EXECUTIVE SUMMARY Raaymakers Industries is a Sydney based company and leading producer of frozen beef products. Growth within our Australian market has become stagnant, and we are looking to explore opportunities to expand our operations into overseas markets. We have conducted a feasibility study on entering the Mexican market, which is known to have difficulties in breeding cattle in the early 1990’s due to many problems such as, poor weather conditions and high feed costs. We have researched the political, economic, social, environmental, technological, and legal environment to identify any factors that may influence our expansion. As well, in this study, we have endeavored to ascertain the costs involved in this expansion as well as to determine the most suitable mode of entry.
Although we will be facing high levels of competition we believe that through continuous research and development, we can provide Mexico with the best quality frozen beef that could perhaps not be available domestically. Further, we strongly believe that our reputation for safe and reliable products will provide us with a competitive advantage. As Chief Executive Officer of Raaymakers Industries, it is my recommendation that we proceed with this venture, as I see great potential for our company to grow and expand. TABLE OF CONTENTS Topic Page 1. Product and Company Description 3 2.
PESTLE Analysis: Mexico o Political 4 o Economic 4 o Social 5 o Technological 5 o Legal 5 o Environmental 6 3. Trade Relations 7 4. Barriers/Impediments to Trade 8 5. Sales prospects 9 6. Mode of Entry 10 7. Timetable of Activities 11 8.
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Financial Forecast 12 9. Conclusion 13 10. Bibliography 14 11. Appendices Appendix A 15 Appendix B 16 COMPANY PROFILE AND PRODUCT DESCRIPTION Raaymakers Industries began as a small manufacturing firm in 1995, servicing only a few farms within New South Wales. Between 1995 and 2002 we achieved growth and diversification, and are currently servicing farms throughout Australia as well as numerous farms nationwide. We have traditionally focused on frozen beef but have on occasion conducted business in other ways.
However, as a result of researching different farms and the production of cattle in different locations around the world, we believe that doing business in Mexico would be quite advantageous for our company. PESTLE ANALYSIS: MEXICO POLITICAL The Constitution of Mexico was formed in 1917 but was not put in force until 1997. Mexico is separated into 31 states, each state has its own constitution, represented on a national agreement, with the right to legislate and impose taxes other than inter-state customs duties. At the national and municipal level, governments have executive, legislative, and judicial branches. Despite Mexico’s federal structure, its political system is highly centralized. Municipal governments are the central component of the Mexican government and are responsible for a variety of public services, including water and sewage; street lighting; cleaning and maintenance; public safety and traffic; supervision of slaughterhouses; and the maintenance of parks, gardens, and cemeteries.
Municipalities are also free to assist state and federal governments in the provision of elementary education, emergency fire and medical services, environmental protection, and the maintenance of historical landmarks. Mexico is linked to several international organizations which consist of of the following memberships: Organization of American States and its specialized agencies, United Nations and its specialized agencies, Latin American Alliance for Economic Development, and Latin American Economic System. They also joined the North American free trade Agreement (NAFTA) in 1993. ECONOMIC Mexico has a free market economy with a combination of new and outdated industries. Currently, organizations have expanded competition in seaports, railroads, telecommunications, electricity, natural gas distribution, and airports. Mexico’s trade with the United States and Canada has tripled since the implementation of NAFTA.
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Following a 6. 9% growth in 2000, real GDP fell 0. 3% in 2001. To offset this drop, positive developments in 2001 included a drop in inflation to 6. 5%, a sharp fall in interest rates, and a strong peso that appreciated 5% against the American dollar. Mexico City implemented free trade agreements with Guatemala, Honduras, El Salvador, and the European Free Trade Area in 2001, putting more than 90% of trade under free trade agreements.
Foreign direct investment reached $25 billion in 2001, of which $12. 5 billion came from the purchase of Mexico’s second largest bank, Ban amex. Becoming a member of the North American Free Trade Agreement (NAFTA) in 1993 led the Mexicans to look forward to constant economic growth. On the contrary, an increasing trade deficit and overestimated exchange rate in 1994 caused political distress and depreciation of the peso. Inflation began to skyrocket, and considerable foreign intervention was required to stabilize the situation.
Today the economy remains somewhat strong but the lack of reassurance makes strong development dubious. SOCIAL Over two thirds of Mexico’s approximately 100, 000, 000 people live in cities, contrary to the stereotype of peasants and farmers. The country’s capital, Mexico City, is inhabited by over 15 million people and is one of the largest cities in the world. Over 95% of the population speaks Spanish, which is the official national language.
Indians make up almost 25% of the population but less than 10% speak an Indian language. In Mexico, over 95% of the people practice Roman Catholicism but tentatively there is no official religion. The shrine of the Virgin of Guadeloupe is situated in Mexico City and is the scene of pilgrimage for hundreds of thousands of people every year. TECHNOLOGICAL Mexico’s telecommunications are highly advanced and developed. Long-distance telephone calls go by means of mix of microwave and domestic satellite links with 120 ground stations. International calls passing through go via five satellite ground stations and microwave links to United States.
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Demand still exceeds supply for new telephones in homes, but the condition improving. Mexico has more than 600 AM stations that are privately owned, as well as almost 300 television stations. LEGAL The legislative division of the Mexican regime is divided into an upper chamber, the Senate, and a lower chamber, the Chamber of Deputies. Similar to the United States, both chambers are responsible for the discussion and consent of legislation. The introduction of bills is shared with the executive as they initiate about 90% of all legislation. Since 1986 the Chamber of Deputies has consisted of 500 members, 200 of whom are elected by proportional representation from among the larger districts and the remainder from single member districts.
Members of the Chamber of Deputies serve three-year terms. All members of the congress are disqualified from immediate reelection but may serve nonconsecutive terms. The powers of the congress include the right to pass laws, impose taxes, declare war, approve the national budget, approve or reject treaties and conventions made with foreign countries, and ratify diplomatic appointments. The Senate addresses all matters concerning foreign policy, approves international agreements, and confirms presidential appointments. The Chamber of Deputies, much like the United States House of Representatives, addresses all matters pertaining to the government’s budget and public expenditures. ENVIRONMENTAL Mexico is copious in resources as it is the world’s greatest producer of silver.
In addition, they produce zinc, lead, gold, mercury, coal and copper. Nonetheless, its major financial benefit since the 1970’s has been petroleum. Over 70% of its revenue comes from exporting petroleum to the USA. Several different temperature zones, plant existence, and animals and found in Mexico.
The most common types are monkeys, jaguars, anteater, parrots and tapirs which can all be found in the forests of southern Mexico, pumas and coyotes in the more mountainous areas, and snakes, armadillos and rabbits in the deserts. This variety gives Mexico its wide diversity of environmental territory. TRADE RELATIONS Mexico has made a remarkable shift over the last 15 years, from a somewhat closed economy, to one of the most open economies in the world. While putting into action a sequence of domestic measures in order to deregulate trade activity and promote investment, Mexico has also embraced 11 international free trade and several bilateral investment agreements as a means to promote industrial competitiveness and export oriented growth. These policies have fostered new investment opportunities in Mexico and have guaranteed preferential market access for our exports to 32 countries, which accounts for a combined market of more than 860 million consumers across three continents. Important elements of Mexico’s economic strategy to develop international competitiveness and ensure long term development are due in part by the free trade agreements (FTA).
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These agreements increased investment opportunities dramatically in Mexico once they were implemented. Mexico’s main purposes for potential trade policy is to strengthen and expand its network of FTA’s by deepening economic integration with its trading partners and opening fresh markets for its exports. Within this hemisphere, Mexico is operational on the negotiation of free trade agreements with the Mercosur countries as a group, Argentina, Brazil, Paraguay and Uruguay, and bilaterally with Panama. These contracts will act as building blocks for the Free Trade Area of the Americas (FTAA).
Mexico is one of the primary trading nations in the world and the first in Latin America, with a share of 46% of the region’s total exports and imports. In 2001, total imports reached US $179 billion.
Mexico is ranked 7 th among the exporting nations of the world with a 2. 6% and 2. 7% share of the world’s exports and imports, correspondingly. One can note by Appendix A that imports and exports are continually on the rise and will continue to increase throughout the future. BARRIERS/IMPEDIMENTS TO TRADE Over the past ten years, the organization of agricultural exports has changed.
In 1989-90, Australia’s top three export items were wheat, beef and wool which earned 55% of the total value of agricultural exports. In 2000-01, their combined share had reduced to 38%. The decrease is these ‘high-growth’ items, have been matched by a diverse group of the following: cotton, wine, dairy products, meat (other than beef and veal), seafood, oilseeds, rice, and fruit and vegetables. Commencing January 1, 1999, the Mexican Congress decided to raise tariffs temporarily to increase revenue by 3% on capital goods and 10% on consumer goods. These increases do not apply to exporters in countries which have free trade agreements with Mexico, such as Australian exporters which exist because of NAFTA.
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The average tariff facing Australian exporters has increased by approximately 2% because of this temporary change. Of Australia’s top ranking exports to Mexico since 1983, none has shown any discernible decline coinciding with the entry into force of NAFTA. The only possible exception is beef. However, whether beef can be considered a consistent or traditional export is debatable given that the volume of Australian beef exports to Mexico were very small prior to 1992.
Despite this, in the two years prior to NAFTA (1992 and 1993) beef had established itself as Australia’s number one export to Mexico. Further, although Australia and Mexico are aiming to expand existing bilateral trade links between the two counties, there have been no plans yet to reduce or eliminate tariffs applied to the agricultural products, especially beef, even though they were labelled as temporary tariffs. SALES PROSPECTS The demand for our product, frozen beef, will be essentially derived from the Mexican’s agricultural industry. Below shows the frozen beef imports in metric tons for the past 8 years into Mexico. Origin 1995 1996 1997 1998 1999 2000 2001 2002 Australia 376 646 1547 3821 4227 5664 5685 7316 U. S.
Market Share 92% 93% 87% 77% 59% 31% 24% 19% Mexico’s livestock continues to decline further, it is currently 33% lower than a decade ago. A continuous dry climate and economic burdens are resulting in this uncontrollable liquidation. Nevertheless, with rising disposable incomes and reduced production, Mexico is increasingly looking at imports to meet consumer demand. Aided by NAFTA, the United States currently supplies 84% of Mexico’s fresh / chilled beef imports and 84% of offal imports. Looking at Appendix B one can see Mexico’s beef situation in regards to exports, imports, consumption and production.
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Country ProfileCountryFormal Name: United Mexican States (Estados Unidos Mexicans).Short Form: Mexico.Term for Citizen(s): Mexican(s). Capital: Mexico City (called Mééxico or Ciudad de Mééxico in country).Date of Independence: September 16, 1810 (from Spain).National Holidays: May 5, commemorating the victory over the French at the Battle of Puebla; September 16, Independence Day. ...
As well, as a graph depicting Mexico’s beef imports, break record for seven years running. One-third of Mexican territory was officially designated as cropland in the 1990’s. These areas were situated mainly in the north of Mexico and, therefore particular attention should be placed on southern Mexico, where there is not as much production in that location. In 1992, the Mexican government decided to take new procedures to assist the meat industry, some of these procedures included, deregulation of cattle growers, tighter controls on imported meat, and the maintenance of farming feed crops and irrigated lands. Mexico’s cattle business accounted for 30% of the agriculture sector’s annual growth. The industry’s weak performance in the early 1990 s resulted from inadequate investment, high feed costs, low prices fixed by the government, poor weather conditions, epidemics of hoof-and-mouth disease, and fears of expropriation.
Weak productivity has forced Mexico to become a net importer of beef. Overall, our sales prospects look promising. I believe we can increase our sales and build new customer relations with Mexico, as they need more beef due to their weak production. Along with many other problems they have had in the past, our Australian based company can help them build their agricultural market by providing beef to the areas that do not produce any beef as well as, assisting those that already supply beef by providing more… MODE OF ENTRY I recommend that our company form a comprehensive alliance, that is, one in which the partners participate in all facets of conducting business, ranging from product design, to manufacturing and through to marketing. with a Mexican manufacturer.
This being the case, we would continue to breed the cattle in Sydney, and ship the frozen beef into Mexico when it was ready and at its freshest. Therefore, all production and distribution would be supervised by our staff so we would know that we were providing the best quality beef. Most aspects of the marketing and the distribution aspects of the frozen beef could then be done by our Mexican manufacturer. Because of the difficulties in the different operating procedures between countries, without an organisational structure, most comprehensive alliances are organised into joint ventures for simplicity sake.
This way, the joint venture can adopt operating procedures that suit its specific needs, rather than attempting to accomodate often incompatible procedures of the parents. The process of negotiating, selecting and contracting with a partner will be timely and may incur considerable costs, as it may be difficult to find a firm with complementary resources, skills and management style. We also face the risk of disagreements occurring as a result of ‘power sharing’ issues, cultural differences and information sharing. Further, because we will no longer have as much control once the beef is shipped out of Sydney, we will not be aware if they are treating the beef with care so that no diseases or bacteria’s form. Examples of this would be letting the beef defrost and then re-freezing it or leaving it out in warm temperatures for long periods of time. Although these issues do represent costs and potential risks that we could face, I believe the following benefits outweigh them.
The costs involved in gaining economies of scale and scope in marketing and distribution quickly are large and be yong the capabilities of our small firm. By forming a joint venture, we will be able to achieve the benefits of rapid entry, while keeping our costs down. We will also have the opportunity to take advantage of the various incentive programs offered by the Mexican government for foreign direct investment. Last, by forming a joint venture we will benefit from the relationship that our partner have formed with domestic customers, suppliers and employees, and their knowledge relating to distribution networks, government regulations and labour relations. Further, we will have the opportunity to achieve our goals of expansion, whilst reducing our risk of financial exposure. TIMETABLE OF MAJOR ACTIVITIES QUARTER OBJECTIVE 1 May Breed all cattle available in order to have 7400 metric tons which is just over 2002 imports into Mexico.
Closely monitor quality and treatment of frozen beef and focus efforts on establishing relationships with customers and suppliers. 2 August Increase output of beef to 625 metric tons per month (7500 per year).
Focus on building strong customer relationships with new and existing customers. 3 November Increase breeding of cattle at a maximimum rate to provide 7700 metric tons of frozen beef per year (641 metric tons per month).
Perform new research analysis of the market, to find new customers. 4 February Continue breeding cattle at a rate of 641 metric tons per month. Ascertain whether fresh or chilled beef should be introduced to the market. 5 May Search for new customers as it is the 1 year anniversary of our joint venture (comprehensive alliance).
6 August Steadily increase frozen beef exports into Mexico per month. 650 metric tons per month.
7 November Conduct a market analysis to determine if there would be a demand for fresh or chilled beef, or perhaps another type of meat. Concentrate on cost reduction this quarter. 8 February Improve relationship with suppliers and concentrate on building strong realtionships with new customers. Continue to breed cattle at current rate in order to meet current demand. 9 May Introduce new product to increase revenue and supplier’s purchases. Retain production at current level.
10 August Continue with product development program and closely monitor customer behaviour programs. 11 November Keep production rates at current levels. Concentrate on cutting costs and improving relations with customers and suppliers. Conduct market analysis to determine ways to improve customer satisfaction. 12 February Introduce new product to the market. Expand customer base and maintain current levels of production.
FINANCIAL FORECAST It is clear from our objectives set out above that we plan to follow a fairly aggressive strategy. We aim to gradually enter the market, steadily increase supply and launch a new product or a differentiated version of our immediate one. Looking at the financial forecast, within the next 12 quarters, there will be loses recorded but as we improve our relations with our customers and suppliers and understand their needs these loses will slowly decline. CONCLUSION After considering all the aspects of this report a choice must be made whether or not to proceed. We have to look at many factors and consider them all in making a decision.
The Mexican beef industry has had many difficulties in the past and its weak performances have led the Mexicans to import beef from many countries including Australia. The northern area is the main location where beef is produced so we could help the southern areas as well as provide additional to the north, west and east locations in order for them to deliver enough beef to all their suppliers. The most suitable mode of entry into Mexico for Raaymakers Industries is forming a joint venture or comprehensive alliance with a domestic manufacturer. Although, finding a firm with complementary capabilities, resources and managerial style will be difficult; this is part of doing business internationally. Though, we face the risk of disagreements occurring as a result of cultural differences and information and power sharing issues, I believe this mode of entry will be advantageous for our company. We will be able to achieve the benefits of rapid entry, while keeping our costs down, and have access to essential information regarding local customers, suppliers and distribution networks.
Therefore, after considerable research and evaluation of the options that are available to our firm, it is my recommendation that we proceed with expansion into Mexico, and seek to form a joint venture with a domestic manufacturer. BIBLIOGRAPHY Textbook: Mahoney, Darrell; Trigg, Marie; Griffin, Ricky; Pu stay, Michael; International Busines: A Managerial Perspective 2 nd Edition Prentice Education Australia, 2001 Websites: web > web > web > web > web > web > web > web.
