Strategic Analysis of Cemex Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

Cemex was founded by Lorenzo H. Zambrano in 1906. Later in 1920, Lorenzo established another cement plant, ‘Cementos Portland Monterrey’. After eleven years, Lorenzo merged the two companies as Cementos Mexicanos which was later known as Cemex. Cemex remained a local player until the decade of 1960 after which it began expanding and vertically integrating concrete and cement manufacturing all over the Mexico. The domestic growth of Cemex was driven by strategic acquisitions and plant construction. By 2004, Cemex was the world’s third largest building items company with respect to revenues. It was the only cement player which had risen from the emerging market.

Case Analysis

Analyzing the External Environment

Cemex had domestically grown during 1980s by facilitation of Mexican Government’s import substitution guidelines. Mexican government launched “Program for the promotion of the cement industry” which encouraged the local companies to fulfill the need of the local market and restricted foreign competition. Later, it suffered a set-back to its ambition of US. Cemex bought some shares of US based Southdown, which later brought anti-dumping suit against Cemex and it had to face heavy duties over its products. This experience convinced a founder to enlarge company’s reach geographically. Cemex then focused in a European country ‘Spain’ because of its growth potential. Cemex acquired two biggest Spanish cement companies, ‘Compania Valenciana de Cementos Portland’ and ‘La Auxiliar de La Construccion’ in USD 1.8 billion. Prior the acquisition in Spain, Cemex were able to raise cheaper funds in Spain. Many companies went into the crisis during the Mexican peso crisis, but because of its strong competencies the company made it during the crisis period.

Obviously, every country had its own policies regarding FDI and other factors. For example, initiated taken by the Mexican Government encouraged the domestic player to cover the local market by restricting foreign competitors. During the Asian economic crisis of 1997-1998 which had negative impact over the construction business. Though it was seen as a downfall but Cemex acquired the local firms at the low valuation value. Cemex initially acquired Philippines based Rizal Cement Company in 1997 with approximately USD 90 million for 30 percent stake. Later Cemex bought an additional 40 percent of the stake in USD 128 million. It was an opportunity for Cemex to enter the Asian market where the market was emerging. In 1999, it turned to the Indonesian market with the acquisition of 22.5 percent stake in state owned Semen Gresik Company. Indonesian market had a potential for market growth and was low cost production country. In 2004, Cemex was struggling to raise 51 percent stake which was not honored by the Government of Indonesia. The emerging countries had a biggest opportunity for Cemex to diversify its business over there. It could capture the Asian market because it was the largest cement consuming continent comparatively with the other continents. On the other side, huge market of cement production was grasped by the Chinese manufacturer. China was a biggest cement producer and consumer country. It could be threat for Cemex to enter in China but it might enter the other Asian countries.

Pest Analysis

Cement industry was an established sector with high need in the emerging market. It could be an opportunity for the cement manufacturers to enter the Asian countries and Latin America. Middle East and North Africa were also high demanding areas which could be filled by the cement manufacturers. Alternatively, cement could be expensive to dispatch it to the point of need but it could be economically dispatched through the sea routes.

Importing the cement could be at low-cost but its operational expense which consisted fuel, logistics, transportation, electric power and man, raise the final price up to 50 percent more costly. Labor and electric power could be the most significant factors which would affect the cost of cement directly.

Fluctuation of US’s and Europe’s economy could be threat not only for the cement industry but in the overall business sectors. Obviously it would lead to the downfall of worth of US dollars. The increasing economy of Middle East could be the most significant opportunity. China and India could also be the opportunity for the cement producers but on the other side, both countries had already cement manufacturers. It could be risky for any outside player to directly enter into these markets. Alternatively, it could merge with any domestic leading cement manufacturer which would definitely beneficial for both the merging companies.

Every market had its own entrance barriers and it would require different planning and strategies accordingly with the nature of market. Every country had different operational and production cost. For example, China and Indonesia had low production cost while it was comparatively high in the highly developed countries like US and Europe. It would be expensive to manufacture in the developed countries.

Industrialization and urbanization growth had raised the need of cement consumption. Technology could also affect the cement industry. For example, if Cemex would come up with any innovation in their production technology, it could affect the operational and distributional costs.

Porter’s Five Forces:

Industry will analyzed by Porter’s five process which are threat of new products, threat of substitutes, bargaining power of customers, bargaining power of suppliers and intensity of competitive rivalry.

Barriers of entering in the cement industry are relatively high comparatively with any other industry. High capital is required to invest for a business. Operational...................................

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