a global enterprise

To what degree is Porter's Competitive Advantage of Nations, or Diamond model, helpful in understanding the separation of activities in the supply chain detailed in the case between Mexico and the United States? Why do you believe the practices in Mexico's Torreon area have changed so dramatically since 1995?
Porter's Competitive Advantage of Nations or Diamond model paints a clear view of how nations or groups gain a competitive advantage as a result of such factors. The model explains how intervention of governments can actually boost the position of the country in global economic scenario. While applying the same on the case study, it is quite clear that the division of activities between the USA and Mexico is to create a competitive environment for value adding activities including textiles, assembly, distribution and marketing etc. Mexico, because of the NAFTA’s (North American Free Trade Agreement) involvement is now able to utilize its own resources for better productivity. But, rather it might have some other associated effects. Mexico undertakes full-package production facilities but marketing and retail, which include the most profitable activities, are still performed in the United States. Mexico implemented new strategies to improve the industry and implemented Maquildoras - factories that assemble products for export from imported components that enter the country duty-free.

East Asian countries like South Korea, Hong Kong, and Taiwan usually sourced raw materials for the apparel industry prior to the intervention of NAFTA. NAFTA’s role was quite facilitating to uplift the industry for better profit-oriented opportunities by stressing on native production of the raw materials (Pandian, R. & Sim, 2002, 7). It is the direct implementation of the strategies propounded by Diamond model. Such steps gave rise to new opportunities for business transfer to retailers and manufacturer to invest and manufacture in Mexico, which in turn promote competitive advantage.

However, there are other factors that are responsible for such shift including the power structures of within the same industry and the influence of other industries and brands. It is important to mention that only four U.S. manufacturers including Farah, Sun Apparel, Wrangler, and Levi Strauss & Co. have a very prominent presence in Torreon in 1993; Torreon is a dynamic industrial cluster of 500,000 workers located in the northern Mexican state of Coahuila, about four hours from the Texas portion of the U.S. border by car. The number rose to more than a dozen in 2000 like Nike, Tommy Hilfiger, and Liz Claiborne etc. giving rise to improved competitive advantage. The brands came up with new strategies and designs. For instance, double diamond model, introduced by The British Design Council, plans the convergent and divergent phases of design process.

Mexico employed new business strategies projected by its authorities especially NAFTA to create a very mature aura for its apparel industry. Introduction of Maquildoras, growing interest of big manufacturers, and manufacturing and production of raw materials at the local level etc. opened new possibilities for healthier business environment especially in the Torreon region since 1993. It is to be noted that all the factors played a very significant role to take up the industry to higher levels. In 2000, Mexico topped China to secure the top spot, with the value of Mexican apparel exports increasing from $1.2 billion in 1990 to $8.8 billion in 2000 (SECOFI, 2001). It won’t be wrong to mention that NAFTA played a very vital role to initiate dynamic export nature of the Mexican apparel industry.



Why is the Uppsala model of gradual internationalisation less relevant in an economy such as Mexico? What other countries and sectors have not followed the Uppsala model? Why is that the case?

Uppsala model of gradual internationalisation deals with the internationalization of companies through a systematic process. According to the model, the process involves many players that do affect the internationalization of a company. Internationalization of a company means that the company wants to have borderless representation of its products and services to the international customers. So, the main idea behind it is to create a global market for the company. The model was not found to be important for the Mexico’s apparel industry because of the industries native limitations in exporting its products. Besides, being a very big industry, the government’s role was very less but, it had the potential to create a marketplace in the international arena on its own. As per many scholars (Johanson and Wiedersheim-Paul, 1975, 33; Johanson and Vahlne, 1977, 43), it requires international involvement which does have an impact on the company itself. The growth of Mexico apparel industry was not fast though it had the potential to be an international company during 90s. But, because of the limited involvement of the government and restricted resources, the company progressed at a slow pace.

Uppsala model of gradual internationalisation has a well-defined structure according to which it comes into action. According to Hollensen, it involves the following four stages:

Step 1: No regular export activities (sporadic export).

Step 2: Export via independent representative (export mode).

Step 3: Establishment of a foreign sales subsidiary.

Step 4: Foreign production/manufacturing.

(Hollensen, 2007, 63)

While looking at all the four stages, it is quite clear that Mexico’s apparel industry was not in a position to implement the model. It is because of the irregular exporting actions of the products that do hampered the growth of their business a lot especially during 90s. Also, there was not any specific independent exporting representative, lack of foreign sales unit, and no production or manufacturing on a foreign land to apply the Uppsala model. Lack of involvement of the authorities and NAFTA, the apparel industry could not make use of the model. Perceived Psychic distance could be one of the reasons that the apparel industry did not apply the model.



Many other countries and companies have not executed the model either because of the same reason or the other. For instance, Asian MNEs from Taiwan and Singapore in the textile and electronics industries tried to apply the model but, they could not and found other options to internationalize their companies (Pandian, R. & Sim, 2002, 7). However, Mexico’s apparel industry and other industries and companies from around the world fall into the category of emerging economies and such stances paved better way of their internationalization. For instance, China and India are being considered as among the emerging economies of the world and thus, their companies are able to secure their market at the international level. Taking the example of Tata from India, it is one of the business giants which have marked its representation in the global market. In such cases, Uppsala model of gradual internationalisation does not find much relevance.

Mexico is well connected as it is situated near the United States and its geography and location actually provides a very supportive environment for apparel business development. The country is doing great in the international market thus, offers healthier fellowship to other firms and investments. Application of OLI (Ownership specific advantages, Location advantages, and Internalization advantages) strategy describes emerging Mexico with its vast experience in apparel industry offer better understanding of the related companies and firms. Location wise Mexico is very much supportive for full-package production of garments.



Using evidence from the case study, offer advice for foreign firms considering FDI in Mexico. Why might foreign firms choose to invest in Mexico? What entry strategies are most appropriate and why?

Mexico is turning out to be one of the best investment destinations for foreign investors. This is evidenced from the fact that the country is now included in the North American Free Trade Area, NAFTA. Apparel assembly is now not the only activity that is being operated in Mexico but, other activities are being successfully carried out without any restrictions. Almost all the barriers for non-monetary investments and the elimination of the tariffs of the United States have facilitated the garment production undertakings. The country is even taking laundering, cutting and finishing, as well as the use of native contributions such as textiles (denim), buttons, and labels, etc. Mexico reached the climax though several stages that do correspond to different time intervals. 1995 marks the year when Mexico was dedicated only to the assembly of the garments. Locally-made denim, trim, and labels were utilized for blue jean exports, and laundering and finishing were also started later in the country in 2000. At the beginning of 2005, Mexico apparel industry saw one of the biggest changes as it established cutting and distribution.

Mexico offers low production costs and that is why many U.S. companies shifted their production units there. Such step was taken by NAFTA for inclusion of Mexico into the free trade policy of the United States, and permitted full-package production amenities to boost its manufacturing, assembly, and production activities. It also allowed the companies to purchase the raw materials within the country thus adds credibility to the overall functioning of the industry.

Mexico has a lot to offer to foreign companies who want to invest either directly or can shift their operations for a convenient and low cost production, manufacturing, and distribution facilities. Moreover, having extended understanding through maquila production for U.S. clients and having earned and secured the trust of foreign buyers, Mexican companies are now evolving straight associations to export markets. These full-package companies are progressing by eradicating brokers like traders or trading companies, which permits them to relish the greater profits full-package production offers as compared to maquila orders.

Mexico’s apparel industry has secured its space in the international market and has an increasing import/export demand. Since everything has been made very friendly by lifting the barriers and limitations by NAFTA, Mexico ensures better environment for full-package production of garments. In most of the cases, the firms do enjoy the power and authority of their own to smoothly run their business so that opportunity for reward potential increases. Strictly speaking, Long term business would offer better rewards as compared to short term. But, the fact is that the restrictions are absent which could reduce the profit. The country proposes amended business environment for enriched business augmentations including the location, connectivity, FDI laws, investment, or foreign firms etc.









References

Hollensen S. Global marketing, 4th edition 2007, Pearson Education Limited, pp 63

Johanson, J. & Vahlne, J.-E. (1977). The Internationalization Process of the Firm – A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies. Pp. 33, 43

Johanson, J. & Vahlne, J.-E. (1990). The Mechanism of Internationalisation. International Marketing Review. pp. 7

Pandian, R. & Sim, A. (2002). Internationalisation Process: Revisiting the Uppsala Model in the Asian Context. In T. Chan & G. Lui (Eds.), WTO and Global Competition: A new Era for International Business Hong Kong: Lingnan University. Pp. 2