Investment analysis: Mexico and Spain - Admission/Application Essay Example

 Country Analysis: Mexico and Spain Executive summary Investing in foreign countries is rapidly being embraced by many companies. This expansion to foreign lands is taken to be an indicator of successful businesses. However, before a business invests in a different country, it is important to carry out research beforehand so as to ensure that one makes the right choice. This ensures that the country that is chosen for expansion has viable and better chances of success. Mexico and Spain are two of the countries where massive foreign investment is taking place. An in-depth analysis shows that the two countries provide great chances for growth of businesses. However, Spain proves to be the best as the market is yet to be saturated. There is a daily increasing demand in Spain, and the economy is more stable and secure. There is less bureaucracy as compared to Mexico and government subsidies are further encouraging investors. The two industries that would flourish in Spain are the apparel industry and the automobile industries. The demand for products in these two industries is increasing everyday and the home companies have not sufficiently met the demand. Table of Contents Executive Summary ……………………………………………………………….…2 1.0 Introduction ………………………………………………………………....4 2.0 Economic environment ………………………………………………………………....4 2.1 Economic growth …………………………………………………………………4 2. 2 Market size and demographics ……………………………………………………..5 2. 3 Income distribution and economic stability ………………………………………...6 3.0 Business environment ……………………………………………………….………….6 3.1Setting up …………………………………………………………………………....7 3.2 Business relationships ……………………………………………………………......7 3.3 Infrastructural development ………………………………………………………….8 4.0 Political environment …………………………………………………………...…….….8 5.0 Socio-cultural environment ………………………………………………………………9 5.1 Cultural view ……………………………………………………………………….....9 5.2 Education …………………………………………………………………………….10 5.3 Consumer trends …………………………………………………………….………..10 5.4 Cultural responsibility …………………………………………………………………11 6.0 Choice of country and suggested industry ………………………………………………...11 References ………………………………………………………………………………...….12 1.0 Introduction All investors should be guided by the golden rule that guides entrepreneurs in their decision making; the rule of calculated risks. To do this, it is important for one to carry out sufficient research and analysis beforehand, and afterwards select the most viable country to invest in (Zarsky, 2012). Spain and Mexico are the two countries that will be analysed in this work. The analysis shall help in determining which of the two countries would be the best for a company to invest in. To do this, there are four major aspects that will be considered in this work. They are business environment, socio-cultural environment, political environment and the economic environment. 2.0 Economic environment 2.1 Economic growth Records show that there has been an increased growth in the economy of Mexico, an aspect that has greatly encouraged foreign investment in the country. The nominal GDP of Mexico, in terms of purchasing power parity, stood at $1.845 trillion whereas the nominal GDP was $1,327 trillion (World Bank, 2014). This growth has been on an increasing trend for the past few years. Spain, however, has had a decline in the growth of its economy. The GDP of Spain, in terms of purchasing power parity was $1.414 trillion whereas the nominal GDP was at $1.394 trillion by 2013 (World Bank, 2014). This however, is still slow as the country is still in its recovery position from the economic depression that hit it in 2009. In Spain, wage rigidity is still an issue as it is fixed on the wage index (Pombo, 2013). Research and development initiatives are still yet to be fully developed, especially due to the low technology in Spain. The rate of Spain’s GDP against the Euro area is as shown below Figure 1: Spain’s GDP growth 2.2 Market size and demographics The size of the market is greatly determines whether investing in a certain country is worth it or not. There is a big market in the two countries. By 2013, Spain had a population of about 46 million people as Pombo (2013) notes. This has led to an increased demand in products such as vehicles, foodstuffs, finished and semi-finished goods and medical instruments. Its capital city, Madrid, has a high rate of development and many businesses have been established here. In the total number of population, about 65% of these are located in the urban areas and thus, demand is higher in the urban areas (Pombo, 2013). In Mexico, the situation is more or less the same. With a population of approximately 114, 990,000 people, the demand for products is even higher than in Spain (Williams et al 2012). The age structure in Mexico is different compared to Spain. In Spain, the number of old people is not too high compared to those in the middle age. The number of people between the ages of 1-14 is also slightly lower. The age structure in Mexico is as shown below. Figure 2: Age structure in Mexico Of the total population, about 23% of them are located in the rural areas as compared to 77% located in the urban areas (Usa, 2009; Williams et al, 2012). Settlement in the urban areas has been growing rampantly in Mexico as compared to Spain. The life expectancy in Spain is a little bit lower than in Mexico, but the difference does not pose any significant challenge. 2.3 Income distribution and economic stability In Mexico, the economic stability is not only insecure but also unstable. This is due to the fact that bureaucracy has greatly reduced the ratios between the upper class, middle class and lower class (Williams et al, 2012). On the other hand, in Spain, the economic environment is slowly stabilizing and gradually recovering from the economic downturn from which it has previously been (Pombo, 2013). In Mexico, there is a big number of people who are in the lower class, few on the middle class and even fewer in the upper class. In Spain, the number of people in the middle class is higher than that in Mexico. 3.0 Business environment 3.1 Setting up One major concern that determines whether a business shall invest in country A rather than in country B is the ease of setting up a business (Currie, 2012; Zarsky, 2012). How long does it take to set up a business in different countries? In Mexico, there is a great degree of simplicity in setting up a business. The length of time that is required to set up a business in Mexico was reduced from 58 days to about 25days (Williams et al, 2012). This was and is a great boost for foreign companies who desire to set up their businesses in Mexico. The period and duration of registration for the business and acquiring a license has also been reduced from 80 to 43 and from 166 days to 105 days respectively (Usa, 2009; Williams et al, 2012). On the other hand, in Spain, the process is not as easy. Starting up a business takes a minimum of thirty days whereas registration and licensing both take a minimum of 60 and 150 days respectively (Pombo, 2013). The fees that are charged in both countries also vary, with Spain charging more fees for foreign investors as compared to investors in Mexico. 3.2 Business relationships with other countries Mexico and Spain are both members of the EU. This means that they are governed by more or less of the same rules when carrying out business with other countries. Mexico has friendly ties with neighbouring countries such as United States of America, Guatemala and Belize. This pluricultural nation carries out intensive trade with its neighbours (Williams et al, 2012). In addition, it also carries out successful trading with the other EU members, which is aided by the boundary-less nature that EU country members enjoy. Spain also enjoys lucrative business relations with all the other EU member countries. In a bid to egg on innovation and technological development, many foreign investors from EU member countries are increasingly investing in Spain. It especially has good trading relations with the U.K, France and Portugal as Vanneli (2007) notes. This has helped build cohesion and peace between Spain and its neighbours. 3.3 Infrastructural development Mexico is way developed in infrastructure as compared to Spain. The transportation means are developed and the government is working harder to improve it even the more. In terms of technology, Mexico is open to adoption and embrace of new technology. As a result, this has led to growth in communication, an aspect that is important in determining whether a company shall invest in a particular country (Zarsky, 2012). Spain, on the other hand, is slowly recovering from an economic downturn. Infrastructure, therefore, is yet to fully develop. Technology is slowly developing at a rather fast pace and hence communication does not pose any challenge (Currie, 2012). Generally, the level of infrastructure is still low in Spain but it does not pose many challenges. 4.0 Political environment Mexico has a federal government that is under the leadership of the president. The government has greatly addressed the issues of human rights and women empowerment. In addition, there are various commissions that have been formed to address the issues of corruption and to promote transparency (Williams et al, 2012). This is a great step towards promoting the success of businesses. Justice and impunity have also been on the government’s list of targeted issues. The government of Mexico is also collaborating with that of USA to address drug use as this, has been a huge back step in Mexico. Mexico is one of the countries in the North American Free Trade Agreement (Usa, 2009). This has greatly helped in reducing the trade barriers between the countries. Spain’s political environment cannot be said to be as stable as that of Mexico. There is still much political tension between the parties in Spain but the president, King Juan Carlos 1 is working hard to curb the tension. The country also faces a challenge of curbing terrorism as there are many terrorist groups. The process of reform for the registration has also been slow and this has worked to the disadvantage of foreign investors (Pombo, 2013). However, improved relations between the EU partners are greatly promoting the political environment of Spain. 5.0 Socio-cultural environment 5.1 Cultural view Culture greatly determines the success of any business. Cultural issues address the people, the consumers to whom a business will derive its drive for success (Day, Radebaugh and Sullivan, 2011). The socio-cultural environments of Mexico and Spain are very different. Mexicans believe that work is the most important and binding aspect of survival. As a result, most of the businesses in the family are family owned and at such, competition between businesses linked to one family is highly discouraged. In addition, the Mexicans are a very religious people, with the Catholics forming about 85% of the total population (Usa, 2009). They therefore advocate for honesty and respect for other people, especially between employers and employees. Uncertainty avoidance in Mexico is very low and hence, many laws and policies have been put in place to ensure that. As a result of the uncertainty, the Mexican society is very slow to adopt and embrace change, especially in the business sector. Spain on the other hand is made up of people who readily accept change. Unlike Mexico, the businesses in Spain are individually and privately owned. However, the populace is also highly religious, with 100% loyalty being advocated for by the people. The composition is highly catholic and hence, Muslim businesses might not survive here (Vanelli, 2007). 5.2 Education The level of education in the two countries has impressively grown. In Mexico, the rate of educated related expenditure has drastically increased as many people have realized the importance of education in the contemporary society. Many people are undertaking their undergraduate and master’s courses in the recent years as compared to before. The private and public sector are also actively involved in provision and promotion of education (Williams et al, 2012). In Spain, the rate of education has also grown, albeit at a smaller level compared to that in Mexico. Tertiary education is greatly embraced here. Records indicate that there has been a 20 % increase in the rate of education between 2008 and 2013 (Pombo, 20113). This has led to increased availability of skilled labor as compared to the earlier years. 5. 3 Consumer trends As earlier noted, the Mexicans are greatly rigid towards change. This, unfortunately, extends into their view of new products and new business. They are usually reluctant to try new products, and do not find it easy to change their buying habits from one business to another. However, the people in the upper income bracket are keen to try out new products, especially those in the luxury category (Currie, 2012). In Spain, the trend is different. The people are open to trying out new things. The customers, in addition, are not too loyal to one business as those in Mexico. They are a people who are open to new things, new products and new experiences. This greatly encourages foreign direct investors in Spain. 5.4 Cultural responsibility In the two countries, the people are encouraged to be responsible towards ensuring the development of their countries. As a result, they take advantage of the incentives provided by their governments to start up or develop their own business, and to create employment. The two countries also boast of people who are keen towards influencing their societies in a positive manner (Day, Radebaugh and Sullivan, 2011; Zarsky, 2012). This responsibility also extends to environmental issues. Mexico City is one of the most polluted cities in the world and the governments, together with the citizens are working hard to reduce the rate of green house emissions and other forms of environmental pollution (Currie, 2012). The rate of pollution has also increased in Spain. The rates of green house and CO2 emmisions have not been adequately addressed. Businesses are therefore encouraged to be responsible in their operations, especially in controlling the rate of environmental pollution. 6.0 Choice of country and industry From the above analysis, it would be a wise decision for one to invest in Spain. This is because the country is still developing, with a higher life expectancy and major support from the government. There is a daily increasing demand in the country as compared to the demand in Mexico. The growth in urban areas is also a determinate. A good industry for one to invest in would be the apparel industry or the automobile industry. Demand in these two industries is rampantly growing and the economic environment is more stable as opposed to Mexico. References Currie, D., 2012. Country analysis: Understanding economic and political performance. London: Gower Publishing. Day, J., Radebaugh, L., and Sullivan, D., 2011. International business: Global edition. New York: Pearson educators. Pombo, F., 2013. Doing business in Spain. New York: Lexis Nexis. Usa, U., 2009. Mexico company laws and regulations handbook. London: International Business Publications. Vanelli, H., 2007. How to do business in Spain- a guide. London: Grin Verlag. Williams, T., Gordon, G.,Loudon, D., and Stevens, R., 2012. Doing business in Mexico: A practical Guide. New York: Routledge. World Bank., 2014. GDP growth (annul % .The World Bank. [Online] Available at [Accessed 8th April 2014]. Zarsky, L., 2012. International investment for sustainable development. London: Routledge. Read More