Transcript Micro-finance as a Holistic Tool for Enterprise

“Doing Business in Mexico:
Business Opportunities and Cultural Challenges ”
Michael J. Pisani, Ph.D.
Associate Professor of International Business,
Central Michigan University
February 2, 2005
Co-Director, “Increasing International Business and Personnel Capacity in the Mid-Michigan
Region through Private Sector Outreach and Curriculum Development” Title VI Grant funded by the
U.S. Department of Education: Business and International Education Program and Central
Michigan University.
“Doing Business in Mexico: The Bottom Line”*
 Proposition #1:
 Proposition #2:
Rock-Bottom Price + Bell-Ringer Product = Sale
Reasonable Price + Satisfactory Product +
Customer’s Trust = Sale
Wrong: This is a flawed approach to doing
business in Mexico. It presumes that buyers
are vendor neutral and will instantly issue a
purchase order whenever that supplier offers
a lower price or better product.
*Adapted from Becker (2004), Doing Business in the New Latin
America, pp. 112-113.
Correct: This mirrors the reality found in
Mexico (and Latin America). It is
essential to reassure customers that
they can rely on the assurances you
make because they are backed by
your own personal integrity. When you
motivate customers to buy only from
you because you are trustworthy, you
expand the envelope of what qualifies
as an acceptable price and product.
This is why trust is such a precious
currency in Mexico (and Latin
America) to be earned, conserved,
and invested in.
Map of Mexico
Brief Overview of Mexican History
 Pre-Columbian Mexico
 Pre-Classic 1500 B.C.-200 B.C.
 Olmecs (Tabasco and southern Veracruz)
 Teotihuacan (Central Mexico)
 Monte Albán (Oaxaca)
 Classic Period 200 B.C. – 900 A.D.
 El Tajín (Veracruz)
 Maya (Yucatán)
 Post-Classic 900 A.D.-1521 A.D.
 Toltecs (Central Mexico)
 Zapotecs and Mixtecs (Oaxaca)
 Post-Classic Maya (Yucatán)
 Aztecs (Central Mexico and beyond)
Brief Overview of Mexican History (Cont.)
 Colonial New Spain
Encounter & Conquest (1519-1521)
 Colony (1521-1821)
The Mexican Empire, 1821-1824
The Mexican Republic, 1824+
Loss of Texas (1836) and War with the United States (18461848)
The French Intervention (1863-1867)
The Porfiriato (1876-1910)
The Mexican Revolution (1910-1920?)
The Revolution Institutionalized (1928?-2000)
The PRI Loses and Multi-party Rule (2000
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Current Socio- Demographics of Mexico
 Population 97.5 million (2000)
 Greater Mexico City 21.7 million
 Mexican States Along U.S. Border 16.6 million
 Population:
1950 = 25.8 million
1970 = 48.2 million
1990 = 81.2 million
 7.2% Speak an Indigenous Language (6 million)
 GDP: $626.1 billion in 2003
(Canada = $891.7 billion; US = $11 trillion)
 GDP Growth Rate: 4.4% (2003/2004)
 Per Capita Income: $5,910 (2002)
(Canada = $22,300, US = $35,060)
Current Socio- Demographics of Mexico (Cont.)
Income Distribution
2nd Lowest 20%
Middle 20%
Country
Poorest
20%
2nd Highest
20%
Richest
20%
Richest
10%
GINI
Coefficient
Mexico
3.6
7.2
11.8
19.2
58.2
42.8
.4080
USA
5.2
10.5
15.6
22.4
46.4
30.5
.48541
Other Mexico Facts of Interest
 Mexico receives about 20 million tourists a
year
 Mexico has about 20 billion barrels of oil
reserves
 684,000 new cars were registered in 1999
 Current Account Deficit 2003 $1 million (US $
530 billion)
 2004 Inflation Rate: 5.1%
Michigan Exports
 1 in 9.5 private sector jobs in Michigan are supported by exports (2001)
 1 in 4 manufacturing jobs in Michigan depend on exports for their jobs
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(2001)
1 in 8 manufacturing jobs in Michigan are provided by foreign controlled
companies (2002)
12,127 companies in Michigan exported in 2002
10,573 (87%) were small- and medium-sized firms (SME) employing
fewer than 500 workers (2002)
SMEs generated 18.6% of Michigan’s total exports of merchandise
(2001)
In 2002, foreign controlled companies in Michigan employed 204,100
Michiganians 47% in the manufacturing arena
Michigan companies export to 185 countries (2003)
Michigan exports to Mexico increased 68% from 1999-2003.
U.S. – Mexico Exchange Rates ($1 U.S. = in Mexican pesos)
Year
Exchange Rate
1995
7.6425
1996
7.8509
1997
8.0833
1998
9.8650
1999
9.5143
2000
9.5722
2001
9.1423
2002
10.3125
2003
11.2360
2004
11.1660
U.S. Trade & Michigan Exports (Top Five)
U.S. Imports*
U.S. Exports*
U.S. Total Trade*
Michigan Exports^ | $ Value
1) Canada (17.5%)
Canada (23.2%)
Canada (19.5%)
Canada (60.1%)
| $19.7 billion
2) China (13.3%)
Mexico (13.6%)
Mexico (11.7%)
Mexico (12.2%)
| $4.0 billion
3) Mexico (10.7%)
Japan (6.7%)
China (10.1%)
Japan (3.3%)
| $1.1 billion
4) Japan (8.8%)
UK (4.4%)
Japan (8.1%)
Germany (3.0%)
| $973 million
5) Germany (5.3%)
China (4.2%)
Germany (4.7%)
UK (2.1%)
| $706 million
Total Imports:
$1,342 billion
Total Exports:
$746 billion
Total Trade:
$2,088 billion
Total Exports:
$32.9 billion
* 2004 (January-November).
^2003
Top 25 Commodities Exported from Michigan 2003, in Ranked Order
Commodity
Value ($millions)
Percentage Share
Parts and Accessories of Motor Vehicles
3,014.8
9.15
Parts & Accessories of Bodies of Motor Vehicles
2,589.4
7.86
Passenger Vehicles With An Engine Exceeding 3000 c
2,502.2
7.60
Spark-Ignition Reciprocating Piston Engines
1,660.6
5.04
Passenger Vehicle With An Engine Between 1500 &3000 cc
1,536.2
4.66
Gear Boxes for Motor Vehicles
1,296.3
3.94
Motor Vehicles for the Transportation of Goods
1,105.7
3.36
Parts of Spark-Ignition Internal Combustion Piston
507.5
1.54
Parts of Seats
494.0
1.54
Drive Axles With Differential for Motor Vehicles
487.4
1.48
Natural Gas
481.1
1.46
Brakes, Servo-Brakes & Parts for Motor Vehicles
448.1
1.36
Trucks With A Diesel Engine
443.9
1.35
Top 25 Commodities Exported from Michigan 2003, in Ranked Order (Cont.)
Commodity
Value
($millions)
Percentage
Share
Insulated Wiring Sets for Vehicles
287.4
0.87
Purifying Machine & Apparatus for Gases
281.7
0.86
Rear-View Mirrors for Vehicles
266.2
0.81
Steering Wheels, Columns & Boxes for Motor Vehicle
261.1
0.79
Automatic Regulating Instruments & Apparatus
230.0
0.70
Other Machinery & Mechanical Appliances
192.1
0.58
Metal Mountings & Fittings for Motor Vehicles
191.3
0.58
Motor Vehicles, Trans Goods, GVW between 5 & 20 Ton
184.0
0.56
Retail Medicaments in Measured Doses
173.7
0.53
Parts of Air Conditioning Machines
169.8
0.52
Compression-Ignition Combustion Piston Engines
160.2
0.49
Iron or Steel Threaded Screws and Bolts
160.2
0.49
Top 25
19,124.9
58.06
All Exports
32,941.1
100.0
Source: U.S. Census Bureau, Foreign Trade Division
Michigan’s Top 5 Agricultural Exports – 2002 ($ millions)
1. Soybeans and products – 162
2. Feed grains and products – 127
3. Vegetables – 106
4. Fruits – 79
5. Live animals and meat – 53
Total Agricultural Exports from Michigan = $735 million (2002)
(Note: Michigan began exporting apples to Mexico for the first time in February 2004)
Mexican Trade (in $ millions)
Year
Export Total
Exports to US
(%)
Import Total
Imports from US
(%)
Maquiladora
Imports (%)
1997
110,431.4
85.6
109,807.8
74.8
33.1
1998
117,459.6
87.9
125,373.1
74.5
33.9
1999
136,391.1
88.4
141,974.8
74.3
35.5
2000
166,454.8
88.9
174,457.8
73.3
35.4
2001
158,442.9
88.7
168,396.5
67.7
34.2
2002
160,762.7
89.1
168,678.9
63.4
35.1
2003
164,922.2
88.9
170,545.8
62.0
34.6
Top 15 U.S. Exports to Mexico – 2003 ($ billions)
Rank
Product
Amount
1
Computer and electronic products
21.533
2
Transportation equipment
12.356
3
Chemicals
9.175
4
Machinery, except electrical
8.511
5
Electrical equipment, appliances, and component
6.184
6
Plastics and rubber products
4.826
7
Food manufacturing
4.165
8
Fabricated metal products
4.041
9
Agricultural products
3.586
10
Primary metal manufacturing
2.854
11
Textiles and fabrics
2.718
12
Paper
2.701
13
Petroleum and coal products
2.323
14
Misc. manufactured commodities
2.269
15
Apparel and accessories
1.656
Other
8.559
Total
97.457
Top 10 U.S. Exports to Mexico by State – 2003 ($ billions)
Rank
State
Export Amount
1
Texas
41.561 (computer and electronic products, transportation
equipment and chemicals)
2
California
14.872 (computer and electronic products, machinery,
and
plastics and rubber products)
3
Michigan
4.006 (transportation equipment, computer and electronic
products, and chemicals)
4
Arizona
3.229
5
Illinois
2.153
6
Indiana
2.105
7
Ohio
2.102
8
Florida
1.814
9
Louisiana
1.776
10
New York
1.705
All US
97.457
Foreign Direct Investment (FDI) in Mexico (in $ millions)
Year
Total FDI ($)
Manufacturing: $ (%)
Financial Services: $ (%)
U.S.: $ (%)
1999
13,165.6
8,984.6
(68.2)
759.7
(5.8)
7,066.7 (53.7)
2000
16,448.7
9,308.7
(56.6)
4,763.5
(29.0)
11,841.1 (72.0)
2001
26,569.2
5,854.4
(22.0)
14,409.4 (54.2)
20,361.8 (76.6)
2002
13,258.9
5,434.9 (41.0)
4,288.7
(32.4)
8,226.7 (62.1)
2003
9,431.4
4,531.7 (48.1)
1,832.9
(19.4)
5,100.6 (54.1)
Culture - Defined
 Culture is “the collective programming of the mind which
distinguishes the members of one group or category of people
from another” (Hofstede, 1997, p. 5).
 Furthermore, “culture could be defined as the integrative
aggregate of common characteristics that influence a human
group’s response to its environment. Culture determines the
identity of human a group in the same way as personality
determines the identity of an individual” (Hofstede, 1980, pp. 2526)
 Culture “is a learned, shared, and interrelated set of specialized
behavioral patterns, understandings and adaptations of a like
group of people” (Pisani, 2000, p. 25).
Cultural Dimensions
 Geert Hofstede
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Power Distance
Individualism vs. Collectivism
Femininity vs. Masculinity
Uncertainty Avoidance
Long Run vs. Short Run Orientation
Cultural Dimensions
 Edward T. Hall & The Language of:
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Time: refers to how one spends time
Space: physical distance; size and orderliness of
surroundings
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Things: material possessions
Friendship: the nature and make-up of friends
Agreements: commitments agreed upon
Silence:* the meaning of silence
*Developed in conjunction with Sang-Jin Kim, CMU MBA student
Mexican Culture
Hofstede’s Cultural Dimensions
Cultural
Dimension
Mexico
USA
Power Distance
High
Low
Individualism vs. Collectivism
Collectivist (in-group vs. out-group)
Individualist
Femininity vs. Masculinity
Masculine
Masculine
Uncertainty Avoidance
High
Low
Long Run vs. Short Run Orientation
Short Run
Short Run
Mexican Culture
Hall’s Cultural Dimensions
Dimension
Mexico
USA
Time
Variable, polychromic
Planned/Scheduled, monochromic
Space
Public, high-density
Private, low-density
Things
Personal status
Personal status
Friendships
A few long lasting friendships with many
obligations
Temporal, casual , few obligations
Agreements
Relationships more important than
contracts (high context culture)
Contracts more important than relationships
(low context culture)
Silence
Denotes pain, disappointment, control
Uneasiness in conversation, anger, grief
Historical Stereotypes: Mexico and the United States of
America
Value
Mexican View of Self
North American View
of Self
Mexican View of North
American
North American View
of Mexican
Self-Control
Deal passively with
stress, saying “ni
modo” when
something doesn’t
go to plan
Rational, calm,
masculine, deals
actively with stress
through discipline
in life
Cold, insensitive,
emotionless
Emotional, volatile,
undisciplined
Civilization
Traditional
Advanced
Condescending
Primitive
Honesty &
Trustworthiness
More important to be nice
than objective, save
face, maintain
respect, ok to bend
the truth or retain
information if
people’s feelings
are preserved
Honest, direct, principled,
literal
Manipulative, tactless,
can’t be trusted
Dishonest, indirect,
sneaky, not
trustworthy
Character
Brave, but overpowered
Dominant, strong
Aggressive, at times
brutal and abusive
Submissive, weak
Historical Stereotypes: Mexico and the United States of America (Cont.)
Value
Mexican View of Self
North American View
of Self
Mexican View of North
American
North American View
of Mexican
Time Orientation
Lives in and enjoys the
present, respects
past, awaits a future
to be determined by
God’s will: “si Dios
quiere”
The present is the
birthplace of the
future; planning,
action-oriented
Obsessively future
oriented. Doesn’t
know how to relax.
Unrealistically
believes time can
be mastered
Lives too much in the
present while
dwelling on the
past; surrenders
own will and
ambition to chance.
Procrastination.
Social Classes
Exclusive, but more
cultured and
civilized at top
levels
Orderly, efficient,
upwardly mobile
Economically superior
Chaotic, inefficient,
unjust
Religion
Repository of higher
moral values (long
Roman Catholic
tradition)
Active Christianity,
God’s appointed
steward (mixed
religions)
Profess a false religion
Passive Christianity,
God’s faithful
servant
Historical Stereotypes: Mexico and the United States of America
Value
Mexican View
of Self
North American
View of Self
Mexican View of
North American
North American View
of Mexican
Orientation to
Nature
Nature merely
“is”, can’t
influence or
control
Man can and
should manage
nature
Destructive, futilely
trying to control only
what God can master
Fatalism
National Intent
Sovereignty,
respect,
recognition
Good natured,
missionary, helpful,
showing others “the
way”
Interventionist,
imperialist,
subversive
Lacking vision
Work Ethic
Work not
inherently
redeeming;
something that
must be done
Work is the
measure of a man
Obsessive,
materialistic
Lazy, work is bad
Source: Adapted from Harris, Moran and Moran (2004), Managing Cultural Differences, pp. 320-321.
Basic Mexican - US Customs
Custom
Mexico
United States
Greetings/Handshake
“Good morning”
“Good afternoon”
“Good evening”
“Hi”
“How are you?”
“Nice to meet you”
Handshake Common
(go to everyone in the room and
shake hands at entry and
exit). Abrazo (hug) or kiss
for close friends the norm
“Good morning”
“Good afternoon”
“Good evening”
“Hi”
“How are you?”
“Nice to meet you”
Firm Handshake at beginning
and end of a formal
encounter; informally, a
wave of the hand is
acceptable
Pleasantries
important first step in conversations
Necessary, but awkward
Eye Contact
important
important
Business Dining
long, deals made at the end of the
meal
short, business not mixed with
pleasure
Social Dining
begins late, no business discussed
begins on time, business may
be discussed
Basic Mexican - US Customs*
Custom
Mexico
United States
Punctuality
flexible
rigid
Questions in Social Gatherings
keep conversation on a general level, do not
pry into personal lives
Don’t discuss politics or religion,
personal questions ok
Level of Formality
moderately formal
informal
Hospitality
warm, friendly and hospitable
Friendly, somewhat hospitable
Thank you Notes
seen as a courtesy
Desirable, not mandatory
Class and Status
very important and operationalized
Down-played
Language Competency
Businessmen will speak English
Assumes everyone speaks English
Nonverbal Gestures
close personal distance, frequent touching
and hand gestures
large personal distance and few hand
gestures
*Source: Adapted Robert T. Moran and Jeffrey Abbott (1994), NAFTA: Managing the Cultural Differences, pp.47-49
Additional Cultural Factors*
Factor
Mexico
U.S.
Family
Family is the first priority and the base of
society, children sheltered, executive
mobility limited
Family usually second to work, children
independent, executive mobility
unrestricted
Pedagogy
Memorization, theoretical emphasis, rigid
and broad curriculum
Analytical approach, practical emphasis,
narrow and in-depth specialization
Nationalism
Very nationalistic, proud of long history and
traditions, reluctant to settle outside of
Mexico
Very patriotic, proud of the “American Way
of Lilfe”
Etiquette
“Old World” formality, etiquette considered a
measure of breeding and is an
expression of courtesy and
consideration
Formality often sacrificed for efficiency,
“let’s get to the point”
Personal appearance
Dress and grooming are status symbols
As long as appearance is reasonable,
performance first
Status
Title and position more important than
money in the eyes of society
Money is the main status indicator and is a
reward for achievement
Aesthetics
Aesthetic side of life is important, even at
work
No time for “useless frills”
Ethics
Truth tempered by need for diplomacy, truth
is a relative concept
Direct “yes” or “no” answers given and
expected, truth is seen as an absolute
value
*Source: Adapted from Eva Kras, (1995), Management in Two Cultures.
Traditional Mexican Management Style
 Leading: paternalistic; autocratic; honest; demands
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respect and dignity
Staffing: nepotism encouraged; loyalty of staff of
paramount concern
Planning: short-term focused; centralized and often
capricious decision-making
Organizing: organizing activities are ritualized,
codified and formalized; power tied to position
Controlling: business practices typically go
unchecked to preserve organizational harmony
Additional Management Contrasts: Mexico and the U.S.
Management Practices
Mexico
U.S.
Work/Leisure
Works to live
Lives to work
Direction/supervision
Traditional managers autocratic; modern
managers delegate responsibility, not
authority
Managers delegate responsibility and
authority; executive seeks
responsibility and accepts
accountability
Theory vs. Practice
More theoretical
More practice oriented
Feedback
Only positive feedback provided
Tell the bad news as well as the good
Promotions
Based on loyalty to the supervisor
Based on merit
Individual vs. Task
Person-oriented, social conventions come
first, work second
Task-oriented, work comes first, social
conventions come second if at all
Loyalty
To supervisor
To self
Decision-making
Top-down
Mixed
Bribery
Part of doing business
Forbidden
Additional Management Contrasts: Mexico and the U.S.*
Management Practices
Mexico
U.S.
Motivation
Money, friendly atmosphere (in-group),
loyalty to supervisor and firm
Money, opportunity for advancement
Teachers/trainers
Are gurus who transfer personal wisdom
Are experts who transfer impersonal truths
Promises
Over promise, under perform
Under promise, over perform
Responsibility
Employees expect close supervision,
paternalistic supervisors
Employees are self-starters
Model Boss
Benevolent dictator
Expedient communicator
Activity modality
Personal relationships and “being”
Accomplishments and “doing”
Records
Deductive, analytical, conjectural
Inductive, action oriented, factual
Respect
Determined by unequal relationships and
power. Respect given as a function of
position
Values tied up in equality, fair play and
democratic spirit. Respect earned.
*Sources: Adapted from Becker (2004), Moran and Abbot (1994), and Condon (1985).
Mexican and U.S. Negotiation Styles
Negotiation Variable
Mexican
U.S.
Basis of trust
Friendship, then legal contract
Legal contract, then experience
Role of personal involvement
Primary
To be avoided
Negotiator selection criteria
Title, family or social ties
Technical expertise, function
Role of face-saving in making decisions
Great. Preserving personal dignity is
paramount
Slight. Decisions are based on cost-benefit
analysis
Decision-making process
Spontaneous, impulsive
Systematic
Negotiation agenda
Slow paced
Fast paced
Interpretation of mañana
Not today
Tomorrow
Extent, type of pre-negotiation preparation
Slight, limited to awareness of company or
brand name
Medium-high. Financial and technical
analysis
Focus of negotiating goal
Best bargain
Cost-benefit ratio
Negotiation perspective
Win-lose
Win-win
Time perspective for deal under negotiation
Short-term
Medium-term
Time perspective for business relationship
Long-term
Medium-term
Mexican and U.S. Negotiation Styles (Cont.)*
Negotiation Variable
Mexican
U.S.
Adherence to agenda and deadlines
Casual
Strict
View of opposite party
Friend, social equal
Neutral
Emotional sensitivity
Highly valued
Not highly valued
Emotional display
Passionate
Impersonal
Protocol
Formal
Informal
Risk tolerance
Low
Medium-high if justified
Opening bid
Extreme
Reasonable
Type of arguments to defend position
Vague, emotional
Concrete, rational
Power tactics
Threat of withdrawal of stronger
consequences
Real power, legal enforcement
Taking a settlement position
Reopening previously closed issues
Making a final offer
Form of final agreement
Word of honor supplemented by brief
written agreement
Formal legal contract
*Source: adapted from Becker (2004), Doing Business in the New Latin America, pp. 165-166.
References
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Becker, Thomas H. (2004), Doing Business in the New Latin America: A Guide to Cultures,
Practices, and Opportunities, Westport, CT: Praeger.
Condon, John C. (1985), Good Neighbors; Communicating with the Mexicans, Yarmouth,
ME: Intercultural Press, Inc.
Hall, Edward T. (1960), “The Silent Language of Overseas Business,” Harvard Business
Review, 38(2), 87-96.
Harris, Philip R., Robert T. Moran and Sarah V. Moran (2004), Managing Cultural
Differences: Global Leadership Strategies for the Twenty-First Century, 6th Edition,
Burlington, MA: Elsevier Butterworth-Heinemann.
Hofstede, Geert (1997), Cultures and Organizations: Software of the Mind, New York, NY:
McGraw Hill.
Hofstede, Geert (1980), Culture’s Consequences: International Differences in Work-related
Values, Beverly Hills, CA: Sage.
Kras, Eva S. (1995), Management in Two Cultures: Bridging the Gap Between U.S. and
Mexican Managers, revised edition, Yarmouth, ME: Intercultural Press, Inc.
Moran, Robert T. and Jeffrey Abbott (1994), NAFTA: Managing the Cultural Differences,
Houston, TX: Gulf Publishing Co.
Pisani, Michael J. (2000), “An American Management Training Model in a Latin American
Context: Some Implications for International Business Consultants,” Journal of Teaching in
International Business, 12(1), 23-39.