Discuss about the Allstate’s Expansion to Mexico.
Allstate is a multinational enterprise (MNE). The company is having its headquarters in USA. It deals in the sector of diversified insurance. The company is having its operations in USA and Canada. The company was established in 1931 and it keeps on developing continuously (Allstate 2017). The company is planning to expand its operations to Mexico. This essay evaluates various factors about the company and the Mexico markets. It takes into consideration various positives or negatives that company can face while entering Mexico markets. It also analyses various modes through which company can enter the Mexico markets.
Allstate was established by General Robert, E. Wood in the year 1931 in USA. Thomas Wilson is the current company head. The company’s services are divided into 3 categories i.e., insurance services, wealth transfer and financial services. The company is having 4 subsidiaries Encompass insurance company, Esurance, Square trade and Allstate India. The company cultivates an innovative culture in the organisation. The company is concerned towards employees and make efforts for the overall development of the employees. The company is sensitive towards the employee needs (Allstate 2017). The major competitors of the company are The Progressive Corporation, State farm mutual automobile insurance company and Farmers group.
About Mexico (country where company seeks to expand):
The Mexico markets hold various opportunities for the company. The Mexico is the gateway to world’s most important markets; it is a part of NAFTA. Mexico was ranked 28 in 139 countries by WEF in terms of macroeconomic environment. In the year 2011 Mexico markets included 30 per cent Mexican countries and 70 per cent foreign companies. The sector has witnessed six times growth between the years 1980-2010 (Interproteccion 2010). The premiums constituted about US$ 22 billion market value. The market is in the growing phase and holds the potential for further rapid growth. The financial system of Mexico including its insurance sector has been one of the strong capitalized environments during the global crisis. Mexico’s economic policies ensure fiscal stability and macroeconomic stability. The Mexico’s markets are in a need of more innovative insurance products (Gardere 2017). Mexico’s policyholders have started using technology this will reduce the operating cost for the companies and present as an opportunity for the company.
The company also has to deal with various threats in the Mexico’s insurance market. In Mexico only 28 per cent people have any kind of insurance rest 78 per cent do not have any kind of insurance. A new law LISF was enforced into Mexico markets in 2015. The law will lay several implications on the insurance companies and companies have to abide by the law (Lima 2014).The rate of claims have grown up is another threat for the insurance companies. The company can also face challenges due to Mexico’s vulnerability to floods, hurricanes and earthquakes.
About Mexico (country where company seeks to expand)
Mexico serves as a wide market for insurance company. It is a fascinating option for the Allstate Company. According to the official figures Mexico’s insurance market grew by 7.23 per cent in the year 2015. Currently Mexico is having 81 insurance companies operating in its market. Out of these 30 are 100 per cent Mexican companies while 51 are foreign companies. Insurance sector market is further divided into life, pensions, accidents & health, property, causality, medical expenses, marine & cargo, agro, credit, motor auto and reinsurance. Major section of the market is occupied by health and life insurance. MetLife is the leading insurance company of Mexico it occupies 12.6 per cent of market share. The next company is Mexico market is Grupo Nacional Provincial which has a market share of 10.9% (Porter 2013). The Allstate is expected to face a tough competition from these companies in the markets of Mexico.
Mexico markets are open to FDI. It is among the top markets who consistently received large amount of FDI. The Allstate have to abide by the regulations of 1993 Foreign Investment Law of Mexico. The law is in accordance with the NAFTA. Companies also have to follow several OECD agreements of which Mexico is a part. For easy registration of businesses the president Pena Nieto announced a law in March 2016. The law was named Sociedad for Acciones Simplificadas (SAS). The company who owns SAS will be able to register the company in 24 hours. The Mexican government also has an business registration site “www.tuempresa.gob.mx”. In order to expand to the Mexican markets the company also needs to register with the tax authority of Mexico (Servicio de Administration y Tributaria), the economy secretariat and public registry. The process of registration may last from 24 hours to 60 days. Pro Mexico is an agency in Mexico can serves the government in investment promotion. Companies can access services of this agency by providing them with minimal amounts of information. Allstate can also seek for advisory services from INADEM Mexico. In the year 2012, Secretariat of Economy Mexico, opened a new window named International Trade Single Window. This allows the companies to comply with all the requirements of foreign trade (export 2016).
Mexico is a country with rich cultural diversity. The country’s culture is a blend of Mesoamerican and Spanish culture. Mexican culture is much influenced by USA and Europe culture. The traditions of the place are preserved by provincial people whereas city dwellers reflect the contemporary culture (Zimmermann 2017). The demand for insurance in services in Mexico is lower than that of USA (Brown 2008). Around 2/3rd of the population is not having any kind of insurance. But gradually the people are getting aware and spending more on this sector. The consumer behaviour of UK customers regarding the insurance sector is changing as it is being influenced by the US culture. Mexico the newly selected target market of the company provides more opportunities in life insurance and motor insurance sector. The target market of the company has various challenges and opportunities for the company.
Opportunities and threats
For entering the any country the company needs to have a profound knowledge of both formal and informal institutions. Formal institutions for entering any country include laws, rules and regulations of that country (Dunning and Lundan 2008). Informal institutions include culture, norms and values of the society. The combination of these institutions determines the company and individual behaviour (Peng, Wang, and Jiang 2008). These formal and informal sectors have several implications on the Allstate. Entering the Mexican markets requires fulfilling various legal and statutory requirements that have been discussed above. The company also needs to comply with the cultural requirements of the nation. It should gain a deep knowledge about the culture of the country. All the policies of the company should be framed in such a way that it does not harm countries culture.
Allstate can enter Mexico markets in many ways such as exporting, turnkey projects, licensing, franchising, joint venture and wholly owned subsidiary. There are varieties of ways in which a company can enter the different international markets. There is no single approach that is suitable to all the international markets and all the companies. In t is one the major factor that determines company’s future in the international markets. Allstate can adopt any of the ways but the most suitable will be joint venture and wholly owned new subsidiary. Joint venture is a form of entering the markets in which the foreign company join hands with the company in host country. This makes the entry easy, as the company of the host country is aware off rules, laws and cultural of the market. The joint venture will also provide capital sharing and risk sharing (Luo 2007). Wholly owned new subsidy is setting up a new company in the foreign market. This enables the company with higher degree of control (Chang,Chung and Moon 2013). Both the ways are suitable but opening a wholly owned new subsidy will give the companies more rights and powers over the operations of the company.
It can be concluded that Allstate is amongst the top players in the US markets. The company is directed towards being perfect. Company cultivates the culture of innovation in its organisation. It takes the good care of its employees. It is always engaged in healthy work practices. The company believes in constant learning and developing to achieve better. Allstate has not expanded much; it has operations only in USA and Canada. After reaching the heights of success in these countries the company is planning to expand its operations in Mexico. The company cultivates the culture of innovation in its organisation. It takes the good care of employees. It is always engaged in healthy work practices. Mexico is an emerging market. It is ranked amongst the best market in terms of macro-economic environment. For insurance sector the Mexico markets provides potential for rapid growth. There are also various challenges that company has to face in the Mexico markets. Major of them is the country’s vulnerability to flood, earth quake and hurricanes. Various formal and informal institutions lay several implications on company’s business. Overall the Mexican market holds the potential for investment.
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