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PESTLE analysis

Discuss about the American Business and Foreign Policy.

The international business procedure is getting affected due to the geographical location of the country. As stated by Miranda-de la Lama et al., (2018), especially the business rules and regulation in the border area. Due to its location in between the south and North America, the business industry of Mexico gets influenced by both the countries. Here the study has focused on Mexico, which is situated in the southern portion of North America. In this study, the external environment of the country has been discussed by using PESTLE analysis. On the other hand, competitive advantages of the business organizations have been analysed. The existing trade rules and regulation of Mexico have been highlighted in this study. Impact of foreign currency in the business industry has been discussed. Depending on this the rate of foreign investors and their interests towards business development in Mexico, the study has discussed the position of the country in international business industry. At the end of the study, depending on issues in the market required suggestion have been provided.

Business industry of Mexico has the higher level of contribution in the economy of the country. As per the GDP, it is in the 15th position in the world. Large portion of the Mexican GDP comes from service and industry sector (Grande, Islas & Rios, 2015). Mexico has the significant business market for the food and beverages, aerospace, motor vehicles, clothing, tobacco, mining and petroleum industry. In the year 2017, GDP rate of the country was $1.147 trillion. It has been identified from a recent report that it has second largest economy in Latin America. However, due to various socio-cultural gaps, the Mexican people are facing various challenges regarding its business development. The economic condition of the country is good is few places, but in the case of rural areas, people are facing many challenges due to lack of financial backup (Aguilar et al., 2015). As the country is located in between the North and South America, therefore both the continents have influenced the business environment of this country. However, mostly in the case of technological development, the European influences have been shown.

Situation

Positive impact

Negative impact

Political

The Mexican government has taken different initiative for making the stable political situation in Mexico (Walker, 2015). However, the initiative has faced the failure in the rural areas. By taking the advantages of this, few local organizations have increased the price of the products and earning huge from the rural market.

As the study has discussed that the political situation of the country is not in the stable condition. This has been identified recently large number of people have died due to gang violence. Therefore, this can be said that the political situation is not in favourable condition for the foreign investors.

Economic

The GDP rate in the country is $1.147 trillion. Which indicates the stable economic condition (Valdés Vázquez & Fraire, 2017). Therefore this can be understood from the GDP rate is the business opportunities in the country is very high. Due to this reason, the small business organizations will get the chance to enter the market. At the same time rate of employment will also increase.

On the other hand, this has been discussed in this study that although the economic condition of the country is good, however, it is not equal in every portion of the country. In rural areas, the people face different problems due to lack of financial support. They do not get any chance to develop any kind of business in the Mexican market. On the other hand, due to economic development labour wages increases. This creates challenges for the small organizations to appoint employees in low range.

Social

Due to economic development in Mexico, the standard of living of the people also increases (Valdés, Vázquez & Fraire, 2017). It impacts on the purchasing power of the people. It helps the business organizations to develop the pricing strategy as per the requirement.

On the other hand, the social status is not same in every place of Mexico. This can be said that due to an unstable social situation. This is very difficult for the organizations to develop business in Mexico.

Technological

From the ancient period, the Mexican civilization is famous for their mathematics, technology and astronomy. In the current scenario, the country has introduced modern technology in the business industry. Due to the introduction of software and hardware in the business industry, the online business trend has been introduced. On the other hand, if the foreign technology will be developed in this country, it will be more beneficial for developing business organizations in Mexico.

Due to technological development, the local investors are not able to compete with the foreign competitors due to their technological support.

Legal

The Mexican government has introduced various policies for foreign investors in order to develop business in the country. In the emerging market, the foreign investors are getting the chance to enter without any complication. Therefore, this can be said that the legal condition of Mexico is in the favourable condition for the foreign investors.

On the other hand, due to easier business policies, the foreign investors can easily grab the Mexican business market. This will bring the difficulties for the local organizations, which are trying to develop their business in the Mexican market.

Environmental

The Mexican government has introduced various environmental laws in order to develop the waste management system in this country. In order to reduce the rate of pollution from the environment, this is considered as the wise step taken by the government

On the other hand, due to strict environmental laws, the business organizations, which are trying to enter in the Mexican market need to bring the changes in their packaging materials and waste management (Charter, 2017). Therefore, this can be said that the strict environmental laws can bring difficulties for the foreign organizations.

The term competitive advantage indicates the advantages which are being taken by an organization or country over the competitors for achieving customers’ attention. Hence, this can be said that competitive advantage is an important part of market analysis. By using Ansoff Matrix, the competitive advantage of Mexican business industry in the international market has been highlighted.

Competitive advantages

Market penetration strategies being adopted in the case of developing existing product in the existing market (Yin, 2016). Through this strategy, the market share of the company is being increased on the market. Depending on the market segment the market share is being increased. This also helps the organization to grab the attention of new customers in the existing market. In order to implement the strategy, the organizations bring changes with its pricing strategy. By decreasing the prices of the existing products it tries to grab the attention of the customers. On the other hand, the promotional strategy of an organization gets changed for introducing existing product in the existing market in the better way. However, in this study, the market penetration strategy cannot be adopted because in this case, the study has discussed that due to rapid economic growth in Mexican market, the business organizations have decided to enter in the New Mexican business market.

The strategy of market development is being adopted in the case of expanding business in a new market (Filippov, 2017). In this case the business organizations select various customer segmentation for entering the new market. These strategies are mostly taken by the organizations, which try to enter the foreign market. Though the market research the rules and regulation in the external market are being analysed by the company. By identifying the competitors in the market, the business strategy is being developed. The business segmentation gets influenced by the economic condition of the country. Here the study has focused on the strategy of market development as the business organizations are trying to enter in the Mexican market. In order to develop the business in the foreign market, the business organizations focus on the needs and demands of the market. As well as it also analyses the position of the competitors for understanding the competitive advantages.

The strategy of product development is being adopted in the case of developing the new product in existing market. In this case, the organizations try to introduce new product or service in the market. In this case, the organization needs to focus on research on the market for understanding the needs and demands of the customers. On the other hand, in the case of new product development, different strategies can be adopted such as purchasing a product from the market and branding it, the joint development by connecting with other organizations and manufacturing the old product by adding more features and the new look. In the case of this study, this strategy cannot be adopted, because in this case, the Mexican market is totally unknown for the business developer.

As stated by Yin  (2016), the strategy of product diversification is being adopted in the case of developing new product in new market. This strategy is being adopted by the organization for increasing market share. It has been identified in this study that, in order to develop the strategy the organizations give strong effort for developing the market fist. Depending on the segmentation and target market, the product and its pricing strategy is being developed. In this situation the organizations adopt vertical and concentric diversification strategy for entering in the market with new products.

 Foreign currency has the higher level of impact for developing business in any country. In the case of Mexico, in 2017, the Central Bank of Mexico has taken a drastic step towards increasing the interest rate of the country to near about 3.75% (Jensen, Quinn & Weymouth, 2015). Here the government of Mexico has decided for selling the American dollar to the buyers directly in the market. Due to this reason, the value of PESO has fallen 17% in last year compared to the dollar. In this year, the PESO has recovered near about 17.81 to the dollar. As stated by Subedi (2016), after this recovery situation the volatility of Mexican PESO in the international market has increased. This has deteriorated the economic condition of Mexico in international trade industry. The chances of inflation can bring higher level of impact in the business market. The government is trying to bring the possible changes in order to stop this. The exchange rate will bring strong impact on the customer prices. From a recent report, it has been identified that in the year 2014, the PESO was about 12.5 to 13.3 US dollar (Wilson, 2015). This was a significant movement taken by Mexican government. In 2015, PESO was 14.7 against 1 dollar.

As opined by Cavusgil et al., (2014), due to the movement in currency exchange market, the business of the country gets affected. The payment of supplier gets affected due to this reason. On the other hand, employee wages also gets affected. As opined by Cavusgil et al., (2014), the sale forecasting report also gets influenced due to the influence of foreign currency. It becomes unpredictable for the financial experts. On the other hand, the study has highlighted the broader economy of the country, which is considered as the sensitive area and which mostly controls the export and important business, will get affected.

According to Kollmann (2016), the Mexican government has introduced liberal trade policies for the business organizations, which are trying to enter in the business market of Mexico. As stated by Martín & Meza (2015), wide range of trade agreements has been done by the government in order to reduce the tariff of goods. The country has taken membership in WTO in order to deal with the global rule and trade in the international market. The trade policies have been developed by the government in order to manage the export and import in Mexico. As stated by Subedi (2016), the government has also reduced the price for attracting a large number of investors. The trade system which is being followed by the business market is outward-oriented development business strategy. As the export and important business has highly contributed the GDP rate. Therefore, by following the macroeconomic policy, the trade movements are being analysed by the government.

Although the government has taken various initiatives in order to bring the changes in the business industry, but due to the improper distribution in both the political and economic facilities in all over the country has created barriers for adopting the business policies (Walker, 2015). In order to motivate the foreign companies towards investing, the government has also introduced exciting incentive policies. Mexico follows the Maquiladora investment incentive policy, in which attractive incentives are being provided to the organizations which enter the Mexican market (Petras & Veltmeyer, 2016).

Mexico is considered as one of the popular country where the scope of foreign direct investment is very high. On the other hand, Mexico is being considered as the 15th largest FDI recipient. From the report of 2018, it has been identified that USD 93 billion has been invested in the Mexican trade industry. The investment has done directly in the Mexican industry through different foreign companies. If the foreign direct investment in Mexican industry will be analysed, it will be identified that in the year 2014, the FDI inward flow was 27508 and FDI stock was 37.5% (Petras & Veltmeyer, 2016). On the other hand, in 2016, FDI inward flow was 26,739 and FDI stock was 45.3% (Salacuse, 2017).

From the above study, it has been identified country is facing the challenges due to lack of proper control on political situation. Therefore, this can be said that if the government takes strong step towards handling the political violence in the country, it will attract the foreign investors towards investing in the Mexican market. On the other hand, it has been identified in this study that due to improper economical distribution in the country, people from rural areas are facing different challenges. Therefore, this can be said that if the government notices the situation by providing financial support or providing job opportunity, the condition of the people in those areas can be improved.

Conclusion

In the above study, it has been identified that the government of Mexico has introduced various strategies in order to bring the development in the Mexican business industry. However, due to lack of political and Economic support in every places the business organizations may face various challenges. On the other hand, the liberal trade policies are also very influencing in the case of influencing the foreign investors towards the business market. It has been suggested in this study that if the government notices to solve the internal situation of the country, this will be helping the government in order to attract the foreign investors towards contributing in the Mexican economy.

Reference list

Aguilar, J. O., Xaman, J., Alvarez, G., Hernández-Pérez, I., & López-Mata, C. (2015). Thermal performance of a double pane window using glazing available on the Mexican market. Renewable Energy, 81, 785-794.

Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.

Charter, M. (Ed.). (2017). Greener marketing: A responsible approach to business. Routledge.

DesJardins, J. R., & McCall, J. J. (2014). Contemporary issues in business ethics. Cengage Learning.

Filippov, D. V. (2017). Positioning of the Organization in the Target Markets Using the Modified Three Dimensional Matrix Model on the Example of Transport Education Market of the Republic of Sakha (Yakutia) of the Russian Federation. Advanced Science Letters, 23(10), 9861-9865.

Grande, G., Islas, J., & Rios, M. (2015). Technical and economic analysis of Domestic High Consumption Tariff niche market for photovoltaic systems in the Mexican household sector. Renewable and Sustainable Energy Reviews, 48, 738-748.

Jensen, J. B., Quinn, D. P., & Weymouth, S. (2015). The influence of firm global supply chains and foreign currency undervaluations on US trade disputes. International Organization, 69(4), 913-947.

Kollmann, R. (2016). Forthcoming in: International Journal of Central Banking (special issue on 2015 Annual Research Conference of the IJCB held in Mexico City, November 23-24, 2015) Discussion of" Financial Intermediation in a Global Environment"(Victoria Nuguer, Bank of Mexico).

Martín, A. F., & Meza, F. (2015). Informal Employment and Business Cycles in Emerging Economies: The Case of Mexico (No. 6780). Inter-American Development Bank.

Miranda-de la Lama, G. C., Estévez-Moreno, L. X., Villarroel, M., Rayas-Amor, A. A., María, G. A., & Sepúlveda, W. S. (2018). Consumer Attitudes Toward Animal Welfare-Friendly Products and Willingness to Pay: Exploration of Mexican Market Segments. Journal of Applied Animal Welfare Science, 1-13.

Petras, J., & Veltmeyer, H. (2016). Multinationals on Trial: Foreign Investment Matters. Routledge.

Salacuse, J. W. (2017). BIT by BIT: The growth of bilateral investment treaties and their impact on foreign investment in developing countries. In Globalization and International Investment (pp. 25-45). Routledge.

Subedi, S. P. (2016). International investment law: reconciling policy and principle. Bloomsbury Publishing.

Vagts, D. F., Koh, H., Dodge, W. S., & Buxbaum, H. L. (2015). Transnational business problems. West Academic.

Valdés, A. L., Vázquez, R. D., & Fraire, L. A. (2017). Conditional correlation between oil and stock market returns: The case of Mexico. Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), 7(1).

Walker, D. W. (2015). Kinship, Business, and Politics: The Martinez del Rio Family in Mexico, 1823-1867 (Vol. 70). University of Texas Press.

Wilson, J. H. (2015). American Business and Foreign Policy: 1920--1933. University Press of Kentucky.

Yin, N. (2016). Application of AHP-Ansoff Matrix Analysis in Business Diversification: The case of Evergrande Group. In MATEC Web of Conferences (Vol. 44). EDP Sciences.

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[Accessed 21 May 2024].

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