Cemex Case Study

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What benefits have CEMEX and the other global competitors in cement derived from globalization? More broadly, how can cross-border activities add value in an industry as apparently localized as cement?

-Reduction of tariffs associated with exporting
- Due to internationalization these companies have been able to spread their risk. Therefore, if one market is not performing they can rely on the other (diversification) -Talent across markets

-Ability to identify new emerging markets and having advantage of an already set up network system -Proximity to raw materials gives benefits on distribution channel which is already organized by formers. This also gives an added advantage in reducing transportation costs -Advantage of distribution and delivery process through sophisticated information systems -

***Reduction of standard deviation of quarterly cash flow margins (1994-1997 averaged 7.1% for CEMEX as a whole,compared to 9.5% for Mexico, 12% for Spain, 22% for the U.S., and 30% for Venezuela).***CEMEX and their competitors have realized many benefits from globalization. The first of these was a reduction on tariffs associated with exporting their product. If the manufacturer has a localized facility, they do not have to pay export tariffs on the delivery of cement. Next, transportation costs are very expensive for cement. Tariffs aside, shipping or trucking cement long distances will erode margins or demand higher prices for a given manufacturers product. Both eat at the profitability of the business. Additionally, localized plants should reduce the time it takes to deliver the cement to a customer. This is should be a positive for customers in a pinch with no options. The cement company who is able to provide cement the fastest may win some jobs for this reason alone. Finally, the cement manufacturers should have seen stabilization in revenues due to diversification. GDP is strongly linked to cement sales, so a reduction/expansion in GDP for a given country will lead to volatile sales revenues. Globalization should balance out fluctuations assuming there isn’t a global recession. It would not matter where cement manufacturers set up shop in the event of a global recession. Reduced GDP would result in a reduction in sales volumes.***CEMEX had just exported cement to the United States in low prices than Mexico. After time goes by, The United States producers had banded together to lodge an antidumping petition to protect their industry from Mexico’s dumping prices. After all, the U.S. International Trade Commission (ITC) imposed a countervailing duty on CEMEXs exports from Mexico to the United States.After that, CEMEX started to focus on globalization especially Foreign Direct Investment (FDI). So they acquired TheUnited States cement plant in Texas. This was the start to focus on cross-border activities. And it has given manybenefits to them. The one of the reasons was avoiding traffic barriers.On the other side, CEMEX and the other global competitors are handling cement which is bulky and heavy. So one of the big concerns is transportation cost. If they export the cement, they should pay enormous transportation costs.And it also should be involved in cost which is paid by customer. Therefore, they will lose their price competitiveness or margin by reducing the cost. So reducing the transportation costs is the one of the reasons to do FDI.They could also save the time to deliver by placing the plants in each country. Especially in case of the CEMEX,theyre even using satellites to link dispatchers, truckers, and customers in a system so that utilizing delivery system.So they guarantee delivery within 20 minutes as well. This is also the reason they do FDI.And another one, Cement industry is very sensitive to GDP growth, interest rates, and other macroeconomic factors,and etcetera. Theyre not only concentrating on their home country, but also doing FDI to reduce the risks bydiversification to get stable...
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