Research Paper on CEMEX: A Success Story of Globalization and Profit Margins

Introduction

CEMEX is a cement corporation that originated from Mexico and has grown to become a significant cement provider internationally while maintaining its profit margins than its competitors have done. The globalization that CEMEX enjoys is a substantial contribution to its success and the superior performance it has globally. The endless benefits that CEMEX enjoy from different operations in several countries broaden the understanding of why many firms globalize their activities. Globalization has played a significant role in boosting the growth of profits in the cement industries. This has been made possible by international trade and investment flows of cross borders. The ability that CEMEX has to operate in several markets globally helps in the diversification of businesses and strategy management for the cement company because of different economies where the company faces a downturn in some days and an upswing in other days. Several factors led to the success of the CEMEX Cement Company. The major one was the large population that was in Mexico and the low-level consumption that existed by the time of its establishment. It has chosen its markets overtime, where it has often used the identification of opportunities to reach as many markets as it possibly can. The main contributions to the market growth are such as the country where the company extends to have to have massive population growth and lower consumption levels. The company has had the vision to lead the market in various countries and target large markets at large. The cement company has also met with different competitors and established their market growth and what they can do to beat the competition.

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Market Trends and Analysis of CEMEX's Resources and Capabilities

CEMEX has expanded over the years due to the company moving to more expandable markets away from Mexico. This globalization has had the advantage of reducing different costs as well as increasing the efficiency of the company to larger extents (Cemex, 2017). CEMEX and other cement production companies have experienced globalization benefits such as risk mitigations. Through the company expanding its branches to other countries, the negative impacts that it encounters in one country are reduced in tremendous amounts. Globalization strategy aided CEMEX in countering different duties in the United States, such as the duties of anti-dumping and the peso crisis in Mexico because of the efforts of the management to expand its activities internationally to many different countries.

Globalization has also enabled the CEMEX Company to access cheap local resources from developing countries they have expanded. Developing countries are fresh with unutilized resources, which makes the acquisition of raw materials, and human labor cheap and easy to transport and prepare for use (Robinson, 2014). Apart from creating affordable resources in terms of raw materials and human resources, globalization has created many opportunities for the accumulation of capital. An excellent example of such a benefit is in Sevilla, where the company used the resources to its maximum. Sevilla could sell the relevant capital to the company from the resources it quickly acquired. One major factor that has made globalization of CEMEX easy is that there is no local adaptation involved in cement production. CEMEX and other competitors in the market rely on management and manufacturing, which could use this field to penetrate the market and reach a lot of potential customers.

Globalization has led to an increase in management and employee skills. Locating CEMEX in several countries has led to an exposure to different types of managers and employees who have skilled expertise in various departments of the. This has led to the company having different unique skills, which leads to better decisions made and increased sales due to expert skills in the production and marketing teams. Globalization also provides different routes for efficiency in various plants that are located in countries worldwide. The effectiveness of the company's operations creates routes for exporting all surpluses that the company may have in the central plants. CEMEX has been able to utilize sales markets for different capacities that are not fully used and raise its sales in higher proportions than its competitors.

Cross-border Activities

The deeds of the cross border can increase the value of a cement industry due to how localized the product is in different parts of the world. These activities are visible through new segments of customers who emerge from different countries in neighboring borders due to fluctuations in the economy and political differences (Schmitz, 2012). An excellent example of the contribution of cross border activities to a company like CEMEX is during the Peso crisis in Mexico in the year 1994. Peso crisis was a crisis of currencies that was brought about by the government of Mexico, suddenly decreasing the value of the peso against the US dollar. Many people settled in other places away from their usual residential areas, and this created new customers who needed cement to build informal structures for residence. The sales rose with the increasing customers who needed bags of cement for construction.

Cross border deeds also add worth to cement industries through economies of scale. CEMEX and different competitors have risen to become the largest producers of cement due to various local markets and expansions to other countries globally (Schmitz, 2012). Cross-border activities in a localized industry like that of cement, in this case, add value to the research of the company. It leads to development in the industry as the resources and raw materials create new markets that the company can leverage opportunities in investments. Cross border activities also create price rise and availability of information concerning situations of local markets in different countries.

Competitive Landscape Analysis

CEMEX Company has different global competitors like Lafarge and Holderbank, with the most significant competitor being Holderbank. This company operates in fifty different countries, which is a better achievement than CEMEX, which operates in only fifteen countries (Vargas-Hernandez, Lopez-Morales & Pavon Villegas, 2015). By aiming on rising nations that have recorded a potential for growth instead of on developed countries CEMEX has been able its universal opponents, which have little constructions ongoing hence have fewer markets. CEMEX induced the practices they used in producing cement in Mexico to other countries, which made those practices unique in the operations of Spain. These individual practices made CEMEX record annual profits ranging to 120 million dollars. Its margins of operation also improved from 7% to 24% in Spain, and they discovered an efficient energy program that advocated for the use of gasoline coke as a cradle of fuel (Vargas-Hernandez et al.,2015). Fuel coke is a cheaper source of fuel in Spain, and this helped reduce the costs that were incurred in Mexico on energy production. In the year 1989, CEMEX expanded its markets to the United States, where it started exporting cement to the broad market that existed there at the time. Holderbank has its significant stocks in the Argentina, South Africa, and philippines, while CEMEX has its chief dividends in Venezuela and Indonesia.

The Mexican company sells most of its cement in bags that cover small scale building while Holderbank sells most of its cement in large mixed quantities for large scale builders who do not need the cement in bags. CEMEX has developed the ability to incorporate technology, and excellent timing in its activities, which is a result of the chief executive of the company, Mr. Lorenzo (Vargas-Hernandez et al.,2015). He came up with a department of Information Technology, and before the 1980s, the company used automated plant operations, which extended to the sales and accounting departments. Computerized systems have played a significant role in improving productions and sales within the company, and this has given it an advantage over Holderbank. This automation has reduced the costs of staff, where a small group of people easily handles the operations of the company with reduced staff and expenses.

CEMEX's presence in the developing countries also has sold hundreds of thousands of cement in bags labeled Cemex, and this has been an excellent strategy to make the brand of the company known by more people. The company deals with a lot of small distributors instead of a few large distributors, and this has given the company great incentives to create computerized logistics and shift to online transactions (Robinson, 2014). The markets that CEMEX has entered recently are mainly in Egypt and Indonesia. CEMEX has recently changed its tactics in penetrating new markets recently, where it increases its shares of governmental expenditures of the GDP in those countries. This strategy has helped increase sales because the demand for cement varies in different countries with different GDPs and the construction plans that exist in specific countries. Cross border investment has grown in the recent past in the new markets as they adopt acquired franchises through estimation of profitability, costs, capacity utilization, and the growth rates expected.

Financial Analysis

CEMEX operates under a resilient business model where the financial and operating upturns have been coupled with different risk reduction in the balance sheets. This has resulted in a more stable EBITDA and Free Cash Flows that have been reported to be higher in the past five years than before (Espitia, 2019). The achievements of this country in those past five years have been a breakthrough in the company where it generated 5.2 billion dollars in Free Cash Flow since the beginning of the year 2013. The company has realized sales closing into 3.6 billion dollars in terms of assets with multiples of double digits being recorded. The working capital has reduced by 1.1 billion dollars, and the debt has declined to 7.1 billion dollars, which is a ratio of 5.39:3.84. CEMEX records the existing financial market as a factor for risk, but the stronger market labor and positive infrastructure spending have been favoring the market over the years. The company has an estimate of 230 million dollars for improving total initiatives by the year 2020.

CEMEX Financial Statements

CEMEX has a potential of close to 3 billion US dollars and has closed 500 million US dollars in terms of assets with total transaction values. The company has a consideration of reaching the set goal in expediting investment grade (Espitia, 2019). CEMEX has a working plan called "A Stronger Cemex," which has been set in place to continue recovering its investment grades. The value-creating strategy of controlling costs and initiating higher cash flows and reducing debts has been effective in realizing profits for the company over the years and reducing total costs incurred in different countries.

Foreign Market Entry Strategy Evaluation

There are various factors associated with the CEMEX entry sequence into the foreign market. Cementos Tolteca and Cementos Anahuac acquisitions in 1989 and 1987 respectively impacted the market of CEMEX through the leaders who are in Mexico and resulted in increased production that was estimated at 28millions tons (Lessard & Reavis, 2009). In reality, this was approximately 60% of the total country production, making CEMEX be among the best ten cement manufacturers in the universe. The CEMEX had achieved quite a lot in the Mexican market; hence, there was not much scope le...