My report argues that demand and capacity creation in developing economies is a major driver in the global cement industry, which given the nature of the product (high transportation costs arising from its bulk) is prone to major company expansion by mergers and acquisitions. Cemex’s expansion strategy focuses on merger and acquisition (M&A), mainly exploiting its expertise of operating in difficult institutional environments and taking advantage of opportunities arising from difficulties in developing market economies. The company successfully adapts best practice and technologies from its acquisitions throughout the wider company. My report begins with definitions, presents an overview of the global cement industry (section two) key players in the industry (section three) and M&A trends (section four). I then analyse Cemex’s entry strategies by exploring in turn the regions into which it has expanded (section five) drawing conclusions on its penetration strategy. 1Introduction and definitions
Cement is a binding substance, which sets and hardens independently binding other materials together. It is intended for use in building or construction material and can withstand varying environmental conditions. About 75% of cement production is used in ready-mixed concrete to be utilized in construction. The remaining 25%, Portland Cement Association (2009) shows, is used for paving roads or extracting oil. As Selim and Salem (2010) indicate basic raw materials for cement production are iron, aluminium, silicon and calcium. Normally cement is divided as Portland cement, Portland cement blends and non-Portland hydraulic cements. Portland cement, which can be roughly divided into White Portland and Gray Portland, is the most commonly used type as it is the basic ingredient of concrete (Cemex, 2013a, PCA, 2013). There are two different processes used in the manufacture of cement – dry process and wet process. In the wet process, the raw materials, after properly proportioned, are ground with water, thoroughly mixed and fed into the kiln in the form of a "slurry" (containing enough water to make it fluid). In the dry process, raw materials are ground, mixed, and fed to the kiln in a dry state instead. In other respects, the two processes are essentially alike (PCA, 2013). However, the dry process was considered to be more sufficient than the wet one since it consumes less energy. On the other hand, the dry process requires more investment in equipment and plants. Cement manufactures in developing countries have widely adopted the wet process but the transformation to the dry process is underway on a large scale. 2An overview of the global cement industry
This section discusses the nature of the global cement industry, including the market size and market potential, the nature of cement products, market supply and demand and related environmental issues, to provide a broad view to understand the nature of competition. The following are the main characteristics of the global cement industry. Huge market – especially emerging markets
Cement is the primary and indispensable material in infrastructure construction for every country. Although it only accounts for around 6–13% in construction costs (Chandramouli, 2012), there are few substitutes for it (Wesley, 2009). Hence there is a potential huge global market with strong contracts between developed and developing countries. While the developed countries mostly have steady and limited demand for cement, the developing world is a more promising market, as a result of large-scale constructions: the demand of cement is positively correlated with a nation’s economic development. World demand for cement is growing by 4.7% per annum reaching 6% growth in 2012, with total consumption of 3.78 million tons (CW Group, 2012). Consumption in developing countries drives this growth in...