Distance & Global Strategy

CEMEX & HAIER

Professor Ruth V. Aguilera
Top 10 Non!inancial TNCs "ro# De$eloping Econo#ies
ran%e& by "oreign assets '(S)bn*+ ,00-
Co#pany Co.ntry In&.stry !oreign
Assets
Total
Assets
1. Hutchison Whampoa HK,
China
Diversified !. "#.$
$. Petronas %ala&sia 'il e(pl)ref)dist $$. $.*
+. ,ingtel -td ,.P /elecommunications 1". $1.
#. ,amsung 0lectronics , Korea 0lectronics 1#. .!
1. C2/2C .roup China Diversified 1#.1 "#.!
. Ceme( ,.A. %e(ico Cement 1+.+ 1!.$
!. -. 0lectronics , Korea 0lectronics 13.# $".*
". China 'cean ,hipping China ,hipping *.3 11.3
*. Petr4leos De Vene5uela Vene56a 'il e(pl)ref)dist ".* 11.#
13. 7ardine %atheson HK,
China
Diversified !.1 13.
,ource8 9:C/AD, $33
T/e E$ol.tion o" Ce#e0
1985 2005 CAGR
Sales (US$ billions) 0.276 15.5 22%
EBITDA 0.084 3.6 21%
e!i"o 100% 33%
To#al Asse#s 0.7$1 26.5 1$%
a%&e# 'a(i#ali)a#ion 0.103 1$.0 30%
Ins#alle* 'a(a"i#+ (, #ons) 10.7 $7 12%
E,(lo+ees 6-358 52-741 11%
'o.n#%ies 1 50
T/e Global Ce#ent Ma1ors
Capacity E2ITDA
CAGR 3404E CAGR
5404E
Margin
604E
R7CE
60-
Holci# 89 1-9 ,49 3:39
;a"arge 39 1-9 ,19 3:59
Ce#e0 1,9 ,19 ,<9 1,:49
Hei&elberg 39 149 139 <:09
Italce#enti 89 1<9 ,-9 5:<9
!re=.ency Distrib.tion o" International
Ce#ent !ir#s> Mar%et Entries
/0+ #0is #%en*1
To&ay>s Class
What is the glo;al potential for these t<o
industries=
What accounts for Ceme( and Hiaer 6s success to
date=
What e(plains the se>uence in <hich
Ceme( and Haier entered foreign mar?ets=
Ho< far can Ceme( @ Haier 6s competitive
advantage travel=
1. What are the global
potential of the cement and
white goods industries?

Global In&.stry Analysis
Mar%et
Dri$ers
Co#petiti$e
Dri$ers
Go$ern#ent
Dri$ers
Cost
Dri$ers
A E0istence o" tra&e barriers
A Si#ilarity o" tec/nical stan&ar&s
A Si#ilarity o" reg.lations
A Di""erences in ta0es
A Si#ilarity o" c.sto#er nee&s & tastes
A E0istence o" global c.sto#ers
A Si#ilarity o" &istrib.tion c/annels
A Trans"erability o" #ar%eting %no?/o?
A Globali@ation o" co#petitors
A In&.stry concentration
A Di""erences in in&.stry
concentration across co.ntries
A !easibility o" protecting intangibles
A Di""erences in cost across co.ntries
A Aotential "or econo#ies o" scaleBscope
A Aotential "or learning
A Transportation costs
!orces "a$oring
global integrationB
local responsi$eness
Adapted from: G. S. Yip, Global Strategy in a World of Nations? Sloan Management Review 3!" !#all $%$", pp. &$'(.
Global In&.stry Concentration
'late 1550s+ ,000*
Industry Top 5
share of
global
production
En#e%#ain,en# 71%
'a%bona#e* So2# D%in&s 70%
3i40# B.lbs 68%
'o,(.#e% So2#5a%e 5$%
'o,(.#e% 6a%*5a%e 5$%
Ae%os(a"e7 De2ense 55%
A.#o,obiles 53%
Se,i"on*."#o%s 40%
'e,en# 1$%
,ource8 .hema<at and .hadar, $33, p. 33
A Cost e"ono,ies o2 s"ale a%e no# #0a# i,(o%#an# on
4lobal s"ale8 s,all *i9e%en"es in "os#s a"%oss "o.n#%ies
: 0i40 #%ans(o%#a#ion "os#s8 no (%o*."#7 (%o"ess
inno;a#ions in 20 +ea%s.
A !ar"et 0o,o4eno.s (%o*."# b.# ,os# ".s#o,e%s a%e
lo"al8 #%ans2e%able ,a%&e#in4 (e.4. b%an*in4) o2 li,i#e*
i,(o%#an"e.
A Go#ern$ent (%o#e"#ionis, is a 2a"#o% (e.4. US)8
"on"e%ns abo.# 2o%ei4n o5ne%s0i( (e.4. In*onesia-
<ene).ela).
A Co$petition in*.s#%+ be"o,in4 ,o%e 4loball+
"on"en#%a#e* (si! 4lobal ,a=o%s> s0a%e o2 5o%l* ,a%&e#
in"%ease* 2%o, 12% in 1$88 #o 25% in 2000) b.# ,os#
"o,(e#i#ion is s#ill lo"al8 ,a=o% *i9e%en"es in
"on"en#%a#ion a"%oss "o.n#%ies8 li,i#e* %ole 2o% s#an*a%*
in#an4ibles (a*;e%#isin47 ?:D) 5i#0 "e,en# "lose #o #0e
bo##o, *e"ile o2 ,an.2a"#.%in4 in*.s#%ies on bo#0 ?:D
an* a*;e%#isin4 in#ensi#+.
Global Aotential o" t/e
Ce#ent In&.stry
A(CC;E
,o <hat is the rationale for
glo;al e(pansion in a multidomestic industr&=
D/at is t/e rationale be/in&
Ce#e0>s global strategyE
.ro<th=
.eographic diversification=
.lo;al competitive advantage=
%atching competitors=
0mpireB;uilding=
Does Ce#e0 /a$e a global
co#petiti$e a&$antageE
,ource8 Case, 0(hi;it #
Holder
bank
Lafarge Cemex Heidel
berger
Italce
menti
Blue
Circle
)*+,-A margin &3.(. &3.&. 37.1% %./. &(.0. $.1.
)*+,-A2 ton sold &3.$ 3%.1 45.8 &3.1 &&.& n.a.
2. What accounts for Cemexs
success to date?
D/at acco.nts "or Ce#e0>s
s.ccess to &ateE
'<nership8 it has succeeded in creating intangi;les that
are different from the traditional ones CR@D) mar?etingD,
<hich create a rationale for its glo;al strateg&
-ocation8 given high transportation costs, it has to ;e
present in different locations to e(ploit these advantagesE
that presence also allo<s it to ar;itrage differences in
financing costs across countries
2nternali5ation8 almost impossi;le to e(ploit its advantages,
especiall& ' advantages, through arm6s length contracts
3. What explains the sequence
in which Cemex entered
foreign markets?
Se=.ence o" Mar%et Entry
Di#ensions o" Aro0i#ity 'or Distance*
C.lt.ral A&#inistrati$e Geograp/ic Econo#ic
9,A F F FF
,pain FF F F
Cari;;ean FF F FF F
-atin America FF F FF F
Philippines F F
2ndonesia F
0g&pt F
Se=.ence o" Mar%et Entry
9ntil the late 1**3s, largel& e(plica;le using the
CA.0 frame<or?8
Cultural Clanguage, religionD
Administrative Ccolonial ties, trade areasD
.eographic C9,, Cari;;ean, -. AmericaD
0conomic Cmostl& developing countriesD
Fut 2ndonesia and 0g&pt <ere more GdistantH
And loo?ing at countries that are more GdistantH still
Which ;egs an important >uestionI
. !ow far can Cemexs
competiti"e ad"antage tra"el?
Ce#e0>s global strategy
Ceme( has increased the upside for a glo;al strateg&
Developed intangi;les that appl& across countries
and create rationale for its glo;al strateg&
Ce.g., managerial processes and innovationD
Ceme( has limited the do<nside for a glo;al strateg&
0ntered more similar countries first CCA.0D, lo<ering
the ris?s created ;& differences across countries
Ho? "ar can Ce#e0>s
co#petiti$e a&$antage tra$elE
Has Ceme( s&stemati5ed and standardi5ed
<hat it has learned to a sufficient degree to
go ;e&ond its CA.0 region=
/o other developing countries=
Are all developing countries sufficientl& ali?e=
What advantage does Ceme( have in 2ndia,
China, Russia, etc=
And even to developed countries=
Recent Ac=.isitions by Ce#e0
A
2000 a"@.i%e* So.#0*o5n (US)- 2
n*
la%4es# "e,en#
,an.2a"#.%e% in US- 2o% $2.$ billion
A
2001 a"@.i%e* Sa%ab.%i 'e,en# (T0ailan*)- 2o% $73
,illion
A
2002 a"@.i%e* A.e%#o ?i"an 'e,en# 'o,(an+ 2o% $281
,illion
A
2004 a"@.i%e* ?' B%o.( (UC)- one o2 E.%o(e>s
la%4es# "e,en# (%o*."e%s an* 5o%l*>s
la%4es# s.((lie% o2 %ea*+D,i! "on"%e#e- 2o% $5.8 billion
A
2006 sol* i#s 25.5% s#a&e in Se,en B%esi& (In*onesia)
A
2006 a"@.i%e* ?in&e% B%o.( (A.s#%alia)- a ,a=o% selle%
o2 "ons#%."#ion ,a#e%ials 5i#0 85% o2 i#s b.siness in
#0e US- 2o% nea%l+ $12 billion (27% (%e,i.,) in
la%4es# *eal e;e% "on"l.*e* in #0e "e,en# in*.s#%+
Can Ce#e0 a&& $al.e in
&e$elope& co.ntriesE
[Cemex] uses basic enterprise resource
processing technology, but with rigour. It has
process maps and imposes them on all its
subsidiaries. It bought the UK building materials
group RC !" months ago. RC was not as
e##icient as Cemex. It had multiple systems
running di##erent processes around the
company. It was not the I$ department%s #ault. It
was doing what it was told but it was not the way
to run modern cement and it got bought.&
%ar? Ras?ino, .artner .roup
Can Ce#e0 a&& $al.e in
&e$elope& co.ntriesE
'e#ore the ta(eo)er, RC%s #lagship plant at
Rugby in the UK had been running at *! per
cent capacity, and the central (iln had been
stopped a mind+boggling ,,- times. .ust two
months a#ter the ta(eo)er, capacity was up to
almost -/ per cent, and production had risen
#rom "0,111 tons to !12,111 tons a month.&
Jinancial /imes, 'cto;er $33
,ource8 Annual Report, $33
Ce#e0>s 7perating Margins+ ,008
7r is t/ere so#et/ing else going onE
3e had to become one o# the biggest
global companies. I# we didn4t,
someone undoubtedly would ha)e
ac5uired us.&
-oren5o Kam;rano, C0' of Ceme(
,ource8 Case, 0(hi;it #
Is t/ere anot/er ga#e being playe&E
%olderban
"
Ce$e&
EBITDA ,a%4in 23.4% 37.1%
EBITDA7 #on sol* (US$) 23.$ 45.8
Sales7 "o.n#%+ (US$,) 143.7 321.$
A;e%a4e (%i"e7 #on sol*
(US$)
102.1 123.5
A;e%a4e "os#7 #on sol* (US$) 78.2 77.7
An& is it no? being playe& o.t
on a global stageE
Are the maLors pursuing a strateg& of multiBmar?et
competition Cmatching each otherMs mar?etsD to gain
;etter control over price and >uantit& in the industr&=
2ncentives to maintain collusive prices in an& one
mar?et are potentiall& greater given threat of
retaliator& priceBcutting in multiple mar?ets
2f Ceme( doesn6t match the other maLors6 moves, does
it ris? ;eing vulnera;le to their competitive moves=
Ta%ea?ays
A
Designing a glo;al strateg& is not a mechanical e(ercise N
it6s a creative response to the glo;al potential of industr&.
A
2nnovative glo;al strategies, ;ased on novel o<nership and
location advantages, can sometimes <or? in, and eventuall&
transform, industries <ith apparentl& lo< glo;al potential.
A
GDistanceH matters in a variet& of <a&s CCA.0D in the design
and e(ecution of glo;al strateg&.
A
Al<a&s anal&5e <hether and <h& particular glo;al strategies
generate sustaina;le competitive advantage N the fact that
companies pursue such strategies does not necessaril&
mean the& do so.