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Globalization of Mexican Businesses

Globalization of Mexican Businesses. By Arun Kottolli. Introduction. Mexico became an emerging economy in the last decade mainly due to NAFTA and proximity to US NAFTA fueled the globalization of Mexican businesses by US investments in Mexico and by creation of new market opportunities in US

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Globalization of Mexican Businesses

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  1. Globalization of Mexican Businesses By Arun Kottolli

  2. Introduction • Mexico became an emerging economy in the last decade mainly due to NAFTA and proximity to US • NAFTA fueled the globalization of Mexican businesses by US investments in Mexico and by creation of new market opportunities in US • Mexican firms are investing and expanding in US, Europe and Latin America • This offers a learning opportunity to firms in other emerging countries

  3. Globalization Routes • Mexican firms are becoming global firms by • Creating subsidiaries abroad • Forming Strategic Alliances • Sale of stock & securities abroad • Networking with other MNC’s • Globalization can be attributed to Internal factors such as: • NAFTA • High Internal Debt • Deregulation of industry

  4. External Factors • External Factors influencing globalization are: • Market liberalization in foreign countries • Changes in finances & huge investments needed to modernize • Use of FDI by other Latin American firms to compete • Emphasis on cost based strategies to enhance export performance – Need to achieve economies of scale • Globalization of various Industry sectors resulting in global customers

  5. Mexican FDI in USA • Compared to Japan & Europe, Mexican investments in US has been small but is growing steadily • Mexican FDI in US has tripled in the last decade • In 1999, Mexican FDI was about $3.61 Billion • Mexican firms have generated sales of $9.2 billion in US, generated 30,000 jobs and a net income of $132 million in 1998 • Exports from Mexican subsidiaries in US have crossed 1 Billion dollars

  6. Entry Strategies • Most Mexican firms which went global were manufacturing firms making auto parts, steel, aluminum, paper, alcoholic beverages, etc • Most Firms expanded into USA, Canada and Brazil • Other countries were Argentina, Venezuela, Columbia, Costa Rica, El Salvador, Spain, Germany, France and China • Joint Ventures is the favored means of expanding abroad, followed by acquisitions, strategic alliances and mergers

  7. Entry Strategies • Partnerships via Joint ventures and strategic alliances were designed to minimize risks, speed up entry, and secure access to resources or key assets • Acquisitions by Mexican firm CEMEX has well defined criteria: • Match parent’s expertise • Does not effect current financial structure • Meet financial targets, returns exceed the firm’s Weighted Average Cost of Capital • High level of 2-way communication • Significant centralized control

  8. Positioning Strategies • Most Mexican firms expanding in US emphasis on Low price and high quality or high service • A mix of low cost focus & differentiation gives Mexican firms the most desirable position • Focus on quality is necessary to succeed in a developed country • Firms prefer sales to channels or other businesses rather than directly selling to customers • Consumer products are targeted at all ethnic groups, few target Hispanic community only

  9. Ethnic Positioning • Contrary to expectations, most Mexican firms avoid targeting exclusively to Hispanics • Mexicans in US are trying to fit-in, so they prefer American products & avoid ethnic Mexican products • By catering to a wider ethnic base, firms can maximize market potential • Advertising and product positioning strategies are therefore directed towards more general markets • Products are being localized to meet local demands – Consistent with positioning

  10. Pricing Strategies • Initially Prices in US was identical to that in Mexico • In few cases prices was higher in US, but in general firms maintain price parity with Mexico • Reduces arbitrage • Fits with Low cost strategy • Market penetration pricing strategy • Long term outlook, rather than opportunistically cashing in

  11. Distribution • Most Mexican firms prefer to use channels instead of direct marketing • Agents, Distributors, Brokers, and Wholesalers • Very few have their own sales & marketing offices • Distribution via channels is a low risk option • Direct marketing is expensive in US • Personal selling is the preferred sales method • Samples, discounts, coupons etc are used sparingly

  12. Closing Thoughts • A close study on expansion of Mexican firms in US serves as a learning point for firms from other emerging nations to enter US markets • Low Price, High quality strategy is necessary to combat country-of-origin effects. • Firms need to aggressively pursue quality, get quality certification and demonstrate quality to gain market acceptance • Low price, long term objective is better than a opportunistic high price strategy • Indian Firms in Auto parts, machinery etc can emulate Mexican success in US

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