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Globalization of Mexican Businesses

Learn how Mexican businesses expanded globally through NAFTA, FDI, and strategic alliances. Discover entry and positioning strategies, ethnic positioning, pricing, and distribution approaches.

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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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