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FDI from the standpoint view of a manager for Cemex.

When a firm invests directly in facilities to produce a better product in a foreign country [we do not
know the product is better only that they are now producing in a foreign country], it is considered
as a Foreign Direct Investment. As per the US Department of Commerce, when a US citizen or an
organization undertakes 10% or more stakes in a foreign facility and it retains some management
control, it becomes a Foreign Direct Investment and the firm is then called a multinational enterprise.

Cemex is Mexico’s largest and world’s third largest cement manufacturing company. Cemex has made a
tremendous amount of Foreign Direct Investment in many countries around the world including the two
stagnant companies in Spain and the Houston Based Southland for $2.5 billion. Cemex has also made
another major Foreign Direct Investment by purchasing RMC of Great Britain for $5.8 billion.

There are few theories and approaches that companies have to review before making the FDI.

  • Why should they favor a FDI when other alternatives are still open, such as Licensing and
    Exporting?
  • Why do they favor certain locations over other as targets for FDI?

FDI is often expensive and risky. Companies have to bear the cost of establishing the production facilities
[called greenfields investments] or acquiring an existing plant [M&A]. Doing business in completely
different culture where the rules of the fame may be very different makes FDI a very risky act. Cemex
always had the options to either License or export but for any company such as Cemex, it is crucial to
increase its operational existence significantly in other countries before the international competition
does.

Cemex wanted to reduce its dependency on only Mexican Market which was characterized by very
volatile demand. Starting from 1990s, initially by focusing only on developing nations such as Venezuela,
Colombia and Philippines, Cemex embarked its International Expansion Strategy and Foreign Direct
Investment Policy.

Cemex had the advantage of successfully running as a leader in home country using the most advanced
Information Technology utilities. Not only the technology, but Cemex had implemented many successful
marketing approaches to increase its sales. After buying the foreign companies, Cemex implemented
same high technology standards and marketing approaches to increase the efficiency. Cemex also
better understood the needs of construction businesses in developing nations than the long established
multinational cement companies all of which were from developed nations.

Cemex also had to take a step back from their Indonesia unit. Due to many political and government
problems, Indonesia did not keep the promise of allowing Cemex to buy more steaks in Government
Owned Semen Gresik. Ultimately Cemex had to sell its stake to some local Indonesian enterprise.

Two key considerations for why Cemex took the M&A approach are that it wanted to expand quickly
and it needed access to key raw materials already controlled by local producers.

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