Essay Questions: Cemex’s Foreign Direct Investment
MGT 4446 – International Business
David C. Hawes
The theory that best explains Cemex’s Foreign Direct Investment, in my opinion, is the internalization theory. This theory presents factors why FDI is preferred over licensing or even exporting. Given the type of product Cemex produces (cement), exporting is definitely out of the question. And Cemex does not want to license because they do not want the know-how of their technological advancements to be in the hands of the host country, and they want to maintain tight control over foreign operations. Although the case does not talk too much about rivals in the Cement industry, it is possible in my view that F.T. Knickerbocker’s theory can also serve as an explanation for Cemex’s FDI. Being a developing nation themselves, Cemex felt it had a better understanding of other developing nations, where there was tremendous demand for construction, than rivaling multinational cement companies who were from developed nations.
The benefits to a host nation by Cemex’s FDI I see as resource-transfer effects (financial resources and technological advancements); beneficial employment effects; and increases to the current account affecting the balance-of-payments. The capital Cemex would invest in the host nation in order to set up shop would indeed benefit them. Cemex has made leading strides with technology implementation in cement making and distribution. This knowledge would be learned by the host nation. Negative impacts of FDI in a host nation can be adverse effects on competition and balance of payments. Cemex has become such a powerhouse that competing companies in a host nation will have a difficult time competing with them and would be out of business. This could lead to a monopoly in that country for the cement industry. But the case brings out that Cemex has a tendency to acquire other cement...