Survive in the Mexican Market - Essay Example

BRIEF SUMMARY El Puerto de Liverpool and Kmart International of the United s have signed a joint venture agreement to put Kmart, Mexico. The Chief Executive Officer is thinking how he will put the plans of operating a Kmart in Mexico. He is deciding whether to hire people from Mexico or get Americans, He is analyzing whether to use the American style of retail marketing(Strickland, 1999), or implement another marketing strategy(Collins & Devanna,1992). He is also thinking of how the products(Harvard Business School, 2000) will be priced in Mexico. The culture and customer behavior habits of Mexicans is also in his mind. After the bankruptcy of Kmart, Canada when NAFTA was imposed, he is speculating his next move. The Mexican customer(Harvard Business School, 1999) is mostly from the uneducated sector. Most of the parents force their children to leave school after having five years of education. This is because the parents need a helping hand to augment the small family income. Problem Statement: How will the Joint Venture Kmart Survive in the Mexican Market Since the ElPuerto de Liverpool and Kmart International have already agreed by signing the joint venture contract, the issue now is whether the joint venture will survive or not in until the next performance evaluation period. Since The Mexican customer behavior is different from the customer wants and needs of the American people, there is a need study what the company's next moves will be in order to survive. KEY ISSUES El Puerto de Liverpool has signed a joint venture agreement with Kmart International to put a Kmart retail store in Mexico. Mexicans earn an average of United States $3.94 per day. The Managers in companies in Mexico are asking for a basic income of United States $ 10,000. This is because they come from rich families. Mexicans buy in small quantities daily from the butcher, fish shop, baker and street vendors due to their low income. Most of the working population of Mexico belong to the below fifteen year old age. It is customary for parents to stop sending their children to school. The children are asked to help work and feed the family. The advantage here for Kmart is that young people always prefer changes in procedures of doing things. They prefer to while the time from 2:30 to 4:30 having siesta or snacks. They prefer fresh food and dislike frozen food. In the Canadian & US retail environment, people prefer to buy in big quantities in department stores and retail stores, often, once a week because food in the these countries are low priced. The Mexicans, Canadian & Americans prefer to buy food and other products from the United States. "If it is from the US, It must be better". Mexicans usually spend 38.75% of their total income purchasing Food. The rest of the money is spent on Drinks and tobacco. K mart went bankrupt in Canada when NAFTA was implemented here. But at the same time, Walmart Canada was the number one in terms of sales in Canada. In fact, Kmart was not considered a threat to the market share of the other two retail stores in Canada. We can evaluate the success of the joint venture by the sales and net income that it will generate. If the joint venture results in big sales, then the joint venture is a success. Another criteria for evaluating a joint venture is whether it has been giving taking care of the environment by not polluting the environment or taking care of its waste disposal system. Still another major criteria is whether it has adhered to Mexico's government rules and regulations. The last criteria is whether it has hired Mexican employees and thereby helping the unemployment situation of Mexico. By hiring Mexican employees, it has helped Mexico economically and socially. By following the rules and regulations of Mexico it has accomplished the political requirements of the company.As to whether to put in place one, two or more stores immediately or one stores every month, the recommendation is to start first with a test project. The test project is to put up one store. This store will be in place for one year. This fair enough time for the joint venture to be evaluated in terms of sales performance, political, economic, social and innovative aspects. After the one year period, when the income statement tells that there is has been a very good year that had passed because of the high sales, then Kmart can now say that it is very profitable to put up another two or more branches together in different busy locations in Mexico. Training of the Mexican Kmart employees on proper customer service procedures will help much. It is very appropriate for Kmart International to expand to a new territory, especially Mexico. In Mexico, as evidenced by the success of Walmart, Mexico, The Kmart, Mexico can deliver the needed sales. It is in the best interest of the stockholders to pursue Kmart, Mexico because it will give them the expected net income the stockholders want. The Mexicans are spending US $48billion in imports and only US$ 28 billion in imports indicating that they prefer foreign goods to local goods. This proves that they prefer foreign goods, especially American goods to Mexican products. Discussion of alternatives: A) The company will implement American style of retailing such as hiring Americans to run the retail store. They will also hire Mexicans to work but they must be trained in the American training method. Training is thru use of Video and Movies. Food is sold Frozen. It will not innovate but only use the US style of retailing. The company will sell only US Imported Goods at high prices. Food will be sold mostly frozen. It will be headed permanently by American managers. b) The company will implement the Mexican Style of retailing. They will hire Mexicans to run the store and Mexican style. They will sell low prices and small quantity. They will sell most items fresh. Training of employees will be on a face to face approach. It will innovate by using all Mexican retailing methods and discard all American retailing methods. Kmart will sell only Mexican products. Food will be sold mostly fresh. It will be headed permanently by Mexican managers. c) The company will innovate by implementing a mix of American and Mexican Style of retailing. The company will sell frozen and fresh food. The company will sell some brands of goods at the same prices the street vendors are selling. The company will use face to face and video films to train its Mexican employees. The company will get a major portion of goods from the US the others from Mexico. Mexican Managers will be used. The company will study the needs and wants of the Mexican customer. From this study, he will sell products that the Mexican population needs. Survey forms can be given out to come up with a thesis or feasibility study of what the company will sell to maximize its profits. RECOMMENDATIONS: The best alternative that deserves recommendation is alternative C. The company must implement a mix of American and Mexican Style of retailing. The company will sell frozen and fresh food. The company will sell some brands of goods at the same prices the street vendors are selling. The company will use face to face and video films to train its Mexican employees. The main reason is that there are good points in the American style of retailing that can be adopted by the Kmart Mexico retail store. There are also good points in the Mexican style of retailing. The use of the video film plus the added face to face training method will enhance each other for a better trained Mexican employee. selling of frozen food and also fresh food will cater to most Mexican customers. The selling of some items at low prices (discount sales day) will to cater the needs of Mexicans who earn lower then USD $7.44 per day. The use of EDI and telephone to inform the US head office of the daily sales, inventory needs and business problems to be tackled is very useful to Mexican Kmart. Some goods will be bought from Mexican Suppliers and a major portion will be imported by truck from the United States. The company will sell products that are imported from the United States. This will generally be in around eighty percent. The remaining twenty percent, will be source out from the Mexican suppliers. A feasibility study will be done on the needs and wants of the Mexican buying behavior. Based on the survey that Kmart will be conducting, they will now know which products to concentrate on selling. Because the fast moving products will generate more sales per square inch of store shelf space. BIBLIOGRAPHY Ivey School of Business. (1994). Kmart de Mxico S.A. de C.V. Strategic Management,(1999), Thomson & Strickland,USA The Portable MbA,(1992)Collins & Devanna, USA Harvard Business School on Corporate Performance,(1998),USA Harvard Business School on Crisis Management,(2000) USA ADDITIONAL DATA MEXICO USEFUL INFORMATION US $ Imports 48 billion Exports 28 billion Labor force 26 million equal to 30% of total population Mexico Population 90 million Working population > 15 yrs old average drinks, food and tobacco spent 38.70% of total income Possible competitors in Mexico Walmart, Price Club, Dillards, El Puerto JC Penny Minimum wage is $3.94 per day Management salary 10,000 per month retail sales from small corner stores 70% of total retail sales in Mexico ten percent of Mexican population has 38% of total income forty nine percent earned $7.88 per day Total retail sales united states $75.3 billion supermarket sales US $24 billion department store sales US $17.3 billion Street store sales US $34.2 billion Mexican food 38% of total income Display will be mexico retail store 40% food Display will be mexico retail store 60% general merchandise Display in Mexico stores will be 80% food Display in Mexico store will be 20% gen merchandise Read More