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Foreign Direct Investment: Cemex'S

This document discusses CEMEX's foreign direct investment (FDI) strategy. CEMEX is the world's largest building materials supplier and third largest cement producer, based in Mexico. To reduce reliance on Mexico's volatile construction market, CEMEX pursued FDI in developing countries with growing cement demand. CEMEX's strategy was to acquire inefficient cement companies and create value by transferring its skills in customer service, technology, and production management. The document also includes questions and answers about CEMEX's motivations, the value it provides through FDI, and reasons why politicians in Indonesia blocked CEMEX's attempt to gain majority control of Semen Gresik, a local cement company.

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64 views10 pages

Foreign Direct Investment: Cemex'S

This document discusses CEMEX's foreign direct investment (FDI) strategy. CEMEX is the world's largest building materials supplier and third largest cement producer, based in Mexico. To reduce reliance on Mexico's volatile construction market, CEMEX pursued FDI in developing countries with growing cement demand. CEMEX's strategy was to acquire inefficient cement companies and create value by transferring its skills in customer service, technology, and production management. The document also includes questions and answers about CEMEX's motivations, the value it provides through FDI, and reasons why politicians in Indonesia blocked CEMEX's attempt to gain majority control of Semen Gresik, a local cement company.

Uploaded by

jacklee1918
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CEMEX's FDI Case

FOREIGN DIRECT
INVESTMENT
Fateh ROUIDJALI
Dawood ABBASI
Singh SUKHDEV
Gurwinder SRAN

Contents

What is FDI?

History of Cemex

Review of Cemex FDI

Question Answer Session

FDI - Concept

Long term investment by a foreign direct investor

FDI relationship: a parent enterprise and a foreign affiliate


which together a Transnational Corporation (TNC)

FDI relationship:Parent enterprise investment must afford


the parent enterprise control over its foreign affiliate

The IMF defines control in this case as owning 10% or more


of the ordinary shares or voting power of an incorporated
firm or its equivalent for an unincorporated firm; lower
ownership shares are known as portfolio investment.

Advantages

Inflow of equipment and


technology
Competitive advantage and
innovation
Financial resources for expansion
Employment generation
Contributions to export growth
Access to global marketplace for
domestic players
Access to low cost resources for
investor
Access to new market/ distribution
channel for products
Improved consumer welfare
through reduced costs , wider
choice and improved quality.

Disadvantages

Crowding of local industry


Loss of control
Repatriation of
profits/dividends by
investor
Conflicts of codes/laws
Possible exploitation
resources-material/ wages
Effect on local
culture/sentiments socio
cultural effect
Effect on natural
environment

History of CEMEX

The world's largest building materials supplier and third


largest cement producer (Home market = Mexico)

In 2005 : $15 billion of sales / $2 billion in net profits

More than 60% of the Mexican (domestic) market

Cemexs domestic success:


Obsession of efficient manufacturing = lower costs
Focus on customer service = superior customer service
Using information technology to match production with consumer

demand

Cemexs Foreign Direct Investment


Several factors to explain Cemexs international expansion:

Reduce its reliance on the Mexican construction market


because of the very volatile demand in Mexico

A lot of demand for cement in many developing countries

Cemex believed that it understood the needs of construction


businesses in developing countries

Cemexs Strategy: Create significant value by acquiring

inefficient cement companies in other markets (by


transferring their skills in customer; technology; production...)

Question Answer Session


Question 1: Which theoretical explanation (or explanations) of FDI best explains

Cemexs FDI?
Cemex wanted to reduce its reliance from its domestic market : because of too volatile demand in

Mexico
Cemex realized there were tremendous demand for cement in many developing countries
They believed they understood the need of construction businesses for developing countries and
transferring their technologies and production management to those units.

Question 2:

What value does Cemex bring to a host economy?

Cemex valued a host economy by transferring its technological, management and marketing
KNOW-HOW to acquired units, thereby improving their performance on economy.

Can you see any potential drawbacks of inward investment by Cemex


in an economy?

Principle drawback for Cemex: In 2004, they made major foreign investment move. They bought
RMC (a Britain cement company) but before purchasing this company, Cemex had to analyze its
capacities (production; sales)

Question Answer Session


Question 3: Cemex has a strong preference for acquisitions over

Greenfield ventures as an entry mode? Why?

Because Cemex prefers transferring its skills to other cement companies


They believe they can reduce mistakes with their own organizational management

Question 4: Why do you think Cemex decided to exit Indonesia after

failing to gain majority of Semen Gresik? Why is majority so


important to Cemex?

Cemex wanted the majority because when the acquired a new company they
transferred their own managing organization: by controlling the new company as a
majority. But in the case of Indonesia exit: they purchased only 25% of Semen Gresik
but were promised to be given the majority from Indonesian government. The country
never fulfilled their promise due to politics and lobbies pressure.

Question Answer Session


Question 5:

Why do you think politicians in Indonesia tried to block Cemexs


attempt to gain majority control over Semen Gresik?
To avoid Indonesian asset falling in foreign hands: The government suffered from

strong pressures (lobbies)


Corruption

Do you think Indonesias best interests were served by limiting


Cemexs FDI in the country?
YES: They can keep their company : protectionism
NO: Bad advertising for Indonesia No FDI = no investment = no taxe = death of

companies = unemployment = troubles.

Thank you !

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