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The Globalization of Cemex

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Key facts of the third largest Cement producer „Cemex“ worldwide Name Industry Products CEMEX Building materials Cement Ready-­‐ mix concrete Construc8on aggregate 1906 San Pedro Garza Garcia, Mexico Lorenzo Zambrano 54,635 In 50 countries

Founded Headquarters CEO Employees Opera8ons Revenue

Mean facts of the historical development from Cemex

Year AcAon

Founded 1906 near Monterrey as Cementos Hidalgo Cement plant

Merged with Cementos Portland Monterrey, to Cementos Mexicanos , later renamed to CEMEX 15,000,000 1 billion 65,000,000 5 billion 10 5 3 ProducAon Revenues Int. per year PosiAon 5000

1906

1931

1980s Became mexicos market leader

1987 2000 First expansion in the USA Opera8ons in more than 15 countries

Decreasing transportaAons costs are the biggest advantages of the globalizaAon

CompeAAve advantage= Using vola8lity in the na8onal cement industry by being in numerous na8onal markets

Reduce the country risk if the cement industry in one country is in trouble Focus on countries with high demand, low produc8on costs and good cement prices

Buying opportunity: buying exis8ng capacity when the market values of target companies were less than their underlying values (e.g. Asian Crisis 1997)

à compe88on illiquid + cheap enterprises à profi8ng when industry is recovering Avoid expensive transportaAon by (cheap) local produc8on à high margins! Using large producAon network, transport possibili8es and cement storehouses to produce at high margins and to offer exemplary “building material solu8ons”.

Opportunity idenAficaAon, Due diligence and PMI as material to beat the compeAtors 1. Opportunity idenAficaAon

- Go in countries with: large popula8on, high popula8on growth, rela8vely low level of current consump8on. - Try to get a leading posi8on or control at least 25 % of the market share - Quan8ta8ve factors were assigned a 65% weight in country analysis - Qualita8ve factors: Poli8cal risk, a weight of 35% à Restructuring the target country: Increasing its efficiency and op8mizing capacity 2. Due diligence

- Best prac8ce approach - Lean organiza8on, more centraliza8on + ohen mee8ngs! - Clever site loca8on near ports à cheaper export possibility à less local market dependence!

Opportunity idenAficaAon, Due diligence and PMI as material to beat the compeAAtors 3. Post-­‐ Merger integraAon (PMI) process

Three levels: the improvement of the situa8on at the plant acquired, the sharing or replica8on of basic management principles, and the harmoniza8on of cultural beliefs.

- Standardized analysis processes to iden8fy poten8al value and network synergies in an acquisi8on opportunity - Quick decisions by standardiza8on = advantage against compe8tors with longer decision making processes - Detailed and thorough analysis of many aspects - Analysis of company and market and country (GPI dependence)

Geographical market share of the global players in the cement industry

Cemex Holderbank

Lafarge Heidelberger

Blue Circle Italcemen8

6

Holderbank is the largest compeAtor in the cement industry but Cemex exhibits a preXy good performance Holderbank AccounAng Data Sales (US$ m) Cement volume (mt) EBIT (US$ m) EBITDA (US$ m) Free Cash Flow (US$ m) Stock Market Data Market value (US$ m) Profitability of stock US$ b Capacity Data Controlled Capacity (mt) Number of countries Cemex

7.618 74,6 1.066 1,785 144

4.828 39,1 1.436 1.791 862

11.122 16 %

7.203 114%

101 53

65 15

7

Market leadership, trade sancAons, consolidaAon of posiAon in exisAng markets and a clever expansion strategy are the reasons for the success of the Cemex strategy

1 Market leadership and consolida8on, only export/trade to geographically close markets (By 2000 CEMEX was largest interna8onal cement trader in the world (13 mt of cement and clinker) (risk: protec8onism! Esp. USA) Trade sanc8ons by the United States, foreign direct investment had become an important component of CEMEX’ interna8onaliza8on strategy than pure trade.

à Expansion of business to geographically (USA) and culturally close (Spain) markets.

2

3

Consolida8on of posi8on in exis8ng markets + country analysis and trade with poten8al

expansion countries

4

Expansion to profitable countries (long term growth, high demand due to development of infrastructure and industry)

5

Aher becoming one of the most known and rich enterprises in the cement industry à conquer the developed markets of Europe and the USA

8

The markets it has entered recently compare in four dimensions of proximity with the markets that it entered early on

9

The Cemex-­‐way: Cemex expands the number of markets step by step

1992: Valenciana and Sanson 1999: Assiut (Egypt)

1999: Cemento del Pacifico (Costa Rica) 1994: Vencemos 1996: Colombias‘s Cementos Diamante 1999: Bio Bio (Chile)

1997-­‐1999: Rizal Cement Company (Philippines), APO, PT Semen Gresik (Indonesia)

10

Focus on expansion policy, avoiding delusions of grandeur and admidng mistakes and reacAng immediately

Keep well selected expansion policy Avoid delusions of grandeur Admit mistakes and react immediately

concentrate on countries with a strong need for infrastructure and growing demand for housing BUT also with enough income

11

Cemex should focus its future expansion on BRIC-­‐States, Eastern Europe and Asia Focus on BRIC-­‐States, Eastern Europe and Asia - China as a bridge to conquer India - Focus on the eastern european countries with its enormous growth poten8al, esp. Russia Business in developed countries as well as emerging countries - construc8on industry (horizontal diversifica8on) - “complete building solu8ons” including the financing! (Compe88ve advantage esp. in emerging markets)

12

Management Summary • Decreasing transporta8on costs are the biggest advantage of the globaliza8on • Opportunity iden8fica8on, Due diligence and PMI as material to beat the compe8tors • Cemex is the third largest cement producer worldwirde, behind Holderbank and Lafarge • Market leadership, trade sanc8ons, consolida8on of posi8on in exis8ng markets and a clever expansion are the reasons for success of the Cemex strategy • The Cemex-­‐way: Cemex expands the number of marktes step by step (waterfall strategy) • Focus on expansion policy, avoiding delusions of grandeur and admiqng mistakes and reac8ng immediately • Cemex should focus its future expansion on BRIC-­‐States, Eastern Europe and Asia 13

Thank you for your aXenAon

14

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