GLOBALIZATION OF CEMEX

QUESTION 1

What benefits has CEMEX and the cement industry derived from geographical expansion?

Diversification
As CEMEX expanded internationally, it started gaining volatility For instance, the standard deviation of quarterly cash flow margins averaged 7.1% as compared to 9.5% for Mexico, 12% for Spain, 30% for Venezuela and 22% for U.S.

Increased operation efficiency from integration of processes

Due to integration of operations across different geographies, CEMEX saw major improvements in operating margins. Operations in Spain saw improvements in operating margins from 7% to 20% by 1994 and an average of 25% Operations in Latin America saw substantial improvements from 9% to 41% and stood at 34% in 1998

Lower costs in other geographies

Expansion in emerging economies helped them gain access to low labor and transportation cost markets like Philippines and Indonesia.

Reap benefits of Technology implantation

CEMEX implemented global positioned satellites to link its dispatchers, trucks and customers This helped them in giving delivering guarantee of 20 minutes instead of three hours Same network was extended in new geographies in which they entered

Lower cost of capital from other geographies

CEMEX was facing the problem of high cost of capital while operating in Mexico especially after Peso crisis but they were able to respond to this by folding its non-Mexican assets into its Spanish operations It brought $100 million per year in interest cost saving along with principal debt reduction

Overseas Investments
It ensured that the target companies which had a very high value came to the MNCs at low rates This further improved volumes and margins for the acquiring company. Foreign acquisitions gave the acquiring company significant capacity in a major market It did not have to depend on increasing its domestic operations beyond the limits specified by the government Lower costs in other countries further boosted profitability and health of the company such as CEMEX. Arbitrage of price differentials, that is, produce it in the country where the cost of production is low and sell it in the domestic market bringing down transportation costs.

QUESTION 2

Has CEMEX outperformed the industry, and how?

Growth
Sales Revenue up from $1bn to $5bn in a span of 10 years Leader in Mexican market 3rd largest company in terms of capacity Largest international trader, more than 60 countries

Profitability
No compromise on profitability Ratio leading of EBITDA to sales ranged between 30% and 40% 10%-15% higher than the leading global firms Exhibit-3

Performance in difficult times

Peso crisis- quickly reworked its planned Mexican revamp & compressed it from 18 months to 3 months Managed margins at reasonable levels Discovered a distinct customer segment involving informal construction

Focus on..
Geographic diversification within cement business rather than horizontal diversification outside it Acquiring existing capacity rather than building plants The Mexican lab

Use of Information Technology

Model for use of IT in low tech setting 1987, created a satellite system to link the Mexican plants it had begun to acquire 1992, founded Cemtec, to complement companys IT department IT expenditures up from 0.25% of sales in 1987 to 1% in 1999 IT training programs for employees Use of GPS to link dispatchers, truckers & customers Result 20 minutes site delivery guarantee Willingness to pay went up, costs came down Connected to distributors & suppliers via internet Information availability to top management