A Case Study of CEMEX Patrimonio Hoy: Providing Integral Housing Solutions

for Low-Income Families

In Partial Fulfillment of the Requirements in

Advance Economics

Prepared for:

Mr. Richard Lajara

Prepared by:

Atienza, Kathleen P.

Barairo, Aisha Celine B.

Gonzales, Kyla P.
I. Macroeconomic Environment

 GDP

The Gross Domestic Product (GDP) for Mexico is as shown in the graph:

 Unemployment Rate
The Unemployment rate for Mexico from 2001 to 2017 is as shown in the graph:
 Inflation Rate

Inflation rate in Mexico rose to 4.65 percent year-on-year in June 2018 from
4.51 percent in May and exceeding market expectations of 4.56 percent. It was the
first increase in inflation since December, mainly due to higher cost of energy and
fuels. The central bank noted that inflation could converge to the 3 percent target
more slowly than initially estimated. Main reasons are linked to recent shocks
including further peso depreciation caused by fears surrounding the future of
NAFTA, presidential elections and rising cost of fuels. Inflation Rate in Mexico

averaged 24.93 percent from 1974 until 2018, reaching an all time high of 179.73
percent in February of 1988 and a record low of 2.13 percent in December of 2015.

 Number of families

Despite the progress that has been made in providing housing in recent
years, more than 53.3 million people in Mexico do not have the financial means to
buy or build adequate housing (45.5%).

Family income has been losing purchasing power: 60.6 million people
(51.6%)earn incomes below the welfare line, which are insufficient to acquire the
goods and services they require to meet their most basic subsistence needs.
 Of this population, 15.9 million people (13.6%) live in homes with dirt floors,
roofs made of tin, cardboard or debris, walls made of mud, reeds, palm or sheet;
24.9 million (21.2%) have no access to basic services of potable water, drainage,
electricity and fuel for cooking or heating food. In addition, more than 538,000
families live in overcrowded conditions.

 Cost of housing

Cost of living in Mexico is 1.81% lower than in Philippines (aggregate data

for all cities, rent is not taken into account). Rent in Mexico is 37.16% higher than
in Philippines (average data for all cities).

II. Company Profile

CEMEX is a global building materials company that provides high-quality products

and reliable service to customers and communities in more than 50 countries. CEMEX
has a rich history of improving the wellbeing of those it serves through innovative building
solutions, efficiency advancements, and efforts to promote a sustainable future. Founded
in Mexico in 1906, CEMEX has grown from a local player to one of the top global
companies in the industry. With over 40,000 employees worldwide, CEMEX is
strategically positioned in the Americas, the Caribbean, Europe, Africa, the Middle East,
and Asia.

In January 2014, Patrimonio Hoy (PH; Spanish for Patrimony Today), a subsidiary
of the multinational Mexican cement manufacturer CEMEX, joined the Business Call to
Action (BCtA) with the objective of strengthening its inclusive business model through this
strategic partnership. The BCtA is helping PH and CEMEX to define international
standards for measuring social and economic impacts in the housing sector, while PH
provides needed inputs and undertakes the groundwork required for these
measurements. Through an internationally recognized impact reporting framework, this
partnership will further strengthen PH’s reputation as a leader in inclusive business.

Goals of PH:

o offer a market-based solution to meet the housing needs of low-income

families in urban and semi-urban areas in order to empower them and
improve their quality of life;
o provide at least 125,000, additional low-income families (more than 600,000
people) in Mexico with affordable housing by 2016; and • replicate the model
in other developing countries.

Product Offerings:

CEMEX operations network produces, distributes, and markets cement,

ready-mix concrete, aggregates, and related building materials, services, and
solutions. They always strive to provide superior building solutions and a superior
customer experience in the markets they serve. To this end, they tailor their
products and services to suit its customers’ specific needs—from home
construction, improvement, and renovation to agricultural, industrial, and
marine/hydraulic applications.
  Aggregates - Obtained from land-based sources or by dredging marine
deposits.
CEMEX offers: Crushed stone, manufactured sand, gravel, sand,
and recycled concrete
 Cement - A binding agent, when mixed with aggregates and water,
produces either ready-mix concrete or mortar.
CEMEX offers: High-quality cement such as Gray Ordinary Portland,
White Portland, Masonry or Mortar, Oil-well, and Blended Cement in
bags or in bulk
 Ready-Mix - A combination of cement, aggregates, admixtures, and water.
CEMEX offers: Architectural and decorative, rapid setting, fiber-
reinforced, fluid-fill, roller-compacted, self-consolidating, pervious,
and antibacterial ready-mix concrete

III. Problem

The lack of affordable housing is a severe problem for low-income families in

Mexico. Insufficient access to financing and materials along with a lack of technical skills
preclude low-income families from living in safe and adequate conditions. In order to
understand this problem better and serve low-income communities with a market-based
solution, CEMEX invested in extensive research and analysis. As a result, PH was
founded in 1998 to provide low-income families with access to financing, building
materials, technical expertise and related services, allowing them to build or expand their
homes more quickly and efficiently. This inclusive business model aims to provide low-
income families in urban and semi-urban areas with access to affordable housing through
flexible and customized products and services.

With the firm’s objective of contributing to the mitigation of poverty, they have
developed self-sustaining business models in the construction industry. Through these
businesses, the communities and local authorities are brought together to tackle critical
social issues such as credit, housing, employment, and basic services
 Growing platform is comprised of programs with social and inclusive business
models across Latin America: Patrimonio Hoy, Construyo Contigo, ConstruApoyo, Yo
Construyo, and Ecological Cook Stoves. Growing addresses the main problems inherent
to poverty and inequality at the base of the economic pyramid, such as housing, land
ownership, access to basic services, unemployment, and financial inclusion through
micro credits. The social capital of communities is also strengthened through
collaboration with local authorities, academic institutions, and non-governmental
organizations (NGOs).

Patrimonio Hoy tackles the lack of affordable housing in low-income communities,

enabling those with low startup capital and income to afford high-quality materials and
technical assistance. Participants gain access to CEMEX network of contractors, support
with land ownership, a microcredit loan with a customized financial plan, and reduce the
time and cost of building a home by 30%. The program is currently present in Mexico,
Costa Rica, Colombia, the Dominican Republic, and Nicaragua. Its ultimate goal is to
foster home safety and quality, while positively impacting partners’ health, wealth, and
education.

IV. Key Information

As of June 2017, the following are the key figures of CEMEX Inc.:

 Presence in more than 50 countries across the Americas, the Caribbean,

Europe, Africa, the Middle East and Asia
 More than 40,000 employees worldwide
 Trade relationships in more than 100 nations and one of the world’s top
traders of cement and clinker
 One of the leaders in each of our core businesses: cement, ready-mix
concrete, and aggregates
 Annual sales of US$13.7 billion and EBITDA of US$ 2.6 billion in 2017
 CEMEX Inc. has a total asset worth $28.94 billion
  Annual production capacity of approximately 93 million metric tons of
cement
 2016 annual production levels of 52 million cubic meters of ready-mix
concrete and 151 million metric tons of aggregates
 54 cement plants (plus 13 cement plants with a minority participation),
1,555 ready-mix concrete facilities, 305 aggregate quarries, 247 land-
distribution centers, and 63 marine terminals

V. Product Information

The following are the products of CEMEX:

1. Cement

Cement is the main basic ingredient of ready-mix concrete. CEMEX is

among the leading cement companies for high-quality bagged and branded
cement products.

It is a fine powder, obtained from the calcination at 1,450°C of a mix of

limestone, clay, and iron ore. The product of the calcination process is clinker—
the main ingredient of cement—that is finely ground with gypsum and other
chemical additives to produce cement.

Cement is the most widely used construction material worldwide.

CEMEX is one of few cement companies that can meet all of your construction
needs across the United States. It provides desirable properties, such as
compressive strength (it has the highest strength per unit cost of any other
construction material), durability, and aesthetics to a variety of construction
applications. CEMEX’s high quality can help you lower the total cost of your
project.
 Some properties of cement-based products are:

2. Concrete

Concrete is a versatile substance that has been used for centuries in a

wide range of construction projects. Ready-mix concrete suppliers help build
home foundations, driveways, roadways, bridges, dams, buildings and more.
With the help of a ready-mix concrete company, it can be cast into different
shapes and colors and provides unmatched durability in terms of compressive
strength and resistance to weather extremes.

Many people use the terms “concrete” and “cement” interchangeably,

but the two are actually different products. Cement is a mineral (Powder) that
sets and hardens to bind other materials together.

Hydraulic cement, such as Portland Cement, are the most commonly

used types. They harden when mixed with water. Other types of hydraulic
cements include masonry cements, colored cements and engineered cements.

3. Ready-mix Concrete
Ready-mic concrete is a mixture of cement, aggregates, water and
admixtures. CEMEX works continuously to develop a wide range of innovative
solutions for the uses of concrete.
4. Aggregate

Crushed aggregate provide needed bulk to concrete mixes to enable them

to harden into materials capable of withstanding immense weight and virtually
all forces of nature.
 Crushed aggregate accounts for approximately 60 to 75 percent of the
volume of ready-mix concrete and dramatically affect the properties of the mix.
For this reason, CEMEX produces a wide range of aggregate types, including
sand, gravel and crushed rock, in an equally wide range of sizes and colors to
meet construction project needs.

5. Other Products

Market Strategies

At its core, CEMEX’s business strategy has four main elements: people,
customers, markets, sustainability. Individually, each element engages and impacts our
business in very distinct ways. Collectively, they help us achieve our mission of creating
value by building and managing a global portfolio of integrated cement, aggregates,
ready-mix concrete, and related businesses.

 Value their people as their main competitive advantage

What makes CEMEX flourish as a global organization? It’s their people.
They take great pride in hiring the best and brightest talent and supporting them
 with a safe, healthy work environment and opportunities for growth and
development.
 Help their customers succeed
They continually strive to build a better future for their customers and all of
their stakeholders. They place their customers at the center of everything they
do— delivering a superior customer experience driven by a bold digital
transformation.
 Pursue markets that offer long-term profitability
CEMEX does business in markets where they can add value for their
employees, their customers, and their shareholders. They focus on those
markets that offer long-term profitability.
 Sustainability is fully embedded in their business
In a world of finite resources, they continually invest and innovate to become
an environmentally friendly, sustainable industry leader. As a global company,
they develop products and building solutions that foster more sustainable
construction practices, while empowering and contributing to the development
of their local communities.

VI. Key Partners and Project

Suppliers

CEMEX’s ability to competitively source their inputs and offer their products
and solutions for a more sustainable approach to construction is a key aspect of
their strategy. Toward this end, they communicate with their suppliers and
contractors to share their goals and challenges, engaging them in finding sourcing
alternatives with lower impacts on people and the environment. They seek to
partner with firms that have strong safety records, high labor standards, and strong
environmental performance. In particular, they collaborate with their suppliers to
reduce the impacts associated with raw material extraction and the production and
transportation of building materials.
 They work together with suppliers to ensure that they are selected fairly and
transparently, that procurement decisions are made honestly and communicated
clearly, and that their negotiations foster long-term, mutually beneficial
relationships. At a minimum, they require that their suppliers comply with local
regulations, and they seek to ensure that the suppliers work to CEMEX’s exacting
standards. Together, they are constantly looking for opportunities and new ways
to improve and innovate.

Customers

CEMEX seek to ensure customers' satisfaction and the best service

experience across all business lines, no matter where their customers are located.
Because customer needs vary across their global markets, the management of its
customer relationships is decentralized. Their operations conduct regular
customer satisfaction surveys at the local level to understand customers' needs.

They work hard to ensure that their products are safe to use, and they give
customers the information they need to use them properly. All of their production
processes are certified locally, and many of their cement plants are certified to ISO
9000, the internationally recognized quality management standard.

VII. Inclusive Business Model

The lack of affordable housing is a severe problem for low-income families in

Mexico. Insufficient access to financing and materials along with a lack of technical skills
preclude low-income families from living in safe and adequate conditions. In order to
understand this problem better and serve low-income communities with a market-based
solution, CEMEX invested in extensive research and analysis. As a result, PH was
founded in 1998 to provide low-income families with access to financing, building
materials, technical expertise and related services, allowing them to build or expand their
homes more quickly and efficiently. This inclusive business model aims to provide low-
income families in urban and semi-urban areas with access to affordable housing through
flexible and customized products and services.

PH has attained national coverage in Mexico (29 states, 56 cities) and has
expanded across Latin America to Costa

Rica, Colombia, the Dominican Republic, Nicaragua and Panama. The success of
PH has spurred CEMEX to replicate this business model in other developing countries
and develop additional inclusive businesses that address the needs of low-income
communities.

VIII. Business Impact

Before the launch of PH, CEMEX’s informal market participation was reduced to
sales through local retailers. Now, participation in PH guarantees CEMEX brand loyalty
and a good reputation within low-income communities. In 2004, PH achieved its break-
even point, fulfilling its objective of becoming self-sustainable. CEMEX has gained an
additional US$6.5 million during recent years, selling an additional 60 thousand tons of
cement per year.

The success of PH has been recognized with several awards, including the UN-
Habitat Business Award for the best practice in Affordable Housing Solutions 2009 and
the World Business Award in support of the Millennium Development Goals granted by
UNDP in 2006. This recognition has had a great impact on the international reputation of
CEMEX as a socially responsible company. The positive publicity has also helped it to
establish long-term relationships with partners in order to expand CEMEX’s inclusive
business services. Other new inclusive business initiatives that have emerged from PH’s
success include Mejora Tu Calle, which employs a market-based solution to help
communities and governments work together in providing local infrastructure support to
improve neighbourhoods.
IX. Social Impact

These social impacts are the most difficult to quantify. However, the methodology
of CEMEX gives a reasonable and conservative estimate.

 Talent development - Value through training programs and other

educational initiatives. This only includes the value created outside the
company (employee turnover).
 Social initiatives - Value for stakeholders through social initiatives and
inclusive businesses.
 Health and safety - Impact on employees and their families from accidents
(injuries and fatalities).

Some of CEMEX’s other social impact are the following:

 Help Customers Succeed

The customers deal with important challenges daily - CEMEX help
them succeed by delivering quality products, innovative solutions, and great
customer service.

CEMEX strive to create value for its customers by focusing on more

vertically integrated building solutions rather than separate products. They
invest time in its relationships, listening closely to understand our
customers' needs, and then provide superior building materials and
innovative solutions tailored to their specific construction needs.

 Sustainable Development

Sustainable development is embedded in the core business strategy

and the day-to-day operations in order to develop building solutions to meet
the needs of a world with limited resources. CEMEX seek to build a smarter
world through innovation and collaboration.
  Managing its Footprint: They act responsibly in their operations by
always looking for a way to minimize their impact on the environment.
 Engaging its Stakeholders: They collaborate with local communities
to empower them and help them in their development. CEMEX’s
success should also feel like their success.

 Innovation

They recognize that the construction industry is shifting toward more

cost-effective, efficient, and environmentally friendly solutions; this inspires
them to be more innovative in conducting their global business.

Their Global Center for Technology and Innovation in Switzerland

houses a state-of-the-art research laboratory. This laboratory has a unique
and broad range of investigation tools and novel in-house testing methods
that are available to the CEMEX community. CEMEX’s research center has
considerable expertise in the following areas: new and enhanced
construction materials; sustainable construction; cementitious materials
(cement, fly ash, and slag); concrete and mortar products; admixture
formulations; and aggregates.

X. Key Success Factors

 Empowering low-income families and involvement of the community

By enabling the participants to assume ownership and responsibility
over their housing improvement, PH is able to achieve empowerment of the
low-income families, which is one of the key elements to the success of the
initiative.

Thanks to high community involvement, local women promoters, local

offices and distributors, PH is well connected and enjoys a good reputation
among community members. More than 60 percent of PH socios signed up on
 the basis of ‘word-of-month’ recommendations and monthly client-satisfaction
surveys show that 80 percent of clients would recommend PH to a friend or
colleague.

 Adaptation of portfolio to customer needs

With PH, CEMEX was a pioneer in the housing market at the base of the
pyramid. In order to maintain its position and satisfy its customers, PH continuously
monitors its portfolio and regularly assesses customers’ needs. This portfolio has
evolved over time from a one-solution fits-all approach into a set of customized
and integrated solutions with multiple financing schemes and payment options. For
example, by enabling payments in convenience stores, banks and local PH offices,
the company introduced a more customer-friendly payment system and expanded
its market coverage.

XI. Achievements

PH has already enabled a progressive, efficient and sustainable

improvement in the quality of life for more than 450,000 households in Latin
America, benefitting more than 2 million people. Most importantly, PH is helping
low-income families to overcome obstacles including lack of material storage,
construction knowledge and planning, which allows them to build three times faster
than usual and at one third of the cost.

XII. Suggestions

PH commits to provide at least 125,000 additional low-income families in

Mexico with affordable housing by 2016. To further improve its service and market,
we suggest that they take a much bigger step. Since they have a new portfolio of
new products and operative business models, we suggest that they open up new
markets through partnerships with local distributors and other booming business
in the same industry. This will enable them to widen its coverage and to deepen
its market penetration, enabling them to scale up its business model.

PH also plans to measure community job creation as a result of its activities,

and to standardize the assessment of its social and economic impact. Hence, they
should make their clients evaluate their performance. After every successful
finished project, they should give their clients a month or two to somehow “test”
the quality of the products or services they have offered considering its low-cost.
This action might sound cliché, but it can surely help them in highlighting their
points which needs improvement as well as the points which needs maintenance.
This step will surely help them in assessing whether they have achieved their goals
or not.