Mexico's Culture

Culture
Mexico is a developing country characterized by an emerging economy which is providing strong competition with China for reaching the American market. In the same way, Mexico is an attractive country for American businessmen looking to expand into the Latin market. Mexico’s population was estimated at 114,975,406 people July of this year. Mexico’s people have increasingly become urbanized and in 2010, more people were living in the country’s capital, Mexico City, than the amount of people in the greater New York City area. 93% Mexicans speak Spanish and provide and relatively homogenous group to market to. 85% of Mexican is affiliated with some Christian denomination although the overwhelming majority of Mexicans are Catholic. Economists have analyzed that the growing middle class is becoming Mexico’s predominant buying class. 65% of Mexicans identify themselves as middle-class and Mexico is changing its self-perception from that of a poor country to a middle-class one.
Conducting business in Mexico can be a long and arduous process. Trying to immediately start negotiations can be seen as pushy as the Mexican people are more relaxed and want to start personal relationships before conducting a business relationship. First meetings are usually exclusively for the purpose of casual conversation. Attempts to come to a definite decision can be put off with the phrase, “mañana” signifying “later” and can serve to redirect a conversation or be a way of saying no. Courtesy titles followed by surname should be used at all times, unless those in your group have professional titles, which should be used. Gift giving is necessary, but is a nice touch if relatively inexpensive. Red, yellow, or white flowers have bad symbolism, however, and should not be used. Conservative and modest dress is also important. It is important to recognize negotiations may be time-consuming and good interpersonal skills and emotional passion elicits more respect from Mexican businessmen than credentials.

Resources

Mexico happens to be very rich in natural resources. The nation’s main export is crude oil and is among the top five largest producers of petroleum. Other natural resources that Mexico produce includes silver, gold, copper, and lead. With the Gulf of Mexico, the Pacific Ocean, and Caribbean Sea right at Mexico’s shoreline, fishery has become extensive and is ranked 17th in worldwide production. Mexico happens to be ranked high in the production of agricultural goods as well. The nation is the fourth largest producer of both corn and sorghum worldwide and the fifth largest producer of beans in the world. Mexico is also in the top ten producers of avocado, cacao, coffee, lemon, mango, orange, tomato, sugarcane, honey and banana. The climate conditions in which Mexico has also allow for the production and exportation of cattle, pigs, goats and sheep. Mexico happens to also be made up of 39% of forestry and woodlands, but because of topography and environmental laws, the production of timber is 35%-40% higher than most of the world. This has lead to a widespread over-harvesting and illegal harvesting of forest resources, which can potentially hurt the economy in Mexico, is some ways.

Products

Over the past few years Mexico has imported goods from the United States, this is the starting point to institute a better environment for the citizens of Mexico and people wanting to start a business in Mexico. The largest import from U.S. To Mexico is electrical appliances. This shows that Mexico has a sustainable power grid able to keep all these appliances running. Next is almost a tie with $4.75 Billion USD’s for telecommunication equipment and $4.69 billion USD’s for industrial supplies. Both of these together reports that Mexico has a growing wireless infrastructure and a growing industrial sector, creating jobs and a better living environment for its employees and consumers.

Price Points

The average Mexican household consists of 3.9 people as opposed to 2.59 peoples in US households. The quarterly household income has declined by 12.8% between 2008-2010, during this time the average monthly income was $995 USD, and spending was $871 USD a month. This was the worst recession since the 1930’s for Mexico. The average population age is between 12-29 at 31.9%, followed by the age group 30-49 at 26.3%. The largest consumer base in Mexico is the teens and young adults, creating a boom in able workers and willing consumers.

Mexico’s Economic System

Mexico has a free market economy with a mixture of modern and outdated agriculture industries. Mexico has a very limited number of state-owned enterprises. As a direct result of NAFTA. trade has more than doubled with the US and Canada. This has had a phenomenal impact on the economic system and has bolstered gross profits ten-fold. The biggest industries (consecutively) are agriculture, energy and mining, communications, transportation, and tourism. The GDP purchasing power parit is $815.3 billion , the real growth rate is 4.8%, and the per capita purchasing power parity is $8,300. The composition by sector is agriculture at 6%, industry at 26%, and services at 68%. As far as demographics are concerned, the population below poverty line is at 27%. The current inflation rate is at about 18.6%.

Debt vs. Cash

Mexico’s debt began taking root in August of 1982 when Mexico announced to the world that it was unable to pay what it owed to its international creditors. Due to Mexico’s rapid rise in large-scale loans, rapid inflation and high floating interest rates skyrocketed. Organizations of Petroleum Exporting Countries also known as OPEC soon began to amass immense wealth, and banks were eager to lend billions of dollars. Mexico in turn borrowed large sums of money at low, but floating interest rates. As a result of the irresponsibility of both creditor and debtor governments, Mexico did not use the money for productive investment, but rather spent them on immediate consumption. Consequently, Mexico then in turn did not have money to repay their loans. During the Mexican Peso Crises of 1994, Mexico announced to the international financial community that it did not have enough external liquidity to fulfill its financial obligations and requested a 90 day rollover of the payments of the principal to prepare toward definite restructuring financial package. The impact of this announcement was far-reaching and created an atmosphere that caused intense relations on all exports. The price of oil began to skyrocket and the number of exports diminished as interest rates rose, causing debtors to default on all of their loans. This brings us to a current national debt of $274, 800 (Million USD).

Political System

The Mexican political system is modeled after the United States. Although there are some differences in place, the overall concept is similar. In 1917, the Mexican Constitution (Constitución Política de los Estados Unidos Mexicanos) was made, but the ideal democracy that Mexico was aiming for was not in place until the late 1900s to early 2000s. Over the years, Mexico has not had a steady government structure and over the span of 55 years, during the early 1900s, went through 75 different presidents. The Institutional Revolutionary Party (PRI) was the primary winner for most of the elections in Mexico (7 decades), with the other two parties being the Democratic Revolution Party (PRD) and the National Action Party (PAN). The PRI political party is said to be like a dictatorship because of its corruption and promotion of social order and the other two parties spend more time trying to keep the PRI out of the executive seat, but have failed to do so in years past. In 2000 the PRI’s reign ended and the PAN political party had taken over the Mexican political system. Now, as the six-year term of Felipe Calderón is coming to an end, Enrique Peña Nieto of the PRI party is going to be the new president and the PRI will be back in power after a twelve-year hiatus. Enrique Peña Nieto will go into office starting December 1st, 2012 and says that the PRI party is now more reformed than before.

Legal system
Mexico actually has a highly evolved and organized legal system.
The roots of this system are rather unique in the fact that this legal system is founded on both ancient and classical, thanks to the influence of the Greek, Roman, and Spanish systems. However, in recent years, Mexico has started to structure its governmental departments by using the EU and USA as a model.
The United States is considered a “common law” country and Mexico is considered a “civil law” country. Under common law, the US focuses on case law, customs, and usage as opposed to legislative enactments.
Under civil law, also referred to as “colonial law”, Mexico’s civil law system derived directly from Roman law and is a highly formal body of law, while capitalizing on intricate laws, customs, and accepted legal requirements.
Mexico’s constitution was written in 1917 and is the most important document. A companion document to the Constitution is the Civil Code which consists of over 3,000 documents organized in to 4 books with chapters and sections.
The Civil Code adheres to Mexico’s revolutionary spirit and communalism tendencies as the code values community needs over individual needs and property rights are not absolute.
The Commercial Code is also a compilation of many articles organized into 5 separate books. It covers all forms of business and gives procedures for commercial litigation. “Magistrates of the Supreme Court are appointed for six years by the President and confirmed by the Senate; they can be removed only on impeachment. The courts include the Supreme Court with 21 magistrates, 12 collegiate circuit courts with three judges each and nine unitary circuit courts with one judge each, and 68 district courts with one judge each.” (B. Turner (Ed.), 2009)
Tri-branch system with a president elected every 6 years.

Entry Method

There are many ways a business can enter the international market of Mexico. Often times, the first step to testing a market is through exporting to the country. NAFTA, the North American Free Trade Agreement, made it possible for trade to occur between Canada, Mexico, and the United States tariff-free. This means as a business person, the costs associated with entering the Mexican economy drastically drop due to low barriers to entry.

If an American business wants to take the next step, licensing and franchising could prove to be a lucrative investment. Through licensing and franchising, the business would be exporting property rights, the name, business strategies, and standard operating procedures. The franchise sector in Mexico grew between 9 - 12% in 2011, continuing to be one of the most important sectors in the country´s economic growth. Due to the importance of franchising to the Mexican economy, the Mexican Congress amended the Law of Industrial Property, which helps protect Mexican franchisees from abuse via the franchisor. This created more interest in the concept of franchising and conservative estimates show there will be an 8% increase of franchises in 2012.

Considering Mexico’s trade agreements with over 50 countries and fairly low barriers to entry, the country would be a viable option for Foreign Direct Investment. The countries of Mexico’s agreements represent 2/3 of total imports in the world and ¾ of the world’s GDP. Through these agreements, Mexico is granted preferential access to a potential market of more than one billion people. FDI Magazine recently ranked 4 Mexican cities among the Top 10 Latin American Cities of the Future, one of them being number 3. Many companies enter Mexico due to cheaper labor and their membership with NAFTA. According to the CIA World Fact Book, Mexico is the largest exporter in Latin America with $349.7 billion in exports; this number qualifies them to be the 16th largest exporter in the world. This number shows that companies go there and access their cheaper resources and take advantage of their trade alliances for exporting to other countries.

Long term profit potential

Because of the potential that Mexico holds in this world’s economy, their long-term profit potential can be great as compared to other countries in Latin America. As an American business, placing something as simple as production within Mexican borders would allow them to avoid the most expensive corporate taxes in the world as well as labor costs. Despite popular belief, pursuing a Greenfield Investment in Mexico is far more expensive than building a business in America.

Opportunity Costs Mexico ($USD)
America ($USD)
Starting the business
8 days - 949.58
675
Construction
30464.72
6990
Electricity
36138.59
7926.7
Total (USD)
67552.89
15591.7

It costs on nearly $70,000 (USD) to build new facilities in Mexico, which is a large expense considering the $16,000 (USD) it costs in the United States. A benefit to consider is that once the business is in Mexico, it will cost $0 to export into America and European Free Trade Area. One would be avoiding the corporate taxes in America, which are the largest in the world at 39.2%, while enjoying the tax rate in Mexico at 30%. The most staggering figure is that minimum wage in America is $7.25 (USD) and minimum wage in Mexico is nearly half of that at $4.60 (USD). Knowing this fact will allow businesses to pursue more cost-effective options that will increase their long-term profit potential. Pursuing options such as franchising, direct foreign investment, acquisitions, or simply exporting, will boost a company’s chances at realizing a long-term profit margin.

CONCLUSION

Mexico is a unique option for international business. After years of stagnation and struggles with debt, Mexico is a leader among developing countries in adapting towards a technology and industrial based society. Sustainable options have insured that valuable agricultural resources and natural resources, such as petroleum, are available for international trade. Indeed, Mexico has worked to befriend many developed countries and is an important intermediary in reaching all of Latin America. Mexicans are willing to add increased ease to starting a business in their country, and increased transparency and governmental vigilance to curb drug –related violence makes Mexico an intriguing prospect for at least foreign direct investment. However, serious ramifications in entering Mexico now include the current change in political power. As the revolutionary focused, radical PRI party led by Enrique Nieto prepares to regain the presidency and probably the congress next year, foreign businessmen should be mindful of the possible implications a radical government adds to business ventures. Nor should the community-focused tendencies of the Mexican government be ignored. While defined as a free market economy, the Mexican government does not recognize any private property belonging to the citizenry which increases possible operational risks. Mexico has stabilized its currency in recent years but is still reliant on the US dollar and any adverse economic effects the United States could face in coming years would have hit the Mexican economy and people with a great intensity.
Mexico’s people are relatively homogenous and are ready to flex their power as consumers to try a variety of commodities and luxury products. Mexico’s welcoming culture lends itself to developing business interactions with interested foreign businessmen who are willing to also cultivate a relationship with other workers. Provided costs are reasonably priced for a Latin American country and can effectively reach the growing middle class and appeal to the nation’s large young adult population, any product, especially if a technological product, can be expected to flourish