Rooms to Go: Franchising into Mexico City Choosing an appropriate entry mode into a country is a critical management decision that needs to be extensively analyzed and researched before such decision is made. Rooms to Go is one of the biggest furniture stores in the United States with numerous stores across the country. The global company has already managed to successfully open numerous stores in other countries, but has yet to enter the United States neighboring countries’ furniture industry, Mexico. The growth spurt in some of Mexico’s most urbanized cities have increased demand for furniture as the country’s furniture industry only represents 1.8% of the country’s manufacturing GDP and 0.4% of the total GDP (Matrade.gov, 2004). The furniture industry in Mexico City is rapidly expanding despite high levels of poverty; growth in the housing markets is driving demand for house furniture. Rooms to Go should penetrate the Mexican Furniture Market by franchising in Mexico City, one of the fastest growing cities in Mexico. Entry into this region promises profits and potential growth for a company like Rooms to Go. Trade agreements like the North American Free Trade Agreement will not only facilitate entry into this market but maximize economic integration. Rooms to Go is an established furniture company in the U.S. with the resources to grow and expand. As the Mexican middle class gets bigger and the cities housing programs continue working on the construction of new homes, the need for house ware will influence a furniture boom in this urban city. A furniture boom that will give way to furniture manufactures and retail stores to benefit economically from the revenue opportunities this industry will experience. Room to Go should franchise in Mexico City and should exploit the benefits of economic integration

Between 2006 and 2011 furniture retail sales grew by 11.8% (Euromonitor, 2012). The robust Mexican housing market has been the generator for a furniture boom, especially in developing cities like Mexico City. The fast growing city has experienced a population growth that has increased the demand for housing and urban space, and the city is actively working on alleviating the increasing housing shortage. The significant amount of new housing means revenue opportunities for the house ware industry. “The Mexican marketplace can be profitable to explore, particularly the medium and lower-priced sectors “(Matrade.gov, 2004). Rooms to Go is a company that has made a name for itself in the United States for their low-to-mid-priced furniture, and significant discount prices on complete room sets. While there may be some economic differences between the target markets in the U.S. and Mexico City, the target ants and needs in furniture are not so much different. “Average Mexican consumers likes are similar to their North American neighbors, so beds follow the patron, of twin, queen, and king size” (Matrade.gov, 2004). The demand for lower to mid range furniture has seen a rise in sales, particularly among the younger demographic set: over the past six years, 3.5 million younger couples were recorded as having set up home (Matrade.gov, 2004). In large cities like Mexico City, consumers’ tastes have shift to a more contemporary style and modern furniture, styles successfully promoted by Rooms to Go. Penetration into this market could proof profitable for Rooms to Go.

After NAFTA (1994) the elimination of numerous tariffs and reduction of many others for NAFTA members, Canda, Mexico, and the United States, has resulted in a significant growth in imports for Mexico, 14% annually in average, which indicates increased penetration of foreign products (Matrade.gov, 2004). There is tremendous growth opportunity for a company like Rooms to Go that is able to sell furniture at a low to mid price that consumers in urban areas are able to afford. The top ten retailers in Mexico control around 15 to 20% of the Mexican furniture market (Matrade.gov, 2004). Access to this market is open and with an appropriate strategy Rooms to Go can successfully establish a furniture store in Mexico City. Franchising would be Rooms to Go fastest method of expanding within Mexico’s developed furniture market. Franchising is suitable for replication of a business model. Considering the similarities in the taste and likes for furniture of Mexican consumers, Rooms to go operating models and guidelines should have no significant issues adapting to this market. Franchising will allow Rooms to Go to continues expanding internationally while minimizing risks and costs. Additionally, franchising allows companies like Rooms to Go to obtain critical information about local market customs that will aid in the success of the franchise in a different market (Griffin. & Pustay, 2010). Rooms to Go may eventually expand to other Mexican cities developing much like Mexico City, and insight will only further aid the growth of any further franchises.

The growth of the medium class and the access and diversification of the credit schemes is a decisive factor for the furniture industry in Mexico, two factors Room to Go can cater to. There are many housing complexes, building apartments and renovated constructions that need to be furnished. Mexico is the country with the largest network of Free Trade Agreements in the world, with FTA’s signed with 33 countries (Matrade.gov, 2004).Room to Go could enjoy a preferential tariff rate. NAFTA makes a profitable opportunity for companies willing to export finished furniture in Mexico. Imported furniture from NAFTA partners makes up 39% of all furniture imports into Mexico, with the same percentage from Europe (Matrade.gov, 2004). Under NAFTA terms, Mexico eliminated tariffs on all remaining and most agricultural products imported from the USA, including furniture and related items. Regional integration efforts between Canada, Mexico, and the United States have facilitated trade and economic integration. It has been beneficial for the trade of manufactured products and cross-national investments. It would suggest that the Mexican marketplace can be profitable to explore. Rooms to Go would particularly find opportunities in the medium and lower priced sectors of the furniture industry in Mexico. After NAFTA Mexico experience a significant growth in furniture imports, mainly influenced by the new production facilities in northern border state cities. Access to manufacturers in Mexico would allow Rooms to Go a reliable supply chain. Rooms to Go would also have the advantage of geographic proximity which would help reduce transportation costs. Rooms to Go can work with local distributors already established in Mexico City. Mexico City is host to 11% of the manufactures of furniture of wood (Matrade.gov, 2004). The best strategy for penetrating the Mexican market is to focus on identifying and working with Mexican distributors that are aware of trends and crucial change that affect the market. Rooms to Go should look into selling both domestic and imported brands of furniture to appeal to the rising middle class. Rooms to Go should work with Mexican partners, that are up to date about the sector and trends that could affect the market (Matrade.gov, 2004).

Work Cited http://edms.matrade.gov.my/domdoc/Reports.nsf/svReport/95005C9BA6A318F44825748A00146C61/$File/MEXICAN%20FURNITURE%20INDUSTRY.pdf?OpenElement http://www.fundinguniverse.com/company-histories/Rooms-To-Go-Inc-company-History.html

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