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Fdi presentation ib_final fully


CEMEX Foreign direct investment

CEMEX Foreign direct investment

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  • 1. Foreign direct investment
    CEMEX's FDI Case
    Dawood ABBASI
    Singh SUKHDEV
    Gurwinder SRAN
  • 2. Contents
    What is FDI?
    History of Cemex
    Review of Cemex FDI
    Question Answer Session
  • 3. FDI - Concept
    Long term investment by a foreign direct investor
    FDI relationship: a parent enterprise and a foreign affiliate which together a Transnational Corporation (TNC)
    FDI relationship:Parent enterprise investment must afford the parent enterprise control over its foreign affiliate
    The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.
  • 4. AdvantagesDisadvantages
    Inflow of equipment and technology
    Competitive advantage and innovation
    Financial resources for expansion
    Employment generation
    Contributions to export growth
    Access to global marketplace for domestic players
    Access to low cost resources for investor
    Access to new market/ distribution channel for products
    Improved consumer welfare through reduced costs , wider choice and improved quality.
    Crowding of local industry
    Loss of control
    Repatriation of profits/dividends by investor
    Conflicts of codes/laws
    Possible exploitation resources-material/ wages
    Effect on local culture/sentiments – socio cultural effect
    Effect on natural environment
  • 5. History of CEMEX
    The world's largest building materials supplier and third largest cement producer (Home market = Mexico)
    In 2005 : $15 billion of sales / $2 billion in net profits
    More than 60% of the Mexican (domestic) market
    Cemex’s domestic success:
    • Obsession of efficient manufacturing = lower costs
    • 6. Focus on customer service = superior customer service
    • 7. Using information technology to match production with consumer demand
  • Cemex’s Foreign Direct Investment
    Several factors to explain Cemex’s international expansion:
    • Reduce its reliance on the Mexican construction market because of the very volatile demand in Mexico
    • 8. A lot of demand for cement in many developing countries
    • 9. Cemex believed that it understood the needs of construction businesses in developing countries
    • 10. Cemex’s Strategy: Create significant value by acquiring inefficient cement companies in other markets (by transferring their skills in customer; technology; production...)
  • Question Answer Session
    Question 1: Which theoretical explanation (or explanations) of FDI best explains Cemex’s FDI?
    • Cemex wanted to reduce its reliance from its domestic market : because of too volatile demand in Mexico
    • 11. Cemex realized there were tremendous demand for cement in many developing countries
    • 12. They believed they understood the need of construction businesses for developing countries and transferring their technologies and production management to those units.
    Question 2:
    What value does Cemex bring to a host economy?
    • Cemex valued a host economy by transferring its technological, management and marketing KNOW-HOW to acquired units, thereby improving their performance on economy.
    Can you see any potential drawbacks of inward investment by Cemex
    in an economy?
    • Principle drawback for Cemex: In 2004, they made major foreign investment move. They bought RMC (a Britain cement company) but before purchasing this company, Cemex had to analyze its capacities (production; sales…)
  • Question Answer Session
    Question 3: Cemex has a strong preference for acquisitions over
    Greenfield ventures as an entry mode?Why?
    • Because Cemex prefers transferring its skills to other cement companies
    • 13. They believe they can reduce mistakes with their own organizational management
    Question 4: Why do you think Cemex decided to exit Indonesia after
    failing to gain majority of Semen Gresik? Why is majority so
    important to Cemex?
    • Cemex wanted the majority because when the acquired a new company they transferred their own managing organization: by controlling the new company as a majority. But in the case of Indonesia exit: they purchased only 25% of Semen Gresik but were promised to be given the majority from Indonesian government. The country never fulfilled their promise due to politics and lobbies pressure.
  • Question Answer Session
    Question 5:
    Why do you think politicians in Indonesia tried to block Cemex’s
    attempt to gain majority control over Semen Gresik?
    • To avoid Indonesian asset falling in foreign hands: The government suffered from strong pressures (lobbies)
    • 14. Corruption
    Do you think Indonesia’s best interests were served by limiting
    Cemex’s FDI in the country?
    • YES: They can keep their company : protectionism
    • 15. NO: Bad advertising for Indonesia … No FDI = no investment = no taxe = death of companies = unemployment = troubles.
  • Thank you !