CEMEX

Globalization

The story so far……• CEMEX is the third largest cement company with

revenues of $5bn , has plants in 15 countries and traded cement in 60+countries

• How is cement manufactured?• MES of a cement plant is 1MTPA• Cyclical demand with highest growth to come

from developing countries• Six major competitors, which together control around 30% of the market

The story so far……• Lorenzo Zambrano decided on geographical diversification as

the growth strategy• Started its internationalization journey with US and by 2000,

it had sights in $1.175bn to spend on global acquisitions• Formal and standardized expansion process, including PMI• Leverage is around 44% and its stock price increased by 114%

EBITDA margin is around 38% but the best is 48%.• Earnings volatility went down to 7.1% and it saves $100M in

interest costs• Emphasis on IT, using GPS to deliver within 20 minutes, It

spendings was around 1% in 1999• Centralized in decision making, with reports available on

country-wise, product-wise and even kiln-wise.

The CAGE Framework

• Cultural Distances– Different languages– Different ethnicities/social networks– Different religions– Different social norms

Religion and Culture

The CAGE Framework

• Administrative/Political distance– Absence of colonial ties– Absence of shared monetary or political

association– Political hostility– Government Policies– Institutional weakness

The Spread of Democracy

The CAGE Framework

• Geographic Distance– Physical remoteness– Lack of a common border– Lack of sea or river access– Size of the country– Weak transportation or communication links– Climatic Differences

The CAGE Framework

• Economic Distance– Differences in Consumer Income– Differences in cost and quality of

• Natural resources• Financial resources• Human resources• Infrastructure• Intermediate inputs• Information

The CAGE FrameworkCultural Administrative Geographic EconomicLanguagesEthnicities/social networksReligionsSocial norms

Colonial tiesShared monetary associationPolitical hostilityGovernment PoliciesInstitutional weakness

Remotenesscommon bordersea /river accessSizeTransportation linksClimate

Differences in Consumer IncomeDifferences in cost and quality

Distance Attribute Change in International Trade

GDP per capita (1% increase) +0.7%

Economic Size (1% increase) +0.8%

Physical Distance (1% increase) -1.1%

Access to ocean +50%

Common Border +80%

Common language +200%

Colony-colonizer relationship +900%

Common Polity +300%

Common Currency +340%

Jeffrey Frankel & Andrew Rose (2000)

Yum! Brands, Inc.

Yum! Brands, Inc.

What is Global strategy? • Configuration:

What do we & do where?

• Coordination: How tightly do we tie together activities in different locales?

A viable global strategy configures and

coordinates better than available

alternative means for accomplishing

comparable ends.

NokiaR&D Units FinlandGermanyU.S.HungaryChinaMalaysiaS. KoreaAustraliaU.K. JapanItalyCanadaSwedenDenmark

Production FinlandGermanyU.S. Hungary SwedenChina MalaysiaU.K.FranceS. KoreaAustralia BrazilU.K. Mexico

Stock Exchange ListingsFinlandGermanyU.S. U.KSwedenHungary China.Malaysia France

Assignment for Tuesday’s ClassCase: General Electric Medical System

Assignments Questions1. What is the underlying logic behind the global product idea? What are the

costs and the benefits that are expected?2. Should the global product philosophy be changed or altered to suit the China

market? Please identify both sides of the argument and take a position explaining the rationale behind your stand. Does it make economic sense?

3. Should GEMS be aggressively pursuing genomics and healthcare-IT related opportunities in addition to or instead of the China opportunity? What priorities would you suggest? Explain your reasoning carefully.

Assignments should be typed, single space, 12 Times New Roman Script. The cover page should consists of the name of the case, the number of the group, the names of the group members and the GP leader name to be highlighted. Assignments should not be more than 3 pages