mexic o - nebula.wsimg.com

MEXICO

Josh Bregier ∙ Meredith Freeland ∙ Brian Kim ∙ Kayla Orringer ∙ Connor Steppe

Strategies for Successful Entry

Future

Business Practices

Current

Characteristicsof Mexico

Background

There are many characteristics of Mexico’s past and current culture and economy to investigate when determining whether or not to enter

into the Mexican market.

Executive Summary

Background Current Future

The name “Mexico” comes from the shape of its geography

Source: Maphill,

Los Estados Unidos Mexicanos (United Mexican States)

Since the positions of the lakes, upon which Mexico City was founded, are shaped like a rabbit and correspond to the same pattern on the moon. This gives Mexico a meaning of "In the navel of the Moon".

Mexico = ”The Rabbit's Navel"

Metx - 'moon’ xic - 'navel' co - 'in'

In "Nahuatl" (the language of the "Aztecs/Mexicas") it is the combination of three words:

http://www.indians.org/welker/nahuatl.htm

http://www.indians.org/welker/aztec.htm


The U.S. shares a 1,989 mile border with Mexico

Source: Maphill,

Size: 1,972,550 sq. km About 3 times size of Texas


Mexico fought in many wars before their period of peace

Source: TIME,

Spanish forces led by Hernán Cortés arrive and conquer Mexico

1519-1521

1821Mexico gains

independence from Spain through Treaty of Córdoba

Mexican-American War

1846

1857The Reform

War

Franco-Mexican War1861

1910The Mexican Revolution

Post-Revolutionary era of relative peace after amendments to

Constitution1917


Where did the indigenous people come from?

Source: Mexico News Daily,

Popol Vuh


Southern Mexico is home to most of the indigenous population

Source: Mexico News Daily,

The majority of the indigenous population is concentrated in

the southern and south-central region of Mexico


A majority of the population is Mestizo

Source: CIA World Factbook

62%21%

7%

10%

Mestizo (Amerindian-Spanish)

Predominantly Amerindian

Amerindian

Other (mostly European)


Roman Catholicism is the dominant religion at 82.7%


82.7

1.61.4

51.9

4.7 2.7

Roman Catholic

Pentecostal

Jehovah's Witness

Evangelical Churches

Other

None

Unspecified

But prevalence of Roman Catholicism is slowly declining due to increasing

Protestant and Mormonism


People in Mexico celebrate many national holidays throughout the year

Date (2017) Holiday (National Holiday)

January 1 New Year's Day

February 6 Constitution Day

March 21 Benito Juárez's Birthday Memorial

April 14 Good Friday

May 1 Labor Day / May Day

September 16 Independence Day

November 20 Revolution Day Memorial

December 12 Day of the Virgin of Guadalupe

December 25 Christmas Day

Source: Timeanddate.com, Biography, Huffington Post,


There are many non-national holidays celebrated in Mexico

Source: Timeanddate.com, Biography, Huffington Post,

Cinco de Mayo, May 5 All Saints’ Day, November 1

Day of the Dead, November 2


Culture is a big part of life in Mexico

Source: MexicoCulture, Biography, Huffington Post,


The majority of Mexico’s population is young



Although smaller now, Mexico’s population is growing at a much higher rate than the U.S.

Mexico

Total Population: 123 million

Population growth rate: 1.15%

Median age: 28 years

Life expectancy: 75.9 years


United States

Total Population: 323 million

Population growth rate: .81%

Median age: 37.9 years

Life expectancy: 79.8 years


While improving in some metrics, Mexico still faces challenges

Source: Transparency International

25th

65th

in World Happiness Report

in Prosperity Index

U.S. is 14th

U.S. is 17th

123rd in Corruptions Perceptions Index U.S. is 18th


Mexico has three major political parties

Source: Mexico Institute Elections

National Action Party(PAN)

Party of the Democratic Revolution

(PDR)

Institutional Revolutionary Party

(PRI)

Smaller Political Parties

- Center-right party- Founded in 1939

- Formed after theMexican Revolution

- Founded in 1986- Formed by left-

- Long considered the “loyal opposition” to PRI- First party to defeat the PRI on the presidency in 2000 with Vicente Fox

leaning pro-reform priístas- Promote a democraticand open party

- Generally trailed the other two parties until 2006

- Tries to prevent violence among rival political groups- Held a majority of political positions until the 1990s


Mexico’s political structure is similar to that of the United States

Source: New York Times,

Congressional system with President acting as head of state and head of government

Current President: Enrique Peña NietoElected: December 1, 2012

Direct election process without electoral collegePresidency term is 6 years, no reelection.

Power is split into three branches

Executive Legislative Judicial


Mexico is a large trading partner of the U.S.

Source: Central Intelligence Agency,

“Mexico's $2.2 trillion economy has become increasingly oriented toward manufacturing in the 22 years since the North American Free Trade Agreement

(NAFTA) entered into force. Per capita income is roughly one-third that of the US; income distribution remains highly unequal.” – CIA

U.S.’ 2nd largest in exports3rd largest in imports ($590B in trade in 2014)

GDP: $2.307 trillionGDP Growth: 2.1%Per Capita: $18,900

63.2%

33.1%

3.7%

Services Industry Agriculture

GDP Composition


Mexico has a large trade importance on a state basis

Source:HSBC

Destination of Mexican exports

Origin of American exports

35%

13%13%

11%

6%

22%

Texas

California

Michigan

Illinois, Louisiana,Arizona, OhioMississippi, Florida,NCOthers

52%

16%

16%

16%

Texas

California

Michigan, Arizona,Illinois, Louisiana

Others


Future

Business Practices

Current


Background



Executive Summary

Background Current FutureSource: PBS

9th largest economy in the world

Main exports:• Silver• Fruits• Vegetables• Coffee• Cotton• Oil• Oil productsMain industries

Petroleum

TobaccoFood & Beverage Iron & SteelChemicals

Clothing Motor Vehicles Tourism

Mexico has a strong and growing economy

Background Current FutureSource: CNBC, North American Production Sharing, Inc.

Mexico’s large, diversified labor pool and its proximity

to the U.S., coupled with wage and transportation

inflation in China, is driving the largest manufacturing

expansion in Mexico over the past 20 years.

Tijuana, Mexico now claims the largest concentration of medical device

manufacturers in all of North America.

Mexico is now the largest North

American auto-producing nation,

recently surpassing Canada and the U.S.

Manufacturing is growing in Mexico


There are many large companies based in Mexico

Source: Economy Watch

Company Industry Market Value

América Móvil Telecommunications $70.7B

Femsa Beverage $37.7B

Grupo Mexico Mining $32.3B

Grupo Modelo Brewery $29B

Grupo Inbursa Banking $18.5B

Industrias Peñoles Mining $17.4B

Fresnillo Mining $16.1B

ALFA Industrial $12.7B


Many large industries have a significant presence in Mexico


Industry Crude Petroleum Cars

Competition Level High High

Leading Companies PEMEX ToyotaVolkswagenGeneral MotorsRenault-Nissan

Country Mexico JapanGermanUSAFrance-Japan


Four main companies produce a majority of their goods in Mexico

Source: North American Production Sharing, Inc.

- Began manufacturing in Mexico in 1925

- Participant in Mexico’s Maquiladora program

- In September 2016, announced they would be moving all of their small-car production to Mexico

- PepsiCo has invested $3 billion since 2009

- In 2014, PepsiCo announced that they would be making an additional five billion dollar investment in Mexico

- In 2014, Nestle announced they were planning to make a one billion dollar investment in two additional factories in Mexico in the next five years

- A lot of Nestle’sinvestment is for the local Mexican market

- Began establishing Maquiladoras in Mexico in the last fifty years

- Has experienced increased profits from internal demand within Mexico and have reduced the cost of their vehicles

Background Current FutureSource: Export Gov

• NAFTA has increased demand for U.S. goods and services

• Liberalization of Mexican economy has led to economic growth

• Corporate Social Responsibility• Consumers are price sensitive but

sophisticated

Mexico’s economy is evolving along several business trends

Background Current FutureSource: North American Production Sharing, Inc.

Businesses move manufacturing to Mexico

Higher quality products are made

Skilled workforce is increasing

Adaptability, innovation, and tech advancements characterize workforce

The Maquiladora Program is incentivizing business


Mexico exports a variety of goods

Source: North American Production Sharing, Inc.

90.4

81.2

58.9

22.8

15.2

9.98.3

7.1 5.7 5.6Top Ten Exports (in Billions)

Vehicles

Electronic Equiptment

Machines, engines, pumps

Oil

Medical, technical equiptment

Furniture, lighting, signs

Plastics

Gems, precious metals, coins

Iron or steel products

Vegetables


Mexico is a world leader in exports

Source: The Balance, Atlas Media, MIT

12th

73%

largest exporter in the world

of exports went to the U.S. in 2015

>90%of Mexico's trade is under 12 free trade agreements with over 40 countries

73.0%

6.1%

2.0%1.5%1.3%1.3%

14.8%

Mexico's Export Destinations

United States Canada China

Spain Brazil Columbia

Others

<10% dependence on any export category


The U.S. imports a significant amount of goods from Mexico

Source: The Observatory of Economic Complexity


There is need for improvement in Mexico’s infrastructure for effective distribution


0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Truck

Train

Ship

Airplane

Mexico Shipping Methods

Mexico Shipping Methods

Mexico has a modern highway system with toll

roads connecting the main Industrial

areas. Outside these main highways road condition is “fair to

poor.” Mexico is aggressively upgrading its

infrastructure to make exportation

more cost-effective and competitive.


Appearance is very important, business professional attire

Business meals are a common occurrence, usually involves drinking and smoking

Patience: meetings usually last much longer and small talk is necessary before discussing business

The concept of time is flexible

Mexican etiquette makes it difficult to say no, so “yes” does not always mean yes

Most of Mexico’s business customs are fairly similar to the U.S.

Source: Export Gov

Background Current FutureSource: Trending Economics

Consumer prices in Mexico jumped 4.86 percent year-on-year in February of 2017, following a 4.72 percent rise in January and above market expectations

of 4.82 percent. This was due to liberalization of gas prices.Inflation Rate in Mexico averaged 25.52 percent from 1974 until 2017, reaching an all time high of 179.73 percent in February of 1988 and a record low of 2.13

percent in December of 2015.

Mexico’s inflation rate has recently been increasing rapidly

Background Current FutureSource: Mannatt Jones Global Strategy

Legislation to limit the monopolistic practices that have plagued the Mexican economy for

generations

Gives the Commission real sanctioning powers that should allow it to force dominant actors to comply with Commission rulings

Authorizes the Commission to eliminate barriers to competition and free market entry anywhere in the economy (except in the telecom sector) and to identify and regulate access to essential production inputs.

Empowers Mexico’s antitrust agency, the Federal Competition Commission (COFECE), which has lacked meaningful authority and sanctioning power.

Mexico’s new competition law aims to limit the power of monopolies


Future

Business Practices

Current


Background



Executive Summary


Mexico is an attractive business destination

Source: CNBC, The Economist, The Balance, Financer Worldwide, Goldman Sachs

Geography

• Proximity to the US

• Port of Lazaro Cardenas

• Labor pool of 78 million people

• World Trade Organization ranking

• Spanish and English speaking

• 44 free trade agreements

• International trade is 66% of the GDP

• Predicted to become 5th largesteconomy

Workforce

• Telecomm, economic competition, energy, and financial services

• Resulted in increased foreign investment

ReformsTrade

Background Current FutureSource: CNBC, Financer Worldwide

Given the landscape and trends, there are 3 major current market opportunities for goods and services

• Financial Services

• Information Technology

• Aerospace


Financial service organizations use the nation’s most popular sport for advertising

Source: Oxford Business Group, PwC

2

5%

decades of growth and stability

of customers switch between banks due to tough competition

<50% of the population currently has a bank account

Key Companies: Banamex, BBVA Bancomer, Santander, Banorte, HSBC


Mexico is an Information Technology powerhouse

Source: The Catalist, ATKearney

human factor’s availability and skills

labor costs

business environment

6th best location for IT development

Key Companies: IBM, Lenovo, Motorola Mexico, Ericsson


Mexico appears as the 2nd largest fleet of private aircarft in the world

Source: The Catalist, ATKearney, Staff Relocation Services

Number of companies set in the country

high-level professionals have been employed

billion dollars have been reached

Key Companies: Boing, Delta, Safran Group

>270

>31k

7.1


There are substantial risks of moving into Mexico

Source: CNBC, EY, Export

Corruption Global Recession Drug CartelTied to the

U.S.

Fragmented sectors

Many underserved

areas

Current U.S. foreign policy

Differing regulations,

product standards,

and labor laws


People around the world have mixed opinions regarding the potential tariff

Source: Forbes, Business Insider, Five Thirty Eight

“A 20% tax on Mex.imports to pay 4 the #BorderWall wudhav the same impact as a

category 5 hurricane on the [Rio Grande

Valley]~catastrophic&hard 2 overcome,” tweeted Ruben o.

Villarreal, a Republican and former mayor of Rio Grande City, which on on the Texas-

Mexico border.


There are many factors to consider when determining the best possible entry strategy

Source: Export Gov

One needs to develop

close relationships with clients

and partners in Mexico

Mexican businesses

prefer direct communication

(on-site presence often

required to build rapport)

Mexican companies are

often very price sensitive, seek

financing options and

exclusive agreements

They value flexibility and outstanding

customer service


Many resources can help when entering Mexico

Source: Export Gov, Travel State

The U.S. Commercial Service can assess market potential of products and services,

and provide advice on exporting strategies

The U.S. Commercial Service can also help facilitate business agreements and run

background checks

The U.S. Department of State


Cost leadership is the dominant pricing practice in Mexico

Source: University Honors in Business, Language and Culture, XE Currency

63%

25%

6%6%

Perceptions on Most Common Pricing Strategy for Consumer Products

Cost Leadership

Product Differentiation

Mixed Strategies

Competitive Pricing

Currency: Mexican Peso

1 MXN = 0.0523814 USD1 USD = 19.0908 MXN

The value of the peso has decreased over the past 5 years


Marketing in Mexico is focused around the culture

Source: AT&T,


We recommend several strategies for entering the Mexican market

Source: AT&T,

- Market to the culture- Partner with a local agent- Use a celebrity as brand representative - Evaluate sector risks based on global

geopolitical situation- Get assistance from U.S. commercial department- Be selective and strategic when choosing

distribution partner


Future

Business Practices

Current


Background



Executive Summary

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