Cemex’s Foreign Acquisitions

 

            In little more than a decade, Mexico’s largest cement manufacturer, Cemex, has transformed itself from a primarily Mexican operation into the third largest cement company in the world behind Holderbank of Switzer-land and Lafarge Group of France. Cemex has long been a powerhouse in Mexico and currently controls more than 60 percent of the market for cement in that country. Cemex’s domestic success has been based in large part on an obsession with efficient manufacturing and a focus on customer service that is second to none in the industry.

 

            Cemex is a leader in using information technology to match production with consumer demand. The company sells ready mixed cement that can survive for only about 90 minutes before solidifying, so precise delivery is important. But Cemex can never predict with total certainty what demand will be on any given day, week, or month. To better manage unpredictable demand patterns, Cemex developed a system of seamless information technology, including truck-mounted global positioning systems, radio transmitters, satellites, and computer hardware, that allows Cemex to control the production and distribution of cement like no other company can, responding quickly to unanticipated changes in demand and reducing waste. The results are lower costs and superior customer service, both differentiating factors for Cemex.

            The company also pays lavish attention to its distributors—some 5,000 in Mexico alone—who can earn points toward rewards for hitting sales targets.  Those points can then be converted into Cemex stock.  High-volume distributors can purchase trucks and other supplies through Cemex at significant discounts.  Cemex also is known for its marketing drives that focus on end users, the builders themselves. For example, Cemex trucks drive around local Mexican building sites, and if Cemex cement is being used, the construction crews win soccer balls, caps, and T-shirts.

            Cemex’s international expansion strategy was driven by a number of factors. First, the company wished to reduce its reliance on the Mexican construction market, which was characterized by very volatile demand. Second, the company realized there was tremendous demand for cement in many developing countries, where significant construction was being undertaken or needed. Third, the company believed that it understood the needs of construction businesses in developing nations better than the established multinational cement companies, all of which were from developed nations. Fourth, Cemex believed that it could create significant value by acquiring cement companies in other markets and transferring its skills in customer service, marketing, information technology, and production management to those units.

 

            The company embarked in earnest on its international expansion strategy in the early 1990s. Initially Cemex targeted other developing nations, acquiring established cement makers in Venezuela, Colombia, Indonesia, the Philippines, Egypt, and several other countries. It also purchased two stagnant companies in Spain and turned them around. Then in 2000 it undertook its largest purchase, the $2.5 billion acquisition of Houston-based Southland, one of the largest cement companies in the United States. Cemex entered 2001 with 56 cement plants in 30 countries, most of which were gained through acquisitions. In all cases, Cemex has devoted great attention to transferring its technological, management, and marketing know-how to acquired units, thereby improving their performance.

 

            The benefits of this strategy have flowed through to the bottom line. From 1991 to 2000, the company’s earnings before interest, tax, and depreciation when measured in U.S. dollars grew by more than 20 percent annually.  Cash earnings per share also grew by 20 percent a year, while sales grew by 17 percent. Since profits have grown faster than sales, the company must be realizing significant efficiency gains in its acquired units.  By 2000, Cemex was number one among the world’s four largest cement manufacturers on most measures of financial performance, suggest-ing that its strategy of entering foreign markets through acquisitions was paying dividends.