Conducting business abroad comes with a number of formidable challenges. Although organizations may assume that similar business conditions exist in various foreign countries, the reality is that when conducting business in a foreign country, a wide range of variables must be taken into consideration. These variables range from the political and social strife currently impacting the country as well as the economic conditions that can prevent successful business operations. If the organization is to be successful conducting business abroad, a clear and succinct understanding of the challenges posed by this process must be elucidated before this process is undertaken. Without this data, organizations will be unable to make the decisions needed to understanding the true risks and benefits of conducing business operations in a foreign country.
With the realization that there are so many challenges with respect to operating a business in a foreign country, there is a clear impetus to examine this reality in practical terms that can impact the development of the organization. To this end, this investigation considers the possibility of conducting business operations in Mexico. Specifically, this investigation provides a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of the country, an analysis of the country using Hofstede’s model and a brief review of the cultural and etiquette issues that must be taken into consideration when conducting business in Mexico. By examining the county in this manner, it will be possible to provide a comprehensive understanding of the specific economic, political and social issues that may reinforce or retract from the decision for an organization to conduct business in Mexico. Through a synthesis of all the information provided in this investigation, it will then be possible to make a definitive recommendation about the ability of the organization to be successful in developing business operations in this foreign environment.
Figure 1 provides a map of Mexico. From the map, it becomes clear that the country’s location is a definitive strength. Surrounded by natural waterways on both sides and positioned between the United States and Central/South America, Mexico is a gateway county that gives it a strong geopolitical position. Lush coastlines on either side of the country support a burgeoning tourist industry that focuses on sandy beach getaways in a tropical paradise.
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In addition to the fact that Mexico enjoys a strong geopolitical position in the international community, the CIA World Factbook (2005) also note that the county has one of the strongest economies overall. With a GDP that ranks in the trillion dollar region, Mexico has established itself as a world leader in terms of economic development. Reviewing some of the more pertinent economic statistics, the CIA World Factbook provides the following information with respect to Mexico:
What this data demonstrates is that the economic health of Mexico is quite solid. With low unemployment and inflation and a moderate GDP growth rate, it is clear that Mexico is an emerging economic powerhouse that will play a key role in the development of international trade in the coming years.
Further, the CIA World Factbook notes that Mexico’s economic development has been predicated upon the establishment of free trade negotiations between the country and a host of other foreign entities. In particular the CIA notes that: “Trade with the US and Canada has tripled since the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements” (Mexico). What this demonstrates is that Mexico has a wide network of international ties that make it a formidable player in the context of international trade. With these ties in place, Mexico will only continue to grow and develop economically in the coming years.
Finally, a review of the country’s government demonstrates that Mexico is currently a developing democracy. As such, the overall stability that has been imparted as a result of the establishment of democracy in Mexico has notably reduced the social and political unrest that was prevalent in the country. The calming of the political and social tensions has served as the basis for many Americans to take up residence in country. At the present time, Mexico is home to the largest population of U.S. citizens in the international community.
Weaknesses
Although Mexico’s development of international trade agreements has served as the basis for extraordinary economic growth in Mexico, researchers note that this has not always produced positive effects. For instance, at the present time 88 percent of all of Mexico’s exports are sold in the United States. While NAFTA has provided a solid basis for the development of Mexico’s trade processes, “The result is that the Mexican economy is strongly linked to the U.S. business cycle. As the U.S. economy has emerged from its downturn in 2001, so has the Mexican economy, growing at a 3.8% rate in the first half of 2004” (Mexico economy, 2005). Thus, the economic development of Mexico has become highly dependent upon the business cycle that exists in the United States.
In addition to the fact that NAFTA has had a negative impact on the overall rate of growth for Mexico, the CIA World Factbook also notes that even though the economic development of the country is quite solid overall, there are a host of problems in the country with respect to the issue of income distribution. “Ongoing economic and social concerns include low real wages, underemployment for a large segment of the population, inequitable income distribution, and few advancement opportunities for the largely Amerindian population in the impoverished southern states” (Mexico). At the present time, the CIA estimates that the rate of underemployment in Mexico is in excess of 25 percent. Further, the inadequate income distribution in the country has left more than 40 percent of the population living below the poverty line. With a GDP per capita at $9,600 (2004 est.) Mexico is clearly a host of conflict among a growing economy.
Other problems that are clearly well established weaknesses for the country include the political and civil unrest that is prevalent in the northern Chiapas. Information from the U.S. Department of State (2005) shows that, “An unresolved sociopolitical conflict exists in the southernmost state of Chiapas. In January 1994, insurgents in the state of Chiapas briefly took arms against the government, protesting alleged oppression, neglect of the concerns of Mexico’s indigenous peoples, and governmental indifference to poverty” (Background note). Although the current government has made strides toward reducing tensions, insurgents still disrupt activities in the Chiapas region. At the present time, talks between the Mexican government and the insurgents have broken off, as the insurgents argue that the government has not been fair in the development of peace policies in the region.
Crime also continues to be a pervasive problem for the country. Although higher rates of crime are reported in metropolitan areas, the U.S. Department of state reports that crime is rampant in all areas of the country. The issue of high crime is compounded by the fact that few of the crimes that are committed in the country go unsolved. Kidnapping of Americans has become a for-profit crime that continues to be a consistent problem in the country. According to the Bureau of Consular Affairs (2005) “Kidnapping, including the kidnapping of non-Mexicans, continues at alarming rates. So-called ‘express’ kidnappings, an attempt to get quick cash in exchange for the release of an individual, have occurred in almost all the large cities in Mexico and appear to target not only the wealthy, but also middle class persons” (Mexico). As such, the Consular Department recommends that travelers and employees of U.S. organizations check with the U.S. Embassy for the latest information with regard to potential kidnapping threats.
Finally, the CIA notes that the export of heroin and marijuana from Mexico remains a standing issue in terms of international politics. Although the Mexican government has taken a number of notable steps to help reduce the traffic of drugs into the United States, as a gateway between North and South America, Mexico remains one of the world’s largest exporters of illegal drugs. Noting the most significant drug issues, the CIA notes the following: “largest foreign supplier of marijuana and methamphetamine to the US market; continues as the primary transshipment country for US-bound cocaine from South America, accounting for about 70 percent of estimated annual cocaine movement to the US” (Mexico).
Opportunities
The establishment of a democracy in Mexico in July of 2000 marks the first time since 1910 that the government of Mexico has made strides toward improving political discourse in the country. For most of the twentieth century, the county was run by the Institutional Revolutionary Party (PRI), which although developed as a peaceful organization prompted the development of the government along dictatorial lines (Background note, 2005). When placed in this context, it becomes clear that the establishment of a democracy and free and fair elections will eventually serve as the basis for widespread social improvement. As democracy begins to spread throughout the county, Mexico and its citizens will be able to garner a number of notable benefits from the government’s infrastructure.
Other opportunities for Mexico stem from the country’s solid trade and financial development. Even though income distribution in the country is in desperate need of restructuring, the U.S. Department of State makes the following observations:
Mexican trade policy is among the most open in the world, with Free Trade Agreements with the U.S., Canada, the EU, and many other countries. Since the 1994 devaluation of the peso Mexican governments have improved the country’s macroeconomic fundamentals. Inflation and public sector deficits are both under control. As of September 2004, Moody’s, Standard & Poors, and Fitch Ratings had all issued investment-grade ratings for Mexico’s sovereign debt (Background note).
What this effectively demonstrates is the Mexico has developed the necessary infrastructure to provide for the long-term economic development of the country. With this infrastructure in place the country will continue to strengthen its economic development and further extend its trade negotiations. As a world leader in free trade, Mexico will continue to set a precedent for the development of trade in other countries.
Additionally, The U.S. Department of State reports that, “In 2003 Mexico was the world’s fifth-largest oil producer, its ninth-largest oil exporter, and the third-largest supplier of oil to the United States” (Background note). As global demand for oil continues to increase, the potential for increasing both revenues and production from oil development in Mexico will further facilitate the development of Mexico’s economy. In addition, the country also has some of the largest natural gas reserves in the international community. Although many of these reserves have not yet been tapped, it is clear that these resources could be used for the further development of Mexico’s economy in both the short and long-term.
Finally, research on the development of transportation and communications in Mexico demonstrate that this country has become a leader in Latin America with respect to these issues. “Mexico’s land transportation network is one of the most extensive in Latin America with 117,000 kilometers (km.) of paved roads, including more than 10,000 kilometers of four-lane paved roads” (Background notes). Further, a move to privatize the port system in the country has spurred considerable foreign investment. As the prominence of Mexico grows as a tourist destination, the country has been forced to upgrade its international airport. At the present time, “A number of international airlines serve Mexico, with direct or connecting flights from most major cities in the United States, Canada, Europe, Japan, and Latin America. Most Mexican regional capitals and resorts have direct air services to Mexico City or the United States” (Background notes).
Threats
Research on the development of Mexico in the international community demonstrate that while the country holds formidable ties with a host of foreign countries there are a number of issues that place Mexico in a politically precarious position internationally. In particular, the U.S. Department of State reports that while Mexico and the U.S. have established a solid trade relationship, ongoing controversy and conflict between the U.S. and Cuba remain a consistent political issue for both countries. “The U.S. and Mexico agree on the ultimate goal of establishing a democratic, free-market regime in Cuba but disagree on tactics to reach that goal” (Background note). In addition, the U.S. government’s history with Cuba continues to serve as a sticking point for the development of fair trade negotiations.
Adding to the international political tensions that have been created in recent years is the fact that Mexico has done little to improve its involvement in international organizations. For instance, Although Mexico is the world’s fifth largest supplier of crude oil, it is unwilling to consider enrollment in OPEC (Organization of Petroleum Exporting Countries). This unwillingness to cooperate in various international organizations may eventually serve as the basis for strained political relationships between Mexico and some of its neighbors and trading partners. As such, those seeking investment opportunities in the country should consider the context of potential political tensions that may result as a consequence of poor international organization participation on the part of the Mexican government.
Further complicating investment opportunities in Mexico are the environmental concerns that have reduced water supply to various regions of Mexico. According to the CIA, “prolonged drought, population growth, and outmoded practices and infrastructure in the border region have strained water-sharing arrangements with the US” (Mexico). Even though the U.S. and Mexican governments are working toward more formidable water sharing agreements, the environmental changes that have taken place in Mexico have made the need for water resources more intense. Unfortunately, the context of environmental problems, such as the onset of drought, are issues that cannot be mitigated by the government. If current conditions persist, it may further weaken water supplies and impinge upon water sharing agreements between the U.S. and Mexico.
Finally, researchers examining the development of the country note that government spending on defense is significantly low when compared with other countries in Latin America. A recent report from the Economist Intelligence Unit (2005) demonstrates that at the present time, Mexico spends only 0.3 percent of its GDP on defense. This issue is one that is viewed as a critical issue for the government as the country has encountered significant problems in recent years: “In addition to waging a perennial war against drug-traffickers, they [the military] have been called upon to contain guerrilla groups…and even to take on policing duties. However, scandals related to corruption and human rights abuses have tarnished the army’s image” (p. 13). Thus, in addition to the fact that Mexico does not have enough military personnel to protect the country from notable civil or political disobedience, the military that is currently in place is riddled with internal problems.
Hofstede’s Analysis
With a basic overview of the strengths, opportunities, weaknesses and threats facing Mexico clearly elucidated, it is now possible to consider the application of Hofstede’s cultural dimensions. Overall, the Hofstede analysis rates a country based on four specific variables that are intrinsic to the country’s culture. These include” Power Distance (PDI), Individualism (IDV), Masculinity (MAS) and Uncertainty Avoidance (AVI). Researchers providing an over view of these variables provide a ranking for each based on cultural discourse in the country.
Of all the dimensions examined, the highest dimension is Uncertainty Avoidance. With a score of 82, researchers argue that this dimension is so high because society as a low tolerance for uncertainty. “In an effort to minimize or reduce this level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented. The ultimate goal of this population is to control everything in order to eliminate or avoid the unexpected” (Geert Hofstede…, 2003). Power Distance is also quite high in Mexico. This indicates a high level of disparity among power and wealth in society. The average PDI for all countries is 70. With a PDI of 81, social and economic disparity in Mexico is quite high overall. Mexico also has a high Masculinity ranking. At 69, this ranking is higher than for any other country in Latin America. This indicates the country experiences a higher degree of gender differentiation of roles. The male dominates a significant portion of the society and power structure. This situation generates a female population that becomes more assertive and competitive, although not at the level of the male population” (Geert Hofstede…, 2003).
The lowest ranking for Mexico is individualism. The score for the country is 30, compared with an average of 21 for most Latin American countries. Low individualism scores reflect a collectivist attitude of the country. “This is manifest in a close long-term commitment to the member ‘group’, be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules and regulations. The society fosters strong relationships where everyone takes responsibility for fellow members of their group” (Geert Hofstede…, 2003). To provide a more integral understanding of how Mexico compares to other Latin American countries, Figure 3 establishes the average scores in these four cultural dimensions for all countries in Latin America.
Reviewing what has been written about business customs and etiquette in Mexico, it becomes clear that there are a host of social customs and rules that must be taken into consideration when conducting business in this country. While some of the issues are broad in nature, many are specific to appearance, behavior and communication. With this in mind, this review provides first an overview of some of the more general business customs in Mexico. After which a consideration of the specific issues of appearance, behavior and communication will be examined.
Providing a general overview of business relations in Mexico, The International Business Center (2003) notes that before conducing business in Mexico, American businessmen should know the person with whom they are conducting business. In this context, “the only way to know a person in Mexico is to know the family” (Mexico). Overall, personal relationships provide a solid basis for the development of business relationships in this culture. “It is critical, especially for a high ranking meeting, to use a person who is known to the Mexican businessman or woman you are meeting. This is your “business family” connection, the person who will introduce you. This person is the bridge that builds the trust necessary to do business in Mexico” (Mexico). Without critical personal relationships, individuals will find it difficult to establish formidable business relationships in Mexico.
Concurrent with the familial style of business relationships in Mexico is the manana attitude that supports a culture that Mexicans “work to live” rather than “live to work.” Overall the business culture is warm and laid back with a various gracious attitudes toward Western businesspeople. However, Westerners should be aware that this relaxed environment should not be compromised in the haste to secure a deal. When in Mexico, Western businesspeople must adhere to the culture of Mexico. If they do not the chance that they will offend their Mexican hosts is quite significant. “Become sensitive to the pace and tone used in Mexico. Otherwise you will destroy a relationship with your caustic tone and behavior” (Mexico).
With respect to specific issues related to appearance, behavior and communication the information that follows provides a general overview of the most pertinent issues examined by The International Business Center.
Appearance
In general men should wear a conservative dark suit and tie. White shirts are considered formal and should be worn in more formal business settings. Pants and a light shirt are appropriate for male casual dress. In many cases, classic colors with camel will provide the image of a well polished businessman. Women should ware a dress, a skirt and blouse, or dress suit formal meetings. Classic colors such as gray, navy, white and ivory are recommended. A blouse with a skirt or pants is suitable for female casual dress. Again classic colors with camel should be worn to provide a polished image. In almost all settings, jeans are not appropriate. Businesspeople in Mexico are generally offended by tight or low cut clothing. Standing with one’s hands on their hips is considered aggressive while placing hands in the pockets is considered impolite. To show respect Mexicans do not make eye contact. Lack of eye contact should not be taken as an affront.
Behavior
Overall, there are a wide range of social customs that are used in Mexico that are notably different from those used in the Western discourse. As such, those working in Mexico should have a clear understanding of these differences and attempt to make changes in behavior when appropriate. Some of the most pertinent behavior issues raised by The International Business Center include the following:
-Men shake hands upon meeting and wait for a woman to offer her hand.
-Women can shake hands with men or women. In some cases, women can pat other women on the shoulder, forearm or kiss them on the cheek.
-Punctuality in business arrangements is not rigid because of the relaxed attitude take toward business. The best time for business meetings is between 10:00 a.m. and 1:00 p.m.
-Business lunches are preferred to business dinners. Lunches take place between 2:00 and 3:00 p.m. and last from 3 to 4 hours. Of this time, only a fraction is spent on business. Lunches are an important part of the business relationship.
-Conversations between individuals take place in close proximity. Distance between parties is viewed as unfriendly.
-Mexican men are warm and physical in their contacts. Pulling away from physical contact is viewed as insulting.
-Gifts are not necessary. However, expensive gifts given to a secretary are customary. If the gift is from a male business associate, a card should indicate that the gift came from his wife.
– Gifts of sliver are inappropriate as they are associated with gifts purchased by tourists.
– Mexican men will attempt to pay for a meal, even if it is hosted by a Western company. Western business associates have an obligation to deal with the cost of the meal outside of the presence of business associates.
-When paying for store purchases, monies should be placed in the clerks hand rather than on the counter top.
Communication
The communications patterns that are used in Mexico are also notably different from what are traditionally used in Western culture. The most pertinent aspects of communication as noted by The International Business Center include the following:
-First name should not be used until the individuals is invited to do so.
-“Hispanics generally use two surnames. The first surname listed is from the father, and the second surname listed is from the mother. When speaking to someone use his or her father’s surname.”
-Do not use red ink when writing another person’s name.
– Salud is the traditional toast in Mexico.
-Mexicans use a “psst” sound to garner another’s attention in public. This is not considered rude or offensive.
– The Mexican-American War, poverty, illegal aliens or earthquakes should not be discussed in mixed company.
– Mexicans enjoy hearing about their country. As such, culture, history, art and museums make good topics for conversation.
Summary Recommendation
Synthesizing all of the data that has been presented in this investigation, it becomes clear that the potential for investment in Mexico is quite significant. With a growing economy, significant foreign direct investigation (FDI) from various countries around the globe, Mexico is clearly poised to become a dominating world power in the years to come. The economic development of the country is matched only by the political stability that has been engendered through the recent institution of a democracy in the country. Overall, Mexico is on the right track toward making the infrastructure improvements to be a leading power in the coming years.
Although Mexico offers a number of benefits for the organization, it is clear that there are some issues that need to be addressed by the organization when seeking to develop operations in the country. For instance, crime and kidnapping-especially with respect to American citizens-remain pervasive issues in the country. With this in mind, the organization may need to take into account specific methods that will ensure the safety of business professionals working in the region. While the civil unrest that is currently taking place in the northern Chiapas can be mitigated by avoiding this region, it is evident that a widespread insurgency would be problematic for the government and the military. As such, there is a direct imperative for organizations to create a swift exist plan from the country should social or political problems in this context arise.
In addition to taking into consideration the specific issues of personal safety that may impede the overall development of the organization in this environment, it is also clear that any organization setting up operations in Mexico would need to consider how its business operations will be impacted by the business cycle of the United States. Because more than 85 percent of Mexico’s trade occurs with the United States, any organization developing operations in this country would have to take into consideration how changes in the U.S. economy will impact operations overall. If the economy of Mexico slows as a result of changes in the U.S. economy, this may have critical consequences for the organization’s ability to borrow money or to provide for its current labor force. These issues must be considered in the development of a plan to establish business operations in Mexico.
While it is evident that there are a host of issues that must be taken into consideration when developing business operations in Mexico, it is also clear that there are a host of benefits that can be garnered from this process. Mexico is an emerging world power that has a plethora of natural resources that can be used by the organization. Further, as a strategically positioned country in Latin America, business operations in Mexico could easily be expanded to other regions of the globe. This coupled with the notable political changes that have occurred in the county could serve as the basis for the organization to be highly successful in this country. As such, it is highly recommended that Mexico be considered as a potential sight for developing new business operations.
References
Background note. (2005). U.S. Department of State. Accessed November 4, 2005 at: http://www.state.gov/r/pa/ei/bgn/35749.htm.
Country Profile. (2005). The Economist Intelligence Unit. 1-59.
Geert Hofstede Cultural Dimensions. (2003). The Sigma Two Group. Accessed November 4, 2005 at: http://www.geert-hofstede.com/hofstede_mexico.shtml.
Mexico. (2005). Bureau of Consular Affairs. Accessed November 4, 2005 at: http://travel.state.gov/travel/cis_pa_tw/cis/cis_970.html.
Mexico. (2005). CIA World Factbook. Accessed November 4, 2005 at: http://www.cia.gov/cia/publications/factbook/geos/mx.html.
Mexico. (2003). The International Business Center. Accessed November 4, 2005 at: http://www.cyborlink.com/besite/mexico.htm.
