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Harvard Case - Telemetrix (A) - North-South Exports Lends a Helping Hand to Telemetrix: Mexico or Brazil?

"Telemetrix (A) - North-South Exports Lends a Helping Hand to Telemetrix: Mexico or Brazil?" Harvard business case study is written by Aurelia Durand, Eleonore Kuentz. It deals with the challenges in the field of International Business. The case study is 18 page(s) long and it was first published on : Mar 15, 2016

At Fern Fort University, we recommend Telemetrix establish a manufacturing facility in Mexico. This recommendation is based on a comprehensive analysis of the two potential locations, Mexico and Brazil, considering factors such as market potential, economic stability, infrastructure, labor costs, and government incentives.

2. Background

Telemetrix, a leading manufacturer of electronic components, is seeking to expand its operations into a new emerging market. The company has partnered with North-South Exports, a global trade facilitator, to identify the ideal location for its first international manufacturing facility. The case study presents two potential options: Mexico and Brazil.

The main protagonists are:

  • Telemetrix: A company seeking to expand its manufacturing footprint and leverage the growth potential of emerging markets.
  • North-South Exports: A global trade facilitator assisting Telemetrix in navigating the complexities of international business expansion.

3. Analysis of the Case Study

To analyze the case, we utilize a framework that considers the following key factors:

a) Market Potential:

  • Mexico: Mexico boasts a large and growing market for electronic components, driven by the automotive, aerospace, and consumer electronics industries.
  • Brazil: Brazil also presents a substantial market, but its economic growth has been slower in recent years, and political instability creates uncertainty.

b) Economic Stability:

  • Mexico: Mexico has a more stable economy than Brazil, with a lower inflation rate and a more predictable exchange rate.
  • Brazil: Brazil has experienced significant economic challenges, including high inflation, currency volatility, and political instability.

c) Infrastructure:

  • Mexico: Mexico has a more developed infrastructure, with better transportation networks, reliable energy supply, and a more advanced telecommunications system.
  • Brazil: Brazil's infrastructure lags behind Mexico, posing challenges for manufacturing operations and logistics.

d) Labor Costs:

  • Mexico: Mexico offers lower labor costs compared to Brazil, making it more attractive for cost-sensitive manufacturing operations.
  • Brazil: Brazil's labor costs are higher, and labor regulations can be complex.

e) Government Incentives:

  • Mexico: Mexico offers attractive incentives for foreign investment, including tax breaks and streamlined approval processes.
  • Brazil: Brazil also offers incentives, but they are often less generous and more complex to navigate.

f) Political and Regulatory Environment:

  • Mexico: Mexico's political climate is generally stable, and its regulatory framework is relatively transparent.
  • Brazil: Brazil's political landscape is more volatile, and its regulatory environment can be challenging for foreign businesses.

4. Recommendations

Telemetrix should establish its first international manufacturing facility in Mexico. This decision is based on the following considerations:

  • Stronger Market Potential: Mexico offers a larger and more dynamic market for electronic components, with a growing demand from various industries.
  • More Stable Economic Environment: Mexico's economy is more stable, with lower inflation and a more predictable exchange rate, reducing financial risks for Telemetrix.
  • Superior Infrastructure: Mexico's infrastructure is more developed, providing better support for manufacturing operations and logistics.
  • Lower Labor Costs: Mexico offers lower labor costs, making it more cost-effective for Telemetrix to establish its manufacturing facility.
  • Favorable Government Incentives: Mexico's government offers attractive incentives for foreign investment, including tax breaks and streamlined approval processes.

5. Basis of Recommendations

This recommendation aligns with Telemetrix's core competencies in manufacturing electronic components and its mission to expand its global reach. It also considers the needs of external customers (demand for electronic components in Mexico) and internal clients (cost-effective manufacturing).

The decision is further supported by quantitative measures:

  • Market Size: Mexico's market for electronic components is larger and growing faster than Brazil's.
  • Economic Stability: Mexico's economic indicators, such as inflation and exchange rate stability, are more favorable than Brazil's.
  • Infrastructure Development: Mexico's infrastructure is more advanced, reducing operational costs and improving efficiency.
  • Labor Cost Advantage: Mexico's lower labor costs offer a significant cost advantage for Telemetrix.

6. Conclusion

Based on the comprehensive analysis, establishing a manufacturing facility in Mexico presents a more attractive opportunity for Telemetrix. The combination of a strong market, a stable economic environment, developed infrastructure, lower labor costs, and favorable government incentives makes Mexico the ideal location for Telemetrix's first international expansion.

7. Discussion

While Mexico emerges as the preferred option, other alternatives were considered:

  • Brazil: Brazil's large market size and potential for long-term growth were attractive. However, the economic instability, infrastructure challenges, and complex regulatory environment outweighed these advantages.
  • Other Emerging Markets: While other emerging markets were considered, Mexico's combination of factors made it the most compelling option at this time.

Risks and Key Assumptions:

  • Political Instability: While Mexico's political climate is relatively stable, unforeseen events could impact the business environment.
  • Exchange Rate Fluctuations: Although Mexico's exchange rate is more stable than Brazil's, fluctuations could still impact Telemetrix's profitability.
  • Competition: The market for electronic components in Mexico is competitive. Telemetrix must develop a strong competitive strategy to succeed.

8. Next Steps

To implement the recommendation, Telemetrix should:

  • Conduct a Detailed Feasibility Study: This study should focus on specific locations within Mexico, evaluating factors such as land availability, infrastructure, and labor availability.
  • Negotiate with Local Authorities: Telemetrix should engage with Mexican authorities to secure necessary permits, licenses, and incentives.
  • Develop a Business Plan: A comprehensive business plan should outline the investment strategy, operations plan, and marketing strategy for the new facility.
  • Establish a Local Team: Telemetrix should recruit and train a local team to manage the new facility.
  • Develop a Supplier Network: Telemetrix should identify and establish relationships with local suppliers to secure raw materials and components.

By following these steps, Telemetrix can successfully establish a manufacturing facility in Mexico and capitalize on the growth opportunities in this dynamic emerging market.

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Case Description

"Telemetrix" is a two-part case study; its parts can be used alone or in sequence. Case A "North-South Exports Lends a Helping Hand to Telemetrix: Mexico or Brazil?" showcases a young analyst at North-South Exports, a small Quebec-based export management firm that helps SMEs with international expansion. The analyst must make recommendations as to the best way for the company's client Telemetrix to rapidly achieve sales in Latin America, and whether to focus on Brazil or Mexico. Case B "Telemetrix in Brazil: Indirect Export, Outsourcing, or Licence?" focuses on the choice of an entry mode to penetrate a foreign market, in this case, Brazil, and, based on this choice, on the selection of a local business partner. It also addresses the difficulty of developing international supplier-customer relations. Just like Case A, Case B is a decision-making case. The analyst must determine the best entry mode and which partners will lead Telemetrix to success in Brazil and, subsequently, elsewhere in South America.

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