Globalization of CEMEX
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Assignment II
Creating value from internationalization
CEMEX
International Business Strategy
Academic year 2014-2015
What benefits have CEMEX and the other global competitors in cement derived from globalization?
To answer this question, we used the ADDING framework (HBS Press 2007). This framework consists of six components of value creation. The first one is “adding volume”. In the 1980’s, CEMEX refocused its strategy on growth through acquisitions instead of continuing to diversify horizontally into other areas such as mining, tourism and petrochemicals. At first, they focused on Mexico by unifying their operations in order to secure their position, after which CEMEX also expanded internationally. By buying local existing plants rather than building “greenfield” plants, CEMEX could acquire new capacity at a cheaper cost, because they targeted companies of which the market value of the plants was lower than their underlying values.
Another benefit of buying existing capacity instead of creating new one, was that in this way overcapacity in the worldwide production could be avoided, because this could be detrimental in the cement sector. By expanding, CEMEX benefitted from economies of scale as well. The minimum efficient scale in the cement industry is approximated around 1 million tons of capacity per year. When CEMEX started out in 1906, they had a capacity of less than 5000 tons per year, but by 2000 the capacity has grown to over 65 million tons of capacity.
The second component of value creation is “decreasing costs”, of which the economies of scale already give a first example. The biggest cost reduction that the internalisation of CEMEX brought about, was the fact that the product did not have to be distributed all the way from Mexico. By buying factories in different countries, materials handling could be minimized. Since transportation costs account for one-third of total delivered costs in the cement sector, this was a major
Assignment II
Creating value from internationalization
CEMEX
International Business Strategy
Academic year 2014-2015
What benefits have CEMEX and the other global competitors in cement derived from globalization?
To answer this question, we used the ADDING framework (HBS Press 2007). This framework consists of six components of value creation. The first one is “adding volume”. In the 1980’s, CEMEX refocused its strategy on growth through acquisitions instead of continuing to diversify horizontally into other areas such as mining, tourism and petrochemicals. At first, they focused on Mexico by unifying their operations in order to secure their position, after which CEMEX also expanded internationally. By buying local existing plants rather than building “greenfield” plants, CEMEX could acquire new capacity at a cheaper cost, because they targeted companies of which the market value of the plants was lower than their underlying values.
Another benefit of buying existing capacity instead of creating new one, was that in this way overcapacity in the worldwide production could be avoided, because this could be detrimental in the cement sector. By expanding, CEMEX benefitted from economies of scale as well. The minimum efficient scale in the cement industry is approximated around 1 million tons of capacity per year. When CEMEX started out in 1906, they had a capacity of less than 5000 tons per year, but by 2000 the capacity has grown to over 65 million tons of capacity.
The second component of value creation is “decreasing costs”, of which the economies of scale already give a first example. The biggest cost reduction that the internalisation of CEMEX brought about, was the fact that the product did not have to be distributed all the way from Mexico. By buying factories in different countries, materials handling could be minimized. Since transportation costs account for one-third of total delivered costs in the cement sector, this was a major