Running head: REPORT OF MEXICO
1
Mexico
Names
Husni Farsi
Salemin Saleh
Course
Concepts International Trade
Insert Instructor’s Name
DIANE SIMSOVIC
Date
REPORT OF MEXICO
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Introduction
The process of analyzing a company to obviate the challenges of dwindling sales and
deteriorating profitability is usually critical. This is because it requires company executives to
engage themselves in numerous revitalization logistics, while considering factors that
differentiate the available sale and profit recuperation options and their alternatives. Company
managers involve themselves in purpose-oriented analysis and review of external or marketplace
conditions and factors as well as trends to ensure that they chose the most suitable options.
Additionally, the company in question explores and analyzes its internal situations and factors
that have a direct bearing on sales and profits. This ensures that the process of averting further
deterioration is successful from both external and internal perspectives. This is report includes
the PEST-C analysis of the target market in Mexico and a SWOT analysis of Breezy Auto Parts
as Breezy seeks to expand its market for profit sustenance. The report also includes analysis of
the current situation of Breezy Auto Parts in terms of the challenges that the company is facing
and the causes of the challenges.
SWOT Analysis: Breezy Auto Parts Current Situation
Strength
Weaknesses
Supplier to Dominant Manufacturers
Focus on Domestic Market
The high annual revenues that Breezy
Breezy distributes its air filters in North
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records are attributed to the fact that Breezy
America only, and this is an indication that it
initially supplied its filters and carburetors to
depends on confined market. Although the
three big domestic automobile manufacturers.
company dominates the domestic market
This assisted that company to establish a firm
overwhelmingly, it would be more successful
domestic market base, with guaranteed auto
if it had extended its sales beyond the domestic
parts supply. With such a strong domestic
boundaries. This has been one of Breezy’s
market base, Breezy enjoys steady and
weaknesses that have culminated in its
uninterrupted domestic supply of filters and
declining sales and profits as the rate of entry
carburetors, recording remarkable revenues. As of new automobile manufacturers has
a consequence, its profit levels skyrocketed,
decreased, meaning that the company has
and have remained high until recently when
reached the upper limit of domestic market
they began to dwindle.
expansion.
Partnerships with Neophyte Manufacturers
Narrow Range of Auto Parts
Through the creation of alliances with
Breezy specializes in only two auto
foreign automobile manufacturers, who took
parts; air filters and carburetors, and from a
initiatives to establish car manufacturing
personal perspective, this product range is
operations in North America, Breezy expanded
narrow to some considerable extent. A narrow
its sales. This augmented its business
range of products is associated with limited
proliferation, leading to high desirable profit
sales and profits, and widening the range of
margins that have been transferred to the
products was raised as part of the options for
present. Relationships with new automobile
expanding sales and profits for the company.
investors gave Breezy the opportunity to
Keeping in mind that there are many auto parts
expand its scope of operations, which came
that make various models of vehicles, dealing
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along with augmented sales of auto parts, and
with only two types of auto parts is absolutely
profits thereof.
a capacity limitation for Breezy.
Redesigning Models
Manufacturing Cost Rigidity
The advent of new automobile
It was mentioned that Breezy’s profits
manufacturers from abroad enabled Breezy to
are turning razor thin because its
seize the opportunity to improve its brands of
manufacturing plant is characterized by fixed
carburetors and filters. This was realized
manufacturing cost that never get adjusted
through the stylistic redesigning of its auto
even as sales continue falling. When operating
parts to not match the foreign models, but also
on fixed costs may be regarded as a strategy
competitively meet novel auto parts’ standards.
for Breezy to regulate the costs of production,
Apparently, this initiative augmented the local
the rigidity towards adjusting the costs to
demand for its auto parts, culminating in
match sales appears to do the company more
higher sales that translated into profits. Product
harm than good.
redesigning also benefited Breezy in terms of
Limited Influence on External Trends
manufacturing cost reduction.
Electronic Data Interchange Introduction
The idea of introducing the Electronic
The company has one critical weakness,
and this is the inability to have any influence
on external trends that affect its sales and
Data Interchange or simply the EDI is regarded
profits directly. In particular, Breezy has no
as one of the strengths of Breezy as it assisted
influence on the prevailing gas and oil prices,
in enhancing transaction data and information
in addition to being unable to track and
transfer, thus improving communication
influence the pace with which vehicle
efficacy both internally and externally.
manufacturers redesign their models to make
According to Parsa and Popa (2003), better
them efficacious in terms of fuel consumption.
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business operations reorganization, just-in-time For this reason, Breezy has been unable to
stock, and speedy response are among the
dynamically trigger changes in over board
merits of EDI. These are among the benefits
factors and trends in a manner that augments
that Breezy reaped from the EDI introduction
its sales and profits.
leading to augmented operational efficiency,
Inability to Redress Product Life Cycle
and eventually to increased sales and profits.
Phase
Attainment of Initial Corporate Vision
The introduction of the EDI is
Breezy has already saturated the
domestic market with air filters and
associated with another Breezy strength; the
carburetors, indicating that it is at the decline
ability to successfully realize its original
phase of life cycles as far as these auto parts
corporate visions of becoming the leading air
are concerned. This implies that the scope for
filter and carburetor supplier in the entire
sales expansion in an already saturated market
North America. The improvement in
has become restrained. The lack of proactive
transactions as a result of EDI has enabled
measures to revive the sales and profits of
Breezy to occupy the lead supplier position up
these two products is not only a weakness, but
to date. Achieving this vision is classified as
also a potential cause of failure of the two
one of the strengths as it enables Breezy to
products, if Breezy remains satisfied with the
have some monopoly advantage in the
status quo.
distribution of these auto parts.
Market Search Reluctance
Firm Customer and Revenue Base
The exclusive dominance in the
The last strength of this company is that domestic market has driven Breezy towards
it has a strong domestic customer base that is
being reluctant in searching markets elsewhere
attributed to the steady revenues of
in the world. Consequently, as the fuel prices
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approximately one hundred million dollars that
stake Breezy future, its tremendous dominance
Breezy enjoy annually. The customer base has
in North America becomes insignificant, and
been established for over three decades, and
the search for new market is perceived as a
remains stable even as future revenue concerns
belated action.
arise.
Opportunities
Threats
Broadening of Auto Parts Range
Soaring Fuel Prices
Breezy has the opportunity to widen its
The most critical threat that Breezy is
range of products, and this is by focusing on
facing is the skyrocketing gas and oil prices
manufacturing other auto parts, besides air
and indeed, it is a concern to many other
filters and carburetors.
companies.
Venturing into Overseas Markets
Flattened and/or Slumped Car Sales
To limit the deteriorating sales and
The anticipation that driving will be an
profits, Breezy can extend the sale of its
expensive future activity has led to a decline in
products beyond North America, into South
car sales. This has been a threat to Breezy as
America in places such as Mexico and
vehicle manufacturers have resorted to
elsewhere in the world.
reducing manufacturing rates.
Capitalization on Industry Best Practices
Unpredictably High Cost of R&D
Breezy can improve its sales and profits
The need for Breezy to venture into
by employing just-in-time inventory and
other auto parts besides air filters and
manufacturing, among other integrated
carburetors creates a need for conducting
industry best practices as foundations for
research and development operations. The
future advancements.
uncertainty of whether R&D would yield fruit
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that compensate the incurred costs is a threat.
PEST-C Analysis of Mexico
Legal and Political Environment
One of the factors that may influence Breezy’s business initiatives in Mexico is
bureaucracy, and changes in the Mexican bureaucracy in recent decades have made the Mexican
economic environment favorable for business. Decision-making speed and transparency at the
Mexican federal government level, characterized by approved maximum administrative process
time limits, have improved immensely. Under the Mexican Federal Regulatory Improvement
Commission (COFEMER), many bureaucratic business impositions in terms of information and
permit as well as registration requirements have been removed (Unger & Frankel, 2002). The
frustrating and time consuming Mexican bureaucracy of past decades have dramatically reduced
following deregulation and intense use of technology in government operations. This makes
business for both domestic and foreign investor a simplified task. However, records reveal that
automobile parts are among foreign products that are restricted, thus requiring strict checking.
The reduced bureaucracy in the Mexican business environment has reduced incidences of
corruption, making the Mexican economy favorable for Breezy to conduct business. Unger and
Frankel (2002) concur with this by stating that lessening of excessive bureaucracy for corruption
curtailing is a benchmark priority for the federal Mexican government. With respect to ethical
aspects, the Mexicans are increasingly focusing attention to ethics in the corporate arena as they
are viewed as a fundamental business success ingredient. Camp (2012) records that public
criticism empowerment by Mexican accountability mechanisms is the root cause of negligence
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with regard to business and political ethics. Additionally, Anglo-Saxon ethnic nepotism is an
acceptable business in Mexico (Unger & Frankel, 2002).
Economic Factors
The Mexican gross domestic product (GDP) has been growing steadily in last five years,
according to the World Bank, with the current value being approximately 1260 billion dollars as
shown in the GDP graph below.
Billions of Dollars
1400
1200
1000
800
600
400
200
0
2010
2012
2014
Mexico GDP growth trend: Adapted from
www.TRADINGECONOMIC.com|world bank
group
According to A.T. Kearney, Inc. (2008), the Mexican automobile industry contributed to a
significant percentage of this GDP, which currently stands at about 4% of the total GDP, and
about 20% of the manufacturing industrial sector as shown by the charts below.
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Service Sector
62%
Industry 18%
Construction,
water, gas and
electricity 8%
Mining 5%
Mexican GDP by sectors
Automobile
Industry-22.22%
Food Industry21.1
Other Industries
56.67%
Mexican GDP of industrial sector
The GDP data above, along with the GDP growth rate data table below are an indication that the
Mexican GDP is growing.
Mexico GDP Growth Rate
Mexico GDP
GDP
GDP Growth Rate
GDP Growth Annual Rate
Previous
value
1260.91
1
1.6
Last
Value
Difference
1186.46
13.06
0.44
0.56
1.9
-0.3
Unit
$US Dollars
%
%
Change
+
+
-
Concerning the Mexican per capita income (PPP), the last five years have indicated a growth,
except that the 2013 value is higher than that of 2014 as seen in the figure below.
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Mexican GDP Per Capita
8600
8400
Billion 8200
8000
$US 7800
7600
7400
2010
2012
2014
Year
Adapted from www.TRADINGECONOMIC.com|world bank
Mexican economy is the second largest in Latin America, and the import classification
system of the nation has undergone modifications to ensure that it matches systems of
industrialized nations. In addition to this, Unger and Frankel (2002) record that some products
have been made duty free under the Mexico’s tariff regime. Indeed, auto parts are among the
imports for which Mexico agreed to remove import tariffs starting from 2012 to 2014 (Villarreal,
2012). Due to duty and tariff burden reduction, the entry into the Mexican automotive market is
now easier. For this reason, export through sales representatives such as agents, and through the
establishment of a sale office present themselves as viable market entry options for Breezy. One
of the merits of using sales agents is that Breezy will incur less upfront expenses. Furthermore,
Breezy will be able to minimize the possibilities that its business in Mexico will be subjected to
Mexican laws and legal provision. As well, Breezy will reduce instability risk emanating from
the process of adapting to the new business environment in Mexico, along with reducing the
degree to which Mexico’s foreign taxes will apply to its auto parts (Da Vinci, 2012). The
drawbacks associated with using agents and distributors for exportation are that Breezy will have
less control over its independent agents and distributors. Moreover, the company will have to pay
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dues for relative safety, along with being subject of import and export customs and rules
governing auto parts manufactured outside Mexico. Finding faithful and proactive agents and
distributions might also be difficult and expensive. With respect to establishing a sales office in
Mexico, Breezy can establish it as a seriousness indictor to the new clients, thus hastening the
establishment of the foreign customer base (Da Vinci, 2012). The other advantages include risk
sharing, and foreign reputation building as well as knowledge benefits from partnerships with
other companies in Mexico. The disadvantages of establishing a branch office are that Breezy
will incur high costs if the venture fails. Also, Breezy is likely will undertake risks all by itself,
besides having difficulties in the attempt to comprehend Mexico’s laws that govern corporate
operations and employment as well as tax. Other difficulties associated with exporting auto parts
into Mexico include bulk transportation difficulties, potential industrial disputes, and labor
unionism challenges as well as linkage red tapes (Madlani, et al., 2013; Unger & Frankel, 2002).
Cultural, Social, and Technological Factors and Additional Economic Considerations
Breezy may also decide to enter the Mexican auto parts industry by setting up a
manufacturing operation through a joint venture or through foreign direct investment. In that
case, some of the benefits that the company may reap from a direct venture include flexibility,
risk sharing, and opportunities to gain new expertise and prowess. According to Stewart and
Maughn (2011), other advantages include the opportunity to gain new technological knowhow
and simplified consolidation and divestiture processes. One disadvantage that Breezy might have
to compete with in a joint venture includes poor integration emanating from cultural diversities
and dissimilar management styles. Others include expensive research, initial leadership
difficulties, communication hiccups and imbalances in expertise levels. If Breezy decides to
initiate the manufacturing operation through foreign direct investment, some of the advantages
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that the company may experience include streamlined entry Mexico’s automobile industry,
access to new resources, and minimized production cost. Other advantages include concrete and
speedy multivariate and multilateral decision-making and policy making (Bartels & De
Crombrugghe, 2009). The disadvantages of this approach include internal and external
instabilities, gain sharing, and competition of sustaining competitive advantage between Breezy
and Mexico.
From a personal opinion, a joint venture would be more appropriate for Breezy that direct
foreign investment. The questions that Breezy should ask a potential partner of a joint venture
are questions about capability integration, knowledge exchange, and integration of diverse values
and work ethics. Breezy should also gather the opinion of the potential partner about
technicalities and logistic they should adopt for conflict resolutions, integrity commitments, and
management control divisions, among other questions. The services that Breezy can acquire from
the Export Development Canada as well as from Canadian Trade Commissioner Service include
credit advice, risk management, and market evaluation services as well as solutions to financial
problems. These services are instrumental for Breezy in the process of implementing the chosen
approach of market entry into Mexico.
Recommendations
Having investigated the Mexican market, it has been identified as a viable market for
Breezy to venture in. There are numerous automobile companies that can provide Breezy with a
strong foreign client base. There are minimal cultural, economic, and political as well as social
and technological hindrances for Breezy to establish itself in Mexico. All the same, it is
recommended that Breezy should reconsider the market entry criteria in order to make a wellinformed research-based and client-oriented decision on the approach to adopt.
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Conclusion
Entry into a new market, especially a foreign market, is a venture that requires careful
deliberations to ensure that it does not culminate in outcomes that may harm a company beyond
its situation before the initiation of the venture. In that regard, Breezy’s managers and market
investigation agencies need to be proactive and extra careful in all actions and decisions to
prevent occurrences that compromise the goal of averting sales and profits deterioration. Besides
the conducted external and internal analysis for external market venture, Breezy should consider
its already existing North American market and deliberate on mitigating any unaddressed
inconsistencies that could be causing dwindling sales and profit deteriorating profits.
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References
A.T. Kearney, Inc. (2008). Reigniting Mexico’s automotive industry. Chicago, Illinois. A.T.
Kearney, Inc.
Bartels, F. L., & De Crombrugghe, S. A. (2009). FDI policy instruments: Advantages and
disadvantages. Vienna. United Nations industrial Development Organization (UNIDO).
Camp, R. A. (Ed.). (2012). The Oxford handbook of Mexican politics. Oxford University Press.
Da Vinci, L. (2012). Entering overseas markets. International Trade eLearning Suite for SMEsInTeLS. Retrieved November 12, 2014, from http://www.intels.biz/cours/view/89
Madlani, N, K., et al. (2013). Key credit factors for the auto suppliers industry. Standard &
Poor’s Ratings Services Ratings Direct.
Parsa, A., & Popa, S. (2003). Analysis of EDI success implementation factors and their
interrelationship with the level of EDI implementation within Swedish companies.
Industrial and Financial Economics.
Stewart, M. R., & Maughn, R. D. (2011). International joint ventures, a practical approach.
Portland. Davis Wright Tremaine LLP.
Unger, F., & Frankel, R. (2002). Doing business in Mexico: A practical guide on how to break
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into the market. Melbourne, Australia. Council on Australia Latin America Relations:
Australian Department of Foreign Affairs and Trade.
Villarreal, M. A. (2012). Mexico’s free trade agreements. Congressional Research Service (CRS)
Report. CRS.