CASE - CEMEX
Case Questions-
Q1. First, let us focus on CEMEX to determine whether it is or is not creating added value? In other words, establish whether CEMEX has a competitive (dis)advantage compared to its international competitors? Specifically:
a. How does the value proposition (i.e., value stick) of CEMEX differs from Holderbank's? (Due to Lafarge's product mix, comparing it with CEMEX is more problematic.) Make sure to support your claims with concrete numbers. You may assume that figures in Exhibit 4 are a good indication of the financial performance of both CEMEX and Holderbank in a typical year.
b. Propose potential sources for CEMEX's competitive (dis)advantage. In other words, what explains your answer to the question above (i.e., a.).
Q2. As mentioned in the case, in order to determine the pricing strategy for CEMEX's subsidiary Vencemos, Guillermo Soto constructed the matrix in Exhibit 6. Note that all figures are in millions of US dollars and that Vencemos' EBITDA is on the bottom of each cell (in bold) and Holderbank/Lafarge's EBITDA is on the top right.
a. As a base case, determine the likely outcome from price competition between Vencemos and the Holderbank/Lafarge alliance by finding the Nash equilibrium. (Assuming decisions are simultaneous and made only once.)
b. How would the following changes to Venezuela's cement industry alter or not alter your answer to question a., considering each change separately? (You are not expected to create a new matrix for any of the following questions, but thinking about how the matrix might change in general terms may be helpful.)
i. The government passes a law that requires all the government's contractors to buy only from the cheapest supplier.
ii. Holderbank and Lafarge announce they will adopt the "basing point" pricing system described in the case, and defer to Vencemos as the leading firm in the market.
c. Assess the prospects for Vencemos and Holderbank/Lafarge to improve on the outcome you calculated in a. In other words, their prospects of colluding at higher prices.
Q3. Now let's shift attention to the international expansion of multinational firms in the cement industry.
a. Some might argue that, given the widespread availability of raw materials and high transportation costs, the cement industry is not an industry where you would expect to see large multinational firms. Use the tools seen in class to answer the following questions.
i. What are the synergies that exist that allow multinational firms to add value to their shareholders (if they do) when they acquire a local cement company?
ii. Is ownership of local cement companies required for multinational firms to add value or would other contractual arrangements suffice? (i.e., which of the synergies (if any) identified in i. require ownership to materialize)
b. Given CEMEX's competitive (dis)advantage, in which of the following regions should it focus its international expansion efforts and why?
i. North America
ii. Latin America
iii. Europe
iv. Africa
v. East Asia
vi. India and South Asia
Attachment:- Assignment Files.rar