9-701-017

REV: NOVEMBER 29, 2004

PANKAJ GHEMAWAT

The Globalization of CEMEX

CEMEX executives sometimes characterized the company’s international operations as a “ring of grey gold,” comprising commitments to high-growth markets, mostly developing and mostly falling in a band that circled the globe north of the Equator. By the end of 1990s, the addition of countries such as Indonesia and Egypt tothe ring had prompted discussions about the scope and speed of CEMEX’s international expansion. So had the hostile bid, in early 2000, by Lafarge, the secondlargest cement competitor worldwide in cement for Blue Circle, the sixth largest. Hector Medina, CEMEX’s Executive Vice President of Planning and Finance, likened the takeover struggle to “ripples in an agitated environment” that could havesignificant implications for the other cement majors. This case begins with a brief overview of the cement industry and international competition within it. It then describes the globalization of CEMEX and how it was managed.

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Professor Pankaj Ghemawat and Research AssociateJamie L. Matthews prepared this case drawing, in part, on a course paper by Pau Cortes, Heriberto Diarte and Enrique A. Garcia. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2000 President and Fellows of Harvard College. To order copiesor request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission ofHarvard Business School.

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In 1990, Cementos Mexicanos was a Mexican cement company that faced trade sanctions in its major export market, the United States. By the end of 1999, CEMEX operated cement plants in 15 countries, owned production or distribution facilities in a total of 30, andtraded cement in more than 60. Non-Mexican operations accounted for nearly 60% of assets, slightly over 50% of revenues and 40% of EBITDA (earnings before interest, taxes, depreciation, and amortization) that year. CEMEX’s sales revenues had increased from less than $1 billion in 1989 to nearly $5 billion in 1999, and it had become the third largest cement company in the world in terms of capacity, aswell as the largest international trader. Growth had been achieved without compromising profitability: in the late 1990s, its ratio of EBITDA to sales ranged between 30% and 40%—ten to fifteen percentage points higher than its leading global competitors. In addition, the company was celebrated as one of the few multinationals from Latin America, and as a model user of information technology in anotherwise low-tech setting.

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Geographic diversification enables us to operate in multiple regions with different business cycles. For the long term, we are trying to ensure that no one market accounts for more than one third of our business. Yet we do not diversify simply to balance cyclic downturns and upswings. We do not see volatility as an occasional, random element added to thecost of doing business in an interconnected global marketplace. We plan for volatility. We prepare for it. We have learned how to profit from it. Lorenzo Zambrano, CEO of CEMEX.1

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The Globalization of CEMEX

The Cement Industry

Demand

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Cross-country comparisons indicated that the long-run demand for cement was directly related to GDP, with per...