PESTLIED ANALYSIS

Mexico & Peru

Contents
Introduction.................................................................................................................................................2
1. Research Frame.......................................................................................................................................3
1.1 Background........................................................................................................................................3
1.2 Problem Analysis...............................................................................................................................4
1.3 Problem Statement............................................................................................................................4
1.4 Scope.................................................................................................................................................4
1.5 Theoretical Scope..............................................................................................................................5
1.6 Framework of Research Questions....................................................................................................6
1.7 Research Objectives...........................................................................................................................6
2. Methodology...........................................................................................................................................7
3. Political Factors........................................................................................................................................8
5. Social (-Cultural) Factors........................................................................................................................11
6. Technological Factors............................................................................................................................13
7. Legal Factors..........................................................................................................................................14
8. International Factors.............................................................................................................................16
9. Environmental and Ecological Factors...................................................................................................17
10. Demographic factors...........................................................................................................................19
11. Argument Map....................................................................................................................................21
Conclusion.................................................................................................................................................22
Bibliography...............................................................................................................................................23
Introduction
This report is the outcome of the PESTLIED analysis concerning the macro environment of Mexico and
Peru. Kellogg’s decision to expand Rice Krispies to one of the mentioned countries is closely related to
and dependent on this inquiry. Each of the PESTLIED factors, covered in separate chapters, covers
relevant key points that support the final decision.
1. Research Frame
1.1 Background
The Kellogg’s Company, incorporated on December 11, 1922, is an American multinational manufacturer
of ready-to-eat and convenience foods, such as cookies, crackers, savory snacks, toaster pastries, cereal
bars, fruit-flavored snacks, frozen waffles and veggie foods. Kellogg’s brands include Froot Loops, Apple
Jacks, Corn Flakes, Frosted Flakes, Rice Krispies, Special K, Pringles, Pop-Tarts, Cheez-It, Eggo, Nutri-Grain
and many more. The company’s headquarters is situated in Battle Creek, Michigan, United States, while
its products are manufactured in a total of 18 countries [CITATION Kel17 \l 1033 ].

Our chosen brand, Rice Krispies, first appeared on the market in 1928. Adding milk to the cereal creates
the famous crackling sound Rice Krispies is known for. When it comes to product availability, Rice
Krispies can be found in the United States, Canada, United Kingdom and Ireland [CITATION Kel17 \l 1033
].

The most promising countries in terms of expansion, should Kellogg’s decide to do so with Rice Krispies,
seem to be Mexico and Peru. Rice Krispies has not been made available yet in these two countries,
although both countries offer great business opportunities. Thanks to the North-American Free Trade
Agreement (NAFTA), there are very few restrictions set for non-Mexican residents on the possibility of
owning and operating a business in Mexico [CITATION ust17 \l 1033 ] . However, in terms of economic
success, Peru has a more stable and promising economy. Peru’s economy has seen an average growth of
6.4 percent on a yearly basis since 2002 and is projected to continue growing for years to come
[ CITATION Per17 \l 1033 ]..

If Kellogg’s should proceed to expand their brand, Rice Krispies, the company should take into
consideration the current trends in both countries. For instance, Peru and Mexico are experiencing an
education improvement trend, which Kellogg’s can highly benefit from [ CITATION Cra17 \l 1033 ] .
. An improvement in education leads to a better educated and skilled population, knowledge and skills
that can be put towards increasing efficiency and effectiveness in all areas of the company.

Substitute products are also to be taken into consideration. Kellogg’s biggest competitor in Peru would
be Alicorp, which offers the leading brand in breakfast cereals, Cereales Angel [CITATION Eur16 \l 1033 ].

. The advantage Kellogg has in Mexico is that the company offers 11 already leading brands on the
breakfast cereal market [ CITATION Eur161 \l 1033 ]. .
1.2 Problem Analysis
The problem at hand is that the management department of Kellogg’s needs to decide whether one or
the other targeted markets, Mexico or Peru, is preferred to expand the Rice Krispies cereal to.
Considering the current state of the company, after reporting steep losses between 2014 to 2016, the
development decision is a means to improve sales, profits and brand reputation. Encountered difficulties
when trying to make this decision are the lack of information and the degree of profitability resulted
from the expansion. The problem solution is supported by the conducted research that evaluates the
environments of both countries.

1.3 Problem Statement

Since we want to expand our Rice Krispies to either Mexico or Peru, we have to find out which of them
will be the best. In order to know that, it is important to find out what the marketing decision problem is
and what the marketing research problem is. To start with the marketing decision problem, that is about
confronting the marketing decision-maker, it is about the decisions he makes. So, since we need to
introduce the Rice Krispies to both of the countries, we need to find out if we can create a good market
and if it will be profitable.

Secondly there is the marketing research problem, that is a problem that entails determining what
information is needed and how it can be obtained in the best way possible. To know if the two countries
are relevant for this product, we need to find out through the PESTLIED model which one is the best. In
order to know which country is the most beneficial, we need to take all the PESTLIED letters into
consideration and based on the facts make a choice which country is the best.

1.4 Scope
In the next six weeks, we will research which country is more profitable to expand Rice Krispies to. The
inquiry will be carried out by taking into account all factors of the PESTLIED analysis.

To narrow the scope:

· Regions: Mexico and Peru. For both countries, the most prosperous cities are investigated

· Time: Most factors are covered by events which have occurred in the last 5 years

· Population: The targeted demographic segments are young people under 18 years old and
young families

· Products: Rice Krispies. Also, opportunities for future development of other Kellogg’s products
are to be mentioned
 · Research Method: The analysis of the two environments is conducted through quantitative
research, by using of databanks, the company’s yearly rapports and the customer consumption
behavior.

1.5 Theoretical Scope

As mentioned before, the PESTLIED model will be implemented during this study. In order to make this
model as efficient and reliable possible, we will have to research some important key points per letter.

Political: For the political aspect of the PESTLIED analysis we are going to find out what the government
tax policy is and how the government will influence the industry of the product. This will be researched
for both countries.

Economic: For the economic aspect of the analysis we will have to take into account a number of points
for each country, but the most important points we have to research are: The economic system, the
GDP (per capita), the economic growth and the unemployment rate. These points will be researched
over a time span of 5 years for both countries.

Social: It is important to find out the lifestyle and trend of the people in each country and how we can
introduce our product in that particular lifestyle.

Technology: How much the country invests in technology and how it’s beneficial for our product.

Legal: At this point we will have to find out what the rules are regarding our product and if we can
introduce the product without any problem regarding the law.

International: We are going to find out if the countries of choice are in any trade associations and how
we can benefit from that. It’s also important to find out the exchange rate of both countries.

Environmental: Here it’s important to research the cost of electricity and water for both countries, what
the better option is regarding these two and the recycling rules of the countries.

Demographic: In the demographic aspect of this model it’s necessary to find out the population size of
each country, the birth rate and the distribution of age, because it’s important to see where we can
reach our target group the best and in which country our target group is dominant.
1.6 Framework of Research Questions
The research question is: Which of these two countries, Mexico and Peru, are suitable for the expansion
of the Brand?
Sub questions:
1. What is the political situation of the country and how can it affect Kellogg’s plan to expand in
that country?
2. What is the economic state of the country and what are the dominant economic factors?
3. What are the social advantages for expansion in the country?
4. What are the technological opportunities for the brand in both countries?
5. What is the legal environment of Mexico and Peru?
6. What are the international opportunities and threats for the brand?
7. Which environmental factors are relevant for the expansion?
8. What is the demographic state of Mexico and Peru?

1.7 Research Objectives

2. Methodology
Key to this phase is to ensure the validity and reliability of the information, which will be done through
triangulation. This technique will facilitate our process of data validation, where multiple data sources
will be compared to determine the consistency of our findings, assuring more concrete and valid
answers to our questions and sub questions. These are the search questions and sub questions which
need to be researched and answered in order to complete the PESTLIED analysis on both countries:

Sub question 1: What is the political situation of the country and how can it affect Kellogg’s plan to
expand in that country? 
Search question: What are the governmental influences on the industry in Mexico and Peru? 
Search parameters: Vat, Tax rate and Political system.

Sub question 2: What is the economic state of the country and what are the dominant economic
factors?
Search question: What is the GDP of Mexico and Peru?
Search question: What is the unemployment rate of Mexico compared to Peru?
Search parameter: GDP, GDP per capita, GINI Index, CPI and Unemployment rate.

Sub question 3: What are the social advantages for expansion in the country?
Search question: What is the buying behavior of Mexico and Peru?
Search question: How does the lifestyle patterns affect the expansion in Peru and Mexico? 
Search parameter: Lifestyle patterns and social–cultural dimension.

Sub question 4: What are the technological opportunities for the brand in both countries? 
Search question: What are the technological developments opportunities for Rice Krispies?
Search question: How does the Gross capital stock influence the expansion in Peru and in Mexico?
Search parameter: Technological development, Gross capital stock and Gross fixed investments.

Sub question 5: What is the legal environment of Mexico and Peru?

Search question: How does the legal system influence the expansion in Mexico and Peru?
Search question: What is the product liability in Peru and in Mexico?
Search parameter: Legal system, Product liability and Minimum wage law.

Sub question 6: What are the international opportunities and threats for the brand?
Search question: What are the international exchange rates for Peru and Mexico?
Search parameter: Trade associations, Exchange rate and Trade tariffs.

Sub question 7: Which environmental factors are relevant for the expansion?
Search question: What are the effects of pollution for the industry in Peru and Mexico?
Search parameter: Cost of water, Cost of energy and Climate.

Sub question 8: What is the demographic state of Mexico and Peru?

Search question: What is the population size of Mexico and of Peru?
Search question: What is the distribution of the population over Peru compared to Mexico?
Search parameter: Birth rate, Population size and Age distribution.
3. Political Factors
This chapter highlights the main political characteristics, relevant events and the government’s
involvement in the business operations

The general Peruvian elections of 2016 named Pedro Pablo Kuczynski Godard president. His center
right party, Peruvians for Change (PPK), largely supports businesses but it relies on the approvals of the
majority of Congress owned by the right-wing party Fuerza Popular. However, the elections taking place
in 2018 in Mexico threatens to implement changes in the government’s pro-business reforms.

 Tax rate (% of profit): 52% (Mexico) vs. 35.6% (Peru)

 Enforcing a contract: 350 days (Mexico) vs. 426 days (Peru)
 Registering Property: 42 days (Mexico) vs. 7 days (Peru)
 
Besides exporting, if management decides to take advantage of our existing presence in Mexico and
expand the production facilities or open a new one for our specific product, it should take into
consideration that 2018 business reforms in Mexico have made it costlier to register properties and deal
with construction permits. Also, tax rates are significantly higher. (
http://www.doingbusiness.org/reforms/overview/economy/mexico )

As a first step of entering the Peruvian market, indirect exporting from the US would not require
great risk or facility purchasing. Even with greater investments, the lower tax rate, fewer days required
to register a property and the stability of the system would present an advantage.
(http://www.doingbusiness.org/data )

The Mexican government has been focused on its crucial relations with the United States, which is
threatening to renegotiate the NAFTA, representing a major threat for businesses and trade. [ CITATION
Mex17 \l 1033 ]. According to the World Bank rankings, political stability and the level of corruption in
Mexico are significantly higher when compared to Peru.
(http://info.worldbank.org/governance/wgi/index.aspx#home ) Corruption, terrorism and violence in
Mexico are major threats to civilians as well as businesses in the country and their relationship with the
government and the recent corruption scandal of Brazilian firm Odebrecht has triggered major alarm
signals. (https://search-proquest-
com.ezproxy.hro.nl/docview/1910402756/fulltextPDF/54F4DA03F8404A33PQ/3?accountid=110101)

An important factor to take into account when expanding to a country is the VAT rate for that
country. Peru had a VAT rate of 18% up until 2017, where the rate decreased to 17% and is expected to
remain around 18% for the coming years [CITATION Tra17 \l 1033 ] . In contrast to Mexico, there is not a
big difference in VAT rates. The Mexican government implemented a VAT rate of 16% in 1980, which has
not experienced much fluctuations and is expected to remain 16% [CITATION Mex171 \l 1033 ].

Based on the executed political analysis, Peru would be the most preferable country to expand
to. Political stability is greater in Peru compared to Mexico and the Peruvian government is not highly
dependent on choices of other countries, whereas Mexico is currently in distress due to Donald Trump’s
election as president and corruption.
4. Economic Factors
This chapter offers a short introduction to the economic systems and informs about the most
important economic factors and how they influence both economies.

Mexico has a free market economy based on agriculture, manufacturing and mining but also on
services, especially coming from the private sector. The country has 42 FTAs and is part of the Pacific
Trade Agreement.

MEXICO 2012 2013 2014 2015 2016

GDP growth (%) 4.0 1.4 2.3 2.6 2.3
GDP (billion USD) 1,187 1,262 1,298 1,151 1,046
GDP per capita in USD 9,820 10,298 10,452 9,143 8,201
GINI index
Population (million) 120.8 122.5 124.2 125.8 127.5
CPI (%) 4.1 3.8 4.0 2.7 2.8
Unemployment rate (% of labor force) 4.8 5.0 5.2 4.3 3.8
Public sector net borrowing (trillion USD) 30.8 32.9 36.9 40.9 31.6
Current Account (billion USD) -17.0 -30.9 -26.2 -33.3 -27.8
Table 1.1 Mexico’s Economic Factors (https://data.worldbank.org/country/mexico)

Weaknesses

 The unemployment rate is 4,0%, but according to the CIA website it could be as high as 25%.
This means less income and less buying power for the consumers.
 50% of Mexico’s GPD is a result to the trade with the US. However, Trump intends to increase
taxes on Mexican products and break the trade agreement, leading to a decrease in economy
and increase in inflation.

Strengths

 The consumer price inflation has decreased which implies more spending, therefore more
profits and better changes of successfully operating on the Mexican market
 The GPD has grown significantly since 2013, resulting in an increase in the disposable income
per household.

Peru’s economy is dependent on minerals, even though its biggest industry is services. The
country also has one of the highest GDP growth in Latin America.
 PERU 2012 2013 2014 2015 2016
GDP growth (%) 6.1 5.9 2.4 3.3 3.9
GDP in USD (billion) 192.64 201.21 201.05 189.21 192.09
GDP per capita in USD 6,387 6,583 6,491 6,030 6,045
GINI index
Population (million) 30.1 30.5 30.9 31.3 31.7
CPI (%) 3.7 2.8 3.2 3.6 3.6
Unemployment rate (% of labor force) 6.8 5.9 6.0 6.4 6.7
Public sector net borrowing
Current Account in USD (billion) -5.1 -8.5 -8.1 -9.2
Table 1.2 Peru’s Economic Factors (https://data.worldbank.org/country/peru)

Weaknesses

 The unemployment in Peru was measured in their capital city, Lima. In rural areas, where the
majority of the population lives, the rate is even higher. Therefore, the majority of consumers
has less spending capital and is more cautious when it comes to purchasing products.
 The inflation has risen over the last few years, making our new product costlier to import to
Peru and more challenging to promote.

Strengths

 The economy continued to grow, which leads to more welfare and more government or
foreign investments. This could result in more supermarkets or a better infrastructure, which
offers Rice Krispies more contracting opportunities and better transport.
 The GDP per capita kept on growing since 2011 and higher income implies more buying
power and an increase in Kellogg’s profits.

After comparing both countries, the conclusion is that better opportunities for successful
expansion are coming from Mexico. The population has a higher income and lower inflation more
population and has more trade agreements their GINI index is also lower so there is more equality in
buying force.
5. Social (-Cultural) Factors
This chapter contains an overview of the culture diversity of the two countries and the new influences
they encounter, as well as an analysis of two dimensions: Hofstede’s indulgence and Hall’s time.

Both in Mexico and Peru the day-to-day household purchases, where our product fits, are usually
performed by wives and are influenced by families and friends. The Mexican consumers expect to be
approached individually by creating brand involvement, relations through promotions and heavy
advertising. Mexico has become largely brand loyal and conscious of the cost-benefit ratio after their
economic crises, therefore more difficult to influence and attract. Mexicans had to choose ready-to-eat
meals, canned or frozen processed foods. However, post-crisis, they are focusing their buying power
towards healthier, whole-foods products. Mexicans are very close to their roots and traditions when it
comes to food choices and recipes. Although the traditional breakfast would consist of tortillas, eggs and
sweet breads, the close influence of the US introduced the typical milk and cereal breakfast, especially to
the younger population. (USDA Foreign Agricultural Service,2011)

The Peruvian consumer behavior has also changed, nowdays focusing their attention on quality and
being interested in trying new products, although only a small segment of the population is willing to
pay top price for packaged and convenient products. Despite Peru’s smaller-scale market caused by
restricted purchasing power and the difficulties their economy has faced, household consumption has
maintained its growth. This reflects the consumer’s confidence in the economy. Regarding the
introduction of our product, research has shown that Peruvians spend 19% of their family income on
cereals, grains and by-products and that about 91% of households have breakfast regularly. Although a
very traditional breakfast might consist of heavy soups or ripe plantain (platano), a regular breakfast
usually contains bread and jam, oatmeal or cereal. (Tony Dunnell, 2017)

Hofstede’s dimension of Indulgence affects both countries differently. In Mexico, the high score of 97
(https://www.hofstede-insights.com/country-comparison/mexico/ ) implies that their culture is open-
minded and has a high freedom of expression. Concerning the external stakeholders, such as the
targeted customers, the high degree of Indulgence influences their market behavior in favor of our
brand’s views and reputation for being lively and fun. Peru, on the other hand, has a relatively low
degree of Indulgence, measured at 46 (https://www.hofstede-insights.com/country-
comparison/peru/ ). Its tendency towards restraint is mostly due to their economic uncertainty and
high degree of femininity. Thus, the population has a lower percentage of content and control and that
influences their buying behavior when trying to introduce new products on the market.

Hall’s dimension of time has different effects on both countries. When establishing meetings with
Peruvian or Mexican business associates, internal stakeholders, the relaxed attitude towards time-
keeping in Peru and the need to reconfirm appointments in Mexico should be taken into consideration.
In Mexico, meetings might also be postponed without warning. Based on this dimension, Mexico has a
monochronic and low context culture and Peru has a polychronic and high context culture. Due to the
fact that Mexicans are low context, negotiations and decisions about the expansion might take longer.
Therefore, Peru’s high context would make facilitate the introduction of Rice Krispies into the Peruvian
market.
To conclude, Rice Krispies would have a better social response from Mexico. In Peru, our company
would face difficulties trying to introduce a new company with new products to a more cautious and
reticent population. Although the countries are similar from many social points of view (similar
traditions, brand loyalty, influences), Mexican consumers are easier to approach since they are more
adaptable to changes and new products and are willing to choose colorful, fun-suggesting products like
the Rice Krispies.
6. Technological Factors
This chapter covers technological developments and advantages of both countries, the population’s
access to internet and how such factors influence the expansion.

A factor that influences the expansion process to a new country is Information Technology. The recent
developments have facilitated the access to information, the ease of communication and the operation
means of businesses. Information Technology affects Kellogg’s and its operations in a number of ways:
by offering social media platforms for online marketing; by storing data and archiving information
extensively accessible to all employees; by easing the communication between national and
international departments, as well as with suppliers and distributors; by improving efficiency in
production, inventory management and transport through innovative systems and machinery.
Concerning the two countries, Peru is lacking in needed infrastructure for online marketing and selling,
while Mexico’s ongoing developments in e-commerce have shown increased efficiency and popularity. 
(export.gov, 2013; export.gov, 2016)

Another technological development that can influence the decision is automatization: the use or
introduction of automatic equipment or processes in facilities, such as production or storage. This
development influences the cereal industry by increasing productivity in factories, where manual labor
has been replaced by machines. According to the publication First Research Industry Profile analysis of
the cereal production industry, innovations in this area are: the twin-screw cooking extruder, which
speeds the cooking process from several hours to 20 minutes, computer-controlled temperature gauges
and highly precise quality control metrics. (First Research, 2014) All these advancements should be
considered for managing the increase in production rate caused by the development plan for Rice
Krispies. Due to Mexico’s close collaborations with the US and Asian countries, such innovations are
quickly adopted.

To assess if Peru or Mexico are expanding and improving their Research and Development (R&D), the
degree of investments needs to be evaluated. The expenditure for R&D includes both private and public
spending. This area improves education of both students and active professionals in a society. In Mexico,
the R&D is 0.55% of GDP, which is 1,046. For Peru, the R&D is 0.12% of GDP, equal to 192. Therefore,
the stronger their economy, the more investments the country makes in R&D.
https://tradingeconomics.com/peru/research-and-development-expenditure-percent-of-gdp-wb-data.html
https://tradingeconomics.com/mexico/research-and-development-expenditure-percent-of-gdp-wb-
data.html

For Kellogg’s to successfully enter and perform in a foreign country, heavy advertising and promotion
needs to be elaborated. In the era of millennials, all relevant news and products need to be easily
accessible through social media or other online platforms. In Mexico, 38.9% of households are
connected to broadband internet, compared with Peru’s 14.7% When comparing the six major
economies of Latin-America, Peru also has the least developed mobile market. However, it is expected
to grow massively, and the marketing department could take great advantage of this. Similar to the
company’s previous promotion campaigns and programs, a combination of in-store and online methods
could successfully be applied in Mexico, but would not be so beneficial in Peru.
https://www.emarketer.com/Report/Mexico-Social-Media-2016-Updated-Forecasts-Key-Growth-Trends/2001710
https://www.emarketer.com/Report/Mobile-Peru-2016-Updated-Forecasts-Key-Growth-Trends/2001823

To conclude, Mexico’s more developed broadcasting channels and generous Research and Development
investments, as well as its close international ties that promote innovations and technological
improvements would better benefit the introduction of Rice Krispies.

7. Legal Factors
This chapter evaluates the legal factors such as product liability and intellectual property protection as
well as other which influence the expansion process.
The legal systems in Peru as well as in Mexico are based on Spanish law. Both countries also make use of
the civil law (MarketLine, 2017), which differs from Kellogg’s country of origin, United
States, where common law is mainly used. The main difference between the two legal systems lies in
the wide range of jurisprudence used by the judicial system with common law compared to the strict
compliance with legal codes and minimal jurisprudence of civil law. 

In Mexico, the laws regarding product liability state that the company always has to inform the
consumer about the potential risks to their health. Otherwise, the supplier is responsible for the
damages caused to the consumer, which is liable for payment of damages if the loss or damage incurred
has been a direct and immediate consequence of an unlawful action (Daniel et al., 2014).

Similarly, the Peruvian laws regarding product liability also state that all consumers have the right to be

warned about any danger associated with a product on sale that may affect the safety of the product or
the health of the consumer (Olaechea, 2017). Based on the fact that information about Rice Krispies, its
nutritional values are factually mentioned on the box and on Kellogg’s website, no setbacks regarding
these rules should be encountered when introducing our product to any of the countries. 

Regarding the protection of intellectual property, the registration of Rice Krispies has to be executed
with the Mexican Institute of Industrial Property (MIIP), which protects the company’s rights for ten
years. The protection is renewable indefinitely when the use is not interrupted for more than three
years. The same goes for Peru, but in Peru you have to register with the Peruvian Trademark Office
(INDECOPI).

Another important factor that can influence our choice between Mexico and Peru are the different trade
treaties with Kellogg’s country of origin, the United States. Mexico engaged in a Free Trade Agreement
with the United States through (NAFTA) (North American Free Trade Agreement, nd.), likewise Peru is
also engaged in a Free trade agreement with the United States called the Peru Trade Promotion
Agreement (PTPA) (Peru Trade Promotion Agreement, nd.). These agreements will be very beneficial
for Kellogg’s, because for example the intellectual property is protected in both agreements and the
trade tariffs are almost/completely terminated. Although both agreements offer similar benefits, Mexico
is longer engaged in a trade agreement with the United States which means that all tariffs have been
terminated (North American Free Trade Agreement, nd.) while Peru later agreed to a trade agreement
with the United States, which means that not all tariffs have been terminated yet and can take up to
2026 for all tariffs to be phased out (Peru Trade Promotion Agreement, nd.).

In conclusion, Mexico and Peru are very similar regarding the legal system and the law stating the
product liability. The deciding factor however would be the trade agreement. While both trade
agreements between Mexico/Peru and the United States offer protection to Kellogg’s intellectual
property, the trade agreement between Mexico and United States however offers complete free trade
which and the agreement between Peru does not offer this yet, which makes the choice to expand the
brand Rice Krispies to Mexico more logical.
8. International Factors
This chapter focuses on the international relations and agreements of the two countries, the exchange
rates and trade tariffs, as well as their infrastructure.

In terms of trade tariffs, Peru implements a single-column tariff based on the Harmonized
System. This tariff system consists of three rates: 0%, 9% and 16%, with an average tariff rate of 3.2%.
It is an international agreement between countries, where preference is given to specified items to
other member countries of the Andean Group Pact, with participating countries like Ecuador, Venezuela,
Bolivia and Colombia [CITATION Aus17 \l 1033 ]. On the other hand, Mexico has implemented the so
called Sectoral Promotion Programs (PROSEC), which reduces most tariffs between 0 to 5% on a wide
array of important inputs needed by Mexico’s export manufacturing sector. In addition, Mexico also has
a tax on the importation of alcoholic beverages, cigarettes and cigars also known as Impuesto Especial
sobre Producción y Servicios (IEPS). The IEPS was expanded in 2013 and now includes taxation on soda,
junk food and high calorie food. Taxation rates vary from 25% to 160% depending on the product
[ CITATION Exp17 \l 1033 ].

When analyzing profit opportunities, the PEN/USD exchange rate must be considered, where 1
Peruvian Sol is equivalent to 0,30 U.S. dollars [ CITATION XEC171 \l 1033 ]. This exchange rate can be
quite favorable to Kellogg’s expansion budget. For example, an investment of 100.000 Peruvian Sol will
only cost Kellogg’s around 31.000 U.S. dollars [ CITATION XEC171 \l 1033 ]. If Kellogg’s was to make an
investment of 100.000 Mexican pesos it would cost the company around 5.300 U.S. dollars [ CITATION
XEC172 \l 1033 ]. Although the MXN/USD exchange rate is astoundingly favorable for expansion to
Mexico, the drastic drop is a result of Donald Trump’s election as the U.S. President and his attempts to
boycott Mexico.

Mexico has almost 44 Free Trade Agreements (FTAs) with several countries other than the US.
Such agreements have been established with Guatemala, Honduras, El Salvador and Japan and the
European Free Trade Area. These FTAs are required to open new markets for Mexico and to diminish the
dependency for trade on the US, placing 90% of trade under free trade agreements. The United States is
still the main trade partner of Peru, being both an export destination and a source of import. The other
trade partners consist of countries from the Latin American Integration Association, the European Union
and Japan. Peru’s export contains primary and semi-processed products, while fishing and mineral
products account for 60% of the total merchandise exports. The country is also part of the Pacific
Alliance with Mexico, Colombia and Chile.

One variable to take into account when exporting to another country is the logistics. The overall
logistics performance has placed Mexico on the 47 th position and Peru on the 59th, with a 4% higher
score. There are 3 times more km of roadways and 9 times more airports and km of railways in Mexico
than in Peru. However, their cost of trade is also 60-70% greater than the Peruvian’s. Having Mexico
located at one of the US borders would also ease the transportation and would improve time
management, while also being a strategic point for future expansion to other Latin American countries
and Europe.
The Transport and Communication Infrastructure Investment Program 2013-2018
(http://files.foreignaffairs.com/legacy/attachments/NEW%20Report.pdf )launched by Mexico’s
President Enrique Peña Nieto recognizes the great importance of a stable and good-functioning
infrastructure to improve the economy and trade. The program promises great developments, including
60 new roads, 3 passenger railroads, seven ports, seven airports and major improvements to the
telecommunications system.

Although Mexico is going through some changes after the latest elections, the numerous FTAs
and agreements offer trade safety. Location wise, exporting to Mexico would imply less travel time,
more access points and an overall more developed system after the investments in transport. Even
though the trading cost is higher compared to Peru, their convenient exchange rate would balance it
out. To conclude, Mexico would be a more beneficial choice when taking into account all International
factors.

9. Environmental and Ecological Factors

This chapter overviews the Environmental changes and developments made by Kellogg’s and the two
considered countries, Mexico and Peru.

Mexico’s environment has been encountering difficulties coming from heavy air pollution, shortage of
water reserves in the north and natural disasters. In order to counterattack those setbacks, Mexico
introduced several laws, also in compliance with the act of Paris. Regarding Kellogg’s contribution on
this matter, one plant has been constructed in Mexico, which already has reduced all the pollution and
waste the factory produces, 30% in energy and 20% in water. (Kellogg's corporate responsibility
2016/2017)

MEXICO 2005 2015

Access to water 91% 96%
Access to electricity 98.90% 99.20%

Table 2.1 Mexico’s access to ecological resources

Mexico’s not promising environmental forecast is the reason why Mexico introduced their new
sustainable environment plan. The country is considered the global leader when it comes to reducing
pollution. Furthermore, they plan on decreasing all CO2 emissions and water waste, even though for the
upcoming 5 years changes are not thought to be very visible, due to the heavy polluted air and water
shortage. (Marketline, 2017) (WRI, 2015).

Concerning the recycling process for Mexico, 65% takes place in China and only 23.7% in Mexico. With
Kellogg’s own packaging, made out of 100% lumber and completely recyclable, could create
opportunities and an eco-friendlier brand reputation. The company is also conducting ongoing research
and development for new sustainable packaging options, which could be accomplished with the
government’s help, resulting in benefits for both parties. (Kellogg's Corporate Responsibility Report,
2017)

Due to scarcity in water supply in the North of Mexico, Kellogg’s newly acquired knowledge on irrigation
and water saving could also contribute to the environment. (Marketline advantage, 2017)

Peru
The new Peruvian government is looking to promote industrialization and keep the environmental
development on track (OECD Peru, 2016). Kellogg’s could offer the perfect solution with the ‘’Nurturing
our Planet’’ which protects natural resources and labor in the cereal industry (Kellogg’s nourishing our
planet, 2017). The company created an approach to decrease all harmful events for the environment,
which is in line with the Peruvian guidelines. With the new technology and knowledge, Kellogg’s could
support the improvement of Peru’s environment. Examples of their improvements are:

 Less water usage in the production process

 Less food wastes
 Smaller package containing more product (recycling)

In 2013 Peru introduced the PESEM laws, but the one most relevant to t the brand concerns the waste
of electrical resources. Kellogg’s is handling this matter by reducing the usage of such resources. The
forecast for the Peruvian environment looks promising, since the country is rich in all resources and has
almost no participation in the world’s pollution. Also, they have very clear and strict laws concerning the
protection of the environment. (OECD Peru, 2016)

PERU 2004 2014

Access to water 82% 87%
Access to electricity 77.20% 92.90%

Table 2.2 Peru’s access to ecological resources

The brand is also involved in collaborations which aim to design more sustainable packaging useful
worldwide. Peru launched a plan to raise recycling awareness and are trying to educate the Peruvians on
the matter. Kellogg’s could also take advantage of the increased awareness Peru has to improve brand
reputation (Kellogg's corporate responsibility 2016/2017). Moreover, the company could apply their
knowledge on lowering water and food waste to improve the Peruvian environment, as part of their
corporate responsibility.

Although Kellogg’s devotion to supporting and improving the environment is present world-wide, Peru’s
more eco-friendly regulations, cleaner air and better access to natural resources seems to best fit the
brand.
10. Demographic factors
This chapter analyses the demographic factors that influence the targeted consumers from various
points of view.

The population of Mexico is increasing. As of July 2012, Mexico’s population was estimated to be around
114,975,406 people. With this population growth, Mexico’s current population is 121.7 million people.
Females account for 50.7% of the population and males account for 49.3% of the population. Because of
Mexico’s population growth rate, it has become the highest Spanish speaking country. The steady and
positive growth rate of Mexico’s population is a result of better medication and vaccines. (World
population review, 2017)

The age distribution of Mexico in 2016, 27.08% were between 0 and 14 years, 66.26% were between the
ages of 15 and 64 and 6.66% were 65 years or older. Mexico’s birth rate is 17.821 births per 1000 of the
population. (Statista, 2017; World population review, 2017) The 15 to 64 years old form the biggest
percentage of the total population. This age group is part of the working population. And because of this
birth rate, this group will continue to grow. The growth of this age group is profitable for our product.
These 15 to 64 years old are our main buyers.
 (Statista, 2017)

The majority of the population, around 12,294,193 people, is situated in Mexico City. And the Latin
American headquarters from Kellogg’s is situated in Queretaro, which is 200 km away from Mexico City.
(World population review, 2017; Kellogg’s career, 2017) This distribution of the population would make
it difficult to get the product to the most populated part of Mexico. Which can result in a decrease for
the sales of Rice Krispies.

In 2013, the population of Peru was estimated to be around 30,475,144 people for 2017. The population
of Peru is currently estimated to be 32.17 million people. Peru is a very multicultural country and its
population is formed by different groups. In 2006, a survey from the Instituto Nacional de Estadistica e
Informatica, Peruvians identified themselves as mestizo 59.5%, Quechua 22.7%, Aymara 2.7%,
Amazonian 1.8%, Black/Mulatto 1.6%, White 4.9% and other 6.7%. (World population review, 2017)

The age distribution of Peru in 2016, 27.66 % were between 0 to 14 years, 65.36% were between 15 to
64 years and 6.98% were 65 years and older. The birth rate of Peru is 18.914 births per 1000 of the
population. (Statista, 2017; World population review 2017) The biggest percentage of the age
distribution are 15 to 64 years old. Their birth rate is higher than Mexico but Peru’s population is smaller
than Mexico. The majority of the population in Peru, around 7,737,002 people, is located in Lima. There
is no existing market for the Kellogg’s brand in Peru, which makes it more difficult to expand the product
to this country.

(Statista, 2017)

To conclude, Mexico seems to be the country of choice based on this analysis, due to a bigger and
growing population and an existing market for our product. A bigger population means more potential
buyers, thus more profits for Kellogg’s. In addition, Mexico has an existing market for our brand which
means there is more possibility for an expansion. In comparison with Peru, where there is no existing
market for Kellogg’s.

Bibliography
Advantage.marketline.com. (n.d.). Retrieved November 14, 2017, from Advantage.marketline.com:
http://advantage.marketline.com/Product?ptype=Countries&pid=MLER0010CNTRYOUTLK

Agriculture and Agri-Food Canada. (2010). The Peruvian Consumer — Behaviour, Attitudes and
Perceptions. Ottawa: Agriculture and Agri-Food Canada. Retrieved November 17, 2017, from
https://www.gov.mb.ca/agriculture/market-prices-and-statistics/trade-
statistics/pubs/peru_consumer_report_en.pdf

Austrade.gov.au. (2017). Doing business - Tariffs and regulations – Peru – For Australian exporters -
Austrade. Retrieved November 18, 2017, from Australian Trade and Investment Commission:
 https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/Peru/Doing-
business/Tariffs-and-regulations

Chepkemoi, J. (2017). What Type Of Government Does Peru Have? Retrieved November 12, 2017, from
WorldAtlas: http://www.worldatlas.com/articles/what-type-of-government-does-peru-
have.html

Cia.gov. (n.d.). The World Factbook — Central Intelligence Agency. Retrieved November 14, 2017, from
Cia.gov: https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html

CIA.gov. (n.d.). The World Factbook — Central Intelligence Agency. Retrieved November 14, 2017, from
Cia.gov: https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html

Company Overview. (2017). Retrieved November 6, 2017, from Kellogg Company News Room:
http://newsroom.kelloggcompany.com/index.php?s=27521

Consumer Goods & FMCG:Food & Nutrition:Kellogg Company. (n.d.). Retrieved from Statista:
https://www.statista.com/topics/1808/kellogg-company/

Crawford, E. (2017, July 5). Five trends driving shopping patterns in Mexico including convenience &
desire for authenticity. Retrieved November 6, 2017, from foodnavigator-usa.com:
https://www.foodnavigator-usa.com/Article/2017/07/06/Five-trends-driving-shopping-patterns-
in-Mexico

Emis.com. (n.d.). Emis - Countries. Retrieved November 14, 2017, from Emis.com:
https://www.emis.com/countries

Euromonitor. (2016, November). Breakfast Cereals in Mexico. Retrieved November 6, 2017, from
Euromonitor International: http://www.euromonitor.com/breakfast-cereals-in-mexico/report

Euromonitor. (2016, November). Breakfast Cereals in Peru. Retrieved November 6, 2017, from
Euromonitor International: http://www.euromonitor.com/breakfast-cereals-in-peru/report

Export.gov. (2013). Retrieved from https://www.export.gov/article?id=Peru:

https://www.export.gov/article?id=Peru

Export.gov. (2017). Mexico - Import Tariffs. Retrieved November 18, 2017, from Export.gov:
https://www.export.gov/article?id=Mexico-Import-Tarriffs

GlobalTrade.net. (2010). Food Processing Sector Report 2010. Retrieved November 14, 2017, from
GlobalTrade.net: https://www.globaltrade.net/international-trade-import-
exports/f/business/pdf/Mexico/Selling-Food-Processing-Sector-Report-2010.html?folderId=390

GlobalTrade.net. (n.d.). Sales in Mexico: Tips for Sales in Mexico. Retrieved November 14, 2017, from
Global Trade: https://www.globaltrade.net/international-trade-import-
exports/f/business/Mexico/Selling.html

Harmonized System - General information - Taxation and customs union - European Commission. (2017).
Retrieved November 18, 2017, from Taxation and customs union:
 https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/what-is-common-
customs-tariff/harmonized-system-general-information_en

Mexico / Economic Studies - Coface. (2017). Retrieved November 12, 2017, from Coface.com:
http://www.coface.com/Economic-Studies-and-Country-Risks/Mexico

Oanda.com. (2017, November 17). Historical Currency Converter. Retrieved November 18, 2017, from
Oanda.com: https://www.oanda.com/fx-for-business/historical-rates

Oanda.com. (2017, November 17). Historical Currency Converter. Retrieved November 18, 2017, from
Oanda.com: https://www.oanda.com/fx-for-business/historical-rates

Peru Economic Outlook. (2017, November 7). Retrieved November 7, 2017, from Focus Economics:
https://www.focus-economics.com/countries/peru

Tradingeconomics.com. (2017). Mexico Sales Tax Rate | VAT 2006-2017 | Data |. Retrieved November
14, 2017, from Tradingeconomics.com: https://tradingeconomics.com/mexico/sales-tax-rate

Tradingeconomics.com. (2017). Peru Sales Tax Rate | VAT 2006-2017 | Data |. Retrieved November 14,
2017, from Tradingeonomics.com: https://tradingeconomics.com/peru/sales-tax-rate

Transparency e.V. (2017). Corruption Perceptions Index 2016. Retrieved November 12, 2017, from
Transparency International:
https://www.transparency.org/news/feature/corruption_perceptions_index_2016

ustr.gov. (2017). North American Free Trade Agreement (NAFTA) | United States Trade Representative.
Retrieved November 2017, 2017, from Office of the U.S. Trade Representative:
https://ustr.gov/trade-agreements/free-trade-agreements/north-american-free-trade-
agreement-nafta

World Bank Group. (2017). Business Reforms for Starting a Business. Retrieved November 10, 2017, from
The World Bank: http://www.doingbusiness.org/data

World Bank Group. (2017). Mexico | Data. Retrieved November 10, 2017, from The World Bank:
https://data.worldbank.org/country/mexico

World Bank Group. (2017). The World Bank. Retrieved November 12, 2017, from Peru | Data:
(https://data.worldbank.org/country/peru

www.gov.uk. (2017). Overseas Business Risk - Peru. Retrieved November 12, 2017, from gov.uk:
https://www.gov.uk/government/publications/overseas-business-risk-peru--2/overseas-
business-risk-peru#political-analysis

XE: Convert MXN/USD. (2017, November 18). Retrieved November 18, 2017, from Xe.com:
http://www.xe.com/currencyconverter/convert/?Amount=100000&From=PEN&To=USD

XE: Convert PEN/USD. (2017, November 18). Retrieved November 18, 2017, from Xe.com:
http://www.xe.com/currencyconverter/convert/?Amount=100000&From=PEN&To=USD
XE: Convert USD/MXN. (2017, November 18). Retrieved November 18, 2017, from Xe.com:
http://www.xe.com/currencyconverter/convert/?Amount=100000&From=USD&To=MXN