IBM’s Global Footprint a Key Factor in Cemex Mega Deal

Cemex has officially confirmed a 10-year, $1 billion mega deal with IBM Global Technology Services this week (a development originally reported in Nearshore Americas) that will trigger a major overhaul of the way Cemex runs its IT operations and finance and human resource back offices.“We’re not just running a bunch of servers here,” Bob Hoey, General Manager at IBM’s Global Services group told us in an interview yesterday. “This is a much larger transformational play integrating IT infrastructure with finance, accounting, and human resources processes and applications.” The arrangement is seen as a win-win for IBM as the company looks to expand its Latin America and Business Process Outsourcing (BPO) business. The contract is projected to save Cemex $90 million annually over the lifetime of the contract, according to both parties in the relationship. Yet, in gaining a powerful global partner, Cemex has also ‘tied the knot’ with the competition – in a sense – as the company holds firm in its commitment to remain in the global outsourcing business.

Contrary to our previous report (and off-record statements), Neoris will in fact remain a subsidiary of Cemex. However, given the scope of the contract, particularly in the areas of application development and support, it is still unclear how much overlap  will exist between the areas IBM supports and what remains with Neoris. It is believed about 15% of Neoris’s annual revenue is derived from Cemex – a figure that has diminished over the years.

“We shortlisted four services providers but finally decided on IBM given their global footprint and world class service offering”, explained Homero Resendez, outsourcing project leader at Cemex. The initiative is part of a bigger effort to cut costs and to bolster the company’s overall financial health, after a prolonged impact from the U.S. construction bust and untimely $16 billion USD takeover of Australian company Rinker.

The Cemex/IBM arrangement covers three main pillars:  Applications development and support, IT infrastructure, and back office processes across finance, accounting, and human resources.  “We’ll be looking at their mission critical applications and processes, reengineering, consolidating, and automating by doing actual application development and maintenance, and then providing the base IT infrastructure that runs those applications,” said Hoey.

Cemex global operations include 73 cement plants, 1,921 ready-mix concrete facilities, 377 aggregate quarries, 226 land-distribution centers, and 70 marine terminals.  “We are now deep into transition planning and expect the full scope of services to be transitioned over to IBM by 2015”, explained Homero.  This new arrangement will affect 1,500 to 2,000 jobs at CEMEX, which employs close to 44,000 heads across 50 countries.  However, given the company’s geographic sales distribution, teams in Mexico, the United States, and Northern Europe will likely feel the biggest impact as the IT/BPO transformation takes shape.

Cemex transformation will impact jobs in Mexico, USA, and Northern Europe

Cemex Geographic Sales Distribution (Percentage)

Data Source:  www.cemex.com

“We’re big on global delivery and the ‘industrialization of services’ standardizing repeatable tasks, eliminating inefficiencies, automating with software and applying our own best practices into client operations”, explains Hoey.  “We’re going to spread the work around [Cemex contract] to the centers where we have the greatest efficiencies.  Some work will leave Mexico and some will stay in Mexico”.

IBM maintains some 120 BPO clients including Unilever, Xerox, and Pearson, serviced from 50 delivery centers.  Whether Cemex’ back office functions will transition to IBM’s 13 delivery centers in India is  unclear, but considering the cement company’s relatively small footprint in the Asia region, we anticipate that teams in Mexico, USA, and Europe will likely find themselves working alongside new counterparts in Bangalore, Delhi, and Mumbai.

Both Client and Competitor?

Ironically, Cemex is also in the global services outsourcing business with their IT services subsidiary Neoris.  Yet, the company was not invited to bid on the contract given the global and overreaching scope of the project.  “IBM’s global footprint was a big factor in our decision,” noted Homero.  While we can only speculate on how the Cemex/IBM deal will impact Neoris, it is now clear that Cemex intends to hold on to the company, at least for the time being.  This makes sense considering Neoris’ revenue projections and successful expansion into Brazil.  As of 2011 Neoris employs over 3,500 consultants generating in upwards of 300 million dollars in annual revenue.  The firm’s compound annual growth rate between 2004 and 2010 exceeded 17.5 percent.  Furthermore, with a 40 percent increase in staffing for their Brazil operations in 2010 alone (total over 650), Neoris appears is a gem worth holding on to.