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Mixing Salsa with Islam.

Despite the distance and cultural differences, Mexico's Cemex is finding common ground in Indonesia.

IT'S SATURDAY NIGHT IN INDONESAIA'S CROWDED CAPITAL AND Latin salsa rhythms stream from a sweaty discotheque in a busy suburb. Ricky Martin's "Livin' la Vida Loca" is the hot song and Corona Extra is the beer to drink--all of which makes Luis Fernandez, who works in the shipping department at Mexican cement giant Cemex in Indonesia, feel more at home. "It makes you forget that you are on the other side of the planet in a completely different culture," he says.

Despite the distance and the cultural differences, Cemex is finding common ground in this Muslim-dominated Southeast Asian island nation (population: 216 million). That means Catholicism sits alongside Islam and Latin American salsa shares the stage with Indonesian pop star Katon Bagaskara. One of the Indonesian managers at the four-star Cemara hotel in downtown Jakarta has become such a Mariachi fan that Mexican ranchero hits such as "Que bonitos ojos tienes" can often be heard in the lobby.

Cemex officials say that coming from a fellow developing nation has helped the company establish a favorable working climate in Asia. The Mexican company, the third-largest cement producer in the world, runs operations in Indonesia as well as in the Philippines and Singapore. Raymundo Gonzalez, Cemex's Monterrey-based international trading division manager, who works frequently with its Asian operations, compares Mexico and Indonesia. "Both countries are emerging markets, both sometimes have to work without all the technology available [and] both share the same ideals of development. So we are speaking the same language and there is a very high level of tolerance between us," he says.

When Cemex acquired 14% of Indonesian cement producer Semen Gresik for an estimated US$118 million in 1998, it marked the first time a foreign company had been allowed to invest in the cement sector, not to mention in a state-owned business. Last year, Cemex increased that stake to 25%, reportedly investing an additional $92 million.

With 11 plants throughout the country and production capacity of about 17.2 million tons, Semen Gresik is the second-biggest operation for Cemex outside Mexico. By comparison, Cemex's capacity in Mexico stands at 28.4 million tons and its worldwide capacity at 81.4 million tons, according to Deutsche Bank.

"Obviously, working in such a different culture is a major challenge," says Gordon Lee, an analyst at Deutsche Bank. "But Cemex already did a lot of cement trading in Asia before it joined Gresik and was, therefore, much more exposed to Asia than other Latin American companies."

Concrete export growth. Cemex's influence has already had some positive effects. Semen Gresik's domestic sales grew nearly 23% last year to 12.64 million tons--not bad considering overall Indonesian cement consumption through November fell 3% because of a depressed construction sector, according to estimates by the Indonesian Ministry of Industry and Trade. Semen Gresik's growth was also significantly higher than the sector, which rose 10% last year to 24.6 million tons, according to the Indonesian Association of Cement Producers.

As part of its partnership with the government, Cemex pledged to help Semen Gresik export at least 1.5 million tons of cement annually It already has, and then some: Last year, exports rose 139% to 4.18 million tons--faster than the country's total cement exports, which jumped 119.5% last year to 8.4 million tons, according to figures from the cement producers' association. This year, Semen Gresik is expected to export three to four times more than before Cemex bought into the company.

Analysts unanimously give Cemex credit for Semen Gresik's export boost, saying it served as a major factor in the cement producer's survival through the Asian crisis. "It's a pretty dramatic improvement on the export market, and had Cemex not taken over Gresik, that would have been difficult to do," Deutsche Bank's Lee says.

Two years ago, the scene was dismal. The Asian economic crisis was at its worst; the Indonesian economy plunged 13.7% in 1998. The cement industry fell still faster, with production collapsing 18.7%, to 22.4 million tons. Exports were crucial for survival and provided desperately needed hard currency.

While a rise in exports helped balance some of the losses, big producers started to cut their production-- including Semen Gresik. By mid-1998, the company had reportedly slashed output to 50% of its 17.2-million-ton capacity Local cement sales in Indonesia continued to drop through 1999 as the economy grew only 1% and government and private-sector construction projects remained stalled or were canceled. Seeking control. In the second half of last year, however, many companies resumed their delayed construction projects, and the numbers look better for this year. Local cement consumption is expected to grow 6% this year to 20.6 million tons and output capacity is expected to edge up 10% this year to 47.5 million tons. At the same time, the Indonesian rupiah, which went from 2,500 to the dollar in early 1997 to about 17,500 in 1998, is projected to remain stable at between 6,000 and 7,000 to the dollar, according to the Central Bank.

Analysts think the government will eventually sell an additional 26% of Semen Gresik to Cemex, giving the Mexican company a controlling stake. Although no specific targets have been mentioned, Cemex has often stated that it intends to pursue the 51% stake of Semen Gresik in the hands of the Indonesian government," according to a Deutsche Bank report.

Where next? The company has already expressed interest in Thailand, and Malaysia and India may not be far behind. But Cemex's immediate focus is on the majority stake in Semen Gresik. Clearly, this is Cemex's prime target as far as expansion is concerned," Lee says. "If Cemex could do this now, it would."

Now that it's made a place in Indonesia, Cemex plans to expand further in Asia. According to Salomon Smith Barney analyst Carmen Slade, Cemex can meet its financial targets and still make $900 million in acquisitions this year--including an increase to a controlling stake of Semen Gresik. The potential price: about $300 million.
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Title Annotation:Cemex operations in Indonesia
Comment:Mixing Salsa with Islam.(Cemex operations in Indonesia)
Publication:Latin Trade
Article Type:Brief Article
Geographic Code:9INDO
Date:Jun 1, 2000
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