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Case of CEMEX

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1. What benefits have CEMEX and the other global competitors in cement derived from globalization? Globalization has given many benefits to CEMEX and its competitors. First of all, it reduced the tariffs of product exportation by acquiring local plants and facilities instead. By doing so, these cement companies could control the localized quarries, which give them the proximity to the raw material needed for cement production. No need to ship the goods across the border, therefore no tariffs on the delivery. On the other hand, as they acquired the local plants and built distribution terminals, these companies have gained a competitive advantage of transportation cost. If they choose to export, the cost of transportation may cost them a fortune, as the cement need to be shipped in special means. Thus, they will lose their competitiveness in price otherwise the margin. Last but not least, due to the process of globalization, CEMEX and its competitors could well spread their risks. If one market is not performing well, they could depend on the other ones.

So, assuming there isn’t a world-wide recession, the revenues of theirs will be more stable because of diversification. 2. How specifically has CEMEX managed to outperform its leading global competitors (e.g., Holderbank) in the cement industry? Several elements together have made the CEMEX the largest international trader in the cement industry. The most important one, I think, is that CEMEX has always been distinguishing itself by the intent of its focus on emerging markets. The weighted average growth rate in cement demand in the countries it was doing business with was nearly 4%, whereas a growth rate of 3% for Holderbank and Lafarge, 2% for the other three international majors. And because of the peso crisis in Mexico, CEMEX has discovered a distinct customer segment. It has decided to open up the business with informal construction which demanded bagged cement through retail channels. The demand was obviously less cyclical than the formal construction sector as there was a large demand for their product everywhere in emerging markets.

And also, such demand lent the company to branding and promotion. Another point is that CEMEX applied the GPS system to link dispatchers, truckers, and customers in it. This action enabled them to track deliveries and guarantee them to within 20 minutes. Customers are willing to pay more while the costs of fuel, maintenance and payroll would be much less. 3. 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? The initial foreign market CEMEX entered was the neighbor of Mexico—the United States. In late 1980s, it first built distribution facilities in the southern United States, which is perfect market for the company in geography. However, when the U.S. implemented the countervailing duty on their export to protect the local cement producers, CEMEX started to focus more on foreign direct investment instead of pure trade. And in 1992, it acquired two large cement companies in Spain to study the European market and reduce the dependence on its home market.

After that, CEMEX began to standardize their process of acquisition, which helped it to acquire plants and facilities in the countries of Latin America, like Venezuela, Columbia and chili, and of other regions, like the Philippines and Indonesia. And CEMEX also had its eye on the markets like China, India and Brazil. Reviewing the sequence CEMEX entered foreign markets, the earlier markets it entered has either geographical (close to the U.S.) or cultural (former colony of Spain) similarity with its home market, and the recent ones are more diversified and different from the market of Mexico. This diversification has enabled the company to be less dependent on the market of their own.

4. What recommendations would you make to CEMEX regarding its globalization strategy going forward? In particular, what kinds of countries should it focus its future expansion on? As mentioned in the case, CEMEX is really interested in entering the market of China, India and Brazil in the near future. And due to the factors that may have impacts on the cement demand, the three countries on their list seem to be perfect candidates. All the three countries are having a high GDP growth, a high population density (especially in India and Eastern China), and a pleasant climate respectively, the factors together have made these countries large consumers of cement. These markets are totally different from the ones they set foot in, and are less associated with their home market, so by entering these countries, they could do better in avoiding market risks. And on the other hand, this could also be the obstruction of entering these markets.

The societies, cultures and conventions in these countries are quite another thing to them. So, before taking actions to invest in these new markets, CEMEX should make an effort to learn these regions, and then they could know how to best fulfill the demand of local customer. In my opinion, Brazil should be the first to put their business in, due to the geographic superiority—it is also in Latin America, close to the countries CEMEX has already entered. And for India and China, my recommendation would be to employ local administrators who are familiar with the cultures there and have no language barrier in doing business with local customers.

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