Introduction
Lazybones is a clothing manufacturer, which focuses on ethics, excellence, and design (Qut Gateways, 2012). It plans to expand its clothing line internationally. The products are highly differentiated from the competitors by quality, incomparable design, and manufacturing process, and the dresses are colourful and unique. Consequently, the critical goal of this paper is to evaluate economic, political, and business environments of Chile and Mexico and select the most appropriate country for contract manufacturing.
Economic Environment
GDP Growth
Evaluate the overall economic environment of Chile and Mexico is vital. This assessment offers a general understanding of the financial stability in the selected countries (Hill, Cronk, & Wickramasekera, 2014). Compare the growth of the GDP assists in evaluating the development of the national economy (see Figure 1). Chile has higher growth than Mexico, and, as a consequence, it offers better macroeconomic conditions for the business development.
Index of Economic Freedom
Assessing economic freedom identifies whether the countries are appropriate for business expansion. This index evaluates the level of involvement of the government and regulations in the business environment (Index of Economic Freedom: Defining, 2016). This aspect is critical for Lazybones, as it seeks equal opportunities in a new market as its competitors. In this case, a high level of freedom will indicate the country’s openness to investment and a plethora of opportunities for new businesses. The graph portrays that Chile (77.7 %) has a higher score than Mexico (65.2%) (Index of Economic Freedom: Graph, 2016) (see Figure 2).
Ease of Doing Business
Furthermore, the company has to consider Ease of Doing Business ranking, as being a newcomer is associated with a variety of difficulties. According to the analysis, Mexico has a rank of 38 and is stated as number four for the export possibilities in Latin America and Caribbean region (World Bank group, 2016). As for Chile, the country has the 48th position in the world and does not offer favourable conditions for international trade with number 63 globally (World Bank group, 2016).
Tariff and Non-Tariff Trade Barriers
Evaluating these aspects of the trade is critical, as it determines the country that is easier to choose for expansion. The well-established partnerships with the European Union and the United States of America with Chile might be discovered as a potential threat (Australian Government: Chile, 2016). In turn, Chile imposes taxes such as 15 % First Category Tax, 35% distribution of profits tax, 18% VAT, 8% Uniform Tariff, and 3 % import registration tax (Australian Government: Chile, 2016).
As for Mexico, it has partnerships with the United States of America and other countries with the help of Free Trade Agreements (Australian Government: Mexico, 2016). Recently, Mexico has introduced a reform to support foreign companies and has 16.5 % VAT (Australian Government: Mexico, 2016). Based on the assessment conducted above, Lazybones should select Mexico for operations due to its low trade barriers.
Domestic Market Size
Focusing on the market size is one of the critical aspects of Lazybones, as it will help determine the level of competition in the selected countries. In this case, World Economic Forum states that Mexico has 5.5/7 index value of the domestic size, and it accounts for 11th position in the world (World Economic Forum: Mexico, 2016). As for Chile, the country has 4.4/7 size of the domestic market index with ranking 41 in the world (World Economic Forum: Chile, 2016). Despite the initial desire to expand to the American market, Lazybones has to select Mexico, as it has one of the biggest market sizes in the world.
Global Competitiveness Index
Assessing Global Competitiveness Index is also vital, as it offers the overall image of the economic, political, and social stability in the country. Understanding these details can determine Lazybones’ choice, as it seeks for financial prosperity, high quality, and well-developed infrastructure. In this case, Chile has the overall ranking of 35 and the average score of 4.6/7 (World Economic Forum: Chile, 2016). The primary challenge for operating in this market is the restricted labor regulations (World Economic Forum: Chile, 2016). As for Mexico, it has a low score (4.3/7) and accounts for 57th in the world (World Economic Forum: Mexico, 2016). Based on this factor, the company has to select Chile to reach its financial goals.
Political Environment
Corruption Perceptions Index
At the same time, one cannot underestimate the impact of political environment on operations of Lazybones in the selected countries. In the first place, it is vital to assess a level of corruption in Chile and Mexico. This aspect is critical to Lazybones, as one of its values is to focus on ethics. Using Corruptions Perceptions Index helps rank the countries based on their level of corruption where zero stands for “highly corrupt” and 100 is “very clean” (Transparency international, 2016).
Chile has a score 70/100 with the ranking 29 worldwide (Transparency international, 2016). Furthermore, the country tends to maintain its scores at the same level. Alternatively, Mexico has a score of 35/100 with the 95th position in the world (Transparency international, 2016). The results indicate that Mexico is a highly corrupted country, and Lazybones should select Chile to continue its expansion.
Political Risks
Alternatively, the company has to access political risks, as its profitability and prosperity may be dependent on these matters. According to the PRS Group, the low score indicates that the country is politically unstable (2015). In this case, Mexico has the score of 80, and Chile’s value is 84 (The PRS Group, 2015). Both of the countries are relatively stable concerning politics. Nonetheless, selecting Chile will help the company to reach its economic and ethical goals.
Business Environment
Apparel Industry
Paying attention to the details of business environment will help evaluate whether the countries have favourable conditions for the clothing business. In this case, it is critical to assess the textile and garments manufacturing in Mexico and Chile. Figure 2 indicates the differences and similarities of two segments.
Based on the analysis presented in Figure 3, the company should prioritize Mexico. Manufacturing these products in the market will ensure high quality. At the same time, selecting this country will assure the possibility to expand to other industries such as footwear.
Contract Manufacturing Potential
Alternatively, the company considers contract manufacturing of high importance as it plans to outsource its activities. The potential is greater in Mexico, as the country has an extended variety of agreements. For instance, contracts with the United States of America allow ensuring the free traded with the desired target market (Australian Government: Mexico, 2016). As for Chile, its textile market is relatively new, and contracting might be one of the problems.
Country Choice
Weighted Index
Overall, the weighted index table can justify the choice of the selected countries. In this case, the variables such as ease of doing business, corruption rates, and potential of apparel industry were highlighted of high importance. Other aspects could also be viewed as vital. However, they do not have a critical impact on the operations. They help the company achieve its financial and quality standards and pay vehement attention to ethics. The weighting is based on the countries indexes and their position in the world and when comparing with each other. This aspect explains the reasons for the absence of the highest scores (10) in the table.
Table 1. Weighted Index.
The company has to select Mexico, as it has a higher score (6.85/10) than Chile (6.35/10). The primary advantage the well-developed apparel and textile industry and a vast base of contracting practices. Nonetheless, its high level of corruption might damage company’s reputation and require discovering the Chile’s emerging textile market. Overall, the findings portray that it is necessary to conduct a profound analysis to indicate the strengths and weaknesses of the economy.
Conclusion
In the end, it was revealed that Mexico has all the required characteristics to be selected. It could be said that the company will be able to reach its financial objectives and remain ethical at the same time. In this case, Lazybones has to continue its expansion strategy with the profound research, calculate costs, and contact potential partners in the country.
References
Australian Government: Chile. (2016). Web.
Australian Government: Mexico. (2016). Web.
Hill, C., Cronk, T., & Wickramasekera, R. (2014). Global business today: Asia Pacific edition. Sydney, Australia: McGraw-Hill Irvin.
Index of Economic Freedom: Defining economic freedom. (2016). Web.
Index of Economic Freedom: Graph the data. (2016). Web.
ProChile: Textiles and garments. (2016). Web.
ProMexico: Mexican textile industry. (2012). Web.
Qut Gateways. (2012). Lazybones: An ethical business. Web.
The PRS Group: Regional Political Risk index. (2015). Web.
Transparency international: Table of results. (2016). Web.
World Bank group: Economy rankings. (2016). Web.
World Economic Forum: Chile. (2016). Web.
World Economic Forum: Mexico. (2016). Web.