EXPANDING COSMETIC BUSINESS IN MEXICO. A BUSINESS PROPOSAL FOR THE COSMETIC COMPANY TO ENTER THE MEXICAN MARKET

A BUSINESS PROPOSAL FOR THE COSMETIC COMPANY TO ENTER THE MEXICAN MARKET
Case company: XYZ Cosmetics
Institution
Date
Introduction
Domestic market success and increasing profit margin are some of the driving factors behind XYZ Cosmetics Company's quest to venture into the international market. The company is looking to expand its coverage and growth in new and emergent markets which offer new opportunities for marketing products at low cost. The high demand for cosmetic products in the Mexican market, the growing friendly business environment and the low labor cost that Mexico offers. To successfully enter the new market, it is imperative that the company acquire insights into the Mexican market through thorough research and collection of information about the market.
Information pertaining country profile, language, economy, diversity, infrastructure, banking sector and access to credit, local culture, local business environment, legal issues, the judicial system, legal action procedures among other are critical information. Another important analysis is the country risk analysis which takes the form of economic, social and political analysis of the country. It is, therefore, imperative for XYZ cosmetic company to familiarize itself with target market environment. Failure to familiarize with the target market, culture, customer needs, business culture and completion might lead to a poor strategy which will result in losses in the long term. The purpose of this proposal is to examine the Mexican market and provide an in-depth and informed analysis that will form the basis of XYZ Company's entry into the market.
Company profile
XYZ is a cosmetics company founded in the United States in the year 2000. The founder Mark Taiwan is also the current chairperson of the board. The company specializes in manufacture and distribution of cosmetics products to middle range consumers in the American industry. The company holds 20 % domestic share and is looking up to the international market for growth.
Vision: to be a leading producer of safe and quality cosmetics products that resonates with the both the current and future generation of consumers. Mission: to be competitive, and offer safe products while using environmentally friendly production mechanic to ensure sustainability for production. Values: Professionalism, customer first, innovation, safety, social responsibility and leadership.
Country presentation
This section analyses the overall factors that may influence business in Mexico. From infrastructures, local cultures, legal issues to consider, economic outlook, diversity, and banking sector.
Mexico is twelfth in the world regarding size and occupies an area of 760 square miles, in the southern part of North America. Its geographical features are a mixture of tropical lowland, jungle high alpine vegetation, swamp, and desert. More than half the Mexican territory is 3,300 ft. in altitude. The political and economic block of the country is found in the southern part which stands at a latitude of about 7,500 feet making it one of the highest cities in the world. The average mean temperature of the city metropolitan is seventeen degree Celsius with an occasional low of up to zero degrees Celsius.
Mexico is considered the most populous town in Latin America with a population of one hundred and twelve million inhabitants. The urban cities in Mexico represent over seventy percent of the total population of the country. Mexico City is the capital and consists of the largest and most populated area. Spanish is the national language that is used by almost everyone although some indigenous tribes do not understand Spanish and use local language. The business community in the cities and those bordering the United States are all conversant with English. Mexico enjoys religious freedom with Catholic the dominant church. Mexican labor is cheap, and this has been occasioned by gainful employment problem, underemployment is high, and the job market is dominated by unskilled labor.
General economy
The Mexican economy is mixed. Government and government agencies owned majority shares in petroleum, public utilities, and telecommunication. Private enterprises, however, control manufacturing, mining, commerce, entertainment and other service industries like construction and tourism. Mining, financial and industrial sectors are dominated by foreign investments. The ever growing economy provides the significant market for the economy. However, the proximity to the United States also presents an opportunity for export of both manufactured and semi-manufactured goods. Oil production and export taxes form a substantial portion of government revenues.
Mexico foreign debts stand at USD$146.8 billion as at April 2014 (Bruhn, 2011). Mexico is current in repayment of debts and also has an international reserve of USD$188.8 billion enough to offer a buffer for the debts in the future. The inflation rate is at 3.75% (Hoekman & Nicita, 2011). Main resources include mineral and energy. Mexico is considered the tenth world exporter of crude oil. The significant working population of the Mexican economy is engaged in agriculture. The number contributes to about 154%, and this underscores the role agriculture plays in the economy (Bruhn, 2011). Other sectors of the economy are manufacturing, which include automobile, steel, textile, food processing, and breweries. The service industry is a major contributor to the country GDP with most commercial banks, and telephone service providers, and wholesalers' trades held by foreign entities.
Bays and extensive coastline provide the site for tourism activities, and Mexico handles more than twenty-three million tourists per year. Transport system includes privately owned airlines, paved highways and national railroad network that are being operated by private companies. Mexico relies heavily on foreign trade to acquire machinery and service its massive external debt. Major contributors to international revenue are crude oil export and natural gas. The United States remains Mexico most significant trade partner receiving over eighty-five percent of exports from Mexico and also shipping almost by a similar margin.
Local business environment
The federal law, known as the general law of commercial companies provides several companies that can be formed with entry into the Mexican market. These companies have different legal and tax treatment. These options include Sociedad Anónima (S.A.) and (S.A. de C. V.), a limited company model that incorporates Limited Liability Stock Corporation and can either take the form of fixed Capital Company or variable capital company. The essential characteristic is that the shareholder's liability is limited to their stock interest in the enterprise, and the directors are fully responsible for the diligent administration of the company.
Another option is the Sociedad de Responsabilidad Limitada (S. de R.L.), this type of limited company is used mainly by foreign companies who want to reduce tax liabilities in the United States ("Doing Business in Mexico - World Bank Group", 2016). For tax purposes in the United States, this type of limited company is viewed as a partnership. Partners liability is limited to partnership interest in the enterprise. The tax rate is standard corporate tax of 34% and directors will be fully liable for the diligent administration of company (World Bank Group, 2013). Sociedad en Nombre Colectivo (SNC) is a general partnership entity and enjoys many tax advantages.
However, the disadvantage when it comes to obligation and debts, all the partners has limited liability. It is not a commonly used corporate form in Mexico. XYZ can also operate through Mexican branch that is having Mexican offices in Mexico. This will enable the company to retain its liability characteristics form motherland as the Mexican government thoroughly reorganizes foreign companies. The legal requirement for such an arrangement is that they must be approved by the national commission of foreign investment and the ministry of foreign relations and must be registered with the public registry of commerce. Alternatively, it can opt for a joint venture agreement, liability of a joint venture and tax treatment depends on the exact type of business venture taken by the joint venture.
Mexican businesses are always seeking to establish a long-term relationship with their clients, and negotiations are always intense but well calculated. Their negotiations are strategized towards creating a long-term business relationship. They judge businessmen by their ability to negotiate. It reflects on the investor's company, character, and abilities as a business person. The negotiations cut across from school yards to board rooms and share similar characteristics. Most of the time the Mexican culture is lenient on deadlines and time, and they do not engage in hurried negotiations.
Local competitors in Mexico favor foreign investment as they view them as a chance to strengthen their private sector. Most Mexicans support opportunities to enter into joint ventures with foreigners. Most successful Mexican industrialists prefer a joint partnership with foreign companies as they offer new technology and also act as technical partners. The locals, on the other hand, prefer to take up the local administration, marketing and supervision of the ventures. As far as labor is concerned, organized labor do not oppose foreign investment. In fact, most labor organization view companies with foreign capital base or foreign-oriented companies as more amenable to collective bargaining power.
Local cultures and diversity
Mexico is characterized by diverse cultures. Class differentiation is primarily caused by unequal distribution of wealth. Mexicans express their diversity and distinctions in numerous symbolic ways. The affluent class is mostly identified with conspicuous and grandeur consumption. Mexican middle class is always in a rush to demonstrate to the world their aspiration, investing in expensive items to the detriment of simple needs. Wealthy Mexicans indulges in international dress standards and wear expensive cosmetics, jewel and watches.
The Mexican business culture is anchored on trust and relationships built over time. They prefer to do business with known persons and not impersonal organizations. Mexicans mix business with work and always carry out business deals over luncheons and breakfast. Sometimes they invite partners into their homes. This enables them cement trust built over time. Their dress codes are mostly conservative and prefer suits and dress in formal settings. Keeping hands in pocket according to Mexican culture is impolite and standing with hands over the hips is also considered aggressiveness. It is wrong to make eye contact in Mexico, at the same time; Mexican men make a lot of physical contacts and may be touchy in the process of conversation. Withdrawing from their touch is considered insulting.
According to the law, both men and women are the same. However, women have been relegated to subordinate when it comes to family leadership. Whereas it is the women who play a crucial role in the household, it is the men who head these families. The situation is replicated in the job market with the ladies mostly doing underpaid and unregistered informal jobs while their male counterparts dominate the skilled labor market.
Infrastructure and banking sector
Major infrastructure in Mexico includes a privatized railr...