Myths and realities of doing business in mexico
Download
1 / 31

Myths and Realities of Doing Business in Mexico - PowerPoint PPT Presentation


  • 140 Views
  • Uploaded on

Myths and Realities of Doing Business in Mexico. Jerry Pacheco Executive Director – International Business Accelerator jerry@nmiba.com . Mexico Myths. ‘Not a significant market, other than basic goods’ ‘Continuous economic crises – no stability’ ‘The peso is worthless, inflation is rampant’

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Myths and Realities of Doing Business in Mexico' - zion


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Myths and realities of doing business in mexico

Myths and Realities of Doing Business in Mexico

Jerry Pacheco

Executive Director – International Business Accelerator

jerry@nmiba.com


Mexico myths
Mexico Myths

  • ‘Not a significant market, other than basic goods’

  • ‘Continuous economic crises – no stability’

  • ‘The peso is worthless, inflation is rampant’

  • ‘Technological backwardness’

  • ‘Industry is dominated by US-led maquiladoras’

  • ‘Mexican culture is not conducive to business’

    • Corruption

    • Land of mañana

  • ‘Mexico is a failed narco-state’


Myth mexico is too poor to be a significant market for anything but basic goods
Myth: Mexico is too poor to be a significant market for anything but basic goods

  • Reality:

    • Mexico is a middle-income country

      • GDP per capita (nominal / PPP): $8,143 / $14,335

      • Comparable w/ Russia, Arg., Chile, Brazil, Turkey, Malaysia

      • 2.5X the GDP/capita of China and 6X that of India

      • US GDP per capita - $45,989 / $ 45,989

      • China GDP per capita - $3,650 / $6,828

      • India GDP per capita - $1,134 / $3,270

    • 2nd most important metropolitan market for high-end luxury goods in the Americas – Mexico City

    • 2nd largest market for US exports (exports to Mex > exports to China + Japan)


Myth mexico has constant economic crises the peso is worthless inflation is high
Myth: Mexico has constant economic crises, the peso is worthless, & inflation is high

  • Reality:

    • Cycle of econ. crises (1976, 1982, 1986-87, 1994) was broken in 2000 and 2006

    • Avoided contagion from emerging market crises (e.g., Southeast Asia, Argentina)

    • Peso – stronger & more stable than US$ for much of the last decade (until recently)

    • Inflation < 5%; investment grade status


Myth mexican industry is technologically backward and dominated by us led maquilas
Myth: Mexican industry is technologically backward and dominated by US-led maquilas

  • Reality:

    • Technologically-advanced engineering & production capabilities

    • Approximately 75 Mexican companies with revenues greater than US$1billion/year

    • An emerging entrepreneurial culture

    • Dominant role of maquiladoras is limited to border


Myth mexican culture is not conducive to business corruption land of ma ana
Myth: Mexican culture is not conducive to business: corruption, land of mañana

  • Reality:

    • Carlos Fuentes:

      • “The Mexican mañana does not mean putting things off till the morrow. It means not letting the future intrude on the sacred completeness of today.”

    • Comparatively moderate levels of corruption & largely limited to government

    • Workforce is young and ambitious, with strong technical skills and work ethic

    • Important to recognize the distinction between social culture and business culture


Myth mexico is now a failed narco state
Myth: Mexico is now a failed corruption, land of mañananarco-state

  • Reality:

    • Violence & insecurity are a huge social problem, but the economic impact has been limited so far

      • Murder rate of US citizens (50/year for 1.5-2 million people) = 1/2 of Albuquerque’s or 1/4 of Houston’s.

      • Violence is concentrated in key states and among those involved in drug trade, security, media

      • JP Morgan Chase estimates economic cost at 1.0-1.5% of GDP

    • Risk is no higher/lower than US in much of Mexico, just different

    • Huge challenge as violence spreads to unexpected areas (e.g., Monterrey) and in unpredictable patterns


10 minute economic history of mexico

10-Minute corruption, land of mañanaEconomic History of Mexico


Pre columbian era to the revolution
Pre-Columbian Era to the Revolution corruption, land of mañana

  • Mexico City – focal point of civilization

    • 1500-100K inhabitants, 30M in Mexico

    • Architecture, irrigation, engineering, writing

    • Feudal system: caciques and tribute

  • 1520-1810 – Spanish imperialist economy

    • Emergence of ‘la raza’

  • 1810-1910 – Incomplete independence

    • Spanish control displaced, but feudal system remained (caudillos)


The revolution and the institutionalized revolution
The Revolution and the ‘Institutionalized Revolution’ corruption, land of mañana

  • 1910-Díaz regime ousted

    • Zapata, Villa, Carranza, Obregón

    • The revolution never ended, but was ‘institutionalized’ (PRI)

  • Economic system inspired by the revolution, but patterned after colonialism

    • Unequal development; closed economy

    • Poor separation of firm & state


The technocrats and the crisis
The Technocrats and ‘The Crisis’ corruption, land of mañana

  • Pattern of sexenio crises, 1976-1994

    • Curse of oil & ‘administering the abundance’

  • Technocrat Presidents

    • De la Madrid and the ‘lost decade’ (1980s)

    • Salinas de Gortari – renewed hope, shattered dreams, and the ‘errors of December’ (1994)

    • Zedillo – weak but transformational sexenio


Economic reforms 1980 2000
Economic Reforms, 1980-2000 corruption, land of mañana

  • Monetary & Fiscal Policy

    • Inflation reached 100+%, now under 5%

    • Balanced budgets

  • Deregulation & Privatization

    • Privatization of banks, rail, telcom, industry

    • FDI & franchise laws; increased transparency

  • Trade Liberalization – Export Orientation

    • GATT (max tariffs from 100% to 20%)

    • NAFTA (nearly all tariffs eliminated by 2003)



New millenium a new mexico
New Millenium: A ‘New’ Mexico? corruption, land of mañana

  • Political change

    • 2000 elections: Vicente Fox (PAN)

    • Political pluralism = Political Gridlock

      • PAN – Presidency

      • PRI – Senate and Chamber of Deputies

      • PRD – Governorships, Mayor of Mexico City

    • 2006 elections: Felipe Calderon (PAN)

      • AMLO (Andres Manuel Lopez Obrador) factor

      • Gridlock continues

    • 2012 elections: The Pena Nieto Administration

    • New Federalism in EstadosUnidosMexicanos

    • Increasing importance of states & municipios


Recent economic performance reasons for renewed optimism
Recent Economic Performance: Reasons for Renewed Optimism corruption, land of mañana

  • Consistent economic growth 1995-2000

    • Change in GDP under Zedillo:

      • 1995: - 6.2%

      • 1996: +5.1%

      • 1997: +6.8%

      • 1998: +4.9%

      • 1999: +3.9%

      • 2000: +6.6%

  • Stagnation under PAN, 2000-2010

    • Change in GDP under Fox/Calderon:

      • 2001: - 0.2%

      • 2002: +0.8%

      • 2003: +1.4%

      • 2004: +4.2%

      • 2005: +3.2%

      • 2006: +4.8%

      • 2007: +3.2%

      • 2008: +1.8%

      • 2009: -6.5%

      • 2010: +5.4%

      • 2011: +5.0%


Lingering pessimism limits to development
Lingering Pessimism: corruption, land of mañanaLimits to Development

  • Economic, Political & Social Issues:

    • ‘So far from God, so close to the US…’

    • Dependence on oil, maquiladoras, exports

    • Unequal living standards/poverty/stagnant real wages

    • Drugs & drug-related violence, lawlessness

    • Immigration & the loss of human capital

    • The natural environment & water

    • Indigenous issues & Chiapas

    • Legal, tax, labor reforms

    • Deregulation (telecommunications, electricity)


Demographics
Demographics corruption, land of mañana

  • 2010 Population: 110 Million (1950-25M)

  • 93% literacy

    • Education expenditures: 6% of GDP (US-5%)

  • Life expectancy: 75 years (US-78 years)

  • Urbanization: 77% (US-82%)

  • Access to potable water: 83% (Korea-83%)

  • Physicians/100,000 people: 120 (US-280)

  • GDP/capita (nom/PPP) = $8,143 / $14,335


The many mexicos mexico city
The Many Mexicos: Mexico City corruption, land of mañana

  • The Capital: 25M inhabitants

    • Largest city in the world (along with others)

    • Distrito Federal: Seat of power for government, financial, & corporate (domestic & MNCs) sectors

      • No manufacturing

    • Los chilangos:

      • Fast-paced, chaotic lifestyle

      • Cosmopolitan, status-conscious culture


The many mexicos monterrey
The Many corruption, land of mañanaMexicos: Monterrey

  • The Sultan of the North

  • Economic Sectors:

    • Traditional strength in heavy industry (steel, autos, other manufacturing)

    • Migrating to new economy & higher value-added

    • Cemex, Alfa (Alpek, Nemak), Vitro, Femsa

  • Los regiomontanos:

    • The Texans of Mexico


The many mexicos jalisco
The Many corruption, land of mañanaMexicos: Jalisco

  • Guadalajara: The ‘Mexican’ City

  • Economy oriented toward:

    • Traditional sector (textiles, furniture, ceramics, tequila, mariachis)

    • High-Tech (IBM, Acer, other telcom/IT equip)

  • Los tapatios:

    • Unique mixture of traditional Mexico with global orientation


The many mexicos the border
The Many corruption, land of mañanaMexicos: The Border

  • 2,000 miles and 10%-25% of Mexico’s pop.

  • Historical importance is less than the rest of Mexico

    • 1940-1970: Border population grew 10 times

  • High interdependence with US economy

    • For better and for worse

  • Does NAFTA make the border more relevant, or less relevant?


Economic sectors

Economic Sectors corruption, land of mañana


Manufacturing
Manufacturing corruption, land of mañana

  • Traditional strength: low-tech & heavy mfg.

    • Steel, auto parts, products for domestic market

    • Low-end export items (golf club shafts)

  • Transformation of Mexican manufacturing:

    • Emphasis on ISO 9000

    • Capital-intensive activities

    • From wire harnesses to electronics systems


Maquiladoras
Maquiladoras corruption, land of mañana

  • ~$120B/year in exports (half of Mexico’s total)

    • But only ~1/5 is value added

  • Highly cyclical, vulnerable to global econ.

  • Sectors: autos, electronics, apparel

  • Locations: Cd. Juárez, Tijuana, border

  • First-generation maquilas no longer competitive; upgrading is essential


Non maquila manufacturing
Non- corruption, land of mañanaMaquila Manufacturing

  • There’s more to manufacturing in Mexico than the maquiladoras; line is blurring

    • IMMEX: new umbrella for maquila, Pitex (preferential tariff treatment for temporary imports), other

  • The border v. the interior.

    • Border plants tend to follow ‘twin-plant’ model.

    • Plants in the interior are more likely to serve the Mexican market.


Financial sector
Financial Sector corruption, land of mañana

  • Tumultuous history of banking sector

    • Nationalized, then privatized, then bankrupt, then sold off to foreigners; now stable

    • Bank loans as % of GDP: 40% in 1994, then down to 10%, now 15% (global average=136%)

    • Leading players are foreign: Citibank (Banamex), BBVA (Bancomer), Santander (Serfin)

  • (Re-)Emergence of middle class creating opportunity for insurance/other fin. Services

    • Interest rates have declined, but credit is still scarce for the private sector

    • Credit available for consumption, not investments


Other sectors
Other Sectors corruption, land of mañana

  • Energy: continued state dominance

    • Pemex (oil), CFE (electricity)

  • Tourism

    • Traditional emphasis on state-led developments

    • Transition to diffused & sustainable development

  • Professional services

    • Potential competitive advantage for NM & Hispanic-owned firms


The grupos
The ‘ corruption, land of mañanaGrupos’

  • Importance of the diversified conglomerate

    • Relation to other emerging markets

  • Spin-offs of historic Grupo Monterrey

    • Alfa, Vitro, Femsa and many subsidiaries

  • Other important grupos:

    • GrupoCarso (America Movil, Telmex, Telcel, Prodigy, Sanborns, CompUSA, Xignux, Frisco, banks)

    • Grupo Bimbo

    • Televisa


Entrepreneurship in mexico
Entrepreneurship in Mexico corruption, land of mañana

  • There’s more to Mexico than maquilas, PEMEX, and the grupos.

  • Mexico has one of the highest rates of entrepreneurship in the world.

    • Entrepreneurial activity is driven both by necessity and by opportunity.

  • Economic activity in Mexico remains regionalized or localized.

  • Growth in microfinance & social entrepreneurship


New mexico and old mexico
New Mexico and Old Mexico corruption, land of mañana

  • Where does NM stand in terms of trade and investment ties with Mexico?

    • NM exports are climbing to $500/year to Mexico (of $1.5B/year to all countries)

      • Mexico is #1 market for NM in dollar terms and in number of products.

      • NM imports about $652M/year from Mexico, of $2B total

    • 35th state in exports to Mexico; 46th in exports to world

    • BUT, we must account for the nature of NM’s economy.

      • 43rd state in terms of exports as % of GSP

      • 20th state in terms of exports to Mexico as % of GSP