International Business Cemex Is One Research Proposal

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1) Cemex is an acquisition specialist. They perform best with FDI when they have control over the company and can make the changes they need to improve it. Cemex derives value from buying companies and improving them. This is the internalization theory. Cemex feels that the benefits from taking control are worth the expense. They do not wish to risk technology transfer; they wish to have strict control over manufacturing and marketing, and they believe that with an undifferentiated product their competitive advantage is in their managerial expertise, something they do not wish to transfer to any foreign company.

2) To the host economy, Cemex brings a more efficient cement firm. They improve the construction business and its capacity. This in turn lowers the cost of construction and helps create jobs. Potential drawbacks to Cemex's investment in an economy are that they teach competitors how to better perform. These competitors may be favored over the foreign Cemex by regulators.

3) The cement business requires a high investment in infrastructure. This includes not only the production facilities but the distributors as well, since the product is highly perishable. As a result, the infrastructure for a cement business is costly and time-consuming. It is also a relationship-oriented business, as demonstrated by the way in which Cemex builds its relationships with contractors in Mexico. The company cannot expend the time and energy to build this infrastructure when investing overseas. Furthermore, many cement companies are inefficient, which means that Cemex can immediately add value to any acquisition.

4) Majority control is critical to Cemex because they need to be able to implement their systems and competencies in their acquisitions.

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The value they derive from their acquisitions relates directly to the operational improvements that they can make to the target company. Without majority control, Cemex may not be able to make these improvements. Moreover, they may find that even if management is willing to let them make the improvements, they will not enjoy the results of these improvements -- they would improve the company for the benefit of the majority shareholders. Thus, when they were unable to get majority control of Semen Gresik they felt compelled to exit the Indonesian market.

5) Indonesia is a dictatorial government. The power structure is based on political connections, which those opposed to the Cemex takeover of Semen Gresik leveraged. Public protests had been organized against the takeover, which lead to the government balking at the sale on account of the publicity and political badwill they would gain.

It is not in the Indonesian government's interests, long-run, to limit Cemex's FDI in the country. Ultimately, Semen Gresik remains a less efficient firm for not being under Cemex control. The Mexican company became a world leader in cement because of their efficiency and ability to improve operations. As the Rugby example showed, they are prepared to make investments to improve their facilities. This benefits the nation's capacity with respect to cement production and its efficiency as well. There is no particular reason that cement production should be owned by government -- as a perishable product cement production cannot be offshored. Therefore, the Indonesian government loses efficient and the money it would have made,….....

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