An Analysis of Mexico for Investment
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Published: Tue, 13 Mar 2018
Infrastructure and market capabilities and the risks and potential bottlenecks
The growth and prosperity of Mexico depends upon various factors. The country is trying to grow through a combination of industrial growth, service sector growth and public welfare measures. All these depend highly on infrastructure and the competitiveness of the country. The country has to develop its infrastructure and complement the growth measures through interventions in the labour market as well as other sectors that keep the competitiveness of the country at par with the counterparts.
Infrastructure is a much needed ingredient for the development of any country. With its leftist leanings, mexico had monopoly over most of the infrastructure areas such as energy, roadways, railways and ports. Recently, we can see the trend changing. Mexico is looking to bring in private investments into some sectors and to reform almost all of the major sectors such as telecommunications and energy.
President Enrique Peña Nieto recently introduced a legislation which is due to be passed in April. Once passed, this would end a 75 year old era of monopoly on oil production. The public oil company Pemex will be more autonomous and will have a greater control over its activities. The government has also given PEMEX permission to create tie ups with private players over the world in order to sharpen the R&D in the field of oil related energy research. This move also has an agenda of tapping into the vast reserves of shale gas. The government also introduced more private partnerships in the energy segment apart from oil and natural gas. However, Mexico still has a long way to go in the energy segment and to create a sustainable energy infrastructure. With the growth in a lot of segments demanding high amounts of power, the infrastructure should be able to support the extra demand.
- The president has introduced some new regulations in the telecom sector to make it more consumer friendly and economical.
- The regulations aim at enforcing strict regulations that would reduce the call charges.
- Plans to double the connectivity in next few years.
- Introduce foreign investments in telecom sector up to 49%.
- To control the influence of the three giant telecom companies who currently hold most of the markets
- Even though such measures are introduced, the infrastructure needs to withstand the increased demand. The services industry and other industries are increasing its dependence on the telecom sector.
- Mexico in its recent times have increased its spending on the transportation infrastructure.
- There is an increase in spending on ports and roadways. The world’s largest cable suspended roadway bridge was constructed in Mexico.
- The investment into transportation infrastructure is a good sign and takes care of the increased demands due to trade.
Mexico has a highly unionized labor population. Most of the workers are a part of one or the other unions. The labour laws are rigid and laabour welfare oriented. Many welfare measures are available for the employees and hence, it creates a condition that is not helpful for the industrial growth. The result is that the cost of labour increases and the competitiveness decreases.
In order to grow, Mexico needs to simplify the labour laws to make it more balanced. Unionism is good to protect the rights of the workers but after a limit, it becomes restrictive and impedes growth.
Some of the other potential risks or weaknesses are
- High crime rates. Drug trade and other illegal activities form a major part of economy.
- Overdependence on USA
- Weak infrastructure for education, legal and research.
- High levels of poverty and inequality in the society
- The financial system of mexico has been stable and moderately strong.
- The banks have been able to perform well even in the face of crisis situations. Even though there have been changes in the business patterns, the banks have continued to show resilience.
- The reform measures that have been carried out have increased the stability of the system, develop it and regulate it much better.
- The frequent crisis has resulted in a better system with respect to risk reduction and regulations.
- Even though the system has been stable, there are major challenges in the system.
- Highly integrated with the US economy and its financial system and hence vulnerable to problems in these economies.
- The credit to private sector and financial intermediation are lower than the average of Latin American counties and other emerging economies.
- The seven largest banks are accountable for 82% of assets. Five of these banks are subsidiaries of foreign banks.
- Regulation, supervision and licensing has issues that needs to be sorted.
- The increasing NPAs in the system would make the banking system weak in future crisis.
Organizational and managerial factors in Mexico and the applicability of current management practices
The organizational structure in Mexico is highly hierarchical. The employees and the management prefer rigid hierarchical structures for management. The same hierarchy can be seen in the whole decision making process as well. The higher level employees are generally seen as more experienced and hence need to know the operations well. Consulting with a lower level employee is not encouraged.
The decisions have to be made by the bosses and the subordinates deliver exactly what is needed, according to the company principles and directives. Disagreements are not expressed publicly. Companies show a paternalistic attitude towards the employees.
The country is an extremely relationship oriented country with a fluid time culture. Relationships are given importance over deadlines and they play a crucial part in business decisions and managerial functions.
The Mexicans are very flexible in terms of change. But the changes should be slow and well planned. Even though the resistance to change may be low, the fallouts may be large if the change is swift and not so well planned.
Collectivism is a phenomenon that is common and teams are given preference over individuals.
The current managerial practices are implementable in the country with a few tweaks. However, there are some managerial practices that cannot be implemented easily in Mexico.
- Flat organizational structures are hard to implement as it would encourage a dilution of hierarchy and a more fluid structure. Being a rigid hierarchical society, the model may not be easily accepted.
- The Mexican employees work based on clear cut directions. Hence, a business model that encourages self managed work groups or one which requires that the employees have an entrepreneurial mindset may not work well in this culture.
- The managers have to behave in a more paternalistic nature to gain support and respect from the employees. Even though public dissent and disagreement may not happen, the employees may not respect a manager who does not take care of the welfare of the subordinates.]
- The business relations have to be based on trust and understanding more than anything else. The business decisions needs to include the nuances of relations and thus should be sensitive towards it.
Justification for choosing Mexico
Mexico as a country stands out in comparison with its peers in Latin America as well as in the league of emerging nations. The country is a well-balanced economy led by a government who has a solid hold on the macroeconomic policies. These policies and developmental activities have bought the country to a level of self-sustainability. The country has a clear vision for its future. The political stability and the policy uniformity make it a powerhouse of development. Most recently, the Pact for Mexico shows the importance the government gives to development and reforms.
The country balances economic development, industrialization, and social welfare very well. The government realized that as the country progresses, it not just needs industries, but also needs a good policy for social welfare. The current health and education related policies showcase this desire to make the people’s lives better.
Even though the country falls short on a lot of counts, the future prospects are good. Culturally, socially, economically, financially and politically, the county provides the right mix for growth and prosperity. The proximity to USA and the oil reserves make the country a very high potential destination. In short, the philosophy of the country to grow without compromising on the policies and welfare of the citizens is the reason for the choice.
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