CEMEXs Patrimonio Hoy: At the Tipping Point?

Click to edit Master subtitle style Made by: Neeraj Saini Sagar Gupta

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About CEMEX
a regional Mexican cement producer founded in 1906 Acquired Colombias Cementos Diamante and Samper Companies in 1996, RMC Group Plc of UK in 2005 and became the worlds largest producer of ready-mix concrete. Sells products and services under three broad categories: Cement, Ready-mix concrete and related products (crushed stone , sand and gravel).

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About CEMEX
(Contd.)
operations

in 50 countries has a production capacity of 81.5 million tons/year, owns 54 cement plants and 466 readymix plants, and has over 25,000 employees In 2005, recorded US$15.1 billion in global revenue with a 16% operating margin headquartered in Monterrey with offices across the country local brands include Cemento Monterrey, Cemento Tolteca and Cemento Anahuac
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Cement Market in Mexico

Divided

into four categories:

self-construction (do-it-yourself building) government (public works projects, road construction and buildings) traditional construction (private buildings), casting/transforming (benches, floors, etc)

four

main players: CEMEX, Holcim, Cruz Azul, and Moctezuma. CEMEX market leader with 55% total market share .
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 CEMEXs

largest customer segement, accounting for approx. 40% sales. Most of purchasing done by low income group. Mexico needs 750,000 new houses every year to meet population growth, half of them by low income, informal sector Low wages, lack of credit history, and high interest rates prevent them from entering the formal mortgage and housing market

The Self Construction Market

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CEMEX : exploring new opportunities

During

1994-95 Mexican economic crisis, sales to formal construction sector fell by 50% but informal sector less affected. A multi disciplinary team created: tasked with creating an initiative that would do good but also make money. To understand the market, the team underwent 3 months of field research: visits to colonias, local distributors etc.

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Research findings
6

barriers identified that made building new homes inefficient:

1) 2) 3) 4)

5) 6)

inability to save money; lack of access to financing; limited technical construction knowledge; difficulty in accessing certified quality materials; Inability to store materials; lack of planning skills related to building homes

Found

cement was relatively undifferentiated commodity, consumers in the segment looked for lowest prices.
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Prerequisites and Initial attempts

Mr.

Francisco Garza required the initiative to have:

self-financing growth; a quick learning curve; positioning as the best segment option; fast volume growth; long-lasting customer perceived value

First

response : new product smaller sack of 25kgs failed. This initiated a second round of research : realized that financing was the biggest issue for low income groups to overcome for home construction. 7/17/12 Focus now shifted: from selling cement to

Patrimonio Hoy
New

business model : group lending program (Tanda system), technical assistance for project construction and coordination of deliveries with distributors Named Patrimonio Hoy(Patrimony Today), CEMEX listed as sponsor to create awareness and customers renamed socios(partners). With further development, tanda system discarded, replaced with CEMEX micro financing.
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What the program offers:

Microcredit for building materials

Technical Advice

Based on solidarity of a group of 3 No collaterals Benefits & Services

Advice and consultation by certified architects free of cost

Frozen prices for 70 week periods Warehousing services to store materials according to their needs

A steady, progressive, well implemented project with savings on time and less cost

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Current Operations
Headquartered

in Guadalajara, centralized staff of about 15. By end of 2005, 61 cells placed throughout country in areas with: population approx 50,000, tradition of self building, average family income 1000 pesos. Each cell independent and self sustaining, has a staff of 1 to 3 people and is customized to local needs Each cell attained break even within 12 months or 600 families served.
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Promoters
Mostly

women, promoter were hired on part time basis to attract new socios from the community itself. Compensated on basis of number socios attracted and time they stayed in the program Held information sessions on daily basis in homes of influential community members or those already built under the program

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Payment Plan
Weekly

payment of 145 pesos for 70 weeks: 125 pesos for materials; 20 pesos membership Membership fees covers costs: consulting, interest of financing, guaranteed fixed prices and operating cost of cell. Additionally, after 30 weeks of regular payment, socios eligible to join Te Impulsa Program that provided faster deliveries and additional credit, helping them complete projects faster.

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Distribution
As

socios make weekly payments, cells place orders and makes payments to local CEMEX distributor The distributor delivers cement and other supplies (steel, bricks, sand etc) directly to the socio. Socios then evaluate distributors on factors such as delivery time, shipment accuracy etc helps the program decide which distributors will get future business.
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Benefit to Socios
better

room layout, cost savings, locked-in material prices, material storage and delivery, and financing. Higher construction quality leading to higher value for homes Certification of recommendation: help in establishing the socios credit. Training program: allows socios with masonry skills to receive professional certification.

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Benefit to CEMEX
Increased

revenues, market share and improved corporate image. Branding: increase in customer loyalty, brand index for Cemento Tolteca rated at 4.6/5 after the launch of program nearest competitor rated 3. Improved social image the program won prestigious award for Social responsibility from the Centre of Mexican Philanthropy in 2004.
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Accomplishments
Since

formal launch in 2002, program has given credit totaling $50 million to over 100,000 families Defaults only $300,000 (0.6%) By 2005, program included 61 cells, 500 promoters and 120 suppliers.

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Challenges:
Socio

attrition: unable to pay for labor, 30% of total are able to complete projects Staffing: attracting, training, retaining people who can implement the model, overworked architects and less employees in cells may lead to less satisfactory customer service. Financial management: risk of fraud Coordination with distributors: late deliveries, stock outs Armoring supply chain: preventing competitor penetration
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Sustaining growth
Continue

to improve socio lives, prevent competition, secure the small distributor channel, grow market share, and further strengthen CEMEXs image. Domestic expansion: deploying operations in 1000s of eligible communities Recruiting socios: utilizing help of NGOs or non profit organizations to gain, build and maintain relationships

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Sustaining growth
New

(Contd.)

Markets: presently serving income groups of 1000 pesos per week, similar opportunities for lower income groups can be created in urban and rural areas International expansion: cell opened up in Colombia, more planned in other countries like Singapore, Venezuela, Nicaragua etc. New sources of funding

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Thank You!
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