Learning and Innovation in Multinational Companies from Emerging Economies: The Case of CEMEX

Learning and Innovation in Multinational Companies from Emerging Economies: The Case of CEMEX

Arturo Torres Vargas (Universidad Autónoma Metropolitana, Mexico) and Javier Jasso Villazul (Universidad Nacional Autónoma de México, Mexico)
DOI: 10.4018/978-1-5225-0135-0.ch018


This chapter aims to illustrate the importance that learning trajectories and the building of technological capabilities have had in the internationalization and competitiveness process of the nowadays Multinational Companies from an Emerging Economy (MCEE), based on the case of CEMEX, a Mexican multinational and one of the largest cement companies of the world. The case study shows that the emergence of this company into the global markets is the result of a mix of assets and capabilities (Penrose, 1995; Bell & Pavitt, 1995; Bell, 2007) developed over a period of nearly eight decades, at whose base are productive, technological and organizational capabilities. Findings substantiate that multinationalization through mergers and acquisitions has strengthened the technological capabilities of CEMEX, as a result of the learning and knowledge sharing processes driven by the actual integration of CEMEX with the acquired companies. By establishing learning routines, CEMEX feeds an innovation process within the group.
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Although outward direct investment from peripheral countries is not new1, it is in the 1990s when an explosive growth of multinational companies2 from emerging economies3 (MCEE) began by expanding their productive activities to both, advanced and emerging markets.

Following the opening of the economy, large firms from emerging countries have expanded their operations to international markets via direct overseas investment and alliances with foreign firms.

According to the OECD in 2013 foreign direct investment (FDI) by transnational o multinational corporations from developing countries (DC) reached a record of $454 billion. In 2006 that figure was $215 billion. Together with transition economies, DC accounted for 39 per cent of global FDI outflows in 2013, compared with only 12 per cent at the beginning of the 2000s. FDI outflow from Latin America was an impressive $114.6 billion, 25% of the FDI outflows from developing countries. Six developing and transition economies ranked among the 20 largest investors in the world in 2013 (OECD, 2007, 2014).

Cross border mergers and acquisitions (M&A) has become an important implementation instrument for the firm’s multinationalization. Increasingly, developing-country big corporations are acquiring foreign affiliates of developed-country Multinational Corporations (MNC) in the developing world. In 2013 cross-border M&A from developing and transition economies accounted for 53% of global cross-border M&A. Among the top 20 cross-border M&A investors, 12 were from developing and transition economies; more than two thirds of M&A by Southern MNC were directed to developing and transition economies. Leading acquires in south-south deals were China, Thailand, Hong Kong and Mexico (OECD, 2014).

Mergers and acquisitions also have been utilized to a grand extent by Mexican firms, particularly by the large indigenous business corporations, known as business groups. This mechanism of growth has become a very significant element for the multinationalization of those business groups.

In theoretical and empirical tradition, the explanation of the multinationalization of companies settles on benefits such as the presence of scale economies, technological skills, marketing, management or human capital, which make more likely the fact that companies can develop themselves efficiently in other countries and get successful and sustainable results (Hymer, 1960; Johanson & Vahlne, 1977; Vernon, 1966; Vernon, 1971; Buckley, Wang & Clegg, 2007; Markusen, 2002).

In the case of MNC from emerging economies, these don't always have the benefits mentioned above, and they don't have the same technology bases as the companies from developed countries have, which would make necessary to find fuller explanations about their departure outside via foreign direct investment (Heenan & Keegan, 1979; Wells, 1983; Yeung, 1994). Many of the nowadays known as emergent economies, particularly those from Asia and Latin America, historically have been characterized by late industrialization.

Latecomer firms by definition are learners. They do not have proprietary technologies in order to grow by generating radically new products or processes (Amsden & Hikino, 1994; Amsden, 2001). That makes a difference with the business growth process of firms from developed countries.

However, the role of learning processes and building of capabilities in the multinationalization of companies from developing countries has been scarcely studied. This chapter aims to illustrate the importance that the learning trajectories and the building of technological and organizational capabilities have had in the internationalization process of the nowadays MCEE, based on the case of CEMEX, a Mexican multinational enterprise and one of the largest cement companies of the world.

Key Terms in this Chapter

Cross Border Mergers and Acquisitions (M&A): Cross-border mergers and acquisitions involve assets and operations of firms belonging to two different countries. Acquisition refer to the purchasing of assets or stocks of part or all of another firm (or other firms) that result in operational control of the whole or part of the other firm. Mergers describe the case where two separate firms are combined or amalgamated into a single business.

Technological Capabilities: Skills in areas of engineering, R&D, services, and production; embody the resources needed to generate and manage technological change, and are accumulated in individuals and organizational systems.

Emerging Economy: Those economies with a significant and rapid economic growth, increased trade volumes and increased foreign reserves. They are economies with low to middle per capita income which are becoming significant players in the modern global economy.

Production Capabilities: Those capacities to use and operate given forms of technology. Firms can move from operational activities to develop capabilities for various kinds of modification and improvement. Production capabilities are the foundation for developing capabilities in investment and innovation.

Multinational Corporation: A company which has its headquarters in one country and operates wholly or partially owned subsidiaries in one or more countries.

Late Industrialization: Refers to a subset of developing countries such as South Korea, Taiwan, Malaysia, India, Turkey, Thailand, Brazil, Argentina and Mexico, that began the twentieth century in an economically backward state and dramatically raised national income per capita by selectively investing in industry. Late industrializing firms by definition are learners. They do not have proprietary technologies in order to grow by generating radically new products or processes.

Project Execution Capabilities: Refers to skills and abilities acquired by firms experiencing a large number of technology acquisition transactions. By repeatedly execute new projects, firms enlarge their potential to unpackage technology imports. In that process firms generate skills and routinize this function which allows them to establish or expand plants and other corporate facilities.

Organizational Capabilities: Abilities of the firm to integrate and organize their activities, to bring together various skills in various functions of the firm. It includes the functional integration of activities and the coordination of the various levels of management. The integration and coordination of organizational and technological processes is crucial for the maintenance and expansion of firms.

Learning: Learning is a dynamic concept; it refers to the various processes by which skills and knowledge are acquired by individuals and, through them by organizations. Learning encompasses processes and outcomes as well as both, individual and organizational levels; it´s use in theory emphasizes the continually changing nature of organizations, and that goes beyond the view of organizations as bundles of resources. Learning includes the capacity to create new capabilities both internally and by acquiring knowledge from sources external to the firm. It also includes the methods for the diffusion of the new knowledge throughout the firm organization.

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