RBSs Internationalization Models into Mexico as an Emerging Markets Using Country of Origin Audit - Research Paper Example

RBS’s Internationalization Models into Mexico as an Emerging Markets Using Country of Origin Audit Introduction On the wings of globalisation, the global business climate has become filled with both opportunities and competition. In the light of this, companies around the world, regardless of their size keep seeking means to grow and expand. As part of opportunities presented by globalisation whereby market entry has become relatively easier now than it used to be some decades back (Aaker, 2012), one of the best ways that companies have sought to realise their ambitions of growth and expansion is through internationalisation. But to go international, it is important that a company will be strategic in its approach so as to ensure that the internationalisation process will be successful once and for all. Having said this, Popper (2004) noted a disturbing development whereby most developed markets seem to be excessively choked with competition. In most of these developed markets, there are hardly any untapped market segments that new market positioning can take place. In the light of this, a number of companies have resorted to seeking marketing opportunities in emerging markets. Meanwhile, emerging markets have their own challenges and benefits that make it very important to have very good understanding of the particular market that a company seeks to enter (O'Sullivan and Sheffrin, 2003). Through the use of country of origin intelligence, it is possible to gather sufficient information about the best marketing entry strategy that will work well for a particular emerging market. It is in the light of this that the literature review is performed to outline ways in which The Royal Bank of Scotland can choose the right internationalisation models to enter Mexico as an emerging markets, based on the country of origin intelligence of that country. Most aspects of the review are however generalised for the themes of internationalisation model, emerging markets, and country of origin audit. The literature review is generally an opportunity to research into what has already been published in literature so as to debate on opposing arguments to find the best conceptual framework that fits into the current research topic. Marketing in emerging markets The concept of emerging markets is one of the fastest developing concepts in international marketing. Oviatt and McDougall (2008) explained an emerging market to be a country or region that has economic activities which are stronger than a least developed country but generally weaker than a developed country. What this means is that the economic outlook of emerging markets comes slightly below that of developed markets but higher than a typical developing country. This also means that the economic outlook of a country is a major factor in classifying a market to be an emerging one. With this said, Aaker (2011) noted that there are several classifications that have been given to countries by bodies such as the International Monetary Fund, Columbia University, FTSE, MSCI, S&P, and Dow Jones. On the whole, the most commonly referred to evidence of a country being an emerging market is for the country to fit into the emerging market index criteria. With this said, countries such as China, Brazil, Russia, India, South Korea, Mexico, Indonesia, Turkey, and Saudi Arabia are often regarded as the top 10 emerging markets based on assessment by the various classifying bodies (Subhash, 2006). To get the best outlook of marketing in these emerging markets, a SWOT analysis is often performed. This is because the SWOT analysis has been found to clearly categorise the benefits and challenges within these emerging countries (Aula, 2011). In a much generalised manner, some key strengths, weaknesses, opportunities, and threats (SWOT) of these markets are reviewed. Writing on the strengths, Oviatt and McDougall (2010) argued that most emerging markets come with the advantage that new businesses get a lot of government support in terms of microeconomic policies and funding. In support of this, Oviatt and McDougall (2007) stressed that the Mexican government has a very unique policy for multinational companies that directly invest in that country because of the need to promote the country to be a destination for foreign direct investments. Barry (2010) on the other hand questioned if emerging markets have really done local businesses any good for the excess investment promotions they tend to give to foreign businesses and companies such as the RBS. The strength identified notwithstanding, there are some weaknesses that most emerging markets have been noted to harbour. For example Noora, Tuunanen and Alon (2005) lamented that in most emerging markets, the macroeconomic policies in practice have not been effective enough to transform their economies into developed economies. It is for this reason that even though some of these countries have very large GDP, they continue to be regarded as developing countries and not developed countries. Meanwhile, O'Grady and Lane (2012) wrote about the importance of having a sound and robust economy to make a company like RBS, which is in the services sector of banking to succeed. It was noted that the fundamental growth of any bank rests on the logical contribution of the economy in which the bank finds itself. In line with this, Porter, Argyres and McGahan (2006) mentioned that the growth of banks generally exemplify the growth taking place in various sectors of a country’s economy. This means that where the weakness of a weak economy prevails for these emerging economies, including Mexico, success with business will be very challenging. Regardless of the weakness identified above, Aula (2011) noted that there are some important opportunities for doing business in an emerging market, particularly in Mexico. For example it was stated that most of these emerging markets have adapted themselves to be part of the technological drive. Because of this, it is very easy for multinational companies such as RBS that ply on huge technological basis to have the hopes of having a technological climate that fits into the business they do (Kotler & Keller, 2012). Penrose (2005) also stated that in today’s global business climate, electronic commerce and mobile commerce has taken greater part of the business model of most companies. Meanwhile, Mexico has a well founded technological framework that has a future of hosting the world’s largest technological demands (Olins, 2013). On the other hand, Steen and Liesch, 2007) was sceptical if the expansion in technology in emerging markets has not only come as an haphazard following of the world technological syndrome and that there still remains a lot that has to be answered about technological security. Still on the marketing outlook of emerging markets, Oviatt and McDougall (2012) emphasised that there is a major threat that has to do with the fact that most companies have regarded these emerging markets as being only good for less quality products and services. The mentality has been that consumers in these markets will also choose cheaper prices over quality products (Paul, Alan and Arun, 2014). This situation has led to most of these markets becoming the hub of inferior products. Meanwhile, this is a challenge that affects business from genuine companies very negatively. This is because most of these companies offering inferior products give off products and services at very cheaper rates, making them have greater market share. Kotler & Keller (2006) also lamented that Mexico cannot be a country that can boast of riding above the problem with proliferation of inferior products on its markets. With this said, Cahill (2011) argued that the manufacturing sector stands to suffer from this situation more than the service sector, of which RBS is part. Country of origin audit of the emerging market Country of origin audit is an environmental audit that is performed to know the external factors that either promote or fight against the success of a particular country in becoming a market destination for product expansion and growth (Howard, 2006). In the context of this paper, the emphasis will be on emerging markets, with further emphasis on Mexico, whiles using a PEST analysis. From a political perspective, most literature found for emerging markets seemed to criticise the political systems practiced in these countries, whereby there is overemphasis on inter-political party activity (Doyle, Moore, Ch and Morgan, 2011 and Kotler, 2009). Because the interest of political parties seems to come ahead of national interests, there is hardly any major national policy for the development of businesses in these countries (Hofstede, 1983). The effect of this is that multinational companies that go to these countries continue to experience changes in microeconomic and macroeconomic climate with changing parties in power. Bjerre, Heding & Knudtzen (2009) also criticised a situation whereby most of these countries have unstable political systems. With all these, European Commission (2012) stressed that Mexico has showed sufficient political will to promoting businesses with government policies that can be described as perpetual. However, Hill (2007) had a strong feeling that the country’s political will over the years seem to favour growth of companies in the manufacturing sector than it does for those in the services sector, of which RBS is part. From an economic audit perspective, Gleason and Wiggenhorn (2007) saw a situation whereby most of these emerging markets as becoming import based rather than export based as a very worrying situation. Because of this situation, most emerging markets have been noted to have very quick currencies because of the high demand for foreign currency in these countries. A typical example of this is the fact that the Mexican Peso continues to be weaker when compared to all other major trading currencies such as the British Pound, US Dollar and the Euro (Doherty, 2007). Having said this, the Marca Pais (2011) noted that the fact that Mexico is the second largest exporter of electronics to the United States as a major economic booster that helps to fight the issue of overemphasis on importation. In 2011 alone, Mexico was known to have exported electronics worth $71.4 billion to the United States alone (Marca Pais, 2011). Still on the economic audit of the emerging markets, Butkevičienė, Stravinskienė & Rūtelionė (2008) indicated that the fact that most of these countries overly rely on global financial institutions such as the World Bank and International Monetary Fund as a negative development that impacts on the future of these countries negatively. This is because of the numerous anti-growth conditionality which comes with most of these financial aids. From a social perspective, most writers have focused on issues such as population growth and education as the major deciding factor for companies seeking to go into emerging markets. For example Cahill (2011) saw that most emerging markets have high populations that come with an equally high literacy rate. With this form of combination, the social impact it has on the services sector such as the banking sector is that citizens are more inclined to understanding the importance of banking (Campbell, 2012). Because of this, there is always that assurance that there is ready market for multinational banks like RBS. What is more, Chetty and Campbell-Hunt (2004) related a high population rate with a high literacy rate to hopes for skilled labour within the emerging markets. For the RBS therefore, there are much hopes of the company seeing a surging rise in the number of skilled labour it can rely on for its expansion in Mexico. Where there is ready market and availability of skilled labour in a particular market, companies benefit because they normally require lower capital when it comes to recruitment because chances of having to import labour from parent countries become less (Choo, 2013). But putting Mexico into further perspective, Giesler (2012) indicated that the country has a socio-cultural climate that is more inclined and advantageous to companies coming from the US than it is for companies coming from UK. From a technological perspective, most of the literature reviewed suggested a very favourable position for emerging markets in the new global marketplace. This is because they have showed very strong commitment to taking up the leadership mantle when it comes to expanding technological base for doing business (Klimchuk & Krasovec, 2006). As part of this, Olins (2013) acknowledged the very strong presence of telecommunication and mobile networking companies in most of these emerging markets. Meanwhile, the presence and operations of these telecommunication and mobile networking companies is the very hallmark of engaging in electronic commerce and mobile commerce. There is therefore a very favourable outlook for emerging markets as far as technological audit is concerned. Campbell (2012) was particularly glad for the fact that Mexico can be singled out as a major player in the telecommunication industry in the world. This means that companies that seek expansion to that country and require the telecommunication platform to engage in business have a major advantage to take. More specifically, the banking industry is one sector among service providers that rely heavily on telecommunication and technology in general (Pitelis, 2007). For example, as RBS enters into Mexico, the company will certainly be seeking to have several branches, all of which will have to be networked in a way that makes it possible for customers to engage in intra-bank transactions. Internationalisation models preferable for emerging markets Sharma and Blomstermo (2013) posited that having the right international model for entering a market is as important as knowing exactly what lies in that matter by way of an audit. This is because it is always important that the selected internationalisation model matches what prevails in the targeted market. These internationalisation models have therefore been used very extensively as market entry strategies. With this said, it will be noted that one of the best ways a company can take advantage of the benefits that prevail in a market, and overcome the challenges in the same market is for the company to select the right entry strategy. The first internationalisation model that was emphasised in literature was the transaction cost approach. This has been described as a risk aversion strategy of entry whereby companies target local businesses in a preferred market and invest directly in those local businesses (Coyne and Balakrishnan, 2012). By so doing, there is so much cost saving because it does not require a fresh start or setup (Chaudhuri, 2006). It also minimises risk of doing business as the local business manages the actual risk. Giesler (2012) however stressed that in an emerging market like Mexico, there are several benefits within that market that transaction cost does not make it possible for international companies to take advantage of. The second internationalisation model that was emphasised in literature was the Uppsala model. This model has been noted to be particularly suitable for the emerging market as it allows a systematic entry approach (Forsgren, 2002). As part of the systematic entry, companies are offered the opportunity of learning more about the markets before the final stage where they finally establish themselves. In the first stage, companies make use of sporadic exports, whereby they export into these markets for sale (Knapp, 2009). The second stage involves the use of agents, who may set up franchise or become sole representatives of the international company seeking to be established. In the case of a service company like the RBS, Coyne and Subramaniam (2013) stressed that the first and second stages can be combined into a single stage, which could be used as transaction cost model. This means that the company can be in the transaction cost with the aim of studying the local market so that the other stages can follow with time. In the third stage, there is the use of subsidiaries. This is a stage that is very close to the final stage and requires a lot of branding to make the target market aware of the pending opening (Steen and Liesch, 2007) the last stage is the setup entity stage where the international company finally establishes itself and begins operations. The last internationalisation model that was reviewed was the industrial network approach. Very unfortunately however, Pitelis (2007) saw this not to be a viable model for a company like RBS which is in the banking sector and will be operating from an origin that is very far in proximity to Mexico. This is because in the industrial network approach, international companies form a network with local businesses or other foreign businesses who are into trade that is similar to theirs (Chryssides and Kaler, 2013). For example, a mobile phone manufacturer can go into an industrial network with a telecommunication service provider. Because of the similarity in business line, the phone manufacturer can be selling its products on the platform of the telecommunication company. This means that industrial network approach works well where manufacturers are involved and where there is enough proximity where the supply of products will be easier (Sharma and Blomstermo, 2013). For an international bank such as RBS to have a local manufacturer or other service provider in Mexico to trade their services on can certainly be a difficult thing to find. For those in other areas of business and going into emerging markets however, this has been noted to be an ideal model since it is highly cost effective (Klein, 2010). Summary of the Review The current review was performed with the need to knowing how companies can make select the best internationalisation models to suit different emerging markets. In order to better classify the emerging markets, a country of origin audit for performed for emerging markets in general. Through the audit, it has been realised that there are different strengths and weaknesses for emerging markets based on their PEST analysis. This generalised classification notwithstanding, it was established that it is still possible to group different emerging markets based on their unique classification. Based on arguments presented by different authors, it has been noted that a much generalised strength with marketing in emerging markets is the high level of government support available in these countries (O'Sullivan and Sheffrin, 2003). There is also the opportunity of high technological expansion in these markets (Hill, 2007). Having said this, most of the markets continue to be challenged with low economic outlook (Doherty, 2007). There is also the threat of the emerging markets becoming the hub for inferior products, which give a negative competition against genuine companies (Gleason and Wiggenhorn, 2007). From a political country of origin audit perspective, the review has also helped in realising that a major way forward for most of these countries is for them to have perpetual national policies rather than frequently changing economic policies that come with changing governments (Penrose, 2005). Economically, the need to make these countries an export based economies rather than import based has been noted to be a major solution to most forms of economic challenges faced in these countries (Howard, 2006). Socially, the fact that most of these countries are taking up to new trend in social media was commended, whiles technological expansion in these companies have been noted to be one of the best things that make these countries attractive to investors (Forsgren, 2002). Of the four major internationalisation models that were discussed, it can be concluded that the best that meets the fallout of the country of origin audit performed is the Uppsala model. 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