CEMEX’s Global Expansion: Lorenzo Zambrano’s Vision in 2000

In May 2000, CEMEX was preparing to expand through acquisitions in Asia, Africa, and the Middle East. What kind of global giant do you think Lorenzo Zambrano wanted the firm to become? Using module theory and evidence from the CEMEX case study, critically evaluate his chances of success

Starting its operations in the year 1906, CEMEX has seen quite a few ups and downs, but it goes to the credit of the management that the company has been able to wade through challenging times and make room for itself in diversified markets. It is for this reason that Antoine van Agtmael listed in his book ‘The Emerging Markets Century’ Cemex as one of the champions, together with Embraer, Lenovo, Infosys, etc. (The Economist, 2008).

It is no secret that China and India are being viewed as potential markets in fields in retail, infrastructure development, IT, etc. Cement is the key ingredient in setting up factories, office buildings, highways, dams, etc. Therefore, as the projection of an increase in economic activities in the Asia Pacific region is seen as an opportunity by the companies around the world, it is bound to provide a good opportunity to well-established companies like Cemex as well to spread its business in this region.

Any company requires putting in place strategies in order to gain a maximum advantage while pursuing the stated objectives and competing with other companies in the business. In the cement industry, the key competitors of Cemex on the international horizon include Holderbank, Lafarge, Heidelberger, Italcementi, and Blue Circle. The strategies are therefore developed to address some of the existing concerns together with addressing some emerging situations.

Therefore, analyzing the prevailing environment forms a core component of strategy development. Besides continuing with the cement business, Cemex also diversified in fields like petrochemicals, mining, and tourism to leverage the economies of scale in its favor. But somehow this horizontal diversification did not find favor with Lorenzo Zambrano. Having taken over the reins of the company in 1985, Lorenzo Zambrano decided to refocus on the cement business with a vision of making Cemex a truly global company, having footprints in every nook and corner of the globe. The company faced a stiff challenge from the two leading companies Holderbank and Lafarge on its home turf when Mexico started opening up in the late 1980s.

Cemex was able to thwart the threat by consolidating its hold in the domestic market with the help of strategic acquisitions of Cementos Anahuac and Cementos Tolteca. This strategy was able to secure the top position of Cemex in Mexico. It is only because of such consolidation that Cemex could manage reasonable margins even during the peso crisis of 1994/95. Seitz (1995) emphasized that social integration due to globalization has been able to bring about commonality in cultures around the world.

This commonality is quite evident when the business leaders at Cemex are busy discussing their plans to enter diverse markets like that in the Asian subcontinent, African region, and the Middle East. Ghemawat and Hout (2008) also underline the intense level of interest amongst western companies in expanding their business interest in fast emerging markets like India and China.

It is quite evident from the case study that consolidation not only helps in taking on the competitors but it also helps in shaping business interests during adverse circumstances in the economy. Lorenzo Zambrano wants to provide Cemex similar stability in the Asia Pacific region as well. The success depends on the extent to which Cemex management is able to decipher the prevailing circumstances.

Asia, Africa, and the Middle East have a couple of things in common like impressive GDP growth, improvement in economic indicators, and increasing income levels of people. These indicators determine consumer habits in these markets. While on the one hand China and India are considered as the two driving elements of consumerism, the philosophy of BRIC indicates the influence of Brazil and Russia as well. Goldman Sachs invented the acronym BRIC in the year 2001 to indicate the growing influence of emerging markets from Brazil, Russia, India, and China (The Economist, 2008). Europe, Mexico, and the US have been the stronghold markets for Cemex.

Owing to the proximity to the European region, the Middle East region too has been following the European model of development. This will help Cemex in devising an appropriate strategy for the Middle East region, but the company will have to study and analyze the Asian and African markets to come out with matching strategies. Ghemawat and Hout (2008) also contend that any company which can better understand the evolving segment of customers will be in a better position to march aggressively in the emerging markets. Fine-tuning of strategies also depends upon the inputs costs to the business venture.

For example, the software industry is far less capital intensive as compared to the cement industry. Similarly, the nature of technical and regulatory demands also proves to be a deciding factor. The severity of technical and regulatory requirements will be far more in the pharmaceutical industry than the cement industry. Therefore Cemex will have to take care of these variables while devising strategies for entering into these emerging markets. Basic Building Blocks of Strategy are:

• Environment Analysis: Having been in the industry for more than a century now, Cemex has seen many ups and downs, which has certainly made it wiser to help in analyzing the newer markets from different perspectives.
• Doing a SWOT Analysis: Formidable presence in a number of markets outside Mexico, Strategic tie-ups with many local companies, third highest-ranking amongst the top cement producers, etc. are some of the key strengths of the company. SWOT analysis will therefore help the company in making a better positioning move.
• Preparing a Business Policy: Once the environment analysis and SWOT finding exercise are over, the company can accordingly plan the policies.

The case study indicates that Cemex aligned its moves with the policy changes being adopted in the international arena. For example, the company started giving more emphasis on foreign investments after the US government imposed trade sanctions on pure business interests. Similarly, the company has its firm footprints in the Asian subcontinent by way of its stake in the Semen Gresik, the largest cement company in Indonesia.

The company seems to have analyzed it quite well that the restructuring process is more advanced in India as compared to China, because of two key reasons. First, India has a democratic set of government, whereas Chinese citizens are yet to experience democratic freedom. Secondly, the pace of economic reforms in India is far better and steadier than their Chinese counterparts. In any case, studies have quite convincingly indicated that the Asia Pacific region has been playing an increasingly important role in the global economy.

Citing UNCTAD reports Tong & Li (2007) state that during the period of 1995 to 2005 the inward foreign direct investments (FDI) in the Asia Pacific region alone surged from US$516 billion to US$1,710 billion indicating an increase of 17 percent. Therefore, the chances of success are far brighter for Cemex with the kind of strategy being pursued by the management in the emerging markets of Asia, Africa, and the Middle East. Asian

Compare and contrast the roles of country presidents, regional directors, and Zambrano’s executive committee in the management of Cemex. How far and in what ways should these roles change as the firm grows and enters a wider range of countries?

Well-formulated strategic plans are extremely important for multi-national enterprises as such types of enterprises are headquartered in one country but have operations and business interests in many countries around the globe. With 43.7 percent share in the Indonesian market, 22 percent in the Philippines, 16.9 percent in Egypt, 26.5 percent in Spain, 64.6 percent in Mexico, and 40.6 percent stake in Venezuela Cemex commands a formidable market share in the global arena.

Therefore, sound strategic planning becomes all the more crucial in the case of Cemex. Other functional management areas like Human Resources, Finance, etc. deal with only a part of the organization or its activity. At times two or more such areas may need to take assistance from each other. But strategic planning and management related to the management of the organization as a whole. A different set of persons may contribute to different proportions towards making strategic moves.

Therefore the role of country presidents, regional directors, and Zambrano’s executive committee becomes quite crucial in the overall management of Cemex. The central management team is supposed to integrate inputs from different sources into a comprehensive plan, which in turn would help the company in preparing plans for managing the operations, marketing, production, human resources, marketing communications, technology implementation, diversification, mergers & acquisitions, etc.

The role of the country presidents is to take stock of the country operations. In fact, the feedback from country presidents happens to be of vital importance as the country president is supposed to analyze the legal and regulatory framework of the country, study the strategies of the competing companies and accordingly advise the strategic management team to fine-tune the strategies. The regional directors on the other hand are supposed to present a wider picture of the entire region and see through the differences and commonalities. For example, the regional director of the Asian region might have to figure out the diversity amongst the Chinese and Indian markets.

These two markets are from the Asian subcontinent, but the heterogeneity is quite noticeable at different levels. Analyzing the foreign investments during the period 2003-2007, OECD (2009) in one of its reports indicates that while the foreign direct investments (FDI) in the developing world went up by a factor of 3, in India the FDI jumped by more than five times during this period. The report further indicates that with a 14 percent FDI shares China continues to top the list in the Asian region. In such a scenario, the regional director is supposed to guide the top management about the potential of investing in a saturated market versus, exploring the possibility of faster growth. The task of the regional director is made simpler by the country directors with realistic projections.

A multinational company with stakes in many markets, different sets of individuals, cultures, etc. need to take care of the variations in perceptions and practices as well, in order to remain relevant to the desired areas of operations. For example, the African subcontinent is one of the most underdeveloped regions of the world. This is reflected in all segments of society. The ‘World Economic Forum’s ‘Global Competitiveness Report 2009-10’ indicates that while countries like Zimbabwe have registered commendable improvement in the investment climate, there are many other countries in the region that are yet to tide over the domestic unrest (WEF, 2009).

Many countries in the African region have been affected by war and disasters of different types and magnitude. This not only affects the economic condition of the people but has a telling impact on the social welfare and development of the region. This in turn affects the cement intensive affecting infrastructure projects being undertaken by the respective governments. The regional director of the African region for Cemex will have to take such details into account while suggesting a policy framework for the region.

The Middle East region is certainly rich in resources, with the availability of rich oil sources in many countries. Oil and Gas form key energy sources and it is because of the fast-growing consumerist society that despite a consistent increase in the crude oil prices over the years, its use has not decreased. In addition, places like Dubai, are also being promoted as attractive tourist destinations and business centers.

This requires a lot of construction and infrastructure activities in order to present Dubai as an attractive market for multinational enterprises. The region has a lot of scope and potential for growth in the coming years. But, this region has also witnessed a number of skirmishes amongst the regional powers. The ongoing tension between Israel and Palestine, together with the ongoing US and allied forces campaigns in Iraq and adjoining areas has certainly proved to be disadvantageous for the overall development of the region.

Another possible reason, for the lesser development in the region, could be due to the lack of a coordinated approach amongst the Middle East countries. The regional director of the Middle East region will therefore have to take into account all such developments and prepare a set of priorities for the top Cemex management.

Preparing crucial ‘strategic moves’ for the future often is not based only on hard facts, but on a number of presumptions as well. It involves past experience, forecasting, and ‘surround-effect’. Therefore, the role of Zambrano’s executive committee becomes all the more crucial in educating the managing committee about the silver linings in the grey areas. This committee is supposed to assimilate and condense the reports from different regions and prepare the plans accordingly.

But at the same time, the projections are supposed to be realistic to the extent that they do appear to be unachievable. Blaney (2001) states that ‘long-term planning is about making decisions. It is not about day dreaming. It is a practical exercise in decision-making to try to ensure that the organization goes from where it is now to where it wants to go in a given time-period’.

As the company keeps growing, the management team will have to ensure that each individual in the team tends to complement and supplement other’s role in order to take the fullest advantage of the economies of scale. International strategic planning is the process through which multinational enterprises continue to evaluate their performances of the past, make an objective assessment of their corporate strengths and weaknesses, and then chalk out strategies for future operations, which also involves processes like selection, recruitment, allocation of resources and assessing the market positions.

In the beginning, Cemex will have to do the final planning at the corporate headquarters level with country managers and regional directors from domestic and foreign operating subsidiaries providing the all-important inputs. But in these competitive times, when market dynamics do not allow plans to last long enough gradually, the board will have to focus more on segments/ countries providing better results.

Critically assess the view that Cemex had a distinctive capability in the management of information in the late 1990s. What were the main issues and options facing the firm in May 2000, as it tried to sustain and develop its resource strengths for the future?

IT has made its mark in almost all spheres of life. IT-enabled services, manufacturing, marketing, communication, E-commerce, and M-commerce are the trendy application of this IT era. Effective use and management of information technology not only helps in streamlining the ongoing operations in the company but it also provides an edge to the company in handling the competitors.

It is quite apparent from the case that Cemex has made good use of IT in managing the operations of the company. It started using global positioning satellites to link dispatchers, truckers, and customers in order to track the movement of supplies and deliveries. While on the one hand, it helped in managing the inventories, on the other, it proved helpful for the customers in tracking their orders. Transportation arrangements play a crucial role in the success of the cement business. Therefore, when Cemex came out with the 20-minute delivery guarantee for a consignment which usually took more than three hours, it might have appeared absurd to many.

But, the fact that the company took cues from Pizza deliveries and resorted to imaginative advertising ensured the success of the move. Lorenzo Zambrano took a keen interest in IT implementation policies with his personal involvement by way of sending and receiving e-mails and using Lotus Notes, quite unusual for an existing lot of CEOs in the industry. This helped in a dependable and consistent use of IT at Cemex.

There might have been debates around the decision of Zambrano in the mid-1980s when he decided to go for heavy investment in IT while the Mexican telecom infrastructure itself was not well developed. But, Zambrano had visualized that this investment is bound to help whenever the Mexican economy opens up. The company came out with its own set of satellite systems linking Cemex plants in 1987.

This helped the company in transferring the voice and data from the public telecom network to its own private network, thus resulting in much more flexibility, reliability, and optimum cost propositions. Subsequently, in 1992, the company founded Cemtec to complement its IT operations by way of in-house software development as well as in-house hardware modifications and installations. This investment helped the company in strengthening its position as compared to the competitors because the competing companies were slow in adopting the IT infrastructure. Early adoption of information systems helped Cemex by way of;

• Tracking the movement of its transport fleet, thus making optimum use of the transport services and avoiding redundancies
• Allowing customers to track the movement of their orders, thus saving on the manpower which otherwise might have been detained for attending the telephone queries of such customers
• Creating its own telecom infrastructure, which proves to be more dependable and cost-effective in the long run
• Better communication with the employees and managers in different sites helps in effectively managing the human resource
• For a company having an interest in the international arena, it becomes all the more important to be seen as forward-looking and futuristic
• For any business to prosper all aspects of the business strategy must work in tandem with each other. All departments must have proper coordination amongst them. Inventory management is once such a department helping the business by way of managing the raw materials, the services components, goods or services in-process, and finished goods. With the implementation of IT, efficient management of inventory helped Cemex in making optimum use of the available resources.
• IT training for the workforce not only helped them in motivating the workforce to come out with their optimum, but it also helped in keeping in check the turnover ratio.
• Having its own set of infrastructure for providing training also helps in saving on the resources and man-hours.

The year 2000 proved to be an eventful year for the company in general but as the company is looking to explore the markets in Asia, Africa, and the Middle East, it faces a renewed threat from its competitors. In the year 2000, one of the key players in the business, Lafarge was more interested in consolidating its position in the existing markets instead of exploring emerging markets. Lafarge also made a hostile attempt to control the majority stakes in ‘Blue Circle’ a reputed company from Britain. This strategy was in contrast to the strategy being opted by Cemex to explore emerging markets in Africa, Asia, and the Middle Eastern region.

Cemex is at the top in the Mexican market, and, if the company is to go by the reports of the industry analysts, the market share of Cemex is not destined to go substantially higher in the near future. This analysis is based not only on the limitations of Cemex as compared to its competitors but also on the strengths of the competing companies like Holderbank. Therefore, the sound strategy for the company would be to look out for opportunities outside the existing domain.

In May 2000 Cemex came out with the announcement that it had accumulated $1.75 billion for global acquisitions. Some of the issues requiring strategic decision for Cemex in the year 2000 include;

• While the management at Cemex is aware of the dynamics of markets in Spain, the US, and Latin American nations, the situation is quite different in markets being explored by the company in the year 2000. Therefore, the management not only requires a good amount of financial support, but it also requires a dependable logistic arrangement to know about the realistic picture of ground realities in these markets.
• Another dilemma facing the company is how to go ahead in the Asian subcontinent. While on the one hand, the Chinese market appeared far bigger, the Indian market is having a better restructuring process.
• Cemex acquired a stake of 77 percent in the Egyptian company Assiut in November 1999, but the plans for expanding the capacity of Assiut to 5 million appear in doubt as the regulatory mechanism in Egypt happens to be quite cumbersome. In addition, the fragmented nature of the Egyptian cement market is also not helping matters in decision making.

References

1. Blaney, J. (2001), ‘Long-term planning in international schools’, Bunnell, Tristan (2005), ‘Strategic marketing planning in international schools’. International Journal of Educational Management Vol. 19 No. 1. Emerald Group.
2. Ghemawat, Pankaj, and Hout, Thomas (2008). ‘Tomorrow’s Global Giants – Not the Usual Suspects.’ Harvard Business Review.
3. OECD (2009). OECD Investment Policy Reviews: India. OECD Publishing, Paris, France.
4. Seitz, J. (1995). Global Issues, Oxford: Blackwell. Pp 26-28.
5. The Economist (2008). ‘Globalization – The New Champions’.
6. Tong, T.W. and Li, J (2007). ‘Real options and MNE strategies in Asia Pacific’. Asia Pacific J Manage. 25:153–169.
7. WEF (2009). ‘The Global Competitiveness Report 2009-2010’. World Economic Forum. Web.