Globalization of Mexican Businesses By Arun Kottolli

Introduction  Mexico became an emerging economy in the last decade mainly due to NAFTA and proximity to US  NAFTA fueled the globalization of Mexican businesses by US investments in Mexico and by creation of new market opportunities in US  Mexican firms are investing and expanding in US, Europe and Latin America  This offers a learning opportunity to firms in other emerging countries

Globalization Routes  Mexican firms are becoming global firms by  Creating subsidiaries abroad  Forming Strategic Alliances  Sale of stock & securities abroad  Networking with other MNC’s  Globalization can be attributed to Internal factors such as:  NAFTA  High Internal Debt  Deregulation of industry

External Factors  External Factors influencing globalization are:  Market liberalization in foreign countries  Changes in finances & huge investments needed to modernize  Use of FDI by other Latin American firms to compete  Emphasis on cost based strategies to enhance export performance – Need to achieve economies of scale  Globalization of various Industry sectors resulting in global customers

Mexican FDI in USA  Compared to Japan & Europe, Mexican investments in US has been small but is growing steadily  Mexican FDI in US has tripled in the last decade  In 1999, Mexican FDI was about $3.61 Billion  Mexican firms have generated sales of $9.2 billion in US, generated 30,000 jobs and a net income of $132 million in 1998  Exports from Mexican subsidiaries in US have crossed 1 Billion dollars

Entry Strategies  Most Mexican firms which went global were manufacturing firms making auto parts, steel, aluminum, paper, alcoholic beverages, etc  Most Firms expanded into USA, Canada and Brazil  Other countries were Argentina, Venezuela, Columbia, Costa Rica, El Salvador, Spain, Germany, France and China  Joint Ventures is the favored means of expanding abroad, followed by acquisitions, strategic alliances and mergers

Entry Strategies  Partnerships via Joint ventures and strategic alliances were designed to minimize risks, speed up entry, and secure access to resources or key assets  Acquisitions by Mexican firm CEMEX has well defined criteria:  Match parent’s expertise  Does not effect current financial structure  Meet financial targets, returns exceed the firm’s Weighted Average Cost of Capital  High level of 2-way communication  Significant centralized control

Positioning Strategies  Most Mexican firms expanding in US emphasis on Low price and high quality or high service  A mix of low cost focus & differentiation gives Mexican firms the most desirable position  Focus on quality is necessary to succeed in a developed country  Firms prefer sales to channels or other businesses rather than directly selling to customers  Consumer products are targeted at all ethnic groups, few target Hispanic community only

Ethnic Positioning  Contrary to expectations, most Mexican firms avoid targeting exclusively to Hispanics  Mexicans in US are trying to fit-in, so they prefer American products & avoid ethnic Mexican products  By catering to a wider ethnic base, firms can maximize market potential  Advertising and product positioning strategies are therefore directed towards more general markets  Products are being localized to meet local demands – Consistent with positioning

Pricing Strategies  Initially Prices in US was identical to that in Mexico  In few cases prices was higher in US, but in general firms maintain price parity with Mexico  Reduces arbitrage  Fits with Low cost strategy  Market penetration pricing strategy  Long term outlook, rather than opportunistically cashing in

Distribution  Most Mexican firms prefer to use channels instead of direct marketing  Agents, Distributors, Brokers, and Wholesalers  Very few have their own sales & marketing offices  Distribution via channels is a low risk option  Direct marketing is expensive in US  Personal selling is the preferred sales method  Samples, discounts, coupons etc are used sparingly

Closing Thoughts  A close study on expansion of Mexican firms in US serves as a learning point for firms from other emerging nations to enter US markets  Low Price, High quality strategy is necessary to combat country-of-origin effects.  Firms need to aggressively pursue quality, get quality certification and demonstrate quality to gain market acceptance  Low price, long term objective is better than a opportunistic high price strategy  Indian Firms in Auto parts, machinery etc can emulate Mexican success in US