Lorenzo Zambrano: Mexico’s Global Builder

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Lorenzo Zambrano: Mexico’s Global Builder

Lorenzo Zambrano, MBA ’68, took the family’s cement business from regional player to the industry’s third-largest supplier.

A year ago when Beatriz Gutierrez learned from a client in the Ensenada beauty salon where she works that Mexican cement company Cemex offers a plan to help low-income people build and expand houses, she and her husband, Ricardo Higuera Lopez, a fisherman, signed up.

Under the program, called Patrimonio Hoy, or Private Property Today, the couple pays about $18 a week for $960 in cement blocks, rebar, and other building materials. Currently, they are working on the first phase of a six-room house on the hilly outskirts of the Baja California port city 65 miles south of San Diego. Today most of the walls are up and the roof is next. Gutierrez takes pride showing which room will be which, especially the one that soon will become her own beauty salon.

"Before we were saving, but we didn't think we would have enough for a house," she said. "This is easier, and it costs a lot less. You know what you want. You see it in your dreams, and Patrimonio Hoy has helped us realize it."

Patrimonio Hoy is one of several ground-breaking programs introduced by Cemex Chairman and CEO Lorenzo H. Zambrano, MBA '68, whose integration of social responsibility, green practices and conservation, worker education, and technological advancements in company operations are redefining corporate success in global business circles.

Since 1985, when he took control of the regional cement firm that his grandfather founded little more than a century ago, Zambrano has transformed Cemex into a global powerhouse, one of the first corporations from a developing country to become a major international player.

"On a global stage, Lorenzo stands out among CEOs as one of the deepest and clearest strategic thinkers today," said John Roberts, a Stanford GSB professor who has undertaken several case studies of the company.

Cemex headquarters sits on a lush, green campus in Monterrey, an industrial city surrounded by picturesque mountains about 150 miles south of the Texas border that is so influenced by U.S. business practices it's sometimes called the "Chicago of Mexico." Zambrano's cousin and Cemex CFO Rodrigo Treviño recalls that after taking the reins of Cemex, Zambrano told a group of local executives that the little cement firm soon would surpass their own companies. They scoffed, he said.

"He meant it as a joke, but it's happened," Treviño said. "I'm sure he has surprised a lot of people over the years. He's been determined and committed, but he's got a lot of energy to get it done. He might even have surprised himself."

Despite Zambrano's family ties to the founder, he toiled 18 years in virtually every part of Cemex before wresting the position of chief executive from the board of directors. He took control just as Mexico was opening its domestic market to foreign firms, thus ending the profit-guaranteeing protections that Mexican producers had long enjoyed. To survive, Zambrano shed Cemex's non-building materials operations, took the firm public, and embarked on an ambitious strategy of international expansion.

Rebuffed initially by allegations that he was dumping product at artificially low prices when he tried to branch out north of the border into the United States, Zambrano turned elsewhere: first to Spain, then across Latin America, Asia, and elsewhere in Europe and, later through acquisitions, finally into the United States. When in 2005 he bought out RMC Group, Britain's largest cement company, the Economist, noting Mexico's recent status as a European colony, suggested that Queen Victoria "would not have been amused." Last year, the company added controlling interest of Australian ready-mix concrete and aggregate firm Rinker, making Cemex the third-largest cement producer and the largest building materials supplier in the world.

While the recent housing downturn has not been good news for Cemex, revenues have grown from about $1.7 billion when Zambrano became chief executive to $30.3 billion in 2007. Once focused solely on Mexico, the company now operates in more than 50 countries. Eighty-eight percent of its 67,000 employees are natives of countries other than Mexico.

In an interview in his modern-appointed office, Zambrano said that initially critics "didn't think we could pull it off. We were supposed to fail time and again. Not only have we grown in other developing countries but also in the industrialized world. It's a team effort with highly qualified persons who have worked very hard to get Cemex where it is. Now we are treated just like any other company."

Zambrano, 64, a cordial, genteel, and witty man whose personal and family worth is estimated by Forbes magazine at $1.5 billion, shuns much of the ostentatious lifestyle favored by other Mexican executives who have become fabulously wealthy as growth fueled by opening the economy propelled the country into the tier of industrialized nations.

He is single, has never married. Cemex executives, however, joke that Zambrano is wedded to the company and the Instituto Tecnólogico y de Estudios Superiores de Monterrey, more commonly known as ITESM or El Tec, where he earned a bachelor's degree in mechanical engineering and which he now serves as chairman of the board.

While he enjoys vacations in Cancun and New York City, much of his leisure time is spent at a small country house 2 1/2 hours from Monterrey, an "oasis," he said, where he watches movies, reads voraciously, and enjoys long lunches and dinners with family and friends.

Neither Zambrano's sister nor his surviving brother works for the company, a situation that differentiates his company from others in Mexico in which nepotism is a standard practice. Although the workforce includes some relatives, such as Treviño, a former top Citibank executive, they got their jobs because of their abilities.

"One of his principles is meritocracy," said Javier Treviño, the company's senior vice president of communications and corporate affairs (and no relation to Rodrigo Treviño). "Being a Zambrano doesn't mean a thing. It's very unusual in corporate Mexico."

Zambrano's engineering background and an affinity for mechanics seem to have influenced his interests as well as his approach to life. Among his passions are old cameras and tech devices. "I used to get all the latest gadgets—until I got tired of changing every three months," he said.

He has collected a fleet of antique cars that includes Ferraris from the 1950s and '60s. He races them with a group of friends every year at Pebble Beach. In the interview, he declined to reveal how many he owns but described the vehicles as a hobby as well as an investment:

"You like the cars you dreamt about when you were young. I just drive them. But with old cars half the fun is locating them. Prices have done very well. They're more difficult to find now. If I started to collect right now, my collection would be very small."

His engineering background also influences Zambrano's fine-tuning management style. He insists on meticulous studies and each month assembles top executives and country managers to discuss reports that he studies beforehand. Company executives spoke of being thoroughly grilled. "It's like coming in for a professional exam," said one.

Soon after becoming chief executive, Zambrano introduced advanced technology to every aspect of the operation. It revolutionized the firm, transforming it from a lumbering basic industry into an agile and responsive entity. Cemex ready-mix now is delivered around the world in about the time it takes to get a pizza. The technology spread a "Cemex Way" of doing business to each new acquisition and keeps Zambrano abreast of whatever is happening. Whether at the Monterrey headquarters or on the road, he can check kiln temperatures in Bali or cement sales in Spain with a laptop or BlackBerry. If he has questions, he ignores the chain of command to surprise employees with email queries.

"He's in touch all the time. Anyone who gets an email from him, you know you're going to have to have an answer before the day ends," said Treviño, the senior communications vice president. "He is very impatient. He wants the results now—not tomorrow, today."

Cement Manufacturing is hardly earth-friendly. About 1.6 tons of raw materials are required to produce 1 ton of cement. Mountains are mined to extract the limestone that is cement's primary ingredient. Manufacturing requires heavy machinery and equipment that use large amounts of heat and energy in some 80 production steps.

Yet Zambrano has made it a responsibility that starts with the board of directors and top executives to reduce waste in every part of the process. To mitigate the extraction process, quarries in Colombia, Venezuela, the Philippines, the Dominican Republic, Costa Rica, Mexico, and elsewhere have been converted to lakes or buffered by green zones. One such area in Spain has become a vineyard.

One undertaking that is unrelated to the bottom line is a recent collaboration with the Mexican government and four international conservation groups to establish El Carmen, a nature reserve of nearly 500 square miles adjacent to Big Bend National Park in Texas. Cemex owns and manages the wilderness area and has made strides in preserving and reintroducing species of mammals, birds, reptiles, and amphibians, as well as vegetation.

In May, the Stanford GSB Alumni Association honored Zambrano with its annual Excellence in Leadership Award at a lavish, candlelit event attended by men in tuxedos and women in gowns and diamonds at the architecturally recognized Museo de Arte Contemporáneo de Monterrey. Zambrano, who owns an extensive collection of 20th-century Mexican art, sits on the museum's board and his sister, Nina, is its executive director. The event raised corporate contributions for the Business School and a School scholarship fund for business students from Mexico.

In the interview before the event, Zambrano recalled his days at Stanford. "I'm very proud of being part of the Class of '68," he said. The year was marked by upheaval in Mexico and the United States, and on the Stanford campus. Although he admitted to being too busy studying to take part in demonstrations, he credits the atmosphere for instilling in him an enduring out-of-the-box way of thinking.

"The sport then was to challenge assumptions. When you're young you might not go about it in a mature way. But I would say I was influenced in the right way. When you challenge the, quote, Establishment, unquote, you're really looking for other ways to do things. That was something I learned at Stanford—that you had to innovate to grow," he said Monterrey Tec also shaped his thinking, and when he was asked to become its chairman, he thought deeply about what role he could play.

"Frankly, what I did was push the throttle down and make it move a little faster," he said. "Education is very important in any country but especially in a country that wants to grow and is a developing economy. Education is a way to diminish the differences in wealth distribution. Education is where you reward those who work hard and have talents and make life a better one."

In a close collaboration with El Tec system President Rafael Rangel, the institution has become a leading technological school offering virtual classes around the world, and is adding a biotechnology center that is spawning some of Mexico's first pharmaceutical patents. The institution has grown to 33 campuses across Mexico and elsewhere in Latin America, with offices in Europe and Asia.

"We are making many dreams come true for young people in the remotest parts of Mexico," Zambrano said. "And where you have in a country voices that are calling for the easy solutions, the short-term answers to problems, then we have to work extra hard for those who have the wish to persevere over the long term to better themselves."

Zambrano has made education an important part of employee development, too. One Cemex program helps workers in any of the countries where the company operates to complete elementary and high school. Another funds scholarships so workers can earn advanced degrees at some of the world's most prestigious universities, including the Sloan Master's Program at Stanford GSB. And there are internet-based courses completed in an hour or less that teach workers something they can use in their jobs. Several dozen Cemex managers from around the globe also take intensive higher-level, short courses in a customized year-long program that begins with two weeks of executive education at Stanford, followed by online coursework and projects, two more weeks at INSEAD in France, and a two-week finale at El Tec, where participants present plans for Cemex projects that they have tested.

When Zambrano attended Stanford GSB, he was the only Mexican in attendance, but now Mexican nationals usually are in every MBA and Sloan class. And Stanford GSB graduates are sprinkled through every aspect of the company's worldwide operations.

As a Cemex employee, Juan Préstamo Elizondo, MBA '94, was among the first to earn his degree with Cemex's help.

"The program consisted of Cemex paying our tuition, our housing, and we still received our monthly salary. It was a very nice deal," said Préstamo, who worked seven more years for Cemex—in Spain, the United States, and Asia as well as Mexico before starting his own business, Mextile, a manufacturer of quality concrete roof tiles for the Mexican and U.S. markets.

"I still remember when I went to thank Mr. Zambrano for all that he and Cemex had given me," Préstamo said. "He told me that he was happy for me and that he thought that I had made the right decision. He told me that things are difficult when you start your own business and that things could go wrong and it would not necessarily be because of me if that happened. And he finally told me to call him first if something was not going well or if I had second thoughts."

Cement, notes Zambrano, is a basic building block—the "stuff of dreams." Over the years, Cemex's global expansion has put the company's building materials in the hands of major developers who have used it in the Oresund Bridge between Denmark and Sweden; highways in Poland; L'Hemisfèric, the planetarium in the arts and sciences complex in Valencia, Spain; and El Cajón Dam in Mexico. While some in Mexico complain that Cemex charges too much for its building materials, the company has introduced creative-lending programs that make it possible for those at the lowest income levels to build, expand, and improve houses.

"When I was at Monterrey Tec," Zambrano said, "I had several professors who told us we were part of only 1 percent of the population, that we were very lucky growing up in a privileged situation in which we were able to get a higher education, and you have to give something back to society."

The Patrimonio Hoy program organizes neighbors and friends into groups of revolving loan recipients to enable them to buy just the right amount of material for the project they are undertaking. Cemex architects and engineers provide technical assistance.

At first, participant Rosa Maria Cruz of Ensenada says her family and friends were skeptical of the program. "They said it was a fraud. My sister asked, 'With 163 pesos a week [$15], what can you do?' When they finally saw the house we are building, they went to the program, too." Cruz and her spouse are building a two-story house for their five children.

Another Cemex program, Construmex, helps Mexican immigrants in the United States route money for building supplies to their families back home through Cemex, thus avoiding more costly cross-border money transfers. Still another program has replaced dirt floors with antibacterial cement in several countries where Cemex operates. "Lorenzo's been a tremendous leader in making the business socially responsible at the same time he's been successful," noted Stanford GSB professor Roberts.

By tapping a market usually dismissed as too difficult and too unprofitable to access, the effort has proven that innovative business practices can benefit both company and consumers, Zambrano said. "We enhance the way of living in the communities where we work. Not only do we make profits, but we make profits the right way."

In the past, Cemex's success has mainly been achieved by pursuing acquisitions, Zambrano said. Another effort focuses on fostering internal growth. To address the company's market as well as its supply chain management, Cemex has established partnerships with some of its largest distributors in Mexico to create a national chain of supply stores under the name Construrama. Distributors gain regional and national advertising and access to insurance programs and financing in return for conforming to a set of formalized practices, such as wearing the same uniforms and maintaining a reliable inventory. The stores are required to offer Cemex cement but they can provide other products, such as rebar, from any supplier regardless of whether Cemex offers the product. A particularly useful element is a series of Cemex instruction brochures offering simple, step-by-step instructions for tasks such as plumbing, electrical, or concrete construction projects.

"I feel like a partner with Cemex," said Jorge E. Valenzuela, who owns four Construrama retail outlets in the fast-growing border city of Tijuana. "It was a good opportunity for us. They helped us be more professional, to be part of a new era of selling materials but also have a view for what is going to happen in the future."

Cemex also manages inventory for builders with on-site warehouses for projects such as housing complexes. The company does the materials planning and updates inventory according to the construction progress. It saves storage, working capital, and provides security for the contractor.

"If we cannot grow in markets where we already are, we cannot grow," Zambrano said.

Acquisitions, however, remain the most important element of Cemex's future expansion plan, he said. They require greater judgment, research, and planning, and also can present unexpected challenges, such as Venezuelan President Hugo Chávez's decision to nationalize Cemex operations in Venezuela. (In a May interview, Zambrano was reluctant to discuss the Venezuela situation since negotiations were ongoing. He said only that he was "surprised and sad.")

"Acquisitions are more challenging," Zambrano said. But they are more profitable, he added. "If they aren't, we will make them so."

Asked what his grandfather might make of his namesake's handling of the company, Zambrano speculated that he would be proud. Still, he said, it's too early to judge the impact he has had on Cemex.

When he studied successful companies at Stanford, Zambrano said, he learned an important lesson.

"At Stanford, the business executives we admired—some well known, others unknown—were those who were able to sustain their businesses," he said. "Success cannot be measured while you are managing the business. You have to concentrate on only if it can grow and meet the new challenges.

"The true measure of a business leader," he said, "is if the company lasts through time."

This article first appeared in the Stanford Business Review.

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