession with efficient manufacturing and a focus on customer service that is tops in the industry.

Cemex is a leader in using information technology to match production with consumer demand. The

company sells ready-mixed cement that can survive for only about 90 minutes before solidifying, so

precise delivery is important. But Cemex can never predict with total certainty what demand will be on

any given day, week, or month. To better manage unpredictable demand patterns, Cemex developed a

system of seamless information technologyincluding truck-mounted global positioning systems,

radio transmitters, satellites, and computer hardwarethat allows it to control the production and

distribution of cement like no other company can, responding quickly to unanticipated changes in

demand and reducing waste. The results are lower costs and superior customer service, both

differentiating factors for Cemex.

Cemexs international expansion strategy was driven by a number of factors. First, the company wished

to reduce its reliance on the Mexican construction market, which was characterized by very volatile

demand. Second, the company realized there was tremendous demand for cement in many developingcountries, where significant construction was being undertaken or needed. Third, the company believed

that it understood the needs of construction businesses in developing nations better than the established

multinational cement companies, all of which were from developed nations. Fourth, Cemex believed

that it could create significant value by acquiring inefficient cement companies in other markets and

transferring its skills in customer service, marketing, information technology, and production

management to those units.

The company embarked in earnest on its international expansion strategy in the 1990s. Initially, Cemex

targeted other developing nations, acquiring established cement makers in Venezuela, Colombia,

Indonesia, the Philippines, Egypt, and several other countries. It also purchased two stagnant companies

in Spain and turned them around. Bolstered by the success of its Spanish ventures, Cemex began to

look for expansion opportunities in developed nations. In 2000, Cemex purchased Houston-based

Southland, one of the largest cement companies in the United States, for $2.5 billion. Following the

Southland acquisition, Cemex had 56 cement plants in 30 countries, most of which were gained through

acquisitions. In all cases, Cemex devoted great attention to transferring its technological, management,

and marketing know-how to acquired units, thereby improving their performance.

In 2004, Cemex made another major foreign investment move, purchasing RMC of Great Britain for

$5.8 billion. RMC was a huge multinational cement firm with sales of $8 billion, only 22 percent of

which were in the United Kingdom, and operations in more than 20 other nations, including many

European nations where Cemex had no presence. Finalized in March 2005, the RMC acquisition

transformed Cemex into a global powerhouse in the cement industry. Today it generates more than $16

billion in annual sales and operations in 50 countries. Only about a third of the companys sales are now

generated in Mexico. Ironically, President Trumps plan to build a wall along the MexicanU.S. border

could benefit Cemex, which has six cement plants on the U.S. side of the border within delivery distance

of the proposed wall.

Answer the following questions.

a. Which theoretical explanation, or explanations, of FDI best explains Cemexs FDI?

b. What is the value that Cemex brings to a host economy? Can you see any potential drawbacks of

inward inves