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Competitiveness analysis of Mexico

The actions of the government

I will start my analysis with the first pillar, namely the legal institutions, of which the most important is the government. First of all we must remember, that every decision made by the government influence the competitiveness of the country.

The aspects shown on the slide Analysis: Government are divided into two groups: the first group is on the rise (comparing years 2006 and 2007) and the second is on the downfall. But in both groups are factors which influence the competitiveness in positive or negative way. Let’s have a closer look on them.

So the political stability is rising, so the risk, that the government will change is decreasing. /I admit that in the slide there is a mistake, that first point should be “political stability”./ Currently there is one dominant party and there is a very little chance that anyone will disturb it’s reign. The president is descended from the National Actions Party (which is the leading party in the parliament since the year 2000). That is surely a factor which is luring foreign investors.

Secondly the government funding for technological developments is rising. That gives a chance for domestic companies to be more competitive in the national scale. Why? Simply because of innovation.

Another figure which is on the increase is the amount of money, spent on government subsidies. This, on the opposite, doesn’t lead to any innovations, any developments and even diminishes the gross domestic product. Growing government subsidies are drawing outside investors away.

And now – about the government foreign debt – it is decreasing and from the macroeconomic point of view that is a enormous plus. The country is more independent every year, which can allow it to focus on the domestic growth.

As well as the government debt, the protectionism is downsizing. In other words, domestic companies is less and less dependent on the actions of the government. But on the other hand, the firms receive less and less help from the authorities in running their businesses. New laws don’t bias the companies, they are focused on social help. So it is hard to say, whether the decrease of protectionism is bad or good – it has both pros and cons.

The last two factors, namely the adaptability and the transparency of the government policy have a negative impact on the overall competitiveness rate of Mexico. It is harder to foresee the next moves of the government.

The condition of the infrastructure

I have chosen the second pillar, namely infrastructure, due to the fact, that it has also a great influence on Mexico’s competitiveness, as well as the government. Both national and international corporations are interested mostly in transport and communication. The more pleasant and developed these two aspects are, the more competitive Mexico will be in the eyes of foreign investors.

The meaning of transport is simple – in order to do business, one must be able to travel comfortably within the range of the country. What is more, the ability to transport goods is essential – no matter if the purpose is production or distributing those goods. It is extremely important for any kind of business. But we must take a look at the quality of those roads – in this case. It’s not that simple just to have a road. How more competitive will be a country, which has motorways. How important is the comfort of travelling. The sad thing about Mexico is the fact, that it have a very small number of motorway kilometers and the overall road quality is poor. There is also a simple, but hard-to-fulfill solution. The government just has to build motorways, upgrade the existing ones. The authorities have to give money on this purpose, but the problem is, that a enormous amount of money is needed. It is a difficult burden to bear, especially for developing countries.

Another aspect is communication. It is also vital for any business in any corporation, because each of them is base on communication, it’s speed or any available substitutes. Each company is managed by someone – the director or a group of people. The point is, that they give orders and objectives to each department. So they have to be able to contact them at any moment and any time. However again – the net cable system available in Mexico is relatively small comparing other countries. The cable system is responsible for telephone lines, as well as the range of cellular availability and also a stable internet connection. These factors must be upgraded in order to make Mexico more competitive.

Technological Readiness

Now I would like to show you some statistics, just to prove and justify my previous statements. /Don’t look at the scale, I have placed it on a chart, but only the figures are important./ A moment ago I have said, that the communication in Mexico is in bad condition – and the first figure is the proof. This chart shows, that less than half of the Mexicans actually has a telephone, whereas in Poland, there are more telephones than their users. In the global scare, this is Mexico’s communication failure and that has a great negative effect on the country’s competitiveness.

The situation with internet is pretty much the same. Less than 20% of the population uses the internet. In that case, outside companies will have to search for more “traditional” ways of informing the customers about the firm. And that is connected again with greater costs of the whole operation.

I have also thought about two out-of-context factors, which yet somehow describe the competitive situation of Mexico. /The airline quality is calculated in an unknown for me way. It’s an estimated indicator./ I have compared those figures with the same one’s in other countries. So let’s have a closer look: the cost of electricity is rising, which is a completely normal thing in a developing country. However, the same indicator in i.e. Poland is 0,038 or 0,013 in the US. Thanks to that we can see, that the cost of energy in Mexico is two times greater than in Poland, of even 7 times greater than in the US. That is a huge drawback for foreign investors.

When it comes to airline quality it’s few times smaller than in rich countries. I just wanted to stress out, that although the airline quality is poor – it is rising. So in the long perspective it will be improved. That means Mexico is on the right way.

Foreign Direct Investments

Let us focus on the thing, which is the aim of this analysis. So, is the previous policy correct? Is the number of Foreign Direct Investments rising or not? I have separated FDI’s into inward, so those which are aimed at the Mexican market from the outside and abroad, namely the Mexican enterprises in different countries.

First let’s take a closer look on the % of GDP indicators. We can see, that the comparing year 2006 and 2007 Mexico failed – it was less competitive, which resulted a relatively smaller amount of FDI’s. That is a big failure, because every country aims for development, everything should be better which in this case means simply more FDI’s.

A different situation is with abroad investments. This figure is rising, so more and more Mexican companies invest in other countries. That is a strangely good news. It’s hard to believe that, but that’s the way it is – the number of abroad investments is rising and the number of inward investments is decreasing. The thing is, that this amount is relatively small. Take a look at the same figure in US $ billions. The abroad investments are few times smaller than inward.

The size of the market

On this slide I just wanted to stress out that connecting the population, which is very big in the global scale and the available labor force, which is nearly 50% of the population, Mexico is a country with a great potential. That is why foreign investors should pay closer attention to it, because it may emerge in few years as a new and competitive market with full of opportunities.