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Change in Business Strategy
From the case, it is clear that CEMEX fundamentally changed the way it conducted its business by adopting a strategy that streamlined its operations to achieve more efficiency. Additionally, the global cement manufacturer established a strong brand name by shifting away from selling products towards selling complete solutions. The company also invested heavily in information and communication technology to match production with unpredictable consumer demand patterns. Lastly, CEMEX engaged in an acquisition-oriented international expansion strategy to increase its bottom line and customer base.
Theoretical Explanation of FDI
The theoretical explanation of FDI which best explains CEMEX’s FDI is the free market view. This theoretical explanation denotes that “international production of goods and services should be distributed among countries according to the theory of comparative advantage” (Anderson 3). From the case study, it is evident that CEMEX has put in place measures to ensure efficient production of differentiated cement products in countries it chooses to expand to, hence not only achieving a lower opportunity cost but also increasing the economic welfare of host countries according to the main principles of the free market view.
Preference for Acquisitions
From the case study, it is clear that CEMEX has a strong preference for acquisitions over greenfield ventures as an entry mode to international markets due to its capacity to increase the efficiency of the acquired units by transferring capital (financial and manpower), technology, and/or management skills (Gable 33; King and Schriber 111). Indeed, one of CEMEX’s guiding principles in undertaking international expansion is anchored on the firm’s conviction that it can generate substantial value by acquiring inefficient cement manufacturers in other international markets and transferring its skills and expertise in customer service, marketing dynamics, information and communication technology, as well as production management to the acquired companies. As an example, CEMEX used the acquisition strategy to purchase two stagnant plants in Spain and turned them back to profitability by transferring its technological, management, and marketing know-how to the loss-making outfits with the view to enhancing their performance over the long-term.
CEMEX, in my view, entered the UAE market to reap profits from the tremendous demand for cement due to the many construction projects that were being undertaken in the country. A secondary justification for entry into the UAE market is embedded in the fact that CEMEX was convinced that it understood the needs of construction business in the UAE better than other reputable global cement manufacturers due to its origin in the developing world (Mexico and the UAE and developing countries). There are no potential drawbacks of inward investment by CEMEX based on the fact that the construction sector in the UAE’s economy is bound to continue growing into the future.
Sources of Superior Performance
Lastly, it is evident that CEMEX provides a firm basis for discussion of the sources of superior performance and competitiveness in international business due to its entry mode of choice (acquisitions over green ventures), inflows of FDI into the company’s host countries (capital and technological, management, and marketing know-how), and its strategic orientation (efficient production, strong brand name, and investments in information and communication technology). The CEMEX case study also demonstrates how companies wishing to expand into international markets could enhance their performance and competitiveness by acquiring non-performing outfits in host countries and turning them around through the transfer of capital, technology, and management skills.
Anderson, Thomas. “New Foreign Direct Investment in the United States in 2015.” Survey of Current Business, vol. 96, no. 8, 2016, pp. 1-9.
Gable, Julie. “Leveraging the Principles in Mergers, Acquisitions, and Divestitures.” Information Management Journal, vol. 48, no. 3, 2014, pp. 32-37.
King, David R. and Svante Schriber. “Addressing Competitive Responses to Acquisitions.” California Management Review, vol. 58, no. 3, 2016, pp. 109-124.