Foreign Direct Investment by Cemex

In little more than a decade, Mexicos largest cement manufacturer, Cemex, has transformed
itself from a primarily Mexican operation into the third-largest cement company in the world
behind Holcim of Switzerland and 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 technology, including
truck-mounted global positioning systems, radio transmitters, satellites, and computer
hardware, that 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. The company also pays lavish attention to its distributorssome 5,000 in Mexico
alonewho can earn points toward rewards for hitting sales targets. The distributors can then
convert those points into Cemex stock. High-volume distributors can purchase trucks and
other supplies through Cemex at significant discounts. Cemex also is known for its marketing
drives that focus on end users, the builders themselves. For example, Cemex trucks drive
around Mexican building sites, and if Cemex cement is being used, the construction crews win
soccer balls, caps, and T-shirts. 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 developing countries, 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 early 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 has transformed
Cemex into a global powerhouse in the cement industry with more than $15 billion in annual
sales and operations in 50 countries. Only about 15 percent of the companys sales are now
generated in Mexico. Following the acquisition of RMC, Cemex found that the RMC plant in the
town of Rugby was running at only 70 percent of capacity, partly because repeated production
problems kept causing a kiln shutdown. Cemex brought in an international team of specialists
to fix the problem, and quickly increased production to 90 percent of capacity. Going forward,
Cemex has made it clear that it will continue to expand and is eyeing opportunities in the fast-
growing economies of China and India where currently it lacks a presence, and where its global
rivals are already expanding. Still, not all of Cemexs expansions have worked out as planned.
In 2006, Cemex announced that it would exit Indonesia after a long-running dispute with the
government there. Cemex entered Indonesia in 1998 as part of an IMF-sponsored privatization
program by purchasing a 25 percent stake in a government-owned Indonesian cement maker,
Semen Gresik. At the time, Indonesia promised to allow Cemex to acquire a majority stake in
Semen Gresik in 2001. However, the country never granted that permission, as local vested
interests, including politicians and unions, voiced worries about Indonesian assets falling into
foreign hands and lobbied the central government to block the deal. A frustrated Cemex
eventually reached an agreement to sell its 25 percent stake to another Indonesian enterprise.
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