The CEMEX Way

Ashish ChhabraDarpan ShahNavneet BajajShwaytaj RasteAbhishek NastaSiddharth GargPratik Kamble

Part 1 - The McKinsey 7S Model

Hard Elements

Rest all Soft Elements

Strategy

• Rapid Acquisitions• Identifying potential markets• Focus on innovation• Technology-based Solutions, strong IT and

telecom support (CemexNet )• Distribution and delivery process through

sophisticated information systems• Continuous attempts to reduce operating cost

Structure

• Highly Centralized company, while operating in 60 countries – Unique simple Organizational structure

• Top management does not see much change when a company is acquired

• Ad-doc PMI teams are formed which includes top performing executives from various departments to deliver while relieving them from their day-to-day activities

Systems

• IT platform and standardized processes enable them to identify and share best practices across global operations network

• Data is continuously fed into systems at various levels, which helps in monitoring the operations better

• GPS trucks, 24-hour cement dispatch system has given them cutting edge

• Backed by a 97% success rates• CEMEX being able to cut 35% of its fleet, saving it $100

million!!

Shared Values• Visionary

– What sets CEMEX apart are its vision and the actions the company takes to achieve it.

– Hector Kelvin Castillo, Quality Control Advisor, CEMEX, Dominican Republic

• Professional– CEMEX offers a very professional and dynamic atmosphere, where values and

ethics are extremely important. Working at CEMEX is a never-ending learning process.

– Kamla Sherif Nassar, Human Resource Projects & Information Manager, CEMEX, Egypt

• Great emphasis on Ethics and integrity• Aligned goals• Motivation from challenges in workplace keeps them going

Style

• Progressive – Emphasis on Market research & Information systems

• Focus on Innovation – Nine days in a year are kept aside known as ‘idea days’ where employees give their ideas and also brain storm on them

Staff

• Development programs to grow lower level managers to be ready for more responsibility

• Place left by ad-hoc PMI execs are filled by their sub-ordinates which is a training ground for them

• With 60,000 employees the company has been an HR process innovator, with operations in over 60 countries

Part 2 - From International to Global

• CEMEX believed in getting the basics right first• Founded in 1906, their first international

acquisition was made in 1992 in Spain• Before that it strongly captured Mexico’s

market, and became 2nd largest there• It had invested in technology heavily• Since Cement is a ‘Commodity product’, it had

to focus on manufacturing and delivery

Groundwork for Internationalization

Stepping Out

Growing Up

Stepping Up

CEMEX’s Modus operandi

Groundwork for Internationalization

• Went International in 1992– strong operational capabilities based on

engineering and IT– a culture of transparency– mastered the art of acquisition and integration

within Mexico– Spent $1Bn between 1987-89, to get stronger at

home– CemexNet – for Communication

Stepping Out

• Acquired a majority stake in two Spanish cement companies, Valenciana and Sanson, for $1.8 billion - majority market share (28%) in one of Europe’s largest cement markets, motivation was Holcim entering into Mexico, to counter-attack

• Also Spain was investment grade country, just entered European Monetary Union

• Linguistic and cultural ties between the two countries made it a sensible strategic move

Contd…

• A major source of value resulting from the acquisition was the improvement in operating results due to the transfer of best practice from a supposedly less advanced country to a supposedly more advanced one

• This acquisition, because of its size and the fact that it was in a foreign country, forced CEMEX to formalize and codify its Post Merger Integration (PMI) process

• Ex began using Petroleum Coke, cheaply available in Spain, for manufacturing

How CEMEX grew Inorganically…

1994 •CEMEX acquires Venezuela’s largest cement company, which is ideally positioned for exports. CEMEX expands its U.S. operations by acquiring a cement plant in Texas and enters Panama with the acquisition of Cemento Bayano

1995 •CEMEX acquires Cementos Nacionales in the Dominican Republic

1996 •CEMEX becomes the world’s third-largest cement company with the acquisition of Colombia’s Cementos Diamante and Samper

1997 •CEMEX acquires a 30% interest in the Philippines’ Rizal Cement

CEMEX’s Post Merger Integration(PMI)

20% of an acquired company’s practices were

retained, 80% were cataloged and stored in a

centralized database

Benchmarked against internal and external

practices.

Superior practices became Company Standards

Efficiently manage the

global knowledge base

Identify and disseminate

best practices

Standardize business

processes

Implement key information and Internet-based technologies

Foster innovation

Part 3 - How would you analyze the global cement market given the

industry structures ?

Global Cement Consumption

• World demand for cement is forecast to grow 4.7 percent per year to 3.5 billion metric tons in 2012

• Gains will be driven by strong increases in cement consumption in the developing countries, fueled by rising income levels and a focus on infrastructure development

• Rebound in cement demand in industrialized markets such as the US, Japan and Germany, will further boost advances

• Apart from India & China. Indonesia, Malaysia, Nigeria, Vietnam and the UAE are all expected to record gains in excess of seven percent per year.

Supply & Demand• As World economies progress demand for

Cement, Oil, Coal will increase

Part 4 – Entry Strategy for India

• Driven by a booming housing sector, global demand and increased activity in infrastructure development such as railways, state and national highways, the cement industry has outpaced itself– ramping up production capacity– attracting the top cement companies in the world, and – sparking off a spate of mergers and acquisitions to spur growth

• The recent boom in the housing and construction industry in India has worked wonders for cement manufacturing companies with capacity utilization crossing the 100 per cent mark for the first time in January 2009

Current Scenario

Opportunity

• Despite the growth of the Indian cement industry, India's per capita production of 115 kilograms per year lags the world average of over 250 kilograms and China's production of more than 450 kilograms per year

Top Ten Cement companies in India Company Production(

tonnes) Installed Capacity % utilization

ACC 17,902 18,640 96.04Gujarat Ambuja 13,094 14,860 95.57

Ultratech 13,707 17,000 80.63Grasim 13,649 14,115 97.78

India Cements 8,434 8,810 95.73JK Group 6,174 6,680 92.43

Jaypee Group 6,316 6,531 96.71Century 6,109 6,300 98.33

Madras Cements 4,550 5,470 83.18Birla Corp. 5,150 5,500 98.72

• Can start by acquiring companies which are strong in regions– Shree Cement (Bangur) has strong presence in north– India Cements in South– Aditya Birla in East– Eastern India growing @11.4% Y-o-Y– Biggest Markets are UP & Maharashtra followed by

Gujarat & MP

Specific to India

• For developed market, Industrial and institution buying accounts for 80% while rest is for consumers, who buy in small quantities

• This is reversed in developing countries where most of the sale is accounted by small quantity buyers, since they believe in making their own homes

• This is very relevant to have a big retailer/distributor base

New Investments• JSW Cement, part of the OP Jindal Group, plans to set up cement units near the

group’s steel plants at Kurnool, Andhra Pradesh, and Vijayanagar, Karnataka. The units which will have a combined capacity of 5.5 MT per annum will be set up at a cost of US$ 393.1 million.

• Anil Ambani Group Company Reliance Infrastructure will invest US$ 2.1 billion to set up cement plants with a total capacity of 20 MT per annum over the next five years.

• Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company plans to set up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$ 463.2 million.

• Jaiprakash Associates Ltd has inked a MoU with state-owned Assam Mineral Development Corporation Limited (AMDC) for setting up a 2 MT per annum capacity cement plant at an estimated cost of US$ 221.36 million.

• Iron ore mining firm Rungta Mines (RML), the flagship company of SR Rungta group, plans to set up a one million tonne cement plant in Orissa with an investment of around US$ 123 million

Thank you