One of the most ancient, durable and inexpensive building materials has turned, a local Mexican company into the largest global provider of cement, aggregates, ready-mix concrete and specialty concrete products.
As the success of moving from a national, to a multinational, to a global and integrated company is never guaranteed, what have been the key drivers behind this company’s ability to grow coherently, while delivering 20% CAGR EBITDA growth over decades?
1. Define a truly “global-local” strategy
Post the NAFTA agreements with Mexico in the 1990s, the company’s survival depended on expanding abroad. To avoid the risk of hazardous expansion, it first narrowed the scope of its product lines, and next focused on broadening its geographic scope – 50 countries at the latest count.
Global strategies require local adaptation and Cemex became adept at creating multiple strategies to differentiate and take advantage of different economies and markets conditions. In the USA and Europe, Cemex has relied more on product innovation with, for example, the introduction of Insularis, a ready-mix brand that improves the energy efficiency of buildings. In South America, it has focused on providing value beyond supplying its main products, for example, showing a municipality how to structure and manage a project.
2. Go outside and develop a laser-sharp focus on making acquisitions work
Successful M&A deals allow companies to increase scale, extend geographical reach, add capabilities, and diversify their talent base. Cemex’s success as a serial acquirer is the result of the speed and efficiency with which it generates value from an acquisition.
The post-merger integration has been codified (with the manual covering only human resources as thick as a dictionary) while the same team is used for each acquisition. It is staffed with high-potential junior managers who try to strike the right balance between efficient integration and an open mind-set. They analyse the new acquisition to cut costs, and rapidly roll out highly standardized core processes.
As intensive collaboration is one of the key ingredients of a successful integration, Cemex then places circa 20 key people in different parts of the acquired company to train others on the ‘Cemex way’ and identify practices that should be shared across the group.
3. Build distinctive business capabilities
To become a high-value, knowledge intensive solutions provider, the company evolved from an efficient inward-looking company to one more connected with its environment. As cement offers little scope for engaging with customers in a distinctive manner, Cemex decided to invest in building long-term client relationships to gain unique insights into customer evolving needs.
Such insights lead to product innovation, such as low-heat ready mix concrete (preventing premature thermal cracking), as well as a high level of customer responsiveness with, for example, time-based delivery guarantees through Construrama, the largest network of materials outlets in the world. It has also moved away from just selling cement or ready-mix products to offer solutions such as, Patrimonio Hoy, its programme to help low-income families, providing them access to building materials and credit through microfinance; as well as technical and architectural guidance.
Matching its clients’ move towards more environmentally friendly practices, it has developed its own environmental sustainability capabilities: decreasing its fuel use, removing or mitigating pollutants in its materials, or lowering the cost of producing them. It has also innovated with products such as high-strength concretes (reducing the amount of building material required), or self-compacting concrete (reducing energy use during construction, and improving the strength and durability of buildings), etc.
4. Use communities of interest to share knowledge
The biggest challenge for global businesses is to act as one company across its various markets while still running hyper local businesses. To do this, Cemex ensures that all its functions (production, procurement, logistics, marketing, finance, human resources, R&D) have a global orientation and common corporate policies (the Cemex Way) that are enforced around the company, while localising the interactions with customers.
It has also introduced an internal-collaboration platform called Shift, which has helped the company reduce the time needed to introduce new products and make internal process improvements. Shift uses a mix of wikis, blogs, discussion boards, and Web-conferencing tools to help communities of employees around the world collaborate on specific issues. As such, it helps solve local problems with global talent, and store and share the knowledge they are generating.
Shift has been a key element in bringing the best practices of acquired companies, allowing Cemex to continuously increase its knowledge. The alternative fuels and waste-to-energy strategy of one acquired company became a global standard, and today Cemex is at over 28% alternative energy use, the highest among its competitors.
5. Develop Local Talent
Implementing global strategies successfully requires access to a global pool of competent managerial resources. One of the key elements is developing and retaining local leaders with strong functional and industry expertise, who know how to achieve lasting change on the ground, can rise through the ranks, and then move seamlessly across emerging and developing markets.
Teaching the Cemex Way to each of its 44,000 employees worldwide enables the company to transfer people across geographies without them having to learn entirely new ways of doing things. When Cemex’s German unit faced a shortage of engineers, the company could easily transfer some engineers from Spain, Poland and Latvia.
Cemex also dedicates a lot of time and effort to change management, to train new people, talking them through its practices, and helping them assimilate. It not only wants to retain the talent of the companies it acquires but also the way in which they think. Cemex grew to become a successful global company as a result of the way it has integrated people and companies from Colombia, Germany, the U.S., and France, among other geographies, into the way “it thinks”.
Trying to become global, many companies expand into areas where they are unlikely to thrive due to a lack of relevant capabilities, while parameters of their home country often constrain them. They also often lack the consistency, leverage and controlled local diversification that give a company a strong global presence. So what would it take for you to do it the ‘Cemex way’?