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

Geo-Political and Social
Overview of Mexico
Prof. Ivo Pezzuto
International Business Management
Università Cattolica del Sacro Cuore

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

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.

• 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.

• 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.

• 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.

• 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.

Geography and Climate - Mexico City

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

• 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.

• 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.

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.

• 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

• Mexico has a mix of Western and Hispanic cultures.
• Mexico is a stable democracy.
• Mexico has bounced back strongly from 2009’s worldwide
recession.

• 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.

• 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.

• 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.

• 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

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.

• 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

• 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

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.

• 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

Enrique Peña Nieto – the 57th president

• 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)

• 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)

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.

• 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.

• 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)

1.00 MXN = 0.0762841 USD
Mexican Peso
↔
US Dollar
1 MXN = 0.0762841 USD 1 USD = 13.1089 MXN
Exchange rates:

• 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.

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.

• 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

• 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

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 %

• 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

• 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.

ABOUT YOUR LECTURER OF THIS MODULE
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.).

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.

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