Abstract
The primary purpose of the above paper is to understand how business organizations can venture into a foreign market and the different aspects considered. Red Dragon is a four-star hotel based in the UK and wishes to expand its business operations to foreign markets characterized by more opportunities for the company to prosper. The paper starts by appreciating the fact that managers of the present century need to have the capacity to manage people from a multi-cultural environment so as to adequately realize the organizational goals. The study reveals that there is a range of factors that need to be accomplished before an organization ventures into a foreign market. In the paper, PESTLE analysis instrument is used in the analysis of the external environment of Mexico City and an evolution of the same if it supports the hotel industry. It is evident from the study that the hospitality industry in the world has experienced rapid growth and Mexico being a significant tourist attraction destination; it is a potential market for the establishment of Red Dragon hotel. Apparently, the study reveals further that tourism plays an essential role in the prosperity of the hotel business across the globe. The paper further appreciates the fact that knowledge transfer plays a significant task in the establishment of international business operations. However, conducting a market due diligence is one of the issues that should not be assumed by any company that wishes to go global. The paper further indicates the rational for multinational corporations to understand the various cultural dimensions of the foreign countries where they wish to invest their business. Finally, based on the PESTLE analysis of Mexico City, the paper concludes that the environment is conducive to support the consistent growth of the hotel industry and efforts to introduce the four-star hotel in the country should proceed.
Introduction
Globalization is real in the current generation characterized by multinational companies that conduct their businesses on an international scale. Managers working in the diverse setting of multicultural composition need to embrace best practices that are carried out in different nationalities. Moreover, managers of the 21st century have a mandate to manage people from different nationalities and cultures, a feature that requires learning how to cope with such challenges (Kotsaga, 2015 p. 214). Furthermore, the varied challenges experienced as a result of cross-cultural management come with more expansion of the business to the international market as companies seek to invest in new markets. One of the obstacles renowned for preventing an efficient running of international businesses is language barrier, and the concept is a real menace as different managers and employees in a company need to communicate so as to respond efficiently to achieving organizational goals. This has made many multinational corporations to adopt English as their primary form of communication, a move that is not appreciated by the non-English native speakers. However, to solve such issues of communication, managers need to reinforce communication so as to ensure that every person has a harmonized understanding (Sizoo, Serrie & Shapero, 2010 p. 9).
Problem to study
Different companies across the globe want to venture into foreign markets but are worth understanding that there are various aspects taken into consideration. Red Dragon Hotel is a multinational corporation investing in the hospitality industries, and the purpose of this study is to indicate how the firm can achieve its objective of extending its business in Mexico City. The paper will analyze the different benefits associated with the country, which is a potential hub for the four-star hotel through conduction of a PESTLE analysis.
Hospitality Industry around the World
It is imperative to appreciate the fact that the hospitality industry around the globe is growing at a fast rate and acts as the vital service sector. Research studies indicate that tourism plays an essential role in the development of the global economy, an area closely linked to the hotel industry (Camillo, 2015).
Hospitality industry in Mexico
The tourism sector is well developed in the city and Mexico is considered as a significant destination for foreign travelers in Latin America. Internationally, the City is ranked the tenth position as a tourist's destination, an aspect that makes it an ideal area for establishing the Red Dragon hotel. The tourism sector has a significant impact on the development of hotel industry and according to research statistics, it is evident that the sector accounts for 13.2% of the country's gross domestic product as per the 2008 report, and the annual increase is estimated at 8% (Adekola & Sergi, 2007).
The issues of globalization and internationalization
The decision made for Red Dragon Hotels to expand their business into Mexico, which is a foreign country, must adequately satisfy the internalization strategy. There are many privileges presented in the new market which the company will benefit from such as getting new consumers for their products, and ability to get joint ventures with foreign partners to help expand their business among other benefits (ERSOY, 2014 p. 6160).
The world economy is characterized by technological innovation, a feature that has significantly enhanced the production capacity of various organizations in the market. Apparently, the aspect of globalization helped countries overcome the different trade barriers which existed in the past, and this has been impacted positively and negatively to different economies although to a limited extent. The Mexican economy has experienced adoption of new trade models, which have significantly played the role in encouraging international competition. Moreover, the move came with new economic policies that led to the reformation of the different Mexican companies, enhancing international trade with the rest of the world.
Rationale for international expansion
As mentioned earlier, there are numerous benefits associated with the globalization of business operations, as it results in reduced costs of operations and a chance to enter a new market and obtain new consumers. Therefore, the opportunity for Red Dragon to expand its hotel business in Mexico will offer the organization an opportunity to get access to a new class of customers and new opportunities in the new country that will impact positively on the business performance.
Planning for international expansion
With the concept of globalization, different companies seek to expand their business to different parts of the world based on their prioritization on which countries to enter. Apparently, different markets look appealing to entrepreneurs mainly due to significant market share and low costs of production experienced in such places. However, it is a requirement that the contractors should conduct a thorough evaluation of which country to do business based on their various merits, a task achieved through effective investigation of the new market, research and adequate planning on the same. (Lim & Noriega, 2007 p. 70)
International market due diligence
The concept refers to the process of conducting a thorough analysis of the foreign market to identify the potential size of the new market, accessibility, and the current operational costs and the various practices carried out in the market. Some of the important instruments used for the above evaluation include the use of PESTLE analysis as for the case of Red Dragon assessing the Mexican environment and CAGE.
Understanding of the regional difference is also part of the due diligence as it will help the Red Dragon management to settle effectively and manage the difference in cultural diversity in the new market. Another important aspect of the new entrance into a foreign market is to understand comprehensively the local consumers of Mexico regarding their preferred choices. Some of the issues to understand regard the price of products, quality, and policy issues among other important matters. For example, Mexico is mainly inhabited by Catholics, an aspect that makes the business operation to embrace different practices followed in the faith so as to prosper in the area.
Another significant issue often considered in such business is for the respective companies to identify how they will be different in the market compared to their competitors, a new experience that will enhance customer value. Another issue to help firms understand their capability in the foreign market is the corporate fit, which is a concept that indicates the extent to which an organization practices resource allocation and potential fit in the new area. However, in the case of a poor corporate fit, it is enough evidence for the organization to add more resources or caution in its respective operations so as to conform to the various norms of the new market (Wern-Yi & Kahl, 2014 p. 297).
PESTLE Analysis
The concept of pestle analysis enables stakeholders to understand difference experiences of market growth and a decline in their respective industry, the current position of the industry and possible future changes that will dictate the direction of the business (JimMakosCon, 2016). The factors above are considered to have a significant impact on any firm that considers entering the international market.
Moreover, it is essential that companies understand their macro-environment so as to align adequately their operational strategies with the different issues that influence their business environment. Furthermore, companies that learn to exploit the different opportunities that come with the change are likely to succeed than their counterparts (Mike, 2016). Therefore, it is imperative to appreciate that every firm that wishes to venture into foreign markets has to conduct a PESTLE analysis of the new environment.
Political
Significant economic and trade policies influence the development of hotels in the city, which include systems to help enhance foreign investments in the country so as to create more jobs for the locals and advance innovation. In efforts to boost the city’s trade activity, the Mexican government enacted various trade measures to regulate different practices carried out in the country. The state through its legislature launched a plan to improve its economic development and divided it into two; fiscal and competitive reforms. Financial reform tends to strengthen the public finances that are realized in the city in the short-term, a feature that will help the country experience economic recovery and growth. The reform strategy intended to alter the taxation system that incorporated different components. In the process, various merchandise sold in the country had their tax increased, a feature that would influence the profitability rate of the country (Mexico: In-depth, 2011 p. 4).
Economic
Various economic indicators help investors to evaluate the profitability rate of business in a given area and how a foreign organization can benefit from the exchange rate policies in the international market. According to the 2011 statics, it is evident that the Mexican economy experienced a growth of 4.6% and had experienced a growth of 5.5% in the previous year. Apparently, it is appreciated that the country has moved out of the recession trap that was experienced in 2009 and, therefore, acts as a significant area of investing in the hotel business.
Social
An important aspect to note is that the social needs of a given society often change over time, and it is crucial to be aware of the different needs of a community. Business operators, therefore, are forced to investors in a society where various success factors are embraced, which will significantly contribute towards the company success (Normore et al., 2015 p. 40).
With Spanish speakers being the majority, multi-cultural diversity characterizes the country and a feature that gives the country's capital city an added advantage. The city of Mexico has a total population of 103.3 million people and over 12000 churches with Catholics being the majority. This action makes the culture of Mexico be based on Catholic beliefs, an aspect that should be understood by the emerging business like Red Dragon while making strategic decisions regarding the company operation.
Technological
Mexicans are guided by different techniques, which are used to protect the people, animals, and the environment from any form of harm whatsoever. However, the city has sets of standards that are specifically used to guide the different business operations in the country. Mandatory standards are considered to be the first classification and are regarded official with a key purpose to prevent any form of harm to people, environment, plant life or business operations that incorporate any fraud whatsoever. However, the voluntary standard, on the other hand, plays the role of protecting consumers by regulating the producers so as to produce quality merchandise. Therefore, the numerous multinational business corporations are influenced by the different policies, making appropriate agencies manage the standardization process.
Environmental
Mexico City is strategically located as a regional hub that connects different parts of America, an aspect that makes it attract foreign investors. Some of the aspects that characterize the area include its vast population and abundant labor that is available at cheap costs, making industrialization operation more efficient. The city is considered to be the sixth largest oil producer in the world, indicating that it has adequate energy to help enhance different business operation in the region. Moreover, it has an effective air service, an aspect that enhances tourism in the area, and this has a significant influence on the performance of the hotel industry with more than six international airports.
Legal
Foreign investors in Mexico have to abide by the different labor laws in the country, as they have a significant influence on the performance of the business operation. Through the set regulation, the government can protect labor rights as well as the different human rights to prevent any form of abuse to employees by their respective employers. The different policies issues help indicate the duration of time that the employee should cumulatively work in a day or week and the variation of shifts.
Factors facing industry globalization
Markets
One of the aspects that contribute to internationalization is the similarity between the different business operations in various parts of the world. Such aspects make the organization to meet almost similar needs of the market, hence; can capitalize on efficiency to outcompete competitors in the market (Next Gen Hotels, 2014, p. 8).
Costs
Cost is a significant factor considered by all organizations wishing to go global, hence, a competency issue used in the market. Organizations are likely to invest in a foreign market where there is cheap labor and resources so as to minimize the production costs while at the same time maximizing profits, an aspect that will help the business to prosper.
Government and competition
Favorable trade policies in a country attract foreign investment, an aspect that contributes to globalization. Therefore, different governments for instance Mexican, have an influence on globalization as they are in control of the set technological standards required in a country. The various stakeholders for Red Dragon hotel have the mandate to identify the change in the hospitality industry in the state, and use the findings to gauge the future industry conditions so as to determine whether to invest in the country or not (Storey, 2015 p. 132).
Relevant cultural dimensions necessary in preparing to do business in Mexico
For the Red Dragon hotel to enter the Mexican market, it is imperative to understand the culture embraced by Mexicans to avoid any form of conflict whatsoever. Some of the issues taken into consideration in such analysis include the different roles subjected by families in the society behavior and different values appreciated by the natives. Proper interpretation of the citizens' behavior is essential to avoid misunderstanding between the various patterns in the foreign market that may impair business performance. Apparently, it is imperative to appreciate that there exist different models that are used in understanding the culture of people in the international market, citing the various characteristics of both people (Wall, 2013 p. 74).
One of the essential aspect observed while conducting business with the Mexicans include relationship as it is part of their culture to maintain good relations. Mexico City recognizes stakeholders that hold personal relations with partners other than the conventional business bond that exists. It, therefore, means that the organizational managers of Red Dragon should seek different strategies that will secure friendship with other business partners in the country.
Time is another significant issue that should be understood with the Mexican people, as they are not strict as people from other parts of the world, such as the Americans and the UK citizens. Stakeholders working with Mexican people should learn to understand their nature and abide with their cultural needs to avoid future conflicts. For instance, the fact that Mexicans do not keep time most of the time does not mean that they are not serious about business, but it means that they are flexible and can change their plan based on the prevailing conditions of the market (Hanges et al., 2016 p. 70).
Conclusion
With the introduction of free trade agreements, globalization is inevitable in the 21st century, a feature that has led to increased number of multinational corporations across the globe. There are numerous benefits associated with globalization, such as gaining access to new markets and consumers, and experiencing low production costs. The study intended to determine the different aspects considered for every firm that wishes to invest in a foreign market. Researchers insist that adequate understanding of the external market is crucial to the success of the multinational organizations. The hospital industry has experienced tremendous growth in the recent past with a significant boost in the tourism sector. The industry in the Mexico City is well established, and this initiative has resulted from the tremendous growth in the tourism industry, which has an essential role to play in the hotel industry.
Although there are various issues pertaining foreign market, PESTLE analysis has proved worth, as the concept help managers to understand the different opportunities and threats in the market. Managers are thus able to devise effective strategies with which to overcome the obstacles and at the same time attain the set organizational objectives. From the PESTLE analysis of Mexico, the environment proves to be conducive to the establishment of business for the following reasons. The analysis evidenced that the country has a stable government that has enacted practical policy issues that support economic growth and trade development.
Bibliography
Adekola, A, & Sergi, B. (2007) Global business management (innovative business textbooks). United Kingdom: Ashgate Publishing.
Camillo, A.A. (ed.) (2015) Handbook of research on global hospitality and tourism management. United States: Idea Group,U.S.
ERSOY, A. (2014) ‘The Role of Cultural Intelligence in Cross-Cultural Leadership Effectiveness: A Qualitative Study in the Hospitality Industry’’, Journal Of Yasar University, 35(9), pp. 6099–6108.
Hanges, P.J., Aiken, J.R., Park, J. and Su, J. (2016) ‘Cross-cultural leadership: Leading around the world’, Current Opinion in Psychology, 8, pp. 64–69.
Hotels & Motels Industry Profile: Mexico' 2014, Hotels & Motels Industry Profile: Mexico, pp. 1-35.
JimMakosCon (2016) PESTLE analysis. Available at: http://pestleanalysis.com/what-is-pestle-analysis/ (Accessed: 18 March 2016).
Kotsaga, E. (2015) 'Cross-Cultural Training as Critical Factor of Cultural Intelligence in the Hospitality Industry', Tourismos, 10(2), pp. 213-222.
Lim, E, & Noriega, P. (2007) 'The Need For Leadership Support in Cross-Cultural Diversity Management in Hospitality Curriculums', Consortium Journal of Hospitality & Tourism, 12(1), pp. 65-74.
Mexico: In-depth PESTLE insights. (cover story)(2011) Mexico Country Profile, pp. 1-92, Business Source Complete.
Mike, M. (2016) PESTLE analysis. Available at: http://www.cipd.co.uk/hr-resources/factsheets/pestle-analysis.aspx (Accessed: 18 March 2016).
Next Gen Hotels: from industry-wide shifts in branding and strategy to small adjustments at individual properties, hotels continue to refine their offerings to connect with a new generation of travelers' 2014, Travel Weekly, 49, p. 8.
Normore, A, Erbe, N (eds.) (2015) Cross-cultural collaboration and leadership in modern organizations. United States: Idea Group,U.S.
Sizoo, S, Serrie, H, & Shapero, M (2010) 'Succeeding in the global marketplace: A practical approach to developing the Cross-cultural skills of tourism & hospitality students', Journal of Tourism, 11(2), pp. 1-18.
Storey, N. (2015) “Gallery: new hotel Casa Fayette is poised to turn Mexico”s second-largest city into an international destination’, Surface, 122, p. 132.
Wall, W. (2014) ‘Is Cross-Cultural Management the Key to Success in Global Healthcare Competition?’, International Journal of Business & Information, 8(1), pp. 70–95.
Wern-Yi, G.A.T. and Kahl, C. (2014) ‘“Being Malaysian does not mean being Malaysian” – cultural stereotypes is a hindrance to modern hospitality management’, Procedia - Social and Behavioral Sciences, 144, pp. 296–305
