The CEMEX case (found in your readings book for the class) describes the global activities of competitors in the cement industry. For the purposes of this exam, you should focus only Cemex and Holderbank.
Industry Analysis: (15 points)
Describe the industry factors that influence the profitability of this industry?
The industry is very global. Do you think these industry factors are the same in almost all countries?
The industry shows wide variation in the performance of firms. Focusing only on Cemex and Holderbank, answer the following questions: (20 points)
Using the value stick analysis, why is their profitability different? Use the data (exhibit 4) from the case to compare their cost and price positions.
How would you briefly describe then the strategy of Cemex?
What is CEMEX's competitive advantage in producing cement? How does this advantage help them create and capture value (15 points)
Both CEMEX and Holderbank intend to enter a new market: the country of Atlantis. They have entered the market recently by acquiring the only two domestic cement companies; there are no other competitors in the market besides Cemex and Holderbank. Both CEMEX and Holderbank must choose a price at which they will sell the cement (per ton price). The market share of Holderbank is 60%; Cemex's share is 40%. Demand is driven by the local business cycle and is fairly inelastic given that the economy is in the midst of a construction boom. . It is estimated that for every $10 difference in price per ton, market share changes by 20%. The size of the entire market is 7 million tons, measured below in $100,000s. The variable cost of production of cement is $78 for CEMEX and $88 for Holderbank. The profits of each CEMEX and Holderbank can be summarized using the following equations:
CEMEX and Holderbank can choose one of two prices (a low or high price): $100 or $120 per ton.
At what price will CEMEX and Holderbank enter the market and how will this affect their profits? (20 points)
Given your solution, how might Cemex and Holderbank try to improve their profits without merging their activities? Why do you think your proposal will lead to stability in the market without leading to price competition? (10 points)
Cemex's corporate scope is both vertical (it owns ships and foundries, for example) and international (it competes in many countries).
Consider a situation where CEMEX is faced with an opportunity to buy a port in Atlantis which would improve the importing and exporting of cement. The construction is subsidized by the government and the port fees should be profitable. Should Cemex make the investment? (10 points)
Cemex wishes to increase its internationalization and is looking at exhibit 7 for guidance in which country it should first expand. What is your recommendation and why? (10 points)