Country Analysis of Mexico for Telos Systems
MBA 663 – International Business
November 17, 1998
- U.S. manufacturers have an ample supply of raw materials. This is not the case in Mexico.
- Telos and other American manufactures are particularly strong in radio equipment.
- When the Zephyr was introduced in 1993, it combined 4 pieces of equipment into one box. At almost $5,000, it was almost half the price of the competitions equipment.
- Sales for the Zephyr have been strong and consistent over the past 3 years.
- The Zephyr product allows ISDN lines to be used in place of satellite time. Since ISDN is much cheaper than satellite time, this is a great advantage of the Zephyr product.
- Zephyr offers the premier product for doing “voice overs”. This gives those who do “voice overs” access to CD quality recordings from their home.
- A substantial amount of investment would be necessary for another company to develop a product and take over Zephyr’s market.
- Telos present distributor in Mexico is very weak. In four years, his sales have been almost nothing. He has constant excuses revolving around lack of ISDN service and the lack of money in Mexico.
- Presently, the Zephyr is being fabricated in Mentor, Ohio. The main reason for the plateau in sales is the manufacturing facility running at full capacity. The researching of other facilities has begun, but no decisions have been made yet. If more Zephyrs were made, more could likely be sold.
- MCI was making a major ISDN push into Central America this past spring. (John remembered this. I could find no articles to substantiate.)
- NAFTA eliminated import duties. This should continue to give Telos and other U.S. firms an advantage over exporters from other countries.
- In 1994, the market in broadcasting equipment was expected to increase at 10% per year.
- As the Mexican government continues to make concessions for the radio industry, the growth should be sustained.
- Many broadcasting companies will be upgrading older products.
- Because the government is promoting educational classes through satellites, the Zephyr might be an inexpensive alternative to satellites. Often, a Zephyr and an ISDN phone line offers an inexpensive alternative to communication using a satellite
- The next generation Zephyr product is scheduled for release within the year.
- Since domestic manufactures cannot supply the necessary equipment, business opportunities for Telos and other American manufacturers will result.
- An engineering firm, FHG, in Germany provides support in the design of the Zephyr products. This gives a potential home for manufacturing growth in the future.
- The European sales representative used to be employed by FHG. This model might be a model to consider in other growth areas.
- The present distributors in Argentina and Brazil could present opportunities for the rest of Latin America.
- Because of decreases in semiconductors pricing, the Zephyr product will need to be discounted in Europe.
- There are no Japanese manufactures of Zephyr-related products. Although there are manufacturers in the Netherlands, the United Kingdom, and Spain.
- Mexico, and other countries, have lower manufacturing costs than Telos does.
- Spanish equipment is low cost and supported with soft loans from the Spanish government.
- If Telos develops a product innovation that makes the audience for their product larger, they should be prepared for more competitors to enter the market.
- Unless Telos expands its manufacturing capabilities, any growth to the market will leave them unable to reap the rewards.
The growth in the amount of technology available to the Mexican citizen has grown in recent years. As this growth has occurred, the level of sophistication has also needed to mature. The continued focus on raising the quality of education through the use of technology also works in favor of Telos. The standards within the broadcasting industry allow Telos to develop their product without having to make major modifications within each market. This allows them to provide their product to the world from their one location in Northern Ohio. Telos must be take advantage of its distributors and use them as their ears in every company they have distributors. Because Telos does not have a distributor in Mexico, they are likely missing many opportunities. If a competitor of Telos found a good distributor, the competitor could sell their product to the better customers. This would leave the more difficult sales for Telos to sell when they get their distributor lined up.
- Most of Mexico population of over one hundred million is under the age of 25.
- Mexico’s population and its fertility rate of 2.97 children born/woman, makes Mexico the second most populous Latin American country after Brazil.
- Even though the picture of Mexico is often a rural setting, 70% of the population lives in urban areas.
- The literacy rate is nearly 90%; all Mexicans over 15 can read and write.
- Mexicans have a lower gross domestic product per capita than the United States. In 1996, this number was equal to $8,100 U.S. dollars.
- Because Mexicans often do not strive for greater achievement, they are often viewed as lazy.
- The Mexicans refusal to play by the rules is often viewed as defiance, rebellion and a lack of commitment to the organization.
- The Mexican sees the directness and objective approach of Americans as an ineffective management style based on insensitivity and cold heartedness.
- The Mexican does not like the need for foreign executives to be one seen on an equal level. Mexicans typically earn respect because of a person’s power and aloofness.
- Mexicans appreciate Americans making the effort to speak Spanish rather than relying on English.
Most of Mexico’s population has grown up with television. The majority of Mexico’s population will continue to demand additional entertainment resources. Whether this be in the form of Because of Mexico’s youth, companies who provide services that will serve this group should be very successful. The large concern is finding the best method to introduce products into Mexico. The Mexican culture will demand managers who can effectively relate to the Mexican workers. Additionally, the use of distributors will require patience. Finding a distributor that shares your companies values will reduce the level of frustration felt toward the distributor.
Mexico has worked to develop closer relationships with the U.S., Western Europe, and the Pacific Basin. These relationships have led Mexico to participate in the United Nations and a variety of other ad hoc international bodies. The most notable of Mexico’s other membership is GATT and the World Trade Organization. Additionally, a special U.S.-Mexico Binational Commission was established in 1981 to discuss trade, investment, the environment, migration, drugs, and host of other issues. The most outstanding result of this commission was the North American Free Trade Agreement (NAFTA). Despite the many political issues the U.S. and Mexico agree on, Cuba is one they do not. Both countries want a democracy there, but the methods differ.
Mexico is one of the few Latin American countries with a record of stability. Structurally, the Mexican government is very similar to the government of the United States. With a record 78% of Mexico’s registered voters casting ballots, the 1994 Presidential election was viewed as the fairest election in Mexico’s history. The winner of that election, Zedillo, is a trained economist with degrees from Yale University. His victory continued the seventy-year occupation of a PRI party member in the presidential office. As younger politicians replace the older members of the PRI party, the PRI party is steadily losing its influence. The PAN party, which is to the right of the PRI party, now governs four states and has won mayoral races in many cities. The PRI party has also lost its majority stake in the lower house. This is important because a coalition of the two other parties could now outvote the PRI party. Since the lower house controls the federal budget and the investigations of political corruption, this may be a critical factor in Mexico’s future.
In recent years, there have only been a couple of events of political instability. These were the assassination of PRI presidential candidate and the Chiapas riots.
As stated, Mexico is a very stable Latin American democracy. The reforms in the election process will likely allow Mexico to continue this stability. Despite the stability, two concerns remain. First, as Zedillo reaches the end of his six-year term in the year 2000, the financial crisis that accompanies the end of a Presidents term is likely to repeat itself. Second, the emergence of the two secondary parties could cause some disruption within Mexico. Of the two emerging parties, one is to the left of the PRI and one is to the right. This gap may not allow them to form any strong coalitions, but now that they have the ability to do so, it is a concern.
Mexico has been referred to as a “Big Emerging Market” (BEM) by the U.S. government. A BEM has a large population, a large market for products, and a high level of regional importance. A BEM is also expected to have a better gross domestic product (GDP) rate and a higher level of imports. BEM’s are thought to be the place of fastest growth beyond the turn of the century. This coupled with the 2,000 miles of shared border makes Mexico a major trading partner.
Shortly after President Zedillo took office in December 1994, he devalued and floated the peso. The frailty of the Mexican economy became apparent. To counter the crisis that ensued, some tough austerity measures were initiated. Additionally, loans were sought out from both the International Monetary Fund (IMF) and the United States. These programs helped prevent spiraling inflation, but they drove interest rates up. These interest rates caused many small businesses to fail. They also led to dissatisfaction with Zedillo and the PRI party. Despite these concerns, the end of 1996 found all major sectors of the economy experiencing healthy growth. When Mexico paid its U.S. loans off three years early, Mexico’s financial health was greeted with optimism.
The Zedillo administration, which will leave office in 2000, is moving beyond the recent peso crisis. It has made proposals to support Mexico’s strong and steady economic growth. It is hoped these proposals will lessen the severity of the economic crisis that is a normal part of the changing of administrations.
Unfortunately, the banking system remains a weakness within the Mexican economy. The opening of foreign banks within Mexico should promote competition which should improve the entire banking system. After the peso crisis, the Bank of Mexico announced two measures that effected the peso exchange rate. Both measures seem to be laying the groundwork for the establishing of an informal band for the exchange rate.
The economy of Mexico, although challenged recently, is moved toward improved stability. The presence of an economist in the presidency has been as asset during the peso crisis. The devaluation of the peso will continue to make Mexican exports very attractive. As Zedillo’s term ends in 2000, it is hoped that the programs he has initiated will temper the affects of changing of administrations. The Mexican economy begs some caution, but it also shines with opportunity for the well-positioned business.
Mexican distributors of radio broadcasting equipment sell by visiting potential customers and providing them with brochures and catalogs. A good distributor is expected to provide counseling and equipment demonstrations. Purchases are typically made after getting recommendations from other end-users. The distributors sales force usually includes technicians and engineers with a background in communications. The chosen distributor is responsible for installing, testing, and maintaining the equipment. The distributors are also expected to provide spare parts. End-users typically form strong relationships with their distributors, and they usually do not change distributors. A distributor is expected to provide technical advice and respond quickly to questions.
There are a few things that are necessary to reach the appropriate customers within Mexico. First, many Mexican end-users of broadcasting equipment attend American trade shows such as the annual National Broadcasting Association Conference and Exhibit. To reach these individuals, there must attendance at these type of events. Second, manufactures of radio broadcasting equipment usually publish newsletters for distributors and end-users. Third, although other publications can be successful, the main publication for the industry is the Directory of the Radio and Television Industry Chamber. Fourth, advertising in the yellow pages is very common. Although participating in local trade shows is not a necessity, attendance at the Chambers major trade show is suggested.
Mexico does have labeling requirements that must be complied with.
Of the roughly 37 million Mexicans in the labor force, 37.1% work in the services industry and of those who work in maquiladoras, 11% work in the electronics sector. As NAFTA is phased in, the maquiladoras industry will cease to exist. NAFTA has allowed over 60% of all goods from the U.S. to enter Mexico duty-free. Besides trade issues, NAFTA also provides patent protection for inventions that are manufactured in Mexico. NAFTA will eliminate Mexico’s widespread performance requirements that discouraged foreigners from investing in the past.
The United States is responsible for over 60% of the total foreign direct investment(FDI) in Mexico. New laws, however, may change this. Export requirements and “proportion of Mexican content” requirements have been eliminated.
To be successful in Mexico, Telos needs to have a true presence there. Until Telos has a recognized distributor, no end-users are going to be switching from existing distributors. Telos needs to circulate newsletter written in Spanish to the radio and television industry in Mexico. Without these efforts and many others, the buying habits of the Mexican broadcasting industry will not shift to the Zephyr and other Telos products.
Modes of Entry
- Telos can take advantage of efficiencies within present northern Ohio facility.
- Telos will have additional expenses due to the greater shipping charges.
- Although trade barriers are often a problem, there are no real trade barriers with Mexico.
- If Telos decides to export, finding a distributor who has broadcasting as well as telecommunication experience may be difficult.
- Because Telos does not have much experience with the Mexican marketplace, Telos will be able to take advantage of the marketing and managerial skills of the venture partner.
- Mexican government approves of joint venture arrangements.
- Telos will minimize its risks and development cost.
- Telos will lose some control over the technology. This could create an eventual competitor. An option might be a joint venture with a majority ownership.
- Telos may not be able to pull together the elements that have made them successful at their Ohio facility.
Wholly owned subsidiary
- This is the best option if a company with a technical competency has a desire to build an international facility.
- Telos would be able to fully protect its technology.
- Because Telos would be in full control of the facility, they would be able to create the same location and experience economics they possess in Ohio.
- Telos would be responsible for all expenses and risks associated with the subsidiary. To reduce some of the risk, Telos might consider acquiring an existing company within Mexico.
Presently, Telos only has one corporate facility. Because Telos presently has no other facilities within the U.S., they should not open a facility outside of the U.S.. If they had already opened another facility, a facility in Mexico would be a much better option. The non-existence of skills that would allow Telos to manage at a distance are the central issues. Besides this point, Telos has had previous success with a network of distributors. The previous success in finding distributors makes this choice the clear winner. The additional cost of shipping the product will be absorbed much more easily than the cost of facilities in Mexico. If Telos has a difficulty finding a distributor in Mexico, it may consider working with one of its distributors in either Brazil or Argentina. Because of cultural similarities, one of these distributors may be able to give Telos the boost it needs in Mexico.
The contacts were developed from a great quantity of Internet research. I posted to newsgroups and bulletin boards, but I received no responses. The difficulty in posting to any of these sources was finding a resource that was specific enough to reach members of the group I was attempting to find. Additionally, if my Spanish skills were better, I could have effectively eliminated candidates from the directory lists. Because of this limitation, I was often forced to settle for directory listings rather than specific distributors.
The attached pages (Appendix A, B, C, & D) came from resources at the Export Hotline and from a variety of Internet searches. Appendix A is an especially good find. It includes distributors, newsletters, trade shows, and organizations that are all catering specifically to the broadcasting industry.
The variety of categories in the headers below is my best attempt to break out the URLs and internet contacts I found.
- http ://nautel.com/mex.html
Sucesores JL, S.A. de C.V.
Orizaba No. 43, Col. Roma
06700 Mexico DF, Mexico
Contact – Jose Luis Gonzalez
Email – firstname.lastname@example.org
Serving – Mexico
- Appendix A, p. 14.
- Appendix B, p. 19.
- Appendix C, p. 1.
Radio Stations and Television Stations
Lucent Technologies Network Systems
Bosque de Cidros
Bosques de Las Lomas
Del. CUAJIMALPHA 11700
Mexico, D. F.
+525 258 7511 phone
525 259 5193 fax
PR Manager: Patty Ortiz
+525 258 7578
+525 259 5576
“Mexico-Television & Broadcasting Equipment”, from www.exporthotline.com. Prepared by Javier Flores in October 1994. © 1995 International Strategies, Inc.
“Mexico – Investment Issues”, from www.exporthotline.com. © 1998 International Strategies, Inc.
“Radio and Television Stations”, from http://www.inegi.gob.mx/homeing/estadistica/infraestructura/communicaciones/com-3.html
Interview with John Casey, VP of Telos, conducted 11/12/98 via telephone.
Ohio Export Assistance Network, Inc Profile on Telos Systems, completed by Kim Holizna.
Interview with Kim Holizna of Ohio Export Assistance Network, Inc., conducted 11/8/98 via telephone.
Telos website at www.zephyr.com.
“Mexico-Overview”, from www.exporthotline.com. © 1998 International Strategies, Inc.
“Mexico-Selling to Maquiladoras”, from www.exporthotline.com. Prepared by Maria Elena Gomez Montoy in September 1996. © 1998 International Strategies, Inc.
“Mexico – Points Of Comparisons: The Social Perspective”, by Dr. Marc I. Ehrlich, from http://www.mexconnect.com/mex_/erlich1.htm
“Mexico-Telecommunications”, from www.exporthotline.com. Prepared by Javier Flores in February 1995. © 1995 International Strategies, Inc.