Mexicos economy is recorded the 13th largest worldwide in nominal terms and records 11th largest in terms of purchasing power parity as per the International Monetary Fund. Furthermore, the country has a 1.26 trillion dollar economy and is considered a middle power economy just a few steps to becoming a G7 economy (Cardenas, Ocampo & Thorp, 2016). This economic power has made it a potential destination for most developing industries from all continents.
According to Villarreal (2012), Mexico has a gross population of 122 million inhabitants making its GDP per capita income about 10,000 dollars. This further elevates it to the upper class of the middle-income countries. This GDP per capita adjusted for purchasing power becomes roughly 16,000 dollars as it is about 60% higher. The above purchasing power places Mexico in the same bracket with countries like Brazil, Roman, and Turkey although still lags below countries like Switzerland and the U.S with purchasing powers of 58,000 dollars and 55,000 dollars respectively.
Mexicos economic growth was projected to be at 3.5% by 2015, which more or less rhymes with the compounded average annual increment in the years that followed the 2008-2009 global financial crisis (Cardenas et al., 2016). Previously, the growth was roughly 4-5% per annum. Mexico faced its last extreme economic crisis in 1994.
The Mexican economy, despite the favorable forecasts, has in the recent years faced a reasonable number of challenges. In 2013 Mexicos growth rate was below 2% and below 3% later in 2014 (Carvalho and Grassi, 2015). One of Mexicos challenge is "the end of commodity super cycle which is the falling in the price of commodities that are important for Mexicos export income.
Story (2014) posits that the rise to power of Enrique Pena Nietos government in 2012 brought about the ambitious reform agenda as many considered it. The agenda entailed a revision of the taxing systems, reductions in the government expenditure, and liberalization of some economic sectors like telecommunications and energy.
Mexico has in the past been considered a commodity and manufacturing boss with the largest known silver reserves worldwide oil reserves that rate tenth largest. PEMEX, an oil company, owned by the Mexican state, is one of the world's largest oil producer with about 130 billion worth of revenues (Villarreal, 2012).
Of late, Mexico has gained competitiveness in automobile exportation due to less favorable terms of trade and constantly rising wages. Giant automotive companies have recently increased their production in Mexico if not announced their intentions to (Carvalho and Grassi, 2015). Some of these companies are Toyota, Ford, Nissan, Volkswagen, Fiat Chrysler, and General Motors among others.
By gaining membership in the North American Free Trade Association (NAFTA), Mexico has become one of the largest trade partners of the United States. Mexico mostly exports industrial goods, automobiles, and manufactured goods (Peach & Williams 1999). Mexico has become one of the greatest holders of the United States treasury bonds by having a positive trade balance with the U.S.
Peach and Williams (1999) argue that in 1994 Mexico became the first country in Latin America to join the Organization for Economic Co-operation and Development (OECD). Mexico registers as the OECD country with the second highest degree of economic difference between the poor and the rich after Chile. The upper 10% of the income rung disposes of 36% compared to the bottom 10% that disposes of 1.36% of Mexicos resources, and the informal economy, with almost 60% active workforce, contributes 26% of GDP (Story, 2014).
The specific indicators that were key in assessing Mexicos economic condition include the GDP growth rate, the unemployment rate, the interest rate, the inflation rate, the government debt to GDP, and the balance of trade (Sanchez Yanez, Ramirez, Day, & Templet 2004).
The most important specific indicators when considering Walmarts division are unemployment rate and interest rate. The unemployment rate would influence the market for Walmarts products and services. The low unemployment rate suggests a wider market with higher purchasing power to buy our companys commodities.
The interest rates in Mexico would also be important as our company has to offer interest rates that are both sustainable and suitable to Mexicans. We would have to adjust our interest rates with those of our competitors so as to win more customers. As a new company in Mexico, we might have to offer better interest rates than our competitors who are already established in Mexico.
The Current Business Cycle
In the U.S Walmart Company is in the expansion stage of the business cycle, almost at the peak stage. This company has grown over the last 50 years from a small mall to be the largest worlds retailer with a chain of hypermarkets, grocery stores, and discount department stores. Carvalho & Grassi 2015). Walmart has grown tremendously over the years with increased technological innovations helping in coverage of a wide market online.
The legal/political environment in Mexico has been favorable for Walmarts growth, engineered by good trade relations (Carvalho and Grassi, 2015). The growth of internet shopping as customers receive fast deliveries, friendly site designs, efficient order fulfillment, and professional customer response. Walmart guarantees availability of all commodities any time hence flourished in its convenience.
Walmart is currently in the trough stage of the business cycle in Mexico. This is because the company is almost starting from scratch and has to invest heavily to earn customer loyalty. The company will face intense competition from strong established competitors in Mexico. There is a high likelihood of the company to go to expansion stage of the cycle as the unemployed lot prefer discount stores to full-service stores. Mexico has a considerable population that is unemployed, and residents' purchasing power is lesser than in the U.S.
Walmart has a good historical trend and has invested a lot in a long-term expansion that has been enabled by good trade relations and increased internet services. This has increased its consumer coverage and helped with convenience in its operations hence consumer loyalty. The company has also invested in technological advances to stay ahead of competitors.
Walmart has invested by increasing retail units all over the world offering a variety of commodities ranging from agricultural products to manufactured goods. Walmart has been recorded less volatile cycles maintaining the exponential phase almost all through. The firm started and excelled on the principle of selling at low costs and has maintained to be almost in the expansion stage all through.
Walmart is likely to continue growing even in Mexico as there are opportunities to thrive. The company has a visionary management, and its investment in the technological aspects will assure it will always stay ahead of its competitors with services like internet shopping. With the introduction of anti-theft tags in the products and packaging, Walmart can fight customer theft.
Matsa (2011) argues that to ensure the continued excellence of the company amidst challenges, the company should be positioned in a high growth settlement that has a customer base that prefers online shopping. An example is near learning institutions with more youths. It should also be centrally in the country with ease of commodity transportation to reduce overhead costs. There should also be retailer units cover a larger market.
Most Relevant Economic Indicators
The most important economic indicators to monitor when setting the company are the GDP growth rate, unemployment rate, and interest rate (Griliches 1990). The balance of trade is an important indicator since an unfavorable balance of trade would mean deficit while a favorable balance of trade would mean surplus (Matsa, 2011). The company would flourish in a country with a deficit as this presents an opportunity.
The GDP growth rate influences GDP per capita that translates to purchasing power hence potential market. The interest rate in a country is important as it influences what interest a company can offer to compete with other industries while making a profit.
These indicators should be monitored yearly to assess changes in the market. A lot of factors influence these indicators, and it would be necessary to revisit them after every financial year. Some factors like population change would affect GDP growth rate hence need for continued monitoring.
Mexico is a middle power economy and has grown substantially over the years with residents having a reasonable purchasing power. In setting a division in Mexico, Walmart has to consider specific economic indicators that influence the market. Walmart has been in the expansion stage of the business cycle registering least volatility.
The company's division in Mexico should be positioned in a high growth settlement with a customer base known for online shopping. The most important economic indicators, the interest rate, the balance of trade and GDP growth rate should regularly be monitored to keep track of the dynamic market.
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Matsa, D. A. (2011). Competition and product quality in the supermarket industry. The Quarterly
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Peach, J. T., & Williams, J. (1999). Population and economic dynamics on the US-Mexico
border: past, present and future. Cedra.
Sanchez-Gil, P., Yanez-Arancibia, A., Ramirez-Gordillo, J., Day, J. W., & Templet, P. H.
(2004). Some socio-economic indicators in the Mexican states of the Gulf of Mexico. Ocean & Coastal Management, 47(11), 581-596.
Story, D. (2014). Industry, the state, and public policy in Mexico (Vol. 66). University of Texas Press.
Villarreal, M. A. (2012, January). US-Mexico economic relations: trends, issues, and
implications. Library of Congress Washington Dc Congressional Research Service.
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