Iinternational Business Porters Diamond Analysis of the Mexican Business Environment - Essay Example

 Introduction Businesses are often established with the objective of fulfilling the identified needs; this includes both the short and long-term needs. In doing this, business have to make proper analysis of the internal and external environment in order to understand the different market entry strategies and ways to manage the competition and other factors in the dynamic environment. Business executives have to ensure that the strategies they adopt can assure them of the much needed competitive advantages and market positions (Tihanyi 2005, 275; Lazo 2011, 17). This paper analyses the international business environment in regards to Mexico, showing its potential of a good place to make investment for an international British business company to investment. In doing this, it uses the Porters Diamond model, which is one of the widely used assessments methods for international business environment. Analyzing the business international environment BRIC Countries BRIC countries are those that dominated global economic talks in 2001 and years after; at that time, these countries had demonstrated great potential in exploiting economic opportunities. These countries have moved on to become great and major players in the global economy, with great growth in their GDP. BRIC countries comprise of Brazil, Russia, India and China; currently, these countries have now been classified as the powerhouses of the world economy. They have reformed their macroeconomic policies, something that has given them a cutting edge in creating economic competitive advantages globally. Later, a new perspective and outlook on activities by other countries brought up the MINT countries, as those showing huge advances in their economic growth. MINT Countries Currently, different countries are involved in various practices that can enhance their competitive advantage. Many countries are reforming the macroeconomic policies in the process of attracting local and international investments to spur the growth and development of economic activities in these countries. MINT countries are those that have shown tremendous developments in the economic activities, thus leading to expansion of their economic activities. These countries include Mexico, Indonesia, Nigeria and Turkey; according to Jim O’Neill, an economist, these countries have an upsurge of economic activities that have placed them perfectly in the league fast growing economies. An important characteristic of these countries is the fact that they have young and aggressive populations that have the ability to take on various economic activities. Except for Turkey, these countries are commodities, with oil being their chief export product. In this case, case, the United Nations has earmarked these countries as the next frontier for international business growth and expansion. Tesco PLC Tesco is a registered multinational public limited Company that sells grocery as well as other general merchandise. The company has its headquarters in the UK, in Cheshunt town of Hertfordshire. The company has grown rapidly since its inception in many decades ago, managing to create presence on many other countries in Europe. Due to the promising economic fortunes in Mexico, the company is setting itself to invest in this country, which has been noted as the next frontier in terms of international business growth and development. The company is currently making evaluation and assessment of the viability of Mexico’s external environment in order to determine the proper market entry strategies and other approaches of consolidating its business activities in the country after its entry. Analysis of the Mexican Business environment using the porters Diamond Model Mexico has risen to become one of the rising economies in the world, with expectation that its sound economic and political policies will guide it towards one of the developed economies in the world (Lopez & Philipps 2007, 12). The country, located in North America has been attracting various international investors from all parts of the world because of its large population and conducive business environment. Mexico has rapidly been opening up most of its industries for local and international investors to set ground and run their investments, while spurring the economic growth of the country (Crystal, Dages & Goldber 2002, 28). It is reported that the financial sector has been one of the main beneficiaries of this development, attracting various international banking institutions to set base in the country (IMF 2012, 37).The entry of foreign capital has been instrumental in improving liquidity as well as higher capitalization in country’s banking and entire financial sector (Moguillansky, Studart & Vergara, 2004, 21). In the same way, consumer confidence has increased significantly and followed suit. In the process of understanding effectively the effectiveness and viability of the Mexican retail industry, the Porters Diamond Model was used. According to the standard literature provided in relation to international trade, especially with regard to competitive advantage in certain countries, this strategy has been broadly applied. It is important to understand that the Porters model is simply an annex to “Diamond” prototype; in this case, it applies significantly to management of particular firms and not necessarily the countries. Porter’s Diamond Framework (Porter, 2008) Demand conditions in the Mexican Retail industry As far as internationalization of business organisations is concerned, a home market that is trend setting is essential in providing a sustainable competitive advantage in the global markets. When the local market is large and robust, it offers pushes firms to be innovative and produce goods and services that appeal to the changing consumer preferences and tastes. In this case, the components of demand often appear to be “powers of buyers,” which are the forces responsible for shaping the market strategy (Porter 2008, 83). Additionally, the home market that is demanding plays a critical role in the creation of production infrastructure that meets the specific demand (Daniels 2011, 63). In Mexico, the level of aggregate demand has been essential in the creation and sustainability of the many firms that have been developed in the many industries in the country (Brouthers 2002, 205). In economics, the demand for goods and service is sometimes a function of supply, which in this case includes factors like market consolidation, competition and even financial crises. These factors influence the purchasing power of consumers and then businesses in equal measure. In Mexico, one of the chief pointers of demand is accessibility to banking and other financial services. This function is often influenced by credit supply and affordable market prices. Mexico has a large pool of these services, courtesy of the robust financial market made up of various banks including Banco de Mexico. The way consumers get credit easily in Mexico is an issue that makes sense to most businesses, something that increases their purchasing and bargaining power. Factor Endowments According to the porter’s model, conditions included in the factor endowments include capital resources, knowledge, infrastructure and human resources among others. In the retail these factors are well represented in Mexico, giving hope for the success of business wishing to exploit these opportunities in the country. For instance, banks and non-bank institutions are important sources of fair credit, which business can use as part of their capital resources. The large population the country provides a source of skilled and unskilled human labour, which is critical in the management of the retail markets and supermarkets for businesses wishing to follow this line. Mexico has liberalized its education sector, leading to the establishment of different kinds of tertiary institutes that are instrumental in the development of human capital to work in the different businesses being developed in the country (Sako 2006, 502). In this case, new businesses besides supermarkets stand to benefit from this knowledge base in the process of developing and growing their businesses. Additionally, the country has a well established infrastructure that comprises of transport and communication, as well as world class premises that accommodate different kinds of businesses in its cities. Related and Supporting Industries These industries comprise of the competitive foundations of credit for industries operating in Mexico or any other country in perspective. Additionally, related industries are essential in contributing to the strategic competition as well as cost effectiveness of businesses (Daniels 2011, 63). For instance, the financial sector is a good example of support industry that provides funds for businesses Other than the works of Levine’s (2000), Gonzalez-Anaya (2003) has posited that credits offered by banks are “complements,” compared to other kinds of lending. Business setting ground in Mexico can benefit for various support industries that have been growing tremendously in Mexico in the few decades. This is an important step in the right direction because businesses can hardly survive in a business environment that lacks these support industries. Firm’s Strategy, Rivalry and Industry Strategy This component of the Porters model comprises of industry and market structures, rivalry as well as firm’s strategies that can influence its competitive advantage in the global and local markets. In this case, industry structures comprise of the extent by which markets are concentrated in the region, main players in the industry including other capital requirements. In Mexico, the retail industry is one of the most liberalized and open sectors in the Latin America. In spite of this, the industry remains to be dominated by major international players like Wall mart, which commands a large market share of the retail industry (Javorcik & Keller, 2006, 23). In addition, the country’s financial sector has also followed suit attracting the establishment of many foreign firms (Skelton 2006, 6). New businesses entering the retail market should be prepared to face the largely oligopolistic market (Library of Congress 2008, 16). Government – the legislation and Regulatory Framework The Mexican government has devised robust macroeconomic policies aimed at enhancing the level of economic activities in the country. Mexico has managed to have policies that have continued to encourage establishment of businesses, which have reduced the level of unemployment in the country. The economic policies have also been essential in influencing the economic dimension through proper methods of access to credit and other financial services. In this case, businesses setting base in Mexico can take advantage of the lucrative business environment that promises better outcomes in terms of returns to investors. It is estimated that the increase in economic activities will propel Mexico to match the standards of other developed countries, this stepping in the big shoes of those countries. PEST analysis of Mexican Business environment The political environment Mexico has been characterized with political stability for long, something that has been an important motivation for the establishment of its economic environment. In any country, a stable political environment is essential for the growth of industries and other sectors. This is because, businesses thrive best in peaceful environment; additionally, consumers develop the confidence to move and make their purchases. Since the election of Felipe Calderon as the president, the country’s democracy has strengthened greatly; government activities have great transparency. In addition, the existing freedom of expression makes people confident and responsible in their interactions, something that attracts international investments in the country. In Mexico, the country has continued to reform its political policies to encourage international investments into the country, with an aim of enhancing its macroeconomic objectives. Economic environment The economic environment is one of the most important on the analysis of a business’ external environment. In Mexico, the economic environment has been very promising for the growth of new and existing businesses. For instance, the liberalization of the financial sector has made it easy for businesses and other people get credit from the various banks and non-bank financial institutions in the country. The growth of the financial sector has increased competition among the banks in Mexico, something that has led to reduction in the cost of credit for businesses and people. In this case, emerging businesses have the capacity to grow and tap the market existing in the country. In this case, Tesco stands a good chance of survival, depending on the strategies it adopts in its internationalization processes. It is important to understand that banking and the entire financial sector is an important element that enables investors to set up businesses in the country. In Mexico, the financial sector, with its increased number of investments has seen credit creation and interest rates for these financial products come down, for the benefit of business firms and people. In this understanding, Tesco has an advantage of creating and expanding its business activities in Mexico if it manages a successful entry. Socio-cultural factors Most cities in Mexico comprise of cosmopolitan cities that promises the growth and success of businesses in the country. Mexico has attracted different businesses in its many industries, with many of them taking advantage of the multicultural populations existing in the country’s various cities (Brouthers 2002, 221). The advantage of this multicultural environment to emerging businesses is that people have different needs and preferences, which can be fulfilled by businesses emerging in the economy. It is important to understand that cultural diversity is an essential element in a society’s social patrimony. Mexico has a rich cultural diversity that comprises of approximately 62 different indigenous languages that are spoken in the country, the care of which belongs to the government. The advantage of this attribute to emerging companies in the company is that they can easily take advantage of the diversity in terms of demand for goods and practices. Tesco, being a company that offers general merchandise will have an advantage in analyzing this market and providing products and services that appeal to the needs of the public. Technological Analysis The main contribution to Mexico’s technological environment depends on the country’s science and technology. The education system in Mexico, especially for tertiary institutes, has been instrumental in creating various innovations and technologies useful in business practices. It is important to note that Mexico’s competitive position has been facilitated by this sector. Science and technology remains the most critical sectors that will improve the economic prospects of the country and new businesses emerging in the country (Lazo 2011, 47). Many businesses have been taking advantage of the technological advancements in the country to add value to the growth and development of economic activities in their businesses. This has been evidence by creation of websites and other online portals in the process of reaching many markets worldwide and reducing their overhead costs in product promotion, distribution and even human resource management functions like recruitment. This an important idea in the growth of Tesco, in that it can leverage on this development by using the technological advantages in the process of reaching its clients for market research, product promotion as well as other important aspects of management. The company can introduce different approaches from those in other countries, or adopt those that have been successful previously in other countries. Summary and Conclusion Business expansion is an important practice that has to be undertaken in order to enhance the competitiveness of a company and its market position. Mexico is an important emerging economy that promises better prospects of growth and success for companies investing in it; for this reason, Tesco stands a chance of succeeding in this economy that is fast rising. The expansive and reformed economic environment in Mexico offers a good foundation for a business to get credit and other financial aid in the process of its growth and development (Moguillansky, Studart & Vergara 2004, 19). In this case, new businesses are assured of a healthy business journey that has all the support required for their success. The population, which has a rich diversity in terms of cultural endowments promises growth for new business in terms aggregate demand for goods and services. In this understanding, Tesco needs to make a proper evaluation of its strategies in the internationalization process. The Mexican business environment is one of those that can provide competitive advantages and market position through carefully planned strategies and approaches.   Bibliography Brouthers, K. D. 2002. ‘Institutional, cultural and transaction cost influences on entry mode choice and performance.’ Journal of International Business Studies, Vol. 33, No. 2. 203-221 Crystal, J.S., Dages, B.G. & Goldber, L.S. 2002. Has Foreign Bank Entry Led to Sounder Banks in Latin America? Current Issues in Economics and Finance, Vol 8. No, 1.1-6. Daniels. J., et al., 2011. International Business: Environments and Operations, 13/E, Prentice Hall. : Mexico. Gonzalez-Anaya, J. 2003. Why Have Banks Stopped Lending In Mexico Since the Peso Crisis in 1995. SCID Working Paper 118. Viewed 26 October 2014, IMF. 2012. Mexico: Financial System Stability Assessment. IMF Country Report No. 12/65, March. International Monetary Fund: Washington, D.C Javorcik, B., & Keller, W. 2006. Openness and industrial response in a Wal-Mart world a case study of Mexican soaps, detergents and surfactant producers. World Bank, Development Research Group, Washington, D.C. Lazo, B. 2011. Technological innovation in retail finance international historical perspectives. Routledge, New York. Levine, R. 2000. Bank-Based or Market-Based Financial Systems: Which is Better?"William Davidson Institute Working Papers Series 442, Viewed 26 October 2014. Library of Congress. 2008. Federal Research Division, Country Profile: Mexico Lopez, J. & Philipps, K. 2007. Banking Industry Evolution Along the Texas-Mexico Border. Federal Reserve Bank of Dallas, South West Economy, Vol 12, No 4, 11-13. Moguillansky, G., Studart, R. & Vergara, S. 2004. Foreign Banks in Latin America: A Paradoxical Result. CEPAL Review Vol 82, No, 3. 19-35 Porter, M. 2008. The Five Competitive Forces That Shape Strategy. January, Harvard Business Review, Vol 86. No 1. 79-93. Sako, M. 2006. ‘Outsourcing and offshoring: Implications for productivity of business services’, Oxford Review of Economic Policy, Vol, 22, no. 4. 499-512. Skelton, E. C. 2006. Laying the Foundation for a Mortgage Industry in Mexico. Economic Letter, Federal Reserve Bank of Dallas, Vol.1, No.10. 1-7. Tihanyi, L., et al., 2005. ‘The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis.’ Journal of International Business Studies, vol. 36, no. 3. 270-283 Read More