Alex Kickert in Chicago founded Kickert Global Energy Enterprises (KGEE) back in 1976. He established the company with the hope of supplying high-quality oil products across the United States. He, however, had to commence business operations within Texas before establishing supply chains in other states including Illinois. During the initial stages of setting up the company, business rivals believed Kickert’s business vision was not sustainable. The business venture, however, succeeded in producing and supplying quality oil products. Initially, Kickert had to hire five employees who were in charge of packaging, transporting, and supplying the product. Within three years, the KGEE expanded substantially and hired 120 employees. The decision to hire a large group of fresh talents was prompted by the company’s rapid increase and expansion. More so, Kickert had acquired oil extraction equipment and an oil field at that point. Thus, the company was capable of extracting and supplying the product to a wide range of loyal customers across the country at low operational costs.
In a recent interview with Business Weekly, Kickert discussed the factors he believed made the company continuously succeed, grow, and expand internationally. He asserted that he established the company with the vision of supplying quality oil products to the nation. Currently, the company supplies the product internationally to several nations like India and the Philippines, not to mention African countries. It has managed to expand operations worldwide and established branches in Asia, Europe, and Africa with the parent company in the U.S. This report focuses on how KGEE can supply oil to Mexico, which enables the analysis of trade issues between the U.S. and Mexico.
- Trade Issues between the U.S. and Mexico
Through the administration of President-elect Donald Trump, the U.S. government has initiated civil discussions with Mexico about trade imbalances and other relevant issues (Arcega, 2017). The government believes that Mexico has taken advantage of the country for a long time, which results in trade deficits. The measures implemented to secure the borders between the two nations have also been insufficient. It is, however, evident that bilateral trade in goods and services between both nations has been massive. For example, more than five hundred billion dollars were recorded in 2015 through the bilateral trade in goods and services between the two nations (Arcega, 2017). The United States Trade Representative Reports affirm that total exports to Mexico amounted more than two hundred and sixty billion dollars (Arcega, 2017). Conversely, Mexican imports to the U.S. were slightly above three hundred billion dollars. Therefore, this affirms that the U.S. was left with a trade deficit of at least forty-nine billion dollars (Arcega, 2017).
- Why Mexico?
Being the third-largest supplier of goods imported to the U.S., Mexico is also the second-largest export market, which supports more than one million employment opportunities in America. NAFTA has led to the rise of the U.S.’s exports by 468%, which accounts for nearly 16% of the country’s overall exports (Arcega, 2017). Economists, however, acknowledge that trade between the countries is quite complicated. Regarding the KGEE, it is striving to commence operations of supplying oil products to Mexico in large quantities. Therefore, such a situation makes Mexico the largest market and the closest trading partner of the company (Arcega, 2017). However, the current renegotiations on trade deals under the new presidential administration have been adversely affecting the KGEE’s operations and activities. For example, Mexico has created a continental supply chain with Russia and Canada. Consequently, the KGEE has had to reduce the prices of the product in attempt to maintain the operations aimed at establishing a supply chain of oil from the U.S. to Mexico. Thus, the KGEE is now competing with Russian and Canadian oil refinery companies, which are likely to disrupt the business relationship that has not yet been established.
- Company’s Mission and Vision
The company’s vision is to supply oil while improving the standards of living within the Texas region. This vision serves as the desire to improve economic, social, living, and health conditions. Similarly, the company’s mission is to sustain economic activities and corporate social responsibilities, such as helping poverty-stricken communities by supplying them with water and other basic commodities including medicine and food. Consequently, it can motivate the community members to get educational opportunities and seek employment to improve the current conditions within their societies.
- The Company’s Overall Global Strategy.
KGEE has successfully implemented its strategy aimed at expanding globally by ensuring its corporate objectives are met in a timely manner and effective human resource practices are applied. KNEE believes it is vital for a business venture to establish clear formulation and implementation of both long-term and short-term objectives. Thus, the KGEE’s business objectives are nothing else but precise results that the corporation strives to attain within a specific period.
Therefore, Kickert and the board of directors establish the company’s global objectives annually. This approach guarantees that the KGEE takes sufficient measures to pursue its global strategy and accomplish specific organizational goals internationally. The company has also strived to identify investors and stakeholders that can assist the KGEE to attain consistent growth and global expansion. Furthermore, the company is keen to ensure it does not attain global expansion by means of compromising the ability to fulfill consumer needs and wants.
Therefore, the roles of the employees are determined by the annual objectives the company strives to attain (Damodaran, 2008). Thus, the KGEE ensures that its goals and objectives are communicated clearly, which guarantees that the employees identify, understand, and pursue the company’s state of direction to attain global success by establishing trading relations with countries like Mexico. More so, the clearly defined objectives assist employees in identifying measures needed to create synergy while planning, coordinating, controlling, managing, and organizing functions and operations aimed at attaining the global success of the company. KGEE has also acknowledged that it is crucial for employers to understand the objectives of the company well and be able to determine, evaluate, and assess the overall operations and functions of the global business entity.
- SWOT Analysis of the KGEE’s Decision to Move Product into Mexico
Mexico implements measures aimed at reforming the nation’s economy, mainly in the energy sector. Consequently, the U.S. Congress manages security between the U.S. and Mexico borders while focusing on the ongoing bilateral efforts to promote economic competitiveness. Congress believes the economic competitiveness will increase regulatory cooperation and help pursue the efficiency of the integration between the two nations. This resulted in the launch of the U.S.-Mexico High-Level Economic Dialogue (HLED) back in 2013. It helps business entities to determine economic and commercial priorities. More so, it encourages annual meetings held by leaders from the public and private sectors who seek to benefit socioeconomically (Villarreal, 2016). KGEE, therefore, believes HLED can align regulatory principles between the two nations to develop bilateral initiatives aimed at improving border management. Consequently, the company can establish a profitable trading relationship with Mexico.
Since Mexico’s President took the oath of office on December 1, 2012, he has successfully implemented some socioeconomic and sociopolitical reforms. For example, he has ensured the private sector is open to private investment, which counters monopolistic practices that the KGEE has been pursuing in attempts to ensure an increase in the quantities of oil products imported to Mexico. The president also endorsed an active international trade policy. The policy aims to increase Mexico’s trading activities with international markets (Villarreal, 2016). This policy threatens the KGEE’s trading objectives annually. Currently, the KGEE does not guarantee that it will attain its annual objectives aimed at establishing a profitable relationship with Mexico by the end of 2017. This is because the new presidential administration of the U.S. is likely to sever further the relationship between the two nations if trade barriers are introduced.
Mexico is the third-largest trading partner of the U.S. and vice versa. More so, Mexico lists the U.S. as the largest source of Direct Foreign Investment (DFI). This proves that both nations have maintained strong economic ties over the past few decades, especially since NAFTA was signed. While the economic effects of NAFTA have been limited in both nations over the past decades, there is no doubt that these effects have been positive. For example, the costs to some sectors have been adjusted in both nations enabling supply chains between the countries to work together and create goods (Villarreal, 2016). The KGEE, therefore, believes NAFTA is an opportunity for the company to commence and expand the trade of oil products and create vertical supply relations along the border of the two countries.
Currently, all trading activities occurring between the two nations are conducted on a duty- and barrier-free basis under NAFTA. Negotiations are ongoing regarding Trans-Pacific Partnership (TPP). The proposed TPP may affect the trade relations between both nations and influence cross-border investments and trading activities. After TPP was signed as an agreement on February 4, 2016, many economists believe it might change the rules governing trade and investments. For example, the agreement is likely to change how intellectual property rights are protected and the way government procurements are made (Villarreal, 2016). The KGEE, therefore, feels that the TPP agreement is likely to exert influence on workers’ rights and services trade. More so, the U.S. president-elect might rely on the agreement to introduce trade barriers prompting the company to incur expenses while exporting products to Mexico. Ultimately, by establishing a trading relationship with Mexico the company faces the threat of experiencing an increase in operational costs coupled with low returns.
- Mode of Entry
Mexican companies actively seek the best financing options and strive to get exclusive agreements that allow being flexible. The KGEE has identified various entry strategies that can compete with local companies. The company will rely on the product and service strategy. It will, however, have to employ the United States Commercial Service (the U.S.CS) to assess Mexico’s potential for oil products. The U.S.CS is an agency handling exports on behalf of several local companies in the U.S. Therefore, this agency can consult the KGEE on export strategies that will help the company to conclude lucrative business agreements with Mexico. It will also assist in identifying potential clients and partners within Mexico. This strategy, however, will hinder the KGEE to export its products directly into Mexico. Thus, it has to be prepared to give the agency greater control over its brand and operations in Mexico.
The Eclectic Theory is based on the assumption that business ventures ought to avoid transactions in open markets when private transactions incur lower costs (Wruck, 2008). Through the three-tiered frameworks, the KGEE will determine if it is beneficial to pursue the DFI in Mexico. Foremost, the company will open offices in prime locations providing a competitive advantage. This has prompted the company to focus on opening offices in Mexico City, Monterrey, and Guadalajara. The company is also keen to reap ownership advantages. As a result, it has patent rights to the name of the product being introduced into Mexico. Thus, the U.S.CS agency will not have the power of changing the brand’s name or quality as production rights will remain with the company. Finally, the company will benefit from the internalization advantages while relying on the U.S.CS agency to work out different market locations across Mexico. This is because the KGEE believes it can meet the new market’s demands by managing its production without necessarily outsourcing and contracting local producers in Mexico.
- Other Issues
There are a number of functional areas that are likely to be affected after the KGEE establishes a trading relationship with Mexico. Foremost, the marketing strategy applied by the company will have to be reviewed to ensure it captures the needs of Mexican consumers. It has to regulate the financing activities within the company as well. The regulations are vital as they will determine if the decision to gain entry into Mexico will be viable economically. Thus, the company will carefully use the financial resources required to gain entry. Furthermore, the KGEE is ready to pull out if it ascertains the move is not advantageous for the company, either in the short-term or long-term. The company’s legal and financial team will also keenly follow TPP’s regulations as they are likely to influence workers’ rights in Mexico. Finally, it will advise the financial team to set up a financial kit that will address unpredicted events, such as political unrest that can arise in case the new presidential administration in the U.S. adversely affects the trading relationship with Mexico. The kit will also address natural disasters likely to encumber entry into Mexico.
In conclusion, there is no doubt that the KGEE should pursue efforts to gain entry into Mexico. However, the top management of the company must be aware of the fact that the new market may exert adverse influence upon the company’s vision, mission, and objectives, and be ready to withdraw from the market in case that happens. For example, the process of establishing a trading relationship with Mexico should not interfere with the relations that the KGEE maintains with other foreign markets across Asia, Africa, and South America. Ultimately, the KGEE should ensure the new global strategy attains socio-economic and political advantages.
Arcega, M. (2017). US trade with Mexico is a complicated issue. VOA News. Retrieved from https://www.voanews.com/a/united-state-trade-with-mexico-complicated-issue/3695967.html
Damodaran, A. (2008). The origins of growth: Past growth, predicted growth and fundamental growth. Stern School of Business.
Villarreal, M. A. (2016). U.S.-Mexico economic relations: Trends, issues, and implications. Washington, DC: Congressional Research Service, Library of Congress.
Wruck, K. H. (2008). Private equity, corporate governance, and the reinvention of the market for corporate control. Journal of Applied Corporate Finance, 20(3), 8-21.