The In-N-Out Burger services were created to provide a tasty quality burger that has substance and respect. This kind of reputation guarantees to provide outstanding service by ensuring its customers get the latest innovation and greatest taste of hamburgers used in fast-food restaurants, hotels, and homes. It is a brilliant idea to take this philosophy to another country especially a country like Mexico. The targeted country Mexico was considered because it is an area with a lot of American tourists who might relate to the type of services they are offering. The targeted area will be mainly northern Mexico in the areas of Tijuana or Mexicali. Different types of Analysis were conducted in the region to determine the viability of the region and why Mexico was considered.
After analyzing all the factors, it was noted that the venture will be ideal because of various reasons. Summary of findings in the conducted research will concentrate on highlighting the situation in Mexico that might make the venture viable or situations that might hinder the operations of the business.
Political stability is a vital factor in venturing northern Mexico. North American Free Trade Alliance facilitates easy trading between the nations. The United States & Mexico are attempting to create long governmental stability. Also, the Nations on the North American continent are capitalistic and pro-business encouraging trade. However, other issues in Mexico make the country to be a bad place for business. Political corruption poses high risk within Mexico. Corruption also has always plagued the inner workings of political factions. Although strides are being made to drive corruption out of political and legal environments, it still exists and should be considered when making business decisions.
The three nations U.S.A., Mexico, and Canada have intertwined economies. The United States economy is the strongest economy within the region and it dictates the economic condition in the region. Mexico has good economic conditions, unlike other countries that would have been considered in the greater northern America region. Its economic fortunes also remain closely tied to the United States’ foreseeable future. These similarities between the two economies i.e. the U.S. and the Mexican, make Mexico a feasible venture and it is favorable for any foreign business that is coming from the same region especially a business that is expanding from the U.S.
The physical environment of Mexico is a plus for any business trying to venture into the country. The urban areas which consist mostly of a large population have a well-constructed infrastructure system. Roads, railways, or shipping docks can be located in every major part of the country. This is an important consideration for a company like In-N-Out Burger. The most discouraging aspect of the physical environment is that there are challenges when it comes to shipping or receiving goods needed for business operations.
Environmental, Health, and Social Conditions
There is a viable environmental, health, and social condition in Mexico. The health regulations are similar to the ones in America that can match with the In-Out Burger regulations on food quality. The challenge that remains is that natural sources of freshwater are scarce and polluted in the northern parts of Mexico. This has led to food and waterborne illnesses which are the number one cause of illnesses in travelers” (Country Watch, 2010). Malaria is another disease that is rampant and might affect the staff and a good medical cover for the employees is necessary thus increasing the operating costs.
These are the findings of the viability of Mexico and the region as a whole that might affect In-Out Burger services. These findings made Mexico ideal for In-Out Burger services but various risks had to be considered to ensure that the venture was not only practical but profitable. A risk analysis was done considering various factors that might affect the operations of In-Out Burger.
Political, Legal, and Regulatory Risks
The political risk is moderate because there are ties that Mexico has with NAFTA it makes promising to do business with In-N-Out Burger. In-N-Out faces some risks associated with civil unrest over drug trafficking and corruption. A.M. Best Company states, “Social instabilities in the southern states, violence related to the narcotics trade, and corruption weigh on Mexico’s prospects as an investment destination. These are some of the risks In-Out Burger will have to consider.
Exchange and Repatriation of Funds Risks
There is a very low risk in terms of financial losses when a company is investing in Mexico. This is because Mexico has a strong economy that is highly linked to that of the United States (A.M. Best Company, 2009). If In-N-Out Burger does not want to invest in real estate property, there is little risk of repatriation of funds. The consideration to lease property would prevent the possibility of those investment funds being subject to the repatriation of funds.
Competitive Risk Assessment
There is stiff competition in Mexico in fast food and other businesses and this can be attributed to a large number of franchises and other chains of the restaurant.
For instance, McDonald’s currently has 358 restaurants open in Mexico and Burger King currently has 400. This means that In-N-Out Burger already has well-established competitors and they will need to devise an effective way to penetrate the market. The other competitive risk for In-N-Out Burger would be the family-owned restaurants throughout the regions of Mexico.
Taxation and Double Taxation Risks
Taxation rules are favorable in Mexico. The Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion between Mexico and the United States was signed on September 18, 1992. This agreement was aimed at reducing the risk of double taxation using a uniform source of income rules. Because In-N-Out Burger is a resident of the United States, they will pay United States income tax on any world income. This eliminates the risk of double taxation while doing business in Mexico.
The market risks will directly affect the market base of In-N-Out Burger. This will require In-N-Out Burger to understand the market what is in demand and to come up with a good pricing system. Getting to understand that the consumers within the areas of Tijuana and Mexicali are sensitive to prices will give a head start for In-N-Out to consider maintaining our distributors in the United States or look toward the possibility of contracting within Mexico. Finally, coming up with the most effective way of advertising will be essential.
Distribution and Supply
The level of efficiency of managing the supply chain risks will directly translate to how well In-N-Out Burger will perform in this new market. Managing the global supply chain and distribution risks comes down to understanding and managing the balance, effectiveness, and efficiency. Outsourcing a consulting firm would help to determine the possible supply disruptions, changes in demand, financial risks, legal and security, reputation, and brand.
Physical and Environmental Challenges
Understanding the physical and environmental challenges would be one of the first steps in considering new business. Understanding the regulatory, political, demographics, and physical environments and how complex they may be to follow as well as the penalties associated. For example, omissions could be a factor if we do not understand the regulations of the releases. However, following the physical and environmental rules can make any business efficient.
Social and Cultural Risks
Social and cultural factors are quite imperative in understanding a targeted market. There are several examples of how the United States had to understand the social and cultural risks of countries like Asia and Europe. The ideal way to understand all of the risk factors discussed is to live within that country for at least one year. This time would allow anyone to experience the culture and other opportunities. Living in the country being entered provides several benefits and maybe a cost-effective solution; considering the cost of living.
In current times of regular cyber-attacks, it is important to consider the In-N-Out Burger network to possible cyber attacks. Currently, the company’s network is housed exclusively within the United States, and while there are risks of cyber attacks from hackers hacking directly into the mainline, it is unlikely. In Mexico, the infrastructure for the Internet is not as sophisticated meaning that it would be easier for a cyber attacker to hack the mainline and gain access to the In-N-Out Burger system. An attack on In-N-Out Burger’s systems is unlikely to affect an individual unit’s day-to-day operations. However, it could expose sensitive information about the organization. The recommendation is to install systems to detect an attack and prevent hacking. A S.W.O.T analysis was conducted to further analyze the risks involved in Mexico.
Strengths-Northern Mexico is occasioned with a large number of American tourists who visit this region and spend money on food. Additionally, the tourist industry in this region creates jobs for Mexican citizens providing them with additional expendable income. This is a big advantage that can increase the sales of In-N-Out Burger.
Weakness- In-N-Out’s quality and dedication might be considered to be a weakness when competing with local companies like Mexican restaurants because food standards are lower than that of the company. Competing companies may win in a price war versus In-N-Out Burger. Thus, In-N-Out will have to make up for any price inequalities by focusing on quality.
Opportunities-The opportunity to build relationships with local farmers and producers could result in increased savings throughout the In-N-Out Burger system.
Threats-Northern Mexico has recently been seen to conflict. Drug cartels are battling law enforcement officials and the collateral damage has been significant. Safety is becoming the main cause for worry in this region.
According to the study, Mexico seems like an ideal area for the market of In-N-Out Burger. However, there are a lot of risks that cannot be ignored which could make it difficult to do business in the area. But these risks are minimal when compared to the opportunities in Mexico. A well planned and properly studied strategy should provide In-N-Out the guidance it needs to be successful. In-N-Out’s venture into the Mexican market should prove to be a good, sound, and profitable decision.
Best Company Inc. (2009). AMB Country Risk Report: Mexico.
Country Watch. (2010). Water Shortage in Northern Mexico. Web.