Country analysis and risk assessment report Essay
This paper is about establishing a joint venture with a Mexican company to export packaged mangoes. It highlights the pros and cons of doing business with the country and the problems that might be faced. It also focuses on the policies, labor, and laws grading standards and business culture so that business may be conducted between the two countries in the best possible way Introduction United States has an increasing demand for tropical fruits and each year we witness an upward trend in imports. Out of the many tropical fruits we choose mangoes because the demand for mangoes is expected to increase in the US.
Though the demand is still low, it is particularly popular among cities with high Latino and Asian population. However, mangoes are appealing to a wider population and imports are expected to increase by 7% every year. Suppliers We favor importing mangoes from Mexico as it is one of the top ten countries producing tropical fruits in the world. Though several tropical fruits like papaya, lime, avocados and pineapples etc, are grown in the country, Mexico is the largest producer of mangoes in the whole of Latin America and Caribbean. Since the country has a wide diversity
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Currently Mexico grows mangoes in over 164,582 hectares producing about 1118,253 tons annually. Out of this, 12% is exported USA being the main export market. Another reason why Mexico is a favorable country to import from is because its mango production is expected to increase to 1. 9 million tons by 2010. Prices Since Mexico can produce mangoes through most of the year, even though the prices of mangoes is elastic in most nations, we can make the price more stable with a somewhat consistent supply as supply stretches from March –September.
The price at which we will get mangoes from here will be very competitive and will enable us to have a lot of profit. Grading and Standards Mexican Mangoes Exporters’ Association has suspended the quality inspection at the border which may facilitate imports and save time. However there are basic quality controls that have to be followed as defined by the United Nations ECE Standard FFV-45. The mangoes should be intact and free from any foreign body, should not have black stains on them, should be fresh in appearance, clean, should not be marked or bruised, free from foreign smell and external moisture.
There are 3 basic classes defined by the UN/ECE mango standards. Since the establishment of NAFTA in 1994, there have been many positive changes in Mexico for trade development. Investment rules and regulations have been established, tariffs have been significantly reduced, created dispute settlement mechanism, improved protection of intellectual property rights. US goods enter Mexico practically duty free which means that any sort of machinery required for packaging or specific packaging Materials can be sent without additional cost.
Most agricultural Mexican products, including mangoes, entering the US are free of tariffs. Entering a joint venture with a local firm in Mexico will give us an edge over other importers in the US. This is because we will form a joint venture with XYZ which is the largest producing brand in Mexico. They follow the standards set by the government, their quality is exceptional and we will have exclusive rights on their brand for the period of the joint venture. If this venture turns successful, we can extend it to several more years.
Since XYZ has to increase their production, we will acquire more farms for them on lease. We cannot own land in Mexico however we can have beneficial interest in the lands that we will be leasing under a Mexican trust. XYZ will employ locals to maintain the quality and standards checks ensuring there is exceptional disease and pest control. We will bear any additional costs like labor, materials for packaging, transport costs though XYZ will be using their resources to the maximum. They require basic investment from us as they cannot sustain such a big export supply on their own initially.
Since mangoes are perishable and bulky, we have to adhere to strict specifications of packing them to maintain quality. Also, depending on the urgency of supply the mode of transportation has to be by truck, train or shipping. XYZ is located within close proximity of both the port and the station. Location Is Mexico is ideal for trade because traveling easy. Managing the joint venture from the head office in the US will be easy as commuting not an issue. All modes of transport can be used and management can go there instantly if there is a need to.
Also, we are going to trade in mangoes which are perishable thus Mexico facilitates quick and easy transportation of the products to the market. Once the harvest of the fruit has been done, all products will be stored in the warehouse which is especially designed for the purpose. Here the sorting and the packaging of the products take place. Once this is done, depending on the order, the supplies are transported accordingly. Our managers can shuffle between the two regions easily especially at the time of harvest so that we have maximum control over quality and grading of the products. Labor
We will be controlling about 500 employees in after the joint venture in Mexico and it is essential to know about their rules and regulations. The Mexican workforce is young, energetic and cheap. They are generally hard workers and can be very efficient with proper training programs. However, the younger workforce is much more flexible towards new management than the old workforce. Employee relations are regulated by the Mexican Federal Labor Law. The employers are required to share a percentage of profit with employees. They are also required to file the employees’ income tax returns.
Plus they have to get Christmas bonus, paid holidays, holiday premium and all legal holidays. Employers have to give training to all employees and the training programs have to be approved by the Ministry of Labor. There is a ceiling of minimum wages for every category of workers. The law requires employers to pay a small percentage towards their housing. Besides this, pensions, over time, maternity leave have to be granted. Labor Union Legislations allow a firm with more than 20 employees to form unions. The contracts of the unions are revisited every 2 years.
Unions have the right to go on strike during negotiation and other conflicting situations, strikes in general are common. Unions may also strike in sympathy of other unions that are on strike which results in a plagued general strike. Government labor regulations mostly favor the interests of the labor in case of legal interpretation. Intellectual Property We will require coverage by the Industry Property Law and the Copyright Law for the new technology we will be introducing for packaging and sorting. Also, our brand has to be protected by the law to avoid forgery.
Mexico has a strong law regulating this which other developing countries don’t have. Tax Laws There is tremendous difference between the tax laws of the two countries. Mexican tax code is modified every month which means that accountants have to be updated and trained regularly and they have to be proficient in their knowledge of the tax codes. The problem with Mexico is that it has a huge underground economy with approximately 60% of the commerce and services are not registered with legal authority. This enables them to evade taxes. This in turn pressurizes the businesses registered legally.
The legal authorities instead of focusing on the non registered firms divert all their attention to the registered firms there by making it very difficult for them. This has created a lot of controversy and some even suggest that there is “fiscal or tax terrorism”. Thus we will be facing this problem and therefore we have to have a very sound audit system which is clear and transparent. Business etiquettes There are stark cultural differences and the Mexican business etiquettes have to be mastered before we begin business with them. The foremost thing to do is to learn Spanish.
It doesn’t have to be business lingo but one should be able to hold a conversation over a meal in a relaxed environment. This will encourage a friendlier relationship and strengthen business ties. Since we will be having a long term relationship, language will only be a barrier. Associates are not addressed by their first names initially. They are reserved for family and friends. Mexicans are family oriented. Being invited to a casual family gathering is a good start for business and one should not miss it. Also, they do business with people they trust.
Thus it is essential that attention is paid on strengthening personal relations with them and developing the trust factor. One has to be very familiar with culture and interpersonal skills have to be culture friendly. This is more important than your professional skills. People should be addressed by heir respective titles like a doctor etc, and if they don’t have one then they should be addressed with. (Senor), Mrs. (Senora) or Miss (Senorita) before their sir name. It is common for men to shake hands with men but men should wait for women to initiate a handshake.
Women pat each other on the right forearm or shoulder. After a relationship has strengthened business associates may even hug each other. It’s always better to confirm the time before a meetings as they are punctual and businesses are generally conducted on time. Conclusion Mexico seems to be a good option for a joint venture. This is because the location is convenient, it has quality products and they can easily meet our demands over a larger stretch of the year. The price at which we get the mangoes is cheap and will profit us tremendously when we supply the product in our markets.
We can even think on the prospects of exporting to other countries if we can have a healthy and profitable relation with Mexico. However, we have to be careful about the legal formalities involved and have to make sure that we adhere to the legal framework. Also, we have to be weary of the underground business mafia that prevails and be careful about who we trade with. We should also concentrate on establishing a healthy relationship with the locals so that trading with them becomes easier and long-lasting. References
Iwan, Lee (2006, June) How to do business in Mexico, Website: http://leeiwan. wordpress. com/how-to-do-business-in-mexico-parts-1-28 Urrea, Wong JM; Nuno, S. Ontiveros, The Mexican Mango Industry: Quest for Quality, Website: http://www. actahort. org/books/455/455_7. htm Winsor, Anita (1994) The Complete Guide to Doing Business in Mexico, Amacom Books Division Nevaer, Louis E. V. (1996-2006) New Business Opportunities in Latin America: Trade and Investment After the Mexican Meltdown, Quorum Books. Mangoes from Mexico, Website: http://www. hortalizas. com/eng/freshmexico/mangos. html