|
COPYRIGHT 2001 JAI Press, Inc.
Well founded in vision and guided through strong leadership and strategic planning, the CALICA approach serves as a blueprint for other joint ventures in the NAFTA era.
If you want to know a good way to approach a business operation abroad, take a look down south of the U.S. border, where Vulcan Materials Company formed a joint venture with Grupo ICA to create the Mexican company called CALICA--a marriage of cal, the Spanish word for "limestone," and the acronym of the Mexican parent. Vulcan boldly went forth into a foreign country without previous experience there to seek out a good partner and begin what was to become known as "The Crescent Market Project." The newly formed joint venture (JV) overcame not only the standard start-up problems but some extraordinary challenges as well.
The case study presented here demonstrates the lasting value of corporate vision, leadership, and tenacity. Vision and leadership are abstract concepts that manifest themselves differently in each set of circumstances. Theoretical discussion of both concepts abounds, but they may be best understood through the study of specific applications of them. Tenacity is easier to understand, probably because it is more tangible. It is no secret that vision, leadership, and tenacity are a powerful combination and together serve as the recipe for success in business; the secret lies in their application.
The story of CALICA offers important lessons about leadership as well as about doing business in a foreign jurisdiction. Even with various sub-plots involving numerous critical and analytical business decisions, the thread that connects them all is leadership. All the major participants agree: CALICA's success is the result of the leadership abilities exhibited by both Houston Blount, CEO of Vulcan, and Bernardo Quintana, CEO of Grupo ICA. Both men commanded an extraordinary commitment that pervaded all dimensions of the project. And although Mr. Quintana died shortly after the agreement between Vulcan and ICA was signed, his leadership left a legacy of commitment among ICA management to the joint venture.
BACKGROUND
Founded in Birmingham, Alabama in 1951, Vulcan Materials Company has become the industry leader in the U.S. aggregate materials market. Aggregate, or what laymen call "gravel," is derived from limestone that is crushed into various standard sizes for use in highway construction and construction in general. Vulcan has a tradition of approaching business decisions in an analytical and methodical manner. The company was probably the first in the aggregates industry to establish a market research department, which it did in 1961.
Projections in the late 1960s and the early 1970s were for strong growth in the Gulf Coast region of the United States, particularly in the Houston area and the state of Florida. In fact, demand during the 1970s doubled in these two areas alone. Vulcan's market research indicated a future shortage of stone deposits necessary to supply aggregates for this anticipated growth. With nearby reserves being depleted rapidly, the company knew another source of supply was needed. The closest source in Texas was from the Edwards Plateau area. Stone from here could be shipped via rail, truck, or a combination of the two. Another possible source was the Kentucky region, from which stone could be shipped by barge down the Mississippi River. Vulcan also knew that as supplies diminished, the cost of the rights to mine aggregates would increase. Moreover, transportation costs would likely rise over time as greater distances became involved. Transportation costs, on average, were as follows:
* 7-15[cts.] per ton/mile by truck
* 2-5[cts.] per ton/mile by rail
* 1-3[cts.] per ton/mile by barge
It became apparent rather quickly that because there were sufficient supplies in other locales, the problem was not so much a market problem as a transportation problem. Moreover, because transportation was most cost-effective by water, and with its Gulf coast being pure limestone, Mexico offered great potential as a supply source that could produce a competitive advantage for Vulcan. As management researched the transportation issue further, it concluded that using oceangoing, self-loading ships would be quite cost-effective due to economies of scale. The transportation cost was projected to be less than 0.5[cts.] per ton/mile. Mexico now represented a major competitive advantage for Vulcan.
This idea captured the imagination of CEO Blount. It represented visionary thinking: Acquiring a huge supply of aggregates that could be delivered at a profit and possibly below competitors' costs would change the competitive landscape in a way that could solidify Vulcan's position in the industry for a very long time. Thus, Vulcan began studying the possibility of Mexico as a supply source as early as 1971.
Eventually, aggregates were found in sufficient quantity and quality in the Yucatan Peninsula. However, the solution presented another dilemma: that of actually doing business in Mexico. To begin with, business there has often been considered quite risky, particularly during the pre-NAFTA era. Moreover, a highly complex set of problems--not to mention a huge investment--would be involved in setting up the quarry and mining equipment and moving the aggregate to the United States. There was concern over the reactions of competitors, who surely would not sit idly by as Vulcan stole market share from them. And one big question in particular loomed: What was currently unknown that would subsequently surface and threaten the objectives of the project?
Given these problems, Blount's Mexico proposal generated skepticism among...
Read the full article for free courtesy of your local library.
|
Bookmark this article
Print this article
Link to this article
Email this article
Digg It!
Add to del.icio.us
RSS
