Market Environment of Mexico - Term Paper Example

Market Environment of Mexico Table of Contents Table of Contents i Executive Summary 1 I. Economic Environment 4 Population 4 Economic System 5 Stage of Economic development 5 II. Market Characteristics 6 Income 6 GDP 6 Income distribution 7 Consumption pattern 7 Inflation 7 Balance of payments 8 Infrastructure 8 The country has built a modern and diversified economy. Most of the infrastructures have been improved by the current administrations. In addition, the governments have opened competition to construct water seaports, rail roads, telecommunications infrastructures, electricity generation infrastructures, natural gas exploitation, and airports infrastructures. This kind of improvement has contributed to the recovery of the economy and stability of the economic system. 8 III. Cultural Analysis 8 Elements of culture 9 Cross Cultural Comparison 10 IV. Political and Legal Environment 12 Political-Legal constraints 13 Other types of legal/regulatory activities 13 Executive Summary Mexico is a country with a population of more than 103 million with a growth of 1% annually. The country’s Gross Domestic Product amounted to 768.4 billion USD while GNI value account for 7310 USA. The Mexico has been practicing the free market economy system. After the economic crisis in 1994, the country with its free market economy system aims to alleviating poverty. Mexico has been struggling with the policy of economic structural reform. The country has been facing low inflation that contributed to middle class credit consumption increase. In addition, income increase in the middle class population has contributed to the stability of the economy in the country. That is why the Mexico has been ranked as the second highest middle income country in the Latin America world in terms of its Gross Domestic Product. However the country has been facing inequality distribution of income. 20% of high income earners is equivalent to 55% of the total population. Due to this income distribution gap between rich and poor has been existing for decades. Thus the government has to solve the problem of income gap. Since 1995 after the economic crisis, about 50% of the country population lives in the area of poverty. The country has engaged with North American Free Trade Agreement (NAFTA) for ten years, and it also belongs to the Organization for Economic Cooperation and Economic Development (OECD). I. Economic Environment With the highest per capita income in Latin America, Mexico is firmly established as a middle-income country, but it still faces huge gaps between rich and poor, north and south, urban and rural (World Bank, 2006). Population Mexico has a population of about 104 million people with a growth rate of 1 per cent. The population aged 65 and over ratio to the total population is 5 and it is estimated to be 7 in the year 2020. The aged population is about 10 to total labor force with a focus of 13 in 2020. According to census data, foreign-born population is about 1 million in 2000. Table 1. Population Year 2000 2001 2002 2003 2004 2020 Subject               Evolution of the population Total population   98,658 100,051 101,398 102,708 104,000 .. Population growth rates   2 1 1 1 1 .. Total fertility rates   2 .. 2 .. .. .. Ageing societies Population aged 65 and over ratio to the total population   5 .. .. .. .. 7 Population aged 65 and over ratio to the total labour force   10 .. .. .. .. 13 Immigrant population Foreign nationals as a percentage of total population   0 .. .. .. .. .. Foreign-born population, according to census data, circa 2000   1 .. .. .. .. .. Source: OECD (2006) Economic System The country has practiced a free market economy system. Due to its free market economic system, the country has been ranked in the upper middle-income country with the highest per capita income in Latin America. It is the largest economy in the world in terms of Gross Domestic Product. Mexico has some economic issues. Among them, the country’s dependence of commerce and finance on US has been critical and on going concern. In addition, the country encounters the problem of low real wages and underemployment of the larger portion of entire population. As a result, the gap in the income distribution exist. It is estimated that there are about 20% of high income earners is equivalent for 55% of total population. The last, not the least issue is its ability to provide opportunities for the impoverished southern states. Stage of Economic development Since the catastrophic 1994-95 financial crisis thrust millions of Mexicans into poverty, there has been rapid and impressive progress in building a modern, diversified economy, improving infrastructure and tackling the roots of poverty. According to the recent poverty report prepared by the World Bank, Income Generation and Social Protection for the Poor, 48% of the population was living in poverty in 2004, an improvement over the 64% of the total population living in poverty following the 1995 crisis. Today, the country enjoys a more open economic and political system and is more integrated with the world economy. Mexico has been a member of the North American Free Trade Agreement (NAFTA) for ten years, and it also belongs to the Organization for Economic Cooperation and Economic Development (OECD) (World Bank, 2006). II. Market Characteristics Income Efforts to combat poverty have positive impacts on purchasing power of the middle class. This increase in purchasing power of the middle class contributed to the stability of country economic in the last two administrations. GDP The country real GDP is 898 billion USD in 2000. After the crisis in 1994, the country has an average growth of 5% between 1995 and 2002. Due to greater dependency on economy of United States, the country has similar pattern of economic development to the one in United States. In the year 2004, the GDP growth was 4.1%, and later it recovered in 3% in 2005. Table 2. GDP Country Mexico Year 2000 2001 2002 2003 2004 2020 Subject               Size of GDP Gross domestic product   898 919 951 983 1,046 .. GDP per capita   9,098 9,184 9,381 9,567 10,059 .. .. Evolution of GDP Real GDP growth   7 -0 1 1 4 .. Labour productivity GDP per hour worked   7 1 -3 2 1 Source: OECD (2006) Income distribution Mexico has combated the poverty problem for the past years. It has alleviated poverty from 25% to 18% in general and from 42% to 28% in rural areas during 2000 and 2004. However, the country faces problem of inequality in income distribution. The gap between rich and poor still exists and the government has to solve this problem. For example, in some districts and states, namely Distrito Federal and San Pedro Garza García, amd State of Nuevo Leon, development level of education and economic is as high as those in Germany and New Zealand, whereas in other district and state, namely Metlatonoc in the state of Guerrero, the level of development is as low as the one in Malawi. Consumption pattern Due to low inflation rate, the middle class has increased their credit consumption in the country. Inflation Mexico faces higher inflation rate in year 2000 after its recovery from financial crisis in 1994. The rate was more stabilized in the period between 2001 and 2004. The lower inflation rate has spurred the credit consumption among middle class population segmentation. Table 3. Inflation Country Mexico Year 2000 2001 2002 2003 2004 2020 Subject               Inflation GDP deflator   12 6 7 8 6 .. Source: OECD (2006) Balance of payments The Fox administration stabilized the money and budget deficit. The budget deficit was further reduced and foreign debt was decreased to less than the amount of 20% of GDP. Mexico and Chile are rated as the highest rating of long-term sovereign credit in Latin America. Table 4. Balance of Payment Country Mexico Year 2000 2001 2002 2003 2004 2020 Balance of payments               Current account balance of payments -3 -3 -2 -1 -1 Source: OECD (2006) Infrastructure The country has built a modern and diversified economy. Most of the infrastructures have been improved by the current administrations. In addition, the governments have opened competition to construct water seaports, rail roads, telecommunications infrastructures, electricity generation infrastructures, natural gas exploitation, and airports infrastructures. This kind of improvement has contributed to the recovery of the economy and stability of the economic system. III. Cultural Analysis Elements of culture Mexican culture: The Mexico has absorbed both exogenous cultural elements as well as endogenous cultural elements due to the violent and pacific exchange or ideas. After the country gained independence, it had to create its own national identity. The nation has diverse ethnic groups and the national identity was created ethnically. Among different ethnic groups, the bond created among them for unity was the Catholicism. Language/Non-verbal Language: The languages are Spanish, various Mayan, Nahuatl, and other regional indigenous languages. Social institutions: Mainly social institutions include Churches of Roman Catholic, Protestant, and others. Religion: Mainly people’s faith line in Roman Catholic 89%, Protestant 6%, other 5%. Unlike other Latin American countries, the country does not have official religion. The country’s construction has drawn the line between Church and the State. The constitution does not require the President to be member of Catholic Church. The government does not contribute to the Church. The country has been mostly influenced and dominated by the Roman Catholic religion which accounts for more than 90%. In the world, the country has been ranked the second, after the Brazil, having the largest population of Catholics. Protestant represents only 6%. Among the Protestants, majority of them are Penctecostals and Charismatics. In the nation, the distribution of members of religious groups is concentrated in the northern and central Mexico where Catholic groups while the south-east represents Protestant or non religious group. According to Churches, weekly attendance is about 46% of the Mexican entire population. Education: For the last two decades, the country has obviously improved education system. This has led to achievement of 93% of the literacy rate, while the youth literacy (age between 15 and 24) was 96%. The administrations in the last two decades had made the primary and secondary education (9 years) is free and mandatory. The constitutional reform in the late 1990s has impacts on bilingual education programs has drawn attentions to add free text books which are written in more than a dozen indigeous languages which has been existed since the 1960s. The distance learning education system was first introduced in the 1970s. The satellite communications channel was utilized to disseminate information. Thus it reaches to the small and indigenous communities in rural areas. In Mexico language, Schools utilizing this system is called as telesecundaries. These programmes are broadcasted as bilingual language programs in the southern regions of United States. It is estimated the number of schools in Japan as 30,000 telesecundarias. Cross Cultural Comparison Hofstede (1980, 1983) investigated micro-level cultural differences in the work-related value patterns of individuals employed by a large multinational company in 50 countries and three regions in 1968 and 1972. Hofstede used respondents who were well matched in both their occupational categories and education level. Since all were employed by the same company, they shared the same overall company structure and policies. Although they differed as to age and gender, the only systematic difference was nationality. He found that half of the variation in a country's mean score could be explained by four dimensions: Power distance: a measure of the degree to which cultures prefer a more autocratic structure. do an organizational context, it translates into the degree of participation that would be favored. A country scoring high on this construct would prefer a less participative style. Uncertainty avoidance: a measure of the mean anxiety level. A high anxiety level translates into less willingness to take risks and a preference for security. Organizations in a high uncertainty avoidance environment would favor rigid rules, so as to decrease uncertainty. Individualism: a measure of the relative importance of independence from the organization. Cultures scoring high on this construct stress goals and independence. Cultures scoring low on this construct favor more dependence on the organization. Masculinity: a measure of the relative importance to the culture of income, recognition, and advancement as compared to the importance of work relations, cooperation, and security. Table 6. Comparison of cultures in US and Mexico U.S. Mexico Power distance Low High Uncertainty avoidance Low High Individualism High Low Masculinity High High Source: Frucot and Shearon (1991) Thus, Mexicans are having more high power distance, high uncertainty avoidance, high masculinity than general Americans. However they have shown low individualism than those of American counter-parts. IV. Political and Legal Environment Since December 1, 2000, Vicente Fox (National Action Party) has won the landslide victory when it was inaugurated as the President of Mexico. It was a historical movement of power from the Revolutionary Institutional Party (PRI) to Vicente Fox (National Action Party). The Revolutionary Institutional Party has held for 71 years with taking the presidency. The current political party NAP has policy toward expanding trade, promoting economic reform, and reducing corruption. The political environment has been tensed since the presidential election in 2006. There have been political struggles in order to achieve the much needed economic structural reforms. Since the president took his office, the tension has been increasing between the Congress and the President Fox. In 1994, Mexico has signed the North American Free Trade Agreement. The bilateral trade between the member countries has been growing well. Canada is ranked as the second largest export market for Mexico, which is ranked as the fifth largest market for Canada. Political-Legal constraints The federal government consists is three separate branches of government. They are (1) Legislative, (2) Executive, and (3) Judiciary. Other types of legal/regulatory activities By law, it is necessary for any company or mercantile corporation to register itself at the Public Registry of Commerce, (Registro Pùblico de Comercio). If any business organization which do not register or fail to register will be punished. Referring to the economic conditions in each area, a commission of a country in an area will determine the minimum wage. The minimum wage is defined as the amount to be paid to employees for their daily services. The rate applied to two group of employees, one for general and professional and the other general salaries. There are 88 different minimum salary rates recognized by the Federal Labor Law. In Mexico, inventors can apply for patent to protect his or her inventions. The patent will be in effect for 20 years from the date application was filed. When the object is a product, the owner has the right to prevent others from manufacturing, using, selling, or offering the sale or import without his consent. The object can be process too. Historically, corruption has existed before the Spanish conquest, and it has institutionalized in the government as well as in the Mexican culture. Corruption, bribery, or tipping can be found in all different levels of Mexican society. The degree of corruption can be observed at varying levels. Corruption involves giving money which is regarded as tipping and not a bribe. References: Frucot, V. and Shearon, W. T. 1991. Budgetary Participation, Locus of Control, and Mexican Managerial Performance and Job Satisfaction. The Accounting Review, Vol. 66, No. 7: pp. 80-99. Hofstede, G. H. 1967. The Game of Budget Control. Van Carom. Hofstede, G. H. 1980. Culture's Consequences: International Differences in Work Related Values. Sage Publications. Hofstede, G. H. 1983. National cultures in four dimensions. International Studies of Management and Organization 13 (No. 1/2): 46 74. Hofstede, G. H. 1987. The cultural context of accounting. Accounting and Culture. Ed. B. Cushing, 1 11. American Accounting Association. Read More