Principles of Strategic Management as Applicable to CEMEX - Example

Strategic Management Report Name Institutional Affiliation Date Table of Contents Introduction 3 Background 3 The scope of the Report 4 CEMEX’s Mission, Values and Vision 4 Mission 5 Vision 5 Values 5 CEMEX Financial Performance 6 Strategic position of CEMEX 7 Simple Strategic Analysis of the Company 8 PESTEL Analysis 8 Political Factors 8 Economical factors 9 Social factors 9 Technological Factors 9 Environmental Factors 10 Legal Factors 10 SWOT Analysis 10 Strengths 11 Weakness 11 Opportunities 12 Threats 12 Threat to Economic Viability and independence. 12 Five Forces Analysis 13 Supplier Power 13 Buyer Power 14 Competitive Rivalry 14 Threat of substitution 14 Threat of New Entry 14 Two New Strategic Options to Increase the Company’s Competitive Advantage 15 Increasing Customer Experience 15 Improving on Quality 15 Recommendations 16 Evaluation of the Recommendations 17 Suitability 17 Feasibility 17 Acceptability 17 Conclusion 17 References 18 Appendix 19 Introduction Background  CEMEX is a global leader in construction materials. The company supplies cement and other building materials. CEMEX was started with the launching of Cementos Hidalgo. It was formed as a result of two companies amalgamating. The growth of CEMEX has risen as result of the company acquiring more plant all over Mexico. After some years of operation, the company went public in the Mexico Stock Exchange. CEMEX became the largest construction company after acquiring three plants from Guadalajara Cementos. The company has significantly grown as it has overseas markets, which has increased its exports. Additional acquirement of Mexican cement companies has made CEMEX be among the largest cement production companies worldwide. CEMEX has proven an expansion production of approximately 25 tons daily (Landroit, Chan & HSBC Global Research 2007). The scope of the Report The report has been collected in consideration of data and information from the CEMEX annual reports, the company periodicals, CEMEX’s website, and other sources. The company’s scope is outlined: Company’s background The major challenges that faces the company and entire industry Strategic opportunities, conclusion and recommendation to the company management CEMEX’s Mission, Values and Vision The company’s objective is to become more flexible in their operation, more creative in the commercial offerings, more sustainable in their utilization of resources, more innovative in carrying out the global business and efficient in their capital distribution. Mission CEMEX company mission is to ensure that the customers are provided with quality construction services at competitive and fair prices. It also seeks ensure continued expansion of the company through referral and repeat business obtained by consumer satisfaction. Further, it seeks maintaining the highest levels of integrity, professionalism, honesty in their relations with the suppliers. CEMEX also wants to provide the working environment for its employees. Vision CEMEX’s vision is to increase profitability by satisfying the customer’s needs at the present and in the future by building base for partnership and trust. It wants to establish a direct relationship with its customers. The company can only achieve this by adjusting to the current market conditions, establishing a performance that is driven by the culture of offering value-added construction services. Values The values of the company outline the character of the company by expressing how the company is, how it behaves and the company’s beliefs, so long as the products bear the CEMEX brand. One of the company values is ensuring safety. The company holds a responsibility and accountability of ensuring acts of safety and behaviours. The other value is focus on the consumers, whereby they build a strong customer relation driving away the effect of competitors. CEMEX works with transparency and honesty in all their operations. It works as one company and leverages their knowledge in all the local companies. The company aims at pursuing excellence in the sense that they have great passion for work and high expectations. CEMEX Financial Performance In the 1990s, the Mexican economy was becoming more rewarding where the president started public works to modernize the infrastructure. This modernization raised the demand for cement and the government increased the prices for cement. The government allowed cement companies to raise the prices from $46 per ton to $72 per ton. The company managed to make a sale of approximately $1.2 billion, and produced sixty-six percent of Mexico’s cement. Ten years later, Mexico experienced economic crisis and the government debt. CEMEX sold its assets in Canary Islands, Hungary, Australia, and United Kingdom. The construction company used the income to decrease the debts and correct its statement of financial position. The restrictions that were imposed on the company caused heavy losses to the company and left CEMEX with a little room to expand in its operations. CEMEX’s performance after the acquisitions was poor. The sales went down by 26 %, its profitability ratio was very deprived from a positive to a negative. Its capability for interest payment verses debt servicing was also deteriorating. The normal interest coverage ratio for the last five years was negative. CEMEX Company was operating at a loss where their profit before tax was not able to meets interest obligations. As compared to its competitors such as Holmic and Lafarge, CEMEX was far much behind them. Strategic position of CEMEX CEMEX being a global manufacturer, marketer and supplier of cement worldwide, its main strategies involved acquisition and expansion of companies in the industry. CEMEX strategies carried in the last four years are considered and analyzed qualitatively. The major strategy in most companies is acquisition and merger of plant and companies. The strategy helps the company to compete both domestically and internationally. CEMEX takes every opportunity for growth. Technological advances are crucial to growth of the organization. CEMEX has strengthened their technological platforms, intercommunicated the company internationally, and offered quality services to the customers (Stanford University, 1995). The strategy of expansion that was being used by CEMEX was performing via their generated profits and issuing of bonds and shares. CEMEX had traded on the stock Exchanged of which it was listed in the New York. The CEMEX was opened as a scheme to identify, implement, and incorporate the best methods of the organization. With the accomplishment of the strategy of growth and expansion, the company portrayed good yields. The other strategy that was implemented by the company was the geographical diversification of assets, leading to other new markets which were producing cement, aggregates, and concretes. Vertical integration of operations was another strategy that was implemented where shares were acquired as part of the cement value sequence. The study focuses on the company as it is a large company with an intensive market share. Therefore, it is important to know its status and its act. It is significant to know how well implemented the strategy is in regards to the tight control of expenses and costs. For instance, it is important to analyze whether acquisitions can lead to bankruptcy. Simple Strategic Analysis of the Company PESTEL Analysis William (2009) defines PESTEL analysis as a framework of tools applied by marketers to monitor and analyze the impacts of external marketing environment on a company/organisation. Application of PESTEL is aimed at identification of threats from external factors and weaknesses. The analysis technique represents a powerful and effective tool which is easily applied to analyze the external environmental factors (David, 2005). A combination of external micro-environmental factors, internal drivers, and PESTEL are classified as threats and business opportunities in SWOT analysis. PESTEL is an abbreviation standing for political,economic,social,technological,environmental and legal factors which have an impact on the operation of an organisation (See Appendix for Summary) Political Factors Sadler (2003) that this is the measure of how the government influences the market in a certain industry which includes political stability /instability, government policies and controls put in place, taxation policies imposed by the government, restrictions on trade and the foreign marketing policy adopted by the government. In the cement industry the government of UK has imposed a lot of policies and controls which govern their operations. First there is the issue of energy consumption with regard to CEMEX cement factory and all other cement factories. The government has raised energy costs for heavy manufacturing industries which is now one of the major constraints facing CEMEX industry. Economical factors These factors which have an effect on the financial progress of a company include inflation, exchange rates, and economic growth. On the cement industry, economical factors affecting operations include interest rates, inflation, and foreign market policies. These are the same issues affecting CEMEX cement factory where the interest rates of loans acquired from either the government or banks are very high. This translates to very low net profit on the company as most of the money is spend on clearing of pending loan debts. The foreign market policy adopted by the UK is also another factor where the government has put sanctions on bulk export of cement. Social factors These are attitude and belief related factors which influence the operation of a company. CEMEX Company is too faced with social factors which are mainly attached to its reputation. Due to its operation for a long time and general success, the company has a good reputation in the population. Technological Factors This refers to technological advancements which are currently in the industry. Continuous advancement in technology and assimilation current technology has been the trend in the cement industry. Initially the CEMEX Company only produced ordinary Portland cement, but current advancement in technology has seen them produce a variety of cement types which include Portland Pozzolana cement, oil well cement, rapid hardening Portland cement, sulphate resisting Portland cement and Portland blast surface slag cement. Environmental Factors This refers to impact and influence environmental factors have on the company. Currently there is the trend of adoption of new environmental friendly methods of production of cement which have less pollution in comparison to the initially applied wet and semi-dry process of cement processing. There is also the waste heat recovery strategy applied as a heat conservation method which assists in reduction of emissions. Legal Factors These include the issues related to the laws of the country which affect a company. CEMEX Company is faced by the mining restrictions imposed by the government which regulates the quantity mined. This at times becomes a limiting factor in terms of quantity produced. SWOT Analysis In order to develop an option strategy, an analysis for CEMEX Company in terms of resources, business, and operating environments has been made using the SWOT analysis as summarized below and in the Appendix. SWOT analysis mainly focuses on the strengths and weakness internally, opportunities and the threats externally. Strengths One of the strength that is manifested in CEMEX Company is customer ensuring of customer satisfaction and a good relationship with them .CEMEX used a good strategy to that developed a good customer relation .Additionally, The company offered quality construction services that help the company maintain their customers against their rivals (Cemex SWOT Analysis, n.d.). The company had quality production facilities and plants that enabled the company to work effectively and produce large quantities of cement. The cement that is produced is of a high quality because of the equipment. CEMEX Construction Company has a large network of cement. It supplied cement domestically and internationally. The company out its strength of market diversification it is able to make a large sale adding to its overall profit (Cemex SWOT Analysis, n.d.). In plantation, there is use of ultratech plat that uses modern and imported technology. The company has a visionary management who oversees the operations of the company. There are able managers who are able to come up innovations to minimize the cost of production and leaders who contribute the organization success and to the entire industry. Weakness Even after CEMEX CEO Lorenzo Zambrano turned his company into one of the largest building material supplier he almost led it into the brink of bankruptcy. This was because he did not implement the different types of organizational changes that help act as a checks and balance. Opportunities There is an opportunity for new products which can assist CEMEX in expanding and diversifying their business. New products have an important effect so more weight should be put in it. Split markets offer an opportunity for CEMEX to expand and raise their market share. Acquisitions synergies have important effect so analyst should emphasis on it. This synergy has a long term effect on the company. International markets provide new opportunities to increase sales and expand the business (Cemex SWOT Analysis, n.d.). Threats CEMEX Construction may be exposing to some threats which may affect the operations of the business. Volatile currencies may be one of the major threats that the company be exposed to. Volatile currencies make investment difficult for the company since revenues and cost change rapidly. Another treat is the international competitors who are difficult to combat as they may have competitive advantage. Threat to Economic Viability and independence. CEMEX has been able to successfully tackle this issue regardless of the challenge faced by the opening of the Mexican economy and globalization of the cement industry. CEMEX responded by ensuring it took its market to a global scale and narrowing down their products to be able to concentrate on mainly cement and concrete. However after solving this problem as the pace went beyond the internal cash flow that they could support CEMEX was exposed to new risks. These called for the development of new capabilities. CEMEX experienced a high debt burden after the acquisition Rinker of Australia. The company almost went bankrupt out the acquisition. There was a weakness in the company management as they made a decision regarding the acquisition of Rinker which increased their debt. The acquisition adversely affected the company by increasing their cost but the synergy was not achieved. The acquisition disrupted the core business due to the merging culture which were not complementing. CEMEX Construction Company was able to delay the arrival of goods to the customers. The delay of will affect the long run operations of the business as consumers ends up by cancelling orders. CEMEX did not have the capability of conducting business in tough institutional environs and integrate the risks considerations and having them looked at keenly in operational decision making. This has helped it navigate the national market consolidation in the 1960s & 1970s (Cemex SWOT Analysis, n.d.). Five Forces Analysis CEMEX Construction Company is faced by five forces and is considerably important in determining the competitive power in their operations. These forces are:- Supplier Power How the prices are easily driven up by the suppliers at CEMEX Company is assessed here. This happens due to key input of each supplier, the service’s or product’s uniqueness, their control, and strength over the company and so on. If the choice of a supplier is little and his or her help is greatly needed by CEMEX then the supplier tend to be powerful (Hitt, Black and Porter, 2011). Buyer Power This is where, how easy it is for a buyer to bring the prices down at CEMEX is looked at. This, driven by the importance of a buyer towards CEMEX Company, number of buyers they have, the cost of them preferring someone else’s services and products. It is therefore becomes easy for few buyers who are powerful to dictate the company’s terms. Competitive Rivalry Here, the capability of their competitors at CEMEX assessed. When the company has many competitors, all offering equally attractive services, and products then the company is faced with little power towards the situation. Since buyers and suppliers will have a better deal elsewhere if not from the company (Hitt, Black and Porter, 2011). Threat of substitution This is affected by customers’ ability of getting another way of doing what the company does. For example, if our supply for building materials is expensive, customer may opt for another method of construction. This weakens the company’s power especially if the substitution is easy and viable. Threat of New Entry The power of CEMEX Company is also affected by people’s ability to enter their market. New competitors can weaken the company’s position if; they can compete effectively and the cost in money or time is little, or if the company has little protection for their prime technologies. However, if the company has durable and strong barriers to their market entrance, then the company can still preserve the position and take advantage of it (Hitt, Black and Porter, 2011). Two New Strategic Options to Increase the Company’s Competitive Advantage CEMEX can gain advantage over its competitors by ensuring that their customers get more value either through lowered prices or additional service and benefits. For example, the following new strategic options may be employed by CEMEX in increasing its competitive advantage: Increasing Customer Experience CEMEX can increase its customer experience by offering additional information about the company. This will enable its potential clients to easily connect with what it does in terms of physical operations. Further, such a connection will strengthen by increasing more online information for access by the clients and sending some online educational resources to the customers. This includes offering the experience of consultancy expected out of CEMEX. Improving on Quality Quality is an underlying factor in all the potential competitive advantage strategies (Johnson, Scholes, and Whittington, 2008). For any venture by CEMEX to be successful, clients have to perceive and measure good quality out of the services it offers. For example, if the services CEMEX offers overdo those of its competitors, a client can easily conclude that CEMEX offers services of higher quality. What is more, the company can improve its customer service in terms of speed of service delivery, reliability, and efficiency. Recommendations As a world leader in the field of construction materials, the following are some of the appropriate recommendations applicable to CEMEX: CEMEX should learn from its competitors and customers. Instead of being afraid of competitors, CEMEX should take advantage of that and learn about them by assessing their business model. The best way of learning about competitors is imitating their strengths and using their weaknesses to their advantage. It is through acquisition of business information from the rivals that CEMEX can surpass them in the building material industry. Further, an understanding of the customer portfolio helps in gaining deep insights on customer retention and boosting on prospective customers. Therefore, in order to measure customer insight in terms of CEMEX position in the market and with regard to its competitors, a mix of tools can be used, such as the social analysis tools. Staying on the Cutting Edge is something recommendable for CEMEX. This means that CEMEX will be far from complete after gaining the competitive advantage. Thus, continuous success can only be achieved by maintaining a competitive advantage because competitors cannot sit back and watch in allowing CEMEX steal its market share. For example, CEMEX can ensure a competitive advantage by way of predicting its future trends within the building material industry, monitoring competitors, adapting customer needs and wants and continuously research. Evaluation of the Recommendations Suitability Above strategies are suitable because CEMEX stands at the top and therefore, stands the risk of losing such a position if competitors attain its levels. This means that CEMEX should not overlook the existence of its competitors and should keep staying on the cutting edge. Feasibility The two recommendations suggested above are feasible since they are cheap to implement. It only requires continuous monitoring of the competitors and the customer’s trends that CEMEX will remain on the competitive edge. Acceptability The strategies recommended above are acceptable in several ways. For example, CEMEX should find this a boost to its future endeavours of increasing revenue and remaining relevant in the market. Non compliance to these recommendations outrightly means CEMEX getting extinct and closing down in order to give way to its competitors. Conclusion Discussed here is a summary of the principles of strategic management as applicable to CEMEX. The research report has explored the company’s current strategy, critically analyzed its main opportunities and challenges in the light of tools such as FIVE forces, SWOT and PESTEL. The company also highlights on quality and increasing customer experience as a way of enhancing the company’s strategic position. The report briefly summarises the company’s current strategy and recommends CEMEX to stay on a competitive edge and continually learn from its customer and competitors. References Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Cemex SWOT Analysis. (n.d.). (Business Source Complete.) London: Datamonitor Plc. David, F. R. (2005). Strategic management: Concepts and cases. Upper Saddle River, N.J: Pearson Prentice Hall. Hitt, M., Black, S., and Porter, L.W. (2011). Management (3rd ed.). Pearson Education. Landroit, P., Chan, S., & HSBC Global Research. (2007). Cemex España: Building Cemex's international presence. London: HSBC Bank. Sadler, P. (2003). Strategic management. Sterling, VA: Kogan Page. Stanford University. (1995). CEMEX and antidumping. Stanford, CA: Stanford University. Williams, K. (2009). Strategic management. New York, N.Y: DK Pub. Appendix SWOT Analysis Strengths Good satisfaction of competitors Quality construction services Quality production facilities Large cement networks Imported technologies Innovations Weakness Bankruptcy A lot of organizational changes Opportunities Split markets Acquisition synergies International markets Threats Volatile currencies International competitors PESTEL Analysis Political Factors Lots of government policies Energy consumption politics Economical Factors Interest rates Inflation Foreign market policies Social Factors Drop and gain of company reputation Technological Factors Advancement in technology Product diversification due to technology Environmental Adoption of new environmental friendly production methods Waste recovery strategies Read More