International and Cross-Cultural Marketing - Essay Example

? International and Cross-cultural Marketing Table of Contents Introduction 3 Analysis 3 Reasoning 4 Environmental Analysis 7 Influencing Factors forbusiness expansion 10 Marketing Mix Implications 12 Conclusion 13 Recommendations 13 References 14 Appendices 16 List of Illustrations Figure 1: Top Car producing countries in the world …………………………………………….. 6 Figure 2: Cost savings …………………………………………………………………………… 8 Table 1: Mexican light vehicles exports ……………………………………………………….... 6 Introduction As a consultant in Chery Automobile CO. Ltd, a Chinese car manufacturer that wishes to expand its business internationally with the help of mergers and acquisitions with existing company in host country. For the company, I suggest a business expansion in Mexico country through merger with Mastretta, a Mexican car manufacturer. This company established in 1987 and produced self-developed cars and sports cars with the help of experienced engineers and designers of Mexico. On the other hand, Chery is founded in 1997 and it produced passenger cars, minivans and SUVs (Chery International, 2010). On the basis of output, it is the ninth largest automaker in China. It exports around 25% of total production around the world. The company has various factories in different countries such as Iran, Malaysia, Indonesia, Middle East, Russia, Pakistan, Taiwan, Thailand and many more that produces Chery vehicles (Chery International, 2010). Now, the company wants to expand its business in Mexico. In this, various reasons to expand business in this country, factors that influence the transfer of business and marketing mix for Mexican market will be discussed. Along with this, environmental analysis of Mexico country will be done with the help of evidence and examples. Analysis In the overseas business expansion, companies has faced various issues regarding different political and economic conditions, cyber risks, corruption, different culture, labor laws, education system, infrastructure and ethics. In order to select a country or location for business expansion, various factors are considered such as commute patterns, infrastructure, land availability and labor availability (Russell and Cohn, 2012). According to these factors, US is best choice but in other countries, company can face issues of changes in government and laws, tax systems, labor cost and labor laws. Along with this, timeline, rights and preservation of workers, incentives, working hours organizational and culture management techniques are different in overseas business expansion. Reasoning Chery, a Chinese car manufacturer company wants to expand its business in Mexico. The company selects this country for business expansion because the automotive industry of Mexico is growing industry. It is attractive for automotive manufacturing companies due to proximity to the US and it is the world’s largest automotive market (Contreras, 2008). Along with this, various automobile companies from US, Japan and Europe shifted their plants in this country to get the benefits of strategic location, low labor cost and NAFTA (Moreno and Kellogg, 1996). The automotive industry in Mexico contributes 18% in manufacturing GDP and creates around 56,000 jobs (ProMexico, 2013). Apart from this, there are various reasons to select this country for business expansion such as: Free trade: This country has more free trade agreements as compared to other countries and USA. For example, Mexico has free trade agreements with EU that is helpful to save 10% tariff. Along with this, Central Mexico is the highest growth area for the production of vehicles and it is not only for US and Canadian market but also for global production (Russell and Cohn, 2012). Apart from this, due to suitable business conditions, various automakers announced $7.8 billion of investment in Mexico within two years (See: appendix 1). So, this country is good for the business expansion of Chery. Good quality: In the words of Steve Curtis, a spokesman for Toyota’s North American unit, company has manufacturing operations in various countries, but we are confident about the highest quality of vehicle that are produced in Mexico (Montout and Zitouna, 2004). It means this country is popular for its highest quality production in automobile sector. So, it is best place for Chery to expand its business. Violence: In Central Mexico, violence is lower as compared to northern Mexico. So, most of companies choose central Mexico for their plants. For example, Honda and Mazda select Guanajuato for their business and factories (Contreras, 2008). Audi selects Puebla that is located in southeast of Mexico City. So, Chery also selects Central Mexico for its business expansion. Shipping cost: In this country, companies can save labor cost through effective logistics. Along with this, companies can save their shipping cost, containers cost and security cost (Rich, 2003). Through reducing the transportation, companies can save transportation cost and labor costs. Active port: In Mexico, Veracruz is the busiest vehicle port that handles 753,685 units of various companies including Ford, Volkswagen and Nissan. From this port, around 588,000 vehicles are exported worldwide (Geske, Kuckshinrichs and Kronenberg, 2011). Due to this facility, Hyundai Motor Corporation and Bayerische Motoren Werke AG, locate their plants in Mexico. So, due to effective transportation facility of this country, it is selected for business expansion by Chery. Update facilities: This country has a combination of updating facilities and modernizing manufacturing process. Along with this, various global training programs are provided to employees to improve the quality and productivity of production (Contreras, 2008). Additionally, it saves the cost of production and a big reason for attracting foreign manufacturers to expand their business in this region. Changing scenario: According to LMC, in Mexico, the production of light vehicles will increase up to 34% by 2017. This country is on 8th place with the production of 2.86 million units in 2011 (PwC Mexico, 2012) (see figure 1). Along with this, it stands on 8th place in exports with 2.14 million exported units (See appendix 2) At the same time, domestic sales in the country is lower than 2006, but exports increased up to 12% with 1.98 million units in the first 10 months of 2012 (see Table 1). Apart from this, automobile companies from South Korea, Japan and Europe are entering in Mexico to expand their business that will change the business environment and all conditions of the country. Figure 1 Top Car producing countries in the world (Source: PwC Mexico, 2012) Table 1 Mexican light vehicles exports Country Vehicle units in 2011 % share 2011 United States 1,362,425 63.5% Canada 159,440 7.4% Latin America 321,863 15.0% Europe 220,788 10.3% Asia 25,538 1.2 Africa 8,012 0.4% Others 45,813 2.1% Total 2,143,879 100% Environmental Analysis In the present, global auto companies are facing the issue of increasing cost. For instance, Ford’s benefits and pension costs are increased from 4% to 8% in 2005 whereas the cost of goods is increased from 75 to 85% in GM (Haneine, Rojo, Santos and Ishizaki, 2010). So, automobile companies are searching a new place that is affordable for them and outside of the USA. Thus, Mexico is a suitable place for automakers that offer benefits in terms of reducing labor and production cost. Apart from this, recent evolution in Mexican Automotive Industry (MAI) is attractive for investors and other automakers. It recovered from the crisis situation, increased exports, permanent flow of investments and expansion of production capacities that make it dynamic and competitive in the world. Political analysis: Mexican government reforms its policies to fulfill the needs of auto industry. For this, it takes step to increase the growth and competitiveness. It has taken most important step to eliminate the Tenencia in 2012 (PwC Mexico, 2012). Along with this, special commission for the automotive industry works for the promotion of auto sector in the form of elimination of ISAN and income tax and tax deduction up to 100% in new investment for new vehicles with value of $400,000 pesos (Haneine, Rojo, Santos and Ishizaki, 2010). Apart from this, Mexican government promotes country’s advantages to investors for attracting them. The government promotes main strengths of country such as productive and cost-efficient work force and flexible unions. Economic analysis: According to 2013 index, the economic freedom of Mexico has scored 67 points whereas its economy is the 50th freest in the world. It has scored 1.7 points greater as compared to last year that shows its improvement in investment freedom, monetary and trade freedom (Mexico, 2013). In the challenging global economic environment, the Mexican economy has a moderate degree of flexibility. In this economy, there are various reform efforts in many areas such as economic freedom, implementation of new policies to promote open market and a dynamic private sector to increase investment flows (Rich, 2003). So, the economy of Mexico is in good position to expand the automobile business for Chery. Infrastructure: Mexico has an efficient infrastructure that is most cost competitive for automobile companies. Mexico improves its cost competitiveness in five areas such as raw materials, energy, and workforce, logistic and tier-two components (See: appendix 3). According to KPMG, Mexico offers to save 13% costs in automotive parts manufacturing with comparison in US (ProMexico, 2013) (see: figure 2). Figure 2 Cost savings (Source: ProMexico, 2013) Raw materials: In Mexico, aluminum is available at low prices as compared to other countries because of closeness with USA and Canada that are big aluminum producers. At the same time, auto industry requires steel and there is high price of steel (Russell and Cohn, 2012). On the other hand, Mexico also produces some steel that are used in construction. The government promotes local steel production with the help of financial incentives (Geske, Kuckshinrichs and Kronenberg, 2011). Along with this, the government increases the infrastructure of country and improves transportation facility for better flow of goods across the world. Energy: The cost of electricity and natural gas are higher as compared to US and Canada. In Mexico, the electricity cost is $0.09 per Kilowatt whereas in USA, it is $0.06 per Kilowatt. Along with this, natural gas prices are $357 per 107 calories in Mexico while it is $224 per 107 calories in Canada (Haneine, Rojo, Santos and Ishizaki, 2010). Further, closeness with these countries is an opportunity for Mexico. So, country promotes energy resources reforms, increases private investment in new technologies and deregulation in energy industry that are most suitable for automobile industry to reduce their cost of production. Workforce: The labor force of Mexico is less expensive as compared to developed countries. To make a market leader, it is important for manufacturers to increase the quality and productivity of workers (Roxborough, 2009). To improve the quality and quantity of output, government provides various workshops, training programs and research centers. Logistics: Mexico has good logistic facilities due to nearness with the USA and Canada and membership in NAFTA. Through effective logistic facility, automobile companies can save labor cost and time in transportation (Juarez Nunez, 2010). At the same time, some changes are required in present logistic system in Mexico to fully utilize and take advantage of its closeness with USA and Canada. Technology analysis: In technological development, Mexico behinds from Japan, USA and Germany and scores 44 in technologically developed countries. The government of Mexico spends around 0.3% of the FDP in technological development (Haneine, Rojo, Santos and Ishizaki, 2010). The country has low cost for prototype production and production facilities that are big factors for cost competitiveness and automotive industry. Along with this, to increase innovation, country increases quality and quantity of researchers and experts of automobiles (Aoki, 2002). Country provides special programs for engineering and high value added technologies. Legal provisions: In Mexico, legal provisions regulate the investment of non-Mexican through Foreign Investment Law (FIL). The main purpose of this is to regulate the practices of outsiders and allow them for participation, decide limits and restrictions and assign conditions for participation (PwC Mexico, 2012). It increases openness for foreign investment in this sector. For entering in this country, companies have to report to authorities about their financial situation, changes in structure, capital stock and management. Influencing Factors for business expansion In overseas business expansion, there are various factors that influence such practices and may raise barriers in successful business expansion. For business expansion of Chinese car manufacturer in Mexico, some factors may influence expansion practices of Chery Company. These are some factors: Culture and language: Every country has different culture and language that may be a barrier for others. The Mexican culture is a combination of indigenous and Spanish traditions, religion and architecture. A good example of this is the language of Mexico. Spanish is the official language of Mexico in that several words are derived from the indigenous language (Chan, Finnegan and Sternquist, 2011). So, it is important for Chinese company to know Spanish or hire an interpreter to understand the local language of Mexico. The society and business in Mexico are vertically structured. People focus hierarchical relationship and respect higher authorities. In this culture, face-to-face meetings are preferred rather than telephone, letters or e-mail. Tax obligations: For the corporate taxpayers in Mexico, it is required to file annual income tax returns before March that shows taxable profits of a year and financial position and inventory stock at the end of financial year (PwC Mexico, 2012). The tax system of Mexico is very strict including some obligations such as fulfilling informative returns and issuing invoices to get deductions. Companies who engage in international trade must file specific information to the Department of Economy. So, this tax system influences the business practices of Chinese car manufacturer. Competitive market: The automobile market of Mexico is open for international competition and there is no monopoly or oligopoly structure. The world’s most important 18 automobile manufacturers have their plants in Mexico that manages foundry, production and stamping of auto parts (PwC Mexico, 2012). These plants have capacity to fulfill internal demand and exports. Among all of them, eight companies compete for automotive and light vehicle markets through offering 50 models. At the same time, remaining 10 companies produce heavy trucks and tractor trucks (See: appendix 2). Thus, there is tough competition in the Mexican automotive market due to presence of big players. Marketing Mix Implications In Mexico, Chinese car manufacturer wants to expand business through merger with local firm Mastretta. Through this merger, Chery Automobile can use infrastructure, production plants and workforce of Mastretta for its cars production by investing in this Mexican company (Pride and Ferrell, 2011). It would be easy for Chery to start their production and selling cars in Mexico with the name of Mastretta. Here is marketing mix for cars in Mexico: Product: Chery produces mainly cars, SUVs and minivans and Mastretta is popular for sports cars. After this merger, both companies can offer a wide range of products under brand name of Masgretta-Chery. Chery would offer various models including Chery A1, A3, V5, ZAZ Forza and MXT model of Mastretta (Chery International, 2010). Along with automobiles, Chery can produce automobile parts and engines. Price: Company would adopt a competitive pricing strategy for its models in Mexico. Prices are fixed according to the competitor’s prices and domestic market. The company offers mid-size cars and its main competitors are Ford, Honda, GM and Nissan that also offer mid-size cars (Noguez, 2003). So, company would offer its cars in a price range from $10,000 to $25,000 that varies according to the model. Place: To reach the customers, company would use showrooms and dealers of Mastretta. Mastretta has wide distribution network in Mexico, so, company can offer its cars and products through the distribution channel and dealers of acquiring company (Shimp, 2010). It will save cost of the company. Promotion: In order to promote the cars in Mexico, Chery would use effective promotional strategy including personal selling, direct marketing, public relations, print media, broadcasting and promotional campaigns (Pride and Ferrell, 2011). In direct marketing, company can directly contact with potential buyers through road shows, trade fairs and auto shows that would attract them towards the company. Along with this, company would offer discounts and other promotional offers to attract customers and capture market. Conclusion On the basis of above discussion, it can be concluded that Mexico is a suitable country for the overseas business expansion of Chinese car manufacturer. Mexico is right choice because of various reasons such as high quality, active ports, changing scenario, update facilities and free trade. Along with this, political, economic, technological, legal and infrastructure conditions are attractive for automobile companies. At the same time, culture and language, competitive market and tax system may influence the business expansion of Chinese car manufacturer in Mexico. With the help of appropriate marketing mix, company can increase its sales and market share in Mexico. Recommendations The Mexican automobile market is highly competitive because of presence of major automobile companies like Ford, Nissan, Honda, Mercedes, GM, Volkswagen and Daimler. So, it is recommended to Chinese car manufacturer to offer quality cars at comparatively low prices for attracting customers (Russell and Cohn, 2012). Along with this, company offers hybrid and full-electric models in China, so, it should offer electric cars in Mexico with the aim of save fuel consumption and environment protection. The company has some issues related to copying the design of other companies that can affect the brand image of the company in Mexico. So, it is recommended for the company to solve out these issues and follow all ethics in business and production to build a positive brand image worldwide. References Aoki, C. (2002) Technological change for environmental improvement: The case of the Mexican automobile sector. ProQuest Dissertations and Theses, p. 1. Chan, P., Finnegan, C. and Sternquist, B. (2011) Country and firm level factors in international retail expansion. European Journal of Marketing, 45(6), p.1005-1022. Chery International (2010) [Online]. Available at: http://www.cheryinternational.com/ [Accessed: 04 April, 2013] Contreras, O. F. (2008) Pequenas empresas globales: Un conglomerado automovilistico en Mexico. (Small Global Companies: An Automobile Conglomerate in Mexico). Comercio Exterior, 58(8-9), p. 617-629. Geske, J., Kuckshinrichs, W. and Kronenberg, T. (2011) Analysing the impact of demographic development on sustainability via infrastructure networks. International Journal of Global Environmental Issues, 11(3-4), p. 310-335. Haneine, R., Rojo, J. M., Santos, J. L. and Ishizaki, K. (2010) Reigniting Mexico’s Automotive Industry New opportunities could trigger an era of growth [Online]. Available at: http://www.atkearney.com/documents/10192/d8efd180-9af1-48c0-8111-defaaebb8c75 [Accessed: 04 April, 2013] Juarez Nunez, H. (2010) The automobile industry in Mexico: Perspectives for 2010. Metapolitica, (69) Mexico (2013) [Online]. Available at: http://www.heritage.org/index/country/mexico [Accessed: 04 April, 2013] Montout, S. and Zitouna, H. (2004) North-South Integration and Multinationals: The Case of the Automobile Industry in Mexico. New York: Continuum. Moreno, J. C. and Kellogg, H. (1996) Mexico's auto industry after NAFTA: a successful experience in restructuring? Mexico: The Helen Kellogg Institute for International Studies. Noguez, M. I. (2003) Ford and the Global Strategies of Multinationals: The North American Auto Industry. USA: Routledge. Pride, W. M. and Ferrell, O. C. (2011) Pride & Ferrell Marketing. USA: Cengage Learning. ProMexico (2013) [Online]. Available at: http://www.promexico.gob.mx/en_i0/promexico/sector_automotriz [Accessed: 04 April, 2013] PwC Mexico (2012) Doing Business in Mexico Automotive Industry [Online]. Available at: http://www.pwc.com/mx/es/publicaciones/archivo/2012-05-db-atomotive.pdf [Accessed: 04 April, 2013] Rich, J. G. (2003) Environment and development in Mexico: recommendations for reconciliation. USA: CSIS. Roxborough, I. (2009) Unions and politics in Mexico: The case of the automobile industry. USA: Cambridge University Press. Russell, J. and Cohn, R. (2012) Automotive Industry in Mexico. USA: Book on Demand. Shimp, T. A. (2010) Advertising, Promotion, and Other Aspects of Integrated Marketing Communications. USA: Cengage Learning. Appendices Appendix 1 Foreign direct investment in Mexico (Source: ProMexico, 2013) Appendix 2 Truck and Car Exports from Mexico (Source: PwC Mexico, 2012) Appendix 3 Main factors to increase competitiveness of automotive sector in Mexico (Source: Haneine, Rojo, Santos and Ishizaki, 2010) Appendix 4 Geographical distribution of plants and employees of light vehicles (Source: PwC Mexico, 2012) Read More