Globalization of Cemex

Title:

Case Assignment: Globalization of CEMEX.

Bhavin.V.Shah

Course Name: International Area

Professor: Dr.Jaume Franquesa

Graduate School of Management

Kent State University

Date: 3/30/13

Q.1 What accounts for the sequence in which CEMEX entered foreign markets? How do the markets it has entered recently compare with the markets that it entered early on?

Several factors, which accounted for sequence in which CEMEX entered foreign market, are as below.

* Acquisition of Cementos Anahuac in 1987 and Acquisition of Cementos Tolteca in 1989 made CEMEX Leaders in Mexican market by having larger production capacity of 28 millions tons, or about 60% of the country's total, CEMEX by this time was one of ten largest cement producer worldwide and had not much scope left for further expansion in Mexican market and firm started looking opportunities beyond Mexico's border.

* CEMEX used Cage framework components in Internationalization process for making decision to enter new country for Global Expansion.

* CEMEX entry in U.S was much more easier than any other country due to connectivity bridge between two countries for example having lot of Mexican immigrants working in U.S, Geographic distance was lowest, Colonial ties between two countries were stronger as mentioned in case signing of GATT had helped Mexico in dispute of lower prices as compared to local U.S cement companies which also made administrative distance lower.

* CEMEX started to enter one market in each region and looked as a hub for further expansion in nearby market thereby using Geographic component of CAGE framework as they did by having distribution terminal in Spain in 1991 and simultaneously studying European market for further expansion and acquiring two largest company producing cement by 1992.

* Entry and Acquisition of companies in Spain by CEMEX in 1992 was a smart move since both country had similar societal attributes, values and norms which reduced cultural distance, Colonial ties were expected to be stronger due to countries coming from similar culture reducing Administrative distance and Spain location near the ocean also gave an opportunity of export to other nearby countries.

* CEMEX Post Merger Integration (PMI) process was so powerful which increased operating margins of Spanish Companies from 7% at time of acquisition to 20% by 1992 which also helped CEMEX from Mexico Peso crisis of 1994/1995 and gave CEMEX an opportunity and confidence to expand further.

* After having improved operating margins in Spain CEMEX was confident of acquiring production capacity in Jamaica, Barbados and Trinidad and Tobago.

* In 1994, CEMEX move to Venezuela market considering Stronger Cultural Similarity, Lower Geographic Distance and expecting Administrative similarity which gave them broader series of engagements in Latin America mostly around Caribbean Basin by Acquiring Vencemos in Venezuela which was located near the major port and firm exported surplus production to Caribbean Island and Southern United States. PMI process improved margins to 41% within a year of acquisition and stood to 34% in 1998.

* In 1996 CEMEX entry in Columbia considering CAGE framework components which were stronger in terms of Cultural, Administrative and Geographic but firms main aim was to acquire 2 largest cement producer in country which made CEMEX third largest cement company worldwide.

* After Columbia CEMEX focused on northern and southern parts of Chile by acquiring 12% stake in Cementos Bio-Bio and acquired controlling stakes in largest producers in Panama, Dominican Republic and Costa Rica thereby making their presence stronger in few parts of Latin America mainly considering Economic component of Cage framework.

* CEMEX entry in Philippines in 1997 considering Cage framework components was due to Macroeconomics crisis, presence of Spanish Colony, and local companies like Rizal and APO that were close to port gave geographic advantage for export.

* CEMEX entry in Indonesia during 1998 was not much successful due to larger Administrative distance by government having larger stake then CEMEX and continued public opposition complicated situation more.

* In 1999 CEMEX entered Egypt wherein they had stronger Administrative relation with government due to countries interest in increasing production to fulfill demand, which was growing in average annual rate of 11% since 1995.

* By 2000 CEMEX accumulated $1.175 billions for further global acquisition and its next target market would be China and other countries in Asia and Africa.

* Table below shall give a brief on Distance of Proximity using CAGE framework for countries in which CEMEX entered for its Internationalization process. More stars means lower distance and lower stars or no stars means higher distance.

Country Cultural Administrative Geographic Economic

USA ** ** ***

SPAIN *** ** **

VENEZUELA *** ** ***

COLUMBIA *** ** ***

PHILIPPINES ** * **

INDONESIA **

EGYPT * **

Considering CAGE framework components markets which CEMEX entered earlier has less distance in terms of Cultural, Administrative and Geographic as compared to market it entered recently in which CEMEX concentrated more on economic distance of CAGE framework which was beneficial but at the same time due to lack in cultural similarities, administrative support from government of countries and difficulty in managing because of higher geographic distance made CEMEX operation lower revenue generation in countries like Indonesia and Egypt.

CEMEX internationalization sequence makes sense, since in early entry of market they use most of CAGE framework components while making decision of entering to new market but at later stage they were looking more into countries were economic distance was less but ignored cultural, administrative and geographic distance of CAGE framework. Pattern they used in entering new market as below.

* Using CAGE framework components to enter new country.

* Acquiring local companies in that country and increasing