2. Macro environmental analysis:
It is investigated that urbanization is correlated with an increase in demand for packaged and convenience foods. Processed meat like ham and sausages are highly convenient due to its ease in preparation. 78.97% of the Mexican population lives in the urban areas, which can lead to an increased consumption of processed meats as the products are widely available in these areas (appendix 11, page 9). Moreover, the number of members per household has decreased and an increase in the working population has occurred (International Markets Bureau, 2013). It is expected that the Mexican population will urbanize slightly more until 2030. http://esa.un.org/unpd/wup/Publications/Files/WUP2014-Highlights.pdf
2.2.1 Natural casings importation:
Mexico is a net importer of guts, bladders and stomachs of animal origin, which means the country imports more than it exports these products. Between 2010 and 2014, Mexico's share in world imports of Guts, bladders and stomachs of animals has decreased by 1%. The United States' major business partner regarding natural casings and related products is Mexico. This country has covered almost 95% of the Mexican sausage casings imports. Also Canada has some market share in the exports to Mexico. Other countries exporting smaller quantities are Chile, Australia, Nicaragua, Costa Rica, Panama and New Zealand, but in signfificant smaller quantities (ITC Trade map, 2016).
2.2.2 Sausage exportation:
As one can see in the graph, not many sausages have been exported by Mexico in 2014. The major countries of exports were Guatemala, the United States and El Salvador (appendix 14, page 11) (ITC Trade map, 2016). It is expected that Mexico will increase its sausage sales to additional foreign markets (Fernández, 2013).
2.2.3 Sausage importation:
The United States was the major exporter of sausages to Mexico. Also Spain is its second largest exporting partner country, although this country's share in Mexican's imports was only 2.4% in 2014 (appendix 15, page 11). The United States especially exports fresh sausage and Spain exports more dried sausage. Italy also is a large producer of dried sausages, but these products are being transported to and further processed in the United States. Therefore is the degree of dried sausage exportation out of the United States is biased (Fernández, 2013).
The currency used in Mexico is the Mexican Peso and has currency code MXN. The past few years the US dollar has strengthen which is not beneficial for trade between the United States and Mexico (appendix 16, page 12). To trade with Mexico, the Mexicans have to pay more Pesos for 1 dollar. Also in comparison with the Euro, the Mexican Peso has weakened (appendix 17, page 13) (Currency Encyclopedia, 2016).
As Mexico has a score of 35 on a scale of 0 (highly corrupt) to 100 (clean), it can be stated that corruption can pose a threat when doing business with Mexico. This issue can for instance result in difficulties getting permits and licenses. Contacts with the Mexican government and customs cannot be considered objective.
Moreover, established business are more carefull with juridic and administrative risks whereas agents, traders and distributors are more risk taking and more sensitive for corruption.
2.3 Social cultural:
2.3.1 Hofstede cultural dimensions:
Power distance (PDI):
As one can see in Hofstede's culture dimensions graph (appendix 18, page 13), Mexico (score 81) scores significantly higher on power distance than the United States (score 40) and the Netherlands (score 38). Therefore it is expected that Mexican organizations are certainly more hierarchic and that decisions are made more centrally by only one or a couple of persons in the organization (The Hofstede Center, 2016).
Mexico scores relatively lower (score 30) on the Individualism index than the United States (score 91) and the Netherlands (score 80). This can mean networking is highly important in the Mexican culture.
Mexico's score on the Masculinity index (score 69) was almost as high as the score of the United States (score 62). On the other hand, the score relating to the Dutch culture is significantly lower (score 14). Countries with a higher score on Masculinity can be considered more competitive and words like “excellence”, “unique”, “state of the art” and “world leading” are highly accepted (The Hofstede Center, 2016).
Uncertainty Avoidance (UAI):
Uncertainty avoidance is the degree to which members of a society feel uncomfortable with uncertainty. Cultures with a higher score on this dimension tend to avoid uncertainty and try to influence the future. This results in more regulations and rigid codes (The Hofstede Center, 2016).
Mexico (score 82) scores higher on the Uncertainty Avoidance Index than the United States (score 46) and the Netherlands (score 53). This means there will be more rules and regulations in Mexico than the average North-American and Dutch are used (The Hofstede Center, 2016).
Long Term Orientation (LTO):
The Long Term Orientation is the degree to which a society is focused on the future or present day. Long term oriented countries tend to save more money, have more stress and to be perseverant. The Dutch culture (score 67) tends to be more long term orientated in comparison with the United States (score 26) and Mexico (score 24) (The Hofstede Center, 2016).
2.3.2 Doing business with Mexicans compared to the United States:
Personal relationships and trust are highly important when doing business with Mexico, which is why relationship management is essential.
One should be aware of the fact that first names are rarely used, only by close family and friends. Mr. (Señor), Mrs. (Señora) or Miss (Señorita) are always followed by a surname when having conversations or corresponding. When first meeting, men will shake each others hands and women are patted on the right forearm or shoulder. When shaking hands, men should wait for the woman to initiate. Hugging is done when a relationship already has been established (Kwintessential, 2016).
Networking is highly important when first doing business with Mexican customers. By networking, one can introduce the business to other businesses. Business appointments can be made in advance and should be confirmed upon the meeting by a brief phone call some days before. One should call as soon as she or he has entered Mexico, to make sure the meeting will not be cancelled (Kwintessential, 2016). Once the relationships and contacts are made, Mexicans prefer annual visits.
Despite the fact that small talk during trade between Americans and Dutch is not common, this is critical when doing business with Mexicans. Meetings start slowly and it is difficult to first contact the executive. Patience is also important to build the relation. Business meetings by having dinner are the best way to get to know each other and to close a deal (Hernandez, 2016).
Normally, Mexicans are 15 to 30 minutes late. In the bigger cities it is expected that one wears formal clothing including suits and ties (Hernandez, 2016).
Moreover, Mexicans take long lunches, which can take up to two hours. When leaving a message to the executive it is not common that the call will be returned. The secretary answers the executive's e-mails usually (Hernandez, 2016).
Mexicans prefer personal, face to face or telephone contact when doing business which is why internet sales are considered not successful in Mexico (Hernandez, 2016). However, e-mail is more commonly used.
Speaking Spanish and marketing material in Spanish is highly appreciated as Spanish is not widely spoken by the Mexican population. Moreover it is easier to build relationships when speaking the same language as business partners (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
Providing excellent product service is usually more important than pricing. Timely supply, product support and training are highly important in the sales process. However, Mexicans are also considered extremely price conscious. Providing high service products has been a widely used strategy to penetrate the market by third-country manufacturers (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
Currently Mexico has been modernizing its transportation network. The most important land-border crossings are Nuevo Laredo, Ciudad Juarez, Piedras Negras, Tijana and Mexicali. The modern highway systems connect the main industrial areas, including Mexico City, Guadalajara and Monterrey. On the contrary, the roads outside this area are of poor quality but improvements are planned. The main maritime ports include Altamira, Tampico, Progreso on the Gulf Coast of Mexico, Ensecanda, Veracruz, Guaymas, Lazaro Gardenas, Manzanillo and Puerto Madero (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
2.5.1 Corporate Social Responsibility:
2.5.2 Organic meat:
Organic foods are perceived being healthier than convenience food groups. The Mexican government is planning to set up campaigns regarding healthy eating and organic foods. As incomes have been growing, purchasing organic foods is becoming more popular (USDA Foreign Agricultural Service, 2011).
2.6.1 Free Trade Agreements and tariffs:
With 44 Free Trade Agreements, Mexico is a country with world's most official free trade agreements and has ten agreements with other Latin American countries (appendix 19, page 14)(U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
The North American Free Trade Agreement is a multilateral trade agreement between Canada, Mexico and the United States. Tariffs for trade between these countries were abolished or will be eliminated over a period of 15 years. However, one condition to claim preferential treatment is that the product should meet NAFTA's Rules of Origin. This means the product should be produced or obtained entirely in the United States. Moreover, companies can apply for beneficial treatments if the imported parts have a change in tariff classification during production processes or the regional value-content, calculated by a set formula, and should be a certain percentage.
Since research has shown that the NAFTA agreement is applicable, the company does not have to pay customs processing free (CPF) if the product is definitively imported into Mexico (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
Another Mexican Free Trade Agreement is the Mexico-European Union agreement. The European Union has eliminated tariffs on 82% of Mexican imports and Mexico has eliminated tariffs on 47% of imports. Tariffs on 62% of agricultural products will be phased out in ten years. However, tariffs are not eliminated for some sensitive products including meat, dairy products, cereals and bananas (M. Angeles Villarreal, Specialist in International Trade and Finance, 2012).
Country Tariffs / Duties
Europe – Mexico 10%
United States – Mexico 0%
China – Mexico 10% (ITC Trade map, 2016)
2.6.4 Legal forms:
Most economic activities in Mexico can be 100% owned by foreign investors, including manufacturing. In Mexico, businesses' legal forms exist of different business entities. The business type is essential as it determines the operations allowed being done by foreign companies. Moreover, the tax paid to the Mexican government is determined by a business' legal form (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
The first legal form is called “Sociedad Anónima, S.A. de C.V. This business type is commonly applied by foreign businesses. The advantage of a Sociedad Anónima is the fact that shareholders only are liable for the amount of the value of their shares for the obligations and debts. This legal form also holds that the shareholders are responsible for the management (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
The second form is the Limited liability Company (Sociedad de Responsabilidad Limitada, S. De R.L.). Advantage of this is the fact that this form has the same limited liability as the Sociedad Anónima S.A. de C.V.
Legal form Amount of shareholders Minimum capital Additional requirements
Sociedad Anónima, S.A. de C.V. 2 – unlimited $50,000 pesos
20% is required to be paid at time of incorporation
Examiner making sure
proper and legal
Sociedad de Responsabilidad Limitada, S. De R.L. 2 – 50 $3,000 pesos
50% has to be paid at time of incorporation Examiner not required
Variable capital can be established
Civil enterprise (Sociedad Civil, S.C.) are applied by service providers.
The Branch Sucursal is used by companies registering the foreign company as a branch in Mexico. The branch must be registered with the Public Registry of Commerce to make it possible to file taxes. The foreign company will be liable, also for its activities in Mexico.
Another option can be a subsidiary, which means a different company will be set up, but the parent company is shielded from liability (Noruega, 2016).
Joint ventures are considered separate entities and taxes are registered separately. When concluding a joint venture agreement, this should be written instead of be agreed verbally (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
Agents and distributors:
No indemnity laws exist which means companies can cancel an agent or distributor agreement. However, the cancellation clauses should be specific. It is highly important that the terms and conditions are understood by all parties. Failure to meet standards can form a reason to cancel agent and distributor contracts (U.S. & Foreign Commercial Service and U.S. Department of State, 2015).
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