Business Environment in Mexico - Essay Example

INTERNATIONAL BUSINESS ENVIRONMENT ANALYSIS – THE MEXICAN BUSINESS ENVIRONMENT Table of Contents Introduction 3 Going global 3 Analyzing the business environment 4 Porters Diamond framework for international business advantage 4 Analysis of the Mexican Business environment using the porters Diamond Model 5 Theoretical Model 5 Demand conditions in the Mexican Retail industry 7 Factor Endowments 8 Related and Supporting Industries 8 Firm’s Strategy, Rivalry and Industry Strategy 9 Government – The legislation and Regulatory Framework 9   10 Bibliography 11 Introduction Businesses are often established with the objective of fulfilling the identified needs; this includes both the short and long-term needs. In doing this, business have to make proper analysis of the internal and external environment in order to understand the different market entry strategies and ways to manage the competition and other factors in the dynamic environment. Business executives have to ensure that the strategies they adopt can assure them of the much needed competitive advantages and market positions. Modern advancements in information and technology have necessitated the need for globalisation, resulting in the growth and expansion of many businesses globally (Tihanyi 2005, 275). This paper examines the globalisation process undertaken by various businesses in the process of their growth and expansion. It focuses on the Mexican business environment, showing its potential as being the best environment for international business growth and expansion. Going global Businesses have different motivations for deciding to venture into global markets; many of them are often motivated by the need to exploit the existing market. In this case, the business has a mandate to introduce its products to the new market and use various approaches to create a client base. In many instances, the decision to go global is often motivated by the vision and mission statements of a business organization, including its goals and objectives (Lazo 2011, 17). However, the capacity of the business to achieve its goals and objectives depends on different elements in the international business environment. In the light of this understanding, a business has a duty to consider how the international environment affects its internationalization decisions and its overall goals and objectives. Other factors that influence this decision are the ability to access different markets, resources as well as the need to reduce operating costs Analyzing the business environment One of the most important approaches towards understanding the business environment is conducting a scan. Business environment scanning enables businesses to identify various factors in both environments that can enhance the achievement of their set goals and objectives. This assessment identifies the areas of strength and weaknesses that the business has to keep in check in the course of its operations. Business executives are to ensure that they use the best strategies in identifying various factors in its environment that can affect its operations positively and negatively. Business environment analysis plays an important role in guiding the decision of business executives in their internationalization processes. It enables the business to determine the best and most effective strategies to enter the particular markets and succeed in its production activities. Porters Diamond framework for international business advantage Porter’s Diamond framework, which was published by Porter himself in 1990, has undoubtedly played an essential role in the understanding of the competitive advantage by businesses, especially those venturing in the global market. Additionally, his study has been significant in stimulating many other applications of this model. Besides the ten countries included during this research, other have been incorporated to be studied by project teams under the supervision of Porter himself. Porter’s diamond model has been effective in making similar applications in some of the developing countries, providing important information for businesses and companies wishing to venture in the global market (Crystal, Dages & Goldber 2002, 28). The model focuses on certain elements and their effect in influencing business growth and performance in the various selected countries globally. Analysis of the Mexican Business environment using the porters Diamond Model Mexico has risen to become one of the rising economies in the world, with expectation that its sound economic and political policies will guide it towards one of the developed economies in the world (Lopez & Philipps 2007, 12). The country, located in North America has been attracting various international investors from all parts of the world because of its large population and conducive business environment. Mexico has rapidly been opening up most of its industries for local and international investors to set ground and run their investments, while spurring the economic growth of the country. It is reported that the financial sector has been one of the main beneficiaries of this development, attracting various international banking institutions to set base in the country (IMF 2012, 37). The entry of foreign capital has been instrumental in improving liquidity as well as higher capitalization in country’s banking and entire financial sector (Moguillansky, Studart & Vergara, 2004, 21). In the same way, consumer confidence has increased significantly and followed suit. Theoretical Model In the process of understanding effectively the effectiveness and viability of the Mexican retail industry, the Porters Diamond Model was used. According to the standard literature provided in relation to international trade, especially with regard to competitive advantage in certain countries, this strategy has been broadly applied. It is important to understand that the Porters model is simply an annex to “Diamond” prototype; in this case, it applies significantly to management of particular firms and not necessarily the countries. Porter’s Diamond Framework (Porter, 2008) In helping to analyse the viability of business environments in different countries, porter established a diagram showing the main elements that determines a country’s competitiveness. First, is has demand conditions, these are factors that sets the trend for local markets. Secondly, the model indicates the presence of supply conditions, also regarded as factor endowments; these include infrastructure, physical, capital and human resources in the particular environment. Thirdly, the model points at various supporting or related industries to the particular business; these are the raw materials, creative input suppliers, wholesaling services as well as manufacturing. The forth element relates to the firm strategy, competitor or business rivalry as well as the existing market structures. The final and most determinant element is the government; in essence, the government is the exogenous variable, whose duty is to influence the conditions of demand and supply, while creating a conducive environment for the growth of businesses and the economy at large. Demand conditions in the Mexican Retail industry As far as internationalization of business organisations is concerned, a home market that is trend setting is essential in providing a sustainable competitive advantage in the global markets. When the local market is large and robust, it offers pushes firms to be innovative and produce goods and services that appeal to the changing consumer preferences and tastes. In this case, the components of demand often appear to be “powers of buyers,” which are the forces responsible for shaping the market strategy (Porter 2008, 83). Additionally, the home market that is demanding plays a critical role in the creation of production infrastructure that meets the specific demand (Daniels 2011, 63). In Mexico, the level of aggregate demand has been essential in the creation and sustainability of the many firms that have been developed in the many industries in the country (Brouthers 2002, 205). In economics, the demand for goods and service is sometimes a function of supply, which in this case includes factors like market consolidation, competition and even financial crises. These factors influence the purchasing power of consumers and then businesses in equal measure. In Mexico, one of the chief pointers of demand is accessibility to banking and other financial services. This function is often influenced by credit supply and affordable market prices. Mexico has a large pool of these services, courtesy of the robust financial market made up of various banks including Banco de Mexico. The way consumers get credit easily in Mexico is an issue that makes sense to most businesses, something that increases their purchasing and bargaining power. Factor Endowments According to the porter’s model, conditions included in the factor endowments include capital resources, knowledge, infrastructure and human resources among others. In the retail these factors are well represented in Mexico, giving hope for the success of business wishing to exploit these opportunities in the country. For instance, banks and non-bank institutions are important sources of fair credit, which business can use as part of their capital resources. The large population the country provides a source of skilled and unskilled human labour, which is critical in the management of the retail markets and supermarkets for businesses wishing to follow this line. Mexico has liberalized its education sector, leading to the establishment of different kinds of tertiary institutes that are instrumental in the development of human capital to work in the different businesses being developed in the country (Sako 2006, 502). In this case, new businesses besides supermarkets stand to benefit from this knowledge base in the process of developing and growing their businesses. Additionally, the country has a well established infrastructure that comprises of transport and communication, as well as world class premises that accommodate different kinds of businesses in its cities. Related and Supporting Industries These industries comprise of the competitive foundations of credit for industries operating in Mexico or any other country in perspective. Additionally, related industries are essential in contributing to the strategic competition as well as cost effectiveness of businesses (Daniels 2011, 63). For instance, the financial sector is a good example of support industry that provides funds for businesses Other than the works of Levine’s (2000), Gonzalez-Anaya (2003) has posited that credits offered by banks are “complements,” compared to other kinds of lending. Business setting ground in Mexico can benefit for various support industries that have been growing tremendously in Mexico in the few decades. This is an important step in the right direction because businesses can hardly survive in a business environment that lacks these support industries. Firm’s Strategy, Rivalry and Industry Strategy This component of the Porters model comprises of industry and market structures, rivalry as well as firm’s strategies that can influence its competitive advantage in the global and local markets. In this case, industry structures comprise of the extent by which markets are concentrated in the region, main players in the industry including other capital requirements. In Mexico, the retail industry is one of the most liberalized and open sectors in the Latin America. In spite of this, the industry remains to be dominated by major international players like Wall mart, which commands a large market share of the retail industry (Javorcik & Keller, 2006, 23). In addition, the country’s financial sector has also followed suit attracting the establishment of many foreign firms (Skelton 2006, 6). New businesses entering the retail market should be prepared to face the largely oligopolistic market (Library of Congress 2008, 16). Government – The legislation and Regulatory Framework The Mexican government has devised robust macroeconomic policies aimed at enhancing the level of economic activities in the country. Mexico has managed to have policies that have continued to encourage establishment of businesses, which have reduced the level of unemployment in the country. The economic policies have also been essential in influencing the economic dimension through proper methods of access to credit and other financial services. In this case, businesses setting base in Mexico can take advantage of the lucrative business environment that promises better outcomes in terms of returns to investors. It is estimated that the increase in economic activities will propel Mexico to match the standards of other developed countries, this stepping in the big shoes of those countries.   Bibliography Brouthers, K. D. 2002. ‘Institutional, cultural and transaction cost influences on entry mode choice and performance.’ Journal of International Business Studies, Vol. 33, No. 2. 203-221 Crystal, J.S., Dages, B.G. & Goldber, L.S. 2002. Has Foreign Bank Entry Led to Sounder Banks in Latin America? Current Issues in Economics and Finance, Vol 8. No, 1.1-6. Daniels. J., et al., 2011. International Business: Environments and Operations, 13/E, Prentice Hall, Mexico. Gonzalez-Anaya, J. 2003. Why Have Banks Stopped Lending In Mexico Since the Peso Crisis in 1995. SCID Working Paper 118. Viewed 26 October 2014, IMF. 2012. Mexico: Financial System Stability Assessment. IMF Country Report No. 12/65, March. 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