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Mexican cement's global strength
– by Virginia Mercado
© Oliver Brandt/image broker/Lineair
Cemex road tanker on a German Autobahn.
Cemex has one of the largest international reaches of any Mexican company. Its history began in 1906 in the city of Nuevo León with the foundation of the Cementera Hidalgo cement factory, which was rebranded as CEMEX (Cementos Mexicanos S.A.) in 1931 after merging with Cementos Portland Monterrey.
The company’s geographical location – in particular its proximity to the USA – helped to spur its fast growth and successful entry into the export business. Even before the expansion, the owner family was able to amass a large fortune through cross-border trade.
Unlike other cement producers, Cemex invested in modernisation from the very beginning in order to increase production. As a result, the company made very good profits quite early in its history and quickly became a nationwide market leader. Cemex recorded continuous growth in the first decades after its foundation.
From national to global markets
Two factors contributed to Cemex’s global expansion in the mid-1980s. First, Lorenzo Zambrano became chief executive officer in 1985. His personality and vision shaped the company profoundly. Without him, Cemex would not be what it is. Accordingly, his death last year created such a big dilemma for the company.
Zambrano, who was also Cemex’s chairman, played a vital role in the company’s global rise and in its decision to position itself as a socially responsible corporation. As an important personality in Mexico’s business sector, he always felt a commitment to achieving social goals. He supported projects that aimed to give people new opportunities in fields as diverse as publishing, education, the environment and even sports.
Zambrano’s corporate philosophy – and possibly the key to Cemex’s success – was based on not making the simple sale of cement the focus of the company’s activities. Instead, Zambrano felt that Cemex’s goal should be to help customers make ideas come true. “Nobody wants to buy cement – our customers want to build a house, a bridge or a street,” he liked to say. “That’s why we’re working to find new ways to help them achieve their goals more efficiently and effectively.” That attitude is reflected in the corporation’s pledge to deliver freshly-mixed cement at any time to as many places in the world as possible.
The second important factor was that Mexico joined the GATT (General Agreement on Tariffs and Trade), the precursor to the World Trade Organization (WTO), in 1986. This step triggered fears across Mexico that the country’s companies would not be able to compete at an international level. People also worried that the market would be flooded with imported goods – which did in fact happen to a certain extent.
At the same time, however, GATT opened up new opportunities for companies like Cemex. Cemex took advantage of both new export options and tax breaks the Mexican government gave to companies that wanted to expand abroad.
The Cemex Way
Cemex’s business model, the so-called “Cemex Way”, has also set a precedent far beyond Mexico’s borders. The enterprise initially invested in up-to-date technology and built a strong network of partners with the ultimate goal of acquiring and transforming local companies. Cemex’s ability to protect itself from external shocks was also important.
One of Cemex’s greatest achievements is surely its ability to produce cement at a very low cost, making it one of the most profitable companies in the industry. Diversification was another good move. Cemex is considerably less dependent on income from the sale of cement than for instance its direct competitors, the Swiss Holcim group and the French Lafarge.
Rodolfo Rubio Etcharren, who is the vice chairman of the consulting group “Vértice Comunicación”, recently spoke about Mexico’s three most successful companies worldwide: Cemex, Corona and Señor Frog’s. According to Etcharren, the secret to Cemex’s success is that “it operates like a local player in every country it is active in”. He also emphasised Cemex’s authenticity, resistance to external shocks and proximity to the customer, which has always been one of its defining features. For Etcharren, Cemex is the most global Mexican company at the moment.
A varied history
Of course, the company had to cope with difficulties over the course of its history. For example, the nationalisation of Venezuela’s cement industry in 2008 resulted in a long legal battle that wasn’t settled until after the death of Venezuela’s President Hugo Chávez. The most contentious issue was compensation. There was little room to negotiate, so instead of the $ 1.3 billion it requested, Cemex got only $ 600 million from the Venezuelan government. Given the difficult circumstances, that was considered a victory.
Another difficult situation, which ended well for Cemex, was when the EU started proceedings for possible cartel activity. According to the Mexican daily newspaper La Jornada, the proceedings went on for seven years until the investigation was ultimately dropped in 2015 due to a lack of evidence. The upshot was simply an EU recommendation to monitor the activities of the largest cement manufacturers.
Despite setbacks of this kind, Cemex is extremely successful: in 2014, the corporation was given first place in a ranking of the most global companies in Latin America. The ranking is compiled by Miami-based Foro Multilatinas and honours prominent companies in the region. In Mexico, Cemex’s role of leadership is indisputable. The company owns the most cement plants in the country, covering about half of the national market. Having survived a variety of external shocks over the course of its history, Cemex now enjoys a certain security and stability in its home country. The company’s most difficult challenge was probably the death of its strategist Zambrano. Nevertheless, Cemex appears strong and competitive one year after his death.
At the international level, however, it remains to be seen how the company will fare in the future. At the beginning of July, its two biggest competitors – Holcim and Lafarge – declared their intention to merge and announced that the move would make the new company the largest supplier of building materials in the world.
Virginia Mercado is a scholar at the Universidad Autónoma del Estado de México and specialises in peace and development studies.