Discussion Question 4 CEMEX Foreign investment

Respond to Critical Thinking and Discussion Question 4 in Chapter 8.

To successfully complete this discussion board, the student is to make two postings. The postings are to be made early enough to allow for comments from other students. (10 points maximum)

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First posing: Your initial response to the discussion board questions

Second posting: Response to another student’s initial response to the discussion board questions

question 4:(first post)

4. Read the Management Focus on Cemex, and then answer the following questions:

a. Which theoretical explanation, or explanations, of FDI

best explains Cemex’s FDI?

Research Task

Use the globalEDGETM website (globaledge.msu.edu) to complete the following exercises:

1. The World Investment Report published annually by UNCTAD provides a summary of recent trends in FDI as well as quick access to comprehensive investment statistics. Identify the table of largest transnational corporations from developing and transition countries. The ranking is based on the foreign assets each corporation owns. Based only on the top 20 companies, provide a summary of the countries and industries represented. Do you notice any common traits from your analysis? Did any industries or countries in the top 20 surprise you? Why?

Volkswagen in Russia

In the mid-2000s, Volkswagen announced that it would invest directly in auto- mobile production in Russia. The decision to invest was driven by a number of factors. Russia’s economy was growing rapidly at the time and living standards were rising, while the level of car ownership per capita was still low by Euro- pean standards. This suggested that demand for cars would grow rapidly going

b. What is the value that Cemex brings to a 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?

Response(to a student second post):

a. Which theoretical explanation, or explanations, of FDI best explains CEMEX’s FDI?

CEMEX wants to reduce its alliance with Mexico and expand its market to the rest of the world. CEMEX can take advantage of the huge demand in the cement industry in the rest of the world. By going into other countries and buying less abundant cement companies, they will be able to increase foreign direct investment substantially.

b. What is the value that CEMEX brings to a host economy? Can you see any potential drawbacks of inward investment by CEMEX in an economy?

The value that CEMEX will bring to host countries is their production, technological progress and the transfer of education to become skilled workers and managers. This improves the overall economic development of the host country and allows CEMEX to bring its intelligence into the country. Some potential disadvantages may be that the workers work long hours and work directly for the company. CEMEX added another $8m in sales by acquiring Britain’s RMC, making it the powerhouse of the global cement industry. With such a large quota to be filled each year, they must meet the conditions they need to meet, working conditions abroad will not be ideal, and labor and other relevant laws in that country are lax.

c. CEMEX has a strong preference for acquisitions over greenfield ventures as an entry mode. Why?

CEMEX believes it can use its top management skills to reduce mistakes and move customer service skills, information technology, marketing and production management to weaker sectors. By acquiring less developed foreign companies, CEMEX makes it easier to acquire them and get infrastructure to where it is needed. They know that their skilled workers, customer service and production management skills will pay for doing business at home.

 
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