CEMEX: An In-Depth Situational Analysis and Strategic Plan

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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