Also present at the interview: Francisco Lebrija Z., Corporate Communications Director

We will start from a macro perspective, and it is clear that Mexico is in the eyes of everybody, improving its position and becoming an attractive place. What is your opinion regarding the economic scenario, the future prospects for Mexico, and how CEMEX capitalizes the positive situation of the country.

Well, of course. We are very optimistic about the country in the medium and long term.We believe the structural reforms will lead to a substantial economic growth, two or three GDP points. Especially the Energy and Fiscal Reforms, we think they are intimately related. They are both connected because Mexican economy still depends on oil, so any changes in oil taxes have to be done together with a tax reform. But we think that will increase two or three GDP points. We are optimistic the new government will be capable of passing a strong energy reform, a structural one, including a reform of the Constitutional article 27. That requires investments from the private initiative in the energy sector. Perspectives are encouraging and we believe the country will be in a privileged position to attract local and foreign money to grow.

And it is happening, that is clear, there is a recovery in FDI and that is connected with my next question. Nuevo Leon attracts most of the FDI in Mexico. What happens with Monterrey, what defines it, what is special about Monterrey as industrial and knowledge hub?

Yes, I think there are several factors. First, there is a strong entrepreneurial culture from college, there are great universities TEC, UDEM, UNI. They develop entrepreneurship influencing people to take the risk of starting new businesses. As a result, unlike other places, many new companies open every year. Then, due to cultural reasons, it has been the cradle of key industries for the development of Mexico. Glass, steel, beer, petrochemicals, flours like Maseca and even telecommunications were created here. Thus, there is a culture of business ties and hard effort. Things have not been easy, even due to weather conditions. It has never been easy for Monterrey. Let’s put it like this, there are other places in the country as other places in the world where you stretch your hand and grab a mango, so it is not that difficult to move forward. In this case, due to weather conditions among other things, we have always had to walk an extra mile, an extra step. This culture passes on. The strategic location of Monterrey is also very important. The fact that is close to the US undoubtedly helps.It even makes it easier toattract investment. It has become a kind of international hub regarding investment.

And as a hub, with this Interpuerto project, for the next 8 or 10 years there is going to be a rebound of the logistics capacity in Nuevo Leon and Monterrey. Let’s talk about CEMEX a bit. We do our researches and we see different company profiles. CEMEX goes behind both areas, you are global, but regarding the client, how CEMEX aligns its business network to serve proximity, quality product and availability purposes?

Ok, to begin with, in context, the industry of construction materials is global and CEMEX has been a global key player within its three areas, the three main businesses, cement, concrete and aggregates. But it is also a local business, so integral solutions for clients are developed in local markets and then we extrapolate what can be applied to similar markets. So as an example, it is not just “one size fits all”. A competitive advantage that I believe CEMEX does well is that once a recipe applies to one market it studies where else it can be applied and by means of transference of better practices it is shared with the rest of the organization right away through technology platforms, like the social network intranet we have called SHIFT. People can ask questions and customize them according to their markets. So let me give an example like Patrimonio Hoy. Patrimonio Hoy was an initiative created by CEMEX México for auto construction market and especially for the urban informal construction sector. What happened, in Mexico many people do not have access to credits because they do not have a payroll to be registered in the tax office, but they live on tips, incomes, a taxi driver, a waiter, I do not know, the informal sector. That sector has a purchasing power that can be channeled and they have the capacity to access housing. So CEMEX created Patrimonio Hoy to give credit once you have saved money. For example, a person saves 220 pesos every week, we say those 220 pesos compete against other non-lasting products like alcohol or a dinner, but women are saving that to generate patrimony for their families. Once they save four weeks of 220 pesos they are given the equivalent in credit, they give it to CEMEX. We freeze construction materials prices and after some time they decide when they want to build their room, bedroom, whatever. And someone inside the Patrimonio Hoy scheme gives them technical advice. Through Construrama network, there are almost 2,500 Construramas in the country, we deliver the materials to their houses. That was an innovative model developed by CEMEX for that segment of clients. We believed there was a particular niche, an opportunity, and it is being applied in other places like South America and the Caribbean, due to similar emerging market conditions with needs for that informal sector. And there are several things like alternative fuel, distribution mechanisms, customer service, etc. But there is no “one size fits all”, what applies for the UK may apply in Germany, what applies in Mexico may apply in the Philippines, but those better practices are shared. That is the competitive advantage CEMEX has.

And in this globalized part, taking CEMEX brand and CEMEX’s KNOW-HOW around the world, there has to be a conciliation among cultures when it comes to work and behavior, how do you deal with the culture clash at CEMEX.

That is a very good question, it is complicated, in fact since the purchases made in the beginning of the 90s, when the international shopping spree expanded, we have had to adapt to the markets and cultures of each of the countries we enter, organizational cultures, work cultures, etc. But at the end of the day we like to say it goes beyond your culture due to idiosyncrasy, where you were born, where you grew up, etc. we respect that but we also want it to coincide with CEMEX’s organizational culture. Values should be transmitted regardless of the corner of the world you live in.

Is the seed of that conciliation what you call Post Merger Integration? It results from it. You create a committee, right? You create a committee of experts to do the integration in the most effective way.

Right. In fact I have participated in some PMI, Post Merger Integration Team. Those are teams that live for six months in the countries where the purchase was made to assess processes, to see how the company was working. And let me give you the example of RMC, the purchase made in 2005, because the organizational culture is completely different from CEMEX’s. I am not saying it is better or worse, just different.

RMC is English, of English origin, but working in 20 countries, so it was a complicated integration especially in Europe. And its main production was concrete. If I am not wrong more than 300 people from the entire CEMEX Network participated in the integration and lived abroad for six months. They went back every month and a half to their countries of origin identifying best practices not only in CEMEX but in the purchased company, what are the good things that purchased company has we can implement in our organization. That committee you mentioned is created and every month there is a meeting to see how Scandinavia, France, Spain, the UK are doing. After six months those best practices were in a deliverable and we said look, these are the gaps or the gap analysis we see, what we bought against how CEMEX operates. Then we name culture people, CEMEX Legacy, let me put it like that, they move there for a couple of years to implement those gaps I just mentioned. And I repeat it, not only from CEMEX to those places. Especially in Rinker, when Rinker was purchased we pleasingly found many things, best practices they had they were worth applying in CEMEX Legacy.

And you are leaders in IT niche.

Yes, but we ran into a competitive advantage in the Shared Service Center. For example, Rinker centralized the purchase of supplies very well. The purchase of everything, I am going to buy pencils, computers, etc. So they made an effort to make their purchases. Also, regarding Business Continuity, we realized they had a war room. Before a catastrophe, as they were located in Florida, the person in charge of IT, Aira was his name, had a recovery room. Before a hurricane or an eventuality they reacted right away and had processes to mitigate any catastrophes. These things we shared in all CEMEX after the purchase.

You have mentioned technology, it is the next strong chapter, CEMEXNet, CEMTEC, CX Network, many figures, many bodies dedicated to technology optimization, and even NEORIS, this new KNOW-HUB you are acquiring is created. The question may seem simple, but what is the added value you find in these investments?

It undoubtedly is a competitive advantage. In business with relative standard practices, where you see what competitors do, we have found technology to make the difference, to be better positioned and give integral directions based on services. What I mean, just to make it clear, technology has a reason for being. Engineer Zambrano loves and has a passion for technology, at a personal and institutional level, so he has encouraged its development inside the company. As an example, since the 80s, as regards concrete we worked with distribution systems by means of geo-reference, GPS, logistics, etc. They said I guarantee you will be delivered the concrete in the next three hours, I guarantee it will be at your house within the next 30 minutes. That has strong competitive advantages for clients. CEMEX has always had an advantage and the competition will not always follow it.

And this connected to the previous things, what you said about globalization, conciliating cultures, etc. technology as well, you are using it to transmit knowledge everywhere.

A platform called SHIFT has just been created, it is CEMEX’s intranet, like CEMEX’s Facebook let’s say. It is the internal social network. For example, an oven operator in Germany gets up one day and says hey I have just made a 30% substitution of alternative fuels, I did it like this. So another one from Colombia logs in and says hey how you did the mix, I did it with this. They start talking there and those best practices are shared with all the organization.

Imagine it is a combination of Facebook, Twitter, Wikipedia, in fact there is a CEMEXPedia in there so you can look for definitions, best practices, forums, blogs, I mean, the idea is to use the connectivity service to exchange common knowledge. If you come across a problem here it will be similar to problems they ran into in the Philippines. If you do not talk to each other you will have to think of two solutions at the same time. If you talk to each other you may copy a quick solution or a more efficient solution between two, three, four or five.

What is the active participation of that?

A lot. In fact we bet on collaboration, it is one of the values of the organizational cultural, especially of CEMEX’s, regardless of you coming from Bangladesh or Malaysia, one of CEMEX’s main values is collaboration. So your experience, where you come from does not matter. Here we applaud and thank collaboration.

And for a very long time, in the applied technology you mentioned at the end of the 80s, CEMEX already had satellite communication when that was exclusively for telecommunication companies. CEMEX already had a point of satellite connection to exchange data, information, IT services, telecommunication. I mean, you dial an extension here and they answer in the Philippines. It is not a long distance call, you are interconnected. We have videoconferences to interline executive teams. It is surprising how a company, especially in the 80s or 90s, like brick and mortars, I mean, a heavy industry, was using technology to do business. Like what Mauricio was saying about internal social networks, they say hold on that is for other types of businesses, why is a cement or building materials manufacturer using that. It was the same analogy in the 80s, the satellites, videoconferences, the executives having laptops. Engineer Zambrano tells an anecdote, with one of his first salaries when he was working at Planta Torreon, he went with his supervisor and said hey we need to have more control, computers were just starting, not laptops but computers, he said no, and he used his salary to buy one. And he started doing spreadsheets to follow up production and everything. They are currently connected, they have laptops. The number of mobile solutions CEMEX has for internal use and for the client is amazing.

I would like to add something else as regards technology. In the same way we have CEMEXNet to dial an extension to a plant in Bangladesh, there is also a part in which Engineer Zambrano can follow and monitor the kcal an oven in Colombia is burning right now. That kind of immediate information access is a competitive advantage. Moreover, another advantage is the standardization of knowledge in an institutional way as regards competitive dynamics, players in different countries, etc. People share by means of collaboration logic the best practices developed by competitors, what is going on in the market, if it is becoming more complicated. That allows you to anticipate very fast and read tendencies with foresight I would say six months before they happen. You can say these players are doing this stuff in six countries, I think they are going this way, I think they will make a purchase soon. It is very useful not only to operate but also in terms of strategic information, decision making, to anticipate what will happen in six months or a year.

That is very comprehensive. All the layers of workers can access that information. You have everybody in the same page in the most cohesive way. I do not know if this can be off the record, but are these models of optimization being copied?

It has been a case study. Many case studies are about how a company like CEMEX connects to develop better solutions faster, more efficiently. In fact it is a case study now. The way such a large organization moves towards common goals is a competitive advantage. Technology is no longer a gadget but a matter of how you apply it to make the right business decisions. There are many cases, I did my MBA at IESE and CEMEX was a case study.

It is more than IT, because IT is already a commodity, but about how you use that to benefit processes, efficient decision making in companies, how you are connecting the company to make decisions faster. That is the competitive advantage. If I can do it faster than you, if I can do it better and faster then I will have a competitive advantage, in an industry that has been consolidating globally for many years.

There are clearly some players that follow CEMEX’s profile and are//

Big, aggressive and with great capacity. Something that has differentiated CEMEX traditionally is that it has clear competitive advantages. A long time ago, if you go to the 80s, it was about the most efficient production. Nobody produced with the quality and the efficiency we have. That topic is already a given fact. Then what is making the difference now is the way you develop products and take them to the market, in the best and fastest way. We launch global products around the world and we put them in the market faster than any competitor.

And talking about production, we have read you have low cost production, it may favor bigger margins, and in that sense we have read about consumption strategies and energy expenditure, which were quite new in the case of CEMEX, how do you define your position to be at the forefront?

Well, to begin with, I want to point out our energy consumption is about one third of our costs. It is very important. About 30 or 35% of our costs is energy, the cost structure.

You have to imagine our production process involves stone melting. You have 365 days a year, 24 hours a day, ovens working at 1,500°C, imagine the quantity of energy consumed by our industry. You literarily melt the stone.

It is 30, 35 of cost structure. Well, we were reading about optimized gas use, etc. So saving energy is in your DNA.

CEMEX does not almost use gas. It is combustion, other fuels. But we have recently got involved in alternative fuels, we are leaders in the use of alternative fuels. Some years ago we made a crusade in the use of alternative fuels that lead to a 27% fuel substitution, worldwide we use alternative fuel. What I mean by alternative fuel is biomass, what we call FIRSU, inorganic fraction of urban solid waste. It is basically from trash, especially in Europe where they have the culture of separating waste, we do not have that culture here yet. Inorganic waste, due to the type of process we have in the ovens, at 1,500 or 1,600°C we can use it as fuel in the oven. You results in three advantages. First, you are helping to solve waste issues in cities, so you have landfills with trash, flies and many things, you do not know what to do, well, we put that kind of waste in the ovens, it decomposes completely. Second, with that type of process you emit less CO2 to the atmosphere. And third, you save energy.

Alternative means it does not come from fossil fuels. Anything not fossil that has heating material can eventually be used. So municipal waste, depending on where you are, it may be rice peel, coffee, peanut, trash, tires, and what does not from fossil emits less CO2 when it is processed. It is a win-win situation, you reduce that the planet may absorb, like waste. You produce less CO2, they are cheaper, ecofriendly and your production is more efficient. That mixture is a complicated process, you do not just open a door where you were putting petroleum coke and now you open another one and put that. You have to change your production system.

The modifications so the ovens have that capacity. Another area I would like to mention is wind energy. CEMEX has made large investments in wind energy. Here in Oaxaca we built a park with Acciona from Spain, which currently supplies 25% of the electric power CEMEX consumes. We are making a second investment in Nuevo Leon.

It is in Monterrey, a place called Pesqueria, where it can be built. Due to current regulation terms regarding energy issues, you generate the energy but give it to CFE and CFE deducts it from your tariffs. If reforms are aggressive in the future we will compensate, maybe that energy you generate can be outsourced. So there are two things, fuel for ovens, which we are changing from fossil to alternative. And then as regards electric power to supply light, engines, for which we are using renewable energy such as wind power or hydroelectric power stations. CEMEX is betting on the sustainability of its operations, inside the fence, what is being done inside the plants, like those examples, as well as supplying materials for sustainable building, what you do outwards.

That leads to the next part about sustainability, responsibility, your research goes very far doing, I do not remember if aggregates, concrete, materials that help filter water, to reduce the use of weather, in that sense you are involved in social responsibility and commitment. Which are today, in 2013, the main CSR lines, you have many.

Yes, there is a complete social responsibility department, we take it seriously. It adapts because the need of emerging markets are others. For example, lack of housing is important in emerging markets so we try to find solutions for those specific segments.But I believe social responsibility at CEMEX goes beyond assisting people. I am going to explain myself. As regards social responsibility, because we believe we have to practice what we preach, we have community centers in all our cement plants. What we have in those community centers, there are classes and development not only for employees but for the community we operate in. They have a big room where they have sewing classes, cooking classes, English classes, computing classes, a soccer academy. For example, we have the Tigres soccer academy, we have videos and everything is for the community. That is inside cement plants, the community centers. But we also have specific programs, like the program of “blockers” we launched here in Monterrey, in Mexico, which has been very successful. Basically what we are doing is to help solve housing issues. We give rural communities, together with state housing bodies, a blocker to women, a machine to produce blocks, what you call partitions in Spain.

You mean building partitions?

We provide them the machine, we supply it by means of an agreement with the government. Usually women, the ones who truly believe in this and take the risk, start producing blocks while their husbands are working somewhere else. We give them cement at subsided prices. Half the block they produce is for them to sell and pay the costs of the blocker and the other half is for them to build their houses. It is very gratifying when there are skeptical husbands well you give them the blocker, they even laugh, they suddenly have a room or a house already built for them with this blocker scheme. They have been a success and we are doing it in several places in the country, we already have 70 blockers around the country.

It is a mixture because actually we are giving them the blockers. We give them by means of an agreement as gratuitous loans together with the government and we just want the operation to be self-financed. So you sell 50% of the operation, you pay the cement with that, you pay the operation, etc. and the other 50% is for you.

At the end the turn CEMEX made, changing a rough material, inert and almost ugly, into almost a hope, a gate for development and progress. That opens up the chapter about intangible things. Intangibility, what CEMEX produces and how CEMEX is associated with Mexico. As if Mexico used CEMEX to expand its own brand. In that sense how you connect the CEMEX-country Brand relationship.

Yes, I believe it is closely tied. I think it is pretentious to say Mexico uses CEMEX. But I would like to say we feel proud when people around the world sees a CEMEX ready-mix truck in Croatia, for example, they take a picture and upload it to Twitter with a sense of belonging, this is Mexico, it is mine, it belongs to me. We feel very proud. I think CEMEX’s international expansion example has been a world example. We are in more than 50 countries. It became a consolidated Mexican multinational that went out to conquer the world like any other. We do not fear looking at people in the eyes and look up and aspire to new things. That is why it has definitely become a referent in terms of a Mexican brand, a Mexican multinational company. I believe it is key to succeed in the different markets where we operate, and as it ends in “MEX” “CEMEX” it gives the impression you are a Mexican company and we are proud of that. We have seen many people that, we would like to put an end to this Malinchism we sometimes have with other countries, we do not always recognize it locally but we appreciate it abroad. Our challenge is to make everybody, whether in Mexico or abroad, feel that sense of belonging.

It is a complex industry, I mean, it is not like getting somewhere, installing and trading a brand. You have to get there, have all the operation requirements, closely connected with governments, environmental issues, quarries, energy use, as we said, trading, developing, I mean, you do not get there and establish a brand or trading a brand from a country, or open a franchise. Our industry goes beyond that. Having that presence Mauro talked about is a consequence of many steps, of the cases we talked about. Integrating best practices, that culture of efficiency, of goals, doing things right, coexisting with local business cultures, of doing that matching, that has made CEMEX a successful expansion model. But I wanted to mention that because trading something is not the same.

Yes, it is not exportation. If you go to CEMEX Germany in Dusseldorf you will find German CEMEX headquarters with people familiarized with CEMEX culture, with an office that has CEMEX’s logic, and ready-mix trucks with “CEMEX” painted everywhere. It is CEMEX operating around the world, not exportation.

Your brand has already been attached values like strength, well done work, you see CEMEX brand around the world and say here we have these guys who make things right. There are different kinds of interviews and I have enjoyed this one. Thanks a lot. I do not have anything left, unless you want to add something. Belen if you want to make any comments. I am happy.

I would just add to the social responsibility part, so we do not miss it, that we are very self-aware, or we try to solve natural disasters very fast. When there is a country, a brother in need we try to act very fast. We have developed internal programs, such as a card named CONSTRUAPOYO to receive resources from governments in case of a catastrophe like natural disasters, etc. But when people are truly in need we can act fast to give them a solution. The disaster in Haiti is an example of that. We operate in Haiti, we have a maritime terminal, but when the earthquake occurred, the disaster in Haiti, we sent CEMEX ships loaded with supplies. It is not only a matter of how much CEMEX puts, also through human resources for each dollar you donate CEMEX puts another one. We transmit that sharing and giving culture to the employees’ culture. That is also embedded in CEMEX’s organizational culture.

CEMEX’s culture is amazing, you ecompass everything.

If you pay attention there are many aspects related to the culture of Monterrey. Mauricio described it as entrepreneurial, if you ask around in Monterrey, at a national level, people here are hard workers, focused on their goals, very loyal, supportive, innovative, never laid back. Many of those components are embedded in this company’s culture. It is a case that can be shown through those positive values beyond borders.

That is great, because we want to cover Monterrey, we want to talk about those values, and the fact that you find similarities, that CEMEX-values and Monterrey values match, is perfect for us.

It is a good example of that applied to a company. It is not an aspirational issue, an issue with cleaer examples with aspects that have helped companies like this on to move forward and face recent challenges. We are convinced in CEMEX the best is yet to come. It is a cyclical industry. It has its ups and downs. The last five years have been very hard.

Of course, there has been a strange situation or hard to predict. It was complicated. We are reading they are lobbying to organize laws, especially investment laws, etc. US-Mexico relationship should be harmonized. We know all fronts are alive. You do not miss anything. It is true these five years may not be as flashy as the cases we used to read at the Masters, but they can be the germ of future cases, future readings of how CEMEX overcomes its challenges and what strategies it uses.

I do not remember who used to say you should never waste a crisis. We are committed to that task. In the last five years the world industry, especially the industry of construction materials, has been in crisis. We have started an introspective to understand what come be done differently, what can be done better so that when the market rebounds we are ready to capitalize it. I feel confident and I repeat it, in CEMEX the best is yet to come. I believe we will not have wasted that crisis. I am sure of that. The fact that refinancing has already been done leaves us in a better position to wait for favorable winds.

That is what we talked about at the beginning of this interview when you mentioned the weather conditions related to development. When the weather is adverse you need ingenuity to survive.

I think Monterrey as a city is also going through that. Monterrey will overcome this phase and get stronger than it was. Many things are focusing, closing ranks and everything. So when you overcome the challenge you will be stronger than when you started.

In that sense, Monterrey brand needs a change, it has been damaged. How, with what would you like Monterrey to be identified?

I think those are the values we were just talking about. What happened, we got lost in the way, we paid less attention to the values that make us unique and identify us. It is going back to the roots, to our grandfathers and great-grandfathers, to understand what made us a particularly successful culture. In the case of Monterrey I see unequivocal signs that we are on the right track. Let’s give the example of security, which is not the only issue. There is social apathy, it is a government issue and I will not get involved. And suddenly people are on top of things, with “crime traffic lights” every month, and tell me how you are, if you have lowered crime indexes, if you have not, change that corrupted civil servant.

Solidarity is always present here. We have seen how the PI focused on security issues so that it became everybody’s business. Nobody turned their back, as long as I am protected good luck to the others.

There was a period in which things were working out all right and we have to recognize it. I think the first step to move forward is to acknowledge problems, as everything in life. The first problem was that we rested on our laurels. We thought everything was working well and we realize that as society we were passive and permissive. And in some cases we were even accomplices. As a result, we need to go back to our values, to our roots. Regarding security, in three years, the state and federal governments, the PI, the society in general made an effort to actively co-participate instead of staying at home saying well, that is something the government should fix, we will see.

Having weekly meetings with businessmen to see how matters are.

With a long-term logic. We need quick hits, which are the quick hits, these four, who is charge, you are in charge of this, and you are in charge of that. You do a follow-up, hold a meeting once a month to do a briefing. In PI logic says everything that is not measured does not prosper. So we have measurements every month, among other things, the “crime traffic light” where you can see San Pedro, Santa Catalina, Monterrey, car robbery, house burglary, kidnappings, so the mayor, the current ruler, explains what is going on not only to be criticized and be pointed fingers. How can we help, it is an integral logic, the value of collaboration and listen I see you have a problem here with this issue, tell us how we can help. That is what has been encouraged.

Well, again, congratulations, because it is a bit unfair. I have a slide here the TEC gave me. I think we have talked about it the last time I was here. You are the first in national competitiveness, first in FDI attraction without counting DF, second national place in national productivity, the GDP per capita was the highest in 2010 nationally, second national place in human development index. I mean, you are either first or second in praiseworthy categories. But here are the minuses. 87% does not trust the state security system, 53% thinks the city is less safe now than in 2010, 45% is not very proud, 70% considers that more than half of the citizens are corrupted. This needs a turn. If you have this part it is just an exercise of awareness and working all together. We will help with what we can.