November 13, 2006

case 1-428-606

CEMEXs Patrimonio Hoy: At the Tipping Point?

Low income consumers must be treated as regular consumers. Although they may have less buying power than main-stream customers, low income customers still have necessities that must be met and they have income to spend. They must be treated with dignity Every corporation can do business in low income markets because every product and service is sold in there. -Israel Moreno, Director, Patrimonio Hoy Hector Ureta, Head of CEMEX Mexico Auto-Construction division, stood up to address the roomful of executives he had gathered from his team. They all waited patiently for him to kick-off the days agenda. Out of the corner of his eye he could see where his long-time colleague Israel Moreno, now Director of Patrimonio Hoy, was seated. He thought back to the day when Israel and he had sat in a similar room and updated Francisco Garza, then head of CEMEX Mexico, and his executive team on the feasibility of a new business initiative with the potential to generate substantial economic returns for the company and desirable societal outcomes for low income communities. There had been a lot of questions that day. Would his proposal be self-funding? How would CEMEX benet? In what ways would it entail creating an entirely new team and new business venture approach? That meeting had taken place over ve years before, and a lot had happened since then. Over the years, Patrimonio Hoy, as the initiative is called, had gone from a small, centrally-funded project for CEMEX to a US$25 million revenue generator for the company. Furthermore, Patrimonio Hoy had become the subject of a number of newspaper articles, case studies, and academic research efforts that explored the role of the private sector in poverty alleviation. Yet, while they had made substantial progress, both Israel and he knew that more could and should be done. This was the reason he had called the meeting: he wanted his team to critically evaluate Patrimonio Hoy based on its current objectives as well as propose the next phase of development for the project. Today, Ureta planned to push his team hard to address the biggest challenges facing Patrimonio Hoy. Before diving into his questions, however, he had asked Moreno to prepare some material on the historical content and background of the initiative to help set the stage for some of the newer members of the team. Moreno stepped forward and began his presentation.
Published by GlobaLens, a division of the William Davidson Institute at the University of Michigan. Professor Ted London of the University of Michigan and Research Assistant Magdalena M. Kotek developed this case. They thank Hector Ureta, Israel Moreno, Gloria Cardenas, Kimberly Manno, and Daniel Kracer of CEMEX, along with Research Assistants Amit Garg and Maulin Vakil. They also thank the Base of the Pyramid Learning Laboratory for its support in the development of this case. 2008, Ted London.

Unauthorized reproduction and distribution is an infringement of copyright. Please contact us for permissions: Permissions@GlobaLens.com or 734-615-9553.

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CEMEX: An Introduction
CEMEX was founded in 1906 as a regional Mexican cement producer. In 1996, with the acquisition of Colombias Cementos Diamante and Samper Companies, CEMEX became the worlds third largest cement producer; and, in 2005, the worlds largest ready-mix concrete producer after acquiring RMC Group Plc of UK. The second largest and most-global Mexican company, CEMEX is recognized for its ability to use technology, customer service, and branding to transform an undifferentiated commodity into a value-added, premiumpriced product. CEMEX sells products and services under three broad categories: Cement: Portland gray and white, mortar, pozzolana cement, oil-well cement Ready-Mix Concrete: Cement which has been pre-mixed with sand, gravel and water and is ready to pour Related products: Crushed stone, sand, and gravel as well as related products such as paint, lumber, and electrical supplies. Today, CEMEX has substantial operations in 50 countries including the United States, Spain, Venezuela, Colombia, Egypt, the Philippines, Indonesia, Thailand, and throughout Central America and the Caribbean.1 Across the globe, the company has a production capacity of 81.5 million tons/year, owns 54 cement plants and 466 ready-mix plants, and has over 25,000 employees. In 2005, the company recorded US$15.1 billion in global revenue with a 16% operating margin. See Exhibit 1 for CEMEXs global nancial performance. CEMEX-Mexico is headquartered in Monterrey with ofces across the country (see Exhibit 2 for a map of Mexico). Its local brands include Cemento Monterrey, Cemento Tolteca and Cemento Anahuac. The company has 15 cement plants strategically located mostly on the Atlantic and Pacic coasts for ease of transportation. In addition, CEMEX owns 238 Ready Mix Concrete (RMC) facilities, 68 land distribution centers and 8 marine terminals. The Mexico cement market consists primarily of retail sales to individual end-users. As much as 75% of the cement demand from the Mexican private sector is handled by distributors (via sales in sacks). CEMEX has a strong distribution presence through its standardized and branded retail outlets, Construrama. In 2005, the company had 2100 stores in 610 cities and towns. Besides these company-owned operations, CEMEX retails through over 20,000 independent, non-exclusive retail outlets across Mexico.

The Cement Marketplace in Mexico

The Mexican cement market is divided into four categories: self-construction (do-it-yourself building), government (public works projects, road construction and buildings), traditional construction (private buildings), and casting/transforming (benches, oors, etc.). There are four main players: CEMEX, Holcim, Cruz Azul, and Moctezuma. CEMEX is the overall market leader with a 55% total market share and also the leader in each segment (Exhibit 3). Traditionally, these competitors had tended to focus on establishing dominance in specic geographic regions of Mexico. Recently, however, the companies have broken these monopolies and expanded into each others territories as they vied for national leadership.

The Self-Construction Market

Private individuals build approximately fty percent of Mexican homes. They tend to prefer cement over other construction materials because it is inexpensive and easy to use. Self-construction has historically accounted for approximately 40% of CEMEX-Mexicos sales, making it the companys largest customer
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segment. While this market contains some middle-class consumers, most of the current purchasing is done by low-income customers (see Exhibit 4 for a breakdown of the six social segments, based on annual income and home prices). Furthermore, the Inter-American Development Bank estimates that Mexico faces a twenty percent shortage of housing stock; 750,000 new homes need to be built every year to meet population growth. Half of these will be built in the low-income, informal sector.2 Many low-income customers live in peri-urban areas (colonias populares). They are considered the urban poor of Mexico and comprise roughly ten million people or approximately two million families. They account for 17.5-25% of Mexicos urban population. The average monthly salary is US$320- 340, about 900 pesos/week.3 While many of these individuals have regular jobs as housekeepers or factory workers, low wages, lack of credit history, and high interest rates prevent them from entering the formal mortgage and housing market.4 As a result, these consumers live in unplanned neighborhoods, operate primarily in the informal economy and build homes at their own pace, often without having title to the house or the land. Colonias are under the authority of the local government. Generally they have running water and electricity but lack basic infrastructure such as paved roads. Families of four to ve people often live in one or tworoom homes. CEMEX forecasts annual revenues for this segment to reach US$500-600 million, potentially representing 40% of the overall Mexican cement market.5

The Evolution of Patrimonio Hoy

Garza and his executive team hired Business Development Associates (BDA), an international management consulting rm, to research this market.7 A multi-disciplinary- internal team was created to supplement the consultants. Each of Garzas ten executives recommended a staff member for the group. The team included representatives from planning, logistics, marketing, commercial sales, and concrete. Hector Ureta and Israel Moreno were part of this original team, with Ureta leading the team as Director, Low-Income Programs. Ureta was an engineer by training, and had obtained his Masters in Industrial Engineering from the University of Michigan in 1977. The group was created under and funded directly by the Corporate Executive Committee. Being incubated in this way, the team did not have to meet traditional short-term economic return metrics. The team was tasked with creating an initiative that was distinct from the companys philanthropic efforts one that could do good but also make money for the company. Garza required that it be a self-nancing project that could also position CEMEX for future growth in this potentially lucrative market segment. The team initially turned to distributors as a key source for hearing the voice of the customer. The feedback from the distributors was that competition in the market place was solely based on price and that there was no other way to increase market share. The team discovered, however, that typically these
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Exploring a New Opportunity: Rationale & Research During the 1994-95 Mexican economic crisis, domestic sales dropped signicantly. This was especially damaging for CEMEX, since at the time CEMEX-Mexico accounted for 60% of the companys total revenues. Francisco Garza, then head of CEMEX-Mexico and now head of North America & International Trading, had asked his executive team to evaluate each customer segment, identify segment growth drivers, and create clear differentiation for CEMEX and its brands without cannibalizing sales. The team quickly learned that during the crisis, sales to the formal construction segment fell by up to 50% as steep interest rate increases dried up construction investment. Sales to the informal, low-income, self-construction market, however, only fell by 10-20%, since these customers were not dependent on formal consumer credit and could still continue building.6 Garza personally led the drive to better understand and serve this unstudied segment.

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distributors did not well represent the end-users voice, as they wanted to maintain control over the segment. As a result, the team decided to do their own in-eld research.8 A Declaration of Ignorance Hector Ureta realized that conventional business methods would be insufcient for CEMEX to forge a stronger relationship with this low-income segment. He urged his team to challenge their beliefs and did something that had never been done at CEMEX: he made a declaration of ignorance. This was their way of saying that they did not know and could not assume that they understood life in the colonias. Even though their product reached this segment, their only current connection with low-income customers was maintained (and controlled) by the local distributors. The goal of the team was to really understand these markets. The team investigated how consumers day-to-day lives, practices and values differed from the mainstream, middle-class market and how these differences affected purchasing habits. Ureta, Moreno, the rest of the team and the consultants started visiting colonias daily to understand how these communities operated. The group had to build trust with community members. BDA trained the team to listen carefully (buen oyente) and to be humble. During their visits to colonias, the team talked to and observed many families. The team tried to learn about every relevant item and topic affecting peoples lives, including saving and nancing practices, building methods, local supply chains for goods and services, religious and local political leadership, as well as community activities and relationships. After three months of eld research, the team concluded that home building in low-income communities was an important but inefcient process. Local people built rooms to create wealth or patrimony (patrimonio) for future generations and to improve their lives today (hoy). The team identied six tangible and one intangible barrier that made the building of new homes and the addition of new rooms onto existing homes a highly inefcient process: 1) inability to save money; 2) lack of access to nancing; 3) limited technical construction knowledge; 4) difculty in accessing certied quality materials; 5) inability to store materials; and 6) lack of planning skills related to building homes. An important intangible barrier was that local cultural values did not encourage long term planning and saving. Due to these challenges, builders often took 4-7 years to add a room to their home, with 30% of the materials wasted due to poor construction practices, theft, and spoilage from exposure to wind and rain.9 With their lack of construction knowledge, low-income house builders often relied on the local distributor to provide advice about how much and what type of material to buy. Their purchases were also typically small, showing the little buying power of the poor. As a result, the distributors did not invest much time in helping these customers and sometimes sold low-quality materials to them or even took advantage of them. Generally, these low-income consumers were poorly served under the current business model. The urban poor also had limited resources to invest in homebuilding projects. Some overcame this lack of credit by joining self-created savings clubs called tandas. A tanda typically consists of ten members. Each week each member pays 100 pesos to a group pool; every week one member receives the entire sum. The next week, after another round of payments, its another members turn and the process continues until every group member has received 1,000 pesos. However, even though participants joined tandas to build homes and undertake other big projects, only 10% completed their projects. This was because they ended up using saved funds for communal celebrations, emergencies, or non-essential consumption such as clothing and other smaller purchases.10
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Ureta and his team further learned that sometimes a do-it-yourself builders values and culture conicted with his or her ability to save and plan for the future. For instance, some builders believed fate, God, and their social status at birth determined the course of their lives. Excessive planning could be an affront to God and might alienate the do-it-yourself builder from their community. Even families who joined tandas often felt resigned to never complete their project.11 The team understood that any program they created would have to address such cultural values. Moreover, Ureta found that cement was a relatively undifferentiated commodity in this market. Few customers had brand loyalty and most consumers did, as the distributors suggested, look for the lowest price. CEMEXs most popular brand in Mexico, Tolteca, was also the most expensive cement in the market. One competitor, Cruz Azul, had generated some loyalty through its soccer team, the nationally-known Club Deportivo Cruz Azul (Sporting Club Cruz Azul), nicknamed the cement workers. Consumers who wanted to be associated with the team purchased Cruz Azul cement to show support or to receive promotional materials, such as athletic jerseys. Implementation After hearing about these challenges, Garza was still prepared to invest in the low-income do-it-yourself market. A self-construction market program would be created with two objectives: generate loyalty for CEMEX products and enhance the quality of life of low-income communities via improved housing. Garza demanded that the program be ready in six months. He required: 1) self-nancing growth; 2) a quick learning curve; 3) positioning as the best segment option; 4) fast volume growth; and 5) long-lasting customerperceived value. Garza understood that a successful program could provide revenue, market share, and an improved social image for CEMEX, a company that received complaints about air pollution,12 dumping,13 and monopolistic behavior in many of its operations around the world. Garza also appreciated that working directly with consumer end-users would be a benecial learning ground for the company. Over the long term, he wanted to create a program that could be rolled out globally. The teams rst response was to create a new product: a smaller, 25 kg bag of cement.14 Such small bags had a lower price per unit cost, could prevent spoilage and waste and would allow bags to be carried home instead of having to hire a truck. The concept failed. Distributors did not like the product, and customers avoided the smaller bags in favor of larger ones, which were strong community status symbols. Customers placed large bags of cement in front of their homes, showing they had money to invest in their houses. Unfortunately, often the bags would not be used, would be stolen or spoiled by the rain. The failure was a key learning experience for Ureta and his team. They realized the importance of being more closely rooted to the marketplace. To initially facilitate this, CEMEX had intentionally based its implementation team away from corporate headquarters in Monterrey. The internal research team was located in Guadalajara, the second largest city in Mexico, with more than 6 million inhabitants. However, being distant from corporate headquarters was not enough. The team had to take a deeper dive and come closer to living with those they sought to serve. The second phase of research lasted several more months, with the CEMEX team spending more concentrated time in the eld with the local community. As Ureta had later explained, In starting, we didnt focus on selling even one bag of cement. Rather, we decided that living with the community was the best approach to learn about the local needs.15 The team studied demographics, economics and political factors, as well as various aspects of consumer behavior such as brand awareness, construction habits and methods. The team realized that nancing was the single-biggest issue for low-income consumers to overcome in home construction and improvement.
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A key innovation also occurred here. The focus of the program changed from selling cement to building houses. As part of this approach, the team abandoned the term customer in favor of the word partner (socio). In its new business model, CEMEX implemented a group lending program, leveraging the existing tanda system model. The team organized and worked with tandas of ten people, provided technical advice on how to construct a project, and coordinated deliveries with distributors. During this time, CEMEX also collaborated with the socios to develop a unique name for the program. Customers created the name Patrimonio Hoy (patrimony today) to convey that socios could create their patrimony (or wealth) today, faster than before. To generate consumer awareness of the connection to the company itself, CEMEX was listed as a Patrimonio Hoy sponsor. The team felt this was necessary since many consumers did not associate CEMEX with cement production or with the Tolteca brand, which is advertised without using the CEMEX name. Since locally CEMEX is nebulously associated with product development, innovation and construction, the name also lent credibility to the program. This new branding helped to generate consumer loyalty for the company and provided some liability control as well. If Patrimonio Hoy succeeded, CEMEX could take credit. If it failed, CEMEX could disassociate itself from the project. After further development, however, the tanda concept was discarded. Small distributors were copying it, and customers were quitting because they found that working with nine other people was challenging and that projects were taking too long to nish due to payment delays by group members. After studying Grameen Banks success in micro-nance, Patrimonio Hoy replaced the tanda system with CEMEX nancing.16 Under this nancing system, Patrimonio Hoy required that a socio (partner) join with two other people to form a tanda-like group. For seventy weeks, each group member paid a weekly sum to Patrimonio Hoy, not to each other. In return, Patrimonio Hoy guaranteed that the price of services and building materials would not change, that each socio would have a regular delivery schedule, and that materials would be stored as necessary. After seventy weeks, each socio would have paid for all the materials and technical advice needed to complete their project. At a projects completion, Patrimonio Hoy threw communal parties to celebrate the socios achievement. Using these smaller groups created a social and support network that emulated traditional community values. Since Patrimonio Hoy does not require paperwork, perform a credit check or ask for collateral, the small group itself is the source of social pressure for each member to make weekly payments. Rules are set out in advance by the groups themselves, to encourage self-regulation of issues like non-payment, fraud and abuse. If the payment to Patrimonio Hoy is late, the group is ned a late fee of 50% for each late socio and the next shipment is delayed by a week. Since the actions of each socio impact on the entire group, there is better mutual understanding and compliance. Repayment rates have averaged 99.4%. As the project developed during the time period from June 1998 to May 2000, Garza gave the Patrimonio Hoy team autonomy to rene its business model and train staff on how to implement it (see Timeline in Exhibit 5). From its inception, Garza placed Patrimonio Hoy in a corporate greenhouse-- a protected place with time and resources to grow. He did not require the program to show immediate prot. Patrimonio Hoys business model was revolutionary because CEMEX, at the time a US$4.3 billion company, measured success by the number of cement tons sold, rather than by the number of rooms or projects completed. Instead of selling to a handful of corporate or government customers, Patrimonio Hoy was specically targeting hundreds of thousands of end-users. By June 2000, Patrimonio Hoy had put in place a revised business model (see Exhibit 6 for a summary). With Ureta leading the effort, the program left the greenhouse and new outcome demands were put in place.

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Current Operations
Cell Structure & Goals Patrimonio Hoy continued to be headquartered in Guadalajara and had a centralized staff of about fteen people. By the end of 2005, the program also had sixty-one ofces, known as cells, throughout Mexico. These cells are placed in areas that have a population of over 50,000 inhabitants, a tradition of self-building, and average family-incomes of approximately 1,000 pesos per week. Cells are Patrimonio Hoys local presence in communities. Functions include recruiting promoters and new socios, planning, designing and scheduling socio projects, coordinating distributor deliveries, receiving payments, and handling customer inquiries. Ideally, each cell has an ofce manager, a sales leader, an architect (technical advisor), and a customer service agent responsible for collecting payments. While few cell staff members have college degrees (ofce managers and architects may be exceptions), the staff are local and expected to be familiar with the area and community. Starting in 2004, Patrimonio Hoy introduced a new type of cell with only one staff member who is responsible for fullling all of the cells functions. This organizational structure lowered the cells operation costs and also allowed Patrimonio Hoy to place more cells in a colonia. Each cell behaves independently and is self-sustaining. They have to balance the demands of being local responsive and nationally efcient. Cells are locally customized since building materials and techniques vary greatly throughout Mexico; however, they share best practices and are connected through operations management software. Most cells attain break-even within 12 months or 600 families served. Cells have annual goals for total sales (especially attracting new socios), customer retention, renewal rates, default ratios, promoter productivity, and service quality. Growth targets are proportional to population size and growth. For instance, the 2004 goal for El Colli, a medium-sized cell, was to have 925 net new customers after attrition and completion of projects. Another cell, Mesa Colorada, had 667 socios, but was aiming for 1,500, which seems to be the maximum number of socios that one cell with three employees can handle well. Service quality is especially important, since a reputation for customer service allows Patrimonio Hoy to develop stronger relationships with its customers, better understand their needs and further tailor services for them. Patrimonio Hoy also has ve-year goals for increasing on-time deliveries, lowering customer attrition rates, and giving better technical advice. Socios Patrimonio Hoys marketing is tailored to people with immediate needs for housing/home expansion such as mothers, young women, and men in their early 20s who are starting their careers. The socios in Patrimonio Hoys customer base range from inexperienced to experienced builders (Exhibit 7). Ninety percent are women.17 Promoters Promoters, mainly women, work part time to attract new socios. They have monthly goals and are compensated based on the number of socios they attract and the time the socios stay in the program. Their goal depends on the promoters seniority. Ureta once heard an experienced promoter comment that she signed up twenty-ve new customers per month, working 2-3 hours per day. She earned 2,500-4,000 pesos per month, and claimed that it took about two weeks to attract a new socio. She added that a promoters biggest challenge is to convince socios to take responsibility for their lives and not to spend savings on non-essential items, such as parties or clothes.

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Information Sessions Information sessions, a common technique for recruiting socios, are run daily by a handful of promoters in targeted communities. The women canvass a neighborhood by car, announcing the session through a public address system, or by walking door-to-door distributing yers with the sessions time and location. The women meet in a central location, ideally the home of an inuential community member who has already built with Patrimonio Hoy. During the session, promoters talk with potential socios individually and then deliver an interactive presentation to the group, which usually totals less than ten people. Promoters use a large packet of preprinted, plastic sheets to discuss the programs benets, payment plan, and requirements. The process resembles a PowerPoint presentation without a computer or projector. Throughout the presentation, Tolteca brand is stressed since customers recognize and associate with it. CEMEX is also introduced, probably for the rst time to the customer. Payment Plans Patrimonio Hoy can be used by individuals as well as businesses to build a house (room by room), additional rooms, a fence, or a roof. So far, however, it has been mostly used by individuals. Patrimonio Hoy funds services (including nancing, technical advice, frozen prices, etc.) and construction materials (including paint), but not decorative devices such as moldings, or light xtures. Savings must be used to purchase building materials and the materials cannot be resold. The weekly payment is 145 pesos. The payment goes towards materials worth 125 pesos plus a membership fee of 20 pesos. The membership fee covers Patrimonio Hoys costs including consulting and architectural services, interest on nancing materials (at a 12% annual rate), guaranteed xed prices for the materials and the operating costs of the local branches. Payments must be made once a week by Tuesday. Over seventy weeks, the socio receives seven deliveries valued at a total of 8,750 pesos (Exhibit 8). If a socio leaves the program, they receive their savings in the form of building materials. After week 30, if a socio has made regular payments, they are eligible to join the Te Impulsa Program. Te Impulsa was introduced in 2002 and provides socios an additional 8400 pesos of credit and faster material deliveries. As a result, socios can build bigger or additional projects and can complete construction within forty weeks instead of seventy. Socios may enter the Te Impulsa by themselves. Through Te Impulsa, the socio receives building materials totaling 12,150 pesos and pays 145 pesos every week for 100 weeks.18 After completing a Te Impulsa Project, the socio may start another program called Te Impulsa Plus. Introduced in 2004, this extends the socio an additional 8400 pesos of credit and further accelerates deliveries, enabling the socio to complete their project within 15 weeks. The socio pays off the credit with weekly payments of 145 pesos over 70 weeks. The Te Impulsa initiatives were created to encourage socios to stay in the program and continue building. Patrimonio Hoys goal is for socios to make payments for 250 weeks, as this is approximately the amount of time that it takes to build a house and is viewed as the maximum revenue per customer. About 25-30 percent of all socios participate in the Te Impulsa Program. Distribution As a socio makes weekly payments, Patrimonio Hoy places an order and makes payments to a local CEMEX distributor for all necessary building supplies. The distributor buys cement from CEMEX and supplies from other companies and delivers these materials to the socio. Cement accounts for about 30% of the
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socios purchase; the remainder is for other building materials such as steel, sand, gravel, bricks, and rebar. Patrimonio Hoy never takes possession of goods since they are delivered directly to the socio. This is a different approach to CEMEXs traditional distribution chain (Exhibits 9 and 10). Patrimonio Hoy would like its distributors to sell CEMEX cement exclusively, as Patrimonio Hoy sales often account for at least 30% of the distributors volume. Some distributors have seen sales double or triple. For these distributors, Patrimonio Hoy is new business that brings a regular stream of new customers without requiring additional marketing. As such it is a reliable, steady source of timely payments. To ensure quality of service, socios ll out a distributor evaluation form upon delivery of goods. The form evaluates shipment accuracy, product quality, faithfulness to delivery time, and driver attentiveness. The form includes emoticons to ensure it is easy to answer.19 Patrimonio Hoy uses these forms to evaluate the distributors and decide which ones will get future business from the program. Value to Socios Benets to socios from the Patrimonio Hoy initiative include access to design services for better room layout, cost savings, locked-in material prices, material storage and delivery, and nancing. Socios state rooms built through Patrimonio Hoy have better construction quality than those they would have built themselves, and enhance the value of their homes.20 Participating in the program also shortens the average construction time of each room from 4 years to 1.4 years.21 Additionally, socios who successfully complete the program are eligible to receive a letter of recommendation from Patrimonio Hoy conrming they have made regular payments over the course of the program. Such letters are often presented to other vendors in order to help establish the socios credit. To address a need for local construction expertise, Patrimonio Hoy has also designed a training program that allows socios with some prior masonry skills to receive professional certication. The program has certied over ve hundred masons, many of whom have now received additional income from these new skills.22 Furthermore, after nishing the program, socios nd that they can successfully plan and save over a longer term. By improving their own lives in this way, the Patrimonio Hoy team believes they gain aspiration creep-- they aspire for a better life and begin planning to achieve it. Accomplishments In the four years since the programs formal launch in 2002, the program has extended credit totaling US$50 million to over 100,000 families. During this time, defaults accounted for US$300,000 (i.e. 0.6%). The program has grown to include 61 cells, 500 promoters and 120 suppliers. Patrimonio Hoy generates cash from membership fees paid by socios with which they fund operations and provide a modest prot to cover defaults and support some cell growth. Benets to CEMEX Ureta and the team have made several presentations to Francisco Garza and the Corporate Executive Committee. Lately, the team has become more and more convinced that Patrimonio Hoy has lived up to Francisco Garzas initial goals of increased revenues, increased market share and improved corporate image. In 2004, the program sold approximately 60,000 tons of cement, growing the low-income market and CEMEXs overall market share by about 1 percentage point. Families who had already started building have accelerated their consumption of cement, shortened the purchasing cycle, and increased the number of projects they undertake. Non-active builders have also started building.
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CEMEX has also seen increases in customer loyalty and Toltecas brand recognition. One evaluation stated that while previous studies showed consumers responding positively to all brands with a slight edge for CEMEX, after launching the [program], the brand index for Cemento Tolteca was 4.6 out of 5. The closest competitor achieved a 3. Other competitors achieved an index of less than 2.23 Most consumers continue to associate the Patrimonio Hoy program with Tolteca rather than with Patrimonio Hoy itself or CEMEX. In developing the program, Patrimonio Hoy has transferred attention from the price of cement to the socios ability to build a room quickly and efciently. Socios focus on the weekly payment, which they consider reasonable, instead of the price of cement. Tolteca continues to demand a price premium,24 suggesting that it is the overall package of services that the consumer values. As Israel Moreno explained, if I am selling something to a socio that does not provide enough benet to them compared to the cost, then I am exploiting them. If they are receiving the product for free, then they are exploiting me.

Current Challenges

With this concluding thought, Israel Moreno stepped back from the podium and Hector Ureta returned to the front of the room. He began by summarizing what he felt were the most important challenges Patrimonio Hoy currently faced. He wondered whether Patrimonio Hoy could response to these issues with incremental changes or whether the program would have to reinvent itself again. Socio Attrition On average, socios stay with the program for 50 of the programs 70 weeks. About 30 percent of socios complete their projects. Socios explain that their lives and incomes are uncertain. They leave the program because they do not have money, get tired of making payments, or face unexpected expenditures.
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Competition The Patrimonio Hoy team feels that a socios alternative consumption options, such as funding celebrations or other larger purchases, are its main competitor. Most of CEMEXs traditional cement competitors such as Apasco, Cruz Azul and Moctezuma have not changed their approach to the self-construction market. The Holcim Apascos program, which is called Mi Casa (My House), has trained some distributors to provide building advice to low-income customers and has placed distribution sites within communities, making purchasing easier. So far, this program has not affected Patrimonio Hoys sales. The team believes that the complex community relationships and trust they have already built prevent competitors from effectively copying their business model.

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Finally, Patrimonio Hoys experience with direct-to-consumer sales and nancing has helped CEMEX build Construmex, a new program targeting Mexicans working internationally. Mexican immigrants in the U.S. repatriate approximately US$14 billion every year. Roughly one third is intended for home construction. Wire transfers are expensive and sometimes family members use these wired funds for other purposes. Construmex, also under the auspices of CEMEX-Mexico Auto-Construction, enables immigrants to pay for and design construction projects in a Construmex ofce in the US. CEMEX-Mexico executes these orders using lessons learned from Patrimonio Hoy. Since its founding in 2002, the program has built projects totaling US$3 million and has helped shorten project completion time from 5-6 years to 12-16 months.26

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Furthermore, Patrimonio Hoy has improved CEMEXs social image. In 2004, Patrimonio Hoy received a prestigious award for Social Responsibility from the Center for Mexican Philanthropy (CEMEFI-RSE) for being the best community involvement initiative in Mexico. Also because of the program, CEMEX is now invited to international sustainable development conferences to discuss the initiative. Additionally, several business schools have examined Patrimonio Hoys social impact.25

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Additionally, socios often do not complete the program because they do not have the money to pay for the labor necessary to complete projects. Labor accounts for 40% of a projects cost. Under the current business model, Patrimonio Hoy does not allow savings to be used towards labor. Thirty percent of socios who nish their projects have building experience. Others who nish their projects often are able to call upon family members and friends with construction experience. Socios that quit typically do not continue building and 40 percent ask for material storage. To make the program more attractive to new socios and to minimize socio attrition, the Patrimonio Hoy team is considering several new ideas. One of the largest experiments is to provide nancing for labor. The recently created pilot program, Patrimonio Hoy Concreta will test this concept with 100 families. Patrimonio Hoy has also considered allowing socios to take breaks from the program and then rejoin later without penalty.

Armoring the Distribution Channel Patrimonio Hoy would like to armor28 both the low-income self-service market and its distribution channel. Currently distributors can purchase products from multiple suppliers and end-users from multiple distributors. These small, often mom-and-pop distributors buy cement on price and often switch between

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Coordination with Distributors The biggest source of complaints from customers is late deliveries. The problem often stems from the fact that distributors cannot deliver an order until Patrimonio Hoy authorizes it. Under the current business model, the company will only authorize shipments once all three socios have made their weekly payment. Once payment is conrmed, Patrimonio Hoy staff manually informs the distributor. This process can take several days. Because of this delay, distributors can miss delivery dates or have a tight window to complete deliveries. Distributors also encounter stock outs. To resolve these customer complaints, distributors have proposed automating the approval process and creating conict resolution teams that include promoter, distributor and ofce staff. The Patrimonio Hoy team is trying to roll out a new system that will require all delivery complaints be addressed within twenty-four hours.

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Financial Management Patrimonio Hoy has found that the risk of fraud is especially acute in cells that have only one employee because cash is managed directly in the cell. In order to prevent fraud as the program grows, the team is investing in control systems and auditing practices. The goal is to develop an auditing program similar to those used in nancial institutions like CitiBank that will also incorporate tighter screening of potential employees.

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Stafng Patrimonio Hoy faces a challenge in attracting, training, and retaining people that understand and can implement its business model. Approximately 40 percent of cells have only one employee. While these cells have access to a pool of architects who will schedule consultations with socios, this approach can lead to less satisfactory customer service and employee stress. There is evidence that architects, in general, are overworked. Architects play an especially important role because their discussions with clients regarding the design of the project increase a socios commitment to the program. Some architects have an overload of customers and are not always able to devote enough time for each customer visit. Most customers prefer homes with unique, differentiating features.27 The problem may also be attributed to customers who redesign their project several times before committing to a nal layout, resulting in more demands on the staff architects time.

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cement suppliers. Because the program offers increased volume, a steady stream of new customers and guaranteed payments, Patrimonio Hoy could potentially demand that distributors sell CEMEX products mainly. This would help lock customers into distributors and distributors into CEMEX. Ideas being considered include pairing two or more cells exclusively with one distributor or assigning multiple distributors to a cell, creating competition among the distributors. To date, Patrimonio Hoy has worked with approximately 120-150 of the 4,000 possible distributors. Risk of Failure Both Patrimonio Hoy and CEMEX are concerned about public opinion and reaction to Patrimonio Hoys growth. The biggest worry is what will happen if expansion fails. After so much publicity, management is concerned about how this would affect CEMEXs image, particularly with the sustainable development community. Part of this concern stems from increased scrutiny from investors due to CEMEXs recent US$5.8 billion acquisition of RMC Group. Government Relations Currently, Patrimonio Hoy has good relations with local governments and is often welcomed into communities. However, this may be changing. Calle Dignas trouble expanding to additional neighborhoods (see insert on Patrimonio Hoys Calle Digna and Escolar programs) may be indicative of a looming problem; local governments may view Patrimonio Hoy as a threat to their power base. Patrimonio Hoy provides services traditionally offered by the local government, but it is doing it much faster and better. Local politicians are reportedly avoiding Calle Digna because they do not want to be up-staged. Calle Digna Calle Digna (Worthy Street), introduced by Patrimonio Hoy in 2002, extends credit to local residents and governments to pave roads in low-income communities. Residents are recruited to pave the stretch of road directly in front of their home or business. Each resident pays 150 pesos per week for a maximum of 70 weeks to pave their segment. Government matches their payments. After the 18th week, CEMEX begins construction and completes the project in two weeks. Calle Digna provides residents with infrastructure that government could not previously afford. The clean, paved road creates a positive environment and strengthens ties between neighbors. At the same time, there is an increase in the communitys market value. Patrimonio Hoy has built a total of ten roads, all in the Zalatitan area of Tonala city, south of Guadalajara in Tepic and Zacatecas. Patrimonio Hoy claims that residents join eagerly; past projects saw no defaults or late payments. Patrimonio Hoy has negotiated with other communities, but local governments have recently been slow to join. Patrimonio Hoy Escolar (School Program) Many socios view education as an important part of creating patrimony. A small percentage of every socios payments goes towards building a project such as a room, sidewalk or basketball court for a local school. Approximately 100 projects have been completed. Patrimonio Hoy Escolar, a mandatory program for all socios, serves the local community, strengthens CEMEXs social image, and provides free publicity for Patrimonio Hoy. Some socios have joined Patrimonio Hoy after learning about a completed project at their childs school.

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Moreover, governments may fear that with time Patrimonio Hoy could disrupt the political and social control they have over communities. Patrimonio Hoy intentionally raises socios expectations and could encourage them to make more demands on local governments. If they felt threatened, local politicians could create hurdles for program participants. For instance, many socios currently build without proper licenses; the government could begin enforcing permit requirements, which would stall Patrimonio Hoys growth. Organizational Structure As currently structured, the Auto-Construction group is part of the Sales division in CEMEX Mexicos Cement operations (see Exhibit 11). Within the Auto-Construction group, Patrimonio Hoy is viewed as sales expense. In the companys current accounting system, the increased sales of cement generated by the program are not credited to Patrimonio Hoy, and all revenues from the program are repatriated. As a result, Patrimonio Hoy must continually negotiate to receive funds for current operations and expansion. Because Patrimonio Hoy does not receive internal recognition for the sales growth they are creating, it makes it more difcult to ask for additional funding for new activities.

Growing Patrimonio Hoy

Ureta stopped reading from his notes and looked around the room. Not only did his team have to deal with these challenges to its existing operations, but they also needed to actively explore opportunities for growth and expansion into new markets. While exciting, this meant a whole new set of issues for the Patrimonio Hoy team. Ureta looked back down at his notes, cleared his throat, and began to speak: The Growth Imperative Patrimonio Hoy is exploring opportunities to expand domestically. He paused for a moment and then continued. Domestic expansion is driven by the desire to continue to improve socio lives, prevent competition, secure the small distributor channel, grow market share, and further strengthen CEMEXs image. We expect to see the programs true economic benets in ve years, after it has been expanded to most of Mexico. In the long term, additional benets will trickle up as socios purchase other CEMEX products, like steel, paints, nishing materials, and building tools. Our estimates are that Mexicos major cities could bear a maximum of one thousand cells, each with a staff of three people, or four thousand cells with one employee per cell. This does not include the possibility of covering rural areas. As of 2004, the program had touched 61 of the thousands of eligible communities. Mexico City, for example, could grow from four cells to 200-300. Monterrey could grow from three to 20-30 cells. Tijuana could go from zero to 40 cells. We realize that it is imperative to cover Mexico quickly in order to solidify market position, gain market share and prevent competition. However, internally not all of us agree on the approach to growth. Some even feel that Patrimonio Hoy is not ready to grow quickly. CEMEX-Mexicos top management has also additional concerns about investor, public, and market reactions if a rollout is unsuccessful. However, during on-going discussions, we have agreed that in the short term 300 cells can be opened in 2005. We are in the process of restructuring in order to grow more quickly (see Exhibits 12 and 13 for Patrimonio Hoys current and proposed new organizational structure). As you know, a Marketing and Employee Development group was created within Patrimonio Hoy to drive strategy and to ensure that the staff, especially cell staff, is properly trained to successfully and quickly implement the business model. We have already developed training CDs for new employees who will go through a semester-long training program before joining the eld. We are also forming a Sales Group to focus on recruiting promoters and attracting new socios, as well as a Delivery Group to improve customer satisfaction as regards deliveries.
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Recruiting Socios Gaining, building, and maintaining relationships in communities has been critical to past growth and is considered a strong asset, but this slows the pace of growth, continued Ureta. Patrimonio Hoy is exploring more efcient ways to attract socios. For instance, you may recall that in December 2004, with the help of Ashoka, we partnered with a Mexican non-prot, SISEX, to recruit socios.29 SISEX, the National System of Promotion and Sexual Health is an umbrella organization that offers education, training, communications support, and institutional counsel to over 25 Mexican organizations focused on providing sex education and reproductive health and rights information. SISEX spreads the latest information and material on sexuality and sex education to all of Mexico through a grass roots council of 75 member representatives. SISEX recognizes that many of its clients suffer poor health and domestic abuse because of the cramped conditions in which they live. SISEX has already established trust in communities and has relationships with many potential socios. As part of the pilot program, SISEX will distribute information about Patrimonio Hoy in Puebla City and will receive a commission for every recruited socio. All of us in the team recognize that leveraging such types of existing social networks could be an important source for attaining higher growth rates. New Markets We also need to consider new market opportunities, added Ureta. As you know, we currently do not serve all of the low-income self-construction market. For example, a portion of the urban low-income segment makes less than 400 pesos per week. These are the poorest of the poor. Their income is used to meet the bare necessities of life, and weekly payments of 145 pesos are out of this segments reach. Yet they still want access to quality, affordable housing. Our ofce manager in El Colli, for example, estimates that approximately 600 families in her neighborhood could benet from such a program.

International Expansion In addition to domestic growth, Ureta further noted, we are also exploring international expansion. To date, one cell has been opened outside of Mexico, in Bogot, Colombia. Patrimonio Hoy-Colombia will be managed by Colombias Auto-Construction division and will be independent of Patrimonio Hoy-Mexico. Juan Romero, head of CEMEX South America and the Caribbean and former head of Colombia, is closely familiar with Patrimonio Hoy and will provide support for the expansion. I strongly believe that Patrimonio HoyColombias success depends on its ability to build trust with socios and improve their lives. If Patrimonio Hoy is implemented simply as a business strategy without a strong social mission, it likely will not build trust with socios and will not succeed. To that end, as you recall, in December 2004, our Colombian staff spent two weeks in Guadalajara researching the program and meeting with staff, socios, distributors, and promoters.

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As I am sure you have considered, Patrimonio Hoy does not serve the rural self-construction market, which has approximately two million families. Because they are spread throughout Mexicos countryside, this means they are often isolated from cities and our potential distributors. We need to consider more carefully how to address the logistical problems of serving this large, but geographically dispersed market segment at an affordable cost.

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We are looking at various methods to serve this segment. One option is to lower weekly payments by eliminating technical advice. Another option is to maintain existing services while lowering payments to 70 pesos per week and doubling the payment period, although this may be too long for socios. Finally, we are also considering developing partnerships with government agencies and international donor organizations that might provide subsidies for this segment of the market.

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In the short term, we are thinking of opening at least ve more cells in two more countries in 2005. If successful, Patrimonio Hoy could be rolled out in other countries that have large low-income populations and tradition of self-building, such as Singapore, the Dominican Republic, Venezuela, Nicaragua, Panama and Egypt. Funding for Growth After observing his audience for a moment, Ureta concluded his presentation. To grow, Patrimonio Hoy will require new sources of funding. Currently, we repatriate all revenues to the Auto-Construction Division. Therefore, we do not have reliable access to a continuing source of funds. Therefore, we must explore other options to secure the needed capital for expansion. I believe that funding for growth could come from three sources: existing operations; CEMEX-Mexico corporate; or external partners such as international development agencies. However, each option faces some unique challenges. Given our current need to repatriate our revenues to the Auto-Construction Division, cash from operations currently does not provide us with enough exibility to grow the program quickly. We could increase prices to end-users or lower margins to distributors to generate more revenue, but neither option is attractive. Additional funding from our corporate parent is difcult to secure because of CEMEXs recently purchase of RMC Group. Right now, much of the companys attention and resources are focused on making the integration successful. Finally, Patrimonio Hoys current legal status prevents it from receiving funds from development organizations. As Ureta nished his comments, he scanned the room to get a sense of the reaction from his team. He could see Israel Moreno nodding silently, as if in agreement with his presentation. The young team gathered in the room seemed eager to begin the discussion. Slowly, he wiped his glasses with a handkerchief and then pointed at the young woman on his right who had raised her hand to speak.

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Exhibits

Exhibit 1

CEMEX Financial Performance

In'000s US$ Net Sales Gross Prot Operating Income Consolidated Net Income
Source: CEMEX

2001 $6,923,320 3,184,972 1,653,339 1,331,122

2002 $6,543,110 2,887,597 1,310,401 557,330

2003 $7,164,384 3,034,338 1,455,204 659,184

2004 $8,149,360 3,563,011 1,851,677 1,328,128

200530 $15,320,958 6,049,761 2,486,659 2,166,630

Exhibit 2

Map of Mexico

Source: http://education.yahoo.com/reference/factbook/mx/map.html

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Exhibit 3

Mexican Cement Manufacturers and their Market Share of the Mexican and Self-Construction Markets
Company Regional Presence Central, North & South Southeast Small presence All over the country Brands Share Total Cement Market 25% 15% <5% Share Self-Construction Market 1998 <30% 30% <1% Share Self-Construction Market 2004 <30% 30% <1%

Holcim Cruz Azul (Blue Cross) Moctezuma

Apasco Cruz Azul Moctezuma Tolteca, Monterrey, Anahuac, etc.

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55% 40%

CEMEX

>40%

Exhibit 4

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Home Price Range (US$) Under 10,000 10-22,000 22-40,000 40-100,000 100-220,000 Over 220,000
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Breakdown of Social Categories, Average Annual Income and Average Home Prices in Mexico, 2002
Annual Income (US$) Under 4,000 4-8,000 Household Distribution 16.47% 40.46% 20.83% 13.55% 6.00% 2.69% 100.00%

Minimum Social

Economic Middle

8-17,000

17-40,000 40-80,000 80,000

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Residential Plus Total

Residential

Source: Deutsche Bank Alex Brown Research dated March 22, 2002, www.investext.com.

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Exhibit 5

Patrimonio Hoy Timeline

1994 1998 1999 2000 2001 2002 2003 2004 2004 Mexico economic crisis; demand falls across CEMEXs core business segments Exploration & pilots by Business Development Associates and CEMEX; Origin of Tandas de Materiales The rst foray into low-income self-construction through small-sized cement bags, Paquetes Tolteca Patrimonio Hoy launched in its initial design using lending groups of 10 people, with a Tandera managing the group and no CEMEX nancing Patrimonio Hoy launched in its modied, present format with nancing from CEMEX; Groups of 3 people; Expansion practices Patrimonio Hoy offers new and evolved services to keep up with customer needs: Te Impulsa; Calle Digna; Finishing Patrimonio Hoy improves organizational design with Multi-Role Cells that provide advisory services Network cell structure proposed and implemented (see Exhibit 13)

Patrimonio Hoy receives award for the best community involvement initiative in Mexico from the Center for Mexican Philanthropy (CEMEFI-RSE)

Source: CEMEX

Exhibit 6

Patrimonio Hoys Business Model

Tangible Problem Lack of savings

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Limited access to nancing

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Limited knowledge of building technology and lack of planning skills related to home building Lack of access to quality building materials Inability to store materials

Intangible

Local cultural values that do not encourage long term planning

Source: CEMEX

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Solution Access to micro-nancing Micro-lending program via CEMEX Staff architect Masonry training program Regular deliveries of materials

No nancial collateral required; draw on social capital created in groups

Ability to make incremental payments Letters of recommendation for credit purposes

CEMEX negotiations with distributors and development of quality controls Unlimited, free storage of materials

Project design that facilitates the tangible creation of wealth (patrimonio) for the family in a relative short time period

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Exhibit 7

Increase in Lifetime Equity by Kind of Patrimonio Hoy Customer

Micro-Segment & Percentage of Patrimonio Hoy Customers
Customers classied according to number of rooms already constructed and average construction delay Average Number & Value of Existing Rooms Delay in Construction Likely Increase in Rooms without Patrimonio Hoy Projected Lifetime Equity without Patrimonio Hoy Likely Increase in Rooms with Patrimonio Hoy Projected Lifetime Equity with Patrimonio Hoy Percentage Increase in Patrimony (Lifetime Equity) with Patrimonio Hoy Resigned 21% 1 room US$13,286 > 7 years 1 room US$13,286 2 rooms US$26,571 2 rooms US$26,571 3 rooms US$39,857 50% Slow Starts 34% 1 room US$13,286 0-6 years 2 rooms US$26,571 3 rooms US$39,857 Casual Improvers 15% 4 rooms US$53,142 > 7 years 0 rooms US$0 4 rooms US$53,143 Organized 19% 4 rooms US$53,143 0-6 years 1.5 rooms US$19,929 5.5 rooms US$73,071 Established 11% 6 rooms US$79,714 0-6 years 0 rooms US$0 6 rooms US$79,71

5 rooms US$66,429

6 rooms US$79,714 100%

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1.5 room US$19,929 3 rooms US$39,857 5.5 rooms US$73,071 37.5% 7 rooms US$93,000 27%

1.5 room US$19,929 7.5 rooms US$99,643 25%

Source: Letelier, Maria and Charles Spinosa. The For-Prot Development Business: Good Business, Good Policy, Good to Foster. Market Expansion Partners, LLC. Unpublished White Paper Commissioned by Patrimonio Hoy. February 5, 2002.

Resigned: Take about seven years to build a single room (300-400 weeks).

Casual Improvers: Have four rooms and have taken more than 7 years to add the fth. These are people whose building rate has slowed down. Organized: People who have already organized their family and friends into groups for nancing with better than average nancial discipline. As a result, they build an average of 4 rooms in six years (30 to 100 weeks per room).

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Established: They usually have more money and build 6 rooms or more in six years (obviously at a quick rate of a room in 50 weeks). Frequently join in order to build for other members of their family.

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Slow Starts: People who have lived six years with their one room, but who built it at a relatively quick rate of 74 to 150 weeks. They were quick to get a roof over their heads but slow to start on building patrimony.

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Exhibit 8

Patrimonio Hoy Delivery Schedules

Regular Patrimonio Hoy Delivery Schedule
Distributor Delivery Date Week 5 Week 12 Week 22 Week 32 Week 42 Week 52 Week 62 Value of Delivery 1250 pesos 1250 pesos 1250 pesos 1250 pesos

Te Impulsa Delivery Schedule

Distributor Delivery Date Week 10 Week 22 Week 34

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Distributor Delivery Date Week 5 Week 15

Te Impulsa Plus Delivery Schedule

Value of Delivery 4200 pesos 4200 pesos

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Source: CEMEX

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1250 pesos 1250 pesos

1250 pesos

Value of Delivery 2520 pesos 2520 pesos 336 pesos

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Exhibit 9

Traditional Distribution Chain to Self-Service Market

CEMEX Distributor payments to CEMEX Cement and other building materials from CEMEX to distributor Distributor/Retailer

End Consumer
Source: Case Writer

Exhibit 10

Patrimonio Hoy Distribution Channel

Building material orders & payments

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Distributor payments to CEMEX Financing, technical advisory services
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Cement & other building materials from CEMEX to distributor Distributor/Retailer

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Source: Case Writer

Patrimonio Hoy

Weekly socio payments

End Consumer

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CEMEX Shipments of building materials

Building material orders & payments

Shipments of building materials

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Exhibit 11

CEMEX Organizational Chart

CEMEX

South America & Caribbean

NORTH AMERICA & INTERNATIONAL TRADING

Europe, Middle East & Asia

MEXICO

United States

International Trading

Government

AUTOCONSTRUCTION Hector Ureta

Distributors & Retailers

PATRIMONIO HOY Israel Moreno

Construmex

Source: CEMEX

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Patrimonio Hoy Admin Sales Regions Cells

Exhibit 12

Proposed New Patrimonio Hoy Structure

Marketing/Employee Development

Source: CEMEX

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Casting/Transforming

Operations

Sales

Administration

Building

Technical Services

Operations (Service in Cells)

Deliveries

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Endnotes
1 2

2003 Annual Report. CEMEX - Building a Future. 13 Nov. 2006. < www.cemex.com>. ME-0137 Housing Finance Program. Inter-American Development Bank. Board of Directors program description for loan to Banobras. 14 Dec. 2000. 13 Nov. 2006 <http://enet.iadb.org/idbdocswebservices/idbdocsInternet/IADBPublicDoc.aspx?docnum=416905>. In January 2005, the US Dollar-Mexican Peso exchange rate was 11.2 US$/Peso. X-Rates.com. <www.x-rates.com>. The Mexican per capita income is approximately $9,600. The formal housing sector is constructed by commercial developers and purchased with mortgage-backed loans. Enabling the Poor to Build Housing. Changemakers Journal Sept. 2002. Ibid. Business Development Associates is now known as Vision Consulting. In 2000, some of the consultants who had worked to develop Patrimonio Hoy created a boutique consulting rm named Market Development Associates. Later on, Patrimonio Hoy asked distributors to be promoters. This exercise failed for the same reasons. Letelier, Maria and Charles Spinosa. The For-Prot Development Business: Good Business, Good Policy, Good to Foster. Market Expansion Partners, LLC. Unpublished White Paper Commissioned by Patrimonio Hoy. 5 Feb. 2002. Enabling the Poor to Build Housing. Changemakers Journal Sept. 2002. Flores, Fernando, Maria Flores Letelier, and Charles Spinosa. Developing Productive Customers in Emerging Markets. California Management Review 45.4 (2003):77. Pollution Prevention and Abatement Handbook. World Bank Group. July 1998. 13 Nov. 2006. <http://www.ifc.org/ifcext/enviro.nsf/ AttachmentsByTitle/gui_cementmfg_WB/$FILE/cementmfg_PPAH.pdf>. The manufacturing process for cement is energy intensive and produces several by-products, dust and particulate matter. CEMEX has pending environment-related lawsuits in the USA and Colombia with potential liabilities exceeding US$30 million. Dumping is the act of selling products in an overseas market at extremely low prices, often below market averages or production costs, in a bid to capture market share and outprice competitors. To know more about cement industry dumping by CEMEX: <http://www. american.edu/ted/cemex.htm>. Cement is typically sold in large bags in excess of 50kg because house construction consumes several hundred kilos of the product at one time. Ureta, Hector. Company Presentation. University of North Carolina, Chapel Hill, NC. Apr. 2004. Grameen Bank, founded in 1976 in Bangladesh, provides banking services to the poorest of the poor without requiring collateral. Loans average several hundred dollars and are utilized for income-generating entrepreneurial activities. Collection rates average 96%. For more information see <http://www.grameen-info.org/bank/index.html>. Some women hide their participation from their husbands because their husbands either do not believe in the program or feel that building is their responsibility. Once Patrimonio Hoy begins to deliver shipments of materials, then husbands often become willing participants. 12,150 pesos = 8400 pesos (from Te Impulsa) + 1250 pesos*3 (3 deliveries during regular Patrimonio Hoy program). Emoticons are key strokes used in email and instant messages to express emotions. Examples include :) and :(. Flores, Fernando, Maria Flores Letelier, and Charles Spinosa. Developing Productive Customers in Emerging Markets. California Management Review 45.4 (2003):56. Prahalad, C.K.. CEMEX: Innovation in Housing for the Poor. Case Study. University of Michigan, 2004. Enabling the Poor to Build Housing. Changemakers Journal Sept. 2002. Market Development Associates. 1 Jan. 2004. <http://www.mepbda.com/pages/359878/index.htm>. In 2002, Cemento Tolteca charged 3.5 pesos more per bag than its competitors. Market Expansion Partners. Cultural Innovation For Entering Low Income Markets. It is estimated that CEMEX garners a 2-10% price premium across markets. Bovet, David and August Joas. Its All in the Execution. Mercer Management Journal 13. These include the Harvard Business School, the University of Michigan, IPADE Business School at the Pan-American University, and IESE Business School at the University of Navarro, in Spain. For Migrants, a Dream Delivered. Houston Chronicle 23 July 2002. Mexico Encourages a Building Boom. Chicago Tribune 22 Oct. 2004. Flores, Fernando, Maria Flores Letelier, and Charles Spinosa. Developing Productive Customers in Emerging Markets. California Management Review 45.4 (2003):56.

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28

Armoring (blindar) is a common CEMEX term for preventing competitor penetration. It is often used to describe channel and segment strategies. Ashoka is a non-prot organization that invests in and provides professional services to social entrepreneurs around the world. Entrepreneurs focus on positively impacting learning/education, the environment, health issues, human rights, civic participation, and economic development. For more information, see <www.ashoka.org>. It includes RMC Group post-merger results for year FY2005.

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 generate knowledge of, and management skills for, emerging economies

offer unique educational opportunities to individuals and both indigenous and multinational companies which operate in emerging economies provide a forum for managers and public policy-makers to discuss business issues in emerging economies

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GlobaLens is the William Davidson Institutes online resource for international business educators. It features: Cases: a searchable catalogue of international business cases, exercises, and other course materials Courses: a searchable library of syllabi for developing international business courses Community: an interactive space for discussing international business cases, courses, and teaching issues For more information: www.globalens.com

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For more information: www.wdi.umich.edu

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The William Davidson Institute is a non-prot, independent, research and educational institute which is dedicated to developing and disseminating expertise on business issues in emerging economies. It was established at the University of Michigan in 1992, and today integrates research, executive education, and practical project-based assistance in order to: