Foreign Direct Investment by Cemex
1. Which theoretical explanation, or explanations, of FDI best explains Cemex’s FDI?
Cemex’s foreign direct investment strategies and decisions were really molded by the nature of their industry/product. FDI yielded the most profitable and controllable option which they felt would stimulate the fast growth of the company. When looking at the theories of FDI, it is easy to see why Cemex preferred a direct investment instead of the other options of penetrating these markets. Exporting was eliminated as an option right-off-the-bat due to their product, cement; specifically ready-mixed cement that can only last about an hour and a half before solidifying. This alone abolished the exporting option for FDI because there would be no possible way of getting the product to the consumer before it became useless. This made direct investment much more attractive for expansion. The other option besides direct investment is a licensing strategy. This would allow manufacturers in the target foreign countries to produce and sell the firm’s product for a royalty on each unit solid. This would seem more attractive right away because it removes the risk of a very expensive initial investment in manufacturing facilities and other infrastructure, but just like any business theory, it has its weaknesses. Licensing agreements can lead to a company giving away its manufacturing and technological expertise to foreign competitors like we saw with RCA in Japan. The result was competitors like Mitsubishi and Sony basically mimicking the efforts of RCA and eventually bringing their products to the United States and became a direct competitor which made RCA obsolete in market share. This would be extremely detrimental to Cemex’s global dominance and market share. Another downside to licensing is that it does not give the firm control over operations such as manufacturing, marketing, and strategy which are parts that Cemex prides themselves on and without their marketing strategy and
Cemex’s foreign direct investment strategies and decisions were really molded by the nature of their industry/product. FDI yielded the most profitable and controllable option which they felt would stimulate the fast growth of the company. When looking at the theories of FDI, it is easy to see why Cemex preferred a direct investment instead of the other options of penetrating these markets. Exporting was eliminated as an option right-off-the-bat due to their product, cement; specifically ready-mixed cement that can only last about an hour and a half before solidifying. This alone abolished the exporting option for FDI because there would be no possible way of getting the product to the consumer before it became useless. This made direct investment much more attractive for expansion. The other option besides direct investment is a licensing strategy. This would allow manufacturers in the target foreign countries to produce and sell the firm’s product for a royalty on each unit solid. This would seem more attractive right away because it removes the risk of a very expensive initial investment in manufacturing facilities and other infrastructure, but just like any business theory, it has its weaknesses. Licensing agreements can lead to a company giving away its manufacturing and technological expertise to foreign competitors like we saw with RCA in Japan. The result was competitors like Mitsubishi and Sony basically mimicking the efforts of RCA and eventually bringing their products to the United States and became a direct competitor which made RCA obsolete in market share. This would be extremely detrimental to Cemex’s global dominance and market share. Another downside to licensing is that it does not give the firm control over operations such as manufacturing, marketing, and strategy which are parts that Cemex prides themselves on and without their marketing strategy and