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Exclusive: IBM Wins Vast Cemex Contract

Exclusive: IBM Wins Vast Cemex Contract
Lorenzo Zambrano, CEO and Chairman of Cemex, currently sits on the IBM Board of Directors.

By Luke Bujarski and Kirk Laughlin

NEARSHORE AMERICAS EXCLUSIVE: In likely the most dramatic outsourcing win in Latin America outsourcing history, global services giant IBM has reportedly secured a stunning seven-year IT and BPO contract from Mexico-based multionational Cemex, according to several sources close to the negotiations. The deal has not been announced publicly and Cemex officials declined to comment as did ISG, which is advising Cemex in the transaction. Neoris – a subsidiary of Cemex since its launch in 2000 –  is considered to be the crown jewel in the complex deal, enabling IBM to assume ownership of one of the most coveted services providers in the Americas because of its industry leading recognition for SAP-based IT services and its global customer base, including Welch Allyn and AMD. Neoris, considered the second largest IT consulting company in Latin America, has over 3,500 employees globally and generated more than $300 million last year. (EDITOR’S NOTE: UPDATED REPORTING ABOUT THE IBM-CEMEX CONTRACT IS FOUND HERE/ THE REPORT INCLUDES NEW INFORMATION ABOUT THE ABSENCE OF NEORIS IN THE FINAL AGREEMENT.)

Crippling Debt

As the world’s third biggest cement maker, Cemex, based in Monterrey, Mexico, has been straining from back-breaking debt built up during the global construction slowdown four years ago. The firm has been in operation for over 100 years and, in an intriguing twist, the company’s CEO and chairman Lorenzo Zambrano currently sits on the IBM Board of Directors. In addition, Cemex has in the past few years purchased “Social Business” software from IBM. When asked about the IBM outsourcing deal, Cemex spokesperson Jorge L. Perez told Nearshore Americas, “I made the inquiry and I have no information about it.”

Cemex issued a comprehensive bid request earlier this year, drawing proposals from as many as 12 separate outsourcing providers. The high-stakes game of bidding took its course throughout the spring, as Cemex sought to winnow down providers and at the same time drive up the price of the services contract. Tata Consultancy, Dell, Wipro and Infosys were among the bidders who were initially responding to a large-scale request for global IT support – effectively contending for infrastructure and software partly serviced by Neoris, historically.  (Notably, Neoris was not invited to participate in the bidding.)

It wasn’t until the ladder stages of the negotiations when either the final bidders or Cemex forced Neoris into the mix; setting in motion Cemex’s ability to cash in on perhaps its most valuable asset.

Spending Billions?

The IT/BPO services contract alone is said to be worth between $1.2 and $1.5 billion, but with the eleventh hour addition of Neoris, IBM may well be spending more for the entire package. “There are very few organizations in the world that have the scale and muscle to take on a project of this size… IBM is one of them,” said an industry insider briefed on the matter.  IBM will be taking on more than just CEMEX if Neoris becomes part of the deal.  The parent company makes up about 15 percent of total revenues for Neoris with other major clients including Petrobras, BBVA, PEMEX, and Repsol.

It is unclear exactly how much of the transfer includes back-office, finance related services.  Sources say as many as 2,000 jobs are potentially going to be eliminated at Cemex – but as is often the case, IBM will likely seek to employ many of the Cemex staffers.  Just this week, IBM announced it will pay Swedish engineering firm Sandvik $288 million and, per contract, terms will offer positions to affected workers.  In an interview with Nearshore Americas, Gilberto Garcia Head of Innovation at Cemex added that “Neoris is only one of many technology services providers that we work with, including IBM.  Our internal business network runs on LOTUS Connection from IBM.”

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Despite Cemex’s diverse geographic coverage, operating income in 2011 ($960 million USD) plummeted by 66 percent from its peak in 2006. The global economic slowdown in addition to lingering debt from the sudden U.S. housing crash, and the 2009 $16 billion buyout of Australian peer Rinker, has pushed the company to deploy cost cutting strategies both at the operational and corporate level.  Sources say that Cemex agreed to aggressive terms in the financing the Rinker deal, which is believed to have placed added stress on the company’s financial posture.

Cemex reduced its global workforce by six percent in 2011, as well as a managerial restructuring which entailed decentralizing authority and increasing accountability at local levels. Respected CFO Rodrigo Treviño left Cemex during the shake-up, which left corporate financial responsibilities to Fernando Gonzalez, who is believed to be the main Cemex architect behind the IBM deal.

In a recent briefing with Nearshore Americas representatives at Cemex stressed that “Neoris has been an invaluable contributor to our operations globally”, having initiated the global SAP rollout for Cemex in 2003. Among the many questions still to be answered is whether IBM will continue to maintain existing Neoris offices in Latin America, which are located in Argentina, Brazil, Chile, Colombia and Mexico.

Finally, the move by Cemex is certain to trigger questions around whether other mega Latin America corporations will look to monetize IT assets. There is little doubt that shared services will continue to evolve in the region as corporations look to leverage lower cost geographies.

The IBM-Cemex deal appears to be a recording-breaking contract in the realm of Latin America outsourcing, surpassing the noteworthy acquisition of Unilever’s finance operations by Capgemini in 2008.

 Contact the authors of this article by email at: Luke@NextCoastMedia.com or [email protected]

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

9 comments

  1. Amazing ability by Nearshore Americas editorial staff led by Kirk Laughlin to break this story – great job all – all the major news agencies will be sourcing our team – shows you that our organization is plugged in to this sector more than any other!

  2. well im one of those that are probably going to loose my job so its a bummer

  3. I'm a little confused still. Winning a 7 year contract for IT services – some of which are currently provided by Neoris – is different from buying or controlling Neoris. So is this 2 separate deals? One the IT contract win and another the purchase of Neoris? This was not clear to me when reading the story.

  4. It's not so hard Mike, but the article could have made it clearer. Instead of Cemex shelling out billions in cash to pay IBM for its service it is paying at least some of it in kind by transferring Neoris, kind of like GE offloaded captive Ddemesis to Softek, but on a much larger scale. Cemex will get a new level of service, less management headache by getting rid of a company that, while profitable, was not really part of it's core business, and IBM just landed the largest IT contract in the region while vastly improving its LATAM SAP footprint by acquiring Neoris. Definitely looks win-win from the start but it will be interesting to see how things play out in the next few years.

  5. I'm more curious about how this company is going to stay afloat with the crippling debt it is in.

    As of March 31st 2012 – $17,158 billion.

  6. CX is paying a high price to stay alive in his "way on the dessert" after the Rinker deal…..

  7. Corporate_Govern

    So on July 5th CEMEX decided to award this deal to IBM. CEO of CEMEX is head of Corporate Governance at IBM. And Neoris is releasing these news-leaks to subscribe to it's own interests!! Si tenemos que elevar el nivel de gobierno corporativo entre las empresas Mexicanas entonces tenemos que deshacernos de esas actitudes de la dirección del viejo mundo.

  8. Corporate_Govern

    Zambrano is on the Board of IBM and he gave a deal to IBM. It is called quid pro quo in the industry.

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