Cemex Case Study

Mexico’s largest cement manufacturer, Cemex, has become a global powerhouse in the cement and construction industry. It currently controls 60 percent of the cement industry in Mexico (Hill 2009). Cemex’s success is a result of a combination of efficient technology such as radio transmitters, satellites, and computer hardware that allow the company to anticipate changes in supply and demand and reduce waste.

Cemex’s success is also a result of an attempt to dominate the industry by acquiring and buying out competitors worldwide in order to expand. a.Which theoretical explanation, or explanations, of FDI best explains Cemex’s FDI? I believe that internalization theory best explains Cemex’s FDI because Cemex has taken the initiative to enter into many countries and instead of licensing; they bought domestic cement businesses and have grown into a worldwide powerhouse.

According to the textbook, internalization theory explains why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets (Hill 2009). With the advanced technology that Cemex uses, so licensing would not be the greatest avenue for the company to take in order to protect it’s “technological know-how” (Hill 2009). b.What is the value that Cemex brings to the host economy? Can you see any potential drawbacks of inward investment by Cemex in an economy? Cemex is the third largest cement company in the world, and a powerhouse in Mexico where it controls 60 percent of the market.

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Cemex is highly focused on efficient manufacturing and customer service. Distributors are rewarded for their sales, as are users. The primary benefit Cemex brings to host countries involves these competitive advantages. Cemex acquires companies and then transfers technological, management, and marketing know-how to the new units, improving their performance. The company has brought several acquired companies back to full production, increasing employment opportunities in the host country as well. c. Cemex has a strong preference for acquisitions over greenfield ventures as an entry mode. Why? Cemex has successfully acquired established cement makers in many countries.

By acquiring companies rather than establishing them from the ground up, Cemex can avoid some of the delays that could occur in the start-up phase, while at the same time, capitalize on the benefits of an established market presence. Acquiring other businesses is effective because the host economy already knows the demographics and the market. Cemex would be able to make the business better with their technology and research. A Greenfield venture would be risky and not cost effective. d. Why is majority control so important to Cemex?

Majority control is important to Cemex because of the ability to implement its policy of transferring resources. When it does not have majority control it may not be able to transfer its own managing resources to newly acquired companies. Also, Cemex might want to take advantage of differences in factor costs across countries, so it will be allowed to import parts from other places to reduce costs.

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