Chapter 07 - Foreign Direct Investment 3. Reread the Management Focus on Cemex and then answer the following questions: a) Which theoretical explanation, or explanations, of FDI best explains Cemex’s FDI? b) What is the value that Cemex brings to the host economy? Can you see any potential drawbacks of inward investment by Cemex in an economy? c) Cemex has a strong preference for acquisitions over greenfield ventures as an entry mode. Why? d) Why do you think Cemex decided to exit Indonesia after failing to gain majority control of Semen Gresik? Why is majority control so important to Cemex? e) Why do you think politicians in Indonesia tried to block Cemex’s attempt to gain majority control over Semen Gresik? Do you think Indonesia’s best interests were served by limiting Cemex’s FDI in the country? Answer: a) Cemex is a cement company. Consequently, exporting is difficult because of the weight of the product. If Cemex wants to expand into new markets, the company would either need to license a local company or make an investment in the market directly. Cemex’s success is due in part to its top notch customer service, and relationship with distributors. Because these advantages could be difficult to transfer, the company will probably choose to invest directly. Students should reflect on these factors as they consider the various theories to explain Cemex’s FDI. b) Cemex is the third largest cement company in the world, and a powerhouse in Mexico where it controls 60 percent of the market. Cemex is highly focused on efficient manufacturing and customer service. Distributors are rewarded for their sales, as are users. The primary benefit Cemex brings to host countries involves these competitive advantages. Cemex acquires companies and then transfers technological, management, and marketing know-how to the new units, improving their performance. The company has brought several acquired companies back to full production, increasing employment opportunities in the host country as well. c) Cemex has successfully acquired established cement makers in many countries. By acquiring companies rather than establishing them from the ground up, Cemex can avoid some of the delays that could occur in the start-up phase, while at the same time, capitalize on the benefits of an established market presence. d) Much of Cemex’s success appears to be built around its customer service and attention to distributors. Indeed, it could be argued that what sets Cemex apart from its competitors, or its competitive advantage, is its superior way of dealing with external stakeholders. It is significantly easier to duplicate this sort of advantage in a wholly owned operation than in a joint venture or through licensing arrangements.
You've reached the end of your free preview.
Want to read all 23 pages?
- Summer '13