CEMEX’s Patrimonio Hoy: At the Tipping

Point?

Made by:Neeraj SainiSagar Gupta

a regional Mexican cement producer founded in 1906

Acquired Colombia’s Cementos Diamante and Samper Companies in 1996, RMC Group Plc of UK in 2005 and became the world’s largest producer of ready-mix concrete.

Sells products and services under three broad categories: Cement, Ready-mix concrete and related products (crushed stone , sand and gravel).

About CEMEX

operations in 50 countries has a production capacity of 81.5 million

tons/year, owns 54 cement plants and 466 ready-mix plants, and has over 25,000 employees

In 2005, recorded US$15.1 billion in global revenue with a 16% operating margin

headquartered in Monterrey with offices across the country

local brands include Cemento Monterrey, Cemento Tolteca and Cemento Anahuac

About CEMEX (Contd.)

Divided into four categories: ◦ self-construction (do-it-yourself building)◦ government (public works projects, road

construction and buildings)◦ traditional construction (private

buildings), ◦ casting/transforming (benches, floors,

etc)

four main players: CEMEX, Holcim, Cruz Azul, and Moctezuma.

CEMEX market leader with 55% total market share .

Cement Market in Mexico

CEMEX’s largest customer segement, accounting for approx. 40% sales.

Most of purchasing done by low income group.

Mexico needs 750,000 new houses every year to meet population growth, half of them by low income, informal sector

Low wages, lack of credit history, and high interest rates prevent them from entering the formal mortgage and housing market

The Self Construction Market

During 1994-95 Mexican economic crisis, sales to formal construction sector fell by 50% but informal sector less affected.

A multi disciplinary team created: tasked with creating an initiative that would “do good” but also make money.

To understand the market, the team underwent 3 months of field research: visits to colonias, local distributors etc.

CEMEX : exploring new opportunities

6 barriers identified that made building new homes inefficient:1) inability to save money; 2) lack of access to financing;3) limited technical construction knowledge; 4) difficulty in accessing certified quality materials;5) Inability to store materials; 6) lack of planning skills related to building homes

Found cement was relatively undifferentiated commodity, consumers in the segment looked for lowest prices.

Research findings

Mr. Francisco Garza required the initiative to have:◦ self-financing growth; ◦ a quick learning curve; ◦ positioning as the best segment option; ◦ fast volume growth; ◦ long-lasting customer perceived value

First response : new product – smaller sack of 25kgs – failed.

This initiated a second round of research : realized that financing was the biggest issue for low income groups to overcome for home construction.

Focus now shifted: from selling cement to building houses

Prerequisites and Initial attempts

New business model : group lending program (Tanda system), technical assistance for project construction and coordination of deliveries with distributors

Named “Patrimonio Hoy”(Patrimony Today), CEMEX listed as sponsor to create awareness and customers renamed “socios”(partners).

With further development, tanda system discarded, replaced with CEMEX micro financing.

Patrimonio Hoy

What the program offers:Microcredit for building

materials• Based on solidarity of a group

of 3• No collaterals

Technical Advice• Advice and consultation by

certified architects free of

cost

Benefits & Services• Frozen prices for 70 week

periods• Warehousing services to store

materials according to their

needs

• A steady, progressive, well

implemented project with

savings on time and less

cost

Headquartered in Guadalajara, centralized staff of about 15.

By end of 2005, 61 “cells” placed throughout country in areas with: population approx 50,000, tradition of self building, average family income 1000 pesos.

Each cell – independent and self sustaining, has a staff of 1 to 3 people and is customized to local needs

Each cell attained break even within 12 months or 600 families served.

Current Operations

Mostly women, promoter were hired on part time basis to attract new socios from the community itself.

Compensated on basis of number socios attracted and time they stayed in the program

Held information sessions on daily basis in homes of influential community members or those already built under the program

Promoters

Weekly payment of 145 pesos for 70 weeks: 125 pesos for materials; 20 pesos membership

Membership fees covers costs: consulting, interest of financing, guaranteed fixed prices and operating cost of cell.

Additionally, after 30 weeks of regular payment, socios eligible to join “Te Impulsa Program” that provided faster deliveries and additional credit, helping them complete projects faster.

Payment Plan

As socios make weekly payments, cells place orders and makes payments to local CEMEX distributor

The distributor delivers cement and other supplies (steel, bricks, sand etc) directly to the socio.

Socios then evaluate distributors on factors such as delivery time, shipment accuracy etc – helps the program decide which distributors will get future business.

Distribution

better room layout, cost savings, locked-in material prices, material storage and delivery, and financing.

Higher construction quality leading to higher value for homes

Certification of recommendation: help in establishing the socio’s credit.

Training program: allows socios with masonry skills to receive professional certification.

Benefit to Socios

Increased revenues, market share and improved corporate image.

Branding: increase in customer loyalty, brand index for Cemento Tolteca rated at 4.6/5 after the launch of program – nearest competitor rated 3.

Improved social image – the program won prestigious award for Social responsibility from the Centre of Mexican Philanthropy in 2004.

Benefit to CEMEX

Since formal launch in 2002, program has given credit totaling $50 million to over 100,000 families

Defaults only $300,000 (0.6%) By 2005, program included 61 cells, 500

promoters and 120 suppliers.

Accomplishments

Socio attrition: unable to pay for labor, 30% of total are able to complete projects

Staffing: attracting, training, retaining people who can implement the model, overworked architects and less employees in cells may lead to less satisfactory customer service.

Financial management: risk of fraud Coordination with distributors: late

deliveries, stock outs Armoring supply chain: preventing

competitor penetration

Challenges:

Continue to improve socio lives, prevent competition, secure the small distributor channel, grow market share, and further strengthen CEMEX’s image.

Domestic expansion: deploying operations in 1000’s of eligible communities

Recruiting socio’s: utilizing help of NGO’s or non profit organizations to gain, build and maintain relationships

Sustaining growth

New Markets: presently serving income groups of 1000 pesos per week, similar opportunities for lower income groups can be created in urban and rural areas

International expansion: cell opened up in Colombia, more planned in other countries like Singapore, Venezuela, Nicaragua etc.

New sources of funding

Sustaining growth (Contd.)

Thank You!Any Questions?