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.
What value does Cemex bring to a host economy? Can you see any potential drawbacks of inward investment by Cemex in an economy?
Cemex brings a lot of benefits to the host economies the largest of which are employment effects by creating more jobs within the host country. Cemex has a direct effect on employment because it hires a large number of host-country citizens to work for the company, however it probably has very limited indirect effects because it is so vertically integrated as a company and has full control over both the production and distribution of its product. Another benefit that Cemex can help decrease the country’s balance of payments accounts by reducing the amount of imports of cement. Lastly Cemex can bring new technology and efficiency into the country’s cement market. One of the reasons that Cemex enters into a country through FDI is to capture inefficiencies in current cement manufacturers so their presence spurs competition, which in turn increases efficiency.