Consequences of International Business Expansion in Mexico Report

This report provides an in-depth analysis of the political and economic environment in Mexico, focusing on the challenges faced by international businesses. It examines the issues of corruption and bribery within the Mexican government, detailing their impact on foreign companies and suggesting policies to mitigate these risks. The report also discusses the consequences of regime changes and political instability, including the transition from an authoritarian state to a democratic republic and the effects of the North American Free Trade Agreement (NAFTA). It highlights the challenges of operating in a country with a complex political system and emphasizes the importance of understanding these factors for successful international business ventures. The report concludes by evaluating the impact of these political and economic factors on the success of foreign investment and the need for strategic approaches to navigate the Mexican market.

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction:..................................................................................................................................2
Political Definition:........................................................................................................................2
Expansion:......................................................................................................................................2
Background:...................................................................................................................................3
Discussion:......................................................................................................................................3
Corruption and Bribery:...............................................................................................................3
Change in Regime:.........................................................................................................................6
Political Unrest:.............................................................................................................................9
Conclusion:...................................................................................................................................11
References:...................................................................................................................................13

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Introduction:
In recent era of globalization with the growth of new strategic decisions and opportunities
of international investment, organizations are willing to invest in countries whose political
scenario is distinct from those of the developed countries (Arnold 2016). However, the
expansion of organizations into completely new political environment can bring insecurity at
times. The purpose of the report is to analyze the consequences of expanding new business into a
developing country like Mexico. The report is commissioned to examine the political framework
of Mexico in order to address the issues of political instability.
Political Definition:
The political structure of Mexico comprises of federal presidential representative
democratic republic where the President is the head of the state. In this regard, it is noteworthy to
mention here that, the governmental structure of Mexico comprises of three main bodies- the
state, federal and the municipal government (Azzimonti and Talbert 2014). The political parties
that have been dominating Mexico from the very beginning are PRI (Institutional Revolutionary
Party), the PRD (the Party of the Democratic Revolution) and the PAN (National Action Party).
However, PRI was the most powerful party that has been dominating Mexico for a long time
(Banks and Hulme 2014). Presently, the political system of Mexico is limited to the large
number of existing political parties.
Expansion:
It is worth noting that various cultures including the Mayas, Olmecs Aztecs and the
Toltecs was a part of Mexico prior the Spanish Conquest. However in the early 19th century

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Mexico came under the rule of Spanish for three consecutive centuries after independence.
However with the depreciation of pesos in 1994, Mexico faced major economical drawbacks
which resulted into recession which prevailed over a long time. In this regard, various attempts
were made by the nation to make favorable recovery. Mexico witnessed deficiency in both social
and political aspects which included unemployment, inequality in the distribution of income and
a sudden decline in real wages which largely affected the large section of population (Blowfield
and Dolan 2014).
Background:
Mexico remained under the Spanish control for a long time however the struggle ender
after it gained independence in 1821. Ethnologically Mexico is situated in Latin America
however its geographical location is in North America. The vast population of Mexico comprises
of Spanish-speaking citizens. According to reports, Mexico witnesses a population of 18 million
and the largest concentration of population is situated in the Western Hemisphere (Chidlow,
Plakoyiannaki and Welch 2014). Traditionally United States was a major part of Mexico and
therefore California and Arizona were also considered as a part of Mexico. Presently, a vast
population of Mexico has shifted to United States for employment opportunities, however, it has
been witnessed that U.S. companies are drawn towards Mexico for the establishment of business.
Discussion:
Corruption and Bribery:
Modern Scholars have defined corruption as a global phenomenon which is the major
concern of the nations. According to modern authors corruption is a menace which has lead to a

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situation in which government officials do not work efficiently and therefore converts public
money for their own benefit in the name of the government (Cho and Honorati 2014). Various
government organizations forces individuals to pay bribe for their own interests and in the future
such individuals pay bribes to such government officials for their benefit. Therefore in such way
the process of corruption continues.
It is evident that as a result of systematic corruption prevailing in Mexico, it has been
difficult for international organizations to operate business in Mexico (Contreras 2014). However
in the view of modern scholars various international institutions presently operating in Mexico
have been facing with lots of difficulties. These institutions are constantly targeted as they are
requested and at the same time demanded to make payments in various modes to the government
officials (Cravino and Levchenko 2016). It has been identified by modern authors that local
customs officials have been demanding “mordida” which is termed as a small payment of bribe
from the business institutions operating in Mexico (Cuervo-Cazurra 2016). Recent reports have
shown that it has been challenging for U.S based organizations to operate business in Mexico as
they had to deal with both U.S and Mexican anti-corruption laws. However, this was a major
concern for the international countries engaging in the business of hydrocarbon. This is because
at every process of production transportation and distribution of petroleum in Mexico, there is
intervention of government officials from time to time.
It is worth mentioning that the Mexican government is subjected to corruption in various
other forms as well. The existence of such corruption can be seen in different public sectors
where there is demand or bribes on the part of government officials and private sectors where
there are issues regarding conflict of interests. In the perspective of modern scholars, there is a
prevalence of corruption in both public and private sectors in Mexico (Dutta and Sobel 2016).

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However in recent times due to the emergence of various criminal institutions has proved to be
demanding for the Mexican government to deal with those areas. According to various reports,
the administrative system of Mexico has been criticized as inefficient and slow in addressing the
issues of corruption and bribery (Geddes, Wright and Frantz 2014). However, the most
hazardous form of corruption existing in the Mexican government is demanding bribes from the
foreign business organization in exchange of performance of a particular task.
In this regard, it is noteworthy to mention here that various policies must be developed by
the international organizations for the purpose of establishing their business in Mexico. These
policies can be addressed as-
 Prohibition of Corruption:
International companies should develop policies of their own in order to prohibit
corruption and bribery of any kind. In this way the foreign companies shall be able to comply
with the company’s regulations and code of conduct for the purpose of obtaining a favorable
decision for business development.
 Existence of transparency:
It is important on the part of international companies to develop clear and transparent
policies of their own relating to gifts, travelling allowances and bonus (Heine 2016). However, it
is important that such offering should be legal and free from any form of corruption or bribery.
In addition, it is essential that the policies implemented by the organization should be updated
from time to time in compliance with the legal procedures for eliminating corruption.
 Integrity:

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It is essential that international organizations must implement various mechanisms in
order to ensure that their business associates are complying with the policies developed to
eliminate corruption.
 Political donations:
It is important that international organizations operating business in Mexico to restrict
themselves from making political contributions by complying with the provisions of law.
However, the political preferences of the employees working in such organization should not be
restricted.
 Monitoring and Assurance:
It is crucial on the part of international companies to impose certain policies and
procedures on the employees of the organization for violating the policies of anti-corruption.
 Administrative Body:
It is necessary for the international institutions to select an administrative head or a
governing body of its own for the purpose of establishing and implementing various anti-
corruption policies (Hernandez and McGee 2014). In this regard, any issues in complying with
such anti-corruption policies have to be immediately conveyed to the administrative head or the
board of directors.
Change in Regime:
It is worth mentioning that Mexico has been warned by the critics of presidential regimes
for its sudden transition from an authoritarian state to democratic republic (Hovhannisyan and
Keller 2015). It has been argued by modern critics on different grounds that presidential regimes

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are subjected to political dilemmas, sudden changes in policies and government disorders (Ibarra
and Blecker 2015). In this regard, it has been pointed out by modern scholars that as a result
presidential regime in Mexico there has been separate formation of the executive and cabinet
which created conflict in making policies between different branches of the government. As
witnessed by modern scholars, as a result of such conflict there have been frequent changes in
government policies which in future gave rise to policy deadlock and government inefficiency
(Ibarra and Blecker 2015). It has been noted by various authors that as a result of the structure of
presidential democracy in Mexico the government has been inefficient in delivering policies
which addresses to the threats of the democratic regimes. It has been pointed out by modern
autocrats that in some cases democracy fails to respond effectively to the demands of the
political actors. Therefore in such process these political actors seek assistance of the
authoritarian states by crossing the barriers of constitutional orders. It is worth noting that these
issues are prevalent in crisis-prone areas of Mexico.
It can be emphasized that as a result of sudden transition of the Mexican government
towards political democratization there have been active interaction between domestic and
international organizations. According to the theory of modernization, the authoritarian rulers
were of the opinion that with the advent of extensive market reforms under the rule of
authoritarian government there has been drastic economical development which increased the
demand for political representation (Solar 2015). Political disturbance and economic
liberalization is a major issue in Mexico (Tate et al. 2014). However with the adoption of North
American Free Trade Agreement (NAFTA) in 1994 by Mexico, various market reforms were
established.

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In this regard it can be stated that as a result of the sudden change from authoritarian state
to democratic republic on the part of the Mexican government, the foreign investors are finding it
difficult to set up new business ventures. As pointed out by authoritarian rules, due to the nature
of the presidential regime in Mexico there is an existence of political instability and weak
government activities (Valenzuela 2014). Therefore global investors are more concerned about
the present condition of Mexico in regard to its political regime and governmental policies which
will negatively impact the interests of the foreign investors by creating restrictions to business
establishment. It can be mentioned that by signing the North American Free Trade Agreement
(NAFTA) the Mexican government have efficiently interacted with international investors and
therefore was vested with an opportunity of working with competitive partners. However, the
adoption of NAFTA shall not free Mexico from the prevailing social and political evils.
It can be observed that for the successful operation of economic liberalization in Mexico
the three defining features of the Mexican political framework have to be present. These political
frameworks can be emphasized as presidential regime, dominance of one party and corporatism.
However, in order to make new changes in the political system the Mexican government faced
various challenges in dealing with the new bases of both social and political obligations
supporting the emerging market reforms.
It is evident that countries which adopted the concept of neo-liberalism as in association
with the enumeration of a new political party. However, the concept of neo-liberalism was
adopted in Mexico by the Institutional Revolutionary Party itself and thereby faced a major
electoral setback (Vivarelli 2014). It can be observed that during such regime, due to
privatization of state owned-enterprises the industrial workers, the middle class workers as well
as the public employees suffered majorly as a result of it. It can be observed that both neo-

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liberalism and NAFTA were adopted as an initiative of the State. However, the most important
concern was regarding the admissibility of a private sector as a privileged member of the State.
With the adoption of free trade policies by signing the North American Free Trade Agreement by
the Mexican government created favorable impact on the Mexican trade policy. In this process
the political influence f the leaders over trade declined overtime. Therefore, as a result of the
adoption of free trade policies on the part of the Mexican government foreign investors are
willing to set up business in Mexico in spite of the prevailing political instabilities.
Political Unrest:
It has been presumed by various scholars that NAFTA side agreements have been
addressing the issues related to environmental and political instability (Smimou 2014). It has
been emphasized by modern scholars that as a result of existing political instability in Mexico
make it difficult for the international investors to conduct business activities there. In addition to
this, the economists are of the view that with the adoption of NAFTA, the foreign companies
were successful in conducting business in Mexico. In recent years, it can be observed that
investors have started to initiate new business landscapes in the Mexican topography.
Modern authors emphasized that due to the existence of political instability in Mexico it
created huge impact on the economic growth of the country (Pimentel 2017). As a result of such
political instability in Mexico there has been an increase in political uncertainty which
discouraged foreign investment to large extent. However, it is true that foreign investors in order
to develop business in a developing country prefer a secure political environment. In this regard,
it can be noted that when political changes takes place causing violence individuals engage
themselves into revolutionary activities rather than productive actions (Sikka and Lehman 2015).

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In this process there has been diversion from economic activities which discouraged foreign
investment in Mexico at a large scale and as a result of this different forms of violent activities
took places which caused great loss which hampered both economic and political wellbeing.
Modern autocrats opined that as a result of prolonged political uncertainty in Mexico, the
implementation of public programs took place which hampered the development of international
business (Oliva 2015). However, public investment was also hampered as a result of political
uncertainty. It can be observed that political uncertainty lasted in Mexico for a long time and
during that time the administrative changes took place with the help of armed movements which
was a common practice of the Mexican government in the early period. It was pointed out by
modern authors that as a result of existing instability between political and economic condition in
Mexico during post-independence the growth of foreign business was hampered (Olavarrieta and
Villena 2014). The existing political turbulence deprived foreign investors from further
investment into settling up a business venture in Mexico.
Scholars were of the perspective that the predictability of government policies for foreign
companies is lower due to the existence of political instability (Martin and Javalgi 2016).
Therefore, it has been difficult for international companies to develop their business in Mexico
by formulating favorable plans for investment and consumption. As pointed out by modern
authors due to the prevalence of political uncertainty for a long period the foreign companies
became more concerned about the social security system which gradually increased
precautionary saving and recession (Müller 2016). However, with the change in government
policies which are associated with economic subsidies and taxation has favorable impact on the
purchasing decision of the consumer. It can be mentioned that this sudden change in government
outlook facilitated the emergence of international business in Mexico.

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It is worth noting that foreign companies which are engaged in the investments of
equipments and human resources often find it difficult in hiring new employees (Mansfield and
Reinhardt 2015). This is because the hiring process is quite time consuming and at the same time
the foreign investors faces various obstacles while investing on new employees in a developing
country prone to political disruptions. In this context, it can be stated that various other
international institutions and policies had several predictability on the decisions of the
international investments. As a result of existing political uncertainty in Mexico it has raised the
value of international investments (Kassem and Higson 2016). In this regard, foreign investors
are willing to invest in a situation of political uncertainty however; the international business
ventures generally hold back their decision on investments and consumption until the issue is
resolved. In this regard, it has been mentioned by modern economists that as a result of existing
political uncertainty it greatly influenced the environmental regulations and labor markets in
Mexico which has favorable effects on international business investments (Karabarbounis 2014).
However, such impact on regulations and labor markets shall create great impact not only on
short-term international investment but also on long-term economic development in Mexico.
Conclusion:
In the conclusion it can be stated that the essay was commissioned to examine the
existing political structure of Mexico by taking into consideration various processes while
evaluating the political instability in Mexico. It is noteworthy to mention here that due to the
prevalence of corruption, various international investors were not able to invest in Mexico.
However, in recent years Mexico has made favorable attempts to eliminate corruption and has
succeeded. Various legislative and operational methods were applied by the Mexican
government for the purpose of combating corruption to large extent. In this regard, it has been

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argued by authoritarian rulers that economic stability can be achieved in Mexico if the Mexican
government shifts from democratic republic to authoritarian regime. However, the nature of
international business is highly sensitive and therefore any international business venture cannot
operate business in an environment which is at political risk. In this context, it can be stated that
it is important on the part of international firms to develop separate strategic policies of its own
in order to avoid political hurdles. It is essential that before establishing business in areas of
political instability international firms should conduct various researches with the help of experts
by implementing both historical data and macro-orientation. In this regard it can be rightly stated
that Mexico being a developing economy should focus on developmental plans rather than
developing new political policies. It is noteworthy to mention in this regard that Mexico is
suitable for foreign investment and therefore it should focus on creating a favorable atmosphere
so that international firms could readily invest in it. It can be finally concluded that in this way
international business shall flourish in Mexico.

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