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Ivo Pezzuto's Economic and Geopolitical Overview of Mexico (2013)

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International Business Management Workshop at Catholic University of the Sacred Heart, Milan (Italy)

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Ivo Pezzuto's Economic and Geopolitical Overview of Mexico (2013)

  1. 1. Geo-Political and Social Overview of Mexico Prof. Ivo Pezzuto International Business Management Università Cattolica del Sacro Cuore
  2. 2. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Table of Contents • Geography and Climate • Socio-Demographic Features • Society and Culture • Government, Political, and Legal System • Economic Structure and Outlook • Market Attractiveness for International Firms • Doing Business in Mexico
  3. 3. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • Mexico (officially the United States of Mexico) belongs geographically to North-America; ethnologically it belongs to Latin America. About 78% of the people live in urban areas. • Highly developed cultures, including those of the Olmecs, Mayas, Toltecs, and Aztecs existed in this area long before the Spanish invasion. Mexico remained under Spanish occupation for three centuries before achieving independence early in the 19th century.
  4. 4. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • During the last two decades, Mexico has been undertaking a process of change. In particular, the country is transitioning from being a small economy to an open and diverse economy. • Mexico covers an area of 1,964,375 sq. km. (the 12th country in the world in size that occupies the southern part of North America and part of Central America), 1,959,248 of which are on the mainland and 5,127 of which are islands. There is also an exclusive economic zone of territorial sea comprising of 3,149,920 sq. km., meaning that the total area of the country is 5,114,295 sq. km. Population density 2013: 57 habitants/ km2.
  5. 5. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • Mexico is the third-largest country in Latin America after Brazil and Argentina. • Mexico is comprised of 31 states, and a Federal District where the capital is located and where the branches of government are located. Mexico is entirely part of North America, along with Canada and the United States. Mexico has borders with the United States of America, Guatemala and Belize.
  6. 6. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate
  7. 7. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • Mexico has the Yucatan Penisula as the tip and it is traversed by three mountain systems – the Western Sierra Madre, The Eastern Sierra Madre, and the Southern Sierra Madre. Except from Baja California and the Yucatan Penisula, most of the Mexico consists of highlands. Valleys and canyons crisscross plateaus and mountains, some of which are volcanic.
  8. 8. Geography and Climate 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore
  9. 9. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • Mexico is a multifaceted country. According to the latest official estimate, the country has a population of 117.41 million, of which 57,481,307 are women and 54,855,538 are men. Mexico is the most populated Spanish-speaking country, with many different cultures that have their own languages or dialects. Between 2005 and 2010 the population grew 1.7% annually, a significantly higher rate than the rate between 2000 and 2005, 1.2%. • The greater part of the country is a highland plateau bordered on the east, west, and south by mountains. This plateau gradually rises to the south. The southern part of the plateau includes Mexico City, the political, economic, and population center of the country, located at an altitude of about 7.500 feet (2,240 meters), one of the highest cities of the world. The coastline consists of 9,330 Km.
  10. 10. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate - Mexico City
  11. 11. Major Cities in Mexico Population: (including adjacent municipalities) • Mexico City (capital) approximately 21,000,000 people in its urban agglomeration, of which 8,841,916 live in Mexico City • Guadalajara 4.338 million • Monterrey 3.838 million • Puebla 2.278 million • Tijuana 1.629 million 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate
  12. 12. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • Almost 50% of Mexico, including the entire northern part of the country, is arid or semiarid. Annual rainfall increases towards the south where there are zones with the highest level of rainfall in the world. • The rainy season usually runs from May to October, with very little rainfall during the rest fo the year, except in the coastal area near the Gulf of Mexico. Nevertheless, the climate varies widely, in part because of the wide variation in altitude in the country and the effect of the Pacific Ocean and the Gulf of Mexico on the coastal areas. Mexico City and many other regions in the central part of the country have a semitropical climate. There are very few regions, aside from the highest mountains, where it snows regularly in the winter. Most of the coastal regions have a humid tropical climate.
  13. 13. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate
  14. 14. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Geography and Climate • The Mexico City metropolitan area as an average mean temperature of 63° F (17° C), with occasional lows of around 32° F (0° C) in December and January and highs near 86° F (30 °C) in April or May before the beginning of the rainy season.
  15. 15. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • As stated, the population of Mexico is estimated at approximately 117 million inhabitants. • Spanish is the main language , although various regional indigenous languages such as Mayan and Nauatl (the Aztec language) are spoken. Spanish is the official language of Mexico and business meetings are usually held in this language. English is quite well- accepted and spoken in business circles. Nevertheless, it is recommended that before any meeting takes place, participants make it clear in which language the meeting will be conducted. Any attempt to communicate in Spanish will be greatly appreciated and considered as a sign of interest and respect.
  16. 16. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • 10% of the population is considered to be part of the wealthy social class, whereas about 45% is classified as lower class with earnings of less than USD $10 per day. The remaining 45% of the population is considered to be middle class. • A single person in Mexico has a net worth equal to eight percent of GDP: Carlos Slim. Additionally, only ten percent of Mexicans represent 25% of Mexican GDP • Illiteracy 2002: 33 million people • Fertility rate 2013: 2.1 births per woman • Very young population with a median age of 27. It is a large market with a GDP of approximately US $1.2 trillion in nominal exchange rates and US $1,7 Trillion in purchasing power parity (PPP). GDP per capita (PPP) is USD $15,931 (2013), 16,634 (2014); 17,364 (2015); 18,130 (2016); 18,941 (2017); 19,784 (2018) source: IMF’s GDP (PPP) estimates
  17. 17. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • Mexico has a mix of Western and Hispanic cultures. • Mexico is a stable democracy. • Mexico has bounced back strongly from 2009’s worldwide recession.
  18. 18. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • Main Religions: Catholics 80% and Protestants 20% • Family remains the most important element of Mexican society, both in private and in public life. An individual’s status and opportunities are strongly influenced by family ties, from infancy to old age. Many households, in both rural and urban areas, are inhabited by three or more generations because of the economic advantage (or necessity) of sharing a roof as well as traditionally close relationships. Mexicans generally maintain strong links with members of their extended families, including in-laws and “adoptive” relatives—that is, friends of the family who are generally regarded as “aunts” and “uncles.” • Mexican cities, while on the one-hand exhibiting affluence and prosperity in their elite neighborhoods and modern commercial complexes, also display poverty and squalor in the surrounding slums and shanty suburban townships.
  19. 19. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • Overall, Mexican society reflects traditional societal ethos and practices. The family or more particularly the extended family remains central to Mexican society. Familial ties and bonhomie characterize Mexican social life and it is a common practice to have social get-togethers and festivals that include family members and relations across several generations. This is unlike the individuality that permeates many cultures and societies in transition especially in post-industrial countries. • Fondness for good food and drink is a characteristic of Mexican society across all social classes. Although there are regional variations in food habits there are many elements that bind Mexicans in a united culinary tradition. In fact, Mexican cuisine has come to play a great role in projecting the country's image and identity in far corners of the globe.
  20. 20. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • Regional variations apart, the staple diet of most Mexicans includes corn, beans, rice, avocados, chili pepper, tomatoes, papayas and vanilla. Also popular dishes like tortillas, fajitas and tortas. Another integral feature of Mexican cuisine is the wide array of drinks, alcoholic or otherwise, with the most famous being tequila, which have gained international popularity. Mexico's culinary diversity and richness can also be savored at the time of the feastings and traditional gatherings during Christmas time and on the Day of the Dead. Finally, a nice afternoon siesta, after a sumptuous midday meal is a favorite practice among most Mexicans especially in the rural areas where life is slower and more relaxed.
  21. 21. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Socio-Demographic Features • Mexican society and business are highly stratified and vertically structured. Mexicans emphasize hierarchical relationships. People respect authority and look to those above them for guidance and decision-making. Rank is important, and those above you in rank must always be treated with respect. This makes it important to know which person is in charge, and leads to an authoritarian approach to decision-making and problem- solving. Mexicans are very aware of how each individual fits into each hierarchy -- be it family, friends or business. It would be disrespectful to break the chain of hierarchy • Mexico scores 81 (out of a maximum score of 104) on Hofstede’s Power Distance dimension
  22. 22. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Society and Culture • Mexicans tend to dress formally during business meetings. In large cities (Mexico City, Monterrey, Guadalajara, etc.) they usually wear a suit and tie, and expect business partners to do the same. • However, in regions with hot weather, such as along coastal cities, or in the southern part of the country (eg Puerto Vallarta, Cancún, Villahermosa, Mérida), business meetings can be attended wearing casual clothing and a jacket and tie are often not required. • Titles are important in Mexico, since they symbolize status. Professionals with a degree-level education are known by their relevant title (i.e. lawyers, engineers, doctors, etc.) Business cards usually show if someone has such a title.
  23. 23. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore • When scheduling a business meeting, visitors should be aware that a 10–15 minute delay is acceptable (due to traffic, parking etc.), though generally timeliness shows respect to the hosts. An exception is when meeting with government officials, where a considerable waiting time can be expected. • In medium-sized cities and particularly in coastal areas, the time of any meeting should be double-checked, as people tend to have a more ‘easy-going’ attitude. For example, a meeting scheduled at 5pm might easily start at 6pm. • It is also common to hold business meetings during lunch or dinner, so a long lunch/dinner appointment is not unusual. It is advisable to accept such invitations which provide the opportunity for a more personal relationship to develop in a more relaxed environment Society and Culture
  24. 24. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore • The attitude towards women executives is first-rate. Businesswomen are cosmopolitan, professional and respected. A woman looking to establish a business in Mexico, whether on their own or as part of an organization, will be easily accepted and treated with courtesy and professionalism by most business people. • When doing business in Mexico, it is important to remember that it can be critical to make friends with Mexicans. In general, Mexicans make friends first and then do business, rather than the opposite way round. Not taking the time to develop a relationship of trust will hinder the possibility for a long-term business relationship, so business people should initially focus on building relationships. • Business deals are rarely concluded over the telephone, since eye- contact and personal acquaintance are essential for doing business in Mexico. Society and Culture
  25. 25. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Government, Political, and Legal System • Mexico is a Federal Republic comprised of 31 States and a Federal District (Mexico City and part of its metropolitan area). • The political system made up of three levels of government: (1) federal, (2) state and (3) municipal level. • There are three separate powers in the governance: executive (President), legislative, and judicial. The president is the chief of the State. The legislative power represented by the bicameral National Congress consists of the Senate (128 seats) serving for six-year terms and the Federal Chamber of Deputies (500 seats) serving three-year terms. The judges of the Supreme Court of Justice are appointed by the president with the consent of the Senate.
  26. 26. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Government, Political, and Legal System • Mexico political system stems from the 1917 Political Constitution. • Presidential elections are held every six years and there is no possibility for re-election • Currently, the president is Enrique Peña Nieto from the Industrial Revolutionary Party (Partido Revolucionario Instituticional – PRI), who will be in office until November 2018. • The Head of the Government is Miguel Angel Mancera
  27. 27. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Enrique Peña Nieto – the 57th president
  28. 28. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Government, Political, and Legal System • The annual approval of the federal budget is governed by the Federal Budget and Fiscal Responsibility Law which mandates for a balanced budget (with some exceptions). The budget process states that the revenue side (Revenues Law) has first to be approved by both houses, followed by the expenditure side which is the sole responsibility of the lower house. • Mexico's legal system has its roots in the Napoleonic Code and it is divided into federal and state systems, each with its own Codes and procedures. Therefore, some legislation applies to all states (federal laws), while some matters are the exclusive remit of the states (local laws)
  29. 29. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Government, Political, and Legal System • The Supreme Court of Justice is the highest authority and concentrates mostly (though not exclusively) in constitutional matters. It is formed by 11 ministers with spaced-out terms. They are nominated by the Executive but have to be ratified by the Senate. • There currently are seven registered national political parties, even though the three largest hold most of the elected posts both at the federal and state levels. These main parties are: the left-of-center party (Partido Revolucionario Institutional - PRI); the right-of-center party (Partido Acción Nacional - PAN); a leftist party holding two state governorships and the capital, Mexico City (Partido de la Revolución Democrática - PRD)
  30. 30. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Economic Structure and Outlook • Mexico is among the largest economies in the OECD. • It has experienced an average growth rate of 3.5%. In recent years and it has recovered quickly the global downturn of the 2007 – 2009 financial crisis, mainly driven by exports to US (particularly of the automobile industry). • It did not catch up, however, to average OECD living standards in the last decade and its rates of inequality and poverty are still very high. • GDP increased by 17% over 2000 – 2010, with a sharp fall of approximately (-6.0%) due to the global economic recession and a strong recovery (+5.4%) in 2010. • The gap in living standards between Mexico and the rest of the OECD countries remains due to the country’s low productivity. The avereage income of the richiest 10% of the population is 26 times that of the poorest.
  31. 31. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Economic Structure and Outlook • According to the most recent poverty measures (2008), Mexico’s overall poverty rate approximately 45% or 47 million people, but the indicators show that 70% of Mexicans lack at least one of the eight basic needs identified in the new multidimensional system. The new measurements, based on a 2008 survey (US Embassy), shows that 36 million Mexicans (33.7%) live in moderate poverty, and 11.2 million (10.5%) live in extreme poverty. Mexico’s considerable wealth is not evenly distributed among its people. The southern region is by far the poorest area of the country. The northern states of Nuevo Leon, Baja California, and Coahuila, are among the richest states. The lack of economic opportunities – specifically decent jobs – for poor Mexicans is a major driver of migration – both internal and international – and exposes Mexico’s poorest people to increased vulnerability and marginalization.
  32. 32. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Economic Structure and Outlook • Mexico ranks 53° (out of 144 countries) on global competitiveness according to the World Economic Forum 2012- 2013 Global Competitiveness Index. • Expected GDP growth in Mexico in 2013 was lowered by IMF from 3.5 percent to 2.9 percent, while 2014 estimates for Mexico were lowered from 3.4 percent to 3.2 percent. • GDP USD $1,2 trillion (approximately) • Unemployment: 4.9% • Inflation: 3.6% • Gini index 51.7 (CIA 2008) • Public debt as % GDP: 43% • Mexico scores high on corruption (105 out of a maximum of 174 on the Corruption Perception Index 2012)
  33. 33. Economic Structure and Outlook
  34. 34. Economic Structure and Outlook
  35. 35. Economic Structure and Outlook 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore 1.00 MXN = 0.0762841 USD Mexican Peso ↔ US Dollar 1 MXN = 0.0762841 USD 1 USD = 13.1089 MXN Exchange rates:
  36. 36. Economic Structure and Outlook 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore
  37. 37. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Economic Structure and Outlook • Mexico has a floating exchange rate regime. • Adjusted for seasonal swings, there was a trade surplus IN Mexico of $515m in October 2013. • Strengthening US demand for Mexican products. Mexico sends nearly 80% of its exports to the USA which are dominated by manufactured goods. • Investors have become more optimistic about Mexico’s economic prospects thanks to a reform drive by President Peña Nieto which has included a proposal to open the energy sector to private investment for the first time in 75 years. • In 2013 Mexico has unveiled a “transformational” six-year plan to invest $316bn in thousands of miles of new roads, railways, telecoms infrastructure and overhauling ports that the president said will boost competitiveness for exporters and power growth.
  38. 38. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Why is Mexico an Attractive Market? • The planned 4tn peso total investment in infrastructure from 2013 to 2018 could add up to around 5 per cent of gross domestic product. • The ambitious plan, hotly awaited among a roster of reforms promised by the president, includes both government and private-sector investment not only in transport and communications, but also in Pemex, the state oil company, the federal electricity commission and national water entity. • Included among projects are three passenger rail lines and two urban commuter train lines, as well as cargo train projects and four “international class” ports. • Communications projects included two new satellites and two new TV channels.
  39. 39. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Why is Mexico an Attractive Market? • Mexico Market Potential for Exporters: Chemical and Life Sciences/Pharma industries Energy and Mineral Resources Automotive and Aerospace industries Manufacturing Consumption goods/Consumer Goods Construction/Machines/Engineering Clean Tech Medical Technology Food and Drinks High perceived value of «Made in Italy» products in Mexico Benefits of the NAFTA agreements
  40. 40. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Why is Mexico an Attractive Market? • Mexico ranking on the World Bank and PwC estimates for 2030 and 2050 11° in 2011 (GDP at PPP)  8° in 2030 (GDP at PPP)  7° in 2050 (GDP at PPP) According to the IMF the Mexican banking system is strong, in which private banks are profitable and well- capitalized
  41. 41. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Doing Business in Mexico • Key Business Data:  Political Risk Rating: Low Risk Most important sectors (2012, % of GDP) Services: 63 % Industry: 33 % Agriculture: 4 % Main import sources (2012, % of total) USA: 50.1% China: 15.4 % Japan: 4.8 % South Korea: 3.6 % Germany: 3.6 %
  42. 42. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Doing Business in Mexico • Key Business Data: Main export markets (2012, % of total) USA: 77.7% Canada: 2.9% Spain: 1.9 % China: 1.5 % Brazil: 1.5 % Internal economic situation: Growth will pick up again in 2014 External economic situation: Good solvency and liquidity indicators
  43. 43. 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Doing Business in Mexico • The short-term outlook for Mexico is good, with growth expected to pick up again in 2014. However, this depends greatly on the performance of the US economy next year. With nearly 80 % of exports destined for the US, together with tourism and remittances, the US is Mexico’s main source of foreign exchange. Currently, the US economy is expected to grow 2.5 %-2.6 % in 2014. Solvency and liquidity indicators will remain stable. It is expected that the current account deficits will increase again in the coming years, but can easily financed by capital imports, especially FDI and incoming short-term portfolio capital. The fundamentals of the Mexican economy are strong enough to cope with setbacks without getting into major financial problems. The country will continue its solid investment ratings.
  44. 44. ABOUT YOUR LECTURER OF THIS MODULE 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore Ivo Pezzuto Born in Italy, raised and educated in the U.S.A (New York), he is an Associate Professor of Business Administration at SMC University, Zurich; Adjunct Professor at Università Cattolica del Sacro Cuore, Milan; Professor at Fondazione ISTUD School of Management, Baveno, and Visiting Professor to MIP Business School of Politecnico di Milan. He is also author of papers, a book chapter, a book, numerous articles, and journal publications on global economics, finance, and corporate governance, and business policy. For over 12 years he has taught undergraduate, graduate, MBA, doctoral, and executive education programs on marketing, strategic management, business planning, sales management and business development management, consumer behavior, and international business topics. As management consultant he has participated to a number of internationalization programs for SMEs managers and entrepreneurs (i.e. Provincia di Trento, Chamber of Commerce of Udine, Lombardy Region 2010 “Doing Business in Qatar”, etc.).
  45. 45. Prior to my his current management consulting, academic, coaching, and executive education career, he has had a successful career for over fifteen years as senior executive (i.e. Vice President European Region) of leading multinational corporations in diversified industries (FIAT, American Express, Accenture, Citibank, Diners Club, New York University Stern School of Business) He is bilingual (Italian and English) and has a working knowledge of French. He holds the following degrees: Doctor of Business Administration, SMC University, Zurich, Switzerland Executive Development Program ISTUD, Baveno, Italy Master of Business Administration, SDA Bocconi, Milan, Italy Master of Arts Economics and Management, SDA Bocconi, Milan, Italy Executive Development Program, SDA Bocconi & CFMT, Milan, Italy Executive Development Program, Accenture/University of Chicago, Chicago, U.S.A. B.S. New York University, Stern School of Business. New York, U.S.A. ABOUT YOUR LECTURER OF THIS MODULE 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore
  46. 46. ABOUT YOUR LECTURER OF THIS MODULE 2013 © Copyright - Ivo Pezzuto – Università Cattolica del Sacro Cuore

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