COLOGNE BUSINESS SCHOOL (CBS)

The importance of intercultural

competence to become a multinational
corporation: a case study of CEMEX
Abstract

Globalization is a phenomenon that is moving the world economy, and this is driven by
three essential participants the governments, International Governmental
Organizations (World Bank or IMF) and the transnational companies. The first two
allow companies to trespass their national boundaries and extend their success in
other countries. To have this there are two necessities that need to be accomplished,
the governments need to attract direct investment to have a grow in their GDP and the
companies need to see attractive incentives by the governments (ex. tax exemptions,
subsidies or loans) to take the risk of investing in a foreign country, and the in-between
actions are taken by the International Governmental Organizations allowing to satisfy
both parts. The main factors for a company to take the decision of becoming a
multinational could be for expanding their market, seek of economies of scale (by
reducing cost in raw materials or with lower cost of wages) or be stablished in strategic
locations (being closer of a target market ex. Mexico is a strategic location to attack
USA market). One strategy to enter in another country is by M&A´s, this allows the
Multinationals to take the market, infrastructure and knowledge of a local company, the
main task that involves this is the cultural adaptation, combining two companies can
cause a shock between the organizational cultures and individual cultures of the
employees, so is a matter that has to be taken in count before thinking in a M&A. To
explain how an adequate strategy had been implemented, the acquisition of RMC by
CEMEX will be explained.
Table of content

1. Introduction..............................................................................................................1

2. Literature Review.....................................................................................................2

2.1. Formulating and implementing strategies for global undertakings..................2

2.2. Working with multicultural teams.....................................................................2

2.3. Cultural value dimensions................................................................................3

3. Case study...............................................................................................................4

4. Discussion...............................................................................................................8

4.1. Main findings....................................................................................................8

4.2. Theoretical and practical implications..............................................................8

4.3. Limitations & Future outlook............................................................................8

5. References............................................................................................................10

6. Affidavit/Ethics Statement......................................................................................11
1. Introduction

The number of multinational corporations (MNCs) has grown considerably in the last
few years. “According to the United Nations, in 1990 there were about 30,000
multinational companies. In 2015 there were more than 60,000” (Kreitner, 2008, p. 88).
Many of the latest trends in international business, worldwide competitiveness on
global markets and even in the economy of each state; are directly linked to MNCs.
This can be attributed mainly to a well-known phenomenon called globalization. In
terms of economics, globalization can be defined as increased cross-border economic
interactions, with the main actors involved being transnational corporations. (Haynes,
Hough, Malik, & Pettiford, 2010, p. 45) These actors, along with some international
governmental organizations like the World Bank or the IMF, set the system for a global
economy. The multinational corporation is a business organization whose activities are
located in more than two countries and is the organizational form that defines foreign
direct investment. (Kogut, 2001, p. 10197). Companies can make use of mergers and
acquisitions (M&As) as an strategy to achieve international operations; which
automatically makes it fall into the MNC category.

This derives in the absolute need of cross cultural management and the whole different
set of challenges that comes with it like dealing with cross-cultural teams. Intercultural
competence refers to the understanding of motivation and behavioral drivers of one’s
own personal and others’ cultural programming. (Rød, 2012, p. 33) This enables each
person and team in an organization to work successfully in a culturally diverse setting.

The contribution to preceding literature that is expected to be made with this paper is to
aim attention on how intercultural competence helps manage intercultural teams and
as a consequence, succeed in global operations. In contemplation of that topic, this
paper will analyze the globalization strategy followed by Mexican company CEMEX
and the successful acquisition of RMC from the United Kingdom. The case study will
help highlight the relevance of working with international teams and the understanding
the role of cultural context applying Hofstede’s Cultural Dimensions model.

For pragmatic reasons, this paper goes along with the following structure. Chapter two
of literature review will go deeply into how to formulate and implement global
strategies; then onto some guidelines on working with global teams, and finally a few
models that may help increase intercultural competence. Next, the case will be

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presented and it will be linked to the concepts exposed in the literature review. As a
final point, a discussion of the main findings from the case study will be exposed in
addition to theoretical and practical implications.

2. Literature Review

2.1. Formulating and implementing strategies for global undertakings

Companies decide to embark on international operations for a number of various

reasons. A common financial reason are economies of scale, that is to achieve world-
scale volume to make the fullest use of modern capital-intensive manufacturing
equipment and to amortize staggering research and development costs. (Deresky,
2007, p. 210) Management also has to be constantly monitoring the external
environment in order to detect growth opportunities; this can bring their products to a
fresh life cycle in the new market, provide a place to invest retained earnings or put to
use underutilized managerial and technological resources. Governments in nations
such as Poland constantly seek new inflows of investment so they provide certain
incentives – such as tax exemptions, subsidies or loans – to attract foreign companies.

Nonetheless the most remarkable strategic reason is the threat of losing

competitiveness in a globalized world. In contemplation of the goal to remain operating
for many years, corporations need to build a strong position in strategic markets rather
than the domestic one. (Deresky, 2007, p. 209)

Once the decision to enter a new country has been taken, the next step is choosing an
entry strategy alternative. Managers must take into consideration the level of risk
aversion he or she has with regard to serving the maximum potential of the new
market. Usually the first step to international expansion is through exports. It’s a low-
risk alternative due to the minor investment required and fast withdrawal in case of
trouble. Other known strategies are licensing, franchising, contract manufacturing,
service-sector outsourcing, turnkey operations, management contracts, joint ventures,
and fully owned subsidiaries. (Deresky, 2007, p. 225) The last strategy exposes the
company to the full range of risk. A great alternative to offset it is through M&As; this
allows access established products and distributions networks.

2.2. Working with multicultural teams

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The word “team” can be defined as a number of people who work together for a
common purpose and hold themselves collectively responsible for what they do
(Browaeys & Price, 2011, p. 330). For MNCs teamwork is a matter of internal
management; there is culturally diverse people who are located around the world but
working together in each subsidiary. And while some cultural barriers may difficult the
managing of this kind of teams; they are also more creative. The team’s ability to work
effectively together is crucial to the company’s success. Different types of teams work
in companies in order to achieve organizational goals; Robbins (2011, p. 331)
proposes the following categorization:

 Problem-solving: Regular meetings to discuss and make suggestions on how to

improve work processes and methods.
 Self-managed: Employees have a high level of empowerment since there is no
supervisor needed.
 Cross-functional: People from different departments of business units work
together to accomplish a task or project. Hierarchy is usually completely flat.
 Virtual: Created from the need to overcome geographic distance or time
difference. Research indicates that face-to-face meetings are the best way to
start a virtual team; this way member can agree on goals, roles and schedules.
(Deresky, 2007, p. 374)
 Post-merger integration: Temporary organization structure that exists outside of
people’s day-to-day jobs. Their job is to address each of the primary sources of
value in the integration and managing critical areas of risk. (BCG, n.d.)

2.3. Cultural value dimensions

The use of cultural dimension models can offer managers with a starting point to
understanding a new market or the members of a multinational team. This kind of tools
help managers decide on an approach and plan of action, then evaluate how the
society might respond to them. Comparing their home country against others facilitates
the assessment of differences and raises awareness of them. With the understanding
of how other cultures impact ours, cultural competence will develop gradually.

An uncomplex and useful model that is frequently mentioned and applied in

international management is Professor Geert Hofstede’s six dimensions (6-D) of
national culture. Geert Hofstede (2010) defines culture as “the collective programming

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of the mind distinguishing the members of one group or category of people from
others”. His research was directed towards understanding how values in the workplace
are influenced by culture. In 1967 he began his research while working in the personnel
research department of IBM Europe. The first source for data were scores from attitude
surveys relating to the work situation within the company. The initial data covered 40
countries. To validate his results, he applied the survey to other groups such as
students, airline pilots, and civil service managers. (Browaeys & Price, 2011, p. 25) The
four (that some years later became six) cultural dimensions that Hofstede came up with
represent individual inclinations that distinguish countries from each other. Each
dimension and its main attributes are presented below.

 Power Distance Index (PDI): This dimension deals with the fact that all
individuals in societies are not equal. It describes the extent to which the less
powerful members from an institution within a country expect and accept that
power is distributed unequally (Hofstede Insights, n.d.).
 Individualism vs Collectivism (IDV): The fundamental issue addressed by this
dimension is the degree of interdependence a society maintains among its
members. It has to do with whether people´s self-image is defined in terms of “I”
or “We” (Hofstede Insights, n.d.).
 Masculinity vs Femininity (MAS): The fundamental issue here is what motivates
people, wanting to be the best (Masculine) or liking what you do (Feminine). In
the business context is related to tough vs tender (Hofstede Insights, n.d.).
 Uncertainty Avoidance Index (UAI): This dimension has to do with the extent to
which the members of a culture feel threatened by unusual or risky situations
and have created beliefs and institutions that try to avoid these. It also explains
how they deal with the anxiety of the ambiguity (Hofstede Insights, n.d.).
 Long Term Orientation vs Short Term Normative Orientation (LTO): In the
business context, this dimension is referred to as normative vs pragmatic. This
dimension describes how every society has to maintain some links with its own
past while dealing with the challenges of the present and future, and how
societies prioritize these two differently (Hofstede Insights, n.d.).
 Indulgence vs Restraint (IND): This dimension is defined as the extent to which
people try to control their desires and impulses, based on the way they were
raised (Hofstede Insights, n.d.).

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3. Case study

Analyzing a real-life case from a Mexican firm, this section will emphasize on how and
why the post-merger integration global team was key to the success of the following
acquisitions. First, the buyer will be introduced along with an overview of its
globalization path. To touch on intercultural competence, Hofstede’s Model will be
employed. Following with a detailed chronicle of the RMC acquisition situations and
how the company decided to approach them.

CEMEX is one company that is aggressively taking advantage of growth opportunities

through merger and acquisitions. Established in Mexico in 1906, CEMEX has gone
from being a local player to being one of the leading global companies in the industry.
Today, the Mexican cement giant is a global enterprise of building materials for the
construction industry that offers high quality products and services with customers in
more than 50 countries. With more than 40,000 employees worldwide, CEMEX is
strategically positioned in America, the Caribbean, Europe, Africa, the Middle East and
Asia (CEMEX, 2017, p. 3).

The firm initiated this process that consolidated its local presence around 1931 through
a series of M&As in different states of Mexico. CEMEX followed a standard
internationalization process beginning with exports in 1985. A year later, through co-
investments with North American cement companies, CEMEX consolidated its export
program. Their international expansion started in 1992 when they entered the
European market acquiring Valenciana and Sanson, Spain’s largest cement
companies. They continued with acquisitions in Venezuela, Colombia, the Caribbean,
the Philippines, and Indonesia during the 90s. (Khan, 2016, p. 163)

They work with the latest information systems and tech innovations that allows them to
excel in in global operations management. After the acquisitions, CEMEX conducted a
review of each operational and organizational process to capture any source of
savings, quickly integrating it into its process (Lessard & Reavis, 2009 in Khan, 2016,
p. 164). As a result, CEMEX began to codify and standardize the steps required in
identifying sources of savings in new acquisitions, establishing its own operations and
management practices. This derived in a more formal administrative process that
consists in a series of practices that with the help of IT systems help reach the optimal
degree of integration and centralize the processes, reduces cost through economies of

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scale, adopt the best practices for the whole company; and most importantly
encourage innovation. This was later identified with the name of Cemex Way.
(Fuentes-Berain, 2011, p. 115) For the analysis, it will acknowledge as the company’s
organizational culture.

It’s important to keep in mind that one of the main challenges with cross-border M&As
is that there are not only two different organizational cultures that have to become one.
There are two (or even more) national cultures that are trying to coexist; in this case
Mexico and the UK. Before going into the actual acquisition process, a Hofstede’s 6-D
model analysis will be made. The CEMEX multinational PMI teams included people
from Mexico, Brazil, Uruguay, Spain, and Hungary; however, for academic purpose it
will only consider the home countries of the companies involved.

 PDI: Mexico with a score of 81, has a vertical power structure. The UK, on the
other end with 35, is a low distance country. This could bring tension between
superiors and subordinates and their roles within the company.
 IDV: Mexico with a score of 30, is a collectivistic society. With a much higher
score of 89, the UK shows an individualist score. An issue that this might arise
is with reward systems or relationships.
 MAS: Mexicans and British, with a score of 69 and 66 respectively, are
considered masculine societies. This is a perfect meeting point, since they will
all be ambitious and motivated by money and results.
 UAI: Mexicans, with a score of 82, prefer to avoid uncertainty. British with 35
are much more comfortable with ambiguity. A concern here might be the need
for rules and resistance to change.
 LTO: Mexico, with a score of 24, is a normative society with short-term
orientation. The UK has a neutral score of 51; which Mexicans can take
advantage of and sway it easier.
 IND: Mexicans, with a score of 97, and the UK with 69, are both indulgent
cultures. This is also a good juncture since people follow their impulses
because they are optimist and like to have fun.

On September 28, 2004 Lorenzo Zambrano, chairman and CEO at the time;
announced his intention to buy British RMC Group PLC. Until then, this had been the
biggest acquisition ever made by a Mexican company so far. With this purchase,

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CEMEX was going to be able to doubled its size. Skepticism rapidly arose in the
market, investors and even RMC own employees had negative perceptions about a
company from the “third world” taking over a major business operating in a developed
market (Kanter, 2009). Risk rating agencies announced almost immediately that they
were considering lowering its risk rating because the purchase would worsen their debt
profile. "They miss our core strength, which is how quickly we can introduce efficiency."
Zambrano said, referring to the Cemex Way. (Lyons, 2004)

On march 1st, 2005, Mr. Zambrano proclaimed that the deal was successfully
completed for 5.8 billion. "With the integration of RMC, CEMEX will enhance its position
as one of the world's largest building materials companies […]. The addition of RMC
enhances CEMEX's growth platform and diversifies our geographic base by
strengthening our presence in the US and gives us exposure to high-growth markets in
Eastern Europe and an important position in mature markets in Western Europe."
(CEMEX, 2005b)

In the post-merger integration (PMI) process companies need to maximize their human
resources so they can manage the transnational transfer of knowledge. Integrating
RMC, was be the biggest challenge faced by CEMEX managers yet. They had to share
its know-how with RMC’s 27,000 employees; that without taking into account that both
managers and employees were all from diverse cultural backgrounds. The company
sent experienced PMI teams, to help fix the problems in RMC’s troubled cement plant
in Rugby, England and train their new colleagues in CEMEX practices. They relied
mostly in cross-functional teams made up a number of experts in specific functional
areas (Planning Finance, IT, HR), in addition to a group leader, as well as quality
control and maintenance support. Each team was overseen by a CEMEX executive at
the VP level that was most times part of a virtual team. (Lessard & Reavis, 2016, p. 6)

As a first approach to alleviate any resistance to change, CEMEX experts worked

alongside their Rugby counterparts, emphasized their own transitional status, and
recommended keeping all local managers willing to stay They also kept the old
systems running side by side with the new. At the same time, other employees were
sent to CEMEX plants in Mexico, the United States, and Germany to experience the
Cemex Way. (Kanter, 2009)

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It was crucial for the success of the acquisition that CEMEX representatives studied
British culture and were made aware of all the threat and opportunities like the one its
was observed in the 6-D model analysis in order to optimize organizational team
performance. A new variable compensation bonus plan based on plant performance
was installed; this relates to masculinity from the MAS and IND dimensions since
workers enjoy the fruits of success. The concerns awaken by PDI and IDV dimensions
ceased when a legacy RMC sales manager attested: “I have never, ever felt as much a
part of the team as I do with this crowd. They actually listen and seek your advice, and
it doesn’t matter if it is not necessarily what they want to hear. They are open to your
ideas” Apparently the PMI team members listened openly to their new colleagues,
which helped them bridge major cultural gaps. (Kanter, 2009).

4. Discussion

4.1. Main findings

Mexico’s CEMEX opted for a fully owned subsidiary strategy for its globalization path.
They say that practice makes perfect, and that proved to be true with the so called
Cemex Way. After years of effective acquisitions in many different countries around the
world, they were more than well prepared for the one that allowed them to double its
size. The key to their prosperity has to be their ability to manage their cross-functional
PMI teams. Thanks to the human capital, their business practices kept getting better
deal after deal. And of course after using Hofstede’s dimensions for the cultural
analysis it’s safe to say that their intercultural competence was rather high.

4.2. Theoretical and practical implications

People tend to learn from mistakes more frequently than from example. However; it’s
always enlightening to have an optimistic view of learning. The case exposed in this
paper may serve to other companies with a similar cultural or organizational
background and they can easily apply some of these same practices to improve their
internationalization strategies M&As have a high degree of difficulty in itself; when you
add the cross cultural factor, the challenge is even tougher since administration has to
take into consideration not only organizational culture, but the national culture too.. For
example, the tool of country culture analysis by Hofstede is a simple and useful tool to
start cultivating intercultural competence.

4.3. Limitations & Future outlook

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Because of the length of this paper, a formal M&A framework or organizational change
model wasn’t used. It would be recommended since it would have bettered the
understanding of a more step-by-step process for the merger integration. The fact that
CEMEX is a Mexican company and Mexico is a developing economy and it’s
competing, and winning against developed economies makes one wonder if there are
other winner cases like this one. Since most research being made on
internationalization explains the process considering primarily businesses from
developed countries; a study emphasizing on multinationals from emerging economies
is suggested.

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Word count: 3113

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5. References

BCG. (n.d.). Forming the Right Post Merger Integration Team Structure. Retrieved
May 4, 2018, from https://www.bcg.com/capabilities/postmerger-integration/pmi-team-
structure.aspx

Browaeys, M.-J., & Price, R. (2011). Understanding Cross-Cultural Management (2

edition). Harlow, England ; New York: Prentice Hall.

CEMEX. (2005a). Reporte Integrado 2005 CEMEX (Annual Report) (p. 195). Mexico:
CEMEX.

CEMEX. (2005b, March 1). CEMEX completes acquisition of RMC. Retrieved May 1,
2018, from https://www.cemexusa.com/-/cemex-completes-acquisition-of-rmc

Deresky, H. (2007). International Management: Managing Across Borders and

Cultures. Upper Saddle River, N.J.: TBS.

Fuentes-Berain, R. (2011). Oro gris: Zambrano, la gesta de CEMEX y la globalización

en México. Penguin Random House Grupo Editorial México.

Haynes, J., Hough, P., Malik, S., & Pettiford, L. (2010). World Politics: International
Relations and Globalisation in the 21st Century (1 edition). Harlow: Routledge.

Hofstede Insights. (n.d.). National Culture. Retrieved May 1, 2018, from

https://www.hofstede-insights.com/models/national-culture/

Kanter, R. M. (2009, October 1). Mergers That Stick. Retrieved April 14, 2018, from
https://hbr.org/2009/10/mergers-that-stick

Khan, M. A. (2016). Multinational Enterprise Management Strategies in Developing

Countries. Hershey, PA: Business Science Reference. Retrieved from
http://search.ebscohost.com/login.aspx?
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Kreitner, R. (2008). Principles of Management. Cengage Learning.

Kogut, B. (2001). Multinational Corporations. In Smelser, N. J., & Baltes, P. B. (Eds.).

International Encyclopedia of the Social & Behavioral Sciences (Vol. 11). Amsterdam:

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Elsevier, pp. 10197-10204.

Lessard, D. R., & Reavis, C. (2016). CEMEX: Globalization “The CEMEX Way,” 21.

Lyons, J. (2004, September 28). Cemex Cements Its Position With Agreement to Buy
RMC. WSJ. Retrieved from http://www.wsj.com/articles/SB109632755896929502

Rød, A. (2012). Working with Intercultural Teams to Optimize Performance, 44(1), 6.

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