Group 2 HARIS, RAHMA, RUSLI, SOLEH, VANI

1. Group 2 HARIS, RAHMA, RUSLI, SOLEH, VANI

2. What modes of entry was it in the case, and why? • Private Placement • Equity placement strategic alliance • Semen Gresik formed an alliance with CementosMexicanosCemex by selling 14% of government shares to Cemex. Following the alliance, Cemex also immediately bought 11.5% of the public shares in the stock exchange. Finally, the Indonesian government declared the put option by the end of 2001 to sell the government shares to Cemex in order to increase the shares up to 51%. • Cemex Mexico was one of the five biggest cement producers in the world. The company had the corporate strategy, which was to “grow through acquisition”. The mission matches the strategy, which was “delivering good results in bad times”. The subsidiaries were scattered all over the world, consistence with the mission and strategy of the corporate.

3. What modes of entry was it in the case, and why? • The domestic partner thought that Semen Gresik was one of the best SOEs in Indonesia. The production facility was modern with thirty percent of capacity were built in 1996 to 1997. Its financial performance was regarded as excellent they claimed to be able to built new plant capacity by its financing capability. On the other hand, Cemex was eager to attain Indonesian market. This potential market is the only regional markets that have not been covered by Cemex. Both potential partners always declared the commitment to grow with the alliance. However, the stakeholder such as labor union, society, and top management seemed to oppose the intended alliance.

4. What modes of entry was it inathe case, and why? Semen Gresik had technology to produce standard products, namely: OPC, PPC, and white cement. Semen Gresik was not only the largest cement company in Indonesia but also was generally regarded as potentially the most efficient, particularly with so much of its existing capacity using the latest technology. Roughly 30 % of Semen Gresik’s installed capacity had come on-line in 1996 and 1997. Cemex developed a number of new high-performance concrete products that had been rapidly introduced and adopted across the markets. Cemex had the latest technology to produce the best quality cement. Its proprietary information technology leveraged the collective knowledge of the people and raised the standard of customer satisfaction and employee productivity. Cemex used it to maximize the operating efficiency and agility, pioneer superior customer service, logistics, and fulfillment practices, realize cost efficiencies, and streamline the internal processes. By forming the IEPSA, customers expected to have low price products, free of cartel, and supply assurance.

5. What were the strategic competitiveness outcomes? There were complementarity resources of both partners’ in term of strategy, products, and financial. In term of strategy, by sharing the resources Cemex were able to expect improving efficiency and profitability. In returns the alliance developed its production capacity to grasp more revenue from potential Indonesian market. In term of products, Cemex had opportunity to introduce its new technology concrete products in order to strengthen the alliance housing segment in Indonesia. Finally, in term of financial, Cemex was regarded as the highest free cash flow producer in the cement industry. It brought opportunity to expand and improve the production capacity of Cemex.

6. What were the strategic competitiveness outcomes? • The similarities between Indonesian and Mexican based on Hofstede (1984) are in the high communication context and high power distance. The differences are at the time orientation, uncertainty avoidance, and masculinity. Indonesian has flexible time orientation, medium masculinity level, and low uncertainty avoidance, while Mexican has fixed time orientation, high masculinity level, and high uncertainty avoidance. • Although in the initial phases of Semen Gresik’s IEPSA was not categorized as successful, both partners had improved the condition of trust and commitment in the operation phase by providing intervening actions. In the operation phase, the alliance enhanced human resource management, organizational arrangement, and management control system.

7. Rusli What were the international opportunities on the side of foreign partner? • Ministry of State-Owned Enterprises invited three of the world’s largest cement manufacturers: Holderbank (Switzerland), Heidelberger (Germany), and Cemex (Mexico) • The ministry offered 35% of government’s shares in Semen Gresik. • Strategic Alliance in Asia Region cement company • Global Strategy But low “Need for Local Responsiveness”

8. Rusli What are the risks faced by foreign partners? • PLANNING AND FORMATION PHASES • the state of transparency and stakeholder support • the initial degree of success was influenced by share price, the selling share price in the SPA was much lower than the fair or fundamental value. • The opposition from stakeholder had negatively influenced the state of trust and commitment • OPERATION PHASE • both partners had improved the condition of trust and commitment. In the operation phase, the alliance enhanced human resource management, organizational arrangement, and management control system. • Huge depreciation of Rupiah to US$ had influenced negatively to the valuation of Semen Gresik

9. The states of complementary between the partners. Semen Gresik Indonesia Cemex Mexico Heidelberger of Germany Semen Gresik Indonesia Cemex Mexico • Both partners had complementary products. Semen Gresik manufacturing capacity provided the high standard cements, such as OPC, PPC, SMC, HSR, SBC, and white cement, while Cemex could contributed with high- performance concrete products that had been rapidly introduced and adopted across the markets.

10. The states of complementary between the partners (Contd.) • The Semen Gresik’s customer group consisted of ready mix, construction, housing, and others with the majority customer group was housing segment. It provided complementary opportunity with the foreign partner’s capability. The complementarity was that Cemex provided Semen Gresik opportunity to expand into international market and at the same time acquired cement market in Indonesia which possessed by Semen Gresik as much as 45%. • There were complementarity resources of both partners’ in term of strategy, products, and financial. • In term of strategy, by sharing the resources Cemex were able to expect improving efficiency and profitability. • In term of products, Cemex had opportunity to introduce its new technology concrete products in order to strengthen the alliance housing segment in Indonesia. • Finally, in term of financial, Cemex was regarded as the highest free cash flow producer in the cement industry. It brought opportunity to expand and improve the production capacity of Cemex.

11. How do you determine the selling price? Is it overvalued, undervalues or as of fair value? • The price offered by Cemex as much as $ 1.38/share was nearly 100 % premium from the stock market price, which was $ 0.81/share. • The fair value of Semen Gresik in 1998 was Rp. 16,862 per share. It was higher than the stock exchange price of Rp 6,500 per share. • The fair value depreciated because of the downfall of Indonesian economic which depreciated Rupiah against US$ (Before the crisis 1 US$ = Rp. 2500, after the crises 1 US$ = Rp. 14,500). • The selling share price of the government as much as US$ 1.38 seemed premium compared with the share price of Semen Gresik of US$ 0.81 with the rate of Rp. 14,500 per US$ or equal to US$ 0.45 with the rate of Rp. 6,500. The choice of rate here reflected the volatility of the currency within the year between Rp. 6,500 to Rp. 14,500 per US$.

12. The choice of rate here reflected the volatility of the currency within the year between Rp. 6,500 to Rp. 14,500 per US$. • The fact unraveled the real condition whether the share price was premium or not, and the answer is the selling price was not premium

13. stakeholder and what are their aspirations or views on the IEPSA • Labor union • it was not rationale that Semen Gresik was slated as the privatization target. He provided comparison between the incoming cash to the government which was considered too low when compared with the huge bank liquidity support lent to conglomerates. • The labor union was seemed to be afraid of rationalization, however they denied it. They claimed that the main reasons of the oppositions are nationalism and threat of cartel when nation’s cement manufacturer owned by foreign company. • Politician variable • During the new order when President Soeharto still held the power. There were no political interventions and oppositions both in the national and industry perspectives against the government’s program. • It was the same situation of the alliance initiation during which there was a taking over of Presidency from Soeharto to B.J. Habibie. • IMF came to Indonesia as a safe guardian of the economic crisis offering assistances by providing fund.. Eventually, President Soeharto accepted the offer and initiated the privatization program with Semen Gresik.

14. stakeholder and what are their aspirations or views on the IEPSA (continued) • House of representative variable • The representatives supported the Semen Gresik privatization program as one of the clausal in the Letter of Intent. • Society variable • In Gresik, the local representatives and government together with the employees supported the strikes in from of the head office. • In Padang, the governor of West Sumatra threatened to remove certain land rights and concessions which had been provided to Semen Padang if control of Semen Gresik was allowed to pass to foreign investors.The final tide turned when AzwarAnas, a former army general, former West Sumatra governor, and former CEO of Semen Padang prior to acquisition in 1995 took the unofficial lead in opposing the privatization. According to him, cement is a strategic commodity, as crucial as food. • in Jakarta, a number of prominent bankers were quoted in the press as questioning both the transparency of the process directed by TanriAbeng (Minister of State enterprises), and the ethics of the process.

15. stakeholder and what are their aspirations or views on the IEPSA (continued) • Government variable • The government supported the privatization intentions as required by the IMF. • However, because of oppositions from labor union, society, and top management, the government had to restructure the offer. • The final portions of shares offered were 14% from the previous 35%. The government had to persuade Cemex to stick with its offer in the first round by promising Cemex to have government’s put option up to 51% within three years, purchase another 14% public shares, and possess four directors in the board of directors. • Management variable • The top management opposed the intended alliance by having strikes with other stakeholders such as labor union and society. • They raised questions, firstly regarding the wisdom of selling valuable Indonesian assets to foreign investors, particularly in light of the control that these powers would exert over the companies and their employees. • Secondly, they did not understand the rationale why one of the best SOEs should be slated in the privatization program.

16. Government do to support the IEPSA • The Mexican directors were dismissed from the board of director meeting, because Cemex urged the government to increase the shares as the majority • Cemex intended to expand the market in Indonesia by building more cement plants, however it was turned down by stakeholders of Semen Gresik. They were feared that the government’s shares would be diluted. • One of the factors that influenced the atmosphere of trust and commitment in the alliance was the share price. The lower selling share price of Semen Gresik in comparison with the fair or fundamental value was one of the reasons the stakeholder opposed the intended alliance. The opposition from stakeholder had negatively influenced the state of trust and commitment • Although the atmosphere of trust and commitment had already improved through the actions set up by both partners, there still existed hurdle. The hurdle was the unresolved problem of ownership. Cemex insisted on increasing its proportion of ownership from the unbalance to a more balance ownership. On the other hand, the domestic partner insisted on preserving the existing state of unbalanced ownership (by having majority ownership). The situation had provoked the oppositions from alliance’s stakeholder even after seven years of the alliance.

17. What are the roles of trust in the IEPSA? • Trust can create a better environment for the whole life of company. As examples of a condition offered by cemex that had made many employees nervous since Cemex’s VP said that the issue is not to guarantee the jobs but to make the company more efficient. About The lower selling share price of Semen Gresik in comparison with the fair or fundamental value was one of the reasons the stakeholder opposed the intended alliance. The opposition from stakeholder had negatively influenced the state of trust and commitment. The ownership variable also had played a role of influencing the environment of trust and commitment in the alliance. In the alliance, the issue of ownership can’t be resolved, even after seven years of the implementation of IEPSA.

18. How do you rate the state of successfulness of the IEPSA? Choose the following rating: Very successful, Successful, A little Successful, or Unsuccessful • At the beginning : it is unSuccessful • Initial degree of success of the alliance (in the planning and formation phases) was determined primarily by the state of transparency and stakeholder support. It was meant that the not-transparent situation in the beginning phases induced to the lack of successfulness in the alliance. The same condition was in the case of difficulty in the alliance’s stakeholder (opposition). It induced to the lack of successfulness of the alliance. • As mentioned in the case that Although in the initial phases of Semen Gresik’s IEPSA was not categorized as successful, both partners had improved the condition of trust and commitment in the operation phase by providing intervening actions. In the operation phase, the alliance enhanced human resource management, organizational arrangement, and management control system. (pg 20 –conclusion)

19. When you are on the side of foreign partners. Are you willing to buy the shares or invest in the SOE (state-owned enterprises) Why? • buy the shares instead of invest in the SOE (state-owned enterprises) Why? : • Invest in the SOE is much more riskier in terms of the consistency of fulfillment the trust and commitment agreed • Involvement of stakeholders such as labor union, society, and top management to some extend some times is to far