Required reading: MSG Short Case Study: Exploring New Global Business OpportunitiesQuestions 1)  What aspects of the entrepreneurialecosystem in Mexico influenced MSG to choose Mexico as the entry poi

Oyedele, A. University of the Incarnate Word, HEB School of Business, San Antonio, TX

Goenner, E. Saint Cloud State University, Herberger Business School, Saint Cloud, MN

Due to shifts in the market, a U.S. small and midsized firm began looking for a strategic

outsource partner to fabricate plastic and rubber pieces for use in its waste -water products. The

company wanted to expand into an internatio nal market. MSG wanted t o work with engineers in

the expanding market the president, John , was very egalitarian and wanted to work with

engineers who would collaborate to add value to the company’s products. John had questions

about how his group could improve and wanted to form a working partnership with another

company and group of engineers.

The company considered three markets: China, Brazil and Mexico. A very technically

sophisticated company, MSG quickly de termined China was not a good fit for its expansion.

MSG wanted to work with engineers in the expanding market to improve its main pr oduct, a

membran e used to clean water. In China, MSG was unable to directly talk with engineers but had

to work through a gatekeeper in the Chinese company. MSG was uncomfortable with this

hierarchy and decided t he obstacles to working with Chinese enginee rs were too great to

overcome. Brazil was another market considered, but logistics and taxes made it unappealing.

A maj or partner in MSG, Jerry, went to Mexico to explore options and visit potential suppliers.

He returned after making contact with two potential partners that could supply equipment and

with whom MSG could negotiate prices. Further, Jerry made some connect ions with company

engineers and was very excited about their skills and suggestions. Mexico was also attractive

because of trade agreements with the U.S., such as NAFTA, low or no taxes . Product costs were

more competitive than in other markets and logis tics and proximity made it an easy fit with the

U.S. company.

Research, 2013

Aware of the need to understand different cultures, MSG hired a Mexican native to conduct

research to find customers. After several months, they made contact with , and began a

relationship with, a Mexican industry association , RSA. RSA was led by a resourceful, aware

and dynamic man named Dr. Baez . He gave MSG access to contacts and made suggestions for

developing a market. His high level position in the industry association meant he had many

contacts in the industry and h e provided invaluable advice and information for MSG.

First, Dr. Baez told MSG it should host an industry seminar to attract p otential customers and

engineers; “This is what you should do,” he said. So, MSG followed his advice. Working with

Dr. Baez , MSG t he company planned a seminar through an industry association, ATT . This was

a major break -through for MSG. Dr. Baez encouraged many end -users, engineering firms,

suppliers and governmental agencies to atten d the seminar; these contacts were essential for

MSG’s entrance into the Mexican market. MSG successfully identified a major player in the waste -water market in Mexico and began to

develop a relationship with him. Because of his advice, they funded and hosted a seminar that

attracted over 100 attendees. MSG was pleased with this success ; paying for cocktails seemed

like an inexpensive way to access customers.

One major contact made at the seminar was with the president of an engineering firm , HBO , tha t

was a pre -approved supplier of many waste -water treatment facilities . Ronaldo , the HBO

contact, would prove essential to MSG’s success in the region; he lined up meetings with

additional potential clients. Further, Ronaldo ’s son was the president of the Mexican Water

Association, one of the biggest potential clients in the area.

Progress, 2014

The relationship with HBO gave MSG an entrance into the waste -water market. Using contacts

Ronaldo suggested, MSG volunteered to install water testing units at several plants. Free of

charge, the testing units would gather data about the efficacy of MSG’s products and show us ers

how useful its membranes were . MSG believed that once companies saw evidence, from their

own plants, of the new membrane technology’s effectiveness, sales would begin in earnest.

At the same time, MSG was trying to develop a dealer network and find a company to work with

on joint market development. MSG wanted to bring its technology, which was new to the

Mexican waste -water industry, to the market; it would provide consulting services, maintaince of

the system and testing services. A Mexican company would provide many of the components

needed for success . Its engineers would help with plant size and chemical issues. It could

supply components such as plastic piping and assist with direct sales. The Mexican company

would help with building and installing new systems and maintenance of the chemical

components needed. It would straighten the supply cha in to possible end users ; together MSG

and a Mexican company could build solutions together.

MSG’s president, John , and HBO ’s president, Ronaldo , worked well together. Both were willing

to take risks and encouraged change. John asked why Mexican end us er wanted to pay high

amounts for systems with inferior technology. MSG offered a key component, a new membrane,

that would improve the effectiveness of the waste -water treatment plants. John and Ronaldo

conducted several meetings about strategies to hel p MSG find an outsource partner who would

do the plastic piping and other components and ship product to customers . After about a year of,

Ronaldo ’s company signed a collaboration agreement with MSG. They agreed to collaborate

including orders for 40,000 waste -water membranes.

Challenging the Industry, 2014

One of MSG’s major challenges was its product, the new membrane, was new to the Mexican

water industry. In addition to trying to forge bonds with new companies, MSG was a ttempting

to basically change the entire industry by in troducing foreign technology. The government set a standard for water cleanliness and municipalities just bought the standard membranes. P eople

were unaware of the new technology MSG was bringing in f rom the U.S. and didn’t see the

value in it.

Problem and Value Proposition

MSG saw systemic problems in many waste -water systems. For example, in areas with highly

acidic water, the standard membranes did not last, requiring frequent replacement. In some

places, the standard membranes were not compatible with the chemical components of the water.

MSG’s new membrane technology was its value proposition. It offered membranes t ailored to

different conditions. The company’s testing allowed for customiza tion of membranes, chemicals

and systems that would ultimately save municipalities money and provide cleaner water.

Target Market

MSG believed targeting private industry , where companies would quickly see the cost savings,

was the key to making sales. Pr ofit driven private industry may be more likely to implement

change than the municipalities that are uninterested in something new. However, even private

industry wants a history of success before it is willing to change. This industry wants ten or

more years of data before it considers a change a success. Since MSG has only been opera ting in

Mexico for less than one year and has relatively little long -term data to support its claims, it

faces significant resistance to change. MSG needs to find a way to address the history -based,

slow to change culture of the waste -water industry in Mex ico in order to be successful. HBO

worked largely with municipalities, the local government units in charge of local waste -water

treatment plants. So, MSG invited the mun icipalities to work with them to build solutions

together. MSG offered its consulting services and well as collaboration on testing and

maintenance of the new systems.

Business Development

Working with Ronaldo , MSG bid on several million dollar projects. For example, in the state of

Durango , a company named OSTE was upgrading its system. At the time, it had a vast array of

holding tanks and a layout that used the local climate to assist in cleaning the water. Water

moved through the entire lay out over several days while subject to bacteria that naturally

removed pollutants. MSG believed it had a better solution. Using a mere quarter of the space

and its new system, MSG could deliver a better quality system with top quality water.

When devel oping its proposal, MSG insisted OSTE needed top quality product and outcome and

their latest, newest technology was the way to achieve that. MSG suggested a smaller system

that would require extensive revision to OSTE’s current infrastructure. But, OSTE didn’t want

that. OSTE wanted a solution to fit into its existing system at the lowest price possible. The

water -cleansing layout currently in use took advantage of climate, nature, time and bacteria to cleanse water of impurities and OSTE was not conce rned with many of the aspects of the system

that MSG was promoting.

MSG spent much time and money developing a proposal for OSTE . Representatives met with

the director to discuss OSTE ’s needs and concerns. OSTE didn’t want to purchase an entirely

new system, so MSG worked to divide the new system into a staged project to accommodate

OSTE ’s budget needs , address supply chain concerns, explain and demonstrate efficiency. MSG

insisted the old system was oversized and outdated and its latest technology would be far

superior to OSTE ’s current system despite the extensive infrastructure revision it would require.

MSG lost its bid for the $3 million project. The company that won the bid gave OSTE exactly

what it wante d at a price it could afford.

Successful Steps in Entering the Market

MSG made many steps toward success that other companies should emulate. First, MSG did

extensive research both about which market to enter and about the market it decided to enter.

MSG hired a Mexican native to work with the company and make contacts in Mexico. A

company representative with deep cultural knowledge is essential to entering a foreign market.

Next, the company formed key relationships wi th Mexican trade associ ations. Using trade shows

and seminars, MSG formed relationships with key players in the waste -water industry. It is

essential for a company to identify relevant and influential trade associations, network with those

players, and form alliances with strat egic partners. Without support of key industry players,

MSG would have failed to even bid for projects. Listening to local partners is essential for

success.

Potential Errors in Entering the Market

One of MSG’s major challenges was its product was new t o the Mexican water industry. Locals

were unaware of, and uninterested in, the new technology MSG was bringing in from the U.S.

So, in addition to trying to forge bonds with new companies, MSG was attempting to basically

change the entire industry.

M SG failed to trust the local customer. OSTE told MSG what it wanted but MSG didn’t listen

and didn’t offer what the customer wanted. MSG wanted top quality by using the newest

technology when that was not the right solution for the customer. MSG has tec hnology that

works but relying on that technology to sell product was not working. The new system was too

expensive, unproven and too difficult to maintain. There wasn’t congruence between MSG and

OSTE ’s goals.

MSG failed to understand its customer, or t o listen to its local partners. Ronaldo tried to tell

MSG the client didn’t want the technology being offered. But, MSG was afraid of appearing like

another U.S. company that came in and failed or “didn’t do it right.” MSG believed it knew “better” than the customer and trusted it could convince the customer its way and technology

was better. Ultimately, t his hubris resulted in failure. By not really understanding the local

customer, MSG wasted large amounts of time and money.

The company leaders impact the relationships with local partners and must be constantly aware

of the ways in which they interact with them. For example, John and Ronaldo ’s relationship

started strong but deteriorated over time. John insisted Ronaldo and his organization needed to

“think outside of the box” and see the benefits of the new waste -water technology MSG was

offering. He insisted the testing and use of MSG’s system would prove his way was superior.

Ronaldo responded “you don’t think outside of your box .” He insisted M SG was too focused on

its goals and failed to understand the local systems and how they worked. Ultimately, this rift

affected the business relationship between the two organizations.

Perspective on obstacle to success

The biggest obstacle to success is the unwillingness to deal with perceived differences. Other

factors include not taking the market seriously and not listening to what the customers/people

want. Entering a foreign market is difficult and complex and some times companies are unwilling

to face those difficulties, to face the fact of the way a market is and works versus the way they

perceive it to be and work.

For example, some companies deal with “the three day wonder.” Sometimes a company will

enter a ma rket looking for transactions instead of relationships. They find a partner and make an

agreement. When the company returns to complete the transaction, the par tner is nowhere to be

found. The leaders were “not wired” to do business abroad. They refused to meet with people in

Mexico and build the relationships needed for success

MSG thought they had a “story to tell” and that would be enough to convince Mexican

companies to buy their product. They didn’t listen to the information about the audience and

decided to pitch their story. MSG went in with little data, numbers that the customers wanted.

They had too much pizazz for the audience that was very practical. It took a while for MSG

management to get past their opinion of the market and what it neede d, a time during which one

of its employees worked hard to keep the lines of communication between MSG and Mexican

companies open. MSG eventually muddled through and met the needs of the customers.

Provincialism & Cultural Perspective

The case of MSG has revealed the idea of a provincialist mindset, which we identify as an

assumed singularity of thought. Each person has an assumed thought structure that shapes and

limits the way in which they see the world. A person with a strong provincialist mind -set w ill be

less successful in foreign markets because of a tendency to revert to his/her original thought

orientation. When US managers enter new foreign markets without seeing the cultural milieu, they often

believe thei r product is best. They fail to unders tand the nuances of a foreign culture because of a

provincialist mindset. They see the world through their own worldview, which colors all they

see and understand.

To be successful, companies should hire local partners who understand the details of the lo cal

culture. This means a US manager who goes to Mexico hires a Mexican liaison that has an

orientation of how things are done.

We define provincialism as a singularity of thought and a strong tendency to return to the

thought patterns of one’s origin.