Cemex Case Study

Class of 2012

US Opening Week Integrative Assignment

CEMEX CASE

Prof. Peter Brews

Global Team 5

Alexander Bronsmann (RSM)

Sander Perret-Gentil (RSM)

William Metzler (UNC)

James O'Brien (UNC)

Zhang Shu (CUHK)

Juan Cruz Valdez Rojas (EGADE)

November 2nd, 2010

Executive Summary

The CEMEX success story is a result of sound strategy and excellence in execution; by combining state of the art activities to achieve operational effectiveness with creative solutions for strategic positioning.

Leveraging IT tools was a key factor for their development, while smart branding and marketing initiatives enabled the company to transform cement from a commodity bulk to a consumer good, which propelled the company into the post-industrial era.

Although CEMEX achieved incredible growth in the last decades through its unique approach to acquisitions, growth was stopped by the financial crisis in 2008. CEMEX's growth strategy mostly relied on developed markets such as the U.S. and Europe; however, the financial crisis main effects were felt in these markets and near term recovery seems unlikely. As a result, the company is losing competitive advantage against its major rivals Holcim and Lafarge.

Debt reduction remains the company's short term priority, but a big question mark remains open for the long run about whether CEMEX will recover and be able to shift its business strategy towards emerging economies.

Outline the strategy followed by CEMEX in the case to achieve its position of prominence in the cement industry:

CEMEX's strategy focused on three behaviors to achieve market dominance:

* Attain operational effectiveness

* Obtain competitive advantages by being customer orientated

* Build a global presence in many markets

These three factors served as the engine for growth and performance.

Attain operational effectiveness: CEMEX describes its self as a learning company, a company that is constantly striving for better ways to develop and deliver products to its customers. In the company's most recent effort to implement process improvements it has launched a system called "Shift" designed to leverage the collective mindshare of all global employees (CEMEX Annual Report, 2009). The web based platform is designed to expedite the exchange, creation and utilization of ideas across the company. CEMEX projects the system will improve cross department collaboration of innovative ideas required to maintain their competitive advantage. Collaborating across departments and business units is critical to finding reengineering opportunities at CEMEX. Collaboration enabled the company to reduce operating expenses during the RMC merger in the amount of roughly $75M in 2006 and over $100M a year beginning in 2007 (CEMEX Annual Report, 2009).

CEMEX achieves these acquisition savings through the "Post Merger Integration" team which focuses on streamlining and integrating the new organization into CEMEX. Aside from processes efficiencies gains in logistics management and cement production, the team strives to reengineer accounting, procurement, IT and other support functions. Although the focus is on increasing efficiencies, they are not gained through mass layoffs as CEMEX and the acquired company work together to identify savings and top talent for retention. As Porter states in his article entitled "What is Strategy", operational effectiveness is not a standalone strategic pillar; coupling it with other strategic elements improves impact.

Obtain competitive advantages by being customer orientated: to build on Porter's view on operational effectiveness, a company needs to perform unique activities to sustain a competitive advantage. One example of this strategy is the development of Synchronization Dinamica de Operaciones (SDO). In the 90's, CEMEX needed to improve performance in its "ready-mix concrete" business line, which is a staple building material for the developed world. Delays, low delivery rates, and poor performance were performance norms for the ready mix product and CEMEX's performance was no different from the competition. The implementation of SDO was the solution for these delivery issues; the test program yielded 98% on time delivery within 10 minutes of the promised delivery time and was launched in two of Mexico's largest markets (Brews, et al, 1998).

Building a global presence in many markets: As chronicled in the case study, CEMEX acquired plants and distribution in 26 countries, produces cement in six, and has sales offices in 60. CEMEX continued to acquire competitors to gain access to new markets and in 2004 they acquired RMC which doubled the size of the company and enabled access to the European market. Nearly a year after the acquisition, CEMEX's annual financials reflected sales exceeding $15B, net cash flow in excess of $3B, which contributed to growth rate of 22% over 20 year period (CEMEX Annual Report, 2005). For the next two years, CEMEX continued to chronicle benefits from this acquisition up until the time of the financial crash in 2008.

These three factors in combination with CEMEX's strong leadership focused on flawless execution propelled them to a leading position within their industry.

What factors and resources equipped the company to grow so successfully over the period described in the case? Identify CEMEX's core competencies and the true nature of CEMEX's business.

Emerging economies are usually volatile and unpredictable. As pointed out by Lourdes Casanova in her book Global Latinas (2009), in order to be successful in this environment CEMEX had to develop a special skill set including strong survival instincts and ability to navigate turbulent waters.

Casanova argues that the main growth factors are directly linked to internal skills and strengths. These core