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Managment Operaton

In: Business and Management

Submitted By Borovets
Words 2257
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A Case Study – CEMEX
PROBLEM STATEMENT As the third largest manufacturer of cement, CEMEX’s goal is to fully satisfy the building needs of its global customers and create value for its stakeholders by becoming the world’s most efficient and lucrative building-solution company. To achieve this goal, CEMEX should implement several strategies. First, the company should focus on a differentiation strategy by expanding the scope of its business beyond producing and selling cement and concrete. By providing distribution and logistics services CEMEX could be involved in the whole spectrum of the construction industry. Second, as a company that has become successful through implementation of merger and acquisition strategies it should take into consideration an organic growth strategy as a primary solution to distribution of construction materials around the world. As a company that has successfully served its customers in countries with different culture and political and economic systems, CEMEX has acquired deep understanding and knowledge of the local and corporate culture of its clients which it has parlay into a tremendous advantage when opening new construction supply stores in those countries (Garcia, 2011). Third, while focusing on international expansion, CEMEX has to ensure a competitive advantage in domestic operation. To achieve both global efficiency and local responsiveness the company should build a network of its customers, partners, suppliers, and stockholders through implementation of a transnational strategy.
SITUATION ANALYSIS General Environmental Analysis The key trends that influence CEMEX’s capabilities and effectiveness in operating its business are demographic, economic, political, and technological. Demographic trends affect the company’s competitiveness through the sheer size of the labor force and the corresponding demand for housing. The adult segment of the Mexican population between 30 and 59 years old is expected to grow by almost 50 percent by the year 2030, thus representing an increased demand for work and houses (Lugarini, 2009). In the second quarter of 2006, the Mexican Congress passed a new housing bill aimed at reducing the housing deficit in the country through better coordination between the federal, state, and city government on authorizations of land licenses. With the passage of this bill the demand for cement and concrete products increased significantly and led to an expansion of CEMEX’s domestic business and the creation of new jobs (Lugarini, 2009). In current the economic conditions, CEMEX endeavors are for effectiveness and standardization. The company is extremely dependent on the economic performance of the countries it operates in. Despite the adverse economic climate, CEMEX has successfully managed to achieve substantial results in 2009 through implementation of an integrated financial and operating strategy that repositioned the company in cement industry. The US$900 million cost-reduction program and reduction in its capital expenditures by more than US$1.5 billion are two of the company’s five strategies that contributed in reduction its net debt by US$2.9 billion during that year (Zambrano, 2010). Such a competent response to the economic crisis proves that the company possesses talented personnel, operates a superior business model, and has the confidence of the financial markets. In 2008, devaluation of the Mexican peso forced CEMEX to sell its Australian operations to Holcim for US$1.75 billion to decrease company debt and avoid default (Cemex, 2011). Political trends significantly influence a company’s performance both within the country where it operates as well as globally. A company’s prosperity depends on its ability to operate profitably while adhering to local regulations and laws and quickly adapting to new regulations. A primary political trend to consider is governments imposing regulations on imports, exports, and trade tariffs. In 1986, after Mexico joined the General Agreement on Tariffs and Trade (GATT) that eliminated trade barriers and reduced tariffs, CEMEX was enabled to expand globally (Mexico – Economic Development, 2011). Second, the governments may nationalize or privatize private companies. On April 3, 2008 the Venezuelan Government announced the nationalization of its cement industry and in August, 2008 it took operational control of CEMEX Venezuela’s facilities that CEMEX has owned and operated since 1994 (Lugarini, 2009). The company is now experiencing a challenge about how to operate in new environments while staying profitable and sustainable. Third, the political stability of a country where the company operates its industry highly influences the performance of that company. For example, a war in the Middle East creates major obstacles for full operations for companies doing business in that area. Technological trends are another element of the external environment that can drastically influence a company’s operation in the worldwide arena. The Internet and Web 2.0 provide exceptional vehicles for collaboration between global business units and functions. CEMEX has introduced an internal collaboration platform called Shift designed for employees with similar objectives to share information, opinions, knowledge, experience, thoughts, and practices. This innovation has led the company to new business capabilities and best practices. Another innovation CEMEX implements is modification of the properties of concrete through the use of chemical admixtures to its cement which are designed to meet the specific requirements of customers. Other innovation CEMEX has developed is technology to improve product cost and quality. Competitive Dynamics CEMEX evolved from a small cement producer to a multinational company. The key to the company’s growth success lies in its strategy of integrating and running domestic and international acquisitions. The company has developed a global capability platform covering every aspect of the business such as plant management, supply chain management, distributor management, logistics management, and end customer-service. To manage this platform advantageously the company has implemented an approach called “The CEMEX Way” that is designed to integrate acquisition effectively; to leverage technology in order to drive cost down; to attract talented people and train them efficiently; to promote best practices gained by operating in counties with different culture, language, and political system; and to capture innovation. All of these core competencies are essential to the company’s success. Internal Analysis The ability to understand its capabilities and the needs of the customers is paramount for CEMEX to be able to compete successfully and be a leader in the cement industry. The productivity of the company depends mainly on how it manages the various activities in the value chain. CEMEX integrates resources across its value chain from cement to aggregate to ready-mix in markets around the world to generate sustainable opportunities for profitable growth. Analyses of the primary and support activities of the value chain provide the company with an ability to respond quickly to changes in external environmental trends and at low cost providing the company’s a competitive advantage. Therefore, CEMEX focuses on developing close relationships with its suppliers, incorporating technology, and directly interfacing with its customers. The company puts great emphasis on its Human Resource management and technology in support activities of the value chain. The company’s Human Resource management focuses on developing and maintaining talented personnel and enabling them to contribute to the company’s business objectives, and helping them to achieve their personal and career goals. Moreover, the company provides a safe, fair, positive, and ethical work environment that encourages people to do their best. One of CEMEX’s distinguishing characteristics is the creative use of technology which the company has been investing in for over the past several years. This investment has allowed the company to economize on back office operations, to improve its operational efficiency, and to accelerate the sharing of best practices. Market Growth Due to volatile market conditions in its own country, CEMEX began to expand internationally into developed countries with similar cultures and language to strengthen and stabilize its position. Several years later the company started expansion of its business into developing countries of Latin America where the demand for cement is much higher compared to developed countries. The company saw tremendous opportunity in these developing countries and coming from similar cultural background and history could understand the needs and wants of these people better than the other multi-nationals from developed countries. Expansion of business in both markets has both the positive and negative aspects as shown in the following. Developed Market
Stability and reliable source of hard currency (euro or dollar) Law regulations and restrictions (antitrust law)
Strengthening of CEMEX’s position in the global market Acquisition of large-scale facilities considerably increases CEMEX’s debt
A great opportunity to enter other countries that border countries where CEMEX operates Disagreements over prices and profits Developing Market
Significant growth potential Political instability
High production and consumption of cement in countries with high density Volatile exchange rates
High demand for low-cost cement High cost of borrowing money
A great opportunity to enter other countries that border countries where CEMEX operates

Analysis of CEMEX’s overall performance in developed and developing markets shows that production of cement in developing countries in years 2000 – 2005 increased drastically representing a compound annual growth rate (CAGR) of 36.4 percent whereas in developed countries in the same period CAGR was only 2 percent (Hoeber, p.93). Developing markets provide a great potential opportunity for CEMEX to grow. CEMEX successfully utilizes its business model called Patrimonio Hoy which was created in response to poor Mexicans who tried to build their own houses without proper financial resources, construction skills, and adequate services (Paul, 2005). This model helped CEMEX to target low-income segment of consumers who have eventually become an impressive source of revenue for the company. CEMEX sees great potential for implementing its model based on responsibility and commitment to individual customers in poor countries and thinks it can provide sufficient sustainability and profitability. This model is hard to replicate for rivals because it requires ongoing interaction and joint work with a specific individuals as a way of building of trust.

Table 1 Global Cement Production Years 2000 - 2005, million tons

Debt Reduction vs. New Investments CEMEX competes with three global cement companies Lafarge, Holcim, and HeidelbergCement that have adopted similar acquisition strategies as CEMEX in Latin America, Eastern Europe, and Asia Pacific. After fully expanding into available new regions, these companies have shifted their attention to each other which has led to strong competition. CEMEX and Holcim maximize their efficiency by focusing on their core business of cement, ready-mix concrete, and aggregates. Unlike CEMEX, Lafarge and HeidelbergCement have focused on vertical integration by offering other building materials such as gypsum, and roofing. In 1999-2004, CEMEX’s operating profit margin was 20-30 percent of sales which illustrates the company’s profitability advantage over its competitors - 20 percent for Lafarge and 15 percent for Holcim for the same period. However, this very positive operating margin should be seen together with CEMEX’s large debt incurred as a result of borrowing money to finance acquisition (Zambrano, 2005). According to Hoeber in 2003, CEMEX’s total assets were US $16,016 million which was 1 percent more compared to its total assets in 2002. At the same time its 2003 net debt was US $5,641 making it 8 percent less in comparison to 2002. A 2003 measure of the company debt to its assets was 35.2% debt relative to assets. This percentage indicates that the potential risk in terms of debt-load was low. Consequently, this represented a strong financial position for the company in the global market and along with high average return on its investment and relatively stable economic conditions provided positive factors for the company’s global expansion. In addition, free cash flow of US$1,143 in 2003, which was 21 percent greater than in 2002, provided a great opportunity for the company to reduce its debt and strengthen its financial flexibility. The company used US$725 million of its US$1,143 million in free cash flow to reduce debt (2003).
RECOMMENDED STRATEGY Undoubtedly, CEMEX is a leader in cement production worldwide successfully entering new markets through implementation of its global strategy during the growth of the global economy. However, pleasant economic conditions could change and the company should come up with a strategy to confront the negative effect of the global economy down-turn. First, the company should not only implement acquisition and merging strategies but also focus on organic growth strategies which can deliver long-term benefits such as lower costs, a better return on investment, and cultivate deep and profitable relationships with its customers. Second, CEMEX should implement a global strategy that focuses on offering standardized products and should adopt a transnational strategy that while challenging but could produce better outcomes if successfully implemented.

Work Cited
CEMEX. (2011). Retrieved November 6, 2011, from
Garcia, J. (2011). Shift changes the way CEMEX works. Retrieved November 5, 2011, from
Hoeber, H. (2008). CEMEX: Building a Global Latina. INSEAD: Strategy Department.
Lugarini, F. (2009). Market Performance & SWOT Analysis of CEMEX. Retrieved November 1, 2011 from
Mexico – Economic Development. (2011). Encyclopedia of the Nation. Retrieved November 2, 2011 from
Paul, J. (2005). Patrimonio Hoy: A Groundbreaking Corporate Program to Alleviate Mexico’s Housing Crisis. Retrieved Nobember 8, 2011, from
We Deliver Good Results in Bad Times. (2003). Annual Report. Retrieved November 10, 2011 from
Zambrano, L. (2010). Annual Shareholders Meeting: Advantages Moving Forward. Retrieved November 2, 2011, from
Zambrano, L. (2005). CEMEX: Transforming a Basic Industry Company. Retrieved November 9, 2011 from…...

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