Building

the

future

THIS IS CEMEX

CEMEX is a leading global producer and marketer of

cement and ready-mix concrete products. In a world

facing an ever-growing need for housing and

infrastructure development, they help to meet this

demand by providing quality products and reliable

service to their customers and communities across four

continents.

Founded in Mexico in 1906, they have grown from a

small regional player to one of the world’s top cement

companies. Today they operate cement and related

assets in more than 30 countries and employ more

than 25,500 people.

GLOBALISATION OF CEMEX

CEMEX as the name states is a cement factory in Mexico. As, the case goes by we traverse the journey of

CEMEX from neo-natal stage to a fully independent, mature and a confident adult. The journey spans

across discovering their gray areas, their core competencies, their strategic in-house and out-house area

of excellence and the hands that have helped them nurture their dreams. CEMEX, a multinational

company the 2nd largest in the US and the 3rd largest in the world is having a capacity to produce 96

million metric tons of cement enough to have transformed CEMEX into a key player in the world cement

business.

Over its journey spanning 102 years a century to go by CEMEX has now being established globally and

has been widely acknowledged in the business circles.

The factors that have made the competitive advantage sustainable:

� continued innovation

� high level of commitment to customer service and satisfaction proven post merger integrating

expertise

� digital evolution

� efficient production

� distribution and delivery process through sophisticated information systems

� ability to identify high growth marketing opportunities in developing economy

HISTORICAL MILESTONE

1906 - 20

CEMEX was founded in 1906 with the opening of the Cementos Hidalgo plant in

Mexico. In 1920 Cementos Portland Monterrey initiated operations with 20,000

metric tons of annual production capacity.

1966 - 67

CEMEX grows into a regional player by acquiring Cementos Maya’s Merida plant

and building new plants in Ciudad Valles and Torreon.

1972 - 73

CEMEX establishes a national presence with the installation of new kilns at its

Merida and Monterrey plants and the acquisition of a plant in central Mexico.

1976

CEMEX lists on the Mexican stock exchange and, with the acquisition of

Cementos Guadalajara’s three plants, becomes Mexico’s market leader.

1987

CEMEX acquires Cementos Anáhuac and begins the deployment of a company-

wide satellite communications system, CEMEXNet.

1989

With its acquisition of Cementos Tolteca, Mexico’s second-largest cement

producer, CEMEX becomes one of the ten largest cement companies in the

world.

1992

CEMEX acquires and integrates Spain’s two largest cement companies.

1994

CEMEX acquires Venezuela’s largest cement company, which is ideally positioned

for exports.

CEMEX expands its U.S. operations by acquiring a cement plant in Texas and enters

Panama with the acquisition of Cemento Bayano.

1995

CEMEX acquires Cementos Nacionales in the Dominican Republic.

1996

CEMEX becomes the world’s third-largest cement company with the acquisition of

Colombia’s Cementos Diamante and Samper.

1997

CEMEX acquires a 30% interest in the Philippines’ Rizal Cement.

1998 - 99

CEMEX acquires a 25% interest in Indonesia’s largest cement producer. It also

acquires APO Cement in the Philippines and an additional 40% interest in Rizal.

1999

CEMEX forms CEMEX Asia Holdings, an investment holding company, to develop

new partnerships and cement-related businesses in Southeast Asia.

CEMEX lists on the New York Stock Exchange (NYSE) under the ticker symbol “CX.”

CEMEX consolidates its presence in Central America and the Caribbean by acquiring

Costa Rica’s largest cement producer.

CEMEX acquires Assiut Cement Company, one of Egypt’s leading cement

producers.

2000

CEMEX begins the construction of a new grinding mill in Bangladesh.

Standard & Poor’s upgrades CEMEX’s credit rating to investment grade.

CEMEX becomes North America’s largest cement producer with the acquisition

and integration of U.S. - based Southdown, Inc.

2001

CEMEX enters the Thai cement market with the acquisition of Saraburi Cement

Company.

2002

CEMEX enhances its position in the Caribbean by acquiring Puerto Rican Cement

Company.

PRESENT SENARIO

CEMEX has always had a knack at creatively

cracking problems. Just look at their solution

when they were hit hard by the crippling

Mexican economy in the early 1990s. Out of

all places, CEMEX saw an opportunity in poor

Mexican neighborhoods. Through careful

planning and perfect execution, CEMEX was

able to rebuild many of Mexico’s poorer

neighborhoods while vastly improving their

bottom line because they were, of course,

using CEMEX products.

1) In addition to building communities in underprivileged areas, CEMEX has become the number

one leading manufacturer of cement and the third manufacturer of ready-mix concrete

worldwide. They are now operating in over 60 countries and currently producing over 97 million

metric tons of cement each year. CEMEX has been able to acquire leading international cement

companies, integrating each into the “CEMEX Way.” In fact, CEMEX is currently negotiating to

acquire Rinker, Australia’s leading cement producer that also has a strong presence in America.

Last week, the bid rose 22% to 14.2 billion for the company down under. With the American

industry holding roughly 23% of CEMEX sales, the company’s profitability took a hit when the

American housing market dropped by 31% last year. Recent reports indicate a decline in CEMEX

net-profits from the first quarter of 2006. $505 million was reported in net profits in the first

quarter of last year, as opposed to $400 million in 2007, a 21% decrease. Although the company

stated that sales in Mexico and foreign markets rose about 9% during the past year, American

sales have fallen 20% during the same period accounting for the decline in net profits.

2) Positive forecasts for the US housing industry expect a return in sales that will hopefully boost

CEMEX’s revenue and profit. Analysts have already spotted such signs of improvement.

Brookings Institution, an independent research organization, stated in predicting future building

plans, “In 2030, about half of the buildings in which Americans live, work, and shop will have

been built after 2000.”

3) Although CEMEX operates in over 60 countries, the building trends, especially in developing

countries such as India and China that it is targeting, are just as or even more positive than

Brookings‟ evaluation on America’s. CEMEX has found stiff competition in the both the cement

and ready mix industries. Their international competitors are the French company Lafarge

Group and the Swedish Holcim Ltd. But as an executive officer at the American based U.S

Concrete tells us, “Bigger is not always better.” He further explained how the local “mom and

pop” shops can easily compete in construction materials industries.

4) But because of the management’s keen ability to “identify acquisition targets” that give it

“enviable positions in some of the world’s most attractive markets,”

5) CEMEX is in a strong position. And with their continuing acquisitions of major companies such

as RMC and, more recently, Rinker, CEMEX does enjoy important strategic advantages that give

it a powerful position in the 75 billion dollar cement industry.

6) CEMEX has broken the stereotypical mold in the association between an archaically perceived

industry and innovative technology. By integrating a well-defined information system built upon

the latest advancements in tech, CEMEX has become a powerful leader in their industry. The

man responsible for this redefining business plan is Lorenzo Zambrano. And considering his

background in advanced engineering from Stanford University, his emphasis on tech is no

surprise. As an excerpt from Wired Magazine observes, “Cement is a commodity business.

There’s little difference among competing products, so Zambrano focuses on the manufacturing

and delivery.” To gain an advantage in these processes, Zambrano looked to technology. His first

step to introduce the previously separate industries dealt with the company’s widely distributed

cement plants. He implemented a system called CEMEX net, which now serves as the company’s

private communications network.

7) The system made it easier for the concrete and ready-mix plants to easily communicate supply

and demand information to or from a central office. The next stage of Zambrano’s technological

makeover revolutionized the most daunting stage of the industry, delivery. This leg of the value

chain is the cause of many problems because concrete is a perishable good (90 minutes).

8) A pain free delivery becomes difficult when this time limit is combined with unpredictable

weather, traffic jams, and changing customer orders. Zambrano took this industry inefficiency

and introduced technology called Dynamic Synchronization of Operations and revolutionized the

process along the way. By equipping each delivery truck with a GPS system and an

accompanying computer, the central dispatcher can adjust to or guide drivers around obstacles.

This has shaved hours off the ambiguous industry average, allowing CEMEX to confidently

guarantee delivery within thirty minutes. The company is not just blowing smoke either. This

guarantee, as results have shown, is backed by a 97% success rates. While the efficient process

has won over customers is has also dropped operating costs with CEMEX being able to cut 35%

of its fleet, saving it $100 million!.

9) Through these previously described technologies, CEMEX has been able to apply a highly

effective vertical integration supply chain that has helped in its success. CEMEX has recently

introduced another information system. Building upon CEMEXNet, Zambrano has installed a

system that allows the customer to become involved in the company’s technological innovation.

Cement and ready mix purchases, order status, account information, and real-time delivery

progress is completely accessible to the customer via the CEMEX website.

10) The customer reaction was rapid, and CEMEX now sells more than 20 percent of its product

online.

11) With ever changing and adapting policies it is no wonder that CEMEX placed in the top 5 of

Wired’s most cutting edge and innovative companies.

12) That’s not half bad for a cement company, considering the organizations that beat them out

include Google and Yahoo. CEMEX enjoys an assortment of competitive advantages. For one, it

possesses an imitation-resistant business model whose strengths bode well for the cement and

ready mix industries. CEMEX deals with a product that has a shelf life of only a few hours,

depreciating even faster than computers. This means that, to be successful, a firm cannot have a

lot of inventory and must distribute its product quickly and accurately. CEMEX, as an industry

leader, has set the bar high in these categories and has only been pushing it higher ever since.

CEMEX integrates technology into every level and function of the organization, which is the key

to their dynamism. This allows information to be shared easily throughout its value chain, and

creates a standard way of communicating valuable data and information throughout an

organization that operates in 60 countries. Everything from plant operations to sales to

accounting is standardized, with all the data being transferred back to corporate headquarters

via CEMEX’s satellite network. A huge advantage over competitors who are less tech-savvy. A

pointed example of this is seen by CEMEX’s dominance in Spain, a market it entered in 1992;

today CEMEX is the top supplier in the country with operating margins over 30%.

13) Information is also shared vertically in the firm’s organizational structure. CEMEX has

“Innovation Days”; nine days out of every year are devoted to harvesting employee ideas. This

promotes connections between senior management and lower level employees, fosters

innovative thinking, and dramatically reduces Research and Development costs by leveraging

the innovative ideas of CEMEX’s rank and file employees. CEMEX leverages the data that it

gathers to discover new markets as well.

14) CEMEX developed its model before it started expanding abroad. CEMEX uses Post-Merger-

Integration (PMI) teams to streamline a newly acquired firm, identify and retain talent, and,

most importantly, adopt key elements and standards of CEMEX’s business model. Therefore,

CEMEX’s subsidiaries work in the same, successful way as its Mexican operation. This, along with

the fact that the company is the world’s leading producer of white cement and the world’s

largest trader of cement and clinker, give it advantages of scale.

15) CEMEX’s biggest competitors simply can’t copy CEMEX’s model. This is because of the fact that

CEMEX developed its technology-based model first, and then successfully integrated it when it

acquired companies overseas. Holderbank and Lafarge both had foreign subsidies long before

the communication and technology revolution began. This means that their information systems

developed differently in each of its separate operations, without a centralized organization like

CEMEX. It would require a huge outlay of capital now by these companies to overcome this

inefficiency and unify their systems, an investment they are reluctant to make. Thus, CEMEX’s

use of technology in improving the efficiency of their business model, the amount of

information shared, and the data collection, along with its ability to expand their distribution

channels while using their brand provide enough evidence suggesting that CEMEX concentrates

on their strategic positioning. Michael Porter points to this as a crucial element to having a

sustainable business.

16) Because of its, now obvious, powerful position, CEMEX enjoys several key opportunities.

Datamonitor, a leading business information company, recently pointed to a couple of these

opportunities such as the positive outlook for the US and Mexican construction markets.

Although American's market can still be described as sluggish with the recent subprime woes

affecting the critical housing construction market, CEMEX’s strong presence throughout the U.S.

can still be accounted for as a key opportunity. Datamonitor’s SWOT analysis also points to their

lack of influence in China and India as threats, but we also see these as opportunities. With the

most recent financial report coming in positive with a 9% increase in revenue and a 6% increase

in EBITDA along with their past history in acquisitions, we see very little that will inhibit CEMEX

from eventually getting in and exploiting those crucial developing countries‟ construction

markets. That is not to say that there is still a good amount of risk or threats there. With future

acquisitions in India and China, CEMEX will need to continue their desire for “continuous

improvement.” The firm will need to maintain their high standards in innovation and customer

satisfaction in order to be successful in these new markets. Furthermore, with CEMEX’s

increased power, they are experiencing more and more regulation, which could be seen as an

obstacle. Even through all the technological advancements that the company might strive for,

they must still maintain the important customer relationships to be successful, which may be

easier, said than done with such aggressive expansionism. But CEMEX’s motivation to always

improve combined with their good track record up to this point inhibit us to believe that CEMEX

has a concrete future ahead.

Why was cement used so heavily in the construction in the 19th

century?

As the population grew people wanted more sturdy homes and only concrete along with steel could give

it a firm shape. Cement had been used as a binding agent that hardens when mixed with water. The

industry basically strived on:

1) Supply

2) Demand and

3) Competition

The minimum efficient scale (MES) for a cement plant approximated 1 million tons of capacity per year.

Cement plants asset were largely dedicated to production of cement and lasted for decades. Earlier

mode of transportation that was chosen was road transport. Road transportation was the most

expensive and limited the effective distribution radius to 150 to 300 miles. Waterborne transportation

was the most economical and the new system of loading and unloading the barges, made it easier and

could ship cement to distribution terminals in distant markets as well as serving local ones. The data

states that in 1990s international seaborne traffic in cement was averaged above 50 million tons per

year. By resorting 2 multi-modal ways of transportation, CEMEX had reduced on their transportation

cost and also have capitalized on their effective distribution.

The long run demand for cement was directly related to the gross domestic product (GDP) with per

capita consumption increasing up to $20,000 plus. Demand tented to be higher in areas where there

was a warm climate. Demand generally decreased with a long coast line, since more sea transport

meant fewer roads and increased share of government expenditure. Retail sales to individual customers

for home construction and like were important in developing countries. CEMEX then had to focus on

B2B (Business to Business) and B2C (Business to Customers) models.

The cement firms had problems with supplying cement due to excessive demand. The basing point price

systems were brought in as a cushion by cement industry. It was a common system in the United Sates

wherein the leading firms set the base price and the other firms calculated their price on the basis of the

base price. As CEMEX was rated as the 3rd largest, the other market leaders fixed the price and CEMEX

had to adjust accordingly as a result it could never get a premium price for its cement.

Another major factor for contributing to the CEMEX’s success was that of its international competitors.

By 1999 there were six major players in the cement industry

1. HOLDERBANK

2. LAFARGE

3. CEMEX

4. HEIDELBERGER

5. ITALCEMENTI

6. BLUECIRCLE

In aggregate, the six major players controlled 5 million tons of capacity representing almost one quarter

of the total world. CEMEX capacity share was major from countries like Mexico (64.6%), Indonesia

(43.7%), Venezuela (40.6%), Spain (26.5%) and Philippines (22%). CEMEX being the 3rd largest cement

producer in the world it had to compete with Holderbank (5 continents and more than 50 countries) and

Lafarge which has a presence in more countries in comparison to CEMEX.

In such a competitive environment cross border investment was the most important aspect. And when

the U.S. cement industry had fallen into crises the prices had also gone down therefore the most

obvious action was the acquisition as that time the market values of the target companies were less

than their underlying values. But by acquiring these companies, estimating their long run growth rate

was a problem. Again, the Asian crises in 1997 gave an opportunity to these 6 major players to enter in

South East Asia at much minimized rates. Opportunities like this only gave open doors to the major

players to expand in the world and the strategies of the companies help them to crack larger deals and

to be on the top.

CORE COMPETENCIES OF CEMEX

The success stems from their distinctive approach to business. For the company, cement is a solution

that can make a real difference in people’s lives; it bridges barriers, connects communities, and forms a

foundation for national development.

� CONTINUOUS IMPROVEMENT AND INNOVATION

One of the attributes that sets them apart is their passion for change; they always keep improving to

stay at the forefront of the industry. Through novel initiatives such as our ATM-like, 24-hour cement

dispatch system, they capitalize on their market knowledge, resourcefulness, and agility to deliver

efficient customer solutions that fundamentally change them from their competitors.

� CUSTOMER FOCUS

CEMEX put their customers first. Because proximity, product quality, and availability are important to

their customers, they have aligned their commercial networks to serve their needs. Their Construrama

distributor network has grown into the largest construction materials chain in Latin America, with more

than 2,100 Construrama-brand retail outlets across Mexico. Among other benefits, Construrama offers

their customers uniform product quality, reliable client service, and convenience. Their customers have

ready access to local Construrama suppliers that carry more than 500 different building products at

affordable prices.

� TECHNOLOGY-BASED SOLUTIONS

They use technology to leverage the collective knowledge of their people and to operate successfully in

widely different markets and economies. Their IT platform and standardized processes enable them to

identify and share best practices across our global operations network and to extract value from

integrated acquisitions—simply and systematically. Their exchange of knowledge is evident across their

U.S. operations network. Taken together, their many initiatives have enabled them to enhance their

customer fulfillment; increase their operating productivity, efficiency, and safety; and consolidate their

brand nationwide.

� LOW-COST PRODUCTION

They have established an exceptional record of low-cost leadership over the last 15 years. Perhaps

nothing better exemplifies their unrelenting drive to control costs than their energy management

strategy. By taking advantage of the flexibility in the cement manufacturing process to consume

different types of energy, they have developed a diversified fuel structure in which almost 80% of their

total fuel cost is based on sources with low price volatility. For instance, in Mexico they have converted

all 15 of their cement plants to theme at least few sources of energy, including petroleum coke, fuel oil,

alternative fuels, and natural gas. As a result, their Mexican operations were able to reduce their fuel

cost by 40% over the years.

� ONGOING COMMITMENT TO SOCIAL RESPONSIBILITY

Their commitment to social responsibility is rooted in their company’s 98-year history of helping their

communities to build their infrastructure. Their philosophy of social responsibility guides and informs r

strategy for sustainable development, which—at its most basic—is to run an efficient and profitable

business while caring for the needs of their environment and their communities. An important element

of their strategy is to create programs that benefit both their society and their company.

Top: Our 24-hour self-service dispatch

offers customers a range of benefits,

including increased loading flexibility,

shortened loading times, and reduced

administrative work.

Bottom left: “e-movil” system reduces

their customers’ costs and increases their

flexibility; customers can use their

cell phones to place orders and obtain

account status information.

.

Bottom right: In 2002 they were awarded

the World Environment Center’s

Eighteenth Annual WEC Gold Medal

for International Corporate

Environmental Achievement.

CONCLUSION

For any company to be successful it is very essential that the company develops its core competencies in

its product or services being delivered. CEMEX in this case earlier had diversified horizontally even

before it could establish its roots in parent country. The company had thought of globalization which

didn’t help them to consolidate in any sector.

The international competitors like Holderbank and Lafarge had taken a first mover advantage in the

cement industry. The pricing they set according to the base point had to be followed by the other

cement industry throughout. As a result, CEMEX never earned a premium on their product.

When CEMEX started focusing on their production in Mexico and became the leading cement producer

in Mexico. Later they started expanding in other countries like United States, Spain, Venezuela, Central

American and the Caribbean, Colombia, Egypt and Asia. The different strategies that they adapted in

different markets also helped them to come to the 3rd position in cement manufacturing all over.

Continuous innovation and social responsibility will help the company to develop a good position in the

market among its customer. Company also need to sustain its existing customers by giving them the

best of the best services as getting the new customer is very expensive in comparison of retaining the

existing customers.

Here, company needs to sustain its position and keep on developing new strategies for expansion which

will even help the company to come on the top position from the 3rd position.

“A traveler travels the world in search of peace and comes home to find it”

By Siege Charles