Bringing the World Market to Companies in Mexico
Commentary: Prior to the outbreak of the Mexican Revolution in 1910, wealth had become so concentrated in Mexico that an estimated 500 families controlled 80 percent of the nation’s land. This factor helped push the country to a bloody revolution that lasted more than a decade. An eerily similar statistic exists today in Mexico’s export statistics. It is now estimated that 500 companies account for approximately 80 percent of the country’s exports to the world. This is not a good statistic, as it reveals that the vast majority of Mexico’s micro-, small-, and medium-sized companies, often referred to by the acronym “mipymes” (micras, pequeñas y medianas empresas in Spanish), are not taking advantage of the world market.
I try to help Mexican entrepreneurs as much as possible, because successful businesses south of the border help create jobs, wealth for owners/investors, reduce poverty, and keep desperate Mexicans from being forced to migrate. Just recently, I was speaking to a colleague who is involved in economic development in Mexico. He was lamenting the various challenges there are in assisting the mipymes. Not surprisingly, the challenges are similar on both sides of the border, however with some unique situations in Mexico.
Access to capital and financing is a concern for both Mexican and American small businesses. However, there are a myriad of financing and loan guarantee programs in the U.S., administered by various agencies such as the SBA. In Mexico, any types of these programs that are available at the federal level tend to be sporadic and can vary greatly by presidential administration. This is the same case at the individual state level. This results in the inability of smaller Mexican businesses to grow.
Counseling and education in marketing and logistics for mipymes is a tremendous challenge in Mexico. I have worked connecting Mexican mipymes with U.S. small businesses via programs in the State of Chihuahua that I considered to be very effective. However, every gubernatorial administration has its own economic development goals, and often programs get defunded, absorbed into larger bureaucratic agencies, or outright scrapped. This is very frustrating because when tangible progress is being made, a business can be left in the lurch.
Venturing into a foreign market such as the U.S. is a whole new ballgame for mipymes. For a few years, I have assisted a festival for Mexican arts in the U.S. Mexican artists who want to export their goods to the U.S. jump at the opportunity to participate. However, they need to be counseled on labeling requirements and Customs procedures. There are certain materials, such as animal skins, that might be restricted or prohibited for import in the U.S. This requires a careful review of individual products and making sure they are in compliance before they reach U.S. Customs. If not, items can be confiscated or even destroyed, which is always a blow to a small business. More often than not, these small businesses are not aware of these requirements.
Mipymes usually do not have a clue about the logistics of getting their product from their point of origin in Mexico to the final consumer in the U.S. Many rely on friends or family members in the U.S. for advice, which oftentimes leads to problems. A knowledge of distribution channels, costs at each stage of logistics, and critical items such as insurance is necessary for success. A bad initial experience can dissuade a small, Mexican business from ever attempting to export its products/services.
Equally important is knowing how to financially conduct a transaction. Is the company capable of accepting credit cards or bank transfers? Does the company have a website through which orders can be placed? How should a transaction be conducted – fifty percent down upon having the order placed, and the remaining 50 percent when the product is delivered?
Avoiding problems by conducting due diligence ahead of time is the best approach. However, if problems do occur it is imperative that a small business knows what resources exist in order to work through these. Does the company have anybody in charge of customer service who can speak English or who has access to an interpreter? I have spent a lot of time translating business deals between American and Mexican small businesses. A lack of understanding of what the other side is communicating is a recipe for disaster.
According to the U.S. Census Bureau, small companies account for 98 percent of all exporting firms and 33 percent of total U.S. exports. This demonstrates how important small business are to the nation. Mexico needs to reverse its low percentage of smaller businesses that export to the world. Trade fairs, programs, and marketing materials will help. Especially important are the establishment of effective and sustainable counseling programs to get the products/services of its smaller businesses into foreign markets and to sustain these exports.
Small business challenges to exporting are very similar in both Mexico and the U.S. However, Mexico faces a much steeper climb in placing its small businesses firmly in the global market.