Express Virtual Markets Expansion Program - Term Paper Example

Executive Summary Express Virtual Market is an Australian based company that has for long dominated the conferencing market in Australia. Some of EVM’s leading services include teleconferencing, videoconferencing and web conferencing. EVM’s is committed to quality, reliability as well as const-effectiveness. With our new technologies, people are able to hold meetings at the comfort of their offices; thus, saving time and resources they could have spent in holding meetings. Researches have established that our services have reduced the costs of meetings and conferences by a half. Through EVM’s expansion program, we look forward to expanding our services to other regions. NAFTA provides the ideal destination for our market due to its location, high number of consumers and growing market. The company shall base itself in Mexico City, which is a growing economy with over 19 million inhabitants and about 20 million tourists annually. The larger NAFTA region has a population of 400 million, who can provide an ideal clientele base for EVM’s services. The report shall study the external forces surrounding investment in the region; including, political and legal forces, economic forces, technological forces and social cultural forces. In addition, the report shall analyze three entry strategies to the market, direct export from Australia; license a NAFTA or Asian firm to manufacture and market the product in the NAFTA region or Asia; and setting up a wholly owned subsidiary in the NAFTA region or Asia. It shall weigh the pros and cons of each strategy and recommend the ideal strategy that EVM can use in entering and operating in the market. Table of Contents INTERNTIONAL BUSINESS 2 1.0 Introduction 2 1.1 Express Virtual Meeting (EVM) 2 1.2 North American Free Trade Agreement (NAFTA) 3 1.3 Mexico 4 2.0 External Forces 5 2.1 Social cultural forces 5 2.2 Political and legal forces 5 2.3 Economic forces 6 2.4 Technological forces 7 3.0 Entry Strategy 8 3.1 Direct exports from Australia 8 3.1.1Advantages of direct exporting 9 3.1.2Disadvantages of direct exporting 9 3.2 Licensing 9 3.2.1 Advantages of Licensing 10 3.2.2Disadvantages of licensing 10 3.3 Wholly owned subsidiaries 10 3.3.1 Advantages of wholly owned subsidiary 11 3.3.2 Disadvantages of wholly owned subsidiary 11 4.0 Recommendation 11 5.0 Conclusion 12 Work Cited 13 CIA, (2012). The World Fact Book: Mexico. Retrieved 28 Aug 2012 from https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html 13 Express Virtual Meeting (2012). Virtual Meeting Services. Retrieved 28 Aug 2012 from http://www.expressvirtualmeetings.com.au/virtual-meeting-services/ 13 INTERNTIONAL BUSINESS 1.0 Introduction In the contemporary business panorama, meetings and conferences are indispensable component of business operations. The management and employees needs to share ideas, information and strategies to enhance a smooth operation. The infrastructure used to convey information and communication may be extremely expressive in terms of commuting and service charges. However, with the technological invention at Express Virtual Meeting, high costs and time spent on communication and information transfer are things of the past. 1.1 Express Virtual Meeting (EVM) EVM is an Australian based company that provides providing high quality yet cost effective meeting and conferencing services (Express Virtual Meeting, 2012). Since its inception, EVM has always been a pace setter in adopting the state-of-art technologies in the information transfer. EVM’s virtual meetings services are aimed at facilitating virtual meetings with individuals across the world. Some of EVM’s services include teleconferencing, web conferencing and videoconferencing facilities. As such, with EVM’s advanced technologies, businesses can hold virtual meetings with staff across the work at the comfort of their desks. This technology has reduced the costs of meetings and conferences by a half; thus, reducing the organization’s costs of operations and maximizing on profits. Other services offered by EVM includes provision of quality and cost effective conferencing services, reliable conference calls and provision of customized, operator assisted conference solutions (Express Virtual Meeting, 2012). Through EVM’s services, clients can also conduct sales presentations, market and promote their products, provide online training on the products and how to use them and share documents online. All these services come in a single package which has both guaranteed quality and cost effective services. 1.2 North American Free Trade Agreement (NAFTA) In the move tap the global market, EVM wishes to expend its services to NAFTA region in the North American Bloc. NAFTA refers to a trilateral trade agreement between Mexico, Canada and the US. This agreement was ratified in January 1994, and it superseded other international trade pacts and agreement existing in these regions. The main objectives of NAFTA are outlined in Article 102 of the General Agreement on Tariffs and Trade, and they include elimination of trade barrier between the member states; encouragement of fairness in competition between the member states; enhance and facilitate protection of intellectual property rights in member states as well as provision for structure for further cooperation and expansion of free trade area (NAFTA Secretariat, 2011). Since its establishment, NAFTA has created the largest free trade area across the world. Lederman, Maloney & Servén (2005) reveals that the GDP of the NAFTA member states is largest in the world. NAFTA facilitated connection of over 400 million people, and goods and services worth over 17 trillion US Dollars are traded annually between the member states. Their report further reveals that NAFTA has created more opportunities for international investments, enhanced trade equality in North American bloc and ended trade tariffs. This scenario has abetted International Corporation in trading freely in the North American block, in addition to facilitating transfer of goods and services on a large scale. This state of affairs has created numerous trade opportunities to international investors and corporations in the region. Furthermore, it has created ready markets for diverse products. As such, NAFTA provides an ideal area for investment for Express Virtual Meetings. 1.3 Mexico In the NAFTA region, Mexico is the ideal country of investment. The conferencing technology is highly developed in Canada and North America, but, Mexico is yet to sophisticate its conferencing technology. As such, it creates an opportunity for investment, from which EVM will expand its services to the entire region taking advantage of NAFTA. Mexico is located in the Northern part of America and it borders Pacific Ocean, Gulf of Mexico and Caribbean Sea. According to CIA (2012), the country covers about 2 million square kilometers and has a population of 115 million people. It is the fifth largest country in America by surface area and the most populous Spanish country in the world. As such, it provides an ideal investment opportunity in North America and Spanish-speaking states. The federation of Mexico is made up of 31 states. The largest population in Mexico lives in urban areas, with Mexico City, the capital city having a population of 19.319 million followed by Guadalajara city with 4.4 million people (CIA, 2012). Mexico City is the largest city in the NAFTA region; thus, providing the most idyllic location for EVM. In addition, Mexico is a renowned world economy and World Bank has ranked it among upper-middle income states in the world (Pawel, 2010). Additionally, it is among the newly industrialized countries, and it provides an excellent place for investment. Further, the country records over 20 million international arrivals in terms of tourists, business people and dignitaries, who are potential consumers of EVM services both at Mexico and in their home country (Pawel, 2010). These factors justify why Mexico City in Mexico is the ideal location for EVM in the NAFTA region. 2.0 External Forces Various forces affect the decision and mode of entry to a given market. The forces can be divided into four categories; political and legal forces, economic forces, technological forces and social cultural forces. 2.1 Social cultural forces Mexico is characterized by a complex social-culture that borrows from aboriginal Amerindian’s culture, Spanish culture, as well as American culture. However, the country has seen different cultural cataclysms in the recent past. The 20th century saw civil unrest and war during the Mexican revolution. Consequently, a Mexican cultural identity was established. Parkers (1972) established that this state of affairs shaped Mexico to what it is today; a melting pot of diversified cultures and races. In addition, it creates a unique platform through which investors with a diverse background meet and conduct business. Most Mexicans profess Christian faith, but, they are largely tolerant to religion diversity. As Krauze (1998) establishes, Mexico has never undergone religion-based crises. The age structure reveals that the majority of Mexicans (65%) are aged between 15-64, a population that is highly computer literate and highly enthusiastic in entrepreneurship (CIA, 2012). With a population growth rate estimated at 1.086%, Mexico assures continuity in the usage and expansion of technology. Such social-cultural background guarantees safety and success in business operation across and outside Mexico. 2.2 Political and legal forces Mexico is made up of 31 states, with each state having its own constitution, judiciary and congress. Mexican states are further divided into municipalities that are administrated by a mayor. There exist three government levels in Mexico, federal union, state government and municipal government. In addition, there are three arms of the government, the executive, legislature and judiciary (Krauze, 1998). The duties of passing laws, declaring wars, approving and ratifying treaties and internationals law falls squarely on the congress union composed of the senate and chamber of deputies of congress union. Ministry of trade plays a vital role in regulating trade across Mexico, while the law ministry is the key player in business registration. Notably, law ministry will guide registration of business, patents, trademarks and copyrights of EVM once it is established in Mexico. Mexico is a signatory of various international laws and treaties that affect business operations in Mexico, including the NAFTA, UN, WTO, World Bank, IMF and ILO, all which plays a significant role in business operations (Parkers, 1972). Nonetheless, the legal framework guiding the process of business registration and operation are flexible; thus, promoting international investment. 2.3 Economic forces Mexico is ranked among the growing economies in the world. According to Crandall, Paz and Roett (2004), Mexico is ranked 13th in terms of nominal GDP and 11th in the list of largest purchasing powers in the world. Their report further indicates that Mexico’s economy has recorded a constant economic growth of 5% since 1995. According to Thompson’s (2006) predictions, the Mexican economy is expected to triple by the year 2020, and further predicts that by 2050 will be among the top five largest economies in the world. Entry of Mexico to NAFTA has further promoted economic growth and expansion through creating a level playing ground for member states, as well as removal of trade barriers in the region. With such a strong economic background, Mexico is an incredibly promising investment area that is most likely to create value for money for investment. 2.4 Technological forces Telecommunication sector in Mexico is largely privatized. The industry is regulated by Commission of Federal Telecommunication (Cofetel). The leading telecommunication company is Telmex; a private company established in 1990. Other key players in this industry are Axtel and Maxcom, who largely focus on landline telephones (Crandall, Paz and Roett, 2004). Consequently, communication and information transfer in Mexico is relatively costly and unreliable. As a result, most business people opt to use their mobile phone to conduct business, which provides lower and reliable source of communication. In addition, Mexico has highly invested in satellite system and fiber optic internet. Communication devices such as radios are also popular in Mexico, with Televisa leading being the largest media company (Thompson, 2006). Oblivious of major technological developments in Mexico, conferencing services are highly underutilized in Mexico. The existing forms of communications are largely unreliable and costly and ultimately hinder smooth flow and operation of business in Mexico. As such, EVM has established an idyllic market where it can bridge the communication gap existing in Mexico. Teleconferencing, videoconferencing, and phone conferencing can play an essential role in boosting effective communication in Mexico’s business arena. Ideally, using EVM technology, business across and outside Mexico can be able to hold conference meetings that can reduce their operations by a half, and at the same time increasing on the working hours. With the current technological state characterized by high speed internet and availability of phones, implementing of this plan will be smooth and time effective, but, yielding high quality. Other services that can be rendered by EVM to Mexico markets include prior preparation of conferencing services, system management and maintenance as well as training on the usage of the services. 3.0 Entry Strategy Various factors influence the decision on which market to enter, the entry strategy, when and to what scale. The choice is largely swayed by diverse factors such as cost implication, social-economic pressures, political and legal factors, trade barriers and firm’s strategy (Lambin, 2007). Ultimately, the goal of investing in the international market is to diversify on the market and make sustainable profits in the long run. In the expansion process to NAFTA, EVM shall consider three options; (a) export from Australia; (b) licensing and (c) to set up a wholly owned subsidiary. 3.1 Direct exports from Australia In direct exporting, EVM will be directly involved in marketing its services to the Mexico market. As such, it shall set up a centralized position in Mexico City, which shall be responsible for coordinating marketing, contracting, distribution, facilitating exporting as well as pricing of services in Mexico. This can be achieved in various ways, such as sending EVM representatives to Mexico, appointing a local representative/agent who will coordinate all EVM’s activities, utilizing independent local distributers who will purchase services directly from EVM Australia and distribute them in the Mexico market or creating an EVM subsidiary in Mexico which shall oversee all EVM’s activities in Mexico. 3.1.1Advantages of direct exporting In direct exporting of EVM’s services, EVM shall realize various advantages. These include better information feedback on the quality of services offered by EVM and areas of improvement. Secondly, direct export shall translate to more sales especially when conducted by local agents, who Mexicans can easily associate with. Direct exports also enhance greater control of the quality of EVM’s services. In addition, it enhances better protection of EVM’s intangible assets such as trademarks and goodwill in the international market. 3.1.2Disadvantages of direct exporting The short-run costs of implementing direct exporting are quite high and risky. EVM has to conduct thorough research on the how to implement the strategy, who to appoint to distribute, the pricing methodology as well as establish a reputable team that will oversee and coordinate the whole process. The process of direct importing may also be more expensive in terms of logistics involved, transport costs, insurance and licensing involved. In addition, the process is also time-consuming in terms of time spent in exporting the products, as opposed to producing and distributing the services locally. 3.2 Licensing In licensing, EVM will give a local firm (licensee) the rights and technological know-how on the production process and implementation of EVM services. The licensee will produce EVM’s products either exclusively or non-exclusively for a stipulated period, marketing of products in the region, paying of the commission and loyalty to EVM for the services produced. As such, EVM products can penetrate to Mexico’s market without EVM setting new operations there. This approach is by far much welcome in Mexico, since it involves empowering the licensee to produce EVM’s products; thus, transferring technology to Mexico and at the same popularizing EVM’s products and services in the regional market. 3.2.1 Advantages of Licensing The cost implications in licensing are much lower. EVM can reach a wider market in Mexico using the already existing infrastructures. In addition, using licensing, EVM can easily expand its market territory without incurring high costs of expansion. EVM can take advantage of NAFTA to penetrate both Canada and North American marketing without incurring much operation and logistics costs. Licensing also paves way for future investment and expansion in the international market at a lower implementation cost. The political, legal, technological and social-economic oppositions that could otherwise affect EVM’s operation in Mexico can also be largely reduced, the licensing in locally owned by a Mexican company that is already in operation. 3.2.2Disadvantages of licensing The income and profits realized from licensing another company are lower when compared to other strategies of market entry. In addition, once you license a local firm you may loss control of production and distribution of your product, and quality of EVM’s products may be jeopardized. An incompetent firm can also largely ruin the reputation of EVM in the Mexican and NAFTA region. Another problem associated with licensing is a conflict of interest; whereby the licensee may take advantage of the license in promoting his product at the expense of EVM’s products. 3.3 Wholly owned subsidiaries A wholly owned subsidiary is the third strategy which EVM can use to enter the Mexico conferencing market. The process involves establishing your operations and distribution in the new market. In addition, it needs extensive market surveys and studies to establish the prudence of establishing a new operation. It is, therefore, an extensive venture in the short-run, but, may ultimately be cheaper in the long-run in terms of control and quality management (Daniels, Radebaugh & Sullivan, 2004). 3.3.1 Advantages of wholly owned subsidiary A wholly owned subsidiary has various benefits over other market entry strategies. One, EVM shall have the full control over the production and distribution process. As such, it can established strong distribution networks within and outside Mexico, implying more sales and profits. In addition, the approach will ensure that the quality of products and services is maintained. As such, EVM shall have the most benefits from its operations 3.3.2 Disadvantages of wholly owned subsidiary Wholly owned subsidiary will attract high costs, ranging from field surveys, setting up, registration, distribution and operations (McDonald, Burton & Dowling, 2002). Owing to the nature of EVM’s business, a wholly owned subsidiary might be expensive to run a wholly owned subsidiary in Mexico. 4.0 Recommendation The study has revealed various facts and figures in regards to the target market, which is Mexico and NAFTA zone. Several strategies of market entry have been proposed, notably, direct export from Australia; licensing and setting up a wholly owned subsidiary in Mexico. After weighing the pros and cons of each strategy, the report highly recommends licensing as the ideal strategy in penetrating the Mexico market. Licensing is more beneficial, as opposed to the other two strategies. These include lower costs of execution, operation and licensing, ease of expansion to other markets within the region through taking advantage of the existing infrastructure and policies at NAFTA region, lower costs of logistics and operations as well as favorable social-economic, political, legal and technological environment, since the licensee will be easy to associate with in the market. Some of the disadvantages involved in this process include lower income, unpredictable quality of goods and conflict of interest with the identified licensee. To safeguard the integrity and reputation of the company, EVM shall put various measures in practice. First, the company shall conduct thorough training and technological transfer to the licensee of our product, their usage and quality management. In addition, we shall have quality assurance officers in the market to ensure adherence to our high-quality standards for our products in the market. EVM Australia shall also conduct specialized maintenance and improvement of products in the market and ensure that that they meet the market requirement in Mexico and beyond. Lastly, EVM shall facilitate capacity building to our licensee to ensure maximum sales and profits. 5.0 Conclusion The report has analyzed various factors that must be put into consideration in EVM’s business expansion. NAFTA region and specifically Mexico shall provide the best market for EVM’s products, due to various factors such as technological development, high population, and attractive social-economic and political frameworks. Oblivious of the ready market, an ideal entry strategy must be developed to ensure that the operations are successful and profitable to EVM. The proposed strategies are direct export from Australia, licensing of a firm to manufacture and market the product in Mexico and NAFTA region and to set up a wholly owned subsidiary in the NAFTA region or Asia. After establishing various pros and cons involved in each strategy, the report recommends licensing as the ideal market entry strategy for EVM. Further, it establishes some recommendations that can ensure that licensing works out well in the Mexico market. Work Cited CIA, (2012). The World Fact Book: Mexico. Retrieved 28 Aug 2012 from https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html Crandall, R., Paz and Roett, P. (2004). Mexico's Domestic Economy: Policy Options and Choices. Mexico's Democracy at Work. Mexico City: Lynne Reinner Publishers Daniels, D., Radebaugh, L. and Sullivan, D. (2004). International business: environments and operations. 10th Ed. NY: Pearson Education, Inc. Express Virtual Meeting (2012). Virtual Meeting Services. Retrieved 28 Aug 2012 from http://www.expressvirtualmeetings.com.au/virtual-meeting-services/ Krauze, E. (1998). Mexico: Biography of Power: A history of Modern Mexico 1810–1996. New York: Harper Perennial. Lambin, J. (2007). Entry Strategies in Foreign Markets. In the Market-Driven Management. London: Macmillan Publishers. Lederman, D., Maloney, W., & Servén, L. (2005). Lessons from NAFTA for Latin America and the Caribbean. CA: Stanford University Press . McDonald, F., Burton, F. and Dowling, P. (2002), International Business. NY: Cengage Learning EMEA. NAFTA Secretariat. (2011). North American Free Trade Agreement: Objectives. Retrieved 28 Aug 2012 from http://www.nafta-sec-alena.org/en/view.aspx?conID=590&mtpiID=122 Paweł, B. (2010). Newly Industrialized Countries. Globalization and the Transformation of Foreign Economic Policy. NY: Ashgate Publishing, Ltd. Parkes, H. (1972). A History of Mexico. 3rd Ed. Boston: Houghton Mifflin Press. Thompson, A. (2006). Mexico Economics: The US cast a long shadow. Financial Times on June 20, 2006. Read More