From cement to services: Cemex's Lorenzo Zambrano revolutionized the low-tech cement business by investing in technology; now companies want to buy that expertise. (Strategy).
Zambrano focused first on the United States. But attempts to sell cement north of the border were greeted by hostility from producers, who convinced the U.S. International Trade Commission to levy a stiff antidumping duty. Despite a GATT ruling in Cemex's favor, the company still is paying the fine a dozen years later.
Rebuffed in the world's biggest market, Zambrano turned to Spain, investing in port facilities and outmaneuvering European rivals for control of the country's two largest cement firms. When he discovered how inefficiently they were run, Zambrano sent 23 of his Mexican managers to Spain to introduce his distinctive way of doing business. Called the "Cemex Way," it's a culture that blends flexible and enlightened management practices with cutting-edge technology. "We have a passion for improving the company continuously," Zambrano says.
From Spain, where profits increased to 24 percent from 7 percent during Cemex's first two years there, he expanded around the globe. The company now has a footprint in 33 countries. Each acquisition has been followed by the arrival of specialists to complete a post-merger consolidation into the Cemex Way.
Blending state-of-the-art technology with the making and selling of one of the world's most basic products, Cemex has achieved remarkable customer service in some of the most logistically challenged nations. Whether Venezuela, Mexico or the Philippines, Cemex trucks equipped with GPS navigational systems promise deliveries within 20 minutes.
From domestic manufacturer to profitable multinational
In less than two decades, Zambrano has transformed Cemex from a domestic company into the world's third-largest cement firm. The corporation is more profitable than its two biggest competitors, France's Lafarge and Switzerland's Holcim. Sales last year were $6.7 billion; operating cash flow was about $2.2 billion. "This is a world-class company; there certainly aren't many based in Latin America," says Stanford Business School professor John Roberts, who has studied Cemex.
After gaining a solid international footing, Zambrano turned back to the U.S. In 2000, he bought Houston-based Southdown Cement--one of the largest purchases ever by a Mexican company of an American one. Soon, Cemex was the biggest U.S. cement seller. "We now have a higher stake than the companies that claim we hurt them. But they don't budge," he complains. "The U.S. was highly protectionist at that time, and, in our industry, it still is."
Such a reach means that even though Cemex, which is based in Latin America, the region suffering more than any other from the economic shock waves of September 11, it has been relatively unaffected by the continent's debt crises and growth contractions.
It helps that Cemex's Latin American presence is limited to Mexico, Panama, Nicaragua, Costa Rica, Venezuela, Colombia and the Caribbean and not the hardest hit Argentina. Like other global investors these days, Zambrano does not think the best opportunities are in South America. Cemex's most important market is North America, where two-thirds of its revenues are generated.
Zambrano is optimistic about a U.S. turnaround. "There can be no doubt that the U.S. economy is recovering, which, in turn, will drive the Mexican and the rest of the global economy upwards," he predicts.
The role of 58-year-old Zambrano in making Cemex a success cannot be underestimated, says Stanford's Roberts. "He's driven operational excellence in a remarkable fashion. He's invested heavily and imaginatively not only in plants and equipment, which is what you think of in the cement industry, but in information technology and, particularly, in Cemex's people."
The company originated in 1906 when Zambrano's grandfather founded a cement factory in Hidalgo, a state in northern Mexico. Later, that operation merged with one in nearby Monterrey, becoming Cementos Mexicanos, now Cemex. The headquarters remain in the bustling Mexican industrial city 140 miles south of the Texas border. By the 1980s, Cemex was operating cement plants throughout Mexico, and the company had diversified into petrochemicals and hotels.
Zambrano was hired in 1968 after graduating from the elite engineering school Instituto Tecnologico y de Estudios Superiores de Monterrey and Stanford's Graduate School of Business. Family connections didn't assure him a fast rise, however. He toiled 18 years in all aspects of the company. Then in 1985, at age 41, he was named chairman and CEO.
At the time, Mexico was undergoing a transformation. The volatile economy was suffering one of its biggest crises after a deceptive growth spurt. A new breed of government technocrats had just taken charge, and were opening Mexico's protected market to international businesses.
Suddenly, Cemex was competing with aggressive multinationals in its own backyard. The new leader took drastic steps to prepare Cemex to go global. "We had to take risks that a lot of people thought were too high," he says. "But we knew that if we did not take those risks, we would not survive as a company.
Within three years of becoming CEO, Zambrano rid Cemex of its top management and replaced it with first-rate professionals. He imposed worldwide standards on business practices. He shed subsidiaries to concentrate on cement. He made English the company's official language. And, to gain real-time data on far-flung operations, he established an information technology team to devise a system for tracking performance.
Zambrano needed a stronger financial foundation, so he bought two large Mexican competitors, thereby extending his domestic market share to 65 percent from 40. He took the company public in the U.S., making Cemex the first Latin American firm to offer American Depository Receipts on the New York Stock Exchange.
Eventually, Cemex gained the bulk to compete internationally. Zambrano's initial move into the U.S. proved a setback. Its main consequence was in heightening the risk of Cemex's subsequent $1.6 billion acquisitions in Spain. He bet almost everything on the move. The markets reacted with horror. Cemex stock plunged on the Mexican Bolsa and the New York Stock Exchange.
Now that shares have climbed well beyond those levels, Zambrano chuckles, but admits he understands the response. "We didn't have a great ability then," he recalls. "Now I think that people believe we can manage a cement company anywhere in the world."
Unlike his European competitors, Zambrano concentrates on developing nations where growth is stimulating construction activities using cement. Cement is the principal ingredient in concrete, used for building everything from houses to high-rises, streets to massive power dams.
Cement's market, while worldwide, is highly localized. In the developing countries where it dominates, bagged cement sales outstrip those of ready-mix. A front-page article in The Wall Street Journal this April suggested that Cemex boosts profits by gouging bagged cement prices, especially in Mexico. Zambrano bristles at the suggestion, saying price tags in Mexico appear unusually high compared with those in the U.S. because of the overvalued peso.
The executive vows to aggressively push the company into new markets, perhaps Russia and China. "If there's an opportunity, either you grab it or you let go," he says. "If you let go, you don't grow."
SWAT team converts acquisitions to the Cemex way
Post-merger consolidations of companies into the Cemex Way now take only months, compared with the two years needed to integrate the Spanish acquisitions. Any number of Cemex specialists across the globe can handle the task, Zambrano says. "It's like a SWAT team," explains the leader of one such group. "For the first two months, we look for quick hits that will bring immediate savings. We introduce our system, but we also pick up good practices that we haven't seen anywhere else."
Zambrano is known for encouraging ideas to bubble up from the bottom. The executive routinely gives talented employees unusual opportunities to test their potential. Cemex even has its own mini-MBA course to educate workers in areas outside their specialties.
"Most CEOs feel they have to have an imperial manner, but Lorenzo is supportive yet demanding of his staff," says Peter Schwartz, founder and chairman of Global Business Network, a futurist think tank outside San Francisco. "He's a very sweet man. He has a rare combination of abilities to lead and mobilize and has a clear, long-term vision."
Zambrano's embrace of technology is central to Cemex's future. Fiber optics link the system, although satellite communications still are needed to connect remote outposts. Whether at the Monterrey headquarters or on the road, the boss can tap into his computer to check kiln temperatures in Bali or cement truck deliveries in Cairo. "When I became CEO, I began using email as a way of communicating," explains Zambrano. "When I didn't get an answer quickly, I would grab the phone and ask: 'Have you looked at your email?' It soon became used by everyone throughout the organization."
Now he finds it impossible to probe every detail, so he uses the system to help foster growth and efficiency. Competitors' computer networks still lack the level of sophistication Cemex has achieved.
Because he believes many companies use technology ineffectively, Zambrano last year spun off Cemex's technology arm to sell its services. Organized under the CxNetworks Miami subsidiary, which is devoted to creating growth by building innovative businesses around Cemex's strengths, Zambrano formed a consulting service called Neoris. With one quarter of customers outside Cemex, the operation already has earned a $150 million income. It has been grouped with another startup--Arkio, an operation envisioned as a distributor of building material products to construction companies in developing nations. A warehouse operation to supply builders with 25,000 products is testing the concept in Mexico. "We're selling logistics," says CxNetworks' President Juan Pablo San Agustin. "We can assure our customers that they can have the materials from our warehouse to their construction site within 48 hours."
The CxNetworks units are steeped in Zambrano's distinctive practices. Indeed, San Agustin says, the Cemex Way is the major product both units are selling. "In the region, everybody knows about Cemex," he says. "The aim is to conform the global construction industry. We have to move always very fast. It's a part of our culture."
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|Publication:||Chief Executive (U.S.)|
|Date:||Nov 1, 2002|
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