1. In general terms, what are the pros and cons for Mad Science of
expanding into the Mexican market?

In general terms, the following pros and cons can be identified:

Pros:

• Mexico’s population is large and relatively young
• Mexico has an economic elite and a growing middle class that would be good targets for Mad Science
• Many consumer products and services from Canada and the US are growing in popularity in Mexico
• Mexico might be a good test market for other Latin American countries

Cons:

• Although Mexico is a member of NAFTA, it is clear that there are differences between the three signatory nations. Those between Canada and the US are much less than those with Mexico. Therefore, further expansion within Canada and the US would be less risky growth avenues than entry into Mexico. These risks need to be weighed carefully
• An affluent middle class is emerging, however, Mexico has traditionally been a country with a small and wealthy elite and a large and poor peasant class. Therefore, the potential may be less than it first seems
• Mad Science pricing may be too expensive to generate much business in Mexico. (It is not clear how much price adaptation Mad Science permits its franchisees to make)
• In some ways Mexico is a Latin American country (e.g. language, cultural and historical similarities) but in other ways, it is not (e.g. economically its ties are more within North America and to Europe than with the rest of Latin America). This means that Mexico may not provide a good test market for Mad Science expansion in other Latin American markets.

2. What specific issues arise out of the economic, cultural and franchising information presented in the case?

The relevant material to be considered is contained in Tables 1 through 5. Some students will make the point that companies should collect considerably more information at this preliminary stage. This is borne out by most international marketing textbooks, which include long lists of factors that need to be considered in selecting markets.[1]However, the reality is that most SMEs use simplifying approaches to market selection because they do not have the resources to conduct very detailed research and analysis. Accordingly, a sampling of information that a SME such as Mad Science might consider is provided, sufficient for a useful discussion of major issues. Better students are also likely to criticize Mad Science for jumping straight to research on the Mexican market when a preferred approach would be to look at a matrix of market possibilities.[2]Although not defending such an approach (and it is not known how many markets Mad Science was considering along with Mexico), this is another simplifying strategy that SMEs often use.

With these comments in mind, we now assess the information provided.

Economic:

• The EIU report (Table 1) points to Mexico’s economic progress in recent years but reminds us that it is still a developing economy with banking and capital market weaknesses, and different patterns of spending compared to developed nations such as Canada and the US. Mexico earns a country risk rating of “C”, halfway between the highest and weakest country ratings.
• The statistics presented in Table 2 show that: Mexico’s (1) economy approaches the size of Canada’s (but both are dwarfed by that of the US); (2) GDP growth and per capita growth were negative for 2001; (3) consumption growth was on a par with Canada and the US; (4) inflation was more than twice the rate of Canada and the US; (5) population is three times that of Canada but one-third that of the US; (6) population growth is almost 50% greater than Canada and the US; (7) population is young compared to Canada and the US, and (8) has lower levels of television ownership and cable service than Canada and the US.

Cultural:

• Hofstede’s research (Table 3) shows that compared to Canada and the US, Mexico: (1) is a high power distance country (i.e. people feel separated from each other in daily work relationships); (2) is more collectivist (i.e. people have a group mentality and prefer to maintain harmony); (3) is high on uncertainty avoidance (i.e. regard uncertainty as bad and focus on its reduction); and (4) is somewhat more masculine (i.e. there is a greater emphasis on assertiveness, success etc.).

Franchising:

• Table 4 presents results from a franchising study and Table 5 provides information on Mad Science requirements.
• The study results show in general that franchise success and failure factors are viewed differently in Mexico from Canada and the US. Specifically, for success factors system quality and communication factors have greater impact. For failure, franchisor and franchisee factors had greater impact in Mexico (Table 4).
• Table 5 sets out the standard Mad Science franchise requirements as posted on their web site. These conditions have clearly worked well in Canada and the US, as well as in some undisclosed international markets. All (or none) of the requirements might be reasonable for Mexico.

What can be learned from the above comments? The principal lesson is that Mexico (1) is a market with strong potential but some concerns, (2) marked cultural differences from Mad Science’s major markets of Canada and the US, and (3) differing perceptions about franchising. These preliminary findings probably merit further investigation of the market, which would have a more detailed and specific focus. For example, an important aspect would be to discover whether in practical terms, the requirements set out in Table 5 would work in Mexico. This research could be conducted in and/or from Canada through meetings or telephone discussions with knowledgeable persons. Another approach is to visit the market at first-hand.

3. Does it make sense for Mad Science to participate in the trade mission to Mexico? If so, what objectives would you set for the visit to Mexico?

Visits are a good way to do an on-the-ground investigation of a market. When a visit takes place through a government organized trade mission, there are additional benefits. For example, (1) many of the organizational details (travel, hotels, meetings) are arranged by somebody else, (2) the Embassy can often open doors that individuals or companies cannot, and (3) resources and energies are focused for a few days on trade development. Further, a ministerial-led mission has high profile and gets even more local attention. Often, the cost of participation in a trade mission (and other trade development activities) shared with companies expected to reimburse the government share from subsequent trade revenues.

Market visits can be an invaluable source of information. There is no real substitute for visiting a market, meeting people, and sensing how business might develop. For Mad Science, for example, a lot of specific information and impressions could be collected very efficiently over the course of a few days. If the initial soundings seem positive, a return visit can be made at later date. Therefore, there seems no reason not to participate in the Mexico trade mission mentioned in the case. Objectives for the mission might be as follows:

• Meet the trade commissioner responsible for Mad Science’s sector to discuss market prospects, determine whether there are competitors, and identify useful Mexican contacts
• Visit retail stores related to Mad Science’s business (e.g. book stores, science and fantasy stores, games stores)
• Meet with officials of Mexican franchising association
• Solicit names of potential franchisees
• Speak with school teachers to determine parent and child interest in science out-of-school science activities (this might be more difficult to arrange)

Epilogue

Mad Science did expand into the Mexican market in 2001. The company took part in the trade mission and was helped by officials at the Canadian Embassy in Mexico City. Canadian trade commissioners at the International Trade Centre in Montreal also provided assistance. Research data as well as impressions from the visit to Mexico satisfied Mad Science management that Mexico was the market in Latin America with the greatest short- to medium-term potential.

Mad Science considered three franchisee applicants and an exclusive franchise agreement was awarded to a Mexican firm active in the children’s entertainment business. Since that time, thousands of Mexican children have increased their level of scientific literacy and had fun as a result of the franchisee’s activities. Mad Science’s experiences in Mexico led it to initiatives in Guatemala, Peru, Puerto Rico and Venezuela (“Export growth down to a science”, 2004).

Despite this venture into Latin America, Mad Science has seen its recent growth come about in the US market (“The Mad Science Group,” 2005).