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A Survey of the Mexican Business Environment
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Title:
A Survey of the Mexican Business Environment
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Technologically-advanced engineering & production capabilities ... Steel, auto parts, products for domestic market. Low-end export items (golf club shafts) ...
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http://mgtclass.mgt.unm.edu/DiGregorio/422
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28 June 2009
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31
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Transcript & Presenter Notes
Title:
A Survey of the Mexican Business Environment
1
A Survey of the Mexican Business Environment
Dante Di Gregorio
Anderson School of Management UNM
January 2009
2
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 USled maquiladoras
Mexican culture is not conducive to business
Corruption
Land of mañana
3
Myth Mexico is too poor to be a significant
market for anything but basic goods
Reality
Mexico is a middleincome country
GDP/capita 12177 or 7830 GNI Atlas method
2005
Comparable with Russia Chile Malaysia
Double the GNI/capita of Brazil Thailand or
Serbia
US GDP/GNI per capita 43968 / 44710
China GDP/GNI per capita 4644 / 2000
2nd most important metropolitan market for
highend luxury goods in the Americas Mexico
City
2nd largest market for US exports Mex China
Japan
4
Myth Mexico has constant economic crises the
peso is worthless inflation is high
Reality
Cycle of econ. crises 1976 1982 198687 1994
broken in 2000 and 2006
Avoided contagion from emerging market crises
e.g. Southeast Asia Argentina
Peso stronger more stable than US for most
of the last decade
Inflation
5
Myth Mexican industry is technologically
backward and dominated by USled maquilas
Reality
Technologicallyadvanced engineering production
capabilities
Approximately 100 Mexican companies with greater
than US1B/year revenue
An emerging entrepreneurial culture
Dominant role of maquiladoras limited to border
6
Myth Mexican culture is not conducive to
businesscorruption 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
7
10Minute Economic History of Mexico
8
PreColumbian Era to the Revolution
Mexico City focal point of civilization
1500100K inhabitants 30M in Mexico
Architecture irrigation engineering writing
Feudal system caciques and tribute
15201810 Spanish imperialist economy
Emergence of la raza
18101910 Incomplete independence
Spanish control displaced but feudal system
remained caudillos
9
The Revolution and the Institutionalized
Revolution
1910Diaz regime ousted
Zapata Villa Carranza Obregon
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
10
The Technocrats and The Crisis
Pattern of sexenio crises 19761994
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
11
Economic Reforms 19802000
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 most tariffs eliminated by 2003
12
The Mexican Business Environment in the new
Millennium
13
New Millenium A New Mexico?
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
New Federalism
Increasing importance of states municipios
14
Recent Economic Performance Reasons for Renewed
Optimism
Consistent economic growth 19952000
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 20002006
Change in GDP under Fox/Calderon
2001 0.2
2002 0.8
2003 1.4
2004 4.2
2005 2.8
2006 4.8
2007 3.3
15
Lingering PessimismLimits to Development
Economic Political Social Issues
So far from God so close to the US
Dependence on oil maquiladoras exports
Inequal living standards poverty stagnant real
wages
Drugs
Immigration the loss of human capital
The Natural Environment Water
Indigenous issues Chiapas
Legal tax labor reforms
Deregulation telecommunications electricity
16
Demographics Regional Issues
17
Demographics
2008 Population 110 Million 195025M
91 literacy
Education expenditures 6 of GDP US5
Life expectancy 76 years US77 years
Urbanization 75 US77
Access to potable water 83 Korea83
Physicians/100000 people 120 US280
GDP/GNI per capita 12177/7830
18
Regional EconomiesDistrito Federal Mexico City
The Capital 25M inhabitants
Largest city in the world along with others
Seat of power for government financial
corporate domestic MNCs sectors
No manufacturing
Los chilangos
Fastpaced chaotic lifestyle
Cosmopolitan statusconscious culture
19
Regional EconomiesMonterrey
The Sultan of the North
Economic Sectors
Traditional strength in heavy industry steel
autos other manufacturing
Migrating to new economy higher valueadded
Cemex Alfa Alpek Nemak Vitro Femsa
Los regiomontanos
The Texans of Mexico
20
Regional EconomiesGuadalajara Jalisco
The Mexican City
Economy oriented toward
Traditional sector textiles furniture
ceramics tequila mariachis
HighTech IBM Acer other telcom/IT equip
Los tapatios
Unique mixture of traditional Mexico with global
orientation
21
Regional EconomiesThe Border
2000 miles and 1025 of Mexicos pop.
Historical importance is less than the rest of
Mexico
19401970 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?
22
Economic Sectors
23
Manufacturing
Traditional strength lowtech heavy mfg.
Steel auto parts products for domestic market
Lowend export items golf club shafts
Transformation of Mexican manufacturing
Emphasis on ISO 9000
Capitalintensive activities
From wire harnesses to electronics systems
24
Maquiladoras
100B/year in exports half of Mexicos total
But only 1/4 is value added
Highly cyclical vulnerable to global econ.
Approx. 300000 jobs lost in last downturn
Represented ½ of Mexicos job loss
Sectors autos electronics apparel
Locations Cd. Juarez Tijuana border Yuc.
25
NonMaquila Manufacturing
Theres more to manufacturing in Mexico than the
maquiladoras
PITEX Preferential tariff treatment for
temporary imports.
IMMEX new umbrella for maquila Pitex other
The border v. the interior.
Border plants tend to follow twinplant model.
Plants in the interior are more likely to serve
the Mexican market.
26
Financial Sector
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 30 global average136
Leading players are foreign Citibank Banamex
BBVA Bancomer Santander Serfin
ReEmergence of middle class creating
opportunity for insurance/other fin. Services
Interest rates have declined but credit is still
scarce for the private sector
27
Other Sectors
Energy continued state dominance
Pemex oil CFE electricity
Tourism
Traditional emphasis on stateled developments
Transition to diffused sustainable development
Professional services
Potential competitive advantage for NM?
28
The Grupos
Importance of the diversified conglomerate
Relation to other emerging markets
Grupo Monterrey
Alfa Vitro Femsa and many subsidiaries
Other important grupos
Grupo Carso America Movil Telmex Telcel
Prodigy Sanborns CompUSA Xignux banks
Grupo Bimbo
Televisa
29
Entrepreneurship in Mexico
Theres 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.
30
New Mexico and Old Mexico
Where does NM stand in terms of trade and
investment ties with Mexico?
NM exports just about 375M/year to Mexico of
2.5B/year to all countries
Mexico is 1 market for NM in excluding
semiconductors and in of products.
35th state in exports to Mexico 44th in exports
to world
BUT we must account for the nature of NMs
economy.
43rd state in terms of exports as of GSP
20th state in terms of exports to Mexico as of
GSP
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