Question

Discussion 6

Case Study

CEMEX: A Model Multinational from an Unusual Place

Our discussion in the text stresses that multinationals succeed by using their firm-specific advantages throughout their global operations. We have also noted that most foreign direct investments are made by firms based in the industrialized countries. This is the story of CEMEX, a firm that rapidly has become multinational since 1990. The reasons for its multinational success fit very well with the advantages stressed in the eclectic approach. What makes the firm unusual is that it is based in Mexico. CEMEX is an example of a growing group of multinationals based in developing countries.

CEMEX began business in 1906. For most of its life this cement company focused on selling in the Mexican market. Cement is a product that is expensive to ship, especially overland, so cement plants ship mostly to customers within 300 miles of a plant. Shipment by water is moderately (but not prohibitively) expensive. Most cement producers in the 1980s were local producers with traditional business practices. New managers at CEMEX broke with tradition by introducing extensive use of automation, information technology, and a satellite-based communication network into CEMEX operations. They used the technology to improve quality control and to provide detailed information on production, sales, and distribution to top managers in real time. Delivery of ready-mix concrete is particularly challenging in cities. Traditionally, cement firms could ensure delivery only within a time period of about three hours. CEMEX pioneered the use of computers and a global positioning system to guarantee delivery to construction sites within a 20-minute window. These innovations became the company's firm-specific advantages.

Also in the 1980s CEMEX began to export more aggressively to the United States using sea transport, and it was increasingly successful. However, competing U.S. cement producers complained to the U.S. government, and in 1990 CEMEX exports to the United States were hit by a 58 percent antidumping duty. With exporting to the United States limited by the antidumping order, CEMEX looked for other foreign opportunities.

In 1991, it began exporting to Spain, and in 1992 it made its first foreign direct investment by acquiring two Spanish cement producers. CEMEX minimized its inherent disadvantages by investing first in a foreign country with the same language as the firm's home country and a similar culture. In addition, CEMEX used its expansion into Europe as a competitive response to the previous move by the Swiss-based firm Holcim into the Mexican cement industry.

The management team sent by CEMEX to reorganize the acquired companies was amazed to find companies that kept handwritten records and used almost no personal computers. They upgraded the Spanish affiliates to CEMEX technology and management practices. The improvement in affiliate operations from this internal transfer of CEMEX's intangible assets was remarkable—profit margins improved from 7 percent to 24 percent in two years.

Since then, CEMEX has made a series of foreign direct investments by acquiring cement producers in Latin America (including Venezuela, Panama, the Dominican Republic, Colombia, and Costa Rica), the United States, Britain, the Philippines, Indonesia, and Egypt. CEMEX used the same type of process that it used in Spain to bring its technology and management practices into its new foreign affiliates, and generally achieved similarly impressive improvements in performance.

By 2000, CEMEX was the third largest cement producer in the world, behind Lafarge of France and Holcim. More than 60 percent of its physical assets were in its foreign affiliates. It was also the largest exporter of cement in the world (a fact consistent with the proposition discussed in the text that FDI and trade are often complementary). CEMEX is considered one of the best networked companies globally by computer industry experts, well ahead of its rivals. Its investments in developing and enhancing its firm-specific advantages have been paying off globally.

CEMEX is a great example of a domestic firm becoming a multi-national giant by a clever interplay of technology, foreign direct investment and innovation. Please spell out the experience of another company in a different industry that had similar success. For all of his success, what can Cemex learn from your company?

Answer 1

Sun Pharmaceutical Industries Limited is a pharmaceutical company from India that has emerged as a global giant in the world pharmaceutical market. It was started in 1983 by Dilip Sanghvi in Gujarat, India. In 1994, it set up its first bulk drug manufacturing plant and in the same year enhanced the capacity of the plant to produce bulk drugs.

In 1996, Sun Pharma purchased a bulk drug plant from Knoll Pharmaceuticals (entered into an MoU). This vastly expanded the manufacturing capacity of the company and by this time competitors started recognising it as a major player in the future. In 1998-99, this comany also branched out its operations to be oriented towards exports. Through 1998 to 2015, the company acquired many companies- a few of the prominent ones being Phlox Pharma (2004), DUSA Pharmaceuticals and URL Pharma (2012), Ranbaxy Laboratories (2014) and in 2015 it owned the opiates business of GlaxoSmithKline in Australia.

Sun Pharmaceuticals counts among the top 10 pharmaceutical companies in the world today. Coming from a developing nation like India, it has seen tremendous growth in a short period of time. It is the world leader in prescription drugs relating to psychiatry, orthopedics, cardiology and nephrology. Perhaps the most striking characteristic of this company's growth (that the other companies can learn) is not just producing in bulk to lower their costs, but at the same time diversifying through mergers and acquisitions. The comany also aimed to maintain domestic as well as international superiority- a point new companies often tend to miss while focusing either on domestic or international operations in singularity.

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