CEMEX

[Helen Lam]

Hi Guys, 

Check out this article from Transport of UK : http://www.tfl.gov.uk/cdn/static/cms/documents/cemex-case-study.pdf 

[Michael Chae]

"Product innovation is often fleeting, but process innovation is far more difficult for competitors to duplicate or imitate"

Something I found while studying for the Ops midterm. This can be applied to CEMEX's post-merger integration process since this is arguably one of their core competencies which creates value.  

On Sat, Jun 21, 2014 at 12:37 PM, Helen Lam <hele...@gmail.com> wrote:

Hi Guys, 

Check out this article from Transport of UK : http://www.tfl.gov.uk/cdn/static/cms/documents/cemex-case-study.pdf 

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[Michael Chae]

See attached sample group assignment he posted on BB. My suggestion is to keep our format similar to these. Thoughts?

[Helen Lam]

What strategies differentiate a global player from a local one? Is it its products, processes, functions, assets or markets? 

In the mid-1980’s, the advent of liberalisation in Mexico set the stage for Cemex, a local cement company with diversified interests, to develop into the world’s third largest cement producer. Cemex managed to increase its production capacity by more than 450% within a span of ten years. It acquired companies in Spain, Venezuela, Panama, the Caribbean and the US and established them as foreign subsidiaries.

Cemex’s payoff came in 1995 when a financial crisis occurred in Mexico, leading to recession and devaluation of the Peso. Cemex mobilised $440m from its foreign subsidiaries and channelled them into Mexico, enabling the Mexican branch to withstand the crisis successfully, even as domestic companies succumbed.

The case of Cemex demonstrates clearly that  at least one of the two main strategies mentioned below must be adopted by any company to become a global player. They are –

• The ability to garner resources worldwide to leverage its position in any competitive situation it may find itself in. In this case, Cemex’s foreign subsidiaries helped bail the Mexican firm out of a recession and stay afloat, unlike its competitors did.

• The ability and keenness to contest in any market that it chooses to compete in.

One of the important benefits that Cemex had as a global competitor was access to alternative sources of finance not available to local companies. For example, Cemex refinanced its debt through its Spanish subsidiary Valenciana. In the process it reduced the impact of the exchange rate risk, which had increased due to the financial crisis.

The strategies that could be adopted to becoming a global competitor, can be measured on five parameters –  

1. Possessing a standard product to be marketed through a standard process. In this case, the product was cement. Standardisation provides benefits in economies of scale in design, production and promotion.

2. Sourcing all assets, not just products. The important thing about sourcing all assets is that today, a company will have many more options to choose from. This means that it must select the most cost – effective source. One way is to form partnerships or enter into alliances with local companies.

3. Achieving market access needed to break even. The company needs to generate enough demand (sales) to satisfy the required infrastructure demands, including investments in Research & Development etc. a number of global companies may operate in the same market, but  what makes one company stand out is its focus on R&D, promotions and intangibles like brand – building.

4. Ability to match the assets and competencies of its competitors. Whatever competitive advantage the competitor acquires, the company must be able to neutralize its effect. This is when the company’s global characteristic comes into play, by giving it access to a wider range of choices than would be available to a purely domestic company.

5. Providing all functions with a global orientation. When all functions (production, procurement, logistics, marketing, finance, human resources, R&D) have a global orientation, the company’s customers will have access to superior products and services, no matter where they are.

The CEO of Cemex Lorenzo Zambrano mentions two major pitfalls to be avoided in the process of going global –

• Haphazard expansion, which would result in loss of strategic focus, and
• Inadequate pool of competent managerial resources to implement strategies successfully

Finally, it would never do for a company to completely ignore local differences. Each country that the company operates in will have its own set of policies, regulations and incentives, as well as sociocultural differences, which will have to be taken into account.

Local adaptation causes over –investment in infrastructure and a lack of consistency in strategy. Before allowing a subsidiary to diversify, the company must look at its long-term goals, and the scope of its business.

Conclusion

What differentiates the global player from the local one is that local adaptation would not form the basis of the former’s strategy. Global strategies do not mean global presence, and a global marketplace is not one, which is homogenous or borderless. A combination of consistency, leverage and controlled local diversification is what gives a company a strong global presence. 

Related reading:

“Long reach opens new sources of finance” : Leslie Crawford : www.ftmastering.com

“Global strategies in the 1990’s” : Vijay Jolly : www.ftmastering.com