Running head: Cemex’s Foreign Direct Investment
Cemex Foreign Direct Investment
Cemex is one of the fastest growing cement manufacturers in the world. Starting out more than a decade ago Cemex, “has transformed itself from a primarily Mexican operation into the third-largest cement company in the world” (Hill, 2008). The success of Cemex has been attributed to its skills in customer service, marketing, information technology, and production management. Its idea to originally enter into the global market, was to acquire inefficient cement manufactures and turn them around by implementing its proven strategies. This global introduction has worked well for the most part, “not all of Cemex’s expansions have worked out as planned” (Hill, 2008). Cemex has run into local government hinderence and was forced out of the Indonesian market. These issues surrounding Cemex’s Foreign Direct Investment (FDI) has brought about some root problems. “Three costs of FDI concern host countries. They aries from possible adverse efects on competition within the host nation, adverse effects on the balance of payments, and the perceived loss of national sovereignty and autonomy” (Hill, 2008).
While Cemex has a strong preference for acquisitions over starting fresh, this poses several key root problems for both Cemex and the host nations. Cemex had to face some challenging questions; What are the primary factors in why Cemex has chosen Direct Foreign Investments versus some alternatives; What is the impact of their choice in FDI on the host-country, as well as home-country.
What are the primary factors in why Cemex has chosen Foreign Direct Investments versus some alternatives?
There are several options to consider when a company wants to move into the international global market. The biggest questions firms usually ask is, “Why do firms go to all of the trouble of establishing operations abroad through foreign direct investments when two alternatives, exporting and licensing, are available to them for exploiting the profit opportunities in a foreign market?” (Hill, 2008). This question was undoubtedly debated heavily by Cemex prior to investing in foreign markets. One of the industry specific novelties of cement manufacturing, is the product itself. “The company sells ready-mixed cement that can survive for only about 90 minutes before solidifying, so precise delivery is important” (Hill, 2008). This industry is already at a predisposed peril if it were to consider exporting their goods. The cement industry requires this product to be made on site. Due to this requirement, Cemex could have considered Licensing, “Occures when a firm grants a foreign entity the right to produce its product, use its production processes, or use its brand name or trademark in return for a royalty fee on every unit sold” (Hill, 2008). Licensing is a very real alternative to FDI. The answer to Cemex’s decision ultimately lies in the fundamental successes that made Cemex grow, its skills in customer service, marketing, information technology, and production management. Following the ideas of the internalization theory, “The argument that firms prefer FDI over licensing in order to retain control over know-how, manufacturing, marketing, and strategy or because some firm capabilities are not amenable to licensing” goes to show the true benefits of Cemex’s decision to utilize FDI as its global initiative. Because Cemex has developed proven strategies in its technology, customer services, and manufacturing management styles – it can clearly benefit from FDI. Cemex also recognized some additional benefits of why FDI is an important consideration when going global.
• Circumventing trade barriers, hidden and otherwise.
• Making the move from domestic export sales to a locally-based national sale office.
• Capability to...
References: Graham, J. P. (2005, June 18). Understanding Foreign Direct Investment (FDI). Retrieved July 24, 2009, from Going Global: http://www.going-global.com/articles/understanding_foreign_direct_investment.htm
Hill, C. (2008). Global Business Today. Boston: McGraw-Hill Irwin.
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