CEMEX: An In-Depth Situational Analysis and Strategic Plan

CEMEX: An In-­Depth Situational Analysis and Strategic Plan Prepared by: Satcha Robinson Advisor: Parthiban David Kogod School of Business Honors Capstone Project University Honors in Business Spring 2014 1 Abstract Cemex is a global building materials company founded in Mexico in the early 1900’s. The firm has many characteristics that make for an interesting in-depth analysis, such as serving a low-income population, focusing on flexibility, creativity, sustainability, innovation, and efficiency.

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CEMEX: An In- Depth Situational Analysis‐
and Strategic Plan
Prepared by: Satcha Robinson
Advisor: Parthiban David
Kogod School of Business
Honors Capstone Project
University Honors in Business
Spring 2014

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Abstract
Cemex is a global building materials company founded in Mexico in the early 1900’s.
The firm has many characteristics that make for an interesting in-depth analysis, such as serving
a low-income population, focusing on flexibility, creativity, sustainability, innovation, and
efficiency. This report applies key concepts in strategy and strategy analysis to evaluate and
suggest strategic options for Cemex moving forward. Beginning with a brief history of Cemex
and some important characteristics of the industry, analysis will be conducted on the
environment and situation in which Cemex competes. The report concludes with strategic
options for Cemex: (1) company expansion, (2) Expansion of the unique program Patrimonio
Hoy, and (3) Divesting assets. Research used in this report was collected from company sources
and secondary sources that are publicly available. The strategic options and analysis of Cemex
have implications for better understanding companies who pursue profit and social
responsiveness.

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Table of Contents
OVERVIEW OF THE COMPANY ............................................................................................. 5
HISTORY OF CEMEX ................................................................................................................................. 5
INDUSTRY CHARACTERISTICS OF THE BUILDING MATERIALS ............................................................ 6
CEMEX’S PRODUCT OFFERING ............................................................................................................... 7
OPERATIONS ............................................................................................................................................... 8
FINANCIAL CONDITION OF THE COMPANY ........................................................................................... 10
INCLUSIVE BUSINESS ............................................................................................................................... 12
SITUATIONAL ANALYSIS ..................................................................................................... 13
STRATEGY DESCRIPTION AND COMPETITIVE ADVANTAGE ............................................................... 13
EXTERNAL ANALYSIS ............................................................................................................................... 14
Bargaining power of buyers ........................................................................................................... 14
Bargaining power of suppliers ...................................................................................................... 15
Competitors ............................................................................................................................................ 16
Analysis of the Competition ............................................................................................................. 18
Threat of substitute products or services .................................................................................. 19
Threat of new entrants ..................................................................................................................... 20
INTERNAL ANALYSIS ................................................................................................................................ 20
Target customer segment ................................................................................................................ 20
Logistics ................................................................................................................................................... 20
Operations .............................................................................................................................................. 21
Marketing & Sales ............................................................................................................................... 21
Customer Service ................................................................................................................................. 22
IT and HR/Infrastructure ................................................................................................................ 22
Expansion ................................................................................................................................................ 22
BUSINESS MODELS ................................................................................................................................... 23
Disruptive/Sustaining Model ......................................................................................................... 23
Blue Ocean .............................................................................................................................................. 23
INTERNATIONAL STRATEGY ................................................................................................................... 24
Aggregation ........................................................................................................................................... 24
Arbitrage ................................................................................................................................................. 25
Adaptation/Responsiveness ............................................................................................................ 25
Spreading Learning ............................................................................................................................ 25
STRATEGIC OPTIONS ........................................................................................................... 26
COMPANY EXPANSION ............................................................................................................................. 26
EXPANSION OF PATRIMONIO HOY ......................................................................................................... 27
DIVESTITURE OF ASSETS ......................................................................................................................... 27
LIMITATIONS ............................................................................................................................................. 27

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APPENDICES: .......................................................................................................................... 29
A: NUMERICAL INFORMATION ABOUT GLOBAL OPERATIONS .......................................................... 29
B: CHARACTERISTICS OF CUSTOMER SEGMENTS ................................................................................ 30
C: CEMENT SUPPLY CHAIN ..................................................................................................................... 31
D: LAFARGE REVENUE INFORMATION .................................................................................................. 32
E: HOLCIM REVENUE INFORMATION .................................................................................................... 33
F: CEMENT CONSUMPTION GROWTH BY REGION YOY% ................................................................. 34
G: CHARACTERISTICS OF HEAVY BUILDING MATERIALS INDUSTRY ............................................... 35
H: BLUE OCEAN CANVAS ........................................................................................................................ 36
REFERENCES ........................................................................................................................... 37

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Overview of the Company
History of CEMEX
Cemex is a global building materials company founded in Mexico in 1920 (MacAyeal).
This company is located in over 50 countries, and maintains trade relations with approximately
100 nations, while providing high quality products and reliable service to customers and
communities ("Cemex Brochure"). With annual sales of approximately 14.98 billion USD, and
44,000 employees located worldwide, this company is considered a global industry leader,
particularly in cement manufacturing and global supplying of ready-mix concrete (“Company
Profile”). As part of the corporate statement, Cemex places high value on flexibility, creativity,
sustainability, innovation, and efficiency (“Our Approach”). Cemex went public in 1976, and
after exporting for many years began the process of becoming an international industry player in
1992 (MacAyeal). Much of this growth was achieved through acquisitions of other companies
within the industry. The results of the internationalization process of this Mexican company can
be seen in the figure below that shows the geographic distribution of sales in 2013,
with the largest percentage coming from Northern Europe at 27%. Cemex offers a variety of
products, however almost half of all sales are
from cement, and they are the world’s third
largest cement producer by production (See figure
to the left) (Thomson, 2011). Most of the
company’s cement is bagged, branded, and
distributed at a point near the site of its use, in

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part due to the fact that the product is both cheap and heavy (MacAyeal; Gara, 2014).
Industry Characteristics of the Building Materials
The building materials industry, which Cemex is a part of, works with end consumers
who participate in construction, including housing construction, public infrastructure
development, commercial construction, institutional construction, and industrial construction
(Sirois). Most of these subsectors are sensitive to business cycles and thus are positively
correlated to the overall performance of the industry. When the US housing market collapsed, the
chain reactions were felt across the financial systems across the world (The Economist, 2013).
Many players in this cyclical industry were sharply impacted by the US financial crisis and
global recession, particularly Cemex (Thomson, 2011; Schexnayder, 2009). During the crisis
Cemex was the biggest cement maker in the Americas, and was heavily leveraging debt in its
operations and expansion plans (Black, 2010). In 2009, the company took out a $15 billion loan
to avoid bankruptcy, with conditions that total funded debt be significantly reduced (Thomson,
2011). Despite the bleak economic situation, Cemex’s chief executive officer Lorenzo Zambrano
remained upbeat “insisting that construction is likely to be one of the first industries to recover if
economic conditions improve” and that they would “be well positioned when the market
recovers going forward” (Schexnayder, 2009). As a long established company, Cemex has
weathered many economic booms and recessions and has survived by altering their strategy and
adapting to the ever-changing business environment.
In addition to the highly cyclical nature of the building materials industry, a key
component of the industry, cement, is considered by many to be critical to the future of the
developing world. According to a United Nations report on world urbanization, it is expected
that over the next several decades the urban population will increase from 3.6 billion to 6.3

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billion (“World urbanization prospects,” 2012). Many new cities will need to be built or
expanded to handle this influx of migrants, and concrete, which is primarily composed of
cement, will be needed in unimaginable quantities (Gara, 2014). Currently, across the globe
concrete is the second most consumed commodity by volume after water (“Segment Overview,”
2014). Keeping in mind the amount of city building that will occur over the next decades, the
amount of growth and opportunity in this industry will be vast.
CEMEX’s Product Offering
Cemex aims to help their customers solve their building challenges, through a diverse
product offering (“Products & Services”). Their major products are cement, aggregates, and
ready-made concrete, and they serve as the foundation for all types of construction projects
(“Products & Services”). As mentioned previously, cement is Cemex’s highest selling product
(See figure on page 5), and is a fine powdery mix of limestone, clay, and iron ore (“Cemex
Brochure”). Cement is the most widely used construction material worldwide, has compressive
strength, for example it is the material with the highest strength per unit cost, and is very durable
(“Cement”).
Moving on to the next product, aggregates are composed of geological materials, are used
in virtually all forms of construction, and accounted for 15% of Cemex’s sales in 2013 (CEMEX,
Aggregates). Aggregates have a variety of applications, such as being an ingredient in concrete
asphalt and mortar, and can be used in the construction of bridges, sand traps, drainage systems,
railways, etc. (“Aggregates”). Cemex offers aggregates composed of crushed stone and
manufactured sand, gravel, sand, and recycled concrete (“Aggregates”).
The third and last main product of Cemex is concrete, which is a high selling product,
accounting for 39% of worldwide sales in 2013. Concrete is a composite consisting mainly of

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cement, aggregates, water, and admixtures (“Ready-Mix Concrete”). Concrete is very durable
and strong, and Cemex specially engineers this product to be more sustainable, providing
features such as resistance to aggressive environments, light reflection, and capacity to store
energy, among others (“Ready-Mix Concrete”).
In addition to their three main product groups, Cemex also offers a variety of services
that are tailored to their clients’ specific needs around the world. One type of service they offer is
‘building solutions’. Drawing from the company’s almost century worth of experience, Cemex
designs and delivers tailor made solutions to build sustainable structures focusing on the
categories of housing, paving, and green building solutions (“Building Solutions”). For example,
Cemex is using its technical expertise working in conjunction with other companies to build
Latin America’s largest wind farm (Perez, 2014). Other services offered include service centers;
financing services; mobile solutions; trading services, which allow for easy movement of
products; and inventory management services such as Construrama (“Services”).
Operations
One key component of Cemex’s strategy and approach to business is to achieve
operational efficiency (“Our Approach”). Cemex operates 67 cement plants, 1,784 ready-mix
facilities, 362 aggregate quarries, 222 land distribution centers, and 63 marine terminals
worldwide to total 93.7 million metric tons of cement production capacity (Cemex 2013 Annual
Report). Cemex operates these plants and distribution sites in over 50 countries, throughout 6
distinct regions: Mexico; the United States; Northern Europe; the Mediterranean; South, Central
American and the Caribbean; and Asia (Cemex 2013 Annual Report). The geographical
diversification of the company’s operations reduces dependency on any one region or country
(Marketline, 2014). As of 2012, Cemex’s cement production facilities were predominantly

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located in Mexico, the United States, Spain, Egypt, Germany, Colombia, the Philippines, Poland,
the Dominican Republic, the UK, Croatia, Panama, Latvia, Puerto Rico, Thailand, Costa Rica
and Nicaragua (Marketline, 2014). See Appendix A for more information about the number of
plants in each region.
In 2013, Cemex made several changes in order to continue maximizing operational
efficiency. These changes include completing a strategic outsourcing agreement with IBM that is
anticipated to result in savings of approximately $1 billion USD over the course of 10 years
(Cemex 2013 Annual Report). In addition, Cemex made an agreement with competitor Holcim
to optimize assets and improve operational efficiency, improve margins, and help reduce the
drag on profits (Business Monitor International, 2013). The agreement entails the swapping of
key assets and a joint venture: “Cemex will acquire Holcim’s assets in the Czech Republic,
whilst Cemex will divest its western German assets to Holcim”, additionally the two companies
will work together in Spain with Cemex holding the controlling interest at 75% (Business
Monitor International, 2013). The asset optimization agreement and IBM outsourcing project are
both expected to have a significant impact on the financial bottom line and increase operational
efficiency at this global giant.
Another core platform of Cemex’s operation is a commitment to operating in a
responsible manner. Their espoused goal is “to provide building solutions that meet the needs of
a resource-constrained world, [and] to minimize the ecological footprint of our operations”
(Cemex 2013 Annual Report). The building materials industry is carbon intensive, and as part of
their operation, Cemex has designed an aggressive strategy to reduce their carbon footprint
(“Empowering Communities,” 2013). This strategy includes use of alternative fuels to replace
fossil fuels, the reduction of clinker content which has serious ramifications for the environment,

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and greater use of renewable sources of electricity (“Empowering Communities,” 2013). In
addition to these steps, Cemex additionally optimizes air quality, waste management, and
recycling; diminishes disturbances from noise and dust; and implements biodiversity action plans
at quarries (Cemex 2013 Annual Report). Overall, Cemex runs operations in several regions
across the world in an industry that negatively impacts the environment, but operates in a
responsible manner to limit the environmental ramifications and impact on stakeholders.
Financial Condition of the Company
As mentioned previously, the building materials industry is very sensitive to the business
cycles of the economy. Cemex was hit particularly hard by the U.S. financial crisis and the
global recession, in part due to its exposure in the United States, Mexico, and Europe. However,
in addition, Cemex acquired the Australian company Rinker shortly before the beginning of the
financial crisis (Lopez & Stargardter, 2014). This poorly timed purchase costing $16 billion left
Cemex “neck-deep in debt and poorly positioned when the U.S. housing market collapsed”
(Lopez & Stargardter, 2014). Analysts have found that “much of the company’s strength has
come from its US operations, which had been a cause of much stress during the US
homebuilding crisis” (Business Monitor International, 2013). For the past three years, the
company has been working its way out of a deep debt hole (Lopez & Stargardter, 2014).
A visual representation of revenue by region over years 2012 and 2013 can help illustrate
the financial and strategic situation of Cemex (see figure on page 10). The U.S. housing market
and construction sector are currently undergoing a recovery, and have seen an increase in sales
(Business Monitor International, 2013). Meanwhile, Northern Europe, Mexico, and the
Mediterranean are still dragging on Cemex’s overall performance (Business Monitor
International, 2013). Regions that have experienced a growth in sales include Asia and Latin

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America & Caribbean; however, Cemex has a minimal presence in these regions.
Cemex has been focusing on strengthening their capital structure and regaining financial
flexibility by reducing debt, improving cash flow generation, and extending maturities (Cemex
2013 Annual Report). At the end of 2013, Cemex had approximately $16 billion in net debt, and
limited cash flow (Lopez & Stargardter, 2014). The loan covenants of Cemex’s refinancing deal
obligate the company to shrink debt and improve finances before undertaking any major
expansion plans (Black, 2010). The large amount of debt contributes to the company’s high debt
leverage, and low credit ratings, which lay four levels below investment grade (Lopez &
Stargardter, 2014).
In March 2014, Fitch rating agency reported that "Cemex's net debt is not projected to change
materially in the next two years despite the projected upturn in EBITDA due to rising working
capital needs associated with growth, increasing capex, and higher taxes" (Lopez & Stargardter,
2014). It would appear that Cemex is in the recovery process after taking a financial hit during
the financial crisis and global recession; however, it may take longer than the company’s goal
date of 2016.
Cemex Sales by Region, in millions USD
Source: Business Monitor International, 2013

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Inclusive Business
CEMEX has two distinct categories of customers: companies in the formal construction
sector; and individuals/communities in the informal, self-construction sector (Ajit, Mohan, and
Singh, 2003). Transactions with the self-construction group are primarily conducted through the
high impact social program titled “Patrimonio Hoy”. Cemex founded this program in 1998 in
response to the Mexican economic crisis of 1994-1995 (Ajit, Mohan, and Singh, 2003). During
the crisis the company’s sales in the formal construction segment fell by 50%, whereas the
informal segment dropped by only 10-20% (Esper & London, 2013; Ajit, Mohan, and Singh,
2003). Cemex realized that “the high level of dependency on the formal segment left it very
vulnerable to the business cycle swings in Mexico” and sought new ways new to generate
revenue (Ajit, Mohan, and Singh, 2003; Esper & London, 2013). As a means of hedging against
business cycle fluctuations and diversifying its customer base, Cemex looked to the heretofore-
untapped informal sector, which consisted of a $500 million market that was projected to
continue growing, to launch Patrimonio Hoy (“Treasure at the,” 2011).
Several barriers that Cemex identified in low-income individuals within the self-
construction sector include insufficient access to materials; limited personal savings; inadequate
storage for tools and materials; minimal access to financing; and poor planning skills (Esper &
London, 2013). Additionally, low-income individuals “who build their own homes often waste
up to 30% of their materials due to poor construction practices, theft, and spoilage from exposure
to wind and rain (Esper & London, 2013). A further barrier that applies to the company is the
seeming risk associated with conducting business with the low-income population with no
regular stream of paychecks (Ajit, Mohan, and Singh, 2003). In order to overcome these
challenges, Cemex leveraged its distribution networks, provides financing, technical advice,
architect visits, storage space for raw materials, and logistical support to assist participants in

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building their own homes (“High Impact Social Programs”; Ajit, Mohan, and Singh, 2003).
Patrimonio Hoy has 100 operations in Mexico, Colombia, Costa Rica, Nicaragua, and the
Dominican Republic that provides low-income individuals with access to building materials, and
has served over 380,000 families and improved the living conditions of more than 2.3 million
people (“High Impact Social Programs”; Cemex 2013 Annual Report). The program generated
$10 million in profit from 2008 to 2011 (Esper & London, 2013). Patrimonio Hoy combines the
company’s pursuit of profit with social responsiveness, with products being offered at average
market prices (Ajit, Mohan, and Singh, 2003). The fairly young Patrimonio Hoy is facing several
strategic dilemmas about moving into the future, such as replicating the model in other
developing countries, and integrating social and environmental features (“High Impact Social
Programs”).
Situational Analysis
Strategy Description and Competitive Advantage
Without inside information into Cemex, a broad formulation of the business strategy
would include focusing on the core business of cement; increasing value proposition through
flexibility; fostering sustainable development; and strengthening capital structure to regain
financial flexibility (Cemex 2013 Annual Report). In more detail, this specifically entails the
following:
• Over the past several years, the company has divested over $700 million of non-
operating assets, and will continue focusing on their products as a vertically
integrated business (Cemex 2013 Annual Report).

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• Cemex improves value proposition by shifting from selling ‘products’ to selling
‘complete solutions’, which offers flexibility and convenience to the customer
(Ajit, Mohan, and Singh, 2003).
• Cemex looks to lead sustainable construction through the development of
products, services, and building solutions for a low-carbon economy (Cemex
2013 Annual Report).
• The financial struggles of the company have been examined and present a major
challenge to Cemex’s operation to date. The company’s overall strategy will
allow for expansion and growth after achieving financial flexibility.
By maintaining a unique strategy Cemex has established a very strong brand and transformed
undifferentiated commodities into value-added, premium-priced products (Ajit, Mohan, and
Singh, 2003; Esper & London, 2003).
External Analysis
Bargaining power of buyers
Cemex works with several different categories of customers that have very diverse
characteristics: the formal sector and the informal sector. In the formal sector, Cemex’s buyers
are large construction companies and government agencies working on infrastructure projects
and housing development in industrialized housing; disaster relief housing; energy efficient
housing; and vertical housing (Cemex 2013 Annual Report). Infrastructure projects include
tunnels, national railways, and a large ongoing project for the company is the supply of materials
for the Panama Canal expansion (Cemex 2013 Annual Report). Additionally, Cemex’s inclusive
program Patrimonio Hoy, works in the informal sector with individual low-income buyers. This
buyer segment is drastically different from the formal sector, and requires financing, technical

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assistance, and brings in lower revenue per customer than the formal sector. On the other hand,
the formal sector is characterized by high revenue per customer, and significant buyer power.
See Appendix B for more details and graphics of the characteristics of these two buyer groups.
The negotiating leverage of the formal sector customers emanates from two key areas.
The first area of note is that there are few buyers in the industry, and they make large purchases
(See appendix B). Additionally, cement and other building materials are capital intensive and
have very high fixed costs (Low & Bee, 1994). These two attributes together lead to an
environment that gives buyers negotiating leverage. The second component to factor is the end
product is standardized and theoretically undifferentiated. Since a buyer could find an equivalent
product elsewhere, they tend to pit vendors against one another, leading to discounting and buyer
negotiating power (Porter, 2008). The informal market does not have the same characteristics
and therefore have less buyer power than their formal counterparts.
Bargaining power of suppliers
Cemex has the ability to dominate suppliers, due to its heavy vertical integration. The
cement supply chain can be seen in Appendix C but roughly consists of aggregate quarries,
ready-mix plants, cement plants, and distribution channels. As mentioned in the operations
section of this report, Cemex not only owns and operates aggregate quarries, ready-mix plants,
and cement plants, additionally they operate land and marine channels of distribution (See
appendix A). Although the vertical integration of the company does not eliminate Cemex’s need
for suppliers, it does decrease the strength of these supplemental suppliers. The annual report
gives information about the company’s relationship with suppliers, particularly in distribution:
Freight rates, which have been extremely volatile in recent years, account for a
large share of our total import supply cost. However, we have obtained significant

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savings by timely contracting maritime transportation and by using our own and
chartered fleets—which transported approximately 13% of our cement and clinker
import volume in 2013.” (Cemex 2013 Annual Report)
Overall, suppliers do not have significant power, and is not one of the key five forces that shape
the competition in this industry.
Competitors
Cemex’s major competitors are Lafarge and Holcim, the number one and number two
producers of cement worldwide respectively.
Lafarge
Lafarge S.A. is widely considered the global leader in the building materials industry, and
was founded in France in 1833 (“Lafarge at a glance”). This rival sells cement, concrete, and
aggregates in various regions across the world. Their highest grossing region is the Middle East
and Africa accounting for 26.9% of total revenue in 2013, followed by Western Europe at 21.4%
(Annual Report Lafarge 2013). See appendix D for more detailed information into the numerical
breakdown of revenue by region and product category. Total revenues for the company in 2013
were approximately 15 billion euros, and net income was 782 million euros (Annual Report
Lafarge 2013). The company has stated that its major goals are to decrease net debt, decrease
costs, and continue growing in North America and emerging markets, specifically Sub-Saharan
Africa (Annual Report Lafarge 2013).
Holcim
Holcim Ltd. is also one of the world’s leaders in the building materials industry,
providing cement, aggregates, ready-mix concrete, and asphalt (“Holcim: About Us”). Founded

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in 1912, this Swiss company operates in five distinct regions across the world: Asia Pacific,
Latin America, Europe, North American, and Africa/Middle East (Annual Report 2013 Holcim).
Of these regions, Asia Pacific earns the highest revenue, bringing in 35.9% of all sales, followed
by Europe at 27.6%. See appendix E for more information into Holcim’s revenues. The volume
of cement, aggregates, and ready-mix concrete sold decreased from 2012 to 2013, however the
company still reported an increase in net income and operating earnings before interest, taxes,
depreciation, and amortization margin (Annual Report 2013 Holcim).
The Future of Lafarge and Holcim
In early April 2014, Holcim and Lafarge publicly announced that they were in advanced
merger talks (Landauro & Revill, 2014). These two companies would create “LafargeHolcim” a
company with a market value of approximately $60 billion (Harrass, 2014). The merger is
hoping to take advantage of their complementary portfolio; more than half the combined
company’s revenue would be generated from outside of the Europe and North America, in
emerging economies (Landauro & Revill, 2014). Both of the two involved companies made ill-
timed investments, stacking up sizable debt shortly before the US housing crash and the
European debt crisis, and have made big wagers that did not pan out (Landauro & Revill, 2014).
Additionally, the companies have battled overcapacity and sluggish growth in Europe, and
slower building activity in some developing countries (Landauro, Cimilluca & Fairless, 2014).

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Source: Landauro & Revill, 2014
In order to combat anti-trust government probing, Lafarge and Holcim may have to sell up to
$5.5 billion of assets (Landauro, Cimilluca & Fairless, 2014). This merger could have a
significant impact on the industry overall, creating a ‘clear leader’ in the industry, squashing
other contenders. However this also could create an opportunity for other players in the industry
to expand or grow into new markets by buying the merged companies divested assets. At any
rate, other companies in the industry are going to need to react, adjust, and plan accordingly.
Analysis of the Competition
Overall, after identifying and reviewing Cemex’s major competitors, it is clear that there
is an intense rivalry within the industry. According to Michael Porter’s five forces of strategy
framework, intensity stems from situations where “competitors are numerous or are roughly
equal in size and power” (Porter, 2008). In the situation of Cemex, there are several large global
players, so rivals are capable of poaching business from one another. Additionally, the intense
rivalry of the companies comes from slow industry growth. Michael Porter’s framework suggests
that slow growth precipitates an intense fight for market share (Porter, 2008). See appendix F for
details about the current and historical yearly growth rate of the industry. Although a direct price

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comparison is not feasible given the publicly available information, it can be surmised that the
three companies mentioned in this paper compete on price. A key indicator that price
competition is likely to occur is when “products or services of rivals are nearly identical” which
is the case for the building materials industry (Porter, 2008). Another indicator of price
competition is when
Fixed costs are high and marginal costs are low. This creates intense pressure for
competitors to cut prices below their average costs, even close to their marginal
costs, to steal incremental customers while still making some contribution to
covering fixed costs (Porter, 2008).
As mentioned previously in the buyer power section and discussion of the characteristics of the
industry, cement, concrete, and aggregates are very capital intensive and have high fixed costs.
After the analysis of competitors and the attributes of the product offering, it is clear to see that
intense rivalry and price competition exists among the leaders in the industry, notably Lafarge,
Holcim, and Cemex.
Threat of substitute products or services
Cement, aggregates, and concrete are critical for modern development and urbanization
across the globe. The main use of the above products is in infrastructure development,
housing/building construction, and commercial, institutional, and industrial construction. The
closest substitute to concrete and its ingredients (aggregates and cement) is asphalt. However,
this product can only be substituted in transportation, recreation, industrial, and flooring projects
(“What is Asphalt”).

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Threat of new entrants
There are several major barriers to entrance into the building materials industry. These
include high “initial investments, ranging from $50 million for aggregates and $175 million for
cement, long payback periods, and little product differentiation (Lessard & Reavis, 2009). See
Appendix G for more information about the characteristics of the industry relating to industry
entrance. Additionally, cement’s low weight to value ratio has kept the industry fairly localized
since few economies of scale are gained by centralizing production (Hoovers, 2014). Due to the
high entrance barriers, new entrants could include capital rich firms or construction companies
looking to becoming vertically integrated.
Internal Analysis
Moving from the external market conditions and competitive forces to internal
capabilities and resources, the strategy of Cemex can be further explored and evaluated.
Target customer segment
• Cemex’s target customer segment consists of the formal sector and the informal
sector. The formal sector is composed of large construction companies,
government agencies, institutions, etc. Unique to Cemex, the company also
targets low-income individuals through its program Patrimonio Hoy. The target
family earns between $5 to $15 US dollars per day (Ajit, Mohan, and Singh,
2003).
Logistics
• As mentioned previously in this study, Cemex is a vertically integrated company,
and encompasses quarrying/sourcing of materials, manufacture into the product,

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and the eventual distribution via land or sea. In the Patrimonio Hoy business
model, group savings centers are created, and Cemex directly provides ancillary
services and sends materials through affiliated distributors (Ajit, Mohan, and
Singh, 2003).
Operations
• Operations are located in six different regions across the world with a cement
production capacity of 93.7 million metric tons putting it as the third largest
producer of cement in the world (excluding Chinese companies). See Appendix A
for more information on global operations.
Marketing & Sales
• Cemex was one of the first companies within the industry to implement state of
the art logistics and technology platforms, giving it the informal title of ‘digital
leader’ (Lessard & Reavis, 2009). The company leverages their technical know-
how and in-depth market knowledge to provide world-class products and services
to their clients (Kotler, Pfoertsch & Michi, 2006). This fits the emphasis their
marketing strategy places on branding. Differing from others competitors in the
industry, Cemex’s cement is sold as a branded product and consumers associate it
with “strength, durability, and tradition” (Kotler, Pfoertsch & Michi, 2006). Many
consider this strength one of Cemex’s sustainable competitive advantages; in this
way they are overcoming the perceptions that cement, aggregates, and concrete
are standard or undifferentiated (Kotler, Pfoertsch & Michi, 2006).
• Shortly after Patrimonio Hoy was founded, the company figured out that
traditional marketing communication methods would not be effective. The

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company decided that the best way to reach out to the poor was through personal
interaction (Ajit, Mohan, and Singh, 2003). Patrimonio Hoy selects ‘promoters’
who work part-time to attract new program participants (Esper & London, 2013).
Customer Service
• Cemex places importance on quality customer service, and operates a ‘Customer
Care Center’ where representatives are available 24 hours a day, 7 days a week,
365 days a year (“Services”). Their stated service message is to “offer captivating
experiences and to drive long-term loyalty” (“Services”). In an industry that faces
intense rivalry and high buyer power, building loyalty is key to gaining an edge.
IT and HR/Infrastructure
• Historically, the company performed the IT, Human Resources and internal
infrastructure functions, however Cemex recently finalized an agreement with
IBM to outsource the activities of finance and accounting, human resource back-
office services, as well as IT infrastructure, application development and
maintenance services (“Cemex signs strategic,” 2012). This deal will save Cemex
approximately $100 billion over the course of 10 years.
Expansion
• Cement and other building materials have a low value to weight ratio, and as such
the location of plants is usually within several hundred miles of the end consumer.
In order to expand both domestically and internationally, Cemex has acquired
existing plants and quarries.

23
Business Models
Examining the strategy of Cemex from a different point of view, this discussion will
continue by applying the disruptive vs. sustaining model and the blue ocean strategy.
Disruptive/Sustaining Model
This strategic model represents a search for over-served or non-customer groups, flies
under the radar of the normal customer segment, and over time could become mainstream
enough to serve core customers. In the case of Cemex, the sustaining technology is selling
building materials in bulk to the formal sector. This conforms to the needs and expectations of
the current major market segment, and utilizes mainstream distribution methods; current
suppliers; and current operations/plants. The disruptive innovation for Cemex is serving the low-
income market. The revenues from this market currently do not compete with the existing buyer
segment, and is a smaller and slower scaled down version of the sustaining products. For
example, Patrimonio Hoy disperses smaller bags of cement to individuals intermittently over the
course of 70 weeks, and it is the most basic product, foregoing the research and product
development that occurs for the mainstream market (Ajit, Mohan, and Singh, 2003).
Additionally, Patrimonio Hoy targets different customers, uses different marketing methods and
distributors, and has separate ‘cells’ or operating centers than the rest of the company (Esper &
London, 2013).
Blue Ocean
Comparing Cemex to one of its major competitors, Lafarge, the following industry
competitive factors have been identified: formal sector customers; geographic diversification;
revenue per customer; price; technical assistance/ancillary services; brand loyalty; and low
income sector customers. See the Blue Ocean Canvas for the building materials industry that was

24
developed during research of the companies involved in Appendix H for a visual representation.
The major attributes of Cemex’s strategy is the increase in technical assistance offered to
customers, the increase in brand loyalty developed through technical assistance and customer
trust in Patrimonio Hoy, and the creation of a viable business model to serve the self-
construction/low-income customer segment. Cemex has created a blue ocean market through
their innovative and unique program that combines the objectives of profit, market expansion,
and community development successfully.
International Strategy
Cemex during its founding was simply a small company operating in Mexico. Today it
operates in over 50 countries, moving beyond exporting to become an international player in
1992. The following attributes are important in proceeding with an analysis of Cemex’s
international strategy development: aggregation, arbitrage, adaptation/responsiveness, and the
spread of learning across divisions and borders.
Aggregation
The attribute of aggregation takes advantage of standardizing products across national
operations. This attribute has been critical to the success of Cemex’s internationalization process.
In addition to taking advantage of a standardized product sold and produced worldwide, Cemex
developed an integration process known internally as the “Cemex way”. A constant thread over
the course of this analysis is that acquisition has been the key means of expansion in this
industry, due to a need to be located close to the end consumer. Bearing that in mind, Cemex has
made many acquisitions over the course of its history, and has been praised for the Cemex way,
which is the post merger process that introduces best practices and brings new plants in line with
the standardization of the rest of Cemex’s assets (Lessard & Reavis, 2009). Cemex has

25
successfully utilized the attribute of aggregation in their standardization of products and
operating procedures worldwide.
Arbitrage
Arbitrage advantages, or location advantages from sourcing in countries with cost
advantages, has not been a viable method of expansion for Cemex. The low weight to value ratio
of Cemex’s products has not enabled the company to take advantage of the arbitrage effects
usually possible in international corporations.
Adaptation/Responsiveness
For the most part, cement, concrete, and aggregates are a ‘standardized’ product, and in
that sense the pressures for globalization are fairly high. However, there are still local
preferences and tastes that Cemex needs to incorporate into their product offering if they are to
be successful. For example, “consumers in Egypt preferred darker cement believing it was of
higher quality whereas Mexicans preferred light colored cement” (Lessard & Reavis, 2009).
Cement companies, including Cemex, have had to be prepared to meet local preferences, even
though they compete in a fairly globalized and standardized category.
Spreading Learning
Cemex has been effective in transferring best practices and maintaining standardization
of procedures and operations as can be seen in the aggregation section of this report. In addition
to spreading learning through the Cemex Way, the 2013 Annual report states, “each of our
business units continually works to perfect and present new, innovative building materials for
their specific markets (Cemex 2013 Annual Report). The successful results of these trials are
then incorporated throughout the organization and enable customers to achieve better quality

26
results and to generate savings (Cemex 2013 Annual Report). In an organization the size of
Cemex, spreading learning from headquarters to subsidiaries and vice versa could become very
complex or non-existent. Cemex has developed a manner to allow regions to not only receive
best practices, but also take a part in developing them.
Strategic Options
Having concluded a thorough analysis of the environment in which Cemex operates and
its internal capacity, there are three general paths that the company can take moving forward: (1)
global expansion, (2) regional expansion of Patrimonio Hoy, and (3) divestiture of assets in weak
regions.
Company Expansion
Cemex is very international and fairly geographically diversified, however, during the
crisis their core markets of Mexico, the United States, and Northern Europe were hit hard, and as
such the company took a financial blow that it is still struggling to recover from. This option
suggests that the company should expand into some of the regions in which it is currently
underrepresented. Some regions that Cemex should consider are the Middle East and North
Africa, Sub-Saharan Africa, South Asia, and India, which all have yearly projected growth rates
of between 2-7.1% (See Appendix F). Currently less than 30% of the company’s yearly sales
come from the aforementioned regions. Additionally, all of these emerging economies are very
dynamic and present an opportunity for industry players prepared to act. One major
consideration before choosing this strategic option is the portfolio and operations of key
competitors Lafarge and Holcim who have operations in the regions of note. However, if their

27
merger is approved they may be looking to divest assets in these regions. More research would
need to be conducted by insiders in Cemex before this option is chosen.
Expansion of Patrimonio Hoy
Another strategic option for Cemex is to increase the scale and reach of their inclusive
business Patrimonio Hoy. This program assists in efforts to hedge sensitivity to the business
cycle, and the low-income customers segment is untapped. Patrimonio Hoy addresses the
housing needs of many poor families while earning Cemex loyalty, profits and an expanding
clientele base. As mentioned in the company overview section of this report, Patrimonio Hoy
currently operates in Mexico, Colombia, Costa Rica, Nicaragua, and the Dominican Republic.
This program has the ability to be scaled and adapted to other emerging markets. Intensive
research would need to be conducted into market information; however, one necessity of the
program in order to be successful is an extensive distribution network, therefore any
country/region that is selected must have significant company networks.
Divestiture of Assets
The third and last strategic option of Cemex is to divest weak or unnecessary operating
assets. With the financial toll that the company has taken in Europe and North America,
divesting some assets in these regions could help prevent similar events from occurring again in
the near future. Divesting assets could also help reduce overall net debt, which is one of the
priorities of the company at this time.
Limitations
Due to the fact that the strategic options presented in this study are brief and broadly
sketched out, it is important to note the limitations of the above three options. Cemex has a fairly

28
precarious financial position, and currently cannot spend much money on expansion and
acquisitions due to restrictive debt refinancing covenants. However, planning and market
research is a time consuming process; by the time that the company would be prepared for an
international acquisition or expansion of Patrimonio Hoy, Cemex could have regained financial
flexibility, in which case the first two strategic options would be viable. The third option, a
divestiture of assets, could increase cash flow, decrease net debt, and hedge against future
economic recessions, however there is the possibility that the divested assets could be valuable
after economic recovery.

29
Appendices:
A: Numerical Information about Global Operations
Source: Cemex 2013 Annual Report

30
B: Characteristics of Customer Segments
Source: Ajit, Mohan, and Singh, 2003

31
C: Cement Supply Chain
Source:http://www1.eere.energy.gov/manufacturing/tech_assistance/images/2010_winter_supply
Chain.jpg

32
D: Lafarge Revenue Information
Source: Annual Report Lafarge 2013

33
E: Holcim Revenue Information
Source: Annual Report 2013 Holcim

34
F: Cement Consumption Growth by Region YoY%
Source: Source: http://www.cemnet.com/Articles/story/153619/global-cement-2014-
outlook.html

35
G: Characteristics of Heavy Building Materials Industry
Source: Lessard & Reavis, 2009

36
H: Blue Ocean Canvas

37
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