Case Analysis

Poshnath Aryal
Roll No. 8
MBA-GLM 6th Batch

1. Conduct an in-depth analysis of Mexican business environment particularly from

banking perspective and list the challenges for operating banking businesses in
Mexico.

Ans:

Mexican Business Environment from banking perspective

Mexico is a country in Latin America. Banco de Mexico is the central bank of Mexico.
Mexico is well served with modern banks, wire money transfer. Since, many Mexican
works in US. Mexican emigrants send large number of remittance to their home to
support their families. Remittance is the second largest source of foreign exchange
income in Mexico after Oil Revenues. Therefore, Well Fargo and other US banks
including City and Bank of America have established Alliances with Mexican Banks to
offer remittance account to emigrants workers so that, Workers can deposit money in US
banks and their families can withdraw from the associated Mexican Banks.

Western Union and banks are the major competitors in the market. In order to get large
market, wire transfer fee in banks are cheaper than the Western Union. This makes
Western union to cuts its fees. Inflation is a major economic indicator in Mexico. Mexico
has a history of unstable currencies and widespread inflation. This results the mistrust of
banks. Despite the fact that, bank transfer fee is cheaper than Western Union, many
people prefer Western Union than the bank for money withdrawal.

To sum up, Bank and the services provided by the bank such as ATM/ Electronic
payment, internet access to their clients has been more advanced. This has made Mexican
to perform its banking activities easier and faster.
The major challenges for operating banking businesses in Mexico are as follows:

 Remittance is the major source of Income for Mexicans. To transfer the money
Mexico emigrants prefer Western Union than the Mexico banks. Western Union has
attracted the Mexicans. Due to the inflation and unstable currencies, Customers of
Mexico mistrust the banks.
 Though, Mexican bank is providing less wire transfer fee than the Western Union.
But still Mexican trust Western Union. The reason for this is worldwide availability.
So, the challenge to banking business in Mexico is to offer more benefit to customers.
 Many customers are unaware about the banks of Mexico. Locals also claim that banks
make them more difficult.

2. How is the foreign exchange rate determined? What are the difficulties of executing
it at Mexican environment? Highlight the challenges of Converting peso into dollar
and vice versa with illustrations.

Ans:

Foreign Exchange rate is determined in two ways and they are:

Floating rate is determined by the open market through supply and demand on global
currency markets. Therefore if the demand for the currency is high, the value will
increase.

Fixed rate is determined by the government through its central bank.

The major difficulties for executing exchange rate at Mexican environment are:

 Funds are converted into foreign currency using an exchange rate set by Western
Union.
 Mexico has unstable currency rate like that of Western Union.
For example: Market exchange rate on May 16, 2007, for Mexican Pesos was 10.812
pesos/ USD (US$500=5,400.6 Pesos) ; Western Union’s offered exchange rate was
10.54 Pesos/ USD (US $500= 5,270 pesos)
The challenges of converting peso into dollar and dollar into peso are:

 Bank of Mexico does not have stable exchange rate

 The currency value fluctuates in higher rate.
For instance, 1 USD is equals to 22.3649 Mexican Peso in August 13, 2020.
This means,
1Mexican peso = $1/ 22.3649
1 Mexican Peso = $0.04
This shows that, US dollar value is greater than Mexican Peso.

3. Critically assess the operational modality of Western union and impediments it has to
face in Mexico. Suggest measures for overcoming these hurdles particularly from
Mexican Environment.

Ans:

Western union- the fastest way to send money controls 80% of the money transfer
market. Western union introduced its money transfer service in 1871 and expanded to
outside North America in 1989. Western union is also expanding its business to China
and India to increase its market share.

Operational Modality

Service modality:

Western Union has provided different options to customers when sending money. It has
provided different facilities such as, money can be sent in person at an agent location,
over the phone, online, and senders may use Cash, debit cards, or credit cards. Money can
be transferred from one location to another worldwide, in just a minute.

Exchange rate modality:

Western union dominates the market foreign exchange rate. The profit margin of Western
Union is high enough as it uses it own exchange rate on transactions and the difference
between company rate and market rate is kept by the company.
The numerous impediments Western Union has to face in Mexico are:

 The competition was high due to which Western union has to add lots of services such
as, a home delivery service, where, the money is directly delivered to the recipient’s
door.
 Western union has to cut its fee.
 A class lawsuit was filed against Western Union for the reason that Western Union
offered its customers lower exchange rates than the market exchange rates.

The suggestion measure for overcoming these problems is listed below:

 Maintaining the low profit margin by offering customers with the market exchange
rate.
 Western Union has to minimize the transfer fees to attract more and more local
sutomers of Mexico.