Cemex

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QUESTION 3
Read the management Focus on Cemex and then answer the following question: a. Which theoretical explanation, or explanations, of FDI best explains Cemex’s FDI? b. What value does Cemex bring to a host economy? Can you see any potential drawbacks of Cemex’s inward investment in an economy? c. Cemex has a strong preference for acquisition over greenfield ventures as an entry mode. Why? d. Why do you think Cemex decided to exit Indonesia after failing to gain majority control of Semen Gresik? Why is majority control so important to Cemex? e. Why do you think politicians in Indonesia tried to block Cemex’s attempt to gain majority control over Semen Gresik? Do you think Indonesia’s best interests were served by limiting Cemex’s FDI in the country?

Answer:
a. The theory that best explains Cemex’s foreign direct investment (FDI) activity is that of internalization due to limitations of licensing or also known as the market imperfection approach. Cemex wanted to expand horizontally because it wanted to reduce its reliance on its home market and provide some stability in the demand for their product. Also, they saw opportunities abroad and it could provide their service, which required building very personal relationships with the distributors and the builders themselves. Lastly they had spent a lot of time working on their information technology system that allowed them to control their supply and it was part of their competitive advantage. Due to their unique business model, they would not be able to get the same value by licensing their business thus they had to internalize the business abroad and directly set up business abroad. b.
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